SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, D.C. 20549

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


                                 FORM 10-K

      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
                           EXCHANGE ACT OF 1934

                FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

                      COMMISSION FILE NUMBER 000-28187

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                       OFFICIAL PAYMENTS CORPORATION
           (Exact name of Registrant as Specified in its Charter)

          DELAWARE                                      52-2190781
          --------                                      ----------
(State or Other Jurisdiction of                        (IRS Employer
Incorporation or Organization)                     Identification Number)

                           THREE LANDMARK SQUARE
                      STAMFORD, CONNECTICUT 06901-2501
                      --------------------------------
        (Address of Principal Executive Offices including Zip Code)

                               (203) 356-4200
                               --------------
            (Registrant's Telephone Number, Including Area Code)

        SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

  TITLE OF EACH CLASS                 NAME OF EACH EXCHANGE ON WHICH REGISTERED
  -------------------                 -----------------------------------------
        NONE                                            NONE

        SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

                  COMMON STOCK, PAR VALUE $0.01 PER SHARE
                  ---------------------------------------
                              (Title of Class)

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

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

      As of March 28, 2001, the aggregate market value of the voting stock
held by non-affiliates of the Registrant was approximately $44,765,535
based upon the average of the high and low prices of the Common Stock as
reported on The Nasdaq National Market on such date. All executive officers
and directors of the registrant have been deemed, solely for the purpose of
the foregoing calculation, to be "affiliates" of the registrant. This
determination of affiliate status is not necessarily a conclusive
determination for other purposes.

      As of March 28, 2001, the Registrant had outstanding 21,978,115
shares of Common Stock.

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                    DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the registrant's definitive proxy statement to be mailed
to stockholders in connection with the Company's 2001 Annual Meeting of
Stockholders to be held on May 8, 2001 are incorporated by reference into
Part III hereof.



                       OFFICIAL PAYMENTS CORPORATION
                                 FORM 10-K
                             DECEMBER 31, 2000

                             TABLE OF CONTENTS


ITEM                                                               PAGE NUMBER
----                                                               -----------

                                   PART I

1.    Business...............................................................3

2.    Properties............................................................21

3.    Legal Proceedings.....................................................21

4.    Submission of Matters to a Vote of Security Holders...................21

                                  PART II

5.    Market for Registrant's Common Equity and Related
           Stockholder Matters..............................................22

6.    Selected Financial Data...............................................24

7.    Management's Discussion and Analysis of Financial Condition
           and Results of Operations........................................25

7A.   Quantitative and Qualitative Disclosures About Market Risk............35

8.    Financial Statements and Supplementary Data...........................36

9.    Changes in and Disagreements with Accountants on Accounting
           and Financial Disclosure.........................................36

                                  PART III

10.   Directors and Executive Officers of the Registrant....................36

11.   Executive Compensation................................................36

12.   Security Ownership of Certain Beneficial Owners and
           Management.......................................................36

13.   Certain Relationships and Related Transactions........................37

                                  PART IV

14.   Exhibits, Financial Statement Schedules and Reports on Form 8-K.......37

Signatures..................................................................38

Index to Exhibits



                                   PART I

ITEM 1.     BUSINESS

      Official Payments Corporation (the "Company" or "Official Payments")
is a leading provider of electronic payment options to government entities.
The Company's systems enable consumers to use their credit cards and
"pin-less" debit cards to pay, through the Internet or by telephone,
personal federal and state income taxes, sales and use taxes, property
taxes, tuition payments, motor vehicles fees, fines for traffic violations
and parking citations and other government-imposed taxes and fees. In 2000
the Company processed an aggregate of $927 million of such payments. The
Company's Internet Web site (www.officialpayments.com) and interactive
toll-free telephone number (1-800-2PAY-TAX(sm)) allow consumers to access
payment information, make payments and receive certain customer service
information. References in this document to the Company's provision of
"credit card" payment services shall be deemed to include provision of
payment services for pin-less debit cards bearing the American Express,
VISA or MasterCard logos.

      Incorporated in Delaware in September 1999, the Company changed its
name from U.S. Audiotex Corporation in October 1999. The Company's
principal executive offices are located at Three Landmark Square, Stamford,
Connecticut 06901. Comerica Incorporated, a financial holding company
("Comerica"), is the beneficial owner of approximately 55% of the
outstanding common stock of the Company.

SERVICES

Government Clients

      In 1998, the Company signed a credit card payment contract with the
Internal Revenue Service (the "IRS") to provide its services for the
payment by telephone of personal federal "balance due" income taxes. For
the 1999 tax year, the Company began processing estimated and extension tax
payments, as well. In March 2000, the IRS awarded Official Payments a
contract to accept, via the Internet and telephone balance-due and
estimated tax payments for the 2000 tax year, as well as estimated payments
for the 2001 tax year. This new contract has an initial one-year term, with
the IRS having the option to renew the contract for one additional year.
The IRS exercised this renewal option in March 2001. The Company is an
industry partner of the IRS's Electronic Tax Administration division. For
the 2000 tax year, the IRS has included Official Payments' telephone number
and Web site address in the instruction booklets for Form 1040 and on Form
1040ES and Form 4868.

      As of December 31, 2000, Official Payments was processing, or had
recently entered into contracts to process, payments for the District of
Columbia and 15 state governments including Alabama, Arkansas, California,
Connecticut, Illinois, Kansas, Maryland, Minnesota, New Jersey, New York,
Ohio, Oklahoma, Virginia, Washington and West Virginia. In the first
quarter of 2001, Official Payments announced that it has entered into
similar agreements with the states of Wisconsin, Iowa and Mississippi,
respectively. In addition, as of December 31, 2000, the Company had entered
into agreements with over 723 counties and municipalities in 41 states. The
highest concentrations of local government entities serviced by the Company
are in California, Texas and Virginia.

      The table below lists, as of March 15, 2001, the Company's existing
government clients and the types of payments it processes or has contracted
to process for those clients:


Government Client      Type of Payment
IRS                    Balance due, estimated and extension personal
                       federal income taxes
Alabama                Balance due, estimated and delinquent personal income
                       taxes
Arkansas               Balance due, estimated and extension personal income
                       taxes; sales and use taxes; motor vehicle fees
California             Balance due, estimated, extension and past due
                       personal income taxes; sales and use taxes; benefit
                       overpayments
Connecticut            Balance due, estimated and extension personal income
                       taxes
District of Columbia   Balance due and delinquent personal income taxes
Illinois               Balance due, estimated, extension and prior year
                       personal income taxes; business license fees
Iowa                   Delinquency taxes and fees
Kansas                 Balance due and estimated personal income taxes;
                       retail sales and use taxes
Maryland               Balance due personal income taxes; income tax
                       established liabilities
Minnesota              Balance due and estimated personal income taxes; penalty
                       payments
Mississippi            Delinquent taxes
New Jersey             Balance due, fiduciary, estimated,
                       extension personal income taxes; sales and
                       use taxes; gross withholding taxes;
                       unemployment and disability contributions;
                       deficiency payments
New York               Balance due, estimated and extension personal income
                       taxes
Ohio                   Balance due, estimated and extension personal income
                       taxes; school district taxes
Oklahoma               Balance due and estimated personal income taxes;
                       corporate balance due and estimated taxes;
                       withholding and franchise taxes
Virginia               Balance due personal income taxes
Washington             Business sales and use taxes
West Virginia          Various tax and fee payments to be determined
Wisconsin              Various tax and fee payments to be determined
554 counties and       Real estate and personal property taxes
municipalities
618 counties and       Fines for traffic violations, parking citations and/
municipalities         or other services (e.g., utility bill payments)


      In addition, the Company designs, installs and implements individual
systems for county and municipal government clients that may be purchased
by such entities in order to accept certain types of payments. These
installed products include property tax, citation processing, parking and
automated fax filing systems, which incorporate the Company's electronic
payment conduits, as well as provide connections between databases to
transfer information simultaneously.

      The Company also builds and sells custom applications such as a
polling place locator application, county social service inquiry system and
additional government-related applications. These systems are typically
sold to a government entity for a fixed fee.

      Electronic payments often provide significant benefits for government
entities, including improved service, cost savings, reduced paperwork,
fraud and error reduction and faster transaction processing. Government
entities may prefer to outsource electronic payment options rather than
provide these options themselves because they lack the expertise, technical
personnel and economies of scale necessary to implement and maintain the
required software and hardware systems. In addition, legislation prohibits
some government entities from paying credit card payment processing fees
associated with accepting credit cards.

      Most of the Company's agreements with government clients are
non-exclusive, short-term contracts or memoranda of understanding and can
be terminated without cause on short notice, generally 30 to 90 days. In
addition, a government client may choose not to renew its contract with the
Company or may not choose the Company's proposal in response to a request
for proposals to perform additional services or the existing service in
subsequent time periods. If one of the Company's larger existing government
clients (such as the IRS) chooses to terminate its contract or memorandum
of understanding with the Company, the business, operating results and
financial condition of the Company could be materially and adversely
affected.

Credit Card Processing

      The Company currently processes payments made by individuals or small
businesses using the American Express(R) Card, MasterCard, VISA card and
the Discover(R) card. Imperial Bank (a wholly owned subsidiary of
Comerica), American National Bank, Centura Bank, First Data Corporation's
alliance partners, Fifth Third Bank, Michigan National Bank (expected to
begin in Spring 2001), National City Bank, Norwest Bank, SunTrust Bank and
Union Bank of California, in addition to other processing banks used by the
Company, are all long-standing members of the VISA and MasterCard
associations and process transactions utilizing those credit cards for the
Company. Official Payments is a merchant agent for American Express,
eliminating the need for government entities to enter into separate
contracts with American Express. In addition, the Company is authorized by
Discover Financial Services, Inc. to accept Discover Card transactions.

      All four credit card associations and organizations with whom the
Company does business allow for convenience fees to be charged to
cardholders as long as a cardholder receives added convenience from the
service provided. All of these card associations, except for VISA, allow
for a variable fee schedule according to which the amount of the fee
changes depending on the amount charged. Because of VISA's rules against
variable convenience fees, the Company does not accept VISA cards as a
means of payment in federal and state payment programs. However, the
Company does accept VISA as a means of payment in many county and municipal
payment programs, such as parking citations processing.

Consumer Payment Conduits and Fee Structure

      Depending upon the specific desires of the Company's government
clients, consumers can make credit card payments to the Company's
government clients by using the 1-800-2PAY-TAX(sm) telephone number and/or
through the Company's Web site at www.officialpayments.com.

      Official Payments works with its government clients to develop the
script for its fully automated telephone conduit. Payment and other
information for the interactive voice response telephone system ("IVR") is
received from consumers who respond to voice prompts by pressing touch-tone
buttons on their telephones. Once the convenience fee and other necessary
information is conveyed to and confirmed by the consumer, approval is
sought from the relevant credit card issuing bank and the payment is
processed. Upon completion of the payment, the consumer receives a
transaction confirmation number.

      The Company's secure Web site currently allows consumers to make all
federal, state and county payments. The Company is working with its
municipal clients to provide this service for more payment programs later
in 2001. Consumers enter payment-related information via the "payment
center" section of the Company's Web site. Once this payment data is
entered, the systems seek approval of the transaction from the credit card
issuing bank and, if the approval is obtained, the payment is processed. As
with the telephone conduit, upon completion of the payment, the consumer
receives a transaction confirmation number.

      The Company recently introduced the first phase of several
enhancements to its Web site, including the introduction of a convenience
fee calculator, optional e-mail confirmation of transactions, a multiple
password-protected payment verification capability, a user registration
function and a comprehensive "frequently asked questions" section. The
Company is continuing to develop the capability on its Web site for
consumers to make multiple payments per transaction session and search for
products by zip code, which functions it currently plans to introduce later
in 2001.

      Consumers who use the Company's credit card payment services obtain
the convenience of being able to make payments to government entities by
credit card, eliminating the need to mail checks, obtain money orders or
make payments in person. In addition, they gain the cash management
flexibility to pay their credit card balances over time rather than when a
government obligation is due and may be able to take advantage of frequent
flyer, cash-back or other rewards programs offered by their credit card
issuers for which they are enrolled and eligible.

REVENUES AND OPERATIONS

Operations

      The Company's technological solutions and operations are focused
primarily on producing four integrated results for its government clients
and consumers: reliability, security, audit capability and customer
service/operational support. In designing its operations and technology
around these core concepts, the Company believes it provides its government
clients with a value-added payment solution resulting in improved
efficiencies and potential cost-savings.

      Reliability. The Company's foremost service goal is reliability,
which it seeks to accomplish through redundant hardware that provides
disaster recovery and allows it to implement seamless real-time backup and
99.99% system availability. The Company's primary Internet payment servers
are housed at Digex, Inc. facilities in San Jose, California. This Digex
site is the Company's primary processing location, offering redundancy for
power, telecommunications, servers and applications. The Company's San
Ramon operations center serves as a backup site in the event the Digex
facility is rendered inoperative, and upon the Company implementing a
change in the location of the Company's Web site servers, this back-up
facility would fully assume the traffic handled through the Digex site.

      The Company's interactive telephone systems have the same dual
facility scheme as its Internet systems. The Company's primary interactive
telephone authorization and processing facility is located at the Company's
operations center in San Ramon, California, where its computers have
interchangeable power supplies and hard drives so that if a system fails,
the redundant systems will assume the workload. Official Payments also
maintains a backup facility in Stockton, California, used for disaster
recovery and transaction overflows.

