BILLSERV COM INC, 10-12G/A, 1999-11-22

BILLSERV COM INC
10-12G/A, 1999-11-22
FUNCTIONS RELATED TO DEPOSITORY BANKING, NEC

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SECURITIES AND EXCHANGE COMMISSION

POST-EFFECTIVE AMENDMENT NO. 1 TO

FORM 10

GENERAL FORM REGISTRATION OF SECURITIES PURSUANT TO
SECTION 12(b) OR (g) OF THE SECURITIES ACT OF 1934
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billserv.com, Inc.
(Exact name of issuer as specified in its charter)
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Nevada
(State or other jurisdiction of incorporation or organization)
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Lori Turner Marshall Millard
Vice President and Chief Financial Officer Vice President and General Counsel

14607 San Pedro Ave., Suite 100
San Antonio, Texas 78232
210.402.5000
(Address,including zip code, and telephone number, including area
code of issuer's principal executive offices)
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Nevada Agency & Trust Company
50 West Liberty Street, Suite 880
Reno, Nevada 89501
702.322.0626
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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I.R.S. Employer Identification Number
98-0190072
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Securities to be registered pursuant to Section 12(b) of the Act: None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock $.001 par value
(Title of Class)

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INFORMATION REQUIRED IN REGISTRATION STATEMENT

ITEM 1. BUSINESS.........................................................1

ITEM 2. SPECIAL RISK FACTORS.............................................9

ITEM 3. FINANCIAL INFORMATION...........................................18

ITEM 4. PROPERTIES AND EQUIPMENT........................................24

ITEM 5. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..24

ITEM 6. DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES.........26

ITEM 7. EXECUTIVE COMPENSATION..........................................29

ITEM 8. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................32

ITEM 9. LEGAL PROCEEDINGS...............................................33

ITEM 10. MARKETPRICE OF AND DIVIDENDS ON THE COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.....................................33

ITEM 11. RECENT SALES OF UNREGISTERED SECURITIES.........................34

ITEM 12. DESCRIPTION OF THE COMPANY'S SECURITIES.........................37

ITEM 13. INDEMNIFICATION OF DIRECTORS AND OFFICERS.......................38

ITEM 14. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA......................39

ITEM 15. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.............................39

ITEM 16. FINANCIAL STATEMENTS AND EXHIBITS...............................39

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CAUTIONARY STATEMENT

All statements, trends, analyses and other information contained in this Form 10
relative to trends in net sales, gross margin, anticipated expense levels and
liquidity and capital resources, as well as other statements, including, but not
limited to, words such as "anticipate," "believe," "plan," "intend," "expect,"
and other similar expressions constitute forward-looking statements. These
forward-looking statements are not guarantees of future performance and are
subject to certain risks and uncertainties that are difficult to predict.

SPECIAL RISK FACTORS

Potential risks and uncertainties of an investment in the Company include those
set forth below in "Item 2. Special Risk Factors." Particular attention should
be paid to the cautionary statements involving the Company's limited operating
history, the unpredictability of its future revenues, the unpredictable and
evolving nature of its business model, the intensely competitive online commerce
industry and the risks associated with capacity constraints, systems
development, management of growth and business expansion, as well as other
factors described below.

ITEM 1. BUSINESS

1. GENERAL

billserv.com, Inc. (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
allowing the customer to pay the bill through the electronic transfer of
funds. EBPP is alternatively referred to as "Internet billing" or "Ebilling."

As a startup enterprise, with 40 employees, the Company expects to earn its
first operating revenues in the fourth quarter of 1999. The Company intends to
generate four principal revenue streams: Internet billing services ("eServ"),
Internet publishing of statements ("ePublishing"), customer care services
through Internet and traditional telephony technologies ("eCare"), and
professional services associated with the implementation and maintenance of
these Internet technologies ("eConsulting"). The Company is currently capable of
providing services in each of these areas, although ECare services are available
only on a limited basis. In addition, the Company is developing an Internet
portal with EBPP capabilities.

Through September 30, 1999, the Company has expended $600,389 on research and
development of its products and services. Of the four principal product and
service areas, only eCare is available on a limited basis, as the Company
intends to develop, build and staff a customer care center which integrates
Internet and traditional telephony

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capabilities. While development costs for this product are extremely difficult
to project, and may change as more definitive plans are developed, the Company
estimates expenditures ranging from $3,000,000 to $4,000,000 for the development
and construction of its first customer care center.

The Company has entered into strategic service or marketing agreements with
Transpoint, LLP, an EBPP consolidator and aggregator owned by Microsoft
Corporation, First Data Corporation, and Citibank Check Free Corporation; Bank
of America; CyberCash, Inc., an Internet payment technologies leader; and
NETDelivery Corporation, an electronic data management enterprise. These
agreements are in addition to the Company's existing agreement with Checkfree
Corporation.

Additionally, the Company has secured service agreements to provide its EServ
product to National Computer Print, Inc., one of the nation's largest print and
mail companies; Sallie Mae Corporation, the nation's leading provider of
financial services for post-secondary education; Ultramar Diamond Shamrock
Corporation, a major independent petroleum refining, petroleum product and
convenience merchandise concern; PC Free, Inc., a strategic bundler of computer
hardware and software; and UDP, Inc., which provides billing and messaging
services in the telecommunications industry. Each of these agreements involve
two phases of service by the Company. The first phase is a piloting period,
during which the customer and Company systems are analyzed and tested. The
second phase of service is operational, involving the actual delivery of the
EServ product to the biller/customer and its customers. Currently, the Company
is experiencing a 3-4 month piloting phase with its initial customers. The
duration of this phase is expected to be reduced over time with each additional
Company customer, as historical and operating history will indicate potential,
recurring customer service issues, for future reference. In the fourth quarter
of 1999, the Company expects to generate its initial operating revenue for the
EServ product, as some of its initial customers have completed the piloting
phase of service.

The Company primarily targets middle market billers that produce monthly
recurring bills to their customer base. Examples of these billers include
utilities, credit card issuers, security monitoring services, financial
services, cable service providers and communications providers. The Company also
targets traditional print-house service companies that require assistance in
their conversion to Internet billing.

In a typical scenario, the Company will analyze a biller's existing billing
system and enable the biller to transmit its print stream to the Company for
electronic bill processing. The Company will then process the billing
information from the biller's print stream and transmit the data to a selected
consumer "front end," an Internet website destination where the consumer has
chosen to receive bills in an electronic medium. Examples of front ends, also
called aggregators, include Check Free, Transpoint, Bank of America, the
biller's website, the consumer's bank website, and Internet portals such as
Yahoo, Excite , Lycos , AOL and others. After receiving the bill on its chosen
website, the consumer may review and pay the bill by selecting the available
payment option on the website.

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Payment is completed through ACH (Automated Clearing House) transfer of funds as
directed by the consumer and enabled by the consumer's chosen front end.

The Company will charge a volume-sensitive transaction fee for each bill or
statement presented electronically over the Internet. Pricing is also reflective
of the multi-year term commitment selected by the biller. The Company also
charges a set-up fee for implementing Internet billing capabilities for the
biller.

The Company believes a biller can achieve substantial savings by utilizing the
electronic billing services offered by the Company instead of continuing to
publish paper-based bills. These savings are primarily realized in reduced
printing, mailing and handling costs.

The Company believes that consumers will increasingly demand to receive and pay
their bills over the Internet, particularly at a single front end website
individually selected by the consumer. The Company believes it has an advantage
in the EBPP market in that it can assist a biller in presenting a bill to any
consumer at any Internet website chosen by that consumer. In this regard, the
Company functions as a clearinghouse for selected consumer front ends. By
contrast, the Company believes that today a biller is forced to either choose
one particular consumer front end, and therefore one website, or build its own
EBPP capabilities and manage all of the various front end relationships itself,
an undertaking which involves considerable time and costs, and displaces the
biller's resources from its core business functions.

The Company believes that a biller's statement, as presented on a consumer's
chosen website, provides targeted marketing opportunities for that biller and
third party advertisers. Just as paper-based bills received by consumers often
contain marketing inserts and product offerings, the electronic bill provides
for electronic bill inserts. The Company believes that the biller can achieve
additional revenues by providing consumers with purchasing opportunities on its
bill space.

The Company believes that today it has few competitors in its role as an EPBB
service bureau clearinghouse of small to medium size billers. The Company,
however, expects that competition will increase dramatically in the near future.
The Company expects to have increased competition from front ends, traditional
print and mail companies, and existing and new market entrants.

Electronic presentment of statements, or ePublishing, enables a company to
provide business-to-business distribution of traditional paper-based statements
over the Internet. An example of such statements includes those sent by
investment or fund managers to brokers. The Company believes that statement
producers can achieve substantial time and cost savings by transferring
publishing and distribution functions to an Internet-based service provider.

The Company believes it can also generate revenues from customer care center

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operations, whether those operations are generated from billers' outsourced
customer care functions or from marketing opportunities from electronic bill
marketing inserts. The Company therefore plans to build Internet-enabled
customer interaction centers to capitalize on these marketing opportunities.

The Company offers professional consulting services to assist billers, statement
producers, call center operators and other Internet business participants in
establishing and maintaining their own customized Internet billing, presentment
or communications systems.

In April 1999, the Company announced that it was establishing its own Internet
portal at the website www.bills.com. The operations of the Internet portal have
been organized under "bills.com, Inc.," a Delaware corporation which will
operate as a wholly-owned subsidiary of the Company. The Company expects that
the Internet portal of bills.com will be fully operational during the first
quarter of 2000, and will be available for consumer use and interaction
thereafter. Consumers may currently register with bills.com by visiting the
website and entering applicable billing information.

The core function of bills.com is to operate as an Internet bill presentment and
payment service for consumers. In this regard, bills.com will operate a consumer
front end, similar to CheckFree. In addition, bills.com will provide other
on-line features such as stock quotes, mortgage quotes, loan applications and
approvals, banking, shopping, news, weather, sports and other features. In this
connection, bills.com has recently entered into an agreement with InfoSpace.com
to develop these on-line features, some of which have been implemented.

bills.com expects to earn revenues through Internet banner advertising on its
website, as well as through sponsorship agreements with other Internet portals.
The Company believes that companies will purchase space on its bills.com website
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. The Company's
bills.com subsidiary currently possesses no relationship with other
Internet-based enterprises, nor has the Company sought any such relationships;
however, the Company intends 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.

2. INDUSTRY OVERVIEW

Internet usage has increased dramatically in the last decade. As a result, many
new personal and commercial applications have been developed for Internet users
and increasingly consumers are conducting business through Internet
applications. The Company believes that Internet billing will be one of the next
significant applications of the Internet. Companies such as CheckFree and
Transpoint have been established in order to develop Internet billing into a
commercially viable alternative to paper-based

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billing and payment systems.

Research indicates that there are approximately 110 million households in the
United States with each receiving an average of twelve (12) bills per month.
Assuming an average charge of $0.40 for each EBPP transaction, the Company
estimates annual industry revenue potential of $6.4 billion. If 33% of
households pay their bills online, the market potential is $2.1 billion per
year. The Company believes that if small businesses are included in the
calculation, the market size doubles to over $4 billion per year.1

According to the Bank Administration Institute, five industries utilities,
communications, credit cards, insurance, and lending institutions are
responsible for over one-half of all consumer bill payments.2 Because of the
large number of recurring bills, these industries are likely to be the first to
offer electronic bill presentment.

3. PRODUCTS AND SERVICES

In order to meet real and anticipated market demand, the Company has developed
and is marketing the following products and services:

eSERV (SM) (INTERNET BILLING SERVICE BUREAU). eServ creates the option for
companies currently printing and mailing bills to instead publish the bills on
the Internet wherever 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 CheckFree TransPoint and Bank of America, as well as the biller's
website. It is important for a biller to be able to deliver statements to all of
these front ends, because each consumer will demand to receive electronic bills
at their preferred front end. 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
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 billserv.com pays one-time integration
fees to the front ends for each biller, and volume-based per statement charges,
aggregating the volume of all of its billers. This reduction in cost enables
billserv.com to charge a one-time implementation fee to each biller and a per
statement fee which is less than the rate a
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(1) "Internet Billing: Waiting for the Banks," Salomon Smith Barney, October
15, 1998, p. 20.
(2) "Internet Billing: Waiting for the Banks," p. 17.

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biller would pay if supporting an internal Internet billing system.

ePUBLISHING(SM) (INTERNET PRESENTMENT OF STATEMENTS). The ePublishing product
enables business-to-business distribution of traditional paper-based statements,
such as those produced by investment or fund managers for their brokers.

The ePublishing solution will allow businesses such as investment fund managers
or current print vendors to transmit already existing print files to the Company
for manipulation and presentment on a website that the brokerage community or
other business can access for viewing. The Company will 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 this product is very difficult to estimate, the
Company believes it is substantial. The Company is 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(SM) (CUSTOMER INTERACTION CENTER). eCare is similar in nature to
traditional call centers, but with multiple communication entry points such as
telephone, Internet, interactive voice response, email and fax. The Internet
communication component may support Web chat, IP Telephony (voice over the
Internet), Web Whiteboarding (visual interactive on-screen markings), email and
Web Video conferencing. The call centers will provide revenue opportunities
through traditional outsourced customer care services as well as through
fulfillment services via electronic bill marketing inserts.

eCONSULTING(SM) (PROFESSIONAL SERVICES). eConsulting will provide custom build
solutions for companies seeking an in-house EBPP or related system. These
services can range from assisting in the development an Internet billing
strategy to actually building an EBPP system for the biller. In this regard, the
Company can assist the biller in overcoming the learning curve associated with
EBPP. The market for this product primarily consists of large first tier or
second tier billers.

bills.com (INTERNET PORTAL). bills.com will operate as an Internet portal
offering an electronic bill presentment service for consumers. In this regard,
bills.com will operate a consumer front end, similar to CheckFree. Unlike other
consumer front ends, however, bills.com will offer its services free of charge
to consumers. In addition, bills.com will provide 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
website.

