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Payment Data Systems Inc – ‘10-K405’ for 12/31/99

On: Friday, 2/11/00 · For: 12/31/99 · Accession #: 890566-0-139 · File #: 0-30152

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 2/11/00  Payment Data Systems Inc          10-K405    12/31/99    2:190K                                   Young Chas P Co/FA

Annual Report — [x] Reg. S-K Item 405 — Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K405     Annual Report -- [x] Reg. S-K Item 405                66    273K 
 2: EX-27.1     Financial Data Schedule (Pre-XBRL)                     1      7K

10-K405 — Annual Report — [x] Reg. S-K Item 405
Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Business Business Risks Certain Relationships and Related Transactions Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Directors and Executive Officers of the Registrant Executive Compensation Exhibits, Financial Statement Schedules, and Reports on Form 8K Financial Statements and Supplementary Data Legal Proceedings Management's Discussion and Analysis of Financial Condition and Results of Operations Market for Common Equity and Related Stockholder Matters Net loss Properties and Equipment Quantitative and Qualitative Disclosures About Market Risk Security Ownership of Certain Beneficial Owners and Management Selected Financial Data Submission of Matters to A Vote of Security Holders
1	1st Page - Filing Submission
3	Item 1. Business
17	Business Risks
27	Item 2. Properties and Equipment
"	Item 3. Legal Proceedings
28	Item 4. Submission of Matters to A Vote of Security Holders
29	Item 5. Market for Common Equity and Related Stockholder Matters
31	Item 6. Selected Financial Data
32	Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
35	Item 7A. Quantitative and Qualitative Disclosures About Market Risk
36	Item 8. Financial Statements and Supplementary Data
52	Net loss
55	Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
"	Item 10. Directors and Executive Officers of the Registrant
57	Item 11. Executive Compensation
62	Item 12. Security Ownership of Certain Beneficial Owners and Management
"	Item 13. Certain Relationships and Related Transactions
63	Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8K

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

For the Year ended December 31, 1999
or

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

For the transition period from _____ to _______

Commission file No. 0-30152

billserv.com, Inc.
(Exact name of issuer as specified in its charter)

NEVADA 74-2418590
----------------------------- -------------------
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)

14607 SAN PEDRO AVENUE, SUITE 100
SAN ANTONIO, TEXAS 78232
----------------------------- -----------------
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, Including Area Code: (210) 402-5000
--------------
Securities Registered Under Section 12(b) of the Exchange Act:

NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
COMMON STOCK, PAR VALUE $.01 PER SHARE NASD OTC BB

Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR
VALUE $.001 PER
SHARE

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

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

The aggregate market value of voting and non-voting common stock held by
non-affiliates of the registrant as of January 21, 2000, was $99,157,869. As of
January 21, 2000, 13,128,465 shares of the Company's common stock ($.001 par
value) were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual shareholders report for the year ended December 31, 1999,
are incorporated by reference into Parts I and II. Portions of the proxy
statement for the annual shareholders meeting to be held May 25, 2000, are
incorporated by reference into Part III.

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INFORMATION REQUIRED IN REGISTRATION STATEMENT

PART I.
Item 1. Business ........................................................3
Item 2. Properties .....................................................27
Item 3. Legal Proceedings ..............................................27
Item 4. Submission of Matters to a Vote of Security Holders ............28

PART II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.............................................29
Item 6. Selected Financial Data.........................................30
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................31

Item 7A. Quantitative and Qualitative Disclosures about Market Risk......35
Item 8. Financial Statements and Supplementary Data.....................36

Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure..........................55

PART III.
Item 10. Directors and Executive Officers of the Registrant..............55
Item 11. Executive Compensation..........................................57
Item 12. Security Ownership of Certain
Beneficial Owners and Management................................62
Item 13. Certain Relationships and Transactions..........................62

PART IV.
Item 14. Exhibits, Financial Statement Schedule, and Reports
on Form 8-K.....................................................63

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FACTORS THAT MAY AFFECT FUTURE RESULTS

This Annual Report on Form 10-K and the documents incorporated herein by
reference contains certain forward-looking statements within the meaning of the
Federal Securities Laws. Specifically, all statements other than statements of
historical facts included in this Annual Report on Form 10-K regarding our
financial performance, business strategy and plans and objectives of management
for future operations are forward-looking statements and based on our beliefs
and assumptions. If used in this report, the words "anticipate," "believe,"
"estimate", "expect," "intend," and words or phrases of similar import are
intended to identify forward-looking statements. Such statements reflect the
current view of the Company with respect to future events and are subject to
certain risks, uncertainties, and assumptions, including but without limitation,
those risks and uncertainties contained in the Business Risk section on page 17
of this Annual Report on Form 10-K. Although we believe that our expectations
are reasonable, we can give no assurance that such expectations will prove to be
correct. Based upon changing conditions, any one or more of these events
described herein as anticipated, believed, estimated, expected or intended may
not occur. All prior and subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by this cautionary statement.

PART I.

ITEM 1. BUSINESS

All references to "we," "us," or "our," in this Annual Report on Form 10-K mean
billserv.com, Inc.

GENERAL

billserv.com, Inc. ("billserv.com" or the "Company") is a service bureau
clearinghouse in the electronic bill presentment and payment ("EBPP") industry.
EBPP is the process of presenting a bill in a secure environment on the Internet
and facilitating payment of the bill utilizing an electronic transfer of funds.
We provide a scalable, branded, and secure end-to-end EBPP solution, allowing
billers to realize the advantages of EBPP while requiring significantly lower
up-front costs, shorter lead times on initial implementation and upgrades,
reduced technology risk, and high quality customer service than would be
available with an in-house EBPP approach.

Traditionally, the bill presentment and payment cycle has been primarily a
paper-based process, with billers mailing paper bills to customers who have paid
their bills by mailing checks and remittance documents back to the billers. This
has been an inefficient and costly process for both billers and consumers.
Currently, several industry, technological and behavioral forces are causing a
shift in this process from its paper-based origins to electronic alternatives.
These forces include the emergence of new technologies, the growth of the
Internet and the increasing acceptance of e-commerce applications, and the
recognition of the advantages of EBPP by both billers and consumers. According
to Killen & Associates, in 2000, the total EBPP market is expected to reach $4
billion, growing to $19 billion by 2005, an annual growth rate of 48%.

Today, companies are at an important crossroads regarding their EBPP strategy.
They recognize the critical role that EBPP will play in their customer
relationship management and mission-critical e-commerce strategies. At the same
time, many of their competitors are already beginning to offer EBPP services to
their own customers, potentially leaving them at a competitive disadvantage.
Many companies, however, lack the technology expertise or resources needed to
cost-effectively

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implement and maintain the hardware and software necessary to implement an
effective EBPP strategy. These problems are compounded by the confusing and
dynamic state of the emerging EBPP industry, which is currently characterized by
rapidly developing technologies, disparate standards, and competing models.
These issues present considerable obstacles for all billers, particularly
middle-market companies, looking to implement an EBPP strategy.

Our solution provides a one-stop, comprehensive, and cost-effective outsourcing
solution for all of the biller's EBPP needs. We have integrated certain
proprietary components with third-party, best-of-breed software and hardware
platforms from leading EBPP providers with whom we have strategic relationships
to provide the biller with an end-to-end EBPP solution. The biller realizes all
of the advantages of EBPP, including reduced costs, additional revenue streams,
increased branding opportunities, enhanced customer service, and competitive
differentiation, while paying only a small up-front fee with usage-based fees
going forward that are significantly less than the cost of processing
paper-based bills.

We completed our initial systems development in the first few months of 1999 and
continue to improve our systems and increase capacities. All of the technology
components for the EBPP solution have been integrated and are operational. We
have entered into partnership agreements with Bank of America, BlueGill
Technologies, CheckFree Corporation, Cyberbills (StatusFactory.com),
NetDelivery, MerchanTrust, Inc., PayTrust, and TransPoint, which management
feels collectively represent the most significant companies currently addressing
the EBPP marketplace. These partnerships allow billserv.com to execute two of
the primary components of its plan, offering billers best-of-breed EBPP hardware
and software platforms and providing them almost universal distribution
capabilities for their bills. Additionally, we believe that these partnerships
validate the billserv.com model and our positioning within the EBPP marketplace.

At December 31, 1999, we had approximately 49 employees and a nationwide sales
presence with offices in 10 states. We began marketing our services in May 1999
and, as of February 1, 2000, have fourteen (14) customers to date, representing
over 300 million paper-based bills annually. These customers include Sallie Mae
Corporation, AFSA, Ultramar Diamond Shamrock Corporation, Central Hudson Gas and
Electric Corporation, Holmes & Shaw, Inc., Intermountain Gas, Montana Power
Company, National Computer Print, San Antonio Express-News, San Antonio Water
Systems, and Sierra Telephone. We will begin presenting bills for these
customers during the first half of 2000.

We generated our first operating revenues of approximately $55,000 in the fourth
quarter of 1999, as we completed the implementation and entered the "pilot"
period for two customers. Generally, the first phase of our service consists of
a pilot period, generally three months, during which the customer and Company
systems are analyzed and tested. The second phase of service is the operational
phase, involving the actual delivery of the EServ product to the biller/customer
and its customers. We expect that the duration of the pilot phase will be
reduced over time, as we continue to gain experience and realize efficiencies in
the electronic billing process.

From inception and for the year ended December 31, 1999, we expended $906,532 on
research and development of our products and services. Although all of our
products and services are currently operational and available, we will continue
to devote financial and human resources to ensure we retain leading-edge
technology and to further improve our product and service offerings.

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We believe that EBPP represents only the first of three distinct elements in the
Internet-enabled customer relationship management cycle, arguably the most
critical function for any company incorporating an e-commerce strategy. Along
with the growth of EBPP, experts expect the entire customer relationship
management cycle to transition from traditional channels (i.e., paper and
telephone) to the Internet. We believe that, over time, billers will augment
their initial EBPP strategy with Internet-enabled customer support services and
Internet-enabled direct marketing to complete the Internet-enabled customer
relationship management cycle.

In order to complete our full-service customer care solution, ECare, we intend
to expand our facilities to include a customer care center that integrates
Internet and traditional telephony capabilities. Development of the center will
be executed on a controlled basis and in conjunction with the maturation of the
industry and the corresponding consumer demand. While development costs for this
product are extremely difficult to project, and may change as more definitive
plans are developed, we estimate that we will expend approximately $1,000,000
for the development of the customer care center.

In April 1999, we announced the creation of our own Internet portal at the web
site WWW.BILLS.COM. The operations of the Internet portal are organized under
our wholly-owned subsidiary bills.com, Inc., ("bills.com"). BILLS.COM will
operate as an Internet portal offering an EBPP service for consumers similar to
Yahoo!'s bill payment program. Currently, bills.com provides other on-line
features such as stock quotes, mortgage quotes, loan applications and approvals,
banking, shopping, news, weather, sports and other features to consumers who
enter the web site. We expect that the EBPP service of bills.com will be
operational during the first quarter of 2000. Consumers may currently register
with bills.com by visiting the web site and entering applicable information.

INDUSTRY BACKGROUND

Bill presentment and payment are the most regular and critical functions in
which most businesses engage. According to Jupiter Communications, in 1998
approximately 110 million households received approximately 15-20 billion
consumer paper bills. The majority of these are recurring monthly or quarterly
bills mailed to consumers by communications companies (i.e., telecom companies
and cable operators), utilities, and credit card companies. Paper bills are
prepared either by the biller itself or, often, by an outsourced bill
fulfillment vendor. Creating and distributing a paper bill is a costly
multiple-step process that includes extracting relevant data from the internal
accounts receivable system of the biller, organizing the data into a billing
format, printing and separating the bills, stuffing envelopes, applying postage
and mailing the bill to the consumer. According to Gartner Group, the average
cost to the biller of creating and delivering a paper bill is $1.00.

The bill payment process is also costly and labor-intensive for the biller. The
biller must either maintain the cash remittance function internally, or contract
with a commercial lockbox, which receives consumer payments. In either case, the
payments must be manually opened and separated from the remittance stubs. Then
the payment information must be entered into both the accounting system and
accounts receivable sub-ledger. In the case of a lockbox account, the lockbox
vendor sends the biller reports that allow the biller to analyze its underlying
accounting systems. Similarly, the paper-based billing and payment process is
time-consuming and can be costly for the consumer.

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Jupiter Communications currently estimates that, during each 12-month period,
U.S. households will spend an average of 24 hours on bill management, $46 on
postage, and $144 on check-writing fees to handle an average of 12 recurring
monthly bills.

MAJOR INDUSTRY TRENDS

Currently, the bill presentment and payment process is shifting from its
paper-based origins to a digital format where the entire bill presentment and
payment process is conducted electronically. This shift is being driven by
several industry, technological, and behavioral forces, including the emergence
of new communications, computing, security, and electronic payment technologies,
the growth of the Internet and the increasing acceptance of e-commerce
applications, and the universal recognition of the advantages of EBPP by billers
and consumers.

Industry Forces

Bill presentment and payment are the most regular and critical functions in
which most businesses engage. Today, billers recognize the value of the bill as
the critical touchpoint for maintaining and improving customer loyalty and
satisfaction. Additionally, bills represent a valuable opportunity for companies
to increase revenue streams through cross-selling and up-selling. As a
paper-based process, however, bill presentment and payment processing is
expensive and inefficient, diverting valuable time and financial resources away
from most companies' core competencies.

Electronic bill presentment and payment offers billers the opportunity to
leverage the capabilities of the Internet to benefit from lower bill presentment
and payment processing costs, further enhance customer service and loyalty, add
increased control over the critical billing process, and further enhance
cross-selling and up-selling opportunities. Although the cost savings are
important in the competitive environments that most billers operate, the
additional revenue, marketing, and customer service aspects enabled by EBPP are
more significant for billers.

Technological Forces

With the continued advancements in technology, particularly in communications,
computing, security and electronic payment technologies, billers have begun to
use non-paper alternatives for bill presentment and payment designed to take
advantage of the benefits of EBPP while providing the consumers with increased
convenience. These technology advances, especially the growing use and
functionality of the Internet, provide opportunities to reduce the cost while
improving the quality and efficiency of the bill presentment and payment
process.

The continued growth of the Internet will continue to be a major driving force
in the growth of the EBPP industry. International Data Corporation estimates
that the worldwide number of Internet users will grow from approximately 97
million in 1998 to approximately 320 million in 2002. The increase in usage is
being driven by a number of factors, including:

>> Expanding PC Ownership - In the home and the workplace, declining prices for
PCs and rapid growth in the number of computer-literate consumers are driving
increased PC penetration. The Yankee Group estimates that in 1998 the
percentage of U.S. consumer households owning a PC

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grew to 44% and expects this number to increase to 54% by the year 2001.
>> Increased Internet Accessibility - Improvements in network infrastructure,
and easier, cheaper, and faster access to the Internet among consumer and
business users (including the introduction of alternative Internet-enabled
devices, such as televisions and hand-held devices) have made the Internet
increasingly accessible to consumers and businesses offering products and
services on-line.
>> Increasing Acceptance of E-Commerce - Consumers have grown increasingly
comfortable with the security of e-commerce and are willing to conduct
transactions on-line. International Data Corporation estimates that the total
value of goods and services purchased over the Internet in the U.S. will
increase from approximately $26 billion in 1998 to over $269 billion in 2002.
>> Emergence of New Industry Participants - New businesses have emerged which
use the broad adoption of the Internet to compete with traditional
businesses. These companies do not offer the consumers the possibility of
traditional, paper-based financial transactions, such as bill presentment and
payment, and are therefore driving further adoption of electronic commerce
over the Internet.

Behavioral Forces

As the Internet gains acceptance as a medium for financial services, and as
vendors, financial institutions, and consumers accept e-commerce applications,
billers and consumers alike will take advantage of EBPP offerings. Consumers
will demand the option to review and pay bills electronically over the Internet.
This represents the continuation of a significant shift in consumer behavior for
various activities, including personal financial management and payment of
bills. More and more consumers are conducting their personal affairs
electronically over the Internet rather than through traditional channels.

The Internet has experienced rapid growth and has developed into a significant
tool for global communications and commerce. Advances in online security and
payment mechanisms have encouraged businesses and consumers to engage in
electronic commerce. The attractiveness of Internet-based financial services
stems in large part from the speed of conducting financial transactions over the
Internet, as well as the ability of the Internet user to access extensive
amounts of information. These advances are expected to continue to drive the
growth in the EBPP market by fueling consumer demand for EBPP services.

Advantages of EBPP

EBPP promises to provide significant benefits to both billers and consumers, as
well as other entities involved in the EBPP process, such as financial
institutions and web-based front-ends and portals.

CONSUMERS

For consumers, EBPP offers convenience, speed, and greater control over bill
review and payment than the current paper-based process. EBPP can save time,
reduce late-delinquency rates, and facilitate improved money management
functions and tracking capabilities for finances while offering increased
customer care and support. As consumers continue to migrate towards the

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Internet for e-commerce applications and to conduct personal affairs, they will
increasingly recognize the benefits of EBPP.

BILLERS

For billers, EBPP offers much more significant opportunities and threats. As in
the case of consumers, EBPP promises to lower the cost and increase the
efficiency of the bill presentment and payment process. However, billers are
increasingly recognizing that EBPP also plays a critical role in their customer
relationships and their overall e-commerce strategies. The bill presentment and
payment cycle is viewed by most companies as the most critical function in which
they engage. Billers recognize the bill as the critical touch-point for
maintaining and improving customer relationships. Additionally, bills represent
a valuable opportunity for billers to increase revenue streams by providing
cross- and up-selling opportunities. EBPP enables billers to leverage the
capabilities of the Internet to improve the value of this critical touch-point,
providing enhanced customer service and loyalty and increased control over the
critical billing process, further enhancing up- and cross-selling opportunities
by leveraging the direct marketing and interactive media capabilities of the
Internet, and increasing the effectiveness of customer marketing by providing
real-time market intelligence on customers. Additionally, EBPP will potentially
provide billers with a competitive advantage over their competitors who have not
deployed an EBPP strategy, resulting in increased customer retention and
acquisition. Over time, as the growth in Internet use continues, and as
consumers become more comfortable and familiar with e-commerce applications,
EBPP will become an increasingly critical component of most companies'
e-commerce strategies.

OTHER ENTITIES

EBPP is also seen as a critical part of the e-commerce strategy of several third
parties in the bill presentment and payment process, including financial
institutions and Internet front-end and portal sites. Financial institutions
have become increasingly alarmed as the EBPP market has emerged, due primarily
to their fear that the EBPP process will reduce their role in the bill payment
process and reduce their control over the flow of money. As a result, many
financial institutions now offer EBPP on their web sites or have formed
partnerships providing the technology to facilitate the EBPP process. Other
Internet front-end and portal sites, such as Quicken, Yahoo, and others, see
EBPP as a critical component to provide stickiness to their web sites,
increasing the scope of their offerings and taking them one step closer to
becoming full financial portals.