      Transaction Security. The Company places a high priority on
transaction security, fraud prevention and maintaining the confidentiality
of all consumer credit card and related information. For its Internet
conduit delivery vehicle, the Company employs secured socket layers for
user security from the consumer's browser to the Company's Web site.
Taxpayer identity validations for credit card payments are transmitted in
an encrypted manner and are performed in accordance with existing industry
procedures.

      The Company has several system functions that are designed to combat
fraud. For example, credit card authorizations are performed on-line and in
real time. The Company's system captures the cardholder's credit card
account number, card expiration date, billing statement mailing address
(Internet only) and zip code. Credit card information is transmitted
exclusively to the credit card processor. No one outside of the Company's
system and the credit card processor's system receives the credit card
information, including the IRS and other government clients.

      The Company's systems were audited by independent auditors on behalf
of the IRS in December 2000 and were determined to comply with the IRS's
standards regarding systems penetration, security and privacy.

      Audit Capability. The Company's proprietary mirror balancing system
(which is used for many of its government clients) and its reporting
systems provide Official Payments and its government clients with
electronic audit capability. These applications enable the Company to
account for all transactions, ensure that data transmissions to government
clients are complete and that files are updated accurately.

      Customer Service. Official Payments provides automated customer
service systems, such as the transaction verification system, which allow
consumers to confirm their transaction posting. In addition, the Company
employs customer service representatives who are available to assist
consumers and representatives of the Company's government clients with
individual needs via telephone or e-mail. The Company also provides a
"Frequently Asked Questions" feature on its Web site to answer common
questions asked by consumers.

Revenues

      The Company generally provides its services at no cost to the
authorizing government entity. The Company generates revenues primarily
from charging consumers a convenience fee for using its services. For many
payments, such as personal federal and state income tax payments and local
property tax payments, Official Payments charges a convenience fee based on
the amount of the payment. For other payments, such as fines for traffic
violations and parking citations, Official Payments charges a fixed
convenience fee. The same convenience fee applies for payments made through
the Internet or by telephone. In the majority of transactions, the
financial institution processing the credit card transaction forwards the
convenience fee to the Company and transmits the tax payment to the
respective government entity. The Company uses most of the convenience fee
paid by the consumer to pay its credit card processor's merchant discount
fee.

      For the 2000 fiscal year, convenience fees from payments to the IRS
accounted for approximately 69% of the Company's total revenues. The IRS
has selected Official Payments to provide electronic payment services with
respect to balance-due and extension tax payments for the 2000 tax year, as
well as estimated payments for the 2001 tax year. The IRS had the option to
renew the Company's services for an additional year, which it exercised in
March 2001 (which extends the contract until March 2002). If the IRS does
not continue to select the Company to perform this service in subsequent
years, the Company's business, operating results and financial condition
would be materially and adversely affected.

SEASONALITY

      The Company's revenue generally reflects the seasonality of its
business, which is due primarily to the fact that the majority of federal
and state personal balance-due income tax payments are made in early to
mid-April, federal and state estimated personal income tax payments are
made quarterly and local property tax payments are made only once or twice
per year in many jurisdictions.

COMPETITION

Alternative Payment Options

      In addition to using the Company's credit card payment services,
consumer users have the following payment options when making payments to
government entities:

      o     Checks, money orders or cash. Payment by mailing checks,
            obtaining money orders and paying in person are the traditional
            and currently the most widely used methods for making payments
            to government entities.

      o     Credit card checks. Many of the issuing banks for VISA and
            MasterCard distribute cash advance checks to their cardholders.
            In March and early April, issuing banks generally promote the
            use of these checks to pay taxes. Because these checks are
            treated as a cash advance, they may be a more expensive
            solution than the Company's services. The typical terms for a
            cash advance include a one-time fee, and the advance starts to
            accrue interest immediately at the issuing bank's applicable
            rate. In addition, many issuing banks apply the consumer's
            payments to other less expensive balances first. Moreover, cash
            advances typically do not qualify for frequent flyer mileage
            programs or any other perquisites. In contrast, payments made
            through the Company's systems require a convenience fee, but
            are treated as purchases subject to generally lower interest
            rates, may not immediately accrue interest, and may qualify for
            various award programs.

      o     Direct debit. Consumer users can arrange through their bank or
            otherwise to have payments to government entities directly
            debited from their checking or savings account. If arranged
            through the bank in which a consumer user's checking or savings
            account is maintained, this service is often provided free of
            charge.

Competing Providers of Credit Card Services for Payments to Government Entities

      In selecting a provider of outsourced electronic payment services,
the Company believes government entities consider the following:

      o     the Company's ability to offer these services at no cost to the
            government entity;

      o     the Company's existing relationships and referrals from other
            government entities currently using the Company's services;

      o     the Company's proven technology systems;

      o     the Company's ability to offer integrated federal, state and
            local payment options;

      o     established consumer usage of the Company's services;

      o     the Company's experience in implementing its services for new
            government clients efficiently and expeditiously;

      o     the greatest possible consumer reach through both Internet and
            telephone conduits;

      o     the Company's relationships with financial institutions and
            credit card companies;

      o     the Company's flexibility in adapting to unique government
            procedures;

      o     quality and convenience of the Company's service;

      o     marketing and brand name recognition; and

      o     price of the Company's services to consumers.

      A number of competitors currently provide credit card payment
services for making payments to government entities. The Company believes
it has a larger government client base and greater name recognition than
its competitors. There are a number of larger credit card payment and
electronic commerce companies with similar technological capabilities who
may become potential competitors of the Company, some of whom have greater
resources than the Company.

      For personal federal income tax payments by credit card, the Company
had 100% market share for American Express and MasterCard payments and 59%
for Discover Card payments through December 31, 2000. The only competitor
for 1999 and 2000 tax year federal payments was a joint development effort
by Intuit (TurboTax) and Discover Financial Services, Inc., for which the
Discover Card (which had approximately 8% of the IRS balance-due credit
card market based on total payment volume in 2000) was the only credit card
accepted. Beginning in January 2001, with respect to the federal 2000 tax
year and 2001 tax year estimated payments, the IRS has authorized one other
service provider (PhoneCharge, Inc.) to collect American Express,
MasterCard and Discover Card payments through a telephone and Internet
conduit. Beginning with balance-due payments in 2001, the IRS has announced
that software developers and credit card processing companies who offer an
integrated personal federal income tax filing and payment program are
permitted to compete against the Company (and similar stand-alone payment
processors) without the need to enter into a formal contract with the IRS,
subject to their compliance with certain technical processing requirements.
To the Company's knowledge, as of the date of this Report, the Company's
alliances with Jackson Hewitt, Inc. and Orrtax Software Inc., and
Discover's alliance with Intuit are the only such integrated personal
federal income tax filing and payment programs.

      With respect to all of the states (except New York, where there is
one other authorized service provider for state income taxes) and counties
and municipalities for whom the Company provides its credit card payment
services, the Company believes it is the only provider of such services for
the tax and other government payment programs in which it is involved.

INTELLECTUAL PROPERTY

      The Company protects its intellectual property rights through a
combination of trademark, service mark, copyright and trade secrets laws.
No assurance can be given that the steps taken to protect the Company's
intellectual property rights, however, will be adequate to deter
misappropriation of those rights. The Company may not be able to detect
unauthorized use of and take appropriate steps to enforce its intellectual
property rights. It may also be possible for unauthorized third parties to
copy certain portions of the Company's proprietary information or reverse
engineer the proprietary information used in the Company's services.

      In order to limit access to and disclosure of the Company's
proprietary information, all of the Company's employees are subject to
confidentiality and invention assignment arrangements, and the Company
enters into nondisclosure agreements with third parties that are material
to its business.

      The Company has been, and from time to time expects to be, subject to
claims by third parties in the ordinary course of business, including
claims of alleged infringement of service marks, trademarks, copyrights,
patents and other intellectual property rights of third parties. Although
there has not been any litigation relating to such claims to date, these
claims and any resultant litigation would subject the Company to
significant liability for damages and could result in the invalidation of
its proprietary rights. In addition, even if the Company prevails, the
litigation could be time-consuming and expensive to defend and could result
in a diversion of time and attention from the business, any of which could
materially and adversely affect its business, operating results and
financial condition. Any claims or litigation from third parties may also
result in limitations on the ability of the Company to use the service
marks, trademarks and other intellectual property subject to these claims
or litigation, unless the Company enters into agreements with the third
parties. However, these agreements may be unavailable on commercially
reasonable terms, or not available at all.

      The Company intends to continue to license technology from third
parties, including its Web server and encryption technology. The Company
cannot be certain that these third-party content licenses will be available
to it on commercially reasonable terms or that it will be able to integrate
the technology into the Company's products and services.

      The Company licenses its base interactive telephone hardware and
software systems from Alliance Systems Incorporated, which manufactures the
hardware and provides the operating system and other development tools that
the Company uses. The license fee is included in the cost of each system.
Licenses for the processor software that enables the Company to receive
authorizations from credit card companies are obtained from third party
vendors. An additional license has been acquired from Artisoft Inc. to
allow the Company to develop its interactive telephone applications. The
Company also licenses patented technology for its IVR system from A2D,
L.P., and pays a royalty to this patent holder for each call to the IVR.
Finally, the Company obtained separate licenses from CyberSource Corp. and
CyberCash, Inc. for credit card processing software with respect to each
government client that is supported on the Company's Internet payment
platform and IVR payment platform, respectively.

RESEARCH AND DEVELOPMENT

      The Company's current business operations began in June 1996. The
Company continues to provide enhancements to the IVR payment platform on an
ongoing basis. The Company introduced the Internet payment platform in
August 1999. Total development costs were $3.0 million, $2.1 million and
$608,000 for the fiscal years ended December 31, 2000, 1999 and 1998,
respectively.

      As of December 31, 2000, the Company has capitalized approximately
$2.7 million for costs related to the research and development of new
software products and enhancements to existing software products where
technical feasibility was established.

      The Company believes its software and Internet applications teams and
core technologies do not represent a significant competitive advantage.
However, the Company believes that is has developed a technically skilled
and highly productive development organization and technological
infrastructure that should benefit it competitively in introducing and
implementing new products in the future. The Company must continue to
attract and retain highly qualified employees to further the Company's
development efforts. The Company's business could be seriously harmed if
the Company is not able to hire and retain a sufficient number of these
individuals.

GROWTH STRATEGY

      The Company's goal is to continue to be the leading provider of, and
further develop the market for, electronic payment services to pay
government obligations. The following are key elements of this strategy.

Leverage IRS Relationship to Obtain Additional State Government Clients

      The Company is leveraging its IRS relationship to provide services to
additional state government entities. These efforts have been bolstered by
the fact that the IRS has publicly endorsed the concept of joint federal
and state payments either via telephone or the Internet or through
electronic filing. The Company currently provides, or has recently signed
contracts to provide, its electronic payment services to 18 state
governments and the District of Columbia, which experience the Company
seeks to promote in establishing relationships with other states. A key
element of the Company's strategy for obtaining personal state income tax
accounts is the integration of the federal and state personal income tax
payment processes. The Company's integrated solution allows consumers to
pay their federal and state personal income taxes in a single session,
which the Company believes should enhance consumer convenience and usage.
Competitors who do not currently provide services to the IRS will be unable
to offer this integrated service. Once the Company begins providing
services to a particular state, it seeks opportunities to provide
additional services for that state.

Leverage IRS and State Government Client Relationships to Obtain Additional
Local Clients

      As of December 31, 2000, the Company provided services to
approximately 723 county and municipal clients. Its relationships with the
IRS and state government entities provide the Company an advantage in
establishing relationships with additional local clients. The Company is
targeting county and municipal clients through direct sales, participation
in industry trade shows and conferences and targeted newsletters and other
mailings.

Internet Services

      In August 1999, the Company began providing credit card payment
services through the Internet. In addition to the Company's IVR payment
services, the Company now makes Internet payment services available as an
option to all of its existing government clients.

Introduce New Services and Service Enhancements

      The Company seeks to remain at the forefront of its industry by
continuing to develop additional and complementary services. While the
Company's primary business to date has involved the collection of personal
income taxes, property taxes and parking/traffic citations and fees, the
Company has begun processing other payments, such as business sales and
taxes, professional license fees and university tuition. It is also
exploring other types of government obligations for which it might provide
its services and opportunities to provide direct debiting and other
electronic fund transfer features to consumers in the future.

Increase Brand Awareness and Consumer Use

      The Company has primarily relied on its government clients and credit
card issuers, and will continue to work with them, to publicize the
Company's services through government bills and publications, as well as
credit card promotions and billing inserts. Use of these specific
promotional devices is arranged by the government clients and credit card
companies at no cost to the Company. In addition, in October 2000 and March
2001, the Company entered into cooperative advertising arrangements with
MasterCard International and American Express pursuant to which it received
$255,000 from each to use for advertising campaigns promoting the Company's
income tax payment services. In order to increase the number of
transactions processed, the Company intends to increase consumer awareness
of its credit card payment services through its own newspaper, television
and radio advertising and public relations campaigns.

      The Company's marketing is also focused on promoting additional
payment opportunities to its existing consumers. The Company believes that
once a consumer uses its system, he or she is more likely to use these
services to make other types of payments to government entities. The
Company's Web site and interactive telephone system promote different types
of payments that can be made using the Company's services.

      The Company also runs a national trade advertising campaign
throughout the year to drive increased brand awareness amongst potential
government clients.