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4. SALES AND MARKETING

I. STRATEGY

The Company foresees two broad-based approaches to its sales and marketing
strategy. The first approach is based on a geographic concentration, whereby the
Company will attempt to secure a critical mass of billing customers in a densely
populated metropolitan area. These billing customers would be local and regional
utilities or other companies from which consumers receive a substantial number
of their total monthly statements. The Company will concurrently approach local
banks and credit unions in order to develop Internet billing relationships.
These financial institutions could also market to their respective customer
bases, thereby driving consumer acceptance and demand for Internet billing
services. The geographic model would be replicated on a national and
international basis. The Company will develop a sales force to meet the demands
presented by the geographic sales model.

The second approach of the Company's sales and marketing strategy will be a
non-geographic expansion model. In this approach, the Company will pursue
vertical markets and traditional print and mail enterprises and encourage
companies in these areas to offer Internet billing services to their print and
mail customers, wherever they may be located.

To supplement its sales efforts, the Company intends to develop a marketing
compact disc which would be presented to targeted executives within prospective
billing customers. The compact disc will contain a clear value proposition
supported by video and demonstration capabilities.

To further its sales and marketing strategies, the Company will attend and make
presentations at industry-specific trade shows and in trade publications. It is
the Company's plan to have a significant presence at each of these trade shows
to ensure direct contact with prospect companies and executives. Trade
publications will be used to promote the brand and services. The Company will
evaluate the effectiveness of this program based upon revenue generation, reader
response cards and in-bound calls for more information.

For the newly-formed bills.com subsidiary, marketing efforts may be directed
toward a nationwide campaign of television commercials, Internet banner
advertisements, news media briefings, and the offering of incentives for new
subscribers.

II. SUPPORT

The Company's sales and marketing efforts, their associated costs and precise
timing are under development, and thus extremely difficult to project. Until
sufficient funds are available, the Company will be unable to pursue fully its
sales and marketing strategies. In order to fund these efforts, the cost of
which will likely exceed the amount of $3,000,000 over the next twelve (12)
month period, the Company currently plans to issue

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additional equity securities, undertake capital lease financing arrangements,
and in the longer term expend revenue from operations.

The Company is currently capable of providing services in each of its key
product areas, although eCare services are available on a limited basis, due
primarily to the size and configuration of the company's current facilities.
Through September 30, 1999, the Company has expended approximately $600,389 on
research and development of its products and services. To further support its
ECare product sales and service, the Company intends to develop, build and staff
a customer care center which integrates Internet and traditional telephone
capabilities. While development costs for this center are difficult to project,
and may change as more extensive plans are developed later this year, the
Company estimates expenditures ranging from $3,000,000 to $4,000,000 for the
development and construction of its customer call center.

The Company currently employs 40 personnel; and projects that it will have
approximately 60 employees by the end of 1999.

5. PLAN OF OPERATION FOR REMAINDER OF FISCAL YEAR

The Company's plan of operation for the next twelve months is to: (1) further
develop trading partner relationships with front ends such as CheckFree,
Transpoint, Bank of America, all of which have executed agreements with the
Company; (2) develop trading partner relationships with Internet portals in
order to gain access to as many Internet users as possible; (3) execute billing
agreements with as many billers as possible; (4) design, develop and market its
Internet portal where the consumer can view and pay bills; (5) build systems
which will operate the EBPP and other operations of the Company; (6) attract and
retain highly qualified employees in order to appropriately staff business
operations; and (7) provide the facilities and resources necessary to achieve
the business goals of the Company. The Company currently employs 40 personnel
and projects that it will have approximately 60 employees by the end of 1999.

6. 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 about the Company may be obtained at the Company's Internet address,
http://www.billserv.com. The Company offices may be contacted by telephone at
210-402-5000.

The Company was incorporated on June 4, 1998 as a mineral development company,
under the name Goldking Resources, Inc. The principal asset of the company was a
mineral claim located in British Columbia, Canada. After the Company (then under
prior management) further analyzed the cost involved in developing the mineral
claim, it determined that the Company would have greater value as a corporate
vehicle for other

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operations. Accordingly, the Company obtained NASD OTC Bulletin Board ("OTC BB")
trading status, and on December 3, 1998, 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 the current management directors of the Company, who were not
affiliated with any of the officers, directors or shareholders of Goldking
Resources.

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
(now known as billserv.com, Inc.) was the surviving entity, the Company was able
to position itself 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, the Company 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"). The Company also entered into a Consulting Agreement with
this Group for the provision of investor relations, fundraising assistance and
public relations services. The initial advances by the Consulting Group were
subsequently repaid from Regulation S equity financing of $5.3 million.

The Company currently has 12,381,065 shares of common stock issued and
outstanding. Four million of these shares are restricted stock owned by the
directors and certain key employees of the Company; and 1,404,637 shares are
restricted stock owned by certain accredited investors. The remaining shares are
owned by approximately 4,320 shareholders. The Company believes no shareholder
holds more than five per cent (5%) ownership of the Company. (See Item 4 -
Security Ownership of Certain Beneficial Owners and Management.).

In March 1999, bills.com, Inc. was incorporated in Delaware, as a wholly-owned
subsidiary of the Company.

This report contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Special
Risk Factors" described in Item 2 below.

ITEM 2. SPECIAL RISK FACTORS

Investors should carefully consider the following information which outlines
special market and other risk factors affecting the industry and the Company.

LACK OF OPERATING HISTORY; LIMITED RELEVANCE OF HISTORICAL FINANCIAL
INFORMATION.

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The Company was organized in 1998 and has only recently begun operations as a
public company. The Company has not been profitable; nor has the Company
generated any revenue. Through September 30, 1999, the Company's accumulated
deficit was $4,285,775. Accordingly, all information included herein may not
necessarily reflect the results of operations, financial position and cash flows
of the Company in the future.

POSSIBLE VIOLATION OF SECURITIES LAWS. On or about December 3, 1998, the
Company, then under the control of former management, and then known as Goldking
Resources, Inc., concluded an offering of approximately 5.3 million shares of
the Company's 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 $5,300.00. 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. The Company timely filed a Form D reporting
this transaction to the SEC, and claimed exemption under Rule 504. The SEC has
challenged the validity of this claimed exemption.

The Company disputes 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 subject the Company 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. The Company
disputes any such liability.

Additionally, while the Company 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 the Company to
repurchase their shares, for the amount originally paid, plus interest. The
Company disputes any such liability.

Based upon the best information available to the Company at this time, the
Company has calculated a range of possible, but disputed, exposure that exists
for the Company in light of the disputed civil liabilities described above.
Accordingly, in the event these disputed civil liabilities were successfully
asserted, the Company 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 the Company's 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 the Company.

DELISTING FROM OTC BB; EFFECT ON LIQUIDITY. The Company is a "reporting company"

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under the Exchange Act, having filed a Form 10 Registration Statement (the
"Registration Statement") on June 11, 1999. Following initial comment by the
SEC, the Registration Statement was amended on July 27, 1999, and became
effective on August 11, 1999. In light of the risk factors stated above, the
Company anticipates that the SEC will require one or more post-effective date
amendments of the Registration Statement. The Company intends to seek relisting
immediately upon the filing of this post-effective amendment to Form 10 with the
SEC.

The National Association of Securities Dealers ("NASD"), which operates the Over
the Counter Bulletin Board ("OTC BB"), has recently adopted eligibility rules,
which require the Company to clear comment with the SEC in order to remain
listed on the OTC BB. While the Company has promptly responded to the SEC's
comments, the Registration Statement has not yet cleared comment. Thus, the
Company has not met the eligibility criteria established by the NASD.
Accordingly, as of October 7, 1999 the NASD notified the Company that its
listing on the OTC BB was terminated, and the Company's common stock is now
quoted in the National Quotation Board's Electronic Pink Sheets, until such
time, if any, as the Company requalifies for listing on the OTC BB.

Delisting of the Company's common stock from the OTC BB could substantially and
negatively affect the liquidity and marketability of the Company's common stock.
Furthermore, the Company can offer no assurances concerning the timing, nature,
or scope of further comment by the SEC.

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 the Company, despite an
investment of significant resources, is unable to adapt to meet changing
customer requirements or technological changes in this emerging market, or if
the Company's services and related products do not maintain a proportionate
degree of acceptance in this growing market, the Company's 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 the Company's customer base and revenues in particular. Similar to the
emergence of the credit card and automatic teller machine ("ATM") industries,
the Company and 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 the Company believes that it is utilizing proven
applications designed for premium data security and integrity to process
electronic transactions, there can be no assurance that the Company's 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 the Company's or another providers'
security, have the potential to undermine consumer confidence in the technology
and thereby have a materially adverse effect on the Company's business. In
addition, there can be no guarantee that the Internet

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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. The Company's future
financial performance will be materially affected by the percentage of bill
payments which can be cleared electronically. As compared with making payment by
paper check or by draft, the Company believes that electronic payments: (i) cost
much less to complete; (ii) give rise to fewer errors, which are costly to
resolve; and (iii) generate far fewer customer inquiries and therefore consume
fewer customer care resources. Accordingly, the Company's inability to continue
to decrease 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 would have a material adverse
effect upon the Company's business, operating results, and financial condition.

RISK OF INABILITY TO ADAPT TO RAPID TECHNOLOGICAL CHANGE; RISK OF DELAYS. The
Company's success is highly dependent on its ability to develop new and enhanced
services, and related products that meet changing customer requirements. At
present, the Company's four principal products, EServ, eCare, EPublishing and
EConsulting are available, although ECare services remain available only on
limited basis. Nonetheless, the market for the Company's 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. The Company, to remain successful, 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. The Company 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 the
Company will benefit from such developments or that services, products, or
technologies developed by others will not render the Company's services, and
related products noncompetitive or obsolete. If the Company is 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, the Company's
business, operating results, and financial condition would be materially
adversely affected.

CHANGES IN REGULATION OF ELECTRONIC COMMERCE AND RELATED FINANCIAL SERVICES.
Management believes that the Company is 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

14
<PAGE>
services. There can be no assurance that a federal or state agency will not
attempt to regulate providers of electronic commerce services, such as the
Company, which could impede the Company's ability to do business in the
regulator's jurisdiction. The Company is 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 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 the Company's
business and industry and could have a material adverse effect on the Company's
business, operating results, and financial condition.

UNCERTAINTY OF ACH ACCESS. The ACH Network is a nationwide batch-oriented
electronic funds transfer system which 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 customers of the Company will authorize the Company to
originate an ACH entry. As the originator, the Company forwards 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 OFDI 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, the Company's 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. The Company expects 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, the Company expects that new service
bureau companies will emerge and compete for the small to medium size biller
business. The Company further believes 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.
The Company believes that banks will also compete for the EBPP business of small
to medium size billers.

The Company expects competition to increase from both established and emerging

15
<PAGE>
companies and that such increased competition will result in reduced transaction
costs which could materially adversely affect the Company's business, operating
results, and financial condition. Moreover, the Company's current and potential
competitors, many of whom have significantly greater financial, technical,
marketing, and other resources than the Company, may respond more quickly than
the Company to new or emerging technologies or could expand to compete directly
against the Company in any or all of its target markets. Accordingly, it is
possible that current or potential competitors could rapidly acquire significant
market share. There can be no assurance that the Company will be able to compete
against current or future competitors successfully or that competitive pressures
faced by the Company will not have a material adverse effect on its business,
operating results, and financial condition.

FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING. The Company currently
plans to meet its capital requirements primarily through issuance of equity
securities, capital lease financing, and in the longer term, revenue from
operations. In late October 1999, the Company concluded equity financing through
a private placement of common stock and warrants to purchase common stock, with
proceeds to the Company in the amount of $4,188,053. However, the Company
anticipates the need to raise 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 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 of the Company may be reduced and such equity
securities may have rights, preferences or privileges senior to those of the
holders of the Company's common stock. There can be no assurance that additional
financing will be available on terms favorable to the Company, or at all. If
adequate funds are not available or are not available on acceptable terms, the
Company 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 the Company's business, operating
results, and financial condition could be materially adversely affected.

DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a significant
degree upon the continued contributions of its key management, marketing,
service and related product development and operational personnel, including its
Chairman, and Chief Executive Officer, Michael R. Long; its President and Chief
Operating Officer, Louis A. Hoch; its Senior Vice President of Business
Development, David S. Jones; its Chief Financial Officer, Lori K. Turner; its
General Counsel, Marshall N. Millard; and its Vice President of Business
Development, Randy Kauftheil. The Company's operations could be affected
adversely if, for any reason, any of these officers ceased to be active in the
Company's management. The Company maintains proprietary nondisclosure and
non-compete agreements with all of its key employees. The Company intends to
secure key person life insurance policies on Mr. Long. The success of the
Company depends to a large extent upon its ability to retain and continue to
attract highly skilled personnel. Competition for employees in the electronic
commerce industry is intense, and there can

16
<PAGE>
be no assurance that the Company will be able to attract and retain enough
qualified employees. If the business of the Company grows, it may become
increasingly difficult to hire, train and assimilate the new employees needed.
The Company's inability to retain and attract key employees could have a
material adverse effect on the Company's business, operating results, and
financial condition.

POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS. The Company's quarterly results of
operations may fluctuate significantly as a result of a number of factors,
including changes in the Company's pricing policies or those of its competitors,
relative rates of acquisition of new customers, delays in the introduction of
new or enhanced services, software, and related products by the Company or by
its competitors or market acceptance of such services and products, other
changes in operating expenses, personnel changes, and general economic
conditions. These factors will impact the Company's operating results.
Fluctuations in operating results could result in volatility in the price of the
Company's common stock.

RISK OF PRODUCT DEFECTS. The software products utilized by the Company could
contain errors or "bugs" that could adversely affect the performance of services
or damage a user's data. In addition, as the Company increases its share of the
electronic commerce services market, software reliability and security demands
will increase. The Company attempts to limit its potential liability for
warranty claims through limitation-of-liability provisions in its customer
agreements. There can be no assurance that the measures taken by the Company
will prove effective in limiting the Company's exposure to warranty claims.
Despite the existence of various security precautions, the Company's computer
infrastructure may be also vulnerable to viruses or similar disruptive problems
caused by its customers or third parties gaining access to the Company's
processing system.

EROSION OF REVENUE FROM SERVICES. The profitability of the Company's business
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, the Company's
revenues and profits would be adversely affected. Sales of the Company's
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 the Company's
services are likely to be sold within the utilities and financial services
industries, and poor performance by the Company in performing its services has
the potential to undermine the Company's reputation and affect future sales of
other services. A substantial decrease in revenue from services would have a
material adverse effect upon the Company's business, operating results, and
financial condition.

RISK OF LOSS FROM RETURNED TRANSACTIONS, MERCHANT FRAUD OR ERRONEOUS
TRANSMISSIONS. The Company relies 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. In its use of these established
payment clearance systems, the Company generally bears the same credit risks
normally assumed by other users of these systems arising from returned
transactions caused by insufficient funds, stop

17
<PAGE>
payment orders, closed accounts, frozen accounts, unauthorized use, disputes,
theft, or fraud. In addition, the Company also assumes the risk of merchant
fraud and transmission errors when it is 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. The Company's operations are dependent on its ability to
protect its computer equipment against damage from fire, earthquake, power loss,
telecommunications failure or similar event. Any damage or failure that causes
interruptions in the Company's operations could have a material adverse effect
on the Company's business, operating results, and financial condition. The
Company's property and business interruption insurance may not be adequate to
compensate the Company for all losses that may occur.

RISK OF YEAR 2000 OPERATIONAL DEFECTS. The Company has completed the process of
determining whether or not its products, its internal systems, computers and
software, and the products and systems of its critical vendors and suppliers are
Year 2000 compliant. Based upon the Company's review, and because the Company's
systems and software are relatively new, management believes that the Company's
internal systems and those of its critical vendors and suppliers, are Year 2000
compliant. Accordingly, the Company does not currently expect that costs
associated with Year 2000 compliance will have a material effect on operations
or financial position. Although the Company believes that its Year 2000 review
has identified all material Year 2000 issues, there can be no absolute assurance
that the Company identified and resolved all such issues. If the Company
discovers Year 2000 problems in the future, it 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. The Company regards some of its services as proprietary and relies
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 its services. Existing intellectual property laws
afford only limited protection, and it may be possible for unauthorized third
parties to copy the Company's services and related products or to reverse
engineer or obtain and use information that the Company regards as proprietary.
There can be no assurance that the Company's competitors will not independently
develop services and related products that are substantially equivalent or
superior to those of the Company.

LIMITED PRIOR MARKET. Prior to December 3, 1998, there was no public market for
the Company's common stock, and no public market may be developed or sustained
for such stock. Until October 8, 1999, the Company was listed on the NASD OTC
BB. The Company's Shares are now traded through the National Quotation Board's
Electronic Pink Sheets. There can be no assurance that an active or liquid
trading market in the Company's common stock will develop or be sustained.

18
<PAGE>
LIMITED LIQUIDITY OF STOCK. The lack of a prior, liquid market for the Company's
shares may make it difficult for shareholders to sell their shares in the
Company. Prior to December 3, 1998, there was no public market for the Company's
common stock, and no public market may be developed or sustained for such stock.
Until October 8, 1999, the Company was listed on the NASD OTC BB, and there can
be no assurance that an active or liquid trading market in the Company's common
stock will develop or be sustained. The Company's Shares are now traded through
National Quotation Board's Electronic Pink Sheets. Moreover, the Company's 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 the Company's common stock is
subject to significant fluctuations in response to variations in quarterly
operating results, the failure of the Company to achieve operating results
consistent with securities analysts' projections of the Company's 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 announcements of the
introduction of new or enhanced services or related products by the Company or
its 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 the Company or its competitors may have a significant impact
on the market price of the Company's common stock.

CONTROL BY PRINCIPAL STOCKHOLDERS. Currently, the directors and executive
officers of the Company and their affiliates collectively own approximately
30.8% of the outstanding shares of the Company's 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.
Currently, the Company has 12,381,065 shares of the Company's common stock
outstanding. Five million four hundred four thousand six hundred thirty-seven
(5,404,637) shares are restricted pursuant to Rule 144; and 946,428 are
restricted under Regulation S; but 6,030,000 are not. Furthermore, under the
terms of a private placement concluded in October of 1999, the Company is
obligated to seek registration of 1,404,637 common shares and 1,594,482 shares
underlying warrants. Sales of substantial amounts of unrestricted shares in the
public market or the prospect of such sales could adversely affect the market
price of the Company's Common Stock.

19
<PAGE>
ANTI-TAKEOVER PROVISIONS; CERTAIN PROVISIONS OF NEVADA LAW; CERTIFICATE OF
INCORPORATION, BYLAWS, AND STOCKHOLDER RIGHTS PLAN. Certain provisions of Nevada
law, the Company's Certificate of Incorporation, Bylaws, 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. The Company's Board of Directors is also
classified into 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. The Company also intends to
seek shareholder 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 the Company's common stock or could adversely affect the rights and
powers, including voting rights, of the holders of the Company's common stock.
In certain circumstances, such issuance could have the effect of decreasing the
market price of the Company's common stock.

DIFFICULTY IN MANAGEMENT OF GROWTH. The Company may experience a period of rapid
growth which could place a significant strain on its resources. The Company's
ability to manage growth successfully will require the Company to continue to
improve its operational, management and financial systems and controls as well
as to expand its work force. A significant increase in the Company's 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 the Company's computer and
administrative infrastructure will require substantial operational, management,
and financial resources. Although the Company believes that its current
infrastructure is adequate to meet the needs of its customers in the foreseeable
future, there can be no assurance that the Company will be able to expand and
adapt its infrastructure to meet additional demand on a timely basis, at a
commercially reasonable cost, or at all. If the Company's management is unable
to manage growth effectively, hire needed personnel, expand and adapt its
computer infrastructure or improve its operational, management, and financial
systems and controls, the Company's business, operating results, and financial
condition could be materially adversely affected.

ACQUISITION-RELATED RISKS. In the future, the Company may pursue additional
acquisitions of complementary service or product lines, technologies, or
businesses. Future acquisitions by the Company 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 the Company's 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
management's attention from other business concerns, risks of entering markets
in which the Company has no or limited direct prior experience, and the
potential loss of

20
<PAGE>
key employees of the acquired company. From time to time, the Company evaluates
potential acquisitions of businesses, services, products, or technologies. The
Company has 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 were to occur, however, there can be no assurance
that the Company's business, operating results, and financial condition would
not be materially adversely affected.

UNLIKELY PAYMENT OF DIVIDENDS. The Company has paid no cash dividends and has 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 its board of directors, based upon its future earnings, financial
condition, capital requirements and other factors. The Company is not presently
subject to any restriction on its present or future ability to pay such
dividends.

DEPENDENCE UPON CONTRACTS WITH BILLERS. The Company's business is dependent upon
performing under the terms of agreements with billers. Although the Company is
unaware of any circumstance which would prevent the enforcement of these
agreements, there can be no assurance that the Company might not be able to
fully perform under these agreements or that other factors may prevent billers
from processing billing information through the Company.

DEPENDENCE UPON CONTRACTS WITH TRADING PARTNERS. The Company's business is
dependent upon executing and maintaining agreements with front ends such as
CheckFree, Transpoint, and Intuit 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 the Company 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 growth
anticipated in its business, the Company plans to make significant expenditures
in its operations over the next one to three years. These expenditures are
expected to be made in the areas of software development, licensing, hardware,
and related staffing. The Company believes that it 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.

SHARES ELIGIBLE FOR FUTURE SALE. Sales of a substantial number of shares of
Common Stock in the public market could adversely affect the market price for
the Company's Common Stock, which could have a direct impact on the value of the
Shares.

FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE. This registration statement
contains certain forward-looking statements and information relating to the
Company that are based on the beliefs of the Company's management as well as
assumptions made by and assumptions made by and information currently available
to the Company's

21
<PAGE>
management. When used in this document, the words "anticipate," "believe,"
"estimate," "expect," and "intend" and similar expressions, as they relate to
the Company or its management, are intended to identify forward-looking
statements. Such statements reflect the current views of the Company 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.

ITEM 3. FINANCIAL INFORMATION

1. SELECTED FINANCIAL DATA

The following table sets forth certain selected financial data of billserv.com,
Inc. as of and for the nine months ended September 30, 1999, and as of and for
the period from inception (July 30, 1998) through December 31, 1998. The
information contained in the following table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical financial statements and related notes included
elsewhere herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED JULY 30 1998
SEPTEMBER 30 1999 (INCEPTION)
TO DECEMBER
31 1998

<S> <C> <C>
Revenues .................................... $ -- $ --
Net loss .................................... (3,991,349) (289,770)
Net loss per common share - basic and diluted (0.38) (0.03)
Total assets ................................ 3,406,243 407,530
</TABLE>

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

This report on Form 10 contains forward-looking statements based on current
expectation, estimates and projections about the Company's industry,
management's beliefs and certain assumptions made by management. All statements,
trends, analyses and other information contained in this report relative to
trends in net sales, gross margin, anticipated expense levels and liquidity and
capital resources, as well as other statements, including, but not limited to,
words such as "anticipate," "believe," "plan," "intend," "expect," and other
similar expressions constitute forward-looking statements. These forward-looking
statements are not guarantees of future performance and are subject to certain
risks and uncertainties that are difficult to predict. Accordingly, actual
results may

22
<PAGE>
differ materially from those anticipated or expressed in such statements.
Potential risks and uncertainties include, among others, those set forth below.
(See "Item 2. Special Risk Factors" above.) Particular attention should be paid
to the cautionary statements involving the Company's limited operating history,
the unpredictability of its future revenues, the unpredictable and evolving
nature of its business model, the intensely competitive online commerce industry
and the risks associated with capacity constraints, systems development,
management of growth and business expansion, as well as other risk factors.

GENERAL

billserv.com, Inc. is a service bureau consolidator in the EBPP industry. As a
startup enterprise, the Company has yet to receive any operating revenues.
However, the Company intends 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. The Company has a limited operating history on
which to base an evaluation of its businesses and prospects. The Company's
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 for the Company include, but are not limited to, an
evolving and unpredictable business model and the management of growth. To
address these risks, the Company must, among other things, maintain and increase
its customer base, implement and successfully execute its business and marketing
strategy, continue to develop and upgrade its technology and
transaction-processing systems, provide superior customer service, respond to
competitive developments, improve its Web site, and attract, retain and motivate
qualified personnel. There can be no assurance that the Company will be
successful in addressing such risks, and the failure to do so could have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations.

Since inception, the Company has incurred losses and as of September 30, 1999
had an accumulated deficit of $4,291,055. The Company believes that its success
will depend in large part on its 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 its customer base, (c) drive the
consumer adoption rate of EBPP, and (d) meet changing customer requirements and
technological changes in an emerging market. Accordingly the Company intends to
invest heavily in its product development, technology, and operating
infrastructure development as well as marketing and promotion. Because the
Company's services will require a significant amount of investment in
infrastructure and a substantial level of fixed operating expenses, achieving
profitability depends on the Company's ability to generate a high volume of
revenues. As a result of the Company's limited operating history and the
emerging nature of the markets in which it competes, the Company is unable to
accurately forecast its revenues. The Company's current and future expense
levels are based largely on its investment plans and estimates of future
revenues

23
<PAGE>
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 the Company's ability to fulfill a biller's
demands are difficult to forecast. The Company 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 the Company's
planned expenditures could have an adverse effect on the Company's business,
prospects, financial condition and results of operations. Further, the Company
may from time to time make certain pricing, service, marketing or acquisition
decisions that could have a material adverse effect on its business, prospects,
financial conditions and results of operations.

RESULTS OF OPERATIONS--FROM INCEPTION TO DECEMBER 31, 1998

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

Selling expenses consisted primarily of payroll and related expenses for
personnel engaged in marketing and selling activities, as well as advertising
services under a consulting agreement with the Consulting Group described below
at Item 7. The Company expanded its sales and marketing staff subsequent to
December 31, 1998 and intends to continue such expansion. It also will increase
marketing and sales capabilities through various marketing and sales activities,
including, advertising in trade publications, promotional activities and
aggressive trade show attendance. Therefore the Company expects 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 relation services provided to the Company by the
Consulting Group, a related party, totaled $100,000 (see also Items 1, 8 & 11
for a discussion of the Company's relationship with Consulting Group). The
Company expanded its general and administrative staff subsequent to December 31,
1998 and intends to continue such expansion. Therefore, the Company expects
general and administrative expenses to increase substantially as it incurs
additional costs related to the growth of its business.