PROBLEMS FACING BILLERS

For billers, the advantages offered by EBPP are compelling: reduced costs,
additional revenue generation, brand recognition, customer retention and
acquisition, and overall improved customer relationships. Additionally, EBPP
leverages the capabilities of the Internet to offer target marketing and new
interactive media opportunities not available with the traditional billing
process. Yet another advantage is that by reducing bill delivery time and thus
the amount of time required to clear payments, electronic billing can reduce a
biller's "float", the period of time after services have been rendered during
which payment has not been received (or is not available for use). It can
minimize check float, provide faster access to cash, and with fewer paper checks
to process, reduce handling costs.

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Despite these obvious advantages, there are significant challenges for a biller
that stand in the way of the successful implementation of an EBPP strategy.
These obstacles include the complexity and dynamic nature of the current EBPP
environment (i.e., the proliferation of standards, models, and technology),
technical challenges, resource allocation issues, and the potential risks to the
customer relationship presented by the transition of the billing process to an
electronic format.

Complex Nature of Current EBPP Environment

The EBPP industry is still in its infancy, characterized by rapid technological
change, disparate standards, and competing models. Billers intending to
implement an EBPP strategy have a significant challenge in deciding which model
and standards to employ. The dynamic state of the market increases the risk that
other key software vendors, service suppliers, or front-ends may not support any
EBPP solution selected. Moreover, over time, different models or technology may
become the industry standards, dramatically reducing the effectiveness of EBPP
solutions that do not conform to these standards.

Technical Challenges

Implementing an effective EBPP strategy requires significant IT investment, both
initially and ongoing. Regardless of the model selected, billers will need to
buy, implement, maintain, and upgrade the system necessary to extract data from
the legacy billing systems, format it correctly to be presented electronically
on the Internet, and facilitate payment back to their lockbox account.
Currently, all of the major front-ends, including CheckFree and TransPoint, use
different technical standards for EBPP. Therefore, in order to gain significant
distribution of their electronic bills, billers will need to implement multiple
systems to support the current standards employed by the front-ends.
Additionally, the dynamic and evolving nature of the industry increases the
technology risk assumed by any biller implementing an EBPP strategy.

Resource Allocation Issues

Implementing an EBPP solution requires a significant commitment of both time and
financial resources. These include three distinct costs: integration fees, per
statement fees, and the cost to build and support the internal systems required.

Integration fees are one-time fees that are paid to the various front-ends and
are used by the front-ends to put the systems in place to receive bills from the
biller. These fees range from $20,000-$50,000 per front-end. The per statement
fees are paid to the front-ends on a recurring basis and are dependent on the
volume of statements processed by the individual front-end in a given month.
These fees range from $.19-$.40 per statement. The last and most expensive cost
is that of building and supporting the internal systems required for such a
service. Depending on the size of the biller, the equipment cost alone can range
from $100,000 to $2,000,000 not including the recurring cost of maintaining a
staff to build and support the system.

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Customer Relationship Issues

EBPP represents a dramatic shift in the billing and payment cycle. Most
companies view this cycle as the most critical function in which they engage.
Billers recognize the bill as the critical touch-point for maintaining and
improving customer relationships. Any change in this cycle has the potential of
disrupting biller-consumer transactions and jeopardizing this relationship.
Billers must be careful to implement an EBPP strategy that improves customer
satisfaction and loyalty while maintaining and building brand recognition.

THE BILLSERV.COM SOLUTION

The billserv.com solution provides a one-stop, comprehensive, and cost-effective
outsourcing solution for all of the biller's EBPP needs. We have integrated
certain proprietary components with third-party, best-of-breed software and
hardware platforms from leading EBPP providers with whom they have strategic
relationships to provide the biller with an end-to-end EBPP solution. We are at
all times transparent to the consumer, allowing the biller to maintain its
identity and brand recognition. The biller pays only a small up-front fee with
usage-based fees going forward that are significantly less than the cost of
processing paper-based bills.

OUR STRATEGY

Our strategy is to be the leading outsourced EBPP service provider to the middle
market. Our long-term strategy includes leveraging our established market
position in the EBPP marketplace and the capabilities of the Internet to provide
complete Internet-enabled customer relationship management services to our
customer base. In order to achieve these goals, we are implementing a strategy
with the following key elements:

POSITIONED AS AN INTERNET-BASED APPLICATION SERVICE PROVIDER

Our comprehensive, end-to-end EBPP solution allows billers to implement EBPP in
a timely manner without diverting critical time and financial resources from
their core competencies. We manage the entire EBPP process for a client,
providing a single point of contact for the entire EBPP process. The confusing
and dynamic state of the EBPP market makes this comprehensive outsourced
solution especially attractive. Many billers, especially-middle market
companies, lack the resources, expertise and/or inclination to implement,
maintain, scale, enhance, and service the hardware and software necessary to
offer EBPP services. Nor do most billers have the resources or capabilities to
develop and maintain the multiple relationships with aggregators or front-ends
that are required to achieve broad distribution of bills.

GEOGRAPHIC AND MIDDLE-MARKET FOCUS

Our primary market focus will be on middle market paper-based billers within a
specific geographical market. Independent research indicates that consumer
adoption of EBPP will increase dramatically once a critical mass (6-8 bills) of
bills are presented in one location. Through our geographic sales focus, we look
to capture significant billers in a specific region (i.e., utilities, telephone,
cable operator, etc.), thereby achieving the necessary critical mass and driving
consumer adoption rates. As adoption rates increase, other billers will
increasingly look to offer EBPP

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services, increasing the value of the billserv.com solution. Most of the current
EBPP software and service providers focus on large national billers and do not
have a geographic sales focus, leaving most of the middle-market companies
billserv.com has targeted underserved.

VERTICAL MARKET STRATEGY

Our second sales and marketing strategy is a non-geographic expansion model. In
this approach, we are pursuing vertical markets and traditional print and mail
enterprises and encouraging companies in these areas to offer Internet billing
services to their print and mail customers, wherever they may be located.

MAINTAIN KEY STRATEGIC RELATIONSHIPS AND PARTNERSHIPS

We have formed strategic partnerships with key technology providers and
aggregators/front-ends, offering our customers best-of-breed EBPP software and
hardware and full bill presentment distribution capabilities. These partnerships
allow billers to take advantage of cutting edge EBPP technologies while
providing consumers with numerous options of where and when to access and pay
their bills. Our key partners include Bank of America, BlueGill Technologies,
CheckFree Corporation, Cyberbills (StatusFactory.com), MerchanTrust, Inc.,
NetDelivery, PayTrust, and TransPoint. Collectively, these companies represent
the most significant companies addressing the EBPP industry today. Their
endorsements as partners not only allow us to offer the highest quality of
service but also validate our positioning within the EBPP industry.

SUPPORT MULTIPLE STANDARDS

Our solution supports all of the data standards currently employed by
aggregators and front-ends today, including OFX, XML, Gold, and others. This
allows billers to present bills to any of the front-ends, regardless of the
standards used. Additionally, the billserv.com EBPP solution supports every EBPP
model employed, including solutions built at a biller's web site ("biller-direct
model)" or utilizing the web sites of front-ends ("aggregator model").

ADDRESSING CONTINUING NEEDS OF THE EMERGING EBPP MARKET

We believe that EBPP represents only the first of three distinct elements in the
Internet-enabled customer relationship management cycle, arguably the most
critical function for any company incorporating an e-commerce strategy. With the
growth of EBPP, experts expect the entire customer relationship management cycle
to transition from traditional channels (i.e., paper and telephone) to the
Internet. Billers will implement their initial EBPP strategy based on EBPP's
inherent advantages. Over time, as consumer adoption rates increase and billers
become more fully aware of the advantages of the Internet over traditional
communications channels, billers will look to augment their EBPP offerings with
Internet-enabled customer support services intended to maximize customer loyalty
and satisfaction. Once biller and consumer EBPP adoption rates reach a critical
mass, billers will be able to further leverage the capabilities of the Internet
by offering direct, one-to-one, interactive marketing to their customers, with
the electronic presentment and payment of bills acting as the prime conduit
between the billers and their customers. Taken together, these three

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elements (EBPP, Internet-enabled customer care, and Internet-enabled direct
marketing) represent the three components of the entire Internet-enabled
customer relationship management cycle.

Our strategy is to transition over time from an outsourced solution provider for
EBPP to an integral business partner to the biller, providing far greater value
per consumer by supporting and facilitating the entire Internet-enabled customer
management cycle. We are not aware of any other EBPP software or service
provider with this strategy. We believe that our long-term strategy will provide
us a distinct competitive advantage as this market develops. Our goal is to
capture market share in the emerging EBPP market through the strategy discussed
above. Once a customer base is established, and consumer adoption rates
increase, we will provide critical support services for the EBPP process through
our eCare strategy. This solution provides superior customer support and care by
combining cutting-edge technologies leveraging the capabilities of the Internet
(including e-mail, real-time web chat, web whiteboarding, and-voice over IP)
with traditional call center services.

As an application service provider supporting the EBPP process, we will be in a
unique position to collect and analyze consumer data (including demographic
profiles, self-selected interests and online behavioral characteristics)
obtained through the EBPP process, through the customer care process, and
through consumer logons to bills.com. We can utilize this information to offer
the third component of our value proposition, leveraging the capabilities of the
Internet to provide direct, one to one, interactive marketing capabilities to
our customers.

The value of our solution increases dramatically as the biller transitions
through the three elements making up the Internet-enabled customer relationship
management cycle. Revenues per consumer, initially based solely on the number of
bills presented and paid electronically, should increase over time with the
addition of Internet-enabled customer care and, finally, Internet-enabled direct
marketing services to the solution. In addition, we expect to recognize
additional potential revenue sources as the facilitator of Internet-enabled
direct marketing, including data mining fees and transactional revenues. Over
time, as billers become more dependent on billserv.com for maintaining the
customer relationship life cycle, barriers to potential competitive service
providers will also increase.

LEVERAGE THE POTENTIAL ADDITIONAL REVENUE OPPORTUNITIES FROM BILLS.COM

bills.com is the proprietary EBPP portal that is part of our comprehensive,
end-to-end EBPP solution. Initially, bills.com will be utilized to
stimulate/accelerate market acceptance of EBPP by providing a complete solution
for billers while providing a convenient and centralized place for consumers to
pay all of their bills (paper and electronic). Should a significant number of
billers direct consumers to bills.com, we believe there will be significant
potential to develop the site into a more comprehensive financial portal with
increased revenue and market opportunities. Since the base service of bills.com
will always be EBPP, this portal will be inherently stickier than most other
portals and financial web sites. The very nature of the bill paying process
mandates that consumers visit bills.com at least once a month, providing a
built-in recurring audience. Additionally, bills.com could represent an
attractive targeted advertising and direct marketing vehicle as a result of the
focused consumer data billserv.com will be able to collect and analyze through
bills.com.

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PRODUCTS AND SERVICES

In order to meet real and anticipated market demand, we have developed and
market the following products and services:

eSERV is our comprehensive, outsourced EBPP solution. eServ creates the option
for companies currently printing and mailing bills to instead publish their
bills on Internet web sites where their consumers may choose to receive, view,
and pay them. Currently, there are several Internet locations, or "front-ends,"
from which consumers may choose to access and pay bills electronically. The
principal front-ends are the billers' web sites, online banking systems such as
Bank of America, portals such as Yahoo! and AOL, and aggregators such as
CheckFree and TransPoint. It is important for a biller to be able to deliver
statements to all front-ends because consumers will demand to receive electronic
bills at their preferred front-ends. Similarly, consumer acceptance will be
accelerated if consumers can use any front-end they wish to view and pay their
bills.

eSERV is the focal point for managing all of the front-end relationships. EServ
will allow billers to concentrate resources on their core business and still
exploit the growth of Internet billing. EServ's goal is to offer a familiar
business model to billers who today use traditional print-and-mail methods, but
to allow for one delivery channel to publish bills and one delivery channel to
receive payments and accounts receivable data. With EServ, billserv.com assumes
the responsibility of managing the multiple systems, multiple delivery channels,
and multiple relationships necessary to make Internet billing effective.

eSERV is competitively priced because we are able to aggregate volume-based per
statement charges for all of our billers. Our transaction fees are less than a
biller would pay for the support of an internal Internet billing system.

As part of the eSERV offering, we offer ePublishing, a service that enables
business-to-consumer or business-to-business distribution of traditional
paper-based statements, such as those produced by investment or fund managers
for their brokers or account holders. EPublishing allows businesses such as
investment fund managers or current print vendors to transmit already-existing
print files to billserv.com for manipulation and presentment on a web site that
the consumer or business can access for viewing. We can also implement
substantial data archival systems that will house statement history and allow
for disaster recovery through a sophisticated back-up system.

While the market size for ePublishing product is very difficult to estimate, we
believe it is substantial. We are aware of one large traditional print-and-mail
operation that produces more than six million statement pages per month. These
paper statements are boxed and mailed to more than 2,500 brokers. Each broker
reviews and files these statements creating inefficient workflow processes and
storage costs. Assuming that most brokers are already Internet-enabled, making
the transition to an electronic retrieval and storage system will be simple and
more cost-efficient than the current methods.

ECARE provides customer care solutions to billers in two separate models.
Through EClient Remote, we provide a tool for a biller's Customer Service
Representatives (CSRs) to deliver customer service to both e-bill and non-e-bill
customers. EClient Remote is a multi-function, web-based desktop

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browser product that primarily provides access to the consumer's bill detail
stored on billserv.com's servers. It is available to a biller with three levels
of functionality at three different price levels. EClient Remote Level One
provides the biller's CSRs the ability to view the electronic images of bills
that have been sent to the biller's consumers. This level is priced per seat,
per month, and adjusted for volume purchases. EClient Remote Level Two provides
enhanced capabilities such as web collaboration (web-chat), white boarding, and
voice-over IP. Pricing for this level of functionality is aggregated with Level
One pricing, plus a charge for concurrent use by the biller. EClient Remote
Level Three adds to the features of the first two levels, providing capabilities
for extended Customer Relationship Management ("CRM") services. Pricing for this
level is comprised of the aggregate of Level One and Level Two, plus a per
transaction charge for each voice interaction provided.

billserv.com's Internet Interaction Center ("IIC") will be deployed to provide
eCare with essentially the same functionality as EClient Remote, using the
billserv.com team to perform customer service on behalf of the biller. This
service can be a fully outsourced model in which the biller chooses not to
provide direct in-house services. Alternatively, this service model may be used
as an after-hours support function that supplements a biller's existing service
center. ECare, through billserv.com's IIC, can extend a biller's in-house
service center from normal business hours to a 24x7 operation. billserv.com
provides off-hours support, allowing the biller to have a fully deployed 24x7
operation without the related staffing requirements.

We believe that customer loyalty can be increased through the effective use of
our interaction center and our customer relationship management capabilities.
Specifically, each time a consumer interacts with the center, valuable data
about the interaction is obtained and stored in a knowledge base. Critical
information such as customer case histories, account balances, and product
configuration details are "popped" onto a service representative's screen at the
exact moment the consumer makes contact. As such, billserv.com's representatives
are able to provide better service more quickly, and consumers feel as if the
biller knows them individually and understands their individual needs. We are
also able to utilize this information to better anticipate the needs of a
consumer in advance of the next consumer contact. This information can also be
used to assist billers to identify specific consumer needs and possible consumer
segments that could be used to provide differentiated services.

eCONSULTING will provide custom-built solutions for companies seeking an
in-house EBPP or related system. These services can range from assisting in the
development of an Internet billing strategy to actually building an EBPP system
for the biller. In this regard, we can provide assistance to the biller to
overcome the learning curve associated with EBPP. The market for this product
primarily consists of large first-tier or second-tier billers.

BILLS.COM will operate as an Internet portal offering an EBPP service for
consumers, similar to Yahoo!'s bill payment program. Currently bills.com
provides other online features such as stock quotes, mortgage quotes, loan
applications and approvals, banking, shopping, news, weather, sports, and other
features to consumers who enter the web site. We expect that the EBPP service of
bills.com will be operational during the first quarter of 2000. Consumers may
currently register with bills.com by visiting the web site and entering
applicable information.

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bills.com expects to earn revenues through Internet banner advertising on its
web site, as well as through sponsorship agreements with other Internet portals.
We believe that companies will purchase space on the bills.com web site in order
to take advantage of the potentially large number of consumers who will use the
site as an EPBB service. bills.com currently possesses no relationship with
other Internet-based enterprises, nor have we sought any such relationships;
however, we do intend to seek relationships with other Internet portals, which
may result in payments of annual sponsorship fees to bills.com in exchange for
providing links to their respective Internet portals.

We have devoted a limited amount of financial and human resources to bills.com.
We anticipate that bills.com will continue to require only minimal resources
during 2000 unless changing market forces require a more substantial investment
in our internet portal development.

COMPETITION

The current EBPP landscape is crowded with many companies seeking to take
advantage of this emerging market by providing products and services to billers
and consumers. These companies can be classified as EBPP service bureaus, EBPP
aggregators/consolidators, EBPP software providers, EBPP front-ends, traditional
corporate outsourcers, Internet banking service providers, or other types.

>> EBPP Service Bureaus - These companies provide turnkey outsourced EBPP
solutions for billers looking to provide EBPP services to their customers but
lacking the resources, expertise, or inclination to maintain EBPP
capabilities in-house. There are four companies currently operating directly
in the market: Princeton Ecom, YourAccounts.com (OTS), Derivion, and
billserv.com.
>> Aggregators (Consolidators) - These companies aggregate bills from many
sources (individual billers, EBPP service bureaus) and forward them to a
front-end to be presented to customers. Some aggregators, such as CheckFree
and TransPoint, act as front-ends also. These companies market both to
billers to solicit bills and to front-ends for presentment.
>> EBPP Software Providers - There are many software providers, including
Internet banking application vendors that provide the EBPP software engines
to both billers and front-ends (financial institutions and portals). Examples
of software providers are BlueGill and eDocs.
>> EBPP Front-ends - Front-ends consist of portals, financial institutions and
the billers' own web sites that present bills to consumers. Front-ends are
consumer focused, using EBPP as a value-add for their customers and users.
Front-ends include Cyberbills, PayTrust, Yahoo, AOL, and Intuit. CheckFree
and TransPoint are also often considered front-ends since they have the
ability to present bills on their web page and through partnerships with
banks and other front-ends.
>> Traditional Corporate Outsourcers - There are several traditional corporate
systems and technology outsourcing companies, such as EDS, who now offer
their customers EBPP services as part of their overall offerings. These
companies focus mostly on larger customers, and generally do not offer their
EBPP services on a stand-alone basis.
>> Internet Banking Service Providers - There are several companies that are
addressing the emergence of the Internet banking industry with service bureau
offerings. Included in their offerings are EBPP capabilities. These companies
offer these services to banks and other financial institutions primarily to
facilitate bill presentment, but also to facilitate the entire EBPP

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process for their own billings. These companies include Fiserv, Security
First, Online Resources and Communications, Integrion, M&I Data Services, and
Sanchez Computer Associates.
>> Other - There are other entities that support EBPP, such as systems
integrators for software providers (Cap Gemini, Interface Systems) and
payment delivery vehicles (IPAYX and Visa E-Pay).