Pursue Strategic Relationships and Acquisitions

      The Company has begun providing its payment services to customers of
the Jackson Hewitt(R) Tax Service, OrrTax Software Inc., and Nationtax
Online and is pursuing similar strategic relationships with other tax
preparation services, tax preparation software providers and electronic
income tax filing providers. In the ordinary course of its business, the
Company investigates relationships with Internet portals and other Internet
financial service providers in order potentially to reach additional
Internet users. The Company has formed a strategic alliance with E*Trade
Group, Inc., pursuant to which E*Trade and the Company have agreed to
engage in cross-marketing and joint promotions targeting the two companies'
customer bases. In addition, Official Payments may pursue opportunistic
acquisitions that will enhance its product offering and technical
capabilities, including companies that provide government client or
consumer user products or services closely related to the Company's,
although the Company currently has not allocated specific proceeds to fund
such acquisition plans.

      The Company also has relationships with a number of its processing
banks to provide its services for their government clients. For example,
Discover Financial Services and First Data Merchant Services were awarded
the contract to provide personal income tax payment services for the State
of California and subcontracted the provision of taxpayer services through
IVR and Internet platforms to the Company. The Company has similar
arrangements with Fifth Third Bank (Ohio), National City Bank (Illinois),
Norwest Bank (Minnesota) and Paymentech L.L.C. (Kansas). The Company's
product implementation model and revenues as a subcontractor are identical
to a directly contracted account. Official Payments will look for
additional strategic opportunities to provide services to government
entities in conjunction with these and other partners.

REGULATORY MATTERS

      By virtue of Comerica's ownership interest in the Company, and owing
to the nature of the Company's business, the Company may be subject to
various regulatory requirements. Comerica is a financial holding company
that is subject to supervision and regulation by the Federal Reserve Board
under the Bank Holding Company Act of 1956, as amended. Subject to certain
exceptions, under the Act, Comerica historically has been prohibited from
engaging in activities other than those of banking or managing or
controlling banks, or from acquiring or retaining direct or indirect
ownership or control of voting shares of any company which is not a bank or
bank holding company whose activities the FRB has not determined to be so
closely related to banking as to be a proper incident thereto. However,
under the Gramm-Leach-Bliley Act of 1999 (which became effective in March
2000), this provision does not prohibit Comerica's present ownership
interest in the Company because the Company's activities are, in the FRB's
determination, financial in nature, incidential to such financial activity
or complementary to a financial activity and do not impose a substantial
risk to the safety or soundness of depository institutions or the financial
system generally.

      For as long as Comerica owns a voting equity interest in the Company
which equals 25% or more, or may otherwise be deemed by the regulatory
authorities to constitute "control", the Company will also be subject to
certain state and federal statutes and regulations that apply to Comerica.
For example, the Company will be required to limit any transactions it may
have with "affiliates" of Comerica in the same manner as Comerica must
limit its transactions with its affiliates. Among other things, all such
dealings with affiliates must be at arms' length.

      There is no guarantee that the financial holding company laws will
not be amended or construed differently, or that new laws or regulations
will not be adopted, the effect of which could materially and adversely
affect the Company's business, operating results and financial condition.

      The Company is also subject to the laws and regulations relating to
commercial transactions generally, such as the Uniform Commercial Code, and
to the electronic fund transfer rules embodied in Regulation E issued by
the Federal Reserve. The Federal Reserve's Regulation E implements the
Electronic Fund Transfer Act, which was enacted in 1978. Regulation E
protects consumers engaging in electronic transfers, and sets forth basic
rights, liabilities and responsibilities of consumers who use electronic
money services and of financial institutions that offer these services. For
the Company, Regulation E sets forth disclosure and investigative
procedures. For consumers, Regulation E establishes procedures and time
periods for reporting unauthorized use of electronic money transfer
services and limitations on the consumers' liability if the notification
procedures are followed within prescribed periods. These limitations on the
consumers' liability may result in liability to the Company.

      Given the expansion of the Internet 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 Internet commerce market, Congress has held hearings on
whether to regulate providers of services and transactions in the Internet
commerce market. It is possible that Congress or individual states could
enact laws regulating the Internet commerce market. The privacy provisions
of the Gramm-Leach-Bliley Act prohibit financial institutions from
disclosing to unaffiliated third parties nonpublic personal information
regarding consumers, subject to certain exceptions, and require those
institutions to develop and disclose consumer privacy policies. Federal
agencies are developing regulations that implement this new privacy law. In
addition, a number of state legislatures are considering their own consumer
privacy laws, which may be more stringent than the federal provisions. If
enacted, these 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. Federal,
local and state laws and regulations may be adopted in the future to
address issues such as user privacy, pricing, online content regulation,
taxation and the characteristics and quality of online products and
services.

      Any new law or regulation relating to the Internet could have a
material and adverse effect on the Company's business, operating results
and financial condition.

FORWARD-LOOKING INFORMATION

      The information in this report contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Such statements are based upon the current economic environment
and current expectations that involve risks and uncertainties, and you are
cautioned that these statements are not guarantees of future performance.
Any statements contained herein that are not statements of historical facts
may be deemed to be forward-looking statements. For example, words such as
"may," "will," "should," "estimates," "predicts," "potential," "continue,"
"strategy," "believes," "anticipates," "plans," "expects," "intends," and
similar expressions are intended to identify forward-looking statements.
The Company's actual results and the timing of certain events may differ
significantly from the results discussed in the forward-looking statement.
Factors that might cause or contribute to such a discrepancy include, but
are not limited to, those discussed below in the section entitled "Risk
Related to the Company's Business" and in "ITEM 7: MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," as well as
the risks discussed in the Company's other Securities and Exchange
Commission ("SEC") filings.

RECENT EVENTS

      In March 2001, Official Payments reached an agreement with the State
of Mississippi pursuant to which the Company will begin collecting
delinquent taxes by credit card through its IVR and Internet payment
platforms.

      In March 2001, Official Payments entered into a cooperative
advertising agreement with American Express for $255,000. The Company will
utilize these funds for an advertising campaign related to its federal
income tax payment program with the IRS, which will run in March and April
2001.

      In March 2001, Official Payments entered into an agreement with the
State of Iowa under which the Company will provide a service enabling Iowa
citizens to pay a variety of delinquent tax and fee payments by credit card
through the Company's IVR and Internet payment platforms.

      In March 2001, the IRS exercised its option to extend its existing
contract with Official Payments for an additional calendar year. This
renewal covers the 2001 tax year for personal federal balance due and
extension payments, as well as estimated personal federal taxes for the
2002 tax year.

      In February 2001, the State of Oklahoma renewed and expanded the
Company's existing contract with the state. The Company's previous
agreements gave Oklahoma taxpayers the ability to pay their individual
return balance-due personal state income tax payments by credit card
through the Company's Web site. The new award adds the IVR option and six
new tax payment categories: Corporate Income Tax, Corporate Estimated Tax,
Individual Estimated Tax, Income Withholding, Income Tax Franchise, and
Sales and Use Tax.

      On January 30, 2001, Imperial Bancorp, the parent holding company of
Imperial Bank (which then owned approximately 55% of the Company's
outstanding common stock), was acquired by Comerica in a tax-free,
stock-for-stock transaction. Consummation of the merger resulted in the
acceleration of various employee stock options and restricted stock granted
under such plans of the Company under the Company's 2000 Stock Incentive
Plan and 1999 Stock Incentive Plan. In addition, under the respective
employment agreements for Thomas R. Evans (Chairman and Chief Executive
Officer), Michael P. Presto (Chief Operating Officer) and Michael Barrett
(Chief Internet and Sales Officer), this change of control event enables
each of them to terminate his employment with the Company for "good reason"
after July 30, 2001 and in connection therewith to continue receiving
payment of his base salary and benefits for one year following such date.
The employment agreement for Edward J. DiMaria (Chief Financial Officer)
contains a similar provision, but he is only eligible to terminate his
employment for good reason due to this event between April 30, 2001 and May
30, 2001. In March 2001, Imperial Bank transferred ownership of its shares
of Company common stock to its new parent holding company, Comerica.

      In January 2001, the State of Connecticut renewed and expanded the
Company's existing contract with the state. The Company's previous
agreements gave Connecticut taxpayers the ability to pay their individual
return balance-due personal state income tax payments by credit card over
the Company's interactive telephone system. The new award adds the
Company's Internet payment option and two new payment categories: 2000
Extension Tax and 2001 Estimated Tax.

      In January 2001, Official Payments announced its new contract with
the State of Wisconsin which authorizes the Company to work directly with
any Wisconsin state agency to provide a service for the collection of
various taxes, fees, fines, licenses, and tuition payments by credit card
via the Company's Web site and IVR. Currently, the Company has arranged to
collect personal balance due income taxes and is in the process of
contacting a number of state agencies to offer its services under the
general state authorization contract.

EMPLOYEES

      As of December 31, 2000, the Company had a total of 93 employees.
None of these employees is represented by a collective bargaining
agreement, nor has the Company experienced any work stoppage. The Company
considers its relations with employees to be good.

OTHER FACTORS AFFECTING THE COMPANY'S BUSINESS

      In addition to other information in this Form 10-K, the following
factors should be carefully considered in evaluating the Company and its
business because such factors currently may have a significant impact on
the Company's business, operating results and financial condition. As a
result of the factors set forth below and elsewhere in this Form 10-K, and
the risks discussed in the Company's other Securities and Exchange
Commission filings, actual results could differ materially from those
projected in any forward-looking statements.

RISKS RELATED TO THE COMPANY'S BUSINESS

The Company has a history of losses and expects to continue to incur
losses.

      The Company has incurred net losses of approximately $41.4 million
for the period from its inception on June 26, 1996 to December 31, 2000.
The Company expects to incur losses from operations for the foreseeable
future.

      The Company has expended significant resources on increasing its
customer service, engineering, sales and marketing staffs and enhancing the
capabilities of its IVR system and Web site. As a result of these
expenditures and its normal course operating expenses, the Company will
need to significantly increase its revenues to achieve and maintain
profitability. If the Company's revenues do not increase sufficiently, the
operating results and financial condition of the Company could be
materially and adversely affected.

Because the Company's business model is continuing to evolve, it is
difficult to evaluate the Company's business.

      The use of credit cards to make payments to government agencies is
still relatively new and evolving. To date, the Company's business has
consisted primarily of providing credit card payment options for the
payment of balance-due federal and state personal income taxes, property
taxes and fines for traffic violations and parking citations. Because the
Company has only a limited operating history, it is difficult to evaluate
its business and prospects and the risks, expenses and difficulties that
the Company may face in implementing its business model. The Company's
success will depend on maintaining its relationship with the IRS and on
maintaining existing, and developing additional, relationships with state
and local government agencies, especially state taxing authorities, and
their respective constituents. There are no assurances that the Company
will be able to develop new relationships or maintain existing
relationships, and the failure to do so could have a material and adverse
effect on the business, operating results and financial condition of the
Company.

The Company's future growth depends on the acceptance of its payment
systems as a method for making payments to government entities.

      The Company works with government entities to allow it to provide
credit card payment services to the government entities' constituents.
While many government entities have initiatives or legislative mandates in
place to foster the growth of electronic payments, the business, operating
results and financial condition of the Company would suffer if there were a
reduction in these initiatives. Traditionally, individuals and small
businesses have made substantially all payments to government entities by
check or money order. The Company is providing its payment services through
its interactive telephone conduit and has developed and will continue to
expand the availability of its Internet conduit. However, there are no
assurances that the Company will be successful in attracting enough
additional consumers to use its Internet and interactive telephone conduits
to make their payments to the Company's government clients. The lack of
meaningful growth in the market for credit card payments to government
entities could have a material adverse effect on the business, operating
results and financial condition of the Company.

If consumers are unwilling to pay convenience fees for the Company's
services, the Company's current business model will fail.

      The Company's current business model is based on consumers'
willingness to pay a convenience fee in addition to their required
government payment for the use of the Company's credit card payment option.
If consumers are not receptive to paying a convenience fee, demand for the
Company's services will decline or fail to grow, which could jeopardize the
implementation of the Company's business plan and would have a material and
adverse effect on the business, operating results and financial condition
of the Company.

If credit card associations change their rules and do not allow the Company
to charge convenience fees, operating results of the Company would be
materially and adversely affected.

      Credit card association rules governing the use of VISA and
MasterCard at merchant locations generally prohibit merchants from charging
a convenience fee for cardholder purchases. The Company and Imperial Bank,
a California chartered bank and wholly owned subsidiary of the Company's
majority stockholder, have worked with these credit card associations to
permit the Company to charge convenience fees for credit card payments for
government services and taxes. To date, VISA permits a convenience fee, but
only if it is a flat amount for a particular government service and will
not allow fees that are variable in amount depending on the kind of service
provided or the amount involved. If the Company's ability to charge
convenience fees is limited or eliminated, the business, operating results
and financial condition of the Company would be materially and adversely
affected.

The IRS currently accounts for a significant portion of the Company's
revenues, and the loss of the IRS as a client would materially and
adversely impact the Company's operating results.

      In the year ended December 31, 2000, convenience fees from payments
to the IRS accounted for approximately 69% of the Company's total revenues.
The IRS has selected the Company to provide electronic payment services
with respect to balance-due and extension tax payments for the 2000 tax
year, as well as estimated tax payments for the 2001 tax year (with the
IRS, in March 2001, having exercised the option to renew the Company's
services for an additional year). If the IRS does not continue to select
the Company to perform this service in subsequent years, the business,
operating results and financial condition of the Company would be
materially and adversely affected.

Most of the Company's contracts with government clients are not exclusive
or long-term contracts and, as a result, large government clients may
terminate their relationships with the Company on short notice.