RESULTS OF OPERATIONS--QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1999

The Company's activities for the quarter and nine months ended September 30,
1999 resulted in a net operating loss of $1,539,858 and $3,991,349,
respectively. The Company generated no revenues during the period.

24
<PAGE>
quarter and nine months ended September 30,1999. The Company expanded its sales
and marketing staff during the quarter ended September 30, 1999 and intends to
continue such expansion. The Company has opened sales offices in Arizona,
California, Massachusetts, New Jersey, North Carolina, Pennsylvania, and Texas.
The Company plans to increase its marketing and sales capacities through various
marketing and sales activities, including advertising in trade publications,
promotional activities, and aggressive trade show attendance. Therefore the
Company expects marketing and sales expense to increase substantially.

Research and development expenses totaled $260,847 and $600,389 for the quarter
and nine months ended September 30, 1999, respectively. The Company devoted
these resources to development of its technology infrastructure and operating
systems. The Company is continuing 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 quarter and nine months ended September 30, 1999, financial and investor
relation's services provided under the Consulting Agreement totaled $100,000 and
$650,000, respectively. The Company expects general and administrative expenses
to increase as the Company expands its staff and incurs additional costs related
to the growth of its business.

LIQUIDITY AND CAPITAL RESOURCES

From inception to date, the Company's operations have been funded from advances
under an equity placement. This placement was concluded and fully funded on June
11, 1999, pursuant to Regulation S. The Company issued 946,428 shares of common
stock in exchange for $5.3 million in cash. Advances outstanding at the time of
the placement totaling $2 million were repaid from the proceeds, as well as
amounts due to a related party for investor and public relations services for $1
million. An additional $200,000 was paid during the quarter ended September 30,
1999 to the related party for services under a consulting agreement. See Note 3
to interim financial statements.

In addition to the equity placement on August 6, 1999, the Company issued a
short-term note payable to an accredited investor for $1 million. The note was
issued as bridge financing until such time as the Company completed a private
placement offering to accredited investors. The offering was completed in
October 1999. A total of 1,404,637 common shares were issued resulting in net
proceeds of approximately $4,188,053. One half of the short-term note payable,
or $500,000 was converted into common stock under the Offering. The remaining
$500,000 was repaid on October 18, 1999.

At September 30, 1999, the Company had positive working capital of $350,383.
During

25
<PAGE>
the third quarter and the first nine months of 1999 the Company made significant
expenditures and commitments for capital improvements consistent with
anticipated growth in operations, infrastructure, and personnel. The Company
anticipates it will make additional investments in and for capital improvements
utilizing proceeds of the offering completed in October 1999 and will require
additional financing, either through the use of equipment leasing arrangements,
borrowing's or other equity financing.

The Company purchased the domain name bills.com for $75,000 in April 1999, at
which time it announced the establishment of its own Internet portal at the
website http://www.billserv.com. The Company is amortizing the amount over a ten
year period. The operations of the Internet portal have been organized under
"bills.com, Inc.", a Delaware corporation that will operate as a wholly owned
subsidiary of the Company. The portal is currently available for consumer use
and interaction. The Company will continue to develop the website and to enhance
its design. bills.com expects to earn revenues through Internet banner
advertising on its website, as well as through sponsorship agreements with other
Internet portals. The Company believes that companies will purchase space on its
bills.com website 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. The Company currently has plans to invest only limited funds to support
and market the portal; however, the Company could at any time decide to devote
additional financial resources to the portal.

The Company has engaged Pennsylvania Merchant Group ("PMG") 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, the Company issued a warrant to PMG to purchase 111,085
shares of common stock of the Company at an exercise price of $6.75 per share
(which represents the average closing price of the Company's stock over the
twenty (20) day period preceding May 18, 1999). The warrant is immediately
exercisable and expires in five (5) years. Using the fair value based method of
accounting, the company recorded $356,583 of expense and a corresponding credit
to paid-in-capital related to the issuance of this warrant.

The Company secured long term financing for portions of its computer, software
and telephone systems, and furniture during the second and third quarter of
1999. It entered into four three-year capital leases for approximately $208,292,
which have an interest rate of 10.8%. The term of the leases include a
requirement of security totaling 50% of the total lease for which the Company
purchased a certificate of deposit for $105,000. Additionally, the Company
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 to the Company on each six
month anniversary of the lease inception date.

The Company's headquarters are located in San Antonio, Texas. The Company
entered

26
<PAGE>
into a two-year lease for its headquarters beginning in May 1999 for 8,000
square feet which was modified to include an additional 3,000 square feet
beginning in August 1999. The Company anticipates acquiring additional adjacent
leased space to meet the requirements of its expanding clerical, administrative,
and sales activities. Additionally, the Company leases sales offices in
Hollidaysburg, Pennsylvania; Dallas, Texas, Phoenix, Arizona; and Concord,
Massachusetts and plans to open additional sales offices throughout the United
States. The Company also anticipates increasing its lease commitments with the
establishment of a customer care center within the next 12 months.

The Company intends to develop, build, and staff a customer care center, which
integrates Internet and traditional telephone capabilities to further support
it, eCare product sales and service. While development costs for this center are
difficult to project, and may change as more extensive plans are developed later
this year, the Company estimates expenditures ranging from $3,000,000 to
$4,000,000 for the development and construction of its customer care center. The
Company plans to meet its capital requirements primarily through use of cash on
hand, additional issuance of equity securities, capital lease financing, and in
the longer term, revenue from services.

The Company's sales and marketing efforts, their associated costs, and precise
timing are under development, and thus extremely difficult to project. Until
sufficient funds are available, the Company will be unable to pursue fully its
sales and marketing strategies. In order to fund these efforts, the cost of
which will likely exceed the amount of $3,000,000 over the next twelve (12)
month period, the Company currently plans to issue additional equity securities,
undertake capital lease financing arrangements, and in the longer term expend
revenue from operations.

YEAR 2000

Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field and cannot distinguish 21st
century dates from 20th century dates. These date code fields will need to
distinguish 21st century dates from 20th century dates to avoid system failures
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities. As a result, many companies' software and
computer systems may need to be upgraded or replaced in order to comply with
such "Year 2000" requirements.

As of July 15, 1999, the Company has completed the process of determining
whether or not its products, its internal systems, computers and software, and
the products and systems of its critical vendors and suppliers are Year 2000
compliant. The cost associated with this review has been minimal, primarily
because the Company has utilized internal personnel to complete the review, and
because the Company's systems are relatively new. To date, this evaluation
process has resulted in the following:

IT Systems. The Company has conducted a preliminary survey of its IT

27
<PAGE>
hardware and software and believes that all such hardware and
software is Year 2000 compliant.

Non-IT Systems and Infrastructure. Machinery and equipment used in
operations has been inventoried and assessed for Year 2000
compliance. The Company believes all such items are Year 2000
compliant.

Vendors. The Company has completed the process of ascertaining
whether or not its vendors and suppliers are Year 2000 compliant.
Again, the Company believes that all of its critical vendors are
Year 2000 compliant.

Given these results of its Year 2000 review, in a reasonable worst case
scenario, the Company might experience some disruptions in certain of its
peripheral operating systems or with certain non-critical vendors. The Company
believes that sufficient redundancy exists in its systems and vendor
relationships to minimize any substantial detrimental effects on the Company's
operations and financial position.

Although the Company believes that its Year 2000 review has identified all
material Year 2000 issues, there can be no absolute assurance that the Company
identified and resolved all such issues. If the Company discovers Year 2000
problems in the future, it may not be able to develop, implement, or test
remediation or contingency plans in a timely or cost-effective manner.

ITEM 4. PROPERTIES AND EQUIPMENT

As of May 1, 1999 the Company entered into a two-year lease for its headquarters
in San Antonio, Texas for 10,000 square feet. The Company anticipates acquiring
additional adjacent leased space to meet the needs of its expanding clerical,
administrative and sales activity. Additionally, the Company leases sales
offices in Hollidaysburg, Pennsylvania, North Carolina, Dallas, Texas and
Phoenix, Arizona, and plans to open additional sales offices throughout the
United States. The Company also anticipates increasing its lease commitments
with the establishment of a customer care center within the next twelve months.

ITEM 5. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

1. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The Company has no non-management, beneficial owners of more than five percent
(5%) of the outstanding amount of its Common Stock.

2. SECURITY OWNERSHIP OF MANAGEMENT

28
<PAGE>
The following table sets forth information with respect to the share ownership
of the Company's Common Stock by its 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:

29
<PAGE>
SHARES OWNED BENEFICIALLY AND OF RECORD
PERCENT OF CLASS

<TABLE>
<CAPTION>
TITLE OF AMOUNT & NATURE OF PERCENT OF OWNERSHIP
CLASS NAME AND ADDRESS BENEFICIAL OWNERSHIP AS OF NOVEMBER 15, 1999 (1)

<S> <C> <C> <C>
Common Michael R. Long (2)
Stock 15546 Clover Ridge
San Antonio, TX 78248 1,183,333 9.6%

Common Louis A. Hoch (3)
Stock 15138 Grayoak Forest
San Antonio, TX 78248 1,191,334 9.62%

Common David S. Jones (4)
Stock 11530 Vance Jackson
San Antonio, TX 78230 1,183,333 9.6%

Common Lori Turner
Stock 11205 Woodridge Forest
San Antonio TX 78249 100,000 0.8%

Common Marshall Millard
Stock 18123 Summer Knoll
San Antonio, TX 78258 150,000 1.2%

Common All directors, officers
Stock and employees as a group(5)
(7 persons) 4,000,000 30.8%

</TABLE>
(1) ALL OWNERSHIP IS STATED AS OF NOVEMBER 15, 1999. IN 1999, THE COMPANY HAS
AWARDED, SUBJECT TO SHAREHOLDER APPROVAL, OPTIONS TO PURCHASE 754,000
SHARES OF COMMON STOCK TO VARIOUS EXECUTIVE OFFICERS, DIRECTORS AND
EMPLOYEES, INCLUDING THOSE LISTED ABOVE. THESE OPTIONS ARE NOT REFLECTED
IN THE TABLE SET FORTH ABOVE. SEE EXECUTIVE COMPENSATION BELOW.
(2) MICHAEL R. LONG IS THE CHAIRMAN OF THE BOARD OF DIRECTORS AND CHIEF
EXECUTIVE OFFICER OF THE COMPANY.
(3) LOUIS A. HOCH, IS THE CHIEF OPERATING OFFICER, PRESIDENT AND A DIRECTOR OF
THE COMPANY.
(4) DAVID S. JONES IS THE EXECUTIVE VICE PRESIDENT AND A DIRECTOR OF THE
COMPANY.
(5) ALL STOCK HELD BY OFFICERS AND/OR DIRECTORS IS RESTRICTED PER RULE 144.

3. CHANGE IN CONTROL

There are no arrangements known to the Company the operation of which may result
in a change of control of the Company.

30
<PAGE>
ITEM 6. DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES

The following sets forth the directors and executive officers and key employees
of the Company as of November 15, 1999, their respective ages, the year in which
each was first elected or appointed a director, and any other office in the
Company held by each director.

1. DIRECTORS AND EXECUTIVE OFFICERS

Directors and executive officers of the Company are as follows:

<TABLE>
<CAPTION>
NAME OF DIRECTOR/ AGE POSITION HELD POSITION
OFFICER HELD SINCE
- ---------------
<S> <C> <C> <C>
Michael R. Long ............................. 55 Director, Chairman and C.E.O. November, 1998

Louis A. Hoch ............................... 34 Director, President and C.O.O. November, 1998

David S. Jones .............................. 26 Director and Executive Vice November, 1998
President November, 1998

Lori A. Turner .............................. 42 Treasurer, Vice President and C.F.O. December, 1998

Marshall Millard ............................ 37 Secretary, Vice President and
General Counsel November, 1998

E. Scott Crist .............................. 36 Director January, 1999

Roger R. Hemminghaus ........................ 62 Director April, 1999

</TABLE>
2. FAMILY RELATIONSHIPS

No family relationship exists between or among any of the directors, executive
officers,

31
<PAGE>
and significant employees, as defined below, of the Company or any person
contemplated to become such.

3. BUSINESS EXPERIENCE

MICHAEL R. LONG, CHAIRMAN AND CHIEF EXECUTIVE OFFICER

Mr. Long became Chairman and Chief Executive Officer of the Company as of
November 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 November 1998. Anderson
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, DIRECTOR, PRESIDENT AND CHIEF OPERATING OFFICER

Mr. Hoch joined the Company as President and Chief Operating Officer in November
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 November 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 their 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, 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, DIRECTOR AND EXECUTIVE VICE-PRESIDENT

Mr. Jones joined the Company in November 1998. 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

32
<PAGE>
necessary relationships needed to be effective in the Internet billing
marketplace, and has been directly involved in the marketing of the Company's
products. Mr. Jones continues to manage the ongoing development of systems for
the Company. From 1996 to 1997, Mr. Jones owned and operated his own business
which 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, TREASURER, VICE PRESIDENT AND CHIEF FINANCIAL OFFICER

Lori A. Turner, C.P.A., joined the Company as Chief Financial Officer in
December 1998. Prior to joining the Company, Ms. Turner served as Treasurer and
Chief Financial Officer at Docucon, Inc. She held various positions at Docucon,
including Controller, Vice-President, Finance, and Assistant Secretary from 1990
until her departure in 1999. 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 a M.B.A. from the University of Texas at San Antonio.