SALES AND MARKETING

We have two principal approaches to our sales and marketing strategy. The first
approach is based on a geographic concentration, whereby we intend to accelerate
generation of a critical mass of billing customers in a densely populated
metropolitan area. These billing customers are local and regional utilities or
other companies from which consumers receive a substantial number of their total
monthly statements. We have developed a sales force to meet the demands
presented by this geographic sales model.

We also pursue vertical markets and traditional print-and-mail enterprises and
encourage such companies to offer Internet billing services to their
print-and-mail customers, wherever they may be located.

To further our sales and marketing strategies, we attend and make presentations
at industry-specific trade shows and advertise in trade publications. We plan to
have a significant presence at a number of trade shows to ensure direct contact
with prospective companies and executives. Trade publications are used to
promote the brand and services. We also sponsors regional symposiums designed to
bring billing executives together to discuss electronic billing strategies and
to present our service solutions.

SUPPORT

We believe that high quality customer support and service is vital to the
success of our service offerings. Accordingly, we have developed customer
service teams both to ensure the quality of our service and to assist billers
with consumer communications, education, and marketing.

TECHNOLOGY

Our technology combines our own proprietary software with best-of-breed hardware
and software solutions. Our systems are highly scalable, and we are currently
performing capacity analysis to ensure our ability to handle rapid growth and
large volumes of data. The opening of our second data center, which we plan to
open this year, will enable us to employ redundant links, communications, and
databanks. In addition to our infrastructure redundancy, we use off-site secure
locations for our full-system daily back-ups. We use a combination of local
authentication, 128-bit encryption, and Cisco firewalls to protect our
customers' data.

RESEARCH AND DEVELOPMENT

During 1999 we devoted substantial resources to the development of our
infrastructure. We completed our electronic billing system in early 1999 and
devoted significant resources to additional

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research and development efforts as we expanded our service offerings. From
inception and for the year ended December 31, 1999, we expended $906,532 on
research and development of our products and services. We will continue to
invest in research and development efforts as we respond to a rapidly changing
market and new technological advances. It is our strategy to maintain our
position as a premier service provider utilizing leading edge technology. Our
research and development group's efforts are based upon a long-term goal in
which we add value and provide new solutions to our clients to expand the EBPP
role to a complete Internet-enabled customer management service.

TRADEMARKS

We have made application for the following trademarks: eSERV, eCARE, eCLIENT,
billserv.com, and bills.com.

EMPLOYEES

On December 31, 1999, we had forty-nine (49) employees, including five (5)
executive officers, twenty-three (23) technical staff, twelve (12) sales and
marketing representatives, and nine (9) administrative and accounting staff. Of
these employees, thirty-eight (38) are located in San Antonio, Texas, with nine
(9) salespeople located throughout North Carolina, Pennsylvania, Arizona,
California, Colorado, New Jersey, Massachusetts, and Texas. In order to attract
and retain highly skilled management, technical, marketing and sales personnel,
we have compensation arrangements that include competitive salaries, stock
options and incentive compensation plans. We have entered into a co-employer
arrangement with CNA Unisource, Inc., ("CNA") under which CNA is the
administrative employer and billserv.com is the worksite employer. The agreement
effectively outsources many administrative tasks related to payroll and human
resources and provides us with many benefits not available to small companies.
CNA is responsible for administrative functions of employees such as workmen's
compensation, payroll taxes, etc., and billserv.com controls the worksite
function of each employee. The terms of the agreement allow us to maintain a
common law employer-employee relationship. We are not a party to any collective
bargaining agreements. We believe that our relations with our employees are
good.

BUSINESS RISKS

Lack of Operating History; Limited Relevance of Historical Financial
Information. billserv.com was organized in July 1998 and began operations as a
public company in December 1998. We have not yet been profitable nor have we
generated significant revenue. From inception through December 31, 1999, our
accumulated deficit totaled $5,772,654. Accordingly, all information included
herein may not necessarily reflect the results of our operations, financial
position and cash flows in the future.

Possible Violation of Securities Laws. On or about December 3, 1998, when we
were under the control of former management, and known as Goldking Resources,
Inc., an offering of approximately 5.3 million shares of common stock was
concluded. This transaction was completed through the cancellation of
approximately 6.2 million shares, held by shareholders who tendered their
shares, followed by issuance of 5.3 million shares to 15 new shareholders, who
paid par value for such shares, in the total amount of approximately $5,300. The
new shareholders also paid an

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additional $300,000 to the shareholders who had agreed to cancel their shares.
Subsequently, some of these new shareholders sold the shares into the secondary
market. A Form D was filed to timely report this transaction to the SEC, and an
exemption was claimed under Rule 504. The SEC has challenged the validity of
this claimed exemption.

We dispute the following assertions, but it is possible that the issuance of
shares described above may have violated provisions of the federal and state
securities laws which may subject us to fines, penalties, or other regulatory
enforcement action. There can be no assurance that the SEC or applicable state
authorities will not pursue any enforcement action. We dispute any such
liability.

Additionally, while we also dispute the following assertions, it is possible
that shareholders who purchased the shares described above may have the right
under state and federal securities laws to require us to repurchase their shares
for the amount originally paid, plus interest. We dispute any such liability.

Based upon the best information available at this time, we have calculated a
range of possible, but disputed, exposure that exists in light of the disputed
civil liabilities described above. Accordingly, in the event these disputed
civil liabilities were successfully asserted, we could be liable to the 15 new
shareholders, and to any shareholder that immediately purchased from these 15
shareholders, in an amount ranging from approximately $5,300 up to approximately
$2.9 million, plus interest. This range of possible exposure is calculated by
reference to the average closing price for a share of our common stock, weighted
for reported daily volume, during December 1998 and January 1999; the number of
shares possibly sold during the same period of time; and the closing price of
one share on November 11, 1999. The foregoing range could be adjusted higher or
lower depending upon adjustments to any of the referenced items, and as any new
information becomes available to us.

Uncertain Reliability, Growth and Consumer Acceptance of the Internet, Internet
Technology, and Electronic Commerce. The electronic commerce market is a
relatively new and growing service industry. If the electronic commerce market
fails to grow or grows slower than anticipated, or if we, despite an investment
of significant resources, are unable to adapt to meet changing customer
requirements or technological changes in this emerging market, or if our
services and related products do not maintain a proportionate degree of
acceptance in this growing market, our business, operating results, and
financial condition could be materially adversely affected. Additionally, the
security and privacy concerns of existing and potential customers may inhibit
the growth of the electronic commerce market in general, and our customer base
and revenues in particular. Similar to the emergence of the credit card and
automated teller machine ("ATM") industries, we, along with other organizations
serving the electronic commerce market, must educate users that electronic
transactions use encryption technology and other electronic security measures
that make electronic transactions more secure than paper-based transactions.
While we believe that we are utilizing proven applications designed for premium
data security and integrity to process electronic transactions, there can be no
assurance that our use of such applications will be sufficient to address the
changing market conditions or the security and privacy concerns of existing and
potential customers. Adverse publicity raising concerns about the safety or
privacy of electronic transactions, or widely reported breaches of our or
another provider's security, has the potential to undermine consumer confidence
in the technology and thereby have a materially adverse effect on our business.

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In addition, there can be no guarantee that the Internet will continue to grow
in acceptance or maintain its reliability, or that new technologies might
supplant the Internet in part or in whole.

Uncertain Growth of Proportion of Electronic Remittances. Our future financial
performance will be materially affected by the percentage of bill payments that
can be cleared electronically. Accordingly, the absence of a decrease in the
percentage of remittances effected by paper documents will result in flat or
decreased margins, and a reversal of the current trend toward a smaller
proportion of paper-based payments will have a material adverse effect upon our
business, operating results, and financial condition.

Risk of Inability to Adapt to Rapid Technological Change; Risk of Delays. Our
success is highly dependent on our ability to develop new and enhanced services,
and related products that meet changing customer requirements. At present, our
four principal products, EServ, ECare, EPublishing, and EConsulting are
available, although ECare services remain available only on limited basis.
Nonetheless, the market for our services is characterized by rapidly changing
technology, evolving industry standards, emerging competition, and frequent new
and enhanced software, service and related product introductions. In addition,
the software market is subject to rapid and substantial technological change. In
order to remain successful, we must be responsive to new developments in
hardware and semiconductor technology, operating systems, programming
technology, and computer capabilities. In many instances, the new and enhanced
services, products, and technologies are in the emerging stages of development
and marketing, and are subject to the risks inherent in the development and
marketing of new software, services, and products. We may not successfully
identify new service opportunities, and develop and bring new and enhanced
services and related products to market in a timely manner; there can be no
assurance that any such services, products or technologies will develop or will
be commercially successful, that we will benefit from such developments or that
services, products, or technologies developed by others will not render our
services and related products noncompetitive or obsolete. If we were unable, for
technological or other reasons, to develop and introduce new services and
products in a timely manner in response to changing market conditions or
customer requirements, or if new or enhanced software, services, and related
products do not achieve a significant degree of market acceptance, our business,
operating results, and financial condition would be materially adversely
affected.

Changes in Regulation of Electronic Commerce and Related Financial Services. We
believe that we are not required to be licensed by the Office of the Comptroller
of the Currency, the Federal Reserve Board, or other federal or state agencies
that regulate or monitor banks or other types of providers of electronic
commerce services. There can be no assurance that a federal or state agency will
not attempt to regulate providers of electronic commerce services, which could
impede our ability to do business in the regulator's jurisdiction. We are
subject to various laws and regulations relating to commercial transactions
generally, such as the Uniform Commercial Code, and may also be subject to the
electronic funds transfer rules embodied in Regulation E promulgated by the
Federal Reserve Board. Given the expansion of the electronic commerce market, it
is possible that the Federal Reserve might revise Regulation E or adopt new
rules for electronic funds transfer affecting users other than consumers.
Because of growth in the electronic commerce market, Congress has held hearings
on whether to regulate providers of services and transactions in the electronic

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commerce market, and it is possible that Congress or individual states could
enact laws regulating the electronic commerce market. If enacted, such laws,
rules and regulations could be imposed on our business and industry and could
have a material adverse effect on our business, operating results, and financial
condition.

Uncertainty of ACH Access. The ACH Network is a nationwide batch-oriented
electronic funds transfer system that provides for the interbank clearing of
electronic payments for participating financial institutions. The Federal
Reserve rules provide that the ACH system is available only through a bank. To
access the Network, our customers will authorize us to originate an ACH entry.
As the originator, we forward transaction data to the Originating Depository
Financial Institution ("ODFI"), which is a participating financial institution
that must abide by the provisions of the ACH Operating Rules and Guidelines. The
ODFI sorts and transmits the file to an ACH Operator. The Arizona Clearing House
Association, Federal Reserve, New York Automated Clearing House, and Visa USA
act as ACH Operators, central clearing facilities through which financial
institutions transmit or receive ACH entries. The ACH Operator then distributes
the ACH file to the Receiving Depository Financial Institution, the bank of the
customer, which makes the funds available to the customer. If the Federal
Reserve rules were to change to further restrict or modify access to the ACH,
our business could be materially adversely affected.

Intense Competition in Electronic Commerce and Related Financial Services.
Portions of the electronic commerce market are becoming increasingly
competitive. We expect to face significant competition in all of its customer
markets. Although few companies have focused their efforts as service bureau
consolidators in the EBPP industry, we expect that new service bureau companies
will emerge and compete for the small to medium-size biller business. We further
believe that software providers, consumer front-ends, banks, and Internet
portals will provide increasingly competitive billing solutions for small to
medium-size billers. In addition, a number of banks have developed, and others
in the future may develop, home banking services in-house. We believe that banks
will also compete for the EBPP business of small to medium size billers.

We expect competition to increase from both established and emerging companies
and that such increased competition will result in reduced transaction costs
that could materially adversely affect our business, operating results, and
financial condition. Moreover, our current and potential competitors, many of
whom have significantly greater financial, technical, marketing, and other
resources, may respond more quickly to new or emerging technologies or could
expand to compete directly against us in any or all of our target markets.
Accordingly, it is possible that current or potential competitors could rapidly
acquire significant market share. There can be no assurance that we will be able
to compete against current or future competitors successfully or that
competitive pressures will not have a material adverse effect on our business,
operating results, and financial condition.

Future Capital Needs; Uncertainty of Additional Financing. We currently plan to
meet our capital requirements primarily through issuance of equity securities,
capital lease financing, and in the longer term, revenue from operations. We
recently concluded equity financing through a private placement of common stock
that resulted in net proceeds totaling $7,907,243. We may seek additional funds
through public or private debt or equity financing in order to take advantage of
unanticipated opportunities, including more rapid expansion or acquisitions of
complementary

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businesses or technologies, or to develop new or enhanced services and related
products, or otherwise respond to unanticipated competitive pressures. If
additional funds are raised through the issuance of equity securities, the
percentage ownership of the then current stockholders may be reduced and such
equity securities may have rights, preferences, or privileges senior to those of
the holders of our common stock. There can be no assurance that additional
financing will be available on favorable, or any, terms. If adequate funds are
not available or are not available on acceptable terms we may not be able to
take advantage of unanticipated opportunities, develop new or enhanced services
and related products, or otherwise respond to unanticipated competitive
pressures and our business, operating results, and financial condition could be
materially adversely affected.

Dependence on Key Personnel. Our success depends to a significant degree upon
the continued contributions of our key management, marketing, service, and
related product development and operational personnel, including Chairman and
Chief Executive Officer, Michael R. Long; President and Chief Operating Officer,
Louis A. Hoch; Executive Vice President of Strategic Development and Marketing,
David S. Jones; Chief Financial Officer, Lori K. Turner; General Counsel,
Marshall N. Millard; and Vice President of Business Development, Randy
Kauftheil. Our operations could be affected adversely if, for any reason, any of
these officers ceased to be active in management of our business. We maintain
proprietary non-disclosure and non-compete agreements with all of our key
employees. We intend to secure key person life insurance policies on Mr. Long.
Our success depends to a large extent upon our ability to retain and continue to
attract highly skilled personnel. Competition for employees in the electronic
commerce industry is intense, and there can be no assurance that we will be able
to attract and retain enough qualified employees. If our business grows, it may
become increasingly difficult to hire, train and assimilate the new employees
needed. Our inability to retain and attract key employees could have a material
adverse effect on our business, operating results, and financial condition.

Consumer Adoption Rates of EBPP. We anticipate that our primary source of
revenue will be from transaction charges for each electronically presented bill.
The number of such bills will be determined by the rate at which consumers
"adopt" EBPP, or the number of consumers who pay bills using EBPP. While we
assist our customers in educating and marketing EBPP directly to consumers, and
take an active role in the industry to promote EBPP, there can be no assurance
that consumers will "adopt" or use EBPP in sufficient number so that we can
generate substantial revenue.

Potential Fluctuations in Quarterly Results. Our quarterly results of operations
may fluctuate significantly as a result of a number of factors, including
changes in our pricing policies or those of our competitors, relative rates of
acquisition of new customers, delays in our introduction of new or enhanced
services, software, and related products or by our competitors, or in market
acceptance of such services and products, other changes in operating expenses,
personnel changes, and general economic conditions. These factors will impact
our operating results. Fluctuations in operating results could result in
volatility in the price of our common stock.

Risk of Product Defects. The software products we utilize could contain errors
or bugs that could adversely affect the performance of services or damage a
user's data. In addition, as we increase our share of the electronic commerce
services market, software reliability and security demands will increase. We
attempt to limit our potential liability for warranty claims through
limitation-of-

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liability provisions in our customer agreements. There can be no assurance that
these measures will prove effective in limiting our exposure to warranty claims.
Despite the existence of various security precautions, our computer
infrastructure may also be vulnerable to viruses or similar disruptive problems
caused by our customers or third parties gaining access to the our processing
system.

Erosion of Revenue from Services. Our profitability depends, to a substantial
degree, upon billers electing to continue to periodically renew contracts. In
the event that a substantial number of these customers were to decline to renew
these contracts for any reason, our revenues and profits would be adversely
affected. Sales of our services are dependent upon customer demand for the
services, which is affected by pricing decisions, the competition of similar
products and services, and reputation of the products and services for
performance. Most of our services are likely to be sold within the utilities and
financial services industries, and unsatisfactory performance of our services
has the potential to undermine our reputation and affect future sales of other
services. A substantial decrease in revenue from services would have a material
adverse effect upon our business, operating results, and financial condition.

Risk of Loss from Returned Transactions, Merchant Fraud, or Erroneous
Transmissions. We rely upon the Federal Reserve's ACH for electronic fund
transfers and conventional paper check and draft clearing systems for settlement
of payments by check or drafts. With use of these established payment clearance
systems, we generally bear the same credit risks normally assumed by other users
of these systems arising from returned transactions caused by insufficient
funds, stop payment orders, closed accounts, frozen accounts, unauthorized use,
disputes, theft, or fraud. In addition, we also assume the risk of merchant
fraud and transmission errors should we be unable to have erroneously
transmitted funds returned by an unintended recipient. Merchant fraud includes
such actions as inputting false sales transactions or false credits.

Risk of System Failure. Our operations are dependent on our ability to protect
our computer equipment against damage from fire, earthquake, power loss,
telecommunications failure, or similar events. Any damage or failure that causes
interruptions in our operations could have a material adverse effect on our
business, operating results, and financial condition. Our property and business
interruption insurance may not be adequate to compensate for all losses that may
occur.

Risk of Year 2000 Operational Defects. We completed all Year 2000 readiness
work, and have experienced no significant problems as of February 1, 2000. We
believe that we have no continued exposure of our products, our internal
systems, computers, and software to Year 2000 issues. We did not incur any
material costs related to Year 2000 compliance. Although we believe that all
material Year 2000 issues have been resolved, there can be no absolute assurance
that we have identified and resolved all such issues. If we discover Year 2000
problems in the future, we may not be able to develop, implement, or test
remediation or contingency plans in a timely or cost-effective manner.