      Most of the Company's agreements with government clients are
non-exclusive, short-term contracts or memoranda of understanding and can
be terminated without cause on short notice, generally 30 to 90 days. In
addition, a government client may choose not to renew its contract with the
Company or may not choose the Company's proposal in response to a
government request for proposals. If one of the Company's larger existing
government clients chooses to terminate its contract or memorandum of
understanding with the Company, or does not choose the Company's proposal,
the business, operating results and financial condition of the Company
could be materially and adversely affected.

Increased competition in the market for payment services to government
entities could result in lower operating margins and decreased market
share.

      The Company's credit card payment services face competitive pressures
from various card- issuing banks for VISA and MasterCard, which send out
checks that function as cash advances and can be used for payments to
government entities. In addition, a number of data and bill processing
companies have the technical capability and other resources to commence
providing credit card payment services, and have indicated an intent to do
so. Increased competition from other providers of payment options to
government entities could have a material and adverse effect on the
business, operating results and financial condition of the Company.

      Many of the Company's current and potential competitors have
significantly greater financial, marketing, technical, sales, customer
support and other resources than the Company. In addition, some of these
competitors may be able to devote greater resources to the development,
promotion and sale of their services, adopt more aggressive pricing
strategies and devote substantially more resources to the development of
technology and systems than the Company will be able to devote or adopt.
Increased competition may result in lower operating margins and loss of
market share. The Company may not be able to compete successfully against
current and future competitors, and competitive pressures could have a
material and adverse effect on the business, operating results and
financial condition of the Company.

If the Company's services do not function as designed, the Company may
incur significant liability for the processing of fraudulent or erroneous
transactions.

      The Company's electronic payment services are designed to provide
payment management functions and to limit its government clients' risk of
fraud or loss in effecting transactions with their constituents. As
electronic services become more critical to the Company's government
clients, there is the potential for significant liability claims for the
processing of fraudulent or erroneous transactions. In addition, defects or
programming errors in the software the Company uses could cause service
interruptions. The Company's services depend on complex software that is
both internally developed and licensed from third parties. Although the
Company conducts extensive testing, complex software may contain defects or
programming errors, or may not properly interface with third party systems,
particularly when first introduced or when new versions are released. To
the extent that defects or errors are undetected in the future and cannot
be resolved satisfactorily or in a timely manner, the Company's business
could suffer. If a liability claim or claims were brought against the
Company, even if not successful, their defense would likely be time
consuming and costly and could damage the Company's reputation. Any such
liability or claim could have a material and adverse effect on the
business, operating results and financial condition of the Company.

If the Company's system security is breached, it may be liable to
government clients and consumer users for damages resulting from the
breach.

      The Company's failure to prevent system security breaches could have
a material and adverse effect on the business, operating results and
financial condition of the Company. A fundamental requirement for
electronic payment services is the secure transmission of confidential
information over public communication networks. Third parties may attempt
to breach the Company's system security or that of the Company's government
clients or consumer users. If they are successful, the Company may be
liable to its government clients or consumer users for any damages
resulting from a breach in the Company's system security, and any breach
could harm the Company's reputation. The Company may be required to expend
significant capital and other resources to license additional encryption
and other technologies to protect against system security breaches or to
alleviate problems caused by any such breaches.

If the Company's systems fail, it may not be able to provide adequate
service, and the Company's operations could be damaged.

      The Company's success depends on the efficient and uninterrupted
operation of its computer and communications systems. The majority of the
Company's computer and communications systems are located in San Ramon, San
Jose and Stockton, California. Although the Company has developed
contingency plans and redundancies for its systems, the Company's systems
and operations are vulnerable to damage or interruption from:

     o      telecommunication failures;

     o      power loss;

     o      earthquakes, fires or floods;

     o      computer viruses;

     o      physical and electronic break-ins; and

     o      acts of sabotage, vandalism and similar events.

      Any failure of the Company's systems could impede the timely
processing of consumer user payments and other data and the day-to-day
management of the business. Despite any precautions the Company takes, a
natural disaster or other unanticipated problem that leads to the
corruption or loss of data at the Company's facilities could result in an
interruption of services. Service interruptions could have a material and
adverse effect on the reputation, business, operating results and financial
condition of the Company and would have a significant adverse effect if
they occurred in early April.

A constraint in the Company's capacity to process transactions could impair
the quality and availability of the Company's service.

      Capacity constraints may cause unanticipated system disruptions,
impair quality and lower the level of the Company's service, all of which
could have a material and adverse effect on the business, operating results
and financial condition of the Company. Although the Company believes that
it has sufficiently expanded its system capacity to accommodate expected
additional personal federal income tax payments and other anticipated
growth for the foreseeable future, there are no assurances that the Company
will not suffer capacity constraints caused by a sharp increase in the use
of its services. Due to the large number of tax payments made in March and
early April, there is an increased risk that the Company will suffer a
capacity constraint during that period, which would have an adverse effect
on the business, operating results and financial condition of the Company.

If the Company fails to respond to rapid technological change, its systems
and services could be rendered obsolete.

      The electronic payment industry is characterized by rapid
technological change. If the Company cannot adapt or respond in a
cost-effective and timely manner to technological changes, the business,
operating results and financial condition of the Company will be materially
and adversely affected, and the Company's technology and systems, and thus
its services, could be rendered obsolete. The development of the Company's
technologies and necessary service enhancements entails significant
technical and business risks and requires substantial lead-time and
expenditures. The Company may not be able to keep pace with the latest
technological developments, successfully identify and meet the demands of
its government clients and consumer users, use new technologies
effectively, or adapt its services to emerging industry standards or to its
government clients' or consumer users' requirements.

The Company's operating results may fluctuate significantly from quarter to
quarter, which may negatively impact the Company's stock price.

      The Company believes its quarterly operating results will continue to
fluctuate significantly in the future as a result of a variety of factors,
many of which are outside of the Company's control. These factors include:

      o     the seasonality of the Company's business, which is due
            primarily to the fact that the majority of federal and state
            personal income tax payments is being made in early April and
            to the fact that property tax payments are made only once or
            twice per year in most jurisdictions;

      o     the amount and timing of costs related to the Company's sales
            and marketing efforts and other initiatives; and

      o     the Company's ability to upgrade, enhance and maintain its
            systems and infrastructure in a timely and cost-effective
            manner.

      Because of these factors, the Company believes that comparisons of
its quarterly operating results are not necessarily meaningful. In
addition, it is possible that in some future quarters the Company's
operating results will be below the expectations of research analysts and
investors, in which case the price of the Company common stock is likely to
decline.

If government clients and credit card issuers cease to publicize the
Company's services, consumer use of its services may slow, and the Company
would suffer a large increase in advertising costs.

      Currently, the Company's government clients and credit card issuers
provide most of the publicity for its services, without any cost to the
Company. If these entities cease to publicize the Company's services, or
charge the Company for this publicity, advertising costs will increase
substantially, which could have a material and adverse effect on the
business, operating results and financial condition of the Company. The
Company's government clients and credit card issuers have no obligation to
continue to provide this publicity, and there are no assurances that they
will continue to do so. In addition, the government clients may publicize
other services, including those of its competitors.

If the Company does not effectively manage its internal growth, the Company
may not be able to expand its business.

      The Company is currently experiencing a period of rapid expansion.
There are no assurances that the Company's current and planned personnel
levels, systems, procedures and controls will be adequate to support its
future operations. If inadequate, the Company may not be able to exploit
existing and potential strategic relationships and market opportunities.
Any delays or difficulties the Company encounters could impair its ability
to attract new, and enhance its relationships with existing, government
clients and consumer users. If the Company is unsuccessful in hiring,
integrating and retaining new personnel, or unable to effectively manage
its internal growth, the business, operating results and financial
condition of the Company could be materially and adversely affected.

The Company depends on a relatively few number of key employees.

      The Company currently does not maintain key man life insurance
policies on any of its employees. The loss of the services of any key
employees or the inability to hire and retain additional key employees
would have a material and adverse effect on the business, operating results
and financial condition of the Company.

The Company may not be able to protect its intellectual property rights,
which may result in damages to the Company, or the Company may infringe on
the rights of others, which may subject it to liability for damages caused
to third parties.

      The Company protects its intellectual property rights through a
combination of trademark, service mark, copyright and trade secrets laws.
There are no assurances, however, that the steps the Company has taken to
protect its intellectual property rights will be adequate to deter
misappropriation of those rights. The Company does not have any proprietary
technology or patent protections. In addition, the Company cannot be
certain that its services do not infringe on valid patents, copyrights and
intellectual property rights held by third parties. The Company may be
subject to legal proceedings and claims from time to time in the ordinary
course of its business, including claims of alleged infringement of the
intellectual property rights of third parties. Intellectual property
litigation is expensive and time- consuming and could divert management's
attention away from running the business.

The Company may not be able to license technologies, including Web server
and encryption technologies, from third parties on favorable terms, and the
Company may not be able to utilize these technologies successfully.

      The Company intends to continue to license technology from third
parties, including its Web server, IVR and encryption technology. The
Company's business is evolving, and it may need to license additional
technologies to remain competitive or adequately protect the security of
its systems. The Company may not be able to license these technologies on
commercially reasonable terms or at all. In addition, the Company may fail
to successfully integrate any licensed technology into its services. These
third party licenses may fail to generate revenues sufficient to offset
associated acquisition and maintenance costs, or may divert the Company's
resources from the development of its own proprietary technology. The
Company's inability to obtain any of these licenses could delay product and
service development until equivalent technology can be identified, licensed
and integrated. Any such delays in services could cause the business and
operating results of the Company to suffer.

The Company substantially depends on the sponsorship of its processing
banks to maintain its status as a credit card member service provider; and
the Company's status in each credit card association could be suspended or
terminated if it cannot comply with standards or if the associations change
their membership rules.

      Termination of the Company's member service provider registrations or
any changes in the rules of the credit card associations that limit the
Company's ability to provide processing and marketing services, could have
a material adverse effect on the business, operating results and financial
condition of the Company. As a nonbank processor, in order to process
credit card transactions, the Company must be authorized by American
Express and Discover Financial Services and be sponsored by a financial
institution that is a principal member of VISA and MasterCard. Through its
processing banks, the Company is registered with VISA and MasterCard as a
member service provider. The Company is a merchant agent for American
Express and is authorized to accept Discover Card transactions. The
Company's status in each association and with American Express and Discover
Financial Services depends on its compliance with their standards, which
may change and may vary from association to association, and could be
suspended or terminated if the Company is unable to comply. There are no
assurances that the credit card associations will maintain the Company's
registrations or authorizations or keep their current rules in effect.
Additionally, some of the member financial institutions that set the rules
for each credit card association are the Company's or its processing banks'
competitors, and may help effect rules that are less favorable to the
Company.

The Company's failure to successfully integrate any future acquisitions
could strain its managerial, operational and financial resources.

      As part of the Company's business strategy, it intends to pursue
opportunistic acquisitions that would provide additional technologies,
products, services or experienced personnel. Acquisitions present a number
of potential risks that could have a material and adverse effect on the
business, operating results and financial condition of the Company,
including:

      o     difficulty in assimilating the acquired company's personnel,
            operations and technologies;

      o     entrance into markets in which the Company has limited or no
            prior experience;

      o     the potential loss of key employees of the acquired company;

      o     the distraction of its management's attention from other
            business concerns; and

      o     the potentially dilutive issuance of the Company's common
            stock, the use of significant amounts of cash or the incurrence
            of substantial amounts of debt.

RISKS RELATED TO THE COMPANY'S INDUSTRY

If the growth in the use and capacity of the Internet does not continue, or
the Internet is not secure, the growth of the Company's business will be
negatively impacted.

      The growth of the Company's business would be materially and
adversely affected if Internet usage does not continue to grow rapidly.
Internet usage may be inhibited for a number of reasons, including:

      o     concerns about the security of confidential information;

      o     lack of reliability and ease of access;

      o     lack of cost-effective, high-speed service;

      o     inconsistent quality and interruption of service;

      o     inadequate network infrastructure; and

      o     adoption of onerous laws or governmental regulations.

      The Internet infrastructure may not be able to support the demands
placed on it by increased usage and its performance and reliability may
decline. Internet Web sites have experienced interruptions and delays in
their service as a result of outages occurring throughout the Internet
network infrastructure. If these outages or delays occur frequently in the
future, Internet usage, as well as the use of the Company's Internet
payment service, could grow more slowly than projected or decline. In
addition, because a number of the Company's services involve the transfer
of confidential information, the business, operating results and financial
condition of the Company could be materially and adversely affected if
Internet users significantly reduce their use of the Internet due to
security concerns.

The Company may become subject to Federal Reserve Board licensing laws,
expanded electronic fund transfer rules or more extensive credit card
acceptance laws, which could increase the Company's operating costs,
decrease its margins and/or restrict its business activities.

      The Company's management believes that it is not required to be
licensed by the Federal Reserve Board, or other federal or state agencies
that regulate or monitor banks or other types of providers of electronic
commerce services. There are no assurances that a federal or state agency
will not attempt, either now or in the future, to require that providers of
services like the Company's be licensed. This would impede the Company's
ability to do business in the areas within the regulator's jurisdiction.

      In conducting several aspects of the Company's business, the Company
is subject to various laws and regulations relating to commercial
transactions generally, such as the Uniform Commercial Code.

The Company is also subject to the electronic fund transfer rules embodied
in Regulation E issued by the Federal Reserve Board. Given the expansion of
the electronic commerce market, it is possible that the Federal Reserve
Board might revise Regulation E or adopt new rules for electronic fund
transfers affecting users other than consumers.