MARSHALL MILLARD, SECRETARY, VICE PRESIDENT AND GENERAL COUNSEL

Mr. Millard also joined the Company 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 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
1988, 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, 1993; U.S. Long Distance Corp.
(now owned by Qwest Communications International), 1993-1996; and Billing
Concepts, 1996-1998.

E. SCOTT CRIST, DIRECTOR

Mr. Crist became a director of the Company 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 a
President and Chief Executive Officer of Matrix Telecom, a long distance company
which ranked number 7 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

33
<PAGE>
Chief Executive Officer. Mr. Crist holds a 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, DIRECTOR

Mr. Hemminghaus became a director of the Company 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.

4. INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS.

None of the directors or executive officers of the Company have been involved in
any legal proceedings during the past five (5) years that are material to an
evaluation of their ability or integrity as a director or executive officer of
the Company.

ITEM 7. EXECUTIVE COMPENSATION

1. EXECUTIVE OFFICER COMPENSATION

No executive officer of the Company received or accrued cash compensation in
excess of $20,000 during fiscal year ended 1998. The following tables sets forth
all compensation paid by the Company during the fiscal year ending December 31,
1998 to all executive officers of the Company:

NAME OF PRINCIPAL RESTRICTED
POSITION YEAR SALARY (1) STOCK AWARDS (2)
- ------------------------- ---- --------- ----------------
Michael R. Long ......... 1998 $ 14,835 1,183,333
Chairman and C.E.O

Louis A. Hoch ........... 1998 $ 11,868
1,183,334
President and C.O.O .....

David S. Jones .......... 1998 $ 14,840 1,183,333
Executive Vice President

Marshall Millard ........ 1998 $ 7,318 150,000
Secretary, Vice President
and General Counsel

Lori A. Turner .......... 1998 $ NA 100,000
Treasurer, Vice President
and C.F.O

34
<PAGE>
(1) Each of the named executives have entered into an employment agreement
with the Company. These agreements have a three (3) year term and provide
for an annual salary, bonuses at the discretion of the Board of Directors,
and health benefits. The figures reflected are stated for December 1998.
In 1999, each of the named officers are to receive 1999 salary
compensation as follows: Mr. Long, $150,000; 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 with the Company. In 1999, subject
to shareholder approval, the officers named have been awarded the
following number of options to purchase shares of common stock of the
Company: Mr. Long, 100,000; Mr. Hoch, 100,000; Mr. Jones, 100,000; Ms.
Turner, 40,000; and Mr. Millard, 40,000. The option price in each case is
$2.81 per share.

2. COMPENSATION OF DIRECTORS

In 1998, the directors of the Company were not compensated for their services in
that capacity. In 1999, the Company intends to seek shareholder approval of a
director's compensation plan, which would provide for certain stock options,
plus out-of-pocket expenses.

Subject to stockholder approval of the director's compensation plan, the Company
has awarded options to purchase common stock of the Company to Messrs. Crist and
Hemminghaus. Mr. Crist holds 40,000 options with an exercise price of $2.81 per
share; Mr. Hemminghaus holds 80,000 options with an exercise price of $5.18 per
share. The options vest over a three year period.

ITEM 8. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

1. TRANSACTIONS WITH MANAGEMENT AND OTHERS; CERTAIN BUSINESS
RELATIONSHIPS; PROMOTERS

Concurrent with and in connection with the Regulation S equity financing
described hereinabove, the Company had entered into a consulting agreement,
effective November 1, 1998, with the Consulting Group, located at 1090 W. Pender
Street, Suite 420, Vancouver BC V632N7, under which that Group provided or will
provide financing, investor relations, public relations and advertising services
for the Company for a period of one year. The total consideration paid and to be
paid to the Consulting Group for all

35
<PAGE>
services to the Company is $1.2 million; the Company has not allocated this
amount between and among the various services of the Consulting Group.
Additionally, between the period of December 1998 and May 1999, the Consulting
Group advanced to the Company the sum of $2.0 million, which was subsequently
repaid on June 11, 1999, from the proceeds of closing the Regulation S financing
in the amount of $5.3 million.

On May 7, 1999, the Company entered into a certain Business Development
Agreement, and a related Independent Sales Agent Agreement, with Southwest
Business Corporation ("SBC"), of San Antonio, Texas. In exchange for sales and
marketing services and support described in these agreements, which generally
includes identification, introduction, sales to, and support of prospective
customers, and subject to performance criteria described therein (volume-based
customer billings thresholds), SBC may earn the right to purchase up to 500,000
shares of common stock of the Company. The warrant is for a term of three years
after the Company's common stock is offered for sale on a recognized stock
market, which the Company construes to include the NASDAQ National or SmallCap
Markets; the exercise price is 110% of the per share price of the common stock
at May 7, 1999, which was $6.50.

On May 18, 1999, the Company 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, the Company agreed to issue to PMG a warrant to purchase 111,085
shares of common stock of the Company at an exercise price of $6.75 per share
(which represents the average closing price of the Company's stock over the
twenty (20) day period preceding May 18, 1999). The warrant is exercisable for
five (5) years.

On October 15, 1999, the Company issued to PMG a warrant to purchase 37,524
Shares of common stock of the Company at an exercise price of $3.25 which
represents the price at which the certain accredited investors purchased shares
in a private placement concluded in October 1999. Another warrant was issued to
PMG for 111,085 shares in exchange for advisory services. This warrant has an
exercise price of $6.75 which represents the average closing price of the
Company's stock over the twenty (20) business days preceding the date of
engagement for advisory services.

Except as described above, there is no affiliation between or among the Company,
Consulting Group, SBC and PMG. The Company possesses separate relationships with
each of these groups or entities.

2. INDEBTEDNESS OF MANAGEMENT

No member of management of the Company is or has been indebted to the Company in
an amount in excess of $60,000. No director or executive officer is personally
liable for repayment of amounts advanced any financing received by the Company.

36
<PAGE>
ITEM 9. LEGAL PROCEEDINGS

There is no litigation currently pending and the Company is not aware of any
disputes that may lead to litigation.

ITEM 10. MARKET PRICE OF AND DIVIDENDS ON THE COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS

1. MARKET INFORMATION

The Company's common stock is traded on the National Quotation Board's
Electronic Pink Sheets. The following table sets forth the range of high and low
bid quotations as reported during the most recent fiscal year. Bid quotations
represent prices between dealers, do not include retail markup, mark down or
other fees or commissions, and do not necessarily represent actual transactions.

CALENDAR QUARTER BID PRICES
ENDED LOW HIGH
- ------------------------------------------------------------------------------

December 31, 1998(1) 2 3/8 3 3/8
March 31, 1999 ..... 2 3/4 8 5/8
June 30, 1999 ...... 4 3/8 8 7/8
September 30, 1999 . 4 11/16 4 13/16
------- -------
(1) No previous periods are reported as the Company was initially listed in the
fourth quarter 1998.

The Company has 12,381,065 shares of common stock outstanding, including the
1,404,637 shares issued pursuant to a private placement concluded in October
1999; of this amount, 6,030,000 of such shares are nonrestricted; 5,404,637 of
such shares are restricted pursuant to Rule 144; and 946,428 shares are
restricted pursuant to Regulation S. As of September 30, 1999, the number of
holders of record of the common stock, $.001 par value, of the Company was
approximately 4,327.

ITEM 11. RECENT SALES OF UNREGISTERED SECURITIES

There are issued and outstanding 12,381,065 shares of common stock which were
sold as follows:

1. THE FORMATION OF GOLDKING RESOURCES

On or about July 10 and 14, 1998, a total of 10,000,000 shares of common stock
were sold for a total of $10,000 to one individual, Mr. Adam Smith of Vancouver,
BC, Canada, who then served as a director and the President of the Company; and
seven (7) corporate

37
<PAGE>
shareholders. Mr. Smith acquired 4,000,000 shares at such time; and the
corporate shareholders acquired 6,000,000 shares. On or about July 15 and 30,
and August 19, 1998, thirty-three (33) individuals acquired 742,500 shares of
common stock, for the total purchase price of $7,425. On or about September 5,
1998, three (3) individual shareholders paid $13,000 for 130,000 shares. All of
the share issuances described above were concluded at the direction of former
management of the Company.

All of the shares of common stock described above were issued in compliance with
exemption under Section 4(2) of the Securities Act of 1933, as amended, because
the transactions were concluded by an issuer not involving a public offering, or
pursuant to exemption under Rule 504, because the total amount of the offering
of those shares did not exceed $1 million. Forms D relating to the Rule 504
offerings were filed with the Securities and Exchange Commission.

2. CURRENT MANAGEMENT'S ACQUISITION OF SHARES IN GOLDKING RESOURCES

On or about October 26, 1998, in a transaction facilitated by the Consulting
Group, the current management directors of the Company agreed to acquire the
4,000,000 shares held by Mr. Smith, then the President of the Company, then
known as Goldking Resources, Inc.; these shares were subsequently transferred to
the current management directors of the Company, Messrs. Long, Hoch and Jones,
and other key executives of the Company, in December 1998. Neither Messrs. Long,
Hoch and Jones nor any other executive of the Company paid cash consideration
for the shares received, but instead transferred their shares in billserv-Texas
to Goldking, which subsequently caused the merger of billserv-Texas with and
into Goldking. All of these common shares were transferred in compliance with
exemption under Section 4(1) of the Securities Act of 1933, because the
transaction was by a person other than an issuer, underwriter or dealer. The
shares are restricted under Rule 144.

Current management completed this transaction, and the transactions described
immediately below in paragraph 3, in order to obtain a preexisting corporate
entity, whose shares were traded on the OTC BB. Current management believed that
developing the Company's business in this vehicle would facilitate funding
efforts for the Company in the future. Additionally, management believed that
the Consulting Group, which had introduced current management to Goldking
Resources, could assist with funding of the Company at a future date. The
Company's relationship with the Consulting Group ultimately resulted in
completion of Regulation S financing described below.

3. RELATED CANCELLATION OF "OLD" GOLDKING SHARES, AND ISSUANCE OF NEW SHARES

On December 3, 1998, in a transaction related to current management's
acquisition of Mr. Smith's 4,000,000 shares (described above), the Company,
under former management's control, issued 5,359,500 shares of common stock at
par in reliance upon exemption under Rule 504, and received for cancellation
6,202,000 shares, held by eleven (11) Goldking shareholders (the "Cancelling
Holders"), with unanimous shareholder consent.

38
<PAGE>
The 5,359,500 shares described above were issued to fifteen (15) individual and
institutional investors. The total purchase price for all shares issued was
$305,359.50, of which $300,000 was paid directly to Mr. Smith and the Canceling
Holders by the 15 new shareholders; the balance was paid to the Company.
Additionally, the Company's sole asset immediately prior to this transaction, a
mineral claim, was transferred out of the Company for the benefit of Mr. Smith
and the Canceling Holders. Form D relating to the Rule 504 offering was filed
with the Securities and Exchange Commission and claimed exemption under Rule
504. The SEC has challenged the validity of this claimed exemption.

4. ISSUANCES UNDER NEW MANAGEMENT

After current management was in place, on May 7, 1999, the Company contracted to
issue a warrant for the purchase of up to 500,000 shares of common stock to SBC,
of San Antonio, Texas. Subject to specific performance criteria in sales and
marketing of the Company's products, SBC may earn the right to purchase shares
of common stock, at 110% of the closing bid price as of May 7, 1999 ($6.50),
over a three year term. If SBC meets the contract requirements, the warrant will
be issued in accordance with exemption under Section 4(2) of the Securities Act
of 1933, as amended, because the transaction is

39
<PAGE>
by an issuer not involving a public offering.

On May 18, 1999, the Company also 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, the Company agreed to issue to PMG a warrant to purchase 99,206 shares
of common stock of the Company at an exercise price of $7.56 per share (which
represents the average closing price of the Company's stock over the twenty (20)
day period preceding May 18, 1999). The warrant is exercisable for five (5)
years. This warrant will be 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 June 11, 1999, the Company 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 to the
Company by the Consulting Group of $2.0 million; to fund contractual commitments
totaling $1.2 million for fundraising and public and investor relations services
performed or to be performed by the Consulting Group; and for other general
corporate operating purposes.

On October 15 and 22, 1999, the Company issued 1,230,792 and 173,845 restricted
shares of common stock (the "Shares"), respectively to twenty-one accredited
investors under a private placement offer under Rule 506 of Regulation D (the
"Offering"). A Form D describing this transaction was timely filed with the SEC.
The shares were issued at $3.25 per share which represented a discount upon the
average reported closing sale price of the Company's common stock for the ten
(10) business days immediately preceding the closing date. Proceeds to the
Company totaled approximately $4,188,053, net of expenses of $377,009, which
included $264,299, or 6.5% of the Offering, paid PMG as placement agent.
Proceeds of the Offering are to be used to pay short term debt of the Company
and for other general corporate operating purposes.

In accordance with the terms of the Offering, the Company 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 "Warrant Shares").
The warrants are exercisable for three years from the date of issuance, or
October 14, 2002. The Company has 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 from the Company, the holders of
the warrants must exercise the warrants within thirty days, after which time the
Company will redeem each warrant for $.05.