Limited Protection of Proprietary Technology; Risk of Third-Party Infringement
Claims. We regard some of our services as proprietary and rely primarily on a
combination of trademark and trade secret laws, employee, and third-party
non-disclosure agreements, and other intellectual property protection methods to
protect our services. Existing intellectual property laws afford only limited
protection, and it may be possible for unauthorized third parties to copy our
services and related products or to

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reverse engineer or obtain and use information that we regard as proprietary.
There can be no assurance that our competitors will not independently develop
services and related products that are substantially equivalent or superior to
our services and related products.

Limited Prior Market; Limited Liquidity of Stock. The lack of a prior, liquid
market for our shares may make it difficult for shareholders to sell their
shares. Prior to December 3, 1998, there was no public market for our common
stock, and no public market may be developed or sustained for such stock. There
can be no assurance that an active or liquid trading market in our common stock
will develop or be sustained. Shares of our common stock are now traded on the
NASD OTC BB. Moreover, our stock may qualify as a "penny stock" under the Penny
Stock Suitability Reform Act of 1990. The liquidity of penny stock is affected
by specific disclosure procedures to be followed by all broker-dealers,
including, but not limited to, determining the suitability of the stock for a
particular customer, and obtaining a written agreement from the customer to
purchase the stock.

Volatility of Stock Price. The market price of our common stock is subject to
significant fluctuations in response to variations in quarterly operating
results, failure to achieve operating results consistent with securities
analysts' projections of our performance, and other factors. The stock market
has experienced extreme price and volume fluctuations and volatility that has
particularly affected the market prices of many technology, emerging growth, and
developmental stage companies. Such fluctuations and volatility have often been
unrelated or disproportionate to the operating performance of such companies.
Factors such as our announcements of the introduction of new or enhanced
services or related products, or those of our competitors, announcements of
joint development efforts or corporate partnerships in the electronic commerce
market, market conditions in the technology, banking, telecommunications and
other emerging growth sectors, and rumors relating to us or our competitors may
have a significant impact on the market price of our common stock.

Control by Principal Stockholders. At January 21, 2000, officers and directors
and our affiliates collectively owned approximately 31% of the outstanding
shares of our common stock. As a result, these stockholders are able to exercise
significant influence over matters requiring stockholder approval, including the
election of directors and approval of significant corporate transactions. Such
concentration of ownership may have the effect of delaying or preventing a
change in control of the Company.

Shares Eligible for Future Sale; Possible Adverse Effect on Market Price. At
January 21, 2000, 13,128,465 common shares were issued and outstanding. Of those
shares, 946,428 were restricted under Regulation S. The sale of substantial
amounts of unrestricted shares in the public market or the prospect of such sale
could adversely affect the market price of our common stock.

Anti-Takeover Provisions; Certain Provisions of Nevada Law; Certificate of
Incorporation, By-Laws, and Stockholder Rights Plan. Certain provisions of
Nevada law and our Certificate of Incorporation, By-Laws, and a proposed
Stockholder Rights Plan could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from attempting to
acquire, control of the Company. In 1999, our directors approved amendments to
our By-Laws providing for three classes of directors serving staggered
three-year terms. Such classification of the Board of Directors expands the time
required to change the composition of a majority of directors and may tend to
discourage a proxy contest or other takeover bid for the Company. We also may
seek shareholder

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approval to allow issuance of rights to acquire common stock under certain
conditions, without any further vote or action by the stockholders. The issuance
of common stock under a stockholder rights plan could decrease the amount of
earnings and assets available for distribution to the holders of our common
stock or could adversely affect the rights and powers, including voting rights,
of the holders of our common stock. In certain circumstances, such issuance
could have the effect of decreasing the market price of our common stock.

Difficulty in Management of Growth. We may experience a period of rapid growth
that could place a significant strain on its resources. Our ability to manage
growth successfully will depend on our ability to continue to improve our
operational, management, and financial systems and controls as well as to expand
our work force. A significant increase in our customer base would necessitate
the hiring of a significant number of additional customer care and technical
support personnel as well as computer software developers and technicians,
qualified candidates for which, at the present time, are in short supply. In
addition, the expansion and adaptation of our computer and administrative
infrastructure will require substantial operational, management, and financial
resources. Although we believe that our current infrastructure is adequate to
meet the needs of our customers in the foreseeable future, there can be no
assurance that we will be able to expand and adapt our infrastructure to meet
additional demand on a timely basis, at a commercially reasonable cost, or at
all. If we are unable to manage growth effectively, hire needed personnel,
expand and adapt our computer infrastructure, or improve our operational,
management, and financial systems and controls, our business, operating results,
and financial condition could be materially adversely affected.

Acquisition-Related Risks. In the future, we may pursue acquisitions of
complementary service or product lines, technologies, or businesses. Future
acquisitions could result in potentially dilutive issuance of equity securities,
the incurrence of debt and contingent liabilities, and amortization expenses
related to goodwill and other intangible assets, any of which could materially
adversely affect our business, operating results, and financial condition. In
addition, acquisitions involve numerous risks, including difficulties in the
assimilation of the operations, technologies, services, and products of the
acquired companies, the diversion of our attention from other business concerns,
risks of entering markets in which we have no or limited direct prior
experience, and the potential loss of key employees of the acquired company.
From time to time, we evaluate potential acquisitions of businesses, services,
products, or technologies. We have no present commitments or agreements with
respect to any material acquisition of other businesses, services, products, or
technologies. In the event that such an acquisition was to occur, however, there
can be no assurance that our business, operating results, and financial
condition would not be materially adversely affected.

Unlikely Payment of Dividends. We have paid no cash dividends and have no
present plan to pay cash dividends, intending instead to reinvest its earnings,
if any. However, payment of future cash dividends will be determined from time
to time by our Board of Directors, based upon our future earnings, financial
condition, capital requirements, and other factors. We are not presently subject
to any restriction on our present or future ability to pay such dividends.

Dependence upon Contracts with Billers. Our business is dependent upon
performing under the terms of agreements with billers. Although we are unaware
of any circumstance that would prevent

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the enforcement of these agreements, there can be no assurance that we might not
be able to fully perform under these agreements or that other factors might not
prevent billers from processing billing information through us.

Dependence upon Contracts with Trading Partners. Our business is dependent upon
executing and maintaining agreements with front-ends such as Checkfree,
Transpoint, and Bank of America to provide dependable financial services for
customers of billers. Such financial services include ACH processing through the
customer's bank and delivery of good funds to us for remittance to the billers.
There can be no assurance that any of the front-ends will be able to perform
under these agreements in the future.

Anticipated Billing System Expenditures. To facilitate and support the
anticipated growth of our business, we plan to make significant expenditures in
our operations over the next one to three years. We expect to make these
expenditures in the areas of software development, licensing, hardware, and
related staffing. We believe that we will be able to fund these expenditures
with internally generated funds and financing, but there can be no assurance
that such funds will be generated or spent in these projects.

Forward-Looking Statements May Prove Inaccurate. This Form 10-K contains certain
forward-looking statements and information that are based on management's
beliefs as well as assumptions made by and information currently available to
management. When used in this document, our use of the words "anticipate,"
"believe," "estimate," "expect," and "intend" and similar expressions, are
intended to identify forward-looking statements. Such statements reflect our
current views with respect to future events and are subject to certain risks,
uncertainties, and assumptions, including the risk factors described in this
registration statement. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those described herein as anticipated, believed,
estimated, expected, or intended.

COMPANY HISTORY

billserv.com is a Nevada corporation with its principal offices currently
located at 14607 San Pedro Ave., Suite 100, San Antonio, Texas 78232. Additional
information may be obtained at our Internet address, http://www.billserv.com.
Our offices may be contacted by telephone at 210-402-5000.

Our business was incorporated on June 4, 1998 as a mineral development company,
under the name Goldking Resources, Inc. The principal asset was a mineral claim
located in British Columbia, Canada. The then current management further
analyzed the cost involved to develop the mineral claim, and determined that the
business would have greater value as a corporate vehicle for other operations.
Accordingly, trading status on the NASD OTC Bulletin Board ("OTC BB") was
obtained, and on December 3, 1998, Goldking Resources, Inc., acquired and merged
with billserv.com, Inc., a company incorporated in Texas in July 30, 1998
("billserv-Texas") with business plans to operate in the Internet billing
industry, but having no substantial assets, revenues or operations.
billserv-Texas was owned in its entirety by our current management directors who
were not affiliated with any of the officers, directors, or shareholders of
Goldking Resources, Inc.

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On December 3, 1998, Goldking Resources, Inc. combined with billserv-Texas,
changed its name to billserv.com, Inc., and began trading on the OTC BB under
the symbol BLLS. By virtue of this reverse merger, in which Goldking Resources,
Inc. (now known as billserv.com, Inc.) was the surviving entity, we were able to
position ourselves into an emerging high-growth market, and billserv-Texas was
able to merge with and into a company already trading on the NASD OTC BB.

Concurrent with the merger with billserv-Texas, we secured advances of $2.0
million over a five- month period from Messrs. James R. King, Robert D. Smith
and Richard M. Jeffs, all of Vancouver, BC, Canada (hereinafter the Consulting
Group). We also entered into a Consulting Agreement with this Group for the
provision of investor relations, fund-raising assistance, and public relations
services. The initial advances by the Consulting Group were subsequently repaid
from Regulation S equity financing of $5.3 million as described in the following
paragraph.

On June 11, 1999, we issued 946,428 shares of common stock to two corporate
investors, in exchange for $5.3 million in cash. The stock was issued pursuant
to exemption under Regulation S. Neither investor is a "U.S. person" under
Regulation S. Proceeds of this offering were used to repay advances from the
Consulting Group of $2.0 million and to fund contractual commitments totaling
$1.2 million for fund-raising and public and investor relations services
performed or to be performed by the Consulting Group, and for other general
corporate operating purposes.

On May 18, 1999, we contracted with Pennsylvania Merchant Group ("PMG"), of West
Conshohocken, Pennsylvania, to provide strategic and financial advisory
services, including analysis of markets, products, positioning, financial
models, organizations and staffing, potential strategic alliances, capital
requirements, and funding options. In exchange for these advisory services, we
issued to PMG a warrant to purchase 111,085 shares of our common stock at an
exercise price of $6.75 per share (which represents the average closing price of
our stock over the twenty (20)-day period preceding May 18, 1999). The warrant
is exercisable for five (5) years. This warrant was issued in accordance with
exemption under Section 4(2) of the Securities Act of 1933, as amended, because
the transaction is by an issuer not involving a public offering.

On August 6, 1999, we issued a one-year unsecured note payable for $1 million to
an accredited investor, which bears interest at 9% per annum, payable quarterly.
The proceeds of this note payable were allocated for use in corporate operations
and to supplement our cash reserves until future equity financing was obtained.
In connection with the issuance of the note, we paid a $20,000 loan origination
fee to the lender, Kingship Ltd. Additionally, as part of the debt issuance, we
issued a warrant to Kingship, Ltd. for the purchase of 41,237 shares of our
common stock at an exercise price of $6.0625, which represents the average
reported closing sale price of our common stock for the ten (10) business days
immediately preceding the closing agreement. The warrant is immediately
exercisable and expires on August 6, 2004. On October 22, 1999, 153,846 shares
common stock were issued pursuant to the terms of a private placement offering
as discussed in the following paragraph in satisfaction of $500,000 of the note.
The remaining portion of the note, or $500,000, was paid in cash on October 18,
1999.

During the fourth quarter of 1999, we completed private placement offering
("Offering") of 2,136,637 shares of common stock. In October 1999, 1,404,637
shares of common stock were issued at $3.25 per share to twenty-one accredited
investors. In December 1999, 732,000 shares of

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common stock were issued at $5.50 per share to twenty-two accredited investors.
The respective issuance prices represented a discount upon the average reported
closing sale price of common stock for the ten (10) business days immediately
preceding the closing date. Net proceeds totaled approximately $7,907,243, net
of offering costs of $683,827, which included $525,519, or approximately 6.5% of
the Offering, exclusive of shares issued in satisfaction of our note payable,
paid to PMG as placement agent.

In accordance with the terms of the Offering, we also issued warrants to the
twenty-one investors to purchase 1,404,637 shares of common stock at $3.75 per
share, or one warrant for each share issued. The warrants are exercisable for
three years from the date of issuance, or October 14, 2002. We have the right to
call the exercise of the warrants at any time after six months after the date of
the issuance and after the closing price of the common stock exceeds $12.00 for
a period of twenty (20) consecutive trading days. Upon such a call notice, the
holders of the warrants must exercise the warrants within thirty days, after
which time we may redeem each warrant for $.05. Subsequent to December 31, 1999,
one such warrant to purchase 15,400 shares of common stock was exercised. The
proceeds of the exercise totaled $57,750.

As additional compensation for acting as placement agent for the offering, we
issued warrants to PMG for the purchase of 36,924, 600, 18,900, 19,950, 8,890,
and 3,500 shares of common stock with exercise prices of $3.25, $3.25, $8.00,
$7.44, $7.41, and $7.31, respectively. The warrants are immediately exercisable
and carry a five-year term, piggyback registration rights, and a cashless
exercise provision.

In accordance with the terms of the Offering, we filed a registration statement
on Form SB-2 with the SEC registering 3,782,360 shares of common stock. This
registration statement became effective on January 18, 2000. The registered
shares include the 2,136,637 shares issued in October and December 1999 and
1,645,723 shares which are issuable upon exercise of warrants to purchase common
stock issued to the holders of the shares issued in October and December 1999,
PMG, and Kingship Ltd., as described in this section.

ITEM 2. PROPERTIES AND EQUIPMENT

As of December 31, 1999, our headquarters were housed in approximately 10,000
square feet of leased office space in San Antonio, Texas. We anticipate
acquiring additional leased space to meet the needs of our expanding clerical,
administrative, and sales activities and the establishment of a customer care
center within the next twelve months. Additionally, we lease sales offices in
Hollidaysburg, Pennsylvania; Dallas, Texas; Phoenix, Arizona; Denver, Colorado;
and Los Angeles, California, and plan to open additional sales offices
throughout the United States.

ITEM 3. LEGAL PROCEEDINGS

There is no litigation currently pending. Except as described in the "Business
Risks" section above, we are not aware of any disputes that may lead to
litigation.

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

We held our first annual shareholders meeting on December 16, 1999, in which the
following items were passed by a majority vote:

(1) The election of E. Scott Crist and David S. Jones as directors. Michael
Long, Louis Hoch, and Roger Hemminghaus continued service as directors.

(2) The approval of the 1999 Employee Comprehensive Stock Plan of
billserv.com, Inc.

(3) The approval of the 1999 Non-Employee Director Plan of billserv.com,
Inc.

(4) The approval of the 1999 Employee Stock Purchase Plan of billserv.com,
Inc.

(5) The appointment of Ernst & Young LLP as the independent auditors for the
year ending December 31, 1999.

The following table indicates the number of votes cast for each matter.

VOTES VOTES VOTES
MATTER FOR AGAINST ABSTAINING
------------------------------------- ------------ ----------- ------------
E. Scott Crist, Director 8,249,978 10,353
David S. Jones, Director 8,249,978 8,460
Ernst & Young LLP, 1999 Auditors 8,245,456 7,100 5,375
1999 Employee Comprehensive Stock Plan 5,463,309 43,981 21,165
1999 Non-Employee Director Plan 5,472,884 37,076 18,495
1999 Employee Stock Purchase Plan 5,474,799 36,806 16,850

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PART II.

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

A. MARKET INFORMATION

Our common stock is traded on the National Association of Securities Dealers
("NASD") Over the Counter Bulletin Board ("OTC BB"), under the symbol "BLLS."
The following table sets forth the range of high and low sales prices and
closing prices as reported from inception through the most recent fiscal year.

HIGH LOW CLOSE
---- --- -----

1998
----

Fourth Quarter (1) $3.03 $2.50 $2.77

1999
----
First Quarter 8.41 2.81 6.75
Second Quarter 8.88 4.38 4.38
Third Quarter (2) 7.38 3.81 4.81
Fourth Quarter (2) 8.00 3.50 7.81

(1) No previous periods are reported as the Company was initially listed in
the fourth quarter 1998.
(2) From October 7, 1999 to December 7, 1999, our common stock was not
traded on NASD OTC BB. The NASD adopted eligibility rules that required
clearance of all comments by the SEC on our Form 10 filing by October 7,
1999. From that date until the time at which the SEC cleared comments, or
December 7, 1999, our common stock was quoted on the National Quotation
Board's Electronic Pink Sheets.

B. SHAREHOLDERS

As of January 21, 2000, 13,128,465 shares of common stock are outstanding,
$.001 par value. Of those shares, 946,428 shares are restricted pursuant to
Regulation S. As of January 21, 2000, there were approximately 4,670 of holders
of record.

C. DIVIDEND POLICY

We have never paid cash or stock dividends and have no present plan to pay any
such dividends, intending instead to reinvest its earnings, if any. However,
payment of future dividends will be determined from time to time by the Board of
Directors, based upon future earnings, financial condition, capital
requirements, and other factors.

D. SALES OF UNREGISTERED SECURITIES

On June 11, 1999, we issued 946,428 shares of common stock to two corporate
investors, in exchange for $5.3 million in cash. The stock was issued pursuant
to exemption under Regulation S.

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Neither investor is a "U.S. person" under Regulation S. Proceeds of this
offering were used to repay advances from the Consulting Group of $2.0 million
and to fund contractual commitments totaling $1.2 million for fund-raising and
public and investor relations services performed or to be performed by the
Consulting Group, and for other general corporate operating purposes.

In October 1999 and December 1999, we issued 1,404,637 and 732,000 shares of
common stock, respectively, to twenty-one and twenty-two accredited investors,
respectively, under a private placement offering ("Offering"). The shares were
issued at $3.25 and $5.50 per share, respectively, which represented a discount
upon the average reported closing sale price of the common stock for the ten
(10) business days immediately preceding the closing date. Net proceeds totaled
approximately $7,907,243, net of offering costs of $683,827, which included
$525,919, or 6.5% of the Offering, paid to Pennsylvania Merchant Group ("PMG")
as Placement Agent. Of the shares issued in October 1999, 153,846 were issued in
satisfaction of the $500,000 our outstanding short-term note payable (see Note 8
of Notes to Financial Statements).

In accordance with the terms of the Offering, we also issued warrants to the
twenty-one investors to purchase 1,404,637 shares of common stock at $3.75 per
share, or one warrant for each share issued. The warrants are exercisable for
three years from the date of issuance. We have the right to call the exercise of
the warrants at any time after six months after the date of the issuance and
after the closing price of the common stock exceeds $12.00 for a period of
twenty (20) consecutive trading days. Upon such call notice, the holders of the
warrants must exercise the warrants within thirty days, after which time we may
redeem each warrant for $.05.