      It is possible that Congress or individual states could enact laws
regulating the electronic commerce market, enabling government entities in
the affected jurisdictions to accept credit cards directly where they are
currently prohibited from doing so or limiting the convenience fees that
service providers can charge to accept and process credit card payments for
government obligations. If enacted, these laws, rules and regulations could
be imposed on the Company's business and industry and could have a material
and adverse effect on the business, operating results and financial
condition of the Company.

If there are changes in tax laws which decrease the amount, the methods or
the frequency of consumer tax payments, the Company's revenues could
decrease.

      Congress, as well as individual states and municipalities, regularly
consider a wide array of tax proposals. These tax proposals may result in a
reduction of federal, state or local tax rates, collection of a greater
percentage of taxes through withholding or other changes that could result
in a decrease in the number and amount of payments that consumer users have
to make directly to a government entity. In addition, some of these
proposals may result in taxation of credit card perquisites, such as
frequent flyer miles. If any of these proposals were to be passed, it may
reduce the number and amount of tax payments effected through the Company's
services and the dollar amount of the Company's revenue derived from the
convenience fees charged to consumer users. If enacted, these laws could
have a material and adverse effect on the business, operating results and
financial condition of the Company.

If there is a general economic downturn, the amount of income tax paid
could decrease and/or consumers may be less willing to incur convenience
fees in connection with the Company's services, which, in both cases, would
reduce the Company's operating results.

      Income taxes are dependent on the amount of income earned by tax
paying citizens. A significant economic downturn could reduce the per
capita income of citizens, and thus reduce the amount of income tax
payments consumer users have to make to a government entity, which may
reduce the Company's revenues from convenience fees. In addition, an
economic downturn may result in a reduction in consumer spending,
particularly for non-essential goods and services, which may result in a
reduction in consumers' use of the Company's services. If the United States
experiences an economic downturn, it could have a material and adverse
effect on the business, operating results and financial condition of the
Company.

ITEM 2.     PROPERTIES

      The Company's corporate headquarters (including its marketing and
finance operations) are located in Stamford, Connecticut in approximately
13,800 square feet of office space. The lease for this space expires in
2005. In addition, many of the Company's technical and customer service
personnel are located in approximately 14,300 square feet of office space
in San Ramon, California. The lease for this space expires in 2005.

ITEM 3.     LEGAL PROCEEDINGS

      The Company currently is not involved in any material legal
proceedings.

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

      During the fourth quarter of the fiscal year covered by this Annual
Report on Form 10-K, there were no matters submitted to a vote of security
holders through a solicitation of proxies or otherwise.



                                  PART II

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

      The Company's common stock is traded on The Nasdaq National Market
under the symbol "OPAY." The Company's initial public offering of stock
commenced on November 23, 1999 at $15.00 per share. The price range per
share reflected in the table below, is the highest and lowest sale price
for the Company's stock as reported by The Nasdaq National Market for the
fiscal quarters indicated. The Company has never declared or paid cash
dividends on its common stock. The Company presently intends to retain all
future earnings, if any, to finance future growth and, therefore, does not
anticipate paying any cash dividends in the foreseeable future.


                                            High              Low
                                      ----------------- ----------------

1999 Fourth Quarter                        $57.37            $17.25
2000 First Quarter                         $55.00            $32.00
     Second Quarter                        $42.50             $4.00
     Third Quarter                         $10.72             $3.81
     Fourth Quarter                        $10.00             $4.00

      As of March 15, 2001, there were approximately 22 stockholders of
record of the Company's common stock, although the Company believes that
there is a significantly larger number of beneficial owners of its common
stock.

      The Company commenced its initial public offering on November 23,
1999 and completed it on November 29, 1999, after selling all of the
5,750,000 shares of common stock registered under the corresponding
Registration Statement on Form S-1(No. 333-87325), including 750,000 shares
sold in connection with the exercise of the underwriters' over-allotment
option. The initial public offering price was $15.00 per share, resulting
in gross proceeds from the initial public offering of $86.2 million.

      The Company paid a total of $6.0 million in underwriting discounts
and commissions and incurred approximately $1.5 million for costs and
expenses related to the offering. None of the costs and expenses related to
the offering were paid directly or indirectly to any director or officer of
the Company or their associates, persons owning 10 percent or more of any
class of equity securities of the Company or an affiliate of the Company.

      After deducting the underwriting discounts and commissions and the
offering expenses the estimated net proceeds to the Company from the
offering were approximately $78.7 million. The net offering proceeds have
been used, in addition to general corporate purposes, to make the following
payments: approximately $2.0 million for the purchase and installation of
computer equipment to expand transaction processing capabilities;
approximately $2.8 million to add functionality to its Web site;
approximately $1.5 million for the build-out of the Company's headquarters
in Stamford, Connecticut and expansion of its leased office space in San
Ramon, California; and approximately $5.2 million for direct marketing and
promotional activities. Except for $135,000 and $151,000 of fees incurred
by the Company in 2000 and 1999, respectively, for the provision of certain
general administrative services by Imperial Bank (See "ITEM 13-CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS"), none of these costs or expenses
were paid directly or indirectly to any director or officer of the Company
or their associates, persons owning 10% or more of any class of equity
securities of the Company or an affiliate of the Company. In the future,
the Company may use a portion of its net proceeds to acquire or invest in
businesses, technologies, products or services (which amount has not been
specifically allocated as of the date hereof). Unused proceeds are invested
in short-term investments.

SALES OF THE COMPANY'S COMMON STOCK PRIOR TO ITS INITIAL PUBLIC OFFERING

      On August 24, 1999, the Company issued 2,400 shares of its common
stock to Imperial Bank for a total consideration of $8.00 and 600 shares of
common stock to Beranson Holdings, Inc. for a total consideration of $2.00.
The Company relied on the exemption under Section 4(2) of the Securities
Act of 1933, as amended, because it was an offer made by an issuer not
involving a public offering. In connection with the merger of U.S.
Audiotex, LLC into the Company, which was effected as of September 30,
1999, the limited liability company interests of Imperial Bank and Beranson
Holdings, Inc. in U.S. Audiotex, LLC were exchanged for 11,997,600 and
2,999,400 shares of the Company's common stock, respectively. The merger
was an internal corporate reorganization solely involving the existing
members of U.S. Audiotex, LLC in order to convert the Company's corporate
form into a C corporation in anticipation of its initial public offering.
On November 5, 1999, the Company sold 512,820 shares of its common stock to
E*TRADE Group, Inc. for $9.75 per share - resulting in total consideration
of $5 million. E*TRADE Group, Inc. is a sophisticated qualified
institutional buyer.

ITEM 6.     SELECTED FINANCIAL DATA

      The following selected financial data should be read in conjunction
with the financial statements and the notes to the financial statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," which are included elsewhere in this report.


                                             YEARS ENDED DECEMBER 31,
                                        ------------------------------------
                                          2000    1999     1998      1997
                                        -------- ------- -------- ----------
                                        (IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENT OF OPERATIONS DATA:
Revenues:
  Transaction fees..................    $ 25,793 $ 8,592  $ 2,076 $    935
  Other revenues....................         291     249      293      267
                                        -------- ------- -------- --------
          Total Revenues...............   26,084   8,841    2,369    1,202
                                        -------- ------- -------- --------
Cost of revenues:
  Cost of transaction fees..........      14,943   4,072      442      232
  Cost of transaction fees to related
   party............................       5,858   2,069      515      153
  Cost of other revenues............         106     204       71      284
                                        -------- ------- -------- --------
          Total cost of revenues.......   20,907  10,345    1,028      669
                                        -------- ------- -------- --------
Gross profit...........................    5,177   2,564    1,341      533
                                        -------- ------- -------- --------

Operating expenses:
  Sales and marketing...............       9,212   1,301      356      330
  Development costs.................       2,953   1,032      608      206
  General and administrative........      10,042   2,692      590      463
  Depreciation expenses.............       1,716     288       57       30
  Amortization of deferred stock-based
  compensation                            15,728   7,940      ---      ---
                                        -------- ------- -------- --------
          Total operating expenses.....   39,651  13,253    1,611    1,029
                                        -------- ------- -------- --------
Loss from operations...................  (34,474)(10,757)    (270)    (496)
Other income (expense), net............    4,436     357      (55)      (6)
                                        -------- ------- -------- --------
Net loss...............................  (30,038)(10,757)    (325)    (502)
                                        ======== ======= ======== ========

Basic and diluted net loss per share... $  (1.40)$ (0.66)$  (0.02)$  (0.03)
                                        ======== ======= ======== ========

Weighted-average shares used in
computing basic and diluted net
loss per share.........................   21,421  15,677   15,000   15,000
                                        ======== ======= ======== ========

BALANCE SHEET DATA:
     Cash and short-term investments... $ 65,898 $80,825  $   631 $    182
     Working capital (deficit).........   61,502  80,150      392     (221)
     Total assets......................   76,263  84,300    1,747      764
     Total debt including current portion  1,184     597      810      389
     Stockholders' equity (deficit)....   68,453  81,561      184      (91)

----------
See note 1 of Notes to Financial Statements for an explanation of the
determination of the number of shares used to compute basic and diluted net
income (loss) per share.

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

      The following discussion and analysis of the financial condition and
results of operations of the Company should be read in conjunction with
"Selected Financial Data" and the Company's financial statements and
related notes appearing elsewhere in this report. This discussion and
analysis contains forward-looking statements that involve risks,
uncertainties and assumptions. The actual results may differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including but not limited to, the risks discussed in the
Company's other SEC filings.

OVERVIEW

      Official Payments is a leading provider of electronic payment options
to government entities, enabling consumers to use their credit cards to
pay, through the Internet or by telephone, personal federal and state
income taxes, sales and use taxes, property taxes, tuition payments, motor
vehicles fees, fines for traffic violations and parking citations and other
government-imposed taxes and fees. The Company commenced current operations
on June 26, 1996, initially offering its credit card payment services for
the payment of fines for traffic violations, parking citations and property
taxes. As of December 31, 2000, the Company offered approximately 1,151
services to approximately 742 government entities. In mid- 1998, the
Company signed a credit card payment contract with the IRS to provide its
services for the balance due payment by telephone of personal federal
income taxes, and for the 1999 tax year, the Company began processing
estimated and extension tax payments, as well. In March 2000, the IRS
awarded Official Payments a contract to accept via the Internet and
telephone balance due and estimated tax payments for the 2000 tax year, as
well as estimated payments for the 2001 tax year. This new contract has an
initial one-year term, with the IRS having the option to renew the contract
for one additional year. The IRS exercised this renewal option in March
2001.

      The Company began providing services for the payment of personal
state income taxes in California in December 1998 and in New Jersey and the
District of Columbia in 1999. In addition to continuing to provide its
services for these three government entities, in 2000, the Company began
providing, or had entered into contracts to provide (and was in the process
of implementing), its payment services to the states of Alabama, Arkansas,
Connecticut, Illinois, Kansas, Maryland, Minnesota, New York, Ohio,
Oklahoma, Virginia, Washington, and West Virginia. In the first quarter of
2001, the Company entered into agreements to provide its payment services
for the states of Wisconsin, Iowa and Mississippi. Consumers can make
payments to these states through the Company's IVR system and Web site.

      The Company's revenues consist primarily of convenience fees, which
are transaction fees paid by consumers for using its credit card payment
services. For the year ended December 31, 2000, the convenience fees ranged
from 2.7% to 8.9% of the amount paid by the consumer per transaction. For
processing many payments (including, personal federal and state income tax
payments, sales and use tax payments and property tax payments), the amount
of the convenience fee charged varies based on the specific amount of the
government obligation. For processing other types of payments (including,
fines for traffic violations and parking citations), the amount of the
convenience fee charged is fixed, regardless of the specific amount of the
government obligation. Total revenues have increased significantly since
the Company started providing services in January 1999 for personal federal
income tax payments.

      For the 2000 fiscal year, convenience fees from payments to the IRS
accounted for approximately 69% of the Company's total revenues. The
Company's primary cost of revenues are the merchant discount fees paid to
its credit card processors, which, during the year ended December 31, 2000,
ranged from 1.5% to 3.0% of the total amount paid by the consumer,
depending on the credit card used and the type of transaction. The Company
also incurs variable telecommunications costs and IVR license royalty fees
of approximately $0.51 per completed transaction through its telephone
conduit. Although there are no telecommunications costs associated with
payments made through the Internet conduit, the Company pays a third party
license fee of $0.13 per completed transaction for certain technology used
in its Internet conduit. The Company's total cost of revenues has increased
significantly since January 1999 because of the large number of personal
federal income tax payments processed, which has a lower gross margin as
compared to other payment services.

      Processing fines for traffic violations and parking citations produce
a higher gross margin than processing income tax, sales and use tax and
property tax payments because the convenience fee as a percentage of fines
processed is significantly higher.

      Operating expenses include sales and marketing expenses, development
costs, general and administrative expenses, depreciation expenses, and
allocated expenses from a related party. The largest component of these
expenses was related to the amortization of deferred stock compensation,
which amounted to $15.7 million in the year ended December 31, 2000. Sales
and marketing expenses consist primarily of advertising expenses and
salaries and commissions for sales and marketing personnel. Development
costs consist primarily of salaries for engineering personnel and
consulting expenses relating to research and development activities.
General and administrative expenses consist primarily of salaries and other
compensation expenses for executive, customer service, finance and
administrative personnel.