Pursuant to the terms of the Offering, the Company intends to file a
registration statement with the SEC for the purpose of registering the Shares
and Warrants Shares. The Company shall also use its best efforts to maintain
with the SEC a registration statement

40
<PAGE>
that is effective, as of one hundred twenty (120) days after closing, and
otherwise cause the Shares and Warrant Shares to be registered under the
Securities Act until the date on which the Shares and Warrant Shares are
eligible for resale or other disposition under Rule 144 without regard to the
volume limitations thereof.

If a registration statement is not filed on or before thirty (30) days after
closing of the Offering, or is not effective on or before one hundred twenty
(120) days after closing (the "Target Date"), then for every applicable thirty
(30) day period after the applicable Target Date, the Company shall pay to the
accredited investors, as liquidated damages, an amount equal to two percent (2%)
of the total Offering price of such Shares (without reference to the Warrant
Shares) for each thirty (30) day period following the applicable Target Date
until such time as the registration statement is declared effective or, in the
case of a late filing, is filed.

As additional compensation for acting as Placement Agent for the Offering, the
Company issued a warrant to PMG for the purchase of 37,524 shares of common
stock, or 3% of the Shares sold in the Offering. The warrant is immediately
exercisable, carries a five year term, an exercise price of $3.25, piggyback
registration rights, and a cashless exercise provision.

ITEM 12. DESCRIPTION OF THE COMPANY'S SECURITIES

1. GENERAL

The Company is authorized to issue 200,000,000 shares of common stock of $.001
par value per share. This is the only class of stock currently authorized for
issuance by the Company. The common stock has no conversion, preemptive or
subscription rights as to any securities of the Company and are not liable to
assessments or further calls. Each share of common stock of the Company, when
fully paid for, will be validly issued and outstanding, is entitled to one vote
on all matters to be voted on by shareholders, is entitled to equal dividends
when and as declared by the board of directors from funds legally available
therefor, and is entitled to a pro rata share of the Company's net assets in the
event of dissolution, liquidation or winding up of the Company.

The holders of shares of common stock are entitled to dividends when and as
declared by the Board of Directors from funds legally available therefore and,
upon liquidation, are entitled to share pro rata in any distribution to common
shareholders. Holders of the common stock have one non-cumulative vote for each
share held. There are no preemptive, conversion or redemption privileges, nor
sinking fund provisions, with respect to the common stock. All of the
outstanding shares of common stock are validly issued, fully paid and
non-assessable.

Since the common stock of the Company does not have cumulative voting rights,
the holders of more than 50 percent of the outstanding shares can elect all of
the directors, if they choose to do so, in which event the holders of the
remaining shares cannot elect any directors. Accordingly, if the present
shareholders in the foreseeable future own more

41
<PAGE>
than 50 percent of the outstanding shares, they will be able to elect all of the
directors.

2. DIVIDEND POLICY

The payment by the Company of dividends, if any, in the future rests principally
on the discretion of its board of directors, and will depend, among other
things, upon the Company's earnings, its capital requirements, and its financial
condition, as well as other relevant factors. The Company has not paid or
declared any dividends upon its common stock since its inception, and by reason
of its contemplated financial requirements, does not contemplate or anticipate
paying any dividends upon its common stock in the foreseeable future. See
"Special Risk Factors."

3. REPORTS TO SHAREHOLDERS

The Company intends to furnish its shareholders with annual reports of its
operations, containing financial statements. The Company will also file annual
and quarterly reports as required by the Securities Exchange Act of 1934.

4. TRANSFER AGENT

The Company has contracted with NEVADA AGENCY AND TRUST COMPANY, 50 West
Liberty, Suite 880, Reno, Nevada 89501, as its transfer agent.

ITEM 13. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Nevada law sets forth the powers of the Company to indemnify officers,
directors, employees and agents. The Articles of Incorporation for the Company
provide as follows:

"No director or officer shall have any personal liability to the
corporation or its stockholders for damages for breach of fiduciary duty
as a director or officer, except that this Article shall not eliminate or
limit the liability of a director or officer for (i) acts or omissions
that involve intentional misconduct, fraud or a knowing violation of the
law, or (ii) the payment of dividends in violation of Nevada Revised
Statutes."

Except to the extent herein above set forth, there is no charter provision,
bylaw, contract, arrangement or statute pursuant to which any director or
officer of the Company is indemnified in any manner against any liability which
he may incur in his capacity as such. The Company also maintains a standard
director and officer liability policy, to fund the Company's obligations as
stated herein above.

ITEM 14. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

42
<PAGE>
The financial statements of the Company, itemized in the sub-topic, "Financial
Statements" under Item 16 hereof, are set forth below.

ITEM 15. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

There exists no disagreement between the Company and its accountants on any
matter of accounting principles or practice or financial statement disclosure.

ITEM 16. FINANCIAL STATEMENTS AND EXHIBITS

FINANCIAL STATEMENTS

a. Period from Inception (July 30, 1998) through December 31, 1998

Report of Independent Auditors
Balance Sheet
Statement of Operations
Statement of Shareholders' Equity (Deficit)
Statement of Cash Flows
Notes to Financial Statements

b. Nine Month Period ended September 30, 1999

Balance Sheets - unaudited
Statements of Operations - unaudited
Statement of Shareholders' Equity (Deficit) - unaudited
Statements of Cash Flows - unaudited
Notes to Financial Statements- unaudited

EXHIBITS

1. Financial Statements (see above)

2. Articles of Incorporation of Goldking Resources, Inc., a Nevada corporation,
filed with the Secretary of State of Nevada on June 4, 1998 (previously
filed).

3. Certificate of Amendment to Articles of Amendment, filed with the Secretary
of State of Nevada on December 3, 1998 (reflecting name change to
"billserv.com, Inc.") (previously filed).

43
<PAGE>
4. Bylaws of the Company, formerly known as Goldking Resources, Inc., adopted
June 4, 1998 (previously filed).

5. Specimen of common stock certificate, of billserv.com, Inc., par value $0.001
(previously filed).

6. Employment Agreement, dated November 28, 1998, by and between billserv.com,
Inc. and Michael Long (previously filed).

7. Employment Agreement, dated November 28, 1998, by and between billserv.com,
Inc. and Louis Hoch (previously filed).

8. Employment Agreement, dated November 28, 1998, by and between billserv.com,
Inc. and David Jones (previously filed).

9. Employment Agreement, dated November 28, 1998, by and between billserv.com,
Inc. and Lori Turner (previously filed).

10.Employment Agreement, dated November 28, 1998, by and between billserv.com,
Inc. and Marshall Millard (previously filed).

11.Employment Agreement, dated November 28, 1998, by and between billserv.com,
Inc. and Randy Kauftheil (previously filed).

12.Consulting Agreement, dated November 1, 1998, by and between billserv.com,
Inc. and Richard N. Jeffs, James R. King, and Robert B. Smith (previously
filed).

13.Business Development Agreement, dated May 7, 1999, by and between
billserv.com, Inc. and Southwest Business Corporation (previously filed).

44
<PAGE>
SIGNATURES

Pursuant to the requirements of Section 12 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, on this ____ day of
____________, 1999.

billserv.com, Inc.
A Nevada corporation

------------------------------
By: Louis A. Hoch
Name: Louis A. Hoch, President

------------------------------
By: Marshall N. Millard
Name: Marshall N. Millard, Secretary

45
<PAGE>
billserv.com, Inc.
(a development stage company)

Financial Statements

Period Ended December 31, 1998

CONTENTS

Report of Independent Auditors ........................................1

Financial Statements

Balance Sheet .........................................................2
Statement of Operations ...............................................3
Statement of Shareholders' Equity (Deficit) ...........................4
Statement of Cash Flows ...............................................5
Notes to Financial Statements .........................................6

46
<PAGE>
Report of Independent Auditors

Board of Directors
billserv.com, Inc.

We have audited the accompanying balance sheet of billserv.com, Inc. (a
development stage company) as of December 31, 1998, and the related statements
of operations, shareholders' equity (deficit), and cash flows for 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 audit.

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

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

Ernst & Young LLP

San Antonio, Texas
June 1, 1999, except for Note 7,
as to which the date is November 19, 1999

<PAGE>
billserv.com, Inc.
(a development stage company)

Balance Sheet

December 31, 1998

ASSETS
Current assets:
Cash and cash equivalents ........................... $ 329,618
Related party accounts receivable ................... 24,000
Prepaid expenses .................................... 3,213
Other current assets ................................ 31,149
---------
Total current assets .................................. 387,980

Property and equipment, net of
accumulated depreciation of $559 .................... 19,550
---------

Total assets .......................................... $ 407,530
=========

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable .................................... $ 3,779
Accounts payable - related party .................... 150,000
Accrued expenses .................................... 38,127
Advance from shareholders ........................... 500,000
---------
Total current liabilities ............................. 691,906

Equity subject to potential redemption ................ 5,300

Shareholders' equity (deficit):
Common stock - $.001 par value, 200,000,000 shares
authorized, 10,030,000 shares issued and outstanding
at December 31, 1998 ............................... 10,030
Additional paid-in capital .......................... --
Deficit accumulated during the development stage .... (299,706)
---------
Total shareholders' equity (deficit) .................. (289,676)
---------

Total liabilities and shareholders' equity (deficit) .. $ 407,530
=========

SEE ACCOMPANYING NOTES.

2
<PAGE>
billserv.com, Inc.
(a development stage company)

Statement of Operations

From Inception (July 30, 1998) to December 31, 1998

Revenues ......................................... $ --

Operating expenses:
Selling expenses ............................... 88,298
General and administrative ..................... 200,913
Depreciation ................................... 559
------------
Total operating expenses ......................... 289,770
------------

Loss before income taxes ......................... (289,770)

Income taxes ..................................... --
------------

Net loss ......................................... $ (289,770)
============

Net loss per common share - basic ................ $ (0.03)
============

Weighted average common shares outstanding - basic 10,030,000
============

SEE ACCOMPANYING NOTES.

3
<PAGE>
billserv.com, Inc.
(a development stage company)

Statement of Shareholders' Equity (Deficit)

<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED TOTAL
ADDITIONAL DURING THE SHAREHOLDERS'
COMMON STOCK PAID-IN DEVELOPMENT EQUITY
SHARES AMOUNT CAPITAL STAGE (DEFICIT)
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at inception ................. 1,000 $ -- $-- $ -- $ --
Acquisition of shares and reverse
merger on 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 for the period .............. -- -- -- (289,770) (289,770)
------------------------------------------------------------
Balance at December 31, 1998 ......... 10,030,000 $ 10,030 $-- $ (299,706) $ (289,676)
============================================================
</TABLE>

SEE ACCOMPANYING NOTES.

4
<PAGE>
billserv.com, Inc.
(a development stage company)

Statement of Cash Flows

From Inception (July 30, 1998) to December 31, 1998

OPERATING ACTIVITIES
Net loss ................................................. $(289,770)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation .......................................... 559
Changes in operating assets and liabilities:
Increase in related party receivables ............... (24,000)
Increase in prepaid expenses and other current assets (34,362)
Increase in accounts payable and accrued liabilities 191,906
---------
Net cash used in operating activities .................... (155,667)

INVESTING ACTIVITIES
Purchase of equipment .................................... (20,109)
Proceeds of acquisition/merger ........................... 5,394
---------
Net cash used in investing activity ...................... (14,715)

FINANCING ACTIVITY
Advance from shareholders ................................ 500,000
---------
Net cash provided by financing activity .................. 500,000
---------
Increase in cash ......................................... 329,618

Cash and cash equivalents at beginning of period ......... --
---------
Cash and cash equivalents at end of period ............... $ 329,618
=========

SEE ACCOMPANYING NOTES.

1
<PAGE>
billserv.com, Inc.
(a development stage company)

Notes to Financial Statements

December 31, 1998

1. SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

billserv.com, Inc. (the Company) was incorporated on July 30, 1998 under the
laws of the state of Texas for the purpose of providing billing services over
the Internet. The Company, 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 the Company in exchange for all 1,000 shares of the Company's
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. The paid-in capital of the Company 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 the Company's financial statements
from December 9, 1998.

Comprehensive loss is the same as net loss for the period ended December 31,
1998.

BASIS OF PRESENTATION

The Company's principal activities have been research and development, raising
capital, and organizational activities. Accordingly, it is considered a
development stage company. The Company expects to incur losses during its first
year of operations and may incur losses in subsequent years as development
efforts continue after the commencement of generation of revenues. The Company
plans to meet its capital requirements primarily through funding under a
financing agreement and issuance of equity securities, capital lease financing,
and in the longer term, revenue from services.

2
<PAGE>
billserv.com, Inc.
(a development stage company)

Notes to Financial Statements (continued)

December 31, 1998

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

USE OF ESTIMATES

The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.

REVENUE RECOGNITION

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

FEDERAL INCOME TAXES

The Company follows SFAS No. 109, "Accounting for Income Taxes." This statement
establishes financial accounting and reporting standards for deferred income tax
assets and liabilities that arise as a result of differences between the
reported amounts of assets and liabilities for financial reporting and income
tax purposes.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at original cost. Depreciation is provided
using the straight-line method over the estimated useful lives of the related
assets. The Company's computer systems are currently depreciated over a period
of three years.

3
<PAGE>
billserv.com, Inc.
(a development stage company)

Notes to Financial Statements (continued)

December 31, 1998

1. SIGNFICANT ACCOUNTING POLICIES (CONTINUED)

NET LOSS PER COMMON SHARE

Basic net loss per common share is computed by dividing the net loss by the
weighted average number of common shares outstanding during the period. Diluted
net loss per common share is not presented as the assumed exercise of stock
options is antidilutive due to the Company's net loss.