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As additional compensation for acting as placement agent for the Offering, we
issued warrants to PMG for the purchase of 36,924, 18,900, 19,950, 8,890, and
3,500 shares of common stock with exercise prices of $3.25, $8.00, $7.44, $7.41,
and $7.31, respectively. The warrants are immediately exercisable, carry a
five-year term, piggyback registration rights, and cashless exercise provisions.

ITEM 6. SELECTED FINANCIAL DATA

FROM FROM
YEAR ENDED INCEPTION TO INCEPTION TO
DECEMBER DECEMBER DECEMBER
31, 1999 31, 1998 31, 1999
------------- ------------- -------------
CONSOLIDATED STATEMENT OF
OPERATIONS DATA

Operating revenue ........ $ 55,438 $ -- $ 55,438

------------ ------------ ------------
Cost of sales ............ 127,345 -- 127,345
------------ ------------ ------------
Operating expenses:

Research and development 906,532 -- 906,532
Selling, general
administrative......... 4,094,505 289,211 4,383,716

Depreciation and
amortization .......... 270,908 559 271,467

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

Total operating expenses . 5,271,945 289,770 5,561,715

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

Interest and other ....... 129,096 -- 129,096

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

Net loss ................. $ (5,472,948) $ (289,770) $ (5,762,718)

============ ============ ============
Per share information:

Net loss ................. $ (.50) $ (.03) $ (.54)

============ ============ ============
Weighted average common

shares outstanding ....... 10,876,096 10,030,000 10,625,039

============ ============ ============

CONSOLIDATED BALANCE DECEMBER DECEMBER
SHEET DATA 31, 1999 31, 1998
---------- ----------

Working capital (deficit) $6,288,217 $ (303,926)
Current assets .......... 7,490,648 387,980
Total assets ............ 9,398,168 407,530

Long-term obligations, net
of current portion...... 259,694 5,300
Total stockholders'
equity (deficit) ........ 7,936,043 (289,676)

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following is a discussion of the consolidated financial condition and
results of operations of the Company for the periods ended December 31, 1999 and
1998. It should be read in conjunction with the Consolidated Financial
Statements of the Company, the accompanying notes, and other financial
information included elsewhere in this annual report on Form 10-K.

GENERAL

billserv.com, Inc. is a service bureau consolidator in the electronic bill
presentment and payment ("EBPP") industry. A development stage enterprise, we
generated our first operating revenues in the fourth quarter of 1999. We intend
to generate four principal revenue streams: Internet billing services, Internet
publishing of statements, customer care services through Internet and
traditional telephony technologies, and professional services associated with
the implementation and maintenance of these Internet technologies. We have a
limited operating history on which to base an evaluation of our businesses and
prospects. Our prospects must be considered in light of the risks, expenses, and
difficulties frequently encountered by companies in their early stage of
development, particularly companies in new and rapidly evolving markets such as
electronic commerce. Such risks include, but are not limited to, an evolving and
unpredictable business model and the management of growth. To address these
risks, we must, among other things, maintain and increase our customer base,
implement and successfully execute our business and marketing strategy, continue
to develop and upgrade our technology and transaction-processing systems,
provide superior customer service, respond to competitive developments, improve
our web site, and attract, retain, and motivate qualified personnel. There can
be no assurance that we will be successful in addressing such risks, and the
failure to do so could have a material adverse effect on our business,
prospects, financial condition, and results of operations.

Since inception, we have incurred losses and as of December 31, 1999, we have an
accumulated deficit of $5,772,654. We believe that our success will depend in
large part on our ability to (a) secure additional financing to meet capital and
operating requirements, (b) capture a major portion of the medium-to-large size
market of billers as our customer base, (c) drive the consumer adoption rate of
EBPP, and (d) meet changing customer requirements and technological changes in
an emerging market. Accordingly, we intend to invest heavily in product
development, technology, and operating infrastructure development as well as
marketing and promotion. Because our services will require a significant amount
of investment in infrastructure and a substantial level of fixed operating
expenses, achieving profitability depends on our ability to generate a high
volume of revenues. As a result of our limited operating history and the
emerging nature of the markets in which we competes, we are unable to accurately
forecast its revenues. Our current and future expense levels are based largely
on our investment plans and estimates of future revenues and are to a large
extent fixed. Sales and operating results will depend on the volume of
transactions completed and related services rendered. The timing of such
services and transactions and our ability to fulfill a biller's demands are
difficult to forecast. We may be unable to adjust spending in a timely manner to
compensate for any unexpected revenue shortfall. Accordingly, any significant
shortfall in revenues in relation to our planned expenditures could have an
adverse effect on our business, prospects, financial condition, and results of
operations. Further, we may from time to time make certain pricing, service,
marketing or acquisition decisions that could have a material adverse effect on
our business, prospects, financial condition, and results of operations.

RESULTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 1999

Our activities for the year ended December 31, 1999, resulted in a net operating
loss of $5,472,948. We generated our first revenues totaling $55,438 during the
fourth quarter of the year, comprised principally of design and implementation
fees related to our eServ product. While insignificant in size, included in
fourth-quarter revenue are transaction fees for electronic bills presented for
our first live customers. We anticipate that we will continue to generate eServ
revenues related to design and implementation fees in the foreseeable future.
However, fees earned from EBPP transactions will become a more significant
portion of our revenues in future periods as the use of EBPP by consumers
becomes more commonplace and widespread.

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Cost of sales includes the cost of technical and support personnel who design
specific EBPP components for billers, process data, and perform customer care.
Cost of sales also includes fees paid to third parties for the presentation of
electronic bills on web sites owned by those parties.

Selling expenses consisted primarily of payroll and related expenses for
personnel engaged in marketing and selling activities, as well as advertising
services purchased from the Consulting Group which totaled approximately
$400,000, for the twelve months ended December 31,1999. We built sales and
marketing teams during the year, opening sales offices in Arizona, California,
Massachusetts, New Jersey, North Carolina, Pennsylvania, Colorado, and Texas. We
plan to increase its marketing and sales capacities through various activities,
including advertising in trade publications, promotional activities, and
aggressive trade show attendance.

Research and development expenses totaled $906,532 for the twelve months ended
December 31, 1999. We devoted these resources to development of its technology
infrastructure and operating systems. We will continue to invest significantly
in research and development, particularly in the development of its technology
infrastructure and operating systems in anticipation and support of revenue
growth, quality improvement, and efficiency enhancement opportunities.

General and administrative expenses consisted primarily of payroll and related
expenses for executive, accounting, legal, and administrative personnel, as well
as professional and consulting fees and other general corporate expenses. For
the year ended December 31, 1999, financial and investor relations services
provided under the Consulting Agreement totaled $650,000. The Consulting
Agreement expired on October 31, 1999. During the fourth quarter of 1999 the
Company began to perform the Investor Relations function from corporate
headquarters. We spent approximately $41,000 during the months of November and
December for the transitional period as all investor relations functions was
transferred to corporate headquarters. We expect general and administrative
expenses to increase as we expand our staff and incur additional costs related
to the growth of its business.

RESULTS OF OPERATIONS - FROM INCEPTION TO DECEMBER 31, 1998

Our activities for the five-month period from inception to December 31, 1998,
resulted in net operating losses of $289,770. We generated no revenues during
the period. Operating expenses were generally not incurred until December 1998.

Selling expenses consisted primarily of payroll and related expenses for
personnel engaged in marketing and selling activities, as well as advertising
services totaling $50,000 under a consulting agreement with the Consulting
Group. We expanded our sales and marketing staff subsequent to December 31,
1998, and intend to continue such expansion through 1999. We will also increase
marketing and sales capabilities through various marketing and sales activities,
including advertising in trade publications, promotional activities and
aggressive trade show attendance. Therefore, we expect marketing and sales
expense to increase substantially.

General and administrative expenses consisted primarily of payroll and related
expenses for executive, accounting, legal, and administrative personnel, as well
as professional and consulting fees and other general corporate expenses. In
1998, financial and investor relations services provided by the Consulting
Group, a related party, totaled $100,000. We expanded our general and
administrative staff subsequent to December 31, 1998 and intend to continue such
expansion. Therefore, we expect general and administrative expenses to increase
substantially as we incur additional costs related to the growth of our
business.

LIQUIDITY AND CAPITAL RESOURCES

From inception to date, we have funded operations through equity infusions. We
issued 946,428 shares of common stock in exchange for $5.3 million in cash on
June 11, 1999, pursuant to Regulation S. Advances toward the placement totaling
$2 million were repaid from the proceeds of the placement. Additionally, $1
million due to a related party for investor and public relations services was
paid from the proceeds and $200,000 was reserved for future payments due under a
consulting agreement.

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We issued a short-term note payable to an accredited investor for $1 million in
August 1999. The note was issued as bridge financing until such time that we
could obtain additional equity funding. One half of the short-term note payable,
or $500,000, was converted into common stock under the Offering in October 1999.
The remaining $500,000 was repaid on October 18, 1999.

In accordance with the terms of the Offering, we also issued three-year warrants
to the twenty-one investors to purchase 1,404,637 shares of common stock at
$3.75 per share, or one warrant for each share issued. We have the right to call
the exercise of the warrants at any time after six months after the date of the
issuance and after the closing price of the common stock exceeds $12.00 for a
period of twenty (20) consecutive trading days. Upon such call notice, the
holders of the warrants must exercise the warrants within thirty days, after
which time we may redeem each warrant for $.05. If all of the placement warrants
are exercised, we will receive proceeds of $5,267,389.

At December 31, 1999, we had positive working capital of $6,288,217. During 1999
we made significant expenditures and commitments for capital improvements
consistent with anticipated growth in operations, infrastructure, and personnel.
We anticipate we will make additional investments in and for capital
improvements ranging from $1 to $4 million, depending upon the availability of
additional financing and the rate at which consumer demand for EBPP and customer
care develops. We will finance these investments with cash on hand and continue
to seek additional financing, either through the use of equipment leasing
arrangements, borrowings, or equity financing. utilizing proceeds of the
Offering completed in the fourth quarter of 1999.

We purchased the domain name bills.com for $75,000 in April 1999, at which time
we announced the establishment of our own Internet portal at the web site
www.bills.com. We are amortizing the purchase price over a five-year period. The
operations of the Internet portal have been organized under "bills.com, Inc.," a
Delaware corporation that operates as a wholly owned subsidiary. The portal is
currently available for consumer use and interaction. We will continue to
develop the web site and to enhance its design. We expect that bills.com will
generate revenues through Internet banner advertising on its web site, as well
as through sponsorship agreements with other Internet portals. We believe that
companies will purchase space on the bills.com web site in order to take
advantage of the potentially large number of consumers who will use the site as
an Internet bill presentment and payment service. We currently plan to invest
only limited funds to support and market the portal; however we could at any
time decide to devote additional financial resources to the portal.

We have engaged Pennsylvania Merchant Group to provide strategic and financial
advisory services, including analysis of markets, products, positioning,
financial models, organizations and staffing, potential strategic alliances,
capital requirements, and funding options. In exchange for these advisory
services, we issued a warrant to PMG to purchase 111,085 shares of common stock
at an exercise price of $6.75 per share (which represents the average closing
price of our stock over the twenty (20)-day period preceding May 18, 1999). The
warrant is immediately exercisable and expires in five (5) years. This warrant
was issued in accordance with exemption under Section 4(2) of the Securities Act
of 1933, as amended, because the transaction is by an issuer not involving a
public offering. Using the fair-value based method of accounting, we recorded
$356,583 of expense and a corresponding credit to paid-in capital related to the
issuance of this warrant. This expense is included in the general and
administrative line item in the Consolidated Statement of Operations for the
year ended December 31, 1999.

We secured long-term financing for portions of our computer, software, and
telephone systems and furniture during 1999. We entered into five three-year
capital leases for approximately $211,867, carrying interest rates of 10.8% per
annum. The terms of the leases include a requirement of security totaling 50% of
the total lease,

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for which we purchased a certificate of deposit for $105,000. The security
deposit of $105,000 is included in Other Assets on our Consolidated Balance
Sheet as of December 31, 1999. Additionally, we entered into a two-year capital
lease totaling $487,131, carrying an interest rate of approximately 17%. The
terms of the lease include a requirement of an initial security in the form of a
certificate of deposit equal to 70% of the total dollars financed, 25% of which
will be released on each six-month anniversary of the lease inception date. A
security deposit of $170,496 is included in Other Current Assets and a deposit
of $170,496 is included in Other Assets on the Consolidated Balance Sheet as of
December 31, 1999.

As of December 31, 1999 our headquarters were housed in approximately 10,000
square feet of leased office space in San Antonio, Texas. We anticipate
acquiring additional leased space to meet the needs of our expanding clerical,
administrative, and sales activities and the establishment of a customer care
center within the next twelve months. Additionally, we lease sales offices in
Hollidaysburg, Pennsylvania; Dallas, Texas; Phoenix, Arizona; Denver, Colorado;
and Los Angeles, California, and plan to open additional sales offices
throughout the United States.

In order to fully execute our operating plans for sales and marketing, research
and development, and the full- service eCare solution, we will need to secure
additional financing. We will pursue a strategy on a somewhat limited scope
until additional financing is obtained. We currently plan to issue additional
equity securities, enter into capital lease financing arrangements, and in the
longer term, expend revenue from operations.

YEAR 2000 COMPLIANCE

We are not aware of any significant adverse effects of Year 2000 on our systems
and operations, or those of our customers, or partners, or suppliers.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

None.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PAGE

Report of Independent Accountants 37

Consolidated Balance Sheets at December 31, 1999, and 1998 38

Consolidated Statements of Operations for the year ended
December 31, 1999, from July 30, 1998 (inception) to December 31, 1998
and from inception to December 31, 1999 39

Consolidated Statement of Changes in Shareholder's Equity (Deficit)
from inception to December 31, 1999 40

Consolidated Statements of Cash Flows for the year ended
December 31, 1999, from July 30, 1998 (inception) to December 31, 1998
and from inception to December 31, 1999 41

Notes to Consolidated Financial Statements 43

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REPORT OF INDEPENDENT ACCOUNTANTS

To Board of Directors and Shareholders of billserv.com, Inc.

We have audited the accompanying consolidated balance sheets of
billserv.com, Inc. and subsidiary (a development stage company) as of
December 31, 1999 and December 31, 1998, and the related consolidated
statements of operations, changes in shareholders' equity, and cash flows
for the year ended December 31, 1999 and the period from inception (July
30, 1998) through December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of
billserv.com, Inc. and subsidiary at December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for the year
ended December 31, 1999 and for the period from inception (July 30, 1998)
through December 31, 1998, in conformity with accounting principles
generally accepted in the United States.

San Antonio, Texas
January 27, 2000

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BILLSERV.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS

[Enlarge/Download Table]

DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------

Assets:

Cash and cash equivalents ........................... $ 7,069,423 $ 329,618
Accounts receivable ................................. 10,227 --
Related party accounts receivable ................... 30,222 24,000
Prepaid expenses .................................... 166,820 3,213
Deposits ............................................ 25,420 31,149
Other current assets ................................ 188,536 --
------------ ------------
Total current assets ................................ 7,490,648 387,980

Property and equipment, net of accumulated
depreciation and amortization of $258,055
and $559 for 1999 and 1998, respectively.......... 1,513,510 19,550
Other assets ........................................ 394,010 --
------------ ------------
Total assets ........................................ $ 9,398,168 $ 407,530
============ ============

Liabilities & shareholders' equity (deficit):

Current liabilities:
Accounts payable .................................. $ 589,480 $ 3,779
Accrued expenses .................................. 296,452 38,127
Current portion of obligations under capital leases 309,313 --
Other current liabilities ......................... 7,186 --
Advance from shareholders ......................... -- 500,000
Accounts payable, related party ................... -- 150,000
------------ ------------
Total current liabilities ........................... 1,202,431 691,906

Obligations under capital leases, less current portion 254,394 --
Equity subject to potential redemption ............... 5,300 5,300
Shareholders' equity (deficit):
Common stock, $.001 par value, 200,000,000 shares
authorized; 13,113,065 issued and outstanding
at December 31, 1999, 10,030,000 issued and
outstanding at December 31, 1998................ 13,113 10,030
Paid-in capital ................................... 13,695,584 --
Deficit accumulated during the development stage .. (5,772,654) (299,706)
------------ ------------

Total shareholders' equity (deficit) ................ 7,936,043 (289,676)
------------ ------------
Total liabilities and shareholders' equity (deficit) $ 9,398,168 $ 407,530
============ ============

See notes to consolidated financial statements

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BILLSERV.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS

[Download Table]

JULY 30, JULY 30,
1998 1998
YEAR ENDED (INCEPTION) TO (INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999
------------ ------------ ------------

Revenues ..................... $ 55,438 $ -- $ 55,438

Cost of sales ................ 127,345 -- 127,345
------------ ------------ ------------

Gross margin ................. (71,907) -- (71,907)

Operating expenses

Research and development ... 906,532 -- 906,532
Selling expenses ........... 1,750,615 88,298 1,838,913
General and administrative . 2,343,890 200,913 2,544,803
Depreciation & amortization 270,908 559 271,467

------------ ------------ ------------
Total operating expenses ..... 5,271,945 289,770 5,561,715
------------ ------------ ------------
Operating loss ............... (5,343,852) (289,770) (5,633,622)
------------ ------------ ------------

Other income (expense):
Interest income ............ 88,661 -- 88,661
Interest expense ........... (202,366) -- (202,366)

Other income (expense) ..... (15,391) -- (15,391)
------------ ------------ ------------
Total other income (expense) . (129,096) -- (129,096)
------------ ------------ ------------
Loss before income taxes ..... (5,472,948) (289,770) (5,762,718)

Income taxes ................. -- -- --
------------ ------------ ------------
Net loss ..................... $ (5,472,948) $ (289,770) $ (5,762,718)
============ ============ ============

Net loss per common share -
basic and diluted ........ $ (0.50) $ (0.03) $ (0.54)

============ ============ ============

Weighted average common
shares outstanding - basic
and diluted .............. 10,876,096 10,030,000 10,625,039
============ ============ ============

See notes to consolidated financial statements

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BILLSERV.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)

[Enlarge/Download Table]

DEFICIT
ACCUMULATED TOTAL
ADDITIONAL DURING THE SHAREHOLDERS'
COMMON STOCK PAID-IN DEVELOPMENT EQUITY
SHARES AMOUNT CAPITAL STAGE (DEFICIT)
-----------------------------------------------------------------------