      The Company has incurred significant losses since inception and
expects to continue to incur losses for the foreseeable future. As of
December 31, 2000, the Company had an accumulated deficit of approximately
$41.4 million. The Company recorded on its balance sheet deferred stock
compensation totaling $42.9 million in the third and fourth quarters of
1999. This deferred charge consists of an amount of $10.0 million,
representing the guaranteed value of options granted to Thomas R. Evans,
the Company's Chairman and Chief Executive Officer, and an amount of $32.9
million, representing the value of the common stock underlying options
granted to certain other officers and employees of the Company in August,
September and November of 1999 in excess of the exercise prices of those
options. The $10.0 million deferred charge related to Mr. Evans' options
and $32.9 million of deferred charges related to new options granted to
other officers and employees was initially intended to be amortized over a
three-year vesting period, beginning in the third quarter of 1999. However,
as a result of the acceleration of options under the Company's 1999 Stock
Incentive Plan due to Comerica's acquisition of Imperial Bancorp on January
30, 2001, the unamortized portion of this charge will be recognized by the
Company in the first quarter of 2001.

      In addition, $4.5 million of deferred compensation related to option
grants to the Company's former Chief Financial Officer, Brian W. Nocco,
which beginning in the third quarter of 1999 were being amortized over a
three-year vesting period. Mr. Nocco's employment with the Company
terminated during the second quarter of 2000, and in connection therewith
and pursuant to Mr. Nocco's previously existing employment contract, the
vesting of a number of Mr. Nocco's options was accelerated and the
unamortized portion of the deferred stock-based compensation relating to
Mr. Nocco was recognized during the second quarter of 2000.

      The Company also recorded on its balance sheet deferred stock-based
compensation totaling $633,000 in the second quarter of 2000. This deferred
charge represented the fair market value of restricted shares of common
stock granted to employees as performance-based awards and also in
replacement of, and in exchange for, cancelled unvested stock options with
exercise prices in excess of the current market value. Beginning in June
2000, this deferred charge was amortized on a straight-line basis over a
one-year vesting period. As a result of the acceleration of options under
the Company's 2000 Stock Incentive Plan due to Comerica's acquisition of
Imperial Bancorp, the unamortized portion of this charge will be recognized
by the Company in the first quarter of 2001.


RECENT EVENTS

      In March 2001, Official Payments reached an agreement with the State
of Mississippi pursuant to which the Company will begin collecting
delinquent taxes by credit card through its IVR and Internet payment
platforms.

      In March 2001, Official Payments entered into a cooperative
advertising agreement with American Express for $255,000. The Company will
utilize these funds for an advertising campaign related to its federal
income tax payment program with the IRS, which will run in March and April
2001.

      In March 2001, Official Payments entered into an agreement with the
State of Iowa under which the Company will provide a service enabling Iowa
citizens to pay a variety of delinquent tax and fee payments by credit card
through the Company's IVR and Internet payment platforms.

      In March 2001, the IRS exercised its option to extend its existing
contract with Official Payments for an additional calendar year. This
renewal covers the 2001 tax year for personal federal balance due and
extension payments, as well as estimated personal federal taxes for the
2002 tax year.

      In February 2001, the State of Oklahoma renewed and expanded the
Company's existing contract with the state. The Company's previous
agreements gave Oklahoma taxpayers the ability to pay their individual
return balance-due personal state income tax payments by credit card
through the Company's Web site. The new award adds the IVR option and six
new tax payment categories: Corporate Income Tax, Corporate Estimated Tax,
Individual Estimated Tax, Income Withholding, Income Tax Franchise, and
Sales and Use Tax.

      On January 30, 2001, Imperial Bancorp, the parent holding company of
Imperial Bank (which then owned approximately 55% of the Company's
outstanding common stock), was acquired by Comerica in a tax-free,
stock-for-stock transaction. Consummation of the merger resulted in the
acceleration of various employee stock options and restricted stock granted
under the Company's 2000 Stock Incentive Plan and 1999 Stock Incentive
Plan. In addition, under the respective employment agreements for Messrs.
Evans, Presto and Barrett, this change of control event enables each of
them to terminate his employment with the Company for "good reason" after
July 30, 2001 and in connection therewith to continue receiving payment of
his base salary and benefits for one year following such date. Mr.
DiMaria's employment agreement contains a similar provision, but he is only
eligible to terminate his employment for good reason due to this event
between April 30, 2001 and May 30, 2001. In March 2001, Imperial Bank
transferred ownership of all of its shares of the Company's common stock to
its new parent holding company, Comerica.

      In January 2001, the State of Connecticut renewed and expanded the
Company's existing contract with the state. The Company's previous
agreements gave Connecticut taxpayers the ability to pay their individual
return balance-due personal state income tax payments by credit card over
the Company's interactive telephone system. The new award adds the
Company's Internet payment option and two new payment categories: 2000
Extension Tax and 2001 Estimated Tax.

      In January 2001, Official Payments announced its new contract with
the State of Wisconsin which authorizes the Company to work directly with
any Wisconsin state agency to provide a service for the collection of
various taxes, fees, fines, licenses, and tuition payments by credit card
via the Company's Web site and IVR. Currently, the Company has arranged to
collect personal balance due income taxes and is in the process of
contacting a number of state agencies to offer its services under the
general state authorization contract.


RESULTS OF OPERATIONS

      The following table sets forth, for the periods illustrated, certain
statements of operations data expressed as a percentage of total revenues.
The data has been derived from the financial statements contained in this
report. The operating results for any period should not be considered
indicative of results for any future period. This information should be
read in conjunction with the consolidated financial statements included in
this report.



                                                    YEARS ENDED DECEMBER 31,
                                                    ------------------------
                                                     2000     1999     1998
                                                     ----     ----     ----
STATEMENT OF OPERATIONS DATA:
Revenues:
  Transaction fees.................................      99%      97%     88%
  Other revenues...................................       1        3      12
                                                   -------- -------- -------
      Total revenues...............................     100      100     100

Cost of revenues:
  Cost of transaction fees.........................      57       46      19
  Cost of transaction fees to related party........      23       24      22
  Cost of other revenues...........................      --        2       3
                                                   --------  -------  -------
      Total cost of revenues.......................      80       72      44
                                                   --------  -------  -------
Gross profit.......................................      20       28       56
                                                   --------  -------  -------
Operating expenses:
  Sales and marketing..............................      36       15       15
  Development costs................................      11       12       26
  General and administrative.......................      38       31       25
  Depreciation expenses............................       7        3        2
  Amortization of deferred stock-based compensation      60       89       --
                                                   -------- --------  -------
      Total operating expenses.....................     152      150       68
                                                   -------- --------  -------
Loss from operations...............................    (132)    (122)     (12)
Other income (expense), net........................      17        4       (2)
                                                   -------- --------  -------
Net loss...........................................    (115)%   (118)%    (14)%
                                                   ======== ========  =======



COMPARISON OF THE YEARS ENDED DECEMBER 31, 2000 AND 1999

REVENUES

      Total Revenues. Total revenues increased $17.3 million to $26.1
      million for the year ended December 31, 2000 from $8.8 million for
      the year ended December 31, 1999, an increase of 195%. This increase
      is primarily attributable to revenues generated from additional
      payment options added to the Company's existing IRS contract, and
      additional state and municipal/county ("local") clients added during
      2000 which resulted in increases in revenue from processing state and
      local property taxes.

      Federal Transaction Fees. Federal transaction revenues consist of
      fees earned in connection with processing payments related to
      personal federal balance due, extension and estimated income taxes.
      Federal transaction fees increased $13.7 million to $18.0 million for
      the year ended December 31, 2000 from $4.3 million for the year ended
      December 31, 1999, an increase of 316%. The increase in revenues is
      primarily related to the two new payment services added during 2000:
      extension and estimated payments. The Company only offered one
      payment service, balance-due, during the prior fiscal year. The
      increase is also attributable to the increase in the utilization from
      the prior fiscal year. Federal revenues represented 69% and 49% of
      total revenues for the years ended December 31, 2000 and 1999,
      respectively.

      The Company processed approximately 157,300 transactions totaling
      $439.1 million during the year ended December 31, 2000 compared to
      44,800 transactions totaling $174.0 million during the prior fiscal
      year for balance due payments. The Company also processed 17,900
      transactions totaling $88.5 million and 21,700 transactions totaling
      $123.1 million during the year ended December 31, 2000 for extension
      and estimated tax payments, respectively.

      State Transaction Fees. State transaction revenues consist of fees
      earned in connection with processing payments for balance due,
      extension, estimated and delinquent personal state income taxes,
      sales and use taxes, and other state fees on behalf of the Company's
      state clients. State revenues increased $1.9 million to $2.5 million
      for the year ended December 31, 2000 from $557,000 for the year ended
      December 31, 1999, an increase of 341%. The increase from the prior
      year is primarily due to the increase in the number of clients and
      payment services added during the 2000 fiscal year. State revenues
      represented 10% and 6% of total revenues for the years ended December
      31, 2000 and 1999, respectively.

      The Company processed approximately 64,200 transactions totaling
      $84.8 million during the year ended December 31, 2000 compared to
      16,500 transactions totaling $15.7 million during the prior fiscal
      year.

      Local Transaction Fees. Local transaction revenues consist of fees
      earned in connection with processing payments for property taxes,
      traffic violations, parking citations, fax filing fees, and utility
      bills for the Company's municipal and county clients. Local
      transaction fees increased $1.7 million to $5.4 million for the year
      ended December 31, 2000 from $3.7 million for the year ended December
      31, 1999, an increase of 46%. Revenues from processing property tax
      payments increased $1.2 million to approximately $3.0 million for the
      year ended December 31, 2000 from $1.8 million for the year ended
      December 31, 1999, an increase of 67%. The increase is primarily
      attributable to an increase in the number of transactions processed
      and new municipal and county clients added during 2000. Revenues from
      processing fines for traffic violations, moving violations and other
      transactions increased $495,000 to $2.4 million for the year ended
      December 31, 2000 from $1.9 million for the year ended December 31,
      1999, an increase of 26%. The increase is primarily attributable to
      an increase in the number of transactions processed. Local revenues
      represented 21% and 42% of total revenues for the years ended
      December 31, 2000 and 1999, respectively.

      Other Revenues. Other revenues increased $42,000 to $291,000 for the
      year ended December 31, 2000 from $249,000 for the year ended
      December 31, 1999, an increase of 17%.

COST OF REVENUES

      Cost of Transaction Fees. Cost of transaction fees increased $14.6
      million to $20.9 million for the year ended December 31, 2000 from
      $6.3 million for the year ended December 31, 1999, an increase of
      232%. The largest component of cost of transaction fees, merchant
      discount fees, increased $13.2 million to $19.0 million for the year
      ended December 31, 2000 from $5.8 million for the year ended December
      31, 1999, an increase of 228%. The cost of telephone charges for the
      Company's IVR system increased $1.2 million to $1.5 million for the
      year ended December 31, 2000 from $318,000 for the year ended
      December 31, 1999, an increase of 377%. These increases were due to
      the corresponding increase in revenue. Cost of transaction fees was
      80% of total revenues for the year ended December 31, 2000 compared
      to 69% for the year ended December 31, 1999. The increase is due to
      the lower gross margins for personal federal income tax payment
      services as compared to other payment services. The increase is also
      attributable to the increase in Internet costs from the prior fiscal
      year, which is consistent with the increase in the number of Internet
      transactions processed during the year ended December 31, 2000.

      Cost of Other Revenues. Cost of other revenues decreased $98,000 to
      $106,000 for the year ended December 31, 2000 from $204,000 for the
      year ended December 31, 1999, a decrease of 48%.

OPERATING EXPENSES

      Sales and Marketing. Sales and marketing expenses increased $7.9
      million to $9.2 million for the year ended December 31, 2000 from
      $1.3 million for the year ended December 31, 1999, an increase of
      608%. This increase is primarily attributable the Company's marketing
      campaign for its payment services which totaled $5.2 million for the
      year ended December 31, 2000. Advertising expenses totaled $69,000 in
      the prior fiscal year. The increase is also attributable to an
      increase in the number of sales and marketing personnel to handle
      additional growth in business and in anticipation of future growth.
      An increase in commission payments to the Company's sales employees
      also contributed to the increase in sales and marketing expenses from
      the prior fiscal year. Sales and marketing expenses represented 36%
      of total revenues for the year ended December 31, 2000 compared to
      15% for the year ended December 31, 1999.

      Development Costs. Development costs increased $2.0 million to $3.0
      million for the year ended December 31, 2000 from $1.0 million for
      the year ended December 31, 1999, an increase of 200%. The increase
      is primarily attributable to consultants hired during the current
      fiscal year to assist in the testing and data conversion of the
      Company's Web site. The increase is also attributable to an increase
      in the number of engineering personnel resulting in an increase in
      salary and other employee related costs. Development costs
      represented 11% of total revenues for the year ended December 31,
      2000 compared to 12% for the year ended December 31, 1999.

      General and Administrative. General and administrative expenses
      increased $7.3 million to $10.0 million for the year ended December
      31, 2000 from $2.7 million for the year ended December 31, 1999, an
      increase of 270%. This increase is primarily attributable to the
      significant hiring of additional general and administrative
      personnel, including customer service, finance and corporate officers
      during the current fiscal year. This increase is also attributable to
      the hiring of additional temporary customer service personnel and the
      rental of temporary office space in San Diego, California during the
      current 2000 peak tax-filing season. The Company also expensed
      $522,000 for severance, relocation and other contractual obligations
      paid to the Company's former chief financial officer in connection
      with the termination of his employment in 2000. General and
      administrative expenses represented 38% of total revenues for the
      year ended December 31, 2000 compared to 31% for the year ended
      December 31, 1999.