2. ADVANCE FROM SHAREHOLDERS

The Company has received advances from a related party on a contemplated private
placement of the Company's common stock. As of December 31, 1998, $500,000 had
been advanced to the Company. An additional $1,500,000 was advanced in the
period from January 1999 through May 1999. The equity securities will be issued
under a Regulation S exemption. It is anticipated that net proceeds to the
Company under this offering will be approximately $5.3 million. Of the proceeds,
$1.2 million will be reserved for payments under the Company's Consulting
Agreement. See Note 3.

3. CONSULTING AGREEMENT

The Company has entered into a Consulting Agreement with a consulting group,
consisting of minority shareholders, which will provide financial consulting,
public relations services, advertising services, and investor relations
services. The term of the agreement is for one year, from November 1, 1998 to
October 31, 1999, and provides for services totaling $1.2 million. At December
31, 1998, the Company had received $150,000 in services from the consulting
group. The related liability has been recorded as Accounts Payable - Related
Party and will be paid from the proceeds of the Regulation S offering. See Note
2.

4. INCOME TAXES

At December 31, 1998, the Company had a net operating loss carryforward for
federal income tax purposes of approximately $290,000 which expires in the tax
year 2019. The Company recorded a deferred tax asset and a corresponding
valuation allowance of approximately $98,000 at December 31, 1998. There were no
material temporary differences between the financial statement and tax basis of
assets and liabilities.

4
<PAGE>
billserv.com, Inc.
(a development stage company)

Notes to Financial Statements (continued)

December 31, 1998

4. INCOME TAXES (CONTINUED)

The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax expense at December 31, 1998 is:

Tax at U.S. federal statutory rates ................. $(98,000)
Valuation allowance ................................. 98,000
--------

Income tax expense .................................. $ --
========

5. SUBSEQUENT EVENT

In January 1999, the Company's Board of Directors ratified, subject to
shareholder approval, the adoption of three stock option plans and reserved
4,500,000 shares of its common stock for issuance to certain employees,
consultants and directors. Under this plan, incentive and nonqualified options
may be granted. Options granted under this plan are 33 1/3% vested after one
year and vest thereafter at a rate of approximately 2.78% per month. In the
event of a stock dividend, stock split or reverse stock split, reclassification,
or recapitalization, the aggregate number and/or class of shares subject to the
plan and exercise price prior to such occurrence are appropriately adjusted. The
Company intends to submit these plans for shareholder approval in late 1999.

6. YEAR 2000 ISSUE (UNAUDITED)

Although the Company is not aware of any material operational issue or costs
associated with preparing its internal systems for the year 2000, there can be
no assurance that the Company will not experience serious unanticipated negative
consequences and/or material costs caused by undetected errors or defects in the
technology used in its internal systems, which include third-party software and
hardware technology.

5
<PAGE>
billserv.com, Inc.
(a development stage company)

Notes to Financial Statements (continued)

December 31, 1998

7. EQUITY SUBJECT TO POTENTIAL REDEMPTION

On or about December 3, 1998, the Company, then under the control of former
management, and then known as Goldking Resources, Inc., concluded an offering of
approximately 5.3 million shares of the Company's 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
$5,300.00. 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. The Company timely
filed a Form D reporting this transaction to the SEC, and claimed exemption
under Rule 504. The SEC has challenged the validity of this claimed exemption.

6
<PAGE>
billserv.com, Inc.
(a development stage company)

Notes to Financial Statements (continued)

December 31, 1998

7. EQUITY SUBJECT TO POTENTIAL REDEMPTION (CONTINUED)

7
<PAGE>
billserv.com, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------ -----------
<S> <C> <C>
Assets:

Cash and cash equivalents ......................... $ 1,498,703 $ 329,618
Related party accounts
receivable ........................................ 55,911 24,000

Prepaid expenses .................................. 147,114 3,213

Other current assets .............................. 205,336 31,149
----------- -----------
Total current assets .............................. 1,907,064 387,980

Property and equipment, net of accumulated
depreciation and amortization of
$161,289 and $559 .............................. 1,099,219 19,550

Other assets ...................................... 399,960 --
----------- -----------
Total assets ...................................... $ 3,406,243 $ 407,530
=========== ===========

Liabilities & shareholders' equity (deficit):

Current liabilities:
Accounts payable ................................ $ 122,366 $ 3,779
Note payable .................................... 1,000,000 --

Accrued expenses ................................ 124,866 38,127
Current portion of obligations under capital
leases ........................................ 296,430 --
Other current liabilities ....................... 13,019 --

Advance from shareholders ....................... -- 500,000
Accounts payable, related party ................. -- 150,000
----------- -----------
Total current liabilities ......................... 1,556,681 691,906

Obligations under capital leases, less current portion. 333,859

Equity subject to potential redemption ................ 5,300 5,300

Shareholders' equity (deficit):
Common stock, $.001 par value, 200,000,000 shares
authorized; 10,976,428 issued and outstanding
at September 30, 1999, 10,030,000 issued and
outstanding at December 31, 1998 ................ 10,976 10,030

Paid-in capital ................................. 5,790,482 --
Deficit accumulated during the development stage. (4,291,055) (297,706)
----------- -----------
Total shareholders' equity (deficit) .............. 1,510,403 (289,676)

=========== ===========
Total liabilities and shareholders' equity
(deficit) ....................................... $ 3,406,243 $ 407,530
=========== ===========
</TABLE>

See notes to financial statements

8
<PAGE>
billserv.com, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
JULY 30,
1998
THREE MONTHS NINE MONTHS (INCEPTION)
ENDED ENDED TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1999 1999
------------ ------------ ------------

<S> <C> <C> <C>
Revenues ...................... $ -- $ -- $ --

Operating expenses

Research and development .... 260,847 600,389 600,389
Selling expenses ............ 536,629 1,278,566 1,366,864
General and administrative .. 516,463 1,810,388 2,011,301
Depreciation & amortization . 87,541 168,805 169,364
------------ ------------ ------------
Total operating expenses ...... 1,401,480 3,858,148 4,147,918
------------ ------------ ------------
Operating loss ................ (1,401,480) (3,858,148) (4,147,918)

Other income (expense):
Interest income ............. 24,774 36,905 36,905
Interest expense ............ (165,279) (173,433) (173,433)
Other income ................ 2,127 3,327 3,327
------------ ------------ ------------
Total other income (expense) .. (138,378) (133,201) (133,201)
------------ ------------ ------------
Loss before income taxes ...... (1,539,858) (3,991,349) (4,281,119)

Income taxes .................. -- -- --
------------ ------------ ------------
Net loss ...................... $ (1,539,858) $ (3,991,349) $ (4,281,119)
============ ============ ============
Net loss per common share-basic $ (0.14) $ (0.38) $ (0.42)
============ ============ ============

Weighted average common shares
outstanding - basic ......... 10,976,428 10,414,811 10,276,027
============ ============ ============
</TABLE>

See notes to financial statements

9
<PAGE>
billserv.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY (DEFICIT)
(UNAUDITED)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
ADDITIONAL DURING THE TOTAL
COMMON STOCK PAID-IN DEVELOPMENT SHAREHOLDERS'
SHARES AMOUNT CAPITAL STAGE EQUITY
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance July 30, 19984
(date of inception) ............................ $ 1,000 $ -- $ -- $ -- $ --

Reclass of equity subject to potential redemption (5,300) (5,300)

Acquisition of shares and reverse merger,
December 9, 1998 .............................. 10,029,000 10,030 -- (4,636) 5,394

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)

Shares issued under Reg S, June 11, 1999 ......... 946,428 946 5,299,054 -- 5,300,000

Issuance of Common Stock Warrants, May 18, 1999 .. -- -- 356,583 -- 356,583

Issuance of Common Stock Warrants, August 6, 1999 -- -- 134,845 -- 134,845

Net loss for the nine months ending September 30,
1999........................................... -- -- -- (3,991,349) (3,991,349)

------------ ------------ ------------ ------------ ------------
Balance at September 30, 1999 .................... 10,976,428 $ 10,976 $ 5,790,482 $ (4,291,055) $ 1,510,403
============ ============ ============ ============ ============
</TABLE>
See notes to financial statements

10
<PAGE>
billserv.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
JULY 30,
1998
NINE MONTHS (INCEPTION)
ENDED TO
SEPTEMBER SEPTEMBER
30, 1999 30, 1999
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss .......................................... $(3,991,349) $(4,281,119)
Adjustments to reconcile net loss to net
cash used in operating activities-

Issuance of common stock warrants ................. 491,428 491,428
Depreciation and amortization ..................... 168,805 169,364
Changes in current assets and current liabilities-

(Increase) decrease in related party receivables .. (31,911) (55,911)
(Increase) decrease in prepaid expenses and other
current assets .................................. (318,088) (352,450)
Increase (decrease) in accounts payable and accrued
liabilities ..................................... 205,326 397,232
Increase (decrease) in accounts payable related
party ........................................... (150,000) (150,000)

Increase (decrease) in other current liabilities .. 13,019 13,019
----------- -----------

Net cash used in operating activities ............. (3,612,770) (3,768,437)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ................ (665,398) (685,507)

Proceeds from sale of property and equipment ...... 116,320 116,320

Purchase of long term investments ................. (286,098) (286,098)

Purchase of intangible assets ..................... (75,000) (75,000)
Deposits - long term .............................. (42,834) (42,834)

Proceeds of acquisition/merger .................... -- 5,394
----------- -----------

Net cash used in investing activities ............. (953,010) (967,725)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable ........................ 1,000,000 1,000,000
Advance from shareholders ......................... 1,500,000 2,000,000
Repayment to shareholders ......................... (2,000,000) (2,000,000)
Issuance of common stock .......................... 5,300,000 5,300,000
Payments on obligations under capital lease ....... (65,135) (65,135)
----------- -----------

Net cash provided by financing activities ......... 5,734,865 6,234,865
----------- -----------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ..... 1,169,085 1,498,703

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

CASH AND CASH EQUIVALENTS, end of period ................. $ 1,498,703 $ 1,498,703
=========== ===========

NON CASH INVESTING AND FINANCING ACTIVITIES:
Purchases of equipment under capital leases ....... $ 695,423 $ 695,423
</TABLE>

See notes to financial statements

11
<PAGE>
billserv.com, Inc.
(a development stage company)

Notes to Consolidated Financial Statements
(Unaudited)

September 30, 1999

1. SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The Company's principal activities have been research and development, raising
capital, and organizational activities. Accordingly, it is considered a
development stage company. The Company expects to incur losses during its first
year of operation and may incur losses in subsequent years as development
efforts continue after the commencement of generation of revenue. The Company
plans to meet its capital requirements primarily through funding under
borrowings and issuance of equity securities, capital lease financing, and in
the longer term, revenue from services.

The Company's statements have been prepared by the Company pursuant to the rules
and regulations of the Securities and Exchange Commission ("SEC") and, in the
opinion of management, include all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the results for the interim
periods shown. Certain information and footnote disclosures, normally included
in financial statements prepared in accordance with generally accepted
accounting principles, have been condensed or omitted pursuant to such SEC rules
and regulations. The results for the interim periods are not necessarily
indicative of results for the full year. The financial statements contained
herein should be read in conjunction with the financial statements and notes
thereto included in the Company's Form 10, as amended.

The Company's operations began in November 1998, and as a result, there are no
results of operations presented for the three months period ended September 30,
1998. No revenue was recorded during 1998.

2. STOCK ISSUANCE UNDER REGULATION S

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

3. RELATED PARTY TRANSACTIONS

The Company 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 term of the agreement is for one year, from November 1, 1998 to
October 31, 1999, and provides for services totaling $1.2 million. The Company
paid $1 million to the Consulting Group, previously reported as Accounts Payable
- - Related Party, from the proceeds of the Regulation S offering which was
completed on June 11, 1999. The remaining $200,000 under the agreement was paid
to the Consulting Group during the third quarter of 1999.

12
<PAGE>
billserv.com, Inc.
(a development stage company)

Notes to Consolidated Financial Statements
(Unaudited)

September 30, 1999

4. OBLIGATIONS UNDER CAPITAL LEASES

Equipment held under capital leases is stated at the present value of minimum
lease payments at the inception of the related leases. Equipment held under
capital leases and leasehold improvements are amortized on a straight-line basis
over the estimated useful life of the assets. Amortization of equipment held
under capital leases is included with depreciation expense. Repairs and
maintenance costs are charged to expense as incurred. At September 30, 1999,
there was $695,423 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 September 30, 1999:

Year ending December 31,

1999 $ 92,745
2000 370,979
2001 226,289
2002 43,183

Total minimum lease payments $ 733,196
Less: amount representing interest (102,907)
---------
$ 630,289
Less: current portion (296,430)
---------
Obligations under capital leases $ 333,859
=========

13
<PAGE>
billserv.com, Inc.
(a development stage company)

Notes to Consolidated Financial Statements
(Unaudited)

September 30, 1999

5. OPERATING LEASES

The Company leases office space and other equipment under noncancelable
operating leases expiring in 2004. Future minimum lease payments required under
these leases entered into by the Company, by year and in the aggregate, consist
of the following at September 30, 1999:

Year ending December 31,

1999 $ 52,588
2000 200,799
2001 50,548
2002 6,074
2003 6,074
Thereafter 3,400
---------

Total minimum lease payments $ 319,483
=========

6. OTHER ASSETS

The Company purchased the domain name bills.com for $75,000 in April 1999. The
Company has utilized the domain name for its own Internet portal at the website
www.bills.com. The domain name is reflected in Other Assets. The Company is
amortizing the amount over a ten year period. Additionally, certificates of
deposit purchased for security of long term capital leases are classified under
Other Assets.