Balance July 30, 1998
(date of inception) ........... 1,000 $ -- $ -- $ -- $ --
Acquisition of shares and
reverse merger, December 9,1998 10,029,000 10,030 -- (4,636) 5,394

Reclass of equity subject to
potential redemption .......... -- -- -- (5,300) (5,300)
-----------------------------------------------------------------------
Net loss from inception (July 30,
1998 to December 31, 1998) ..... -- -- -- (289,770) (289,770)
-----------------------------------------------------------------------

Balance at December 31, 1998 ..... 10,030,000 10,030 -- (299,706) (289,676)

Issuance of Common Stock Warrants,
May 18, 1999 .................. -- -- 356,583 -- 356,583
Shares issued under Regulation S,
June 11, 1999 ................. 946,428 946 5,299,054 -- 5,300,000
Issuance of Common Stock Warrants,
August 6, 1999 ................ -- -- 134,845 -- 134,845
Issuance of Common Stock,
October 15, 1999 .............. 1,230,791 1,231 3,665,608 -- 3,666,839
Issuance of Common Stock,
October 22, 1999 .............. 20,000 20 59,565 -- 59,585
Issuance of Common Stock,
October 22, 1999, in exchange
for debt ...................... 153,846 154 490,057 -- 490,211
Issuance of Common Stock,
December 16, 1999 ............. 270,000 270 1,361,019 -- 1,361,289
Issuance of Common Stock,
December 17, 1999 ............. 285,000 285 1,436,629 -- 1,436,914
Issuance of Common Stock,
December 21, 1999 ............. 127,000 127 640,184 -- 640,311
Issuance of Common Stock,
December 22, 1999 ............. 50,000 50 252,040 -- 252,090
Net loss for the year ended
December 31, 1999 ............. -- -- -- (5,472,948) (5,472,948)
-----------------------------------------------------------------------
Balance at December 31, 1999 ..... 13,113,065 $ 13,113 $13,695,584 $(5,772,654) $ 7,936,043
=======================================================================

See notes to consolidated financial statements

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BILLSERV.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS

[Enlarge/Download Table]

YEAR JULY 30, 1998 JULY 30, 1998
ENDED (INCEPTION) TO (INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999
------------ ------------ ------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................ $ (5,472,948) $ (289,770) $ (5,762,718)
Adjustments to reconcile net loss to net
cash used in operating activities:
Issuance of common stock warrants ................... 491,428 -- 491,428
Depreciation and amortization ....................... 270,908 559 271,467
Changes in current assets and current liabilities:
(Increase) decrease in accounts receivable .......... (10,227) -- (10,227)
(Increase) decrease in related party ................ (6,222) (24,000) (30,222)
(Increase) decrease in prepaid expenses
and other current assets ...................... (346,414) (34,362) (380,776)
Increase (decrease) in accounts payable and
accrued liabilities ........................... 844,026 191,906 1,035,932
Increase (decrease) in accounts payable related party (150,000) -- (150,000)
Increase (decrease) in other current liabilities .... 7,186 -- 7,186
------------ ------------ ------------
Net cash used in operating activities ............... (4,372,263) (155,667) (4,527,930)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment .................. (1,052,459) (20,109) (1,072,568)
Purchase of long-term investments ................... (275,496) -- (275,496)
Purchase of intangible assets ....................... (75,000) -- (75,000)
Capital lease set-up fee ............................ (11,884) -- (11,884)
Long-term deposits .................................. (45,041) -- (45,041)
Proceeds of acquisition/merger ...................... -- 5,394 5,394
------------ ------------ ------------
Net cash used in investing activities ............... (1,459,880) (14,715) (1,474,595)
------------ ------------ ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Advance from shareholders ........................... 1,500,000 500,000 2,000,000
Repayment to shareholders ........................... (2,000,000) -- (2,000,000)
Proceeds from notes payable ......................... 1,000,000 -- 1,000,000
Principal payments for notes payable ................ (500,000) -- (500,000)
Principal payments for capital lease obligations .... (135,291) -- (135,291)
Issuance of common stock ............................ 12,707,239 -- 12,707,239
------------ ------------ ------------
Net cash provided by financing activities ........... 12,571,948 500,000 13,071,948
------------ ------------ ------------

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[Enlarge/Download Table]

NET INCREASE IN CASH AND CASH
EQUIVALENTS .................................... 6,739,805 329,618 7,069,423
------------ ------------ ------------

CASH AND CASH EQUIVALENTS,
beginning of period ............................ 329,618 -- --
------------ ------------ ------------

CASH AND CASH EQUIVALENTS, end of period ............. $ 7,069,423 $ 329,618 $ 7,069,423
============ ============ ============

NON-CASH INVESTING AND
FINANCING ACTIVITIES
Purchases of equipment under capital leases ......... $ 563,707 $ -- $ 563,707
============ ============ ============
Conversion of debt to equity ........................ $ 500,000 $ -- $ 500,000
============ ============ ============

See notes to consolidated financial statements.

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billserv.com, Inc.
(a development stage company)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998

1. SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

billserv.com, Inc. and its wholly owned subsidiary, bills.com (`billserv.com" or
"the Company") is a service bureau clearinghouse in the electronic bill
presentment and payment ("EBPP") industry. EBPP is the process of presenting a
bill in a secure environment on the Internet and facilitating payment of the
bill utilizing an electronic transfer of funds. We were incorporated on July 30,
1998 under the laws of the state of Texas for the purpose of providing billing
services over the Internet. billserv.com, having no substantial assets, was
acquired by and merged with and into Goldking Resources, Inc. ("Goldking"). A
shareholder of Goldking transferred 4,000,000 shares of stock to the principals
and certain key employees of billserv.com in exchange for all 1,000 shares of
billserv.com stock.

The shares of Goldking, a Nevada corporation formed to develop mineral rights,
are traded on the National Association of Securities Dealers Over-the-Counter
Bulletin Board ("NASD OTC BB"). On December 3, 1998, Goldking Resources, Inc.
changed its name to billserv.com, Inc. and began trading under the symbol BLLS.

The acquisition has been accounted for as a "reverse acquisition" under the
purchase method. Paid-in capital has been credited for $5,394, the fair value of
the tangible net assets of Goldking. The results of operations of Goldking have
been included in our financial statements from December 9, 1998.

BASIS OF PRESENTATION

Our principal activities have been research and development, raising of capital,
and organizational activities. We began our operations in November 1998. No
revenue was recorded during 1998. As a result of our current activities, we are
considered a development stage company. We have incurred losses during our first
year of operation and expect to incur losses during the current year and in
subsequent years as development efforts continue after the commencement of
generation of revenue. We plan to meet capital requirements primarily through
funding under borrowings and issuance of equity securities, capital lease
financing, and in the longer term, revenue from services. The financial
statements have been prepared in conformity with accounting principles generally
accepted in the United States.

RECLASSIFICATION

Certain prior year amounts have been reclassified to conform with the current
year presentation.

COMPREHENSIVE LOSS

Comprehensive loss is the same as net loss for the periods ended December 31,
1999 and 1998.

BASIS OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of the
Company and its subsidiary, bills.com, which is wholly owned. All significant
inter-company accounts and transactions have been eliminated.

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billserv.com, Inc.
(a development stage company)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

ESTIMATES IN FINANCIAL STATEMENTS

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results may differ from those estimates.

REVENUE RECOGNITION POLICIES

Revenue consists of design implementation fees, transaction fees, and
professional and consulting fees. Recognition of design implementation fee
revenue is recognized when customer set-up is complete. Transaction fees are
recognized as revenue upon completion of transactions. Professional and
consulting fees are recognized when services are rendered.

CASH AND CASH EQUIVALENTS

We consider all highly liquid investments with a maturity of three months or
less when purchased to be cash equivalents.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation and amortization are
computed on a straight-line method over the estimated useful lives of the
related assets, ranging from two to seven years. Expenditures for maintenance
and repairs are charged to expense as incurred.

RESEARCH AND DEVELOPMENT EXPENSE

Research and development costs are expensed as incurred and consist principally
of payroll and related expenses for development personnel.

ADVERTISING EXPENSE

The cost of advertising is expensed as incurred. We incurred $439,338 and $0 in
advertising costs in 1999 and 1998, respectively.

INCOME TAXES

We record income tax using the liability method (see Note 11). Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.

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billserv.com, Inc.
(a development stage company)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

STOCK-BASED COMPENSATION

We have adopted Statement of Financial Accounting Standards No. 123, ACCOUNTING
FOR STOCK BASED COMPENSATION, and elected to use the intrinsic value method in
accounting for our stock option plans. Accordingly, no compensation cost has
been recognized in the financial statements for these plans. The pro forma
effects of fair value accounting for compensation costs related to options on
net loss and loss per share are disclosed in Note 13.

BASIC AND DILUTED LOSS PER SHARE

Basic loss per common share is calculated using the weighted average number of
common shares outstanding during the period. Common stock equivalents, which
consist of the stock options and warrants described in Notes 13 and 14, were
excluded from the computation of the weighted average number of common shares
outstanding because their effect was antidilutive.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement requires that all derivative instruments be recorded on the balance
sheet at their fair value. Changes in the fair value of derivatives are recorded
each period in current earnings or other comprehensive income, depending on
whether a derivative is designated as part of a hedge transaction and, if it is,
the type of hedge transaction. In July 1999, the FASB issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities Deferral of the
Effective Date of FASB Statement No. 133." SFAS No. 137 deferred the effective
date of SFAS No. 133 until fiscal years beginning after June 15, 2000. The
Company does not use derivative instruments; therefore the adoption of this
statement will not have any effect on the Company's results of operations or its
financial position.

In December 1999, SEC Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue
Recognition in Financial Statements," was issued. This pronouncement summarizes
certain of the SEC staff's views in applying generally accepted accounting
principles to revenue recognition. SAB 101 is required to be adopted by the
Company for the year ended September 30, 2001. The company is currently
reviewing the requirements of SAB 101 and assessing its impact on the Company's
financial statements.

2. ISSUANCE OF CAPITAL STOCK

On June 11, 1999, we issued 946,428 shares of common stock to two corporate
investors, in exchange for $5.3 million in cash. The stock was issued pursuant
to exemption under Regulation S. Neither investor is a "U.S. person" under
Regulation S. Proceeds of this offering were used to repay advances from the
Consulting Group totaling $2.0 million and to fund contractual commitments
totaling $1.2 million for fund-raising and public and investor relations
services performed or to be performed by the Consulting Group, and for other
general corporate operating purposes.

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billserv.com, Inc.
(a development stage company)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998

discount upon the average reported closing sale price of the common stock for
the ten (10) business days immediately preceding the closing date. Net proceeds
totaled approximately $7,907,243, net of offering costs of $683,827, which
included $525,919, or 6.5% of the Offering, paid Pennsylvania Merchant Group
("PMG") as Placement Agent. Of the shares issued in October 1999, 153,846 were
issued in satisfaction of the $500,000 our outstanding short-term note payable
(See Note 8).

In accordance with the terms of the Offering, we also issued warrants to the
twenty-one investors to purchase 1,404,637 shares of common stock at $3.75 per
share, or one warrant for each share issued. The warrants are exercisable for
three years from the date of issuance. We have the right to call the exercise of
the warrants at any time after six months after the date of the issuance and
after the closing price of the common stock exceeds $12.00 for a period of
twenty (20) consecutive trading days. Upon such call notice, the holders of the
warrants must exercise the warrants within thirty days, after which time we may
redeem each warrant for $.05.

As additional compensation for acting as placement agent for the Offering, we
issued warrants to PMG for the purchase of 36,924, 18,900, 19,950, 8,890, and
3,500 shares of common stock with exercise prices of $3.25, $8.00, $7.44, $7.41,
and $7.31, respectively. The warrants are immediately exercisable, carry a
five-year term, piggyback registration rights, and cashless exercise provisions.

3. PROPERTY AND EQUIPMENT, NET

The following is a summary of our property and equipment at December 31, 1999
and 1998:

DECEMBER 31, DECEMBER 31,
1999 1998
----------- -----------
Furniture and fixtures ............ $ 216,824 $ --
Equipment ......................... 954,123 20,109
Software .......................... 545,382 --
Leasehold improvements ............ 55,236 --
----------- -----------
1,771,565 20,109

Less: accumulated depreciation and
amortization ................ (258,055) (559)
----------- -----------
Total - property and equipment, net $ 1,513,510 $ 19,550
=========== ===========

Depreciation expense as reported in our Consolidated Statements of Operations
included $133,802 of depreciation expense related to our capital leases. For the
periods ended December 31, 1999 and 1998, we recorded approximately $257,496 and
$559, respectively, of depreciation expense related to its fixed assets.

Page 46 of 66

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billserv.com, Inc.
(a development stage company)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998

4. OTHER ASSETS

We purchased the domain name bills.com for $75,000 in April 1999. We use the
domain name for our own Internet portal at the web site www.bills.com. The
purchase price of the domain name is included on our Consolidated Balance Sheet
in Other Assets. We are amortizing the amount over a five-year period. At
December 31, 1999, accumulated amortization related to this asset was $7,500.

Additionally, certificates of deposit purchased for security of long-term
capital leases totaling $445,992 are classified under Other Assets.

5. ACCRUED EXPENSES

Accrued expenses consist of the following balances:

DECEMBER 31, DECEMBER 31,
1999 1998
----------- -----------
Accrued salaries ........ $132,456 $ --
Accrued vacation ........ 65,234 4,635
Accrued professional fees 79,686 11,552
Accrued other ........... 19,075 21,940
-------- --------
Total ................... $296,452 $ 38,127
======== ========

6. OBLIGATIONS UNDER CAPITAL LEASES

Property held under capital leases is stated at the present value of minimum
lease payments at the inception of the related leases. Property held under a
capital lease is amortized on a straight-line basis over the estimated useful
life of the assets. Amortization of property held under capital leases is
included with depreciation expense. At December 31, 1999, there was $698,998 of
office and computer equipment held under capital leases.

The following is a schedule, by year, of future minimum lease payments under
capital leases, together with the present value of the minimum lease payments as
of December 31, 1999:

Year ending December 31,

2000.............................. $ 372,379
2001.............................. 227,689
2002.............................. 44,654
---------
Total minimum lease payments ..... 644,722
Less: amount representing interest (81,015)
---------
563,707
Less: current portion ............ (309,313)
---------
Obligations under capital leases . $ 254,394
=========

These obligations are classified as capital leases due to the bargain purchase
option contained therein.

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billserv.com, Inc.
(a development stage company)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998

7. OPERATING LEASES

We lease office space and other equipment under noncancelable operating leases
expiring in 2004. Rental expense under operating leases for the year ended
December 31, 1999, was $116,221. Future minimum lease payments required under
our leases, by year and in the aggregate, consist of the following at December
31, 1999:

Year ending December 31,

2000 $ 207,701
2001 50,120
2002 5,637
2003 5,637
2004 3,043
----------------
Total minimum lease payments $ 272,138
================

8. NOTE PAYABLE

On August 6, 1999, we issued a one-year unsecured note payable for $1 million to
an accredited investor, which bears interest at 9% per annum, payable quarterly.
The proceeds of this note payable were allocated for use in corporate operations
and to supplement our cash reserves until future equity financing was obtained.
In connection with the issuance of the note, we paid a $20,000 loan origination
fee to a venture capitalist firm. Additionally, as part of the debt issuance, we
issued a warrant to the accredited investor for the purchase of 41,237 shares of
common stock at an exercise price of $6.0625, which represents the average
reported closing sale price of the common stock for the ten (10) business days
immediately preceding the closing agreement. The warrant is immediately
exercisable and carries a term of five years and piggyback registration rights.
On October 22, 1999, 153,846 shares of common stock were issued pursuant to the
terms of the Offering (see Note 2) in satisfaction of $500,000 of the note. The
remaining portion of the note, or $500,000, was paid in cash on October 18,
1999.

9. RELATED PARTY TRANSACTIONS

We entered into an agreement ("Consulting Agreement") to receive financial
consulting, public relations services, advertising services, and investor
relations services from a group of minority shareholders ("Consulting Group").
The agreement provided for services totaling $1.2 million and was effective from
November 1, 1998 to October 31, 1999. We paid $1 million due to the Consulting
Group under the agreement from the proceeds of the Regulation S offering
completed on June 11, 1999. The remaining $200,000 under the agreement was paid
to the Consulting Group during the third quarter of 1999. At December 31, 1998,
$150,000 due to the Consulting Group was reported as Accounts Payable, Related
Party.

On September 30, 1999, we loaned $25,000 to an officer of the Company. The loan
was paid in full, including interest at 8%, on February 3, 2000 and is included
on our Consolidated Balance Sheet at December 31, 1999 as Accounts Receivable,
Related Party.

On December 29, 1998, we loaned $24,000 to the same officer. The loan was repaid
on January 4, 1999, and is included on our Consolidated Balance Sheet as
Accounts Receivable, Related Party at December 31, 1998.

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billserv.com, Inc.
(a development stage company)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998

10. STATEMENT OF CASH FLOW

Cash paid during the year for income taxes and interest:

DECEMBER 31,
1999 1998
---------- ----------
Interest $ 28,933 $ --
========== ==========
Income taxes $ -- $ --
========== ==========

11. INCOME TAXES

Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
our deferred tax assets and liabilities as of December 31 are as follows:

DECEMBER 31,
1999 1998
----------- -------
Deferred tax assets:
Start-up and organizational costs $ 283,075 $ --
Amortization .................. 2,210 --
Research credit ............... 38,153 --
Net operating loss ............ 1,683,551 98,000
Trademark cost ................ 774 --
----------- -------
2,007,763 98,000
Valuation allowance .............. (1,990,513) (98,000)
----------- -------

Total deferred tax asset ......... $ 17,250 $ --
=========== =======

Deferred tax liabilities:
Depreciation .................. $ 11,558 $ --
Prepaid expenses .............. 5,692 --
----------- -------
Total deferred tax liabilities ... 17,250 --
=========== =======

Net deferred tax asset (liability) $ -- $ --
=========== =======

At December 31, 1999, we realized a net operating loss for tax purposes of
approximately $4,950,000 which expires in 2020. The $290,000 net operating loss
generated in the period December 31, 1998 has been reclassified in the current
year as a start-up deferred tax asset. We have a research and development credit
of approximately $38,000 which expires in 2015. Recent legislation regarding the
research and development tax credit extended the utilization period. However,
use of the credit is suspended during certain periods. We intend to utilize the
research and development credit during the applicable periods. For financial
reporting purposes, a valuation allowance of approximately $1,991,000 has been
recognized to offset the deferred tax assets related to various temporary
differences at December 31, 1999.