      Depreciation Expenses. Depreciation expenses increased $1.4 million
      to $1.7 million for the year ended December 31, 2000 from $288,000
      for the year ended December 31, 1999, an increase of 486%. The
      increase is primarily related to an increase in IVR equipment
      purchased during the first quarter of 2000 in preparation and
      handling of the higher volume of federal and state tax payments. The
      increase is also related to the additional office equipment and
      furniture and fixtures purchased during the Company's move to its new
      headquarters in Stamford, Connecticut and the expansion of its
      offices in San Ramon, California.

      Amortization of deferred stock-based compensation. Amortization of
      deferred stock-based compensation increased from $7.8 million to
      $15.7 million for the year ended December 31, 2000 from $7.9 million
      for the year ended December 31, 1999, an increase of 99%. This
      increase is primarily attributable to the full year of amortization
      taken during 2000 versus partial years' worth of amortization taken
      in 1999. In addition, the increase is attributable to $3.6 million in
      acceleration of vesting of stock options previously granted the
      Company's former chief financial officer, which occurred in
      connection with the termination of his employment. Amortization of
      deferred stock-based compensation represented 60% of total revenues
      for the year ended December 31, 2000 compared to 89% for the year
      ended December 31, 1999.

OTHER INCOME, NET

      Other income, net, which consists of interest income, interest
      expense and other non- operating expenses, increased primarily due to
      interest income resulting from investment of the proceeds from the
      Company's initial public offering in November 1999.

PROVISION FOR INCOME TAXES

      For federal income tax purposes, the Company has net operating loss
      ("NOL") carryforwards of approximately $23.6 million and $1.1 million
      for the year ended December 31, 2000 and 1999, respectively, expiring
      in 2019 and 2020. The U.S. Tax Reform Act of 1986 contains provisions
      that limit the NOL carryforwards available to be used in any given
      year upon the occurrence of certain events, including a significant
      change of ownership. Management believes that a change in ownership
      occurred in connection with Comerica's acquisition of Imperial
      Bancorp and, as a result, the ability of the Company to utilize the
      NOL's to offset income in the future could be limited.

      In assessing the realizability of deferred tax assets, management
      considers whether it is more likely than not that some portion or all
      of the deferred tax assets will not be realized. The ultimate
      realization of deferred tax assets is dependent upon the generation
      of future taxable income during periods in which those temporary
      differences become deductible. Management considers the scheduled
      reversal of deferred tax liabilities, projected future taxable income
      and tax planning in making these assessments. Due to the Company's
      operating losses, there is uncertainty surrounding whether the
      Company will ultimately realize its deferred tax assets. Prior to
      September 30, 1999, the Company was a California limited liability
      company. Accordingly, all tax operating losses prior to September 30,
      1999 have been used by the members of such limited liability company.

COMPARISON OF THE YEARS ENDED DECEMBER 31, 1999 AND 1998

REVENUES

      Total Revenues. Total revenues increased $6.4 million to $8.8 million
      for the year ended December 31, 1999 from $2.4 million for the year
      ended December 31, 1998, an increase of 267%. This increase is
      primarily attributable to revenues generated from first-time
      processing of personal, federal and state income tax payments in the
      year ended December 31, 1999, as well as increases in revenue from
      processing property taxes.

      Federal Transaction Fees. Federal transaction revenues consist of
      fees earned in connection with processing payments solely related to
      personal federal balance due income taxes. Federal transaction fees
      were $4.3 million for the year ended December 31, 1999, representing
      49% of the Company's total revenues. The Company processed
      approximately 44,800 transactions totaling $174.0 million during the
      year ended December 31, 1999.

      State Transaction Fees. State transaction revenues consist of fees
      earned in connection with processing payments for balance due,
      extension, estimated and delinquent personal state income taxes,
      sales and use taxes, and/or other state fees on behalf of the
      Company's state clients. A significant portion of revenues earned
      during the fiscal year related to processing delinquent personal
      state tax payments. State revenues were $557,000 for the year ended
      December 31, 1999, representing 6% of total revenues. The Company
      processed approximately 16,500 transactions totaling $15.7 million.

      Local Transaction Fees. Local transaction revenues consist of fees
      earned in connection with processing property taxes, traffic
      violations, parking citations, fax filing, and utility payments for
      the Company's county and municipal clients. Local transaction fees
      increased $1.6 million to $3.7 million for the year ended December
      31, 1999 from $2.1 million for the year ended December 31, 1998, an
      increase of 76%. Revenues from processing property tax payments
      increased $1.0 million to approximately $1.8 million for the year
      ended December 31, 1999 from $765,000 for the year ended December 31,
      1998, an increase of 131%. The increase is primarily attributable to
      an increase in the number of property tax transactions processed
      during the year ended December 31, 1999 and the introduction of the
      Company's Internet payment option during the third quarter of 1999.
      Revenues from processing fines for traffic violations, moving
      violations and other transactions increased $600,000 to $1.9 million
      for the year ended December 31, 1999 from $1.3 million for the year
      ended December 31, 1998, an increase of 46%. The increase is
      primarily attributable to an increase in the number of transactions
      processed and new county and municipal clients added during 1999.

      Other Revenues. Other revenues decreased $44,000 to $249,000 for the
      year ended December 31, 1999 from $293,000 for the year ended
      December 31, 1998, a decrease of 15%.

COST OF REVENUES

      Cost of Transaction Fees. Cost of transaction fees increased $5.3
      million to $6.3 million for the year ended December 31, 1999 from
      $1.0 million for the year ended December 31, 1998, an increase of
      530%. The largest component of cost of transaction fees, merchant
      discount fees, increased $5.0 million to $5.8 million for the year
      ended December 31, 1999 from $792,000 for the year ended December 31,
      1998, an increase of 631%. The cost of telephone charges for the
      Company's IVR system increased $219,000 to $318,000 for the year
      ended December 31, 1999 from $99,000 for the year ended December 31,
      1998, an increase of 221%. These increases were due to the
      corresponding increase in revenue. Cost of transaction fees was 71%
      of total revenues for the year ended December 31, 1999 compared to
      44% for the year ended December 31, 1998. The increase is due to the
      lower gross margins for personal federal income tax payment services
      as compared to other payment services.

      Cost of Other Revenues. Cost of other revenues increased $133,000 to
      $204,000 for the year ended December 31, 1999 from $71,000 for the
      year ended December 31, 1998, an increase of 187%.

OPERATING EXPENSES

      Sales and Marketing. Sales and marketing expenses increased $944,000
      to $1.3 million for the year ended December 31, 1999 from $356,000
      for the year ended December 31, 1998, an increase of 265%. This
      increase is primarily attributable to an increase in the number of
      sales and marketing personnel and an increase in commission payments.
      Sales and marketing expenses represented 15% of total revenues for
      the years ended December 31, 1999 and 1998.

      Development Costs. Development costs increased $392,000 to $1.0
      million for the year ended December 31, 1999 from $608,000 for the
      year ended December 31, 1998, an increase of 64%. This increase is
      primarily attributable to an increase in the number of engineering
      personnel and development of the IVR and Internet payment conduits.
      Development costs represented 12% of total revenues for the year
      ended December 31, 1999 compared to 26% for the year ended December
      31, 1998.

      General and Administrative. General and administrative expenses
      increased $2.1 million to $2.7 million for the year ended December
      31, 1999 from $590,000 for the year ended December 31, 1998, an
      increase of 356%. This increase is primarily attributable to the
      hiring of additional general and administrative personnel, including
      executive officers and other administrative personnel. General and
      administrative expenses represented 31% of total revenues for the
      year ended December 31, 1999 compared to 25% for the year ended
      December 31, 1998.

      Depreciation Expenses. Depreciation expenses increased $231,000 to
      $288,000 for the year ended December 31, 1999 from $57,000 for the
      year ended December 31, 1998, an increase of 405%. The increase is
      primarily related to IVR equipment purchased during the year in
      response to increased utilization and increase in office equipment
      purchased during the year due to the increase in personnel.

      Amortization of deferred stock-based compensation. Amortization of
      deferred stock- based compensation was $7.9 million for the year
      ended December 31, 1999. This was due to the vesting of stock options
      granted to certain employees to purchase shares of the Company's
      common stock at exercise prices below the fair market value of the
      common stock on the date such options were granted. Amortization of
      deferred stock-based compensation represented 89% of total revenues
      for the year ended December 31, 1999.

OTHER INCOME, NET

      Other income, net, which consists of interest income, interest
      expense and other non- operating expenses, increased primarily due to
      interest income resulting from investment of the proceeds from the
      Company's initial public offering.

PROVISION FOR INCOME TAXES

      The Company incurred operating losses during the period of its
      incorporation from September 30, 1999 through December 31, 1999. The
      Company has recorded a valuation allowance for the full amount of net
      deferred tax assets, as the future realization of the tax benefit is
      not currently likely.

      As of December 31, 1999, the Company had net operating loss
      carry-forwards for federal tax purposes of approximately $1.1 million
      and for California income tax purposes of approximately $534,000.
      These federal and California income tax loss carry-forwards are
      available to reduce future taxable income and expire at various
      dates. The federal net operating loss carryforward expires in year
      2019. The California net operating loss carryforward expires in year
      2004. Under the provisions of the Internal Revenue Code, certain
      substantial changes in the Company's ownership may limit the amount
      of net operating loss carry-forwards that could be utilized annually
      in the future to offset taxable income. There had not been any
      substantial changes in the Company's ownership through December 31,
      1999. Prior to September 30, 1999, the Company was a California
      limited liability company. Accordingly, all tax operating losses
      prior to September 30, 1999 have been used by the members of such
      limited liability company.

LIQUIDITY AND CAPITAL RESOURCES

      Since January 1997 and prior to the offering the Company financed its
operations through private sales of common stock, with net proceeds of $5.0
million, and through shareholder loans. In November 1999, Official Payments
completed the initial public offering of its common stock and realized net
proceeds from the offering of approximately $78.7 million. As of December
31, 2000, the Company had $65.9 million in cash and short-term investments,
and $61.5 million in working capital.

      The Company has experienced operating losses during all fiscal
periods following the Company's initial public offering. The Company
expects to continue to incur losses from operations for the foreseeable
future. The Company's working capital deficit was $221,000 at December 31,
1997. In December 1998, there was a capital contribution of $600,000 and
the working capital was $392,000 at December 31, 1998. In November 1999,
the Company completed its initial public offering and realized net proceeds
of approximately $78.7 million and the working capital was $80.2 million at
December 31, 1999.

      Net cash used in operating activities was $9.6 million, $2.1 million,
and $245,000 for the years ended December 31, 2000, 1999, and 1998,
respectively. The cash used in operating activities for the years ended
December 31, 2000 and 1999 was primarily the result of the Company's net
loss and increases in accounts receivable, offset by non-cash expenses such
as stock-based compensation amortization and depreciation and increases in
accounts payable. The cash used in operating activities for the years ended
December 31, 1998 was primarily the result of the Company's net loss and an
increase in accounts receivable.

      Net cash from investing activities was $10.0 million for the year
ended December 31, 2000. Net cash used in investing activities was $79.9
million and $298,000 for the years ended December 31, 1999 and 1998,
respectively. Cash from investing activities primarily reflect proceeds
from the sale of short- term investments, offset by purchases of property
and equipment during the year ended December 31, 2000. Cash used in
investing activities primarily reflects purchase of short-term investments
during the year ended December 31, 1999, and purchases of property and
equipment during the year ended December 31, 1998.

      Net cash provided by financing activities was $1.8 million, $83.0
million, and $992,000 for the years ended December 31, 2000, 1999 and 1998,
respectively. The cash generated in 2000 was primarily related to stock
option exercises and proceeds from a sale-leaseback transaction for IVR
equipment. The cash generated in 1999 was primarily related to the proceeds
of the Company's initial public offering and the sale of its common stock
to E*Trade Group, Inc. Cash generated in 1999 was partially offset by
repayments of bank loans, shareholder loans, and capital leases. The cash
generated in 1998 was due to capital contributions by the Company's
stockholders.

      The Company believes that, based on its current business plan,
existing cash and investments will be sufficient to meet operating
activities, capital expenditures and other obligations for at least the
next two years.

SEASONALITY AND FLUCTUATION OF QUARTERLY RESULTS

      The Company has generally experienced fiscal quarter over fiscal
quarter revenue growth with some seasonal fluctuations, primarily in the
second quarter. The fiscal quarter-over-fiscal quarter revenue growth is
due to an increase in the number of government clients and payment services
and an increase in utilization rates. The large increase in revenues in the
second quarter is due to processing personal federal and state balance due
income tax payments in the month of April. The Company expects that results
for the second quarter of future years will continue to be impacted by the
April 15 deadline for paying personal federal and state income taxes. In
addition, the Company's revenues are also impacted by the timing of federal
and state estimated personal income tax payments (which are made quarterly)
and local property tax payments (which are made only once or twice per year
in many jurisdictions).

      Cost of revenues as a percentage of total revenues were significantly
higher in the second quarter than in previous quarters as a result of
processing personal federal and state balance due income tax payments,
which have significantly lower margins than certain other payment services.
This is due to the fact that the convenience fee is generally lower as a
percentage of large government payments, such as income taxes, while the
primary cost of sales, which are merchant discount fees, are relatively
constant as a percentage of the payment amount.

      The Company expects that its operating expenses will continue to
increase as a result of increased personnel, marketing, technological and
other infrastructure costs associated with the anticipated growth in the
Company's government client base and transaction volume. However, the rate
of increase of such expenses is currently expected to decline as the
Company's infrastructure becomes more fully developed. If revenues in any
quarter do not increase correspondingly with increases in operating
expenses, the Company's results for that quarter would be materially and
adversely affected.