7. NOTE PAYABLE

On August 6, 1999, the Company 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 the Company's cash reserves until future equity
financing was obtained. In connection with the issuance of the note, the Company
paid a $20,000 loan origination fee to a venture capitalist firm and issued a
warrant to the accredited investor. See Note 9.

8. EQUITY SUBJECT TO POTENTIAL REDEMPTION

On or about December 3, 1998, the Company, then under the control of former
management, and then known as Goldking Resources, Inc., concluded an offering of

14
<PAGE>
approximately 5.3 million shares of the Company's 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. The Company timely
filed a Form D reporting this transaction to the SEC, and claimed exemption
under Rule 504. The SEC has challenged the validity of this claimed exemption.

15
<PAGE>
billserv.com, Inc.
(a development stage company)

Notes to Consolidated Financial Statements
(Unaudited)

SEPTEMBER 30, 1999

9. STOCK WARRANT AGREEMENTS

On May 7, 1999, the Company contracted to issue a warrant 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 the Company's products, SWBC may earn the right to purchase shares
of common stock, at 110% of the closing bid price as of May 7, 1999 ($7.15),
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 September 30,
1999.

On May 18, 1999, the Company contracted with Pennsylvania Merchant Group ("PMG")
to provide strategic and financial advisory services. In exchange for these
advisory services, the Company issued to PMG a warrant to purchase 111,085
shares of common stock of the Company at an exercise price of $6.75 per share
(which represents the average closing price of the Company's 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, the company 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
Statements of Operations for the nine months ended September 30, 1999. No shares
had been exercised as of September 30, 1999.

As part of the August 6, 1999 debt issuance, the Company issued a warrant to the
accredited investor for the purchase of 41,237 shares of the Company's Common
Stock at an exercise price of $6.0625, which represents the average reported
closing sale price of the Company's 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, the company 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 quarter and nine months ended
September 30,1999. See Note 7.

16
<PAGE>
billserv.com, Inc.
(a development stage company)

Notes to Consolidated Financial Statements
(Unaudited)

September 30, 1999

10. SUBSEQUENT EVENTS

On October 15, 1999 and October 22, 1999, ("the Closing") the Company issued
1,230,792 and 173,845 shares of Common Stock (the "Shares"), respectively to
twenty-one accredited investors under a private placement offer (the
"Offering"). The shares were issued at $3.25 per share which represented a
discount upon the average reported closing sale price of the Company's Common
Stock for the ten (10) business days immediately preceding the Closing date. Net
proceeds to the Company totaled approximately $4,188,053, net of expenses of
$377,009, which included $264,299, or 6.5% of the Offering, paid Pennsylvania
Merchant Group ("PMG") as Placement Agent. Of the Shares issued on October 22,
1999, 153,845 shares were issued in satisfaction of the $500,000 of the
Company's outstanding short-term note payable. The remaining $500,000 of the
outstanding short-term note payable was paid on October 18, 1999.

In accordance with the terms of the Offering, the Company 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. The
Company has 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 from the Company, the holders of the warrants must exercise the
warrants within thirty days, after which time the Company will redeem each
warrant for $.05.

Pursuant to the terms of the Offering, the Company shall file a registration
statement with the SEC within thirty days of the Closing for the purpose of
registering the Shares and underlying warrants. The Company shall also use its
best efforts to maintain with the SEC a Registration Statement that is
effective, as of one hundred twenty (120) days after Closing, and otherwise
cause the Shares and Warrant Shares to be Registered under the Securities Act
until the date on which the Shares and Warrant Shares are eligible for resale or
other disposition under Rule 144 without regard to the volume limitations
thereof.

If a Registration Statement is not filed on or before thirty (30) days after
Closing, or is not effective on or before one hundred twenty (120) days after
Closing (the "Target Date"), as required above, then for every applicable thirty
(30) day period after the applicable target date, the Company shall pay to
Purchaser, as liquidated damages, an amount equal to two percent (2%) of the
total Offering Price of such Shares (without reference to the Warrant Shares or
the Placement Agent Warrant Shares) for each thirty (30) day period following
the applicable Target Date until such time as the registration statement is
declared effective or, in the case of a late filing, is filed. Such payment
shall be made to the Purchaser by cashier's check or wire transfer in

17
<PAGE>
immediately available funds to an account designated, in writing, by Purchaser.

billserv.com, Inc.
(a development stage company)

Notes to Consolidated Financial Statements
(Unaudited)

September 30, 1999

10. SUBSEQUENT EVENTS (CONTINUED)

As additional compensation for acting as Placement Agent or the Offering, the
Company issued a warrant to PMG for the purchase of 37,524, or 3% of the Shares
sold in the Offering. The warrant is immediately exercisable, carries a five
year term, an exercise price of $3.25, piggyback registration rights, and a
cashless exercise provision.

DELISTING FROM OTC BB; EFFECT ON LIQUIDITY. The Company is a "reporting company"
under the Exchange Act, having filed a Form 10 Registration Statement (the
"Registration Statement") on June 11, 1999. Following initial comment by the
SEC, the Registration Statement was amended on July 27, 1999, and became
effective on August 11, 1999. In light of the risk factors stated above, the
Company anticipates that the SEC will require one or more post-effective date
amendments of the Registration Statement.

18
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

This report contains forward-looking statements based on current expectations,
estimates, and projections about the Company's industry, management's beliefs
and certain assumptions made by management. All statements, trends, analyses,
and other information contained in this report relative to trends in net sales,
gross margin, anticipated expense levels, and liquidity and capital resources,
as well as other statements, including, but not limited to, words such as
"anticipate," "believe," "plan," "intend," "expect," and other similar
expressions constitute forward-looking statements. These forward-looking
statements are not guarantees of future performance and are subject to certain
risks and uncertainties that are difficult to predict. Accordingly, actual
results may differ materially from those anticipated or expressed in such
statements. Potential risks and uncertainties include, among others, those set
forth below. Particular attention should be paid to the cautionary statements
involving the Company's limited operating history, the unpredictability of its
future revenues, the unpredictable and evolving nature of its business model,
the intensely competitive online commerce industry and the risks associated with
capacity constraints, systems development, management of growth and business
expansion, as well as other risk factors.

GENERAL

billserv.com, Inc. is a service bureau consolidator in the electronic bill
presentment and payment ("EBPP") industry. As a development stage enterprise,
the Company has yet to receive any operating revenues. However, the Company
intends 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. The Company
has a limited operating history on which to base an evaluation of its businesses
and prospects. The Company's 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 for the Company include, but are not
limited to, an evolving and unpredictable business model and the management of
growth. To address these risks, the Company must, among other things, maintain
and increase its customer base, implement and successfully execute its business
and marketing strategy, continue to develop and upgrade its technology and
transaction-processing systems, provide superior customer service, respond to
competitive developments, improve its Web site, and attract, retain, and
motivate qualified personnel. There can be no assurance that the Company will be
successful in addressing such risks, and the failure to do so could have a
material adverse effect on the Company's business, prospects, financial
condition, and results of operations.

19
<PAGE>
meet changing customer requirements and technological changes in an emerging
market. Accordingly the Company intends to invest heavily in its product
development, technology, and operating infrastructure development as well as
marketing and promotion. Because the Company's services will require a
significant amount of investment in infrastructure and a substantial level of
fixed operating expenses, achieving profitability depends on the Company's
ability to generate a high volume of revenues. As a result of the Company's
limited operating history and the emerging nature of the markets in which it
competes, the Company is unable to accurately forecast its revenues. The
Company's current and future expense levels are based largely on its 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 the
Company's ability to fulfill a biller's demands are difficult to forecast. The
Company 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 the Company's planned expenditures could have an adverse
effect on the Company's business, prospects, financial condition and results of
operations. Further, the Company may from time to time make certain pricing,
service, marketing or acquisition decisions that could have a material adverse
effect on its business, prospects, financial conditions and results of
operations.

RESULTS OF OPERATIONS--QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1999

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 Company's Consulting Group which totaled $100,000
and $400,000 for the quarter and nine months ended September 30,1999. The
Company expanded its sales and marketing staff during the quarter ended
September 30, 1999 and intends to continue such expansion. The Company has
opened sales offices in Arizona, California, Massachusetts, New Jersey, North
Carolina, Pennsylvania, and Texas. The Company plans to increase its marketing
and sales capacities through various marketing and sales activities, including
advertising in trade publications, promotional activities, and aggressive trade
show attendance. Therefore the Company expects marketing and sales expense to
increase substantially.

General and administrative expenses consisted primarily of payroll and related

20
<PAGE>
expenses for executive, accounting, legal and administrative personnel, as well
as professional and consulting fees and other general corporate expenses. For
the quarter and nine months ended September 30, 1999, financial and investor
relation's services provided under the Consulting Agreement totaled $100,000 and
$650,000, respectively. The Company expects general and administrative expenses
to increase as the Company expands its staff and incurs additional costs related
to the growth of its business.

LIQUIDITY AND CAPITAL RESOURCES

In addition to the equity placement, on August 6, 1999, the Company issued a
short-term note payable to an accredited investor for $1 million. The note was
issued as bridge financing until such time as the Company completed a private
placement offering ("Offering"). The Offering was completed in October 1999. A
total of 1,404,637 common shares were issued resulting in net proceeds of
approximately $4,188,053. One half of the short-term note payable, or $500,000
was converted into Common Stock under the Offering. The remaining $500,000 was
repaid on October 18, 1999.

At September 30, 1999, the Company had positive working capital of $350,383.
During the third quarter and the first nine months of 1999 the Company made
significant expenditures and commitments for capital improvements consistent
with anticipated growth in operations, infrastructure and personnel. The Company
anticipates it will make additional investments in and for capital improvements
utilizing proceeds of the Offering completed in October 1999 and will require
additional financing, either through the use of equipment leasing arrangements,
borrowing's or other equity financing.

The Company purchased the domain name bills.com for $75,000 in April 1999, at
which time it announced the establishment of its own Internet portal at the
website www.bills.com. The Company is amortizing the amount over a ten 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 of the Company. The portal is currently available for consumer use
and interaction. The Company will continue to develop the website and to enhance
its design. bills.com(TM) expects to earn revenues through Internet banner
advertising on its website, as well as through sponsorship agreements with other
Internet portals. The Company believes that companies will purchase space on its
bills.com(TM) website 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. The Company currently has plans to invest only limited funds to support
and market the portal; however, the Company could at any time

21
<PAGE>
decide to devote additional financial resources to the portal.

The Company has engaged Pennsylvania Merchant Group ("PMG") 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, the Company issued a warrant to PMG to purchase 111,085
shares of common stock of the Company at an exercise price of $6.75 per share
(which represents the average closing price of the Company's 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, the company 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 Statements of Operations for the nine months ended
September 30, 1999.

The Company secured long-term financing for portions of its computer, software
and telephone systems, and furniture during the second and third quarter of
1999. It entered into four three-year capital leases for approximately $208,292,
which have an interest rate of 10.8%. The term of the leases include a
requirement of security totaling 50% of the total lease for which the Company
purchased a certificate of deposit for $105,000. The security deposit of
$105,000 is included in Other Assets on the Company's Consolidated Balance Sheet
as of September 30, 1999. Additionally, the Company 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 to the Company 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 Company's
Consolidated Balance Sheet as of September 30, 1999.

The Company's headquarters are located in San Antonio, Texas. The Company
entered into a two-year lease for its headquarters beginning in May 1999 for
8,000 square feet which was modified to include an additional 3,000 square feet
beginning in August 1999. The Company anticipates acquiring additional adjacent
leased space to meet the requirements of its expanding clerical, administrative,
and sales activities. Additionally, the Company leases sales offices in
Hollidaysburg, Pennsylvania; Dallas, Texas, Phoenix, Arizona; and Concord,
Massachusetts and plans to open additional sales offices throughout the United
States. The Company also anticipates increasing its lease commitments with the
establishment of a customer care center within the next 12 months.

22
<PAGE>
Company estimates expenditures ranging from $3,000,000 to $4,000,000 for the
development and construction of its customer care center. The Company plans to
meet its capital requirements primarily through use of cash on hand, additional
issuance of equity securities, capital lease financing, and in the longer term,
revenue from services.

YEAR 2000

As of November 15, 1999, the Company has completed the process of determining
whether or not its products, its internal systems, computers and software, and
the products and systems of its critical vendors and suppliers are Year 2000
compliant. The cost associated with this review has been minimal, primarily
because the Company has utilized internal personnel to complete the review, and
because the Company's systems are relatively new. To date, this evaluation
process has resulted in the following:

IT Systems. The Company has conducted a preliminary survey of its IT
hardware and software and believes that all such hardware and
software is Year 2000 compliant.

Non-IT Systems and Infrastructure. Machinery and equipment used in
operations has been inventoried and assessed for Year 2000
compliance. The Company believes all such items are Year 2000
compliant.

Vendors. The Company has completed the process of ascertaining
whether or not its vendors and suppliers are Year 2000
compliant. Again, the Company believes that all of its critical
vendors are Year 2000 compliant.

Although the Company believes that its Year 2000 review has identified all
material Year 2000 issues, there can be no absolute assurance that the Company
identified and

23
<PAGE>
resolved all such issues. If the Company discovers Year 2000 problems in the
future, it may not be able to develop, implement, or test remediation or
contingency plans in a timely or cost-effective manner.