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billserv.com, Inc.
(a development stage company)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998

11. INCOME TAXES (CONTINUED)

The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax expense is:

DECEMBER 31,
1999 1998
---------------------------
Tax at U.S. statutory rate - 34% $(1,860,802) $ (98,000)

Change in valuation allowance .. 1,892,513 98,000
Permanent and other differences 6,442 --
Research credit ................ (38,153) --
----------- -----------
Income tax expense ............. $ -- $ --
=========== ===========

12. EQUITY SUBJECT TO POTENTIAL REDEMPTION

On or about December 3, 1998, when we were under the control of former
management and known as Goldking Resources, Inc., concluded an offering of
approximately 5.3 million shares of common stock. This transaction was completed
through the cancellation of approximately 6.2 million shares, held by
shareholders who tendered their shares to the Company, followed by the Company's
issuance of 5.3 million shares to 15 new shareholders, who paid par value to the
Company for such shares, in the total amount of approximately $5,300. The new
shareholders also paid an additional $300,000 to the shareholders who had agreed
to cancel their shares. Subsequently, some of these new shareholders sold the
shares into the secondary market. Form D was filed with the SEC to timely report
the transaction, and an exemption under Rule 504 was claimed. The SEC has
challenged the validity of this claimed exemption.

We dispute the following assertions, but it is possible that the issuance of
shares described above may have violated provisions of the federal and state
securities laws which subjects us to fines, penalties or other regulatory
enforcement action. There can be no assurance that the SEC or applicable state
authorities will not pursue any enforcement action. We dispute any such
liability.

Additionally, while we also disputes the following assertions, it is possible
that shareholders who purchased the shares described above may have the right
under state and federal securities laws to require us to repurchase their shares
for the amount originally paid, plus interest. We dispute any such liability.

Based upon the best information available at this time, we have calculated a
range of possible, but disputed, exposure that exists in light of the disputed
civil liabilities described above. Accordingly, in the event these disputed
civil liabilities were successfully asserted, we could be liable to the 15 new
shareholders, and to any shareholder that immediately purchased from these 15
shareholders, in an amount ranging from approximately $5,300 up to approximately
$2.9 million, plus interest. This range of possible exposure is calculated by
reference to the average closing price for a share of common stock, weighted for
reported daily volume, during December 1998 and January 1999; then number of
shares possibly sold during the same period of time; and the closing price of
one share on November 11, 1999. The foregoing range could be adjusted higher or
lower depending upon adjustments to any of the referenced items, and as any new
information becomes available.

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billserv.com, Inc.
(a development stage company)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998

13. EMPLOYMENT BENEFIT PLANS

STOCK OPTION PLAN

The Board of Directors and shareholders adopted the 1999 Employees Comprehensive
Stock Plan ("Employee Plan") to provide qualified incentive stock options and
non-qualified stock options as well as restricted stock to key employees. A
total of 2,000,000 shares of common stock have been reserved under the Employee
Plan.

Under the terms of the Employee Plan, the exercise price of incentive stock
options must be equal to 100% of the fair market value on the date of grant (or
110% of fair market value in the case of an ISO granted to a 10%
stockholder/grantee). There is no price requirement for NQSOs, other than that
the option price must exceed the par value of the common stock. At December 31,
1999, options to purchase 944,300 shares had been granted under the Employee
Plan.

SUPPLEMENTAL DISCLOSURES FOR STOCK-BASED COMPENSATION

Activity under the Plans from inception to December 31, 1999 is as follows:

WEIGHTED AVG.
NUMBER OF EXERCISE
SHARES PRICE
---------- --------
Inception of Plan, January 1, 1999
Granted ....................... 1,091,300 $ 3.86
Canceled ...................... (27,000) 3.93
Exercised ..................... -- --
---------- --------
Outstanding, December 31, 1999 ... 1,064,300 $ 3.86
========== ========

Summarized information about stock options outstanding at December 31, 1999 is
as follows:

OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------- --------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF OPTIONS REMAINING AVERAGE NUMBER AVERAGE
EXERCISE OUT- CONTRACTUAL EXERCISE OF EXERCISE
PRICES STANDING LIFE PRICE OPTIONS PRICE
------------- --------- ----------- --------- --------- ---------
$2.81 470,000 9.01 $ 2.81 0 $ 0
$3.75 - $4.38 273,600 9.49 $ 4.32 0 $ 0
$4.50 - $5.19 290,700 9.67 $ 4.94 0 $ 0
$5.31 - $7.63 30,000 9.68 $ 5.78 0 $ 0

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billserv.com, Inc.
(a development stage company)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998

13. EMPLOYMENT BENEFIT PLANS (CONTINUED)

STOCK OPTION PLAN (continued)

The fair value of each option granted during 1999 is estimated on the date of
grant using the Black-Scholes option pricing model with the following
assumptions:

Dividend yield none
Expected volatility 1.02
Risk-free interest rate 6.25%
Expected life 3.5

Had compensation cost for our 1999 stock option grants been determined
consistent with SFAS 123, net loss and net loss per share would approximate the
pro forma amounts below:

NET LOSS
NET LOSS PER SHARE
-------- ---------
As reported: $ (5,472,948) $ (0.50)
Pro forma: $ (6,476,551) $ (0.60)

The effects of applying SFAS 123 in this pro forma disclosure are not indicative
of future amounts. Additional awards in future years are anticipated.

STOCK PURCHASE PLAN

We have a 1999 Employee Stock Purchase Plan ("Purchase Plan") that was approved
by the stockholders at the 1999 Annual Meeting of Stockholders. The Purchase
Plan allows eligible employees to purchase billserv.com common stock at regular
intervals by means of wage and salary deferrals. The first offering period under
the Purchase Plan began January 1, 2000, and accordingly, no shares were issued
under the Purchase Plan in 1999.

401(K) PLAN

We adopted a 401(K) plan in May 1999. No employer contributions were made for
the year ended December 31, 1999.

14. STOCK WARRANTS

On May 7, 1999, we contracted to issue warrants for the purchase of up to
500,000 shares of common stock to Southwest Business Corporation ("SWBC") of San
Antonio, Texas. Subject to specific performance criteria in sales and marketing
of our products, SWBC may earn the right to purchase shares of common stock, at
the closing bid price as of May 7, 1999 ($6.50), over a three-year term. If SWBC
meets the contract requirements, the warrant will be issued in accordance with
an exemption under Section 4(2) of the Securities Act of 1933, as amended,
because the transaction is by an issuer not involving a public offering. No
warrants had been issued as of December 31, 1999. Pursuant to the performance
terms of the agreement, the number of shares underlying the warrant was reduced
to 375,000 on January 1, 2000.

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billserv.com, Inc.
(a development stage company)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998

14. STOCK WARRANTS (CONTINUED)

On May 18, 1999, we contracted with Pennsylvania Merchant Group ("PMG") to
provide strategic and financial advisory services. In exchange for these
advisory services, we issued to PMG a warrant to purchase 111,085 shares of our
common stock at an exercise price of $6.75 per share (which represents the
average closing price of the stock over the twenty (20)-day period preceding May
18, 1999). The warrant is exercisable for five (5) years. This warrant was
issued in accordance with an exemption under Section 4(2) of the Securities Act
of 1933, as amended, because the transaction is by an issuer not involving a
public offering. Using the fair value-based method of accounting, we recorded
$356,583 of expense and a corresponding credit to paid-in capital related to the
issuance of this warrant. This expense is included in the general and
administrative line item in the Statement of Operations for the year ended
December 31, 1999. No shares had been exercised as of December 31, 1999.

As part of the August 1999 debt issuance, we issued a warrant to the accredited
investor for the purchase of 41,237 shares of the common stock at an exercise
price of $6.0625, which represents the average reported closing sale price of
the common stock for the ten (10) business days immediately preceding the loan
agreement. The warrant is immediately exercisable and carries a term of five
years and piggyback registration rights. Using the fair value-based method of
accounting, we recorded $134,845 of expense and a corresponding credit to
paid-in-capital related to the issuance of this warrant. This expense is
included in the interest expense line item in the Consolidated Statement of
Operations for the year ended December 31,1999. See Note 8.

In connection with the Offering (see Note 2), we issued warrants to the
twenty-one investors to purchase 1,404,637 shares of common stock at $3.75 per
share, or one warrant for each share issued. The warrants are exercisable for
three years from the date of issuance, or October 14, 2002. We have the right to
call the exercise of the warrants at any time after six months after the date of
the issuance and after the closing price of the common stock exceeds $12.00 for
a period of twenty (20) consecutive trading days. Upon such call notice, the
holders of the warrants must exercise the warrants within thirty days, after
which time we may redeem each warrant for $.05.

As part of their compensation for acting as placement agent for the Offering, we
issued warrants to PMG for the purchase of 36,924, 600, 18,900, 19,950, 8,890,
and 3,500 shares of common stock. The warrants are immediately exercisable,
carry a five year term, exercise prices of $3.25, $3.25, $8.00, $7.44, $7.41,
and $7.31, respectively, piggyback registration rights, and cashless exercise
provision.

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billserv.com, Inc.
(a development stage company)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998

14. STOCK WARRANTS (CONTINUED)

At December 31, 1999, warrants outstanding were as follows:

[Enlarge/Download Table]

SHARES OF AGGREGATE
WARRANT TO PURCHASE COMMON STOCK EXERCISE PRICE EXERCISE PRICE EXPIRATION DATE
-------------------------------------------------------------------------------------

Common stock 111,085 $ 6.75 $ 749,824 5/17/2004
Common stock 41,237 $ 6.0625 $ 250,000 8/5/2004
Common stock 36,924 $ 3.25 $ 120,003 10/14/2004
Common stock 1,230,791 $ 3.75 $4,615,466 10/14/2002
Common stock 20,000 $ 3.75 $ 75,000 10/25/2002
Common stock 153,846 $ 3.75 $ 576,923 10/14/2002
Common stock 600 $ 3.25 $ 1,950 10/25/2004
Common stock 18,900 $ 8.00 $ 151,200 12/15/2004
Common stock 19,950 $ 7.44 $ 148,428 12/16/2004
Common stock 8,890 $ 7.41 $ 65,875 12/20/2004
Common stock 3,500 $ 7.31 $ 25,585 12/22/2004
--------- ----------
1,645,723 $6,780,254
========= ==========

15. COMMON STOCK LISTING

billserv.com common stock began trading on the OTC BB operated by the National
Association of Securities Dealers on December 3, 1998. The NASD adopted
eligibility rules in 1999, which required clearance of comments by the SEC on
all SEC filings. We filed our initial filing on Form 10 with the SEC on June 10
but, as of October 7, 1999, the SEC had not cleared its comment period. In
accordance with the OTC BB's phase-in schedule for the new eligibility rules,
our listing on the OTC BB was terminated, and our common stock was quoted in the
National Quotation Board's Electronic Pink Sheets until December 7, 1999, when
the SEC cleared the comment period and our stock was relisted on the OTC BB.

16. SUBSEQUENT EVENTS

On January 14, 2000, in accordance with the terms of the private placement, we
filed a registration statement registering 3,782,360 shares of our common stock.
The registered shares include the 2,136,637 shares issued in October and
December 1999 under a private placement offering and 1,645,723 shares which are
issuable upon exercise of warrants to purchase common stock issued to the
holders of the registered shares, PMG and Kingship LTD, as described in this
section. The SEC declared the registration statement effective on January 18,
2000. Subsequent to December 31, 1999, one warrant issued to a participant in
the private placement as described above was exercised to purchase 15,400 shares
of common stock. Proceeds of the exercised warrant were $57,750.

Page 54 of 66

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

We have no disagreements with our accountants on any matter of accounting
principles or practice or financial statement disclosure.

PART III

Certain information required by Part III is omitted from this Report in that we
will file our definitive Proxy Statement for our Annual Meeting of Stockholders
to be held May 25, 2000, pursuant to Regulation 14A of the Securities and
Exchange Act of 1934 (the "Proxy Statement") not later than 120 days after the
end of the fiscal year covered by this Report, and certain information included
in the Proxy Statement is incorporated herein by reference.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS AND EXECUTIVE OFFICERS

The following sets forth our directors and executive officers as of February 1,
2000, their respective ages, the year in which each was first elected or
appointed a director, and any other office held by each director.

POSITION HELD
NAME AGE POSITION HELD SINCE
---- --- ------------- --------------
Michael R. Long 55 Director, Chairman, C.E.O. December, 1998
Louis A. Hoch 34 Director, President, C.O.O. December, 1998
David S. Jones 26 Director, Executive VP December, 1998
Lori A. Turner 42 Treasurer, VP, C.F.O. December, 1998
Marshall Millard 37 Secretary, VP, General December, 1998
Counsel
E. Scott Crist (1) 35 Director January, 1999
Roger R. Hemminghaus (1) 63 Director April, 1999
------------
(1) Member of the Compensation Committee and Audit Committee

MICHAEL R. LONG became Chairman and Chief Executive Officer as of December 1998.
Mr. Long has over 29 years of senior executive management and systems
development experience in six publicly traded companies, as well as successfully
operating his own systems consulting business. In the past five years, Mr. Long
has held positions at U.S. Long Distance Corp., as Vice President of Management
Information Systems from December 1993 to August 1996; Billing Concepts, Inc.,
as Vice President of Information Technologies from August 1996 to June 1997; and
Andersen Consulting as Business Development Director, Financial Services, from
October 1997 to December

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1998. Andersen Consulting is a worldwide consulting firm and affiliate of Arthur
Andersen accounting firm. Billing Concepts, Inc. is a leading operator of
comprehensive billing systems that collect long-distance charges from telephone
users on behalf of more than 1,300 telephone companies.

LOUIS A. HOCH joined billserv.com as President and Chief Operating Officer in
December 1998. Mr. Hoch's background has been primarily in the
telecommunications industry in which he has over 10 years of experience. Most
recently, from April to December 1998, Mr. Hoch was the Subject Matter Expert
for Call Centers in Telecom, at Andersen Consulting. His leadership in the call
center industry was acknowledged by Andersen Consulting when it classified his
processes and technology architecture to be one of its guidelines for best
practices in call center development. While employed at Billing Concepts, Inc.
from June 1991 to April 1998, Mr. Hoch successfully built large billing systems
that were proven flexible enough to sustain exponential growth in record
volumes, and call centers that integrated the latest in technology and
processes. During his tenure at Billing Concepts, Inc., Mr. Hoch held successive
positions: as a Tech Support Representative, Program Analyst, Program Manager,
MIS Manager, and finally, Director of Information Technology. Mr. Hoch holds a
B.B.A. in Computer Information Systems and an M.B.A. in International Business
Management, both from Our Lady of the Lake University. He is certified as a
Computer Professional (CCP) by the Institute for Certification of Computing
Professionals (ICCP).

DAVID S. JONES joined billserv.com in December 1998 as a director and senior
vice president and was appointed executive vice president in November 1999. He
has been active in the Internet billing industry almost since its inception.
While employed at Billing Concepts, Inc. from 1997-98, Mr. Jones was responsible
for defining strategic direction involving Internet technology. Mr. Jones has
played an essential role in the development of the necessary relationships
needed to be effective in the Internet billing marketplace, and has been
directly involved in the marketing of our products. Mr. Jones continues to
manage the ongoing development of our systems. From 1996 to 1997, Mr. Jones
owned and operated his own business that provided ongoing service and support to
automated teller facilities for various financial institutions. From 1993 to
1996, Mr. Jones was general manager of a specialty beverage operation in San
Antonio. He has completed business finance and general business studies at
Millikin University and the University of Texas at Austin.

LORI A. TURNER, C.P.A., joined billserv.com as Chief Financial Officer in
December 1998. Prior to that time, Ms. Turner served as Treasurer and Chief
Financial Officer at Docucon, Inc. She held various positions at Docucon
including Controller, Vice-President of Finance, and Assistant Secretary from
1990 until her departure in 1998. From 1984 through 1989, Ms. Turner held
various financial positions at Fuddruckers, Inc., a fast-food restaurant chain.
Prior to joining Fuddruckers, she worked as a consultant for Fuddruckers and
other firms. Ms. Turner holds an M.B.A. from the University of Texas at San
Antonio.

MARSHALL MILLARD also joined billserv.com in December 1998. He possesses over 10
years experience in providing legal counsel to publicly-traded and
privately-held companies. Mr. Millard has extensive experience in negotiating
and preparing strategic alliances, mergers and acquisitions, financing
agreements, and other business contracts and has a strong background in
litigation and

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appeals. He is licensed to practice law in the Supreme Court and all lower
courts in the State of Texas, the Western District of Texas, and the Fifth
Circuit Court of Appeals. He earned a Juris Doctor degree from St. Mary's
University School of Law in 1987, where he served as a Senior Associate Editor
for the ST. MARY'S LAW JOURNAL. Mr. Millard has held corporate counsel positions
at Southwestern Bell Telephone, a subsidiary of SBC Communications, Inc.,1993;
U.S. Long Distance Corp. (now owned by Qwest Communications International),
1993-1996; and Billing Concepts Inc., 1996-1998.

E. SCOTT CRIST became a director of billserv.com in January 1999. He is the
President and Chief Executive Officer of Telscape International, Inc., one of
the world's fastest-growing multinational carriers of voice, video, and data
services. Prior to joining Telscape, Mr. Crist was a founder of Orion
Communications, Inc., a long distance company, where he served as President. He
also previously served as President and Chief Executive Officer of Matrix
Telecom, a long distance company which ranked number seven on the Inc. Magazine
list of the 500 fastest growing companies in 1995. Mr. Crist also founded D.S.
Communications, a domestic long-distance company, where he served as President
and Chief Executive Officer. Mr. Crist holds an M.B.A. from the J.L. Kellogg
School at Northwestern University, and a B.S., magna cum laude, in Electrical
Engineering, with a Telecommunications Design emphasis, from North Carolina
State University.

ROGER R. HEMMINGHAUS became a director of billserv.com in April 1999. He
currently serves as Chairman of the Board of Directors of Ultramar Diamond
Shamrock Corp., having retired in January 1999 as Chief Executive Officer of the
same company. He also serves as a director for Luby's Cafeterias, Inc.; New
Centuries Energies; and The Nature Conservancy of Texas. From 1996 to January
1999, Mr. Hemminghaus served as Chairman and Chief Executive Officer of Ultramar
Diamond Shamrock Corp., following the merger of Ultramar Corporation and Diamond
Shamrock, Inc. Prior to this merger, Mr. Hemminghaus served as Chairman, Chief
Executive, and President of Diamond Shamrock, Inc., where he had been employed
since 1984. Mr. Hemminghaus also serves on the National Executive Board of the
Boy Scouts of America, and various non-profit boards in Texas. He is a graduate
of Auburn University, where he received a B.S. in Chemical Engineering.

ITEM 11. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following Summary Compensation Table sets forth summary information as to
compensation received by the Chief Executive Officer and each of the four other
most highly compensated persons who were serving as executive officers as of
December 31, 1999 (collectively, the "named executive officers") for services
rendered to billserv.com in all capacities during fiscal years ended 1999 and
1998:

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[Enlarge/Download Table]

ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
------------------- ------------------------------
RESTRICTED SECURITIES
NAME OF PRINCIPAL (1) FISCAL STOCK UNDERLYING ALL OTHER
POSITION YEAR SALARY AWARDS(2) OPTIONS(#) COMPENSATION
--------------------------------------------------------------------------------------

Michael R. Long 1999 $140,000 -- 100,000 --
Chairman and C.E.O. 1998 $14,835 1,183,333 -- --

Louis A. Hoch 1999 $134,615 -- 100,000 --
President and C.O.O. 1998 $11,868 1,183,334 -- --

David S. Jones 1999 $115,615 -- 100,000 --
Executive Vice 1998 $14,840 1,183,333 -- --
President

Marshall Millard 1999 $94,000 -- 40,000 --
Secretary, Vice 1998 $ 7,318 150,000 -- --
President, and
General Counsel

Lori A. Turner 1999 $96,154 -- 40,000 --
Treasurer, Vice 1998 -- 100,000 -- --
President, and Chief
Financial Officer
-----------

(1) Each of the named executives has entered into employment agreements
carrying three (3)-year terms providing an annual salary and bonuses at
the discretion of the Board of Directors, as well as health benefits. In
2000, each of the named officers is to receive compensation as follows:
Mr. Long, $190,000; Mr. Hoch, $140,000; Mr. Jones, $120,000; Ms. Turner,
$100,000; and Mr. Millard, $100,000.

(2) This table reflects only common stock ownership granted in connection with
the executive's employment arrangement.

STOCK OPTION GRANTS IN THE LAST FISCAL YEAR

The following table provides information regarding the grant of stock options
during fiscal year 1999 to the named executive officers.

[Enlarge/Download Table]

INDIVIDUAL GRANTS
---------------------------------------------
% OF TOTAL POTENTIAL REALIZABLE
OPTIONS VALUE AT ASSUMED
NUMBER OF GRANTED TO ANNUAL RATES OF STOCK
SECURITIES EMPLOYEES EXERCISE PRICE APPRECIATION FOR
UNDERLYING IN OR BASE OPTION TERM (1)
OPTIONS FISCAL PRICE EXPIRATION -----------------------
NAME GRANTED(#) 1999 ($/SHARE) DATE 5% ($) 10% ($)
--------------- ---------- ---------- --------- ---------- --------- --------

Michael R. Long 100,000 11% $2.81 01/03/09 $176,845 $448,160
Louis A. Hoch . 100,000 11% $2.81 01/03/09 $176,845 $448,160
David S. Jones 100,000 11% $2.81 01/03/09 $176,845 $448,160
Marshall Millard 40,000 4% $2.81 01/03/09 $ 70,738 $179,264
Lori A. Turner 40,000 4% $2.81 01/03/09 $ 70,738 $179,264

--------
(1)The potential realizable value is calculated based on the term of the option
and is calculated by assuming that the fair market value of common stock on
the date of the grant as determined by the Board appreciates at the indicated
annual rate compounded annually for the entire term of the option and that
the option is exercised and the common stock received therefore is sold on
the last day of the term of the option for the appreciated price. The 5% and
10% rates of appreciation are derived from the rules of the SEC and do not
reflect our estimate of future stock price appreciation. The actual value
realized may be greater or less than the potential realizable values set
forth in the table.

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BOARD REPORT ON EXECUTIVE COMPENSATION

A. COMPENSATION POLICY

Compensation decisions for the executive officers of billserv.com for
compensation paid during the year ended December 31, 1999 were generally made by
the members of the Board of Directors.

Our goal is to attract, retain, and reward a highly competent and productive
employee group. To do so, the Board of Directors, as a whole, has determined
that it is in our best interests to provide a total compensation package that
competes favorably with packages offered within the electronic commerce
industry, general industry, and the geographic areas in which billserv.com
operates. Our current compensation package includes a mix of base salary,
short-term and long-term incentive opportunities, and other employee benefits.
Changes in compensation are based on the individual's performance, our financial
performance, and the competitive marketplace. The Board considered the median
level of the market as competitive.

BASE SALARY. The base salary policy provides for compensation at
competitive levels. Increases in executive base salary are awarded for
individual performance based on the executive's performance plan. These
performance plans contain specific measures, both quantitative and
qualitative, related to financial achievements of the Company. Increases
generally reflect established merit increase guidelines applicable to all
salaried employees.

OPTION PLANS. In addition to the foregoing, directors, officers, and
employees of billserv.com, Inc. may be compensated through awards under
the Stock Plans discussed below.

EMPLOYEE BENEFIT PLANS

1999 EMPLOYEE COMPREHENSIVE STOCK PLAN

The Board of Directors and shareholders adopted the 1999 Employees Comprehensive
Stock Plan ("the Employee Plan") to provide for the grant of (i) incentive stock
options (ISOs) under Section 422 of the Internal Revenue Code, (ii)
non-qualified stock options that do not qualify under such code (NQSOs) and
(iii) the award of shares of restricted stock of the Company. A total of
2,000,000 shares of common stock have been reserved for the granting of options
and restricted stock under the Employee Plan. At December 31, 1999, options to
purchase 929,300 shares had been granted under the Employee Plan.

Under the Employee Plan, which is administered by the Stock Option Committee of
the Board of Directors, key employees may be granted options to purchase shares
of billserv.com common stock at 100% of fair market value on the date of grant
(or 110% of fair market value in the case of an ISO

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granted to a 10% stockholder/grantee). Options granted under the Employee Plan
must be exercised within ten years from the date of grant, vest at varying
times, as determined by the Stock Option Committee, are nontransferable except
by will or pursuant to the laws of descent and distribution, are protected
against dilution and expire upon voluntary termination of employment or
termination for cause of employment, unless such termination is by reason of
death or disability or upon retirement. All shares purchased upon exercise of
any option must be paid in full at the time of purchase, in accordance with the
terms set forth in the option. Such payment must be made in cash or through
delivery of shares of common stock or a combination of cash and common stock,
all as determined by the Stock Option Committee. The Stock Option Committee may
determine other terms applicable to particular options. No one person may
receive ISO options for which the aggregate fair market value (determined at the
time each ISO is granted) of options exercisable for the first time during any
calendar year exceeds $100,000. There is no price requirement for NQSOs, other
than that the option price must exceed the par value of the common stock. The
Stock Option Committee may permit the option purchase price to be payable by
transfer to billserv.com, Inc., of common stock owned by the option holder with
a fair market value at the time of exercise equal to the option purchase price.

The Employee Plan permits the Stock Option Committee to make awards of
restricted shares of common stock that are subject to a designated period during
which such shares of common stock may not be sold, assigned, transferred,
pledged or otherwise encumbered, which period shall not be less than one (1)
year nor more than two (2) years from the date of grant. Any award for which
such requirement is established shall automatically expire if not purchased in
accordance with the Stock Option Committee's requirements within 60 days after
the date of grant. The Stock Option 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 Employee Plan.
Shares of restricted stock awarded under the Employee Plan shall constitute
issued and outstanding shares of common stock for all corporate purposes.

Each employee has the right to vote the restricted stock held by such employee,
to receive and retain all cash dividends and distributions thereon, and to
exercise all other rights, powers and privileges of a holder of common stock
with respect to such restricted stock, subject to certain exceptions. Unless
otherwise provided in the agreement relating to an award, upon the occurrence of
a change of control, as defined in the Employee Plan, all restriction imposed on
the employee's restricted stock and may retained distributions shall
automatically terminate and lapse and the restricted stock shall terminate;
provided, however, that the change of control occurs within six months of the
date of grant, the restrictions and the restricted period shall terminate on the
six-month anniversary of the date of grant.

1999 EMPLOYEE STOCK PURCHASE PLAN

We also have a 1999 Employee Stock Purchase Plan (the "Purchase Plan") that was
approved by stockholders at the 1999 Annual Meeting of Stockholders. The
Purchase Plan allows eligible employees to purchase billserv.com common stock at
regular intervals by means of wage and salary deferrals.

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Participating employees are deemed to have been granted options to purchase
common stock in each offering in an amount equal to the amount of their
respective payroll deductions divided by 85% of the market value of the common
stock on the applicable offering commencement date. The purchase price is the
lesser of 85% of the closing price of the common stock on the offering
commencement date (or the next preceding trading day) or 85% of the closing
price of common stock on the offering termination date (or the next preceding
trading day). The aggregate of monthly payroll deductions cannot exceed $10,625
in any six-month participation period. At the end of each offering period, the
applicable number of shares of common stock is automatically purchased for the
participant.

The Purchase Plan, which is intended to qualify under Section 423 of the
Internal Revenue Code, is administered by the Stock Option Committee of the
Board of Directors. No shares have been issued to date under the Purchase Plan.

B. COMPENSATION OF DIRECTORS

There were no non-employee directors in 1998. Mr. Scott Crist joined the Board
of Directors on January 4, 1999 and Mr. Roger Hemminghaus joined the Board of
Directors on April 6, 1999. We pay a nominal fee, plus expenses, to our outside
directors for their attendance at Board meetings. Directors are eligible to
receive options under the1999 Non-Employee Director Plan that was approved by
shareholders in 1999. In 1999, Mr. Crist was granted an option to purchase
40,000 shares of billserv.com stock at an exercise price of $2.81 per share. Mr.
Hemminghaus was granted to an option to purchase 80,000 shares of billserv.com
common stock at an exercise price of $5.18 per share.

1999 NON-EMPLOYEE DIRECTOR PLAN

The 1999 Non-Employee Director Plan ("Director Plan") was approved by
shareholders in 1999 and covers an aggregate of 500,000 shares of common stock.
Under the Director Plan, which is administered by the a committee of no less
than two board members and two disinterested persons, non-employee Directors may
be granted options to purchase shares billserv.com common stock at 100% of fair
market value on the date of grant. Options granted under the Non-Employee Plan
are Non-Qualified Stock Options, must be exercised within ten years from the
date of grant, vest at varying times, as determined by the Stock Option
Committee, are nontransferable except by will or pursuant to the laws of descent
and distribution, are protected against dilution and expire upon voluntary
termination of employment or termination for cause of employment, unless such
termination is by reason of death or disability or upon retirement. All shares
purchased upon exercise of any option must be paid in full at the time of
purchase, in accordance with the terms set forth in the option.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Prior to April 6, 1999, billserv.com did not have a Compensation Committee or
other committee of the Board of Directors performing similar functions. Prior to
this time, decisions concerning

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compensation of the executive officers were generally made by the members of the
Board of Directors. Currently, the Compensation Committee consists of Messrs.
Crist and Hemminghaus.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

1. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

There are no non-management, beneficial owners of more than five percent (5%) of
the outstanding amount of the Company's common stock.

2. SECURITY OWNERSHIP OF MANAGEMENT

The following table sets forth information with respect to the share ownership
of the Company's common stock by officers and directors, both individually and
as a group, and by the record and/or beneficial owners of more than 5 percent of
the outstanding amount of such stock:

SHARES BENEFICIALLY
OWNED (1)
NAME NUMBER PERCENT
---- --------- --------
Michael R. Long (2) 1,216,667 9.2%
Louis A. Hoch (2) 1,224,668 9.2%
David S. Jones (2) 1,216,667 9.2%
Lori A. Turner (3) 113,334 .9%
Marshall Millard (3) 163,334 1.2%
All officers and directors as a group (11
persons, including the executive
officers and directors listed above) (4) 4,150,504 31.3%
-----------------

(1) BASED ON A TOTAL OF 13,128,465 SHARES ISSUED AND OUTSTANDING FEBRUARY 1,
2000.
(2) INCLUDES 33,334 SHARES ISSUABLE UPON THE EXERCISE OF OPTIONS TO PURCHASE
COMMON STOCK.
(3) INCLUDES 13,334 SHARES ISSUABLE UPON THE EXERCISE OF OPTIONS TO PURCHASE
COMMON STOCK.
(4) INCLUDES 140,004 SHARES ISSUABLE UPON THE EXERCISE OF OPTIONS TO PURCHASE
COMMON STOCK.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In October 1999 and December 1999, we issued 1,404,637 and 732,000 shares of
common stock, respectively, to twenty-one and twenty-two, respectively,
accredited investors under a private placement offer (the "Offering"). The
shares were issued at $3.25 and $5.50 per share, respectively, which represented
a discount upon the average reported closing sale price of our common stock for
the ten (10) business days immediately preceding the closing date. Net proceeds
totaled approximately $7,907,243.

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In accordance with the terms of the Offering, we also issued three year warrants
to the twenty-one investors to purchase 1,404,637 shares of common stock at
$3.75 per share, or one warrant for each share issued. We have the right to call
the exercise of the warrants at any time after six months after the date of the
issuance and after the closing price of the common stock exceeds $12.00 for a
period of twenty (20) consecutive trading days. Upon such call notice, the
holders of the warrants must exercise the warrants within thirty days, after
which time we may redeem each warrant for $.05. If all of the placement warrants
are exercised, we will receive proceeds of $5,267,389.

PART IV.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8K.

3.1 Articles of Incorporation, as amended, is incorporated by reference
to the Company's Registration Statement on Form SB-2 filed with the
U. S. Securities Exchange Commission on December 29, 1999.

3.2 By-laws, as amended, is incorporated by reference to the Company's
Registration Statement on Form SB-2 filed on December 29, 1999.

4.1 Common Stock Purchase Agreement is incorporated by reference to the
company's Registration Statement filed on Form SB-2 on December 29,
1999.

4.2 Registration Rights Agreement is incorporated by reference to the
Company's Registration Statement filed on Form SB-2 on December 29,
1999.

4.3 Investor Warrant Agreement is incorporated by reference to the
Company's Registration Statement filed on Form SB-2 on December 29,
1999.

4.4 Bridge Loan Warrant Agreement is incorporated by reference to the
Company's Registration Statement filed on Form SB-2 on December 29,
1999.

4.5 PMG Advisory Warrant Agreement is incorporated by reference to the
Company's Registration Statement filed on Form SB-2 on December 29,
1999.

4.6 Form of PMG Placement Agent Warrant is incorporated by reference to
the Company's Registration Statement filed on Form SB-2 on December
29, 1999.

10.1 Employment agreement with Michael R. Long is incorporated by
reference to the Company's Form 10 filed on June 11, 1999 and
amended on November 22, 1999.

10.2 Employment Agreement with Louis Hoch is incorporated by reference
to the Company's Form 10 filed on June 11, 1999 and amended on
November 22, 1999.

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10.3 Employment Agreement with David S. Jones is incorporated by
reference to the Company's Form 10 filed on June 11, 1999, and
amended on November 22, 1999.

10.4 Employment Agreement with Lori Turner is incorporated by reference
to the Company's Form 10 filed on June 11, 1999, and amended on
November 22, 1999.

10.5 Employment Agreement with Marshall Millard is incorporated by
reference to the Company's Form 10 filed on June 11, 1999, and
amended on November 22, 1999.

10.6 Consulting Agreement is incorporated by reference to the Company's
Form 10 filed on June 11, 1999 and amended on November 22, 1999.

10.7 billserv.com, Inc. Employee Comprehensive Stock Plan is
incorporated by reference to the Company's Definitive Proxy
Statement filed on November 22, 1999.

10.8 billserv.com, Inc. 1999 Non-Employee Director Plan is incorporated
by reference to the Company's Definitive Proxy Statement filed on
November 22, 1999.

10.9 billserv.com, Inc. Employee Stock Purchase Plan is incorporated by
reference to the Company's Definitive Proxy Statement filed on
November 22, 1999.

27.1 Financial Data Schedule (filed herewith).

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SIGNATURES

Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.

billserv.com, Inc.
A Nevada Corporation

By: _____________________________
Louis A. Hoch
President, Chief Operating Officer,
and Director
Date:____________________________

_________________________________
Michael R. Long
Chief Executive Officer and Chairman of
the Board of Directors
Date:_____________________________

_________________________________
David S. Jones
Executive Vice President and Director
Date:_____________________________

_________________________________
Roger Hemminghaus
Director
Date:_____________________________

_______________________________
E. Scott Crist
Director
Date:_____________________________

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_________________________________
Marshall Millard
Vice President and General Counsel
Date:_____________________________

_________________________________
Lori Turner
Vice President, Chief Financial Officer,
And Principal Accounting Officer
Date:_____________________________

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘10-K405’ Filing	Date	First	Last	Other Filings

	8/6/04	26	30
	10/14/02	27	53
	9/30/01	45		10-Q, 4
	12/31/00	47	48	10-K, 5
	6/15/00	45
	5/25/00	1	55
Filed on:	2/11/00			4
	2/3/00	48
	2/1/00	4	62
	1/27/00	37
	1/21/00	1	29	4
	1/18/00	27	54
	1/14/00	54		SB-2/A
	1/1/00	52
For Period End:	12/31/99	1	59
	12/29/99	63		SB-2
	12/22/99	40
	12/21/99	40
	12/17/99	40
	12/16/99	28	40	4, DEF 14A
	12/7/99	29	54
	11/22/99	63	64	10-12G/A, 10-Q, DEF 14A
	11/11/99	18	50
	10/31/99	33	48
	10/22/99	26	48
	10/18/99	26	48
	10/15/99	40
	10/7/99	29	54
	9/30/99	48		10-Q, NT 10-Q
	8/6/99	26	48
	6/11/99	26	64	10-12B, 10-12G, 3
	5/18/99	26	53
	5/7/99	52
	4/6/99	61
	1/4/99	48	61
	1/1/99	51
	12/31/98	32	54
	12/29/98	48
	12/9/98	43
	12/3/98	17	54
	11/1/98	48
	7/30/98	25	43
	6/4/98	25
				List all Filings

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Filing Submission 0000890566-00-000139 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

Payment Data Systems Inc – ‘10-K405’ for 12/31/99

On: Friday, 2/11/00 · For: 12/31/99 · Accession #: 890566-0-139 · File #: 0-30152

Annual Report — [x] Reg. S-K Item 405 — Form 10-KFiling Table of Contents

10-K405 — Annual Report — [x] Reg. S-K Item 405Document Table of Contents

Dates Referenced Herein and Documents Incorporated by Reference

Annual Report — [x] Reg. S-K Item 405 — Form 10-K
Filing Table of Contents

10-K405 — Annual Report — [x] Reg. S-K Item 405
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