      For the foregoing reasons, the Company believes that comparisons of
its quarterly operating results are not necessarily meaningful and that the
Company's operating results in any particular quarter should not be relied
upon as necessarily indicative of future performance. In addition, it is
possible that in some future quarters operating results will be below the
expectations of research analysts and investors, and in that case, the
price of the Company's common stock is likely to decline.

RECENT ACCOUNTING PRONOUNCEMENTS

      In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") 101, Revenue Recognition in Financial
Statements which provides guidance related to revenue recognition based on
interpretations and practices followed by the SEC. SAB 101 requires
companies to report any changes in revenue recognition as cumulative change
in accounting principle at the time of implementation in accordance with
Accounting Principles Board Opinion 20, "Accounting Changes." SAB 101 also
provides guidance as the recognizing revenue on the "gross" versus "net"
basis. The Company adopted the provisions of SAB 101 during the first
quarter of fiscal 2000 and SAB 101 does not have any impact on the
Company's financial position or results of operations.

      In April 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, ("FIN 44"), Accounting for Certain Transactions
Involving Stock Compensation-an Interpretation of APB 25. This
Interpretation clarifies (a) the definition of employee for purposes of
applying Opinion 25, (b) the criteria for determining whether a plan
qualifies as a non compensatory plan, (c) the accounting consequence of
various modifications to the terms of a previously fixed stock option or
award, and (d) the accounting for an exchange of stock compensation awards
in business combinations. This Interpretation became effective July 1,
2000, but certain conclusions in this Interpretation cover specific events
that occur after either December 15, 1998, or January 12, 2000. The
adoption of FIN 44 did not have a material impact on the Company's
financial position or results of operations.

      In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative financial instruments and hedging
activities related to those instruments, as well as other hedging
activities. The Company does not currently hold any derivative instruments
and does not engage in hedging activities, the Company expects the adoption
of SFAS No. 133 will not have a material impact on its financial position,
results of operation or cash flows. The Company will be required to adopt
SFAS No. 133 in fiscal 2001.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
            RISK

      The Company's exposure to market risk for changes in interest rates
relates primarily to the Company's investment portfolio. The Company does
not use derivative financial instruments in its investment portfolio. The
primary objective of the Company's investment activities is to preserve
principal while maximizing yields without significantly increasing risk.
This is accomplished by investing in widely diversified investments,
consisting primarily of investment grade securities. Due to the nature of
the Company's investments, the Company believes that there is no material
risk exposure. All investments are carried at market value, which
approximates cost.

      The table below represents principal amounts and related
weighted-average interest rates by year of maturity for the Company's
investment portfolio.



                    FY2001  FY2002 FY2003  FY2004 FY2005  Thereafter  Total
                   -------  ------ ------- ------ ------- ---------- -------
Money market fund
 and cash         $  3,783  $  -   $  -    $  -   $  -    $  -       $ 3,783
  Average interest
   rate               0.63%   0.00%  0.00%  0.00%   0.00%   0.00%
                   -------
Investments         62,115     -      -      -      -       -        62,115
  Average interest   6.51%    0.00%  0.00%  0.00%   0.00%    0.00%
   rate            -------  ------- ------- ------ ------- -------- --------
Total cash and
 investment       $ 65,898  $  -   $  -   $  -   $  -    $   -      $65,898
                   ======== ======= ======= ====== ======= ======== ========


ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      The Company's financial statements and the related notes thereto,
together with the Report of the Independent Auditor, are included or
incorporated by reference elsewhere herein. Reference is made to the "Index
to Financial Statements and Financial Statement Schedule" following the
signature pages hereto.

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

      Not applicable.


                                  PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      The information contained under the sections entitled "ELECTION OF
DIRECTORS," "EXECUTIVE OFFICERS" and "SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE" in the Company's proxy statement for its Annual
Meeting of Stockholders to be held on May 8, 2001 and to be filed with the
Securities and Exchange Commission no later than 120 days after the close
of the 2000 fiscal year (the "Proxy Statement") is incorporated herein by
reference in response to this item.

ITEM 11.    EXECUTIVE COMPENSATION

      The information contained in the Proxy Statement under the sections
entitled "ELECTION OF DIRECTORS-Compensation of Directors," "EXECUTIVE
OFFICER COMPENSATION," "COMPENSATION COMMITTEE REPORT ON EXECUTIVE OFFICER
COMPENSATION," "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION" and "STOCK PERFORMANCE GRAPH" is incorporated herein by
reference in response to this item.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
            MANAGEMENT

      The information contained in the Proxy Statement under the section
entitled "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT"
is incorporated herein by reference in response to this item.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The information contained in the Proxy Statement under the section
entitled "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" is incorporated
herein by reference in response to this item.


                                  PART IV

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

(a)   1.  FINANCIAL STATEMENTS


                                                             PAGE NUMBER

Independent Auditors' Report................................     F-2
Balance Sheets as of December 31, 2000 and 1999.............     F-3
Statements of Operations for the years ended December 31, 2000
      1999 and 1998.........................................     F-4
Statements of Stockholders' Equity for the years ended
      December 31, 2000, 1999 and 1998......................     F-5
Statements of Cash Flows for the years ended December 31, 2000,
      1999 and 1998.........................................     F-6
Notes to Financial Statements...............................     F-7


      2.  FINANCIAL STATEMENT SCHEDULES

      The following financial statement schedule of the Company for each of
      the years ended December 31, 2000, 1999 and 1998 should be read in
      conjunction with the Financial Statements, and related notes thereto,
      of the Company.


                                                             PAGE NUMBER

      Schedule II--Valuation and Qualifying Accounts.........    S-1


      Schedules other than the one listed above have been omitted since
      they are either not required, not applicable, or the information has
      otherwise been included.

      3.  EXHIBITS

      The exhibits listed in the accompanying Index to Exhibits are filed
      as part of this Annual Report on Form 10-K.

(b)   REPORTS ON FORM 8-K

      No current reports on Form 8-K were filed during the last quarter of
      the period covered by this report.



                                  SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized.

Date:  March 29, 2001

                                          OFFICIAL PAYMENTS CORPORATION


                                          By: /s/ Thomas R. Evans
                                             -------------------------
                                              Thomas R. Evans
                                              Chief Executive Officer

      Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
registrant and in the capacities indicated on March 29, 2001.


           SIGNATURE                                 TITLE

      /s/ Thomas R. Evans            Chairman of the Board and Chief Executive
----------------------------------
        Thomas R. Evans              Officer

     /s/ Edward J. DiMaria           Chief Financial Officer
----------------------------------
       Edward J. DiMaria             (Principal Financial Officer)

       /s/ Kenneth Stern             President and Director
----------------------------------
         Kenneth Stern

     /s/ Hyunjin F. Lerner           Controller
----------------------------------
       Hyunjin F. Lerner

       /s/ Andrew Cohan              Director
----------------------------------
         Andrew Cohan

   /s/ Christos M. Cotsakos          Director
----------------------------------
     Christos M. Cotsakos

    /s/ Norman P. Creighton          Director
----------------------------------
      Norman P. Creighton

 /s/ George L. Graziadio, Jr.        Director
----------------------------------
   George L. Graziadio, Jr.

     /s/ Vernon Loucks Jr.           Director
----------------------------------
       Vernon Loucks Jr.

       /s/ Lee E. Mikles             Director
----------------------------------
         Lee E. Mikles

       /s/ Bruce Nelson              Director
----------------------------------
         Bruce Nelson



                             INDEX TO EXHIBITS


     EXHIBIT
       NO.                                    DESCRIPTION
------------------        ----------------------------------------------------
       3.1                Certificate of Incorporation of the Registrant,
                          incorporated by reference to Exhibit 3.1 to the
                          Company's Registration Statement on Form S-1 (No.
                          333-87325), dated September 17, 1999.*

       3.1.1              Certificate of Amendment to the Certificate of
                          Incorporation of the Registrant, filed as Exhibit
                          3.1.1 to Amendment No. 1 (dated October 26, 1999)
                          to the Company's Registration Statement on Form
                          S-1 (No. 333-87325).*

       3.2                Bylaws of the Registrant, incorporated by
                          reference to Exhibit 3.2 to the Company's
                          Registration Statement on Form S-1 (No. 333-
                          87325).*

       4.1                Common Stock Specimen, incorporated by reference
                          to Exhibit 4.1 to Amendment No. 4 (dated November
                          18, 1999) to the Company's Registration Statement
                          on Form S-1 (No. 333-87325).*

       4.2                Stock Purchase Agreement dated as of November 3,
                          1999 between Official Payments Corporation and
                          E*TRADE Group, Inc, filed as Exhibit 4.2 to
                          Amendment No. 2 (dated November 5, 1999) to the
                          Company's Registration Statement on Form S-1 (No.
                          333-87325).*

       4.2.2              Amendment No. 1 to Stock Purchase Agreement dated
                          as of November 8,1999 among Official Payments
                          Corporation, E*TRADE Group, Inc. and Imperial
                          Bank, filed as Exhibit 4.2.2 to Amendment No. 3
                          (dated November 16, 1999) to the Company's
                          Registration Statement on Form S-1 (No.
                          333-87325).*

       4.3                Registration Rights Agreement dated as of October
                          15, 1999 between Imperial Bank and U.S. Audiotex
                          Corporation, filed as Exhibit 4.3 to Amendment
                          No. 4 (dated November 18, 1999) to the Company's
                          Registration Statement on Form S-1 (No.
                          333-87325).*

       4.4                Registration Rights Agreement dated as of October
                          15, 1999 between Beranson Holdings, Inc. and U.S.
                          Audiotex Corporation, filed as Exhibit 4.4 to
                          Amendment No. 4 (dated November 18, 1999) to the
                          Company's Registration Statement on Form S-1 (No.
                          333-87325).*

       10.1               Amended Employment Agreement, dated as of
                          September 14, 1999, by and among U.S. Audiotex
                          Corporation, Imperial Bank and Thomas R. Evans,
                          filed as Exhibit 10.1 to the Company's
                          Registration Statement on Form S-1 (No.
                          333-87325).*

       10.2               Employment Agreement, dated August 24, 1999,
                          between U.S. Audiotex Corporation and Kenneth
                          Stern, filed as Exhibit 10.2 to the Company's
                          Registration Statement on Form S-1 (No. 333-
                          87325).*

       10.3               1999 Stock Incentive Plan, as amended, filed as
                          Exhibit 10.2 to the Company's Form 10-Q for the
                          period ended March 31, 2000.*

       10.4               2000 Stock Incentive Plan, filed as Exhibit 4.4
                          to the Company's Registration Statement on Form
                          S-8, dated June 2, 2000.*

       10.5               Contract, between Internal Revenue Service and
                          the Company, filed as Exhibit 10.1 to the
                          Company's Form 10-Q for the period ended March
                          31, 2000.*

       10.6               Subcontract with Novus Services, Inc., dated
                          November 30, 1998, of the IVR Services Agreement
                          with the California Franchise Tax Board,
                          incorporated by reference to Exhibit 10.8 to
                          Amendment No. 1 (dated October 26, 1999) to the
                          Company's Registration Statement on Form S-1 (No.
                          333-87325).*

       10.7               Processing Agreement, dated as of July 16, 1995,
                          by and between Imperial Bank and U.S. Audiotex
                          LLC, incorporated by reference to Exhibit 10.9 to
                          Amendment No. 1 (dated October 26, 1999)to the
                          Company's Registration Statement on Form S-1 (No.
                          333-87325).*

       10.8               Employment Agreement, dated September 30, 1999,
                          between U.S. Audiotex Corporation and Michael
                          Presto, incorporated by reference to Exhibit
                          10.12 to Amendment No. 2 (dated November 5, 1999)
                          to the Company's Registration Statement on Form
                          S-1 (No. 333-87325).*

       10.9               Employment Agreement, dated September 30, 1999,
                          between U.S. Audiotex Corporation and Michael
                          Barrett, incorporated by reference to Exhibit
                          10.13 to Amendment No. 2 (dated November 5, 1999)
                          to the Company's Registration Statement on Form
                          S-1 (No. 333-87325).*

       10.10              Employment Agreement, dated August 9, 2000,
                          between Edward J. DiMaria and Official Payments
                          Corporation, filed as Exhibit 10.1 to the
                          Company's Form 10-Q for the period ended June 30,
                          2000.*

       23.1               Consent of KPMG LLP.

-------------
*     Previously filed



                       OFFICIAL PAYMENTS CORPORATION

                       INDEX TO FINANCIAL STATEMENTS



                                                                       PAGE
                                                                      NUMBER

Independent Auditors' Report.......................................     F-2
Balance Sheets as of December 31, 2000 and 1999....................     F-3
Statements of Operations for the years ended December 31, 2000,
    1999 and 1998..................................................     F-4
Statements of Stockholders' Equity for the years ended December 31,
    2000, 1999 and 1998............................................     F-5
Statements of Cash Flows for the years ended December 31, 2000, 1999
    and 1998.......................................................     F-6
Notes to Financial Statements......................................     F-7
Schedule II-Valuation and Qualifying Accounts for the years ended
    December 2000, 1999 and 1998...................................     S-1



                        INDEPENDENT AUDITORS' REPORT


To The Board of Directors and Stockholders of
Official Payments Corporation:

      We have audited the accompanying balance sheets of Official Payments
Corporation as of December 31, 2000 and 1999, and the related statements of
operations, stockholders' equity, and cash flows for each of the years in
the three-year period ended December 31, 2000. In connection with our audit
of the financial statements, we also have audited the financial statement
schedule as listed in the accompanying index. These financial statements
and financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.

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

      In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Official
Payments Corporation at December 31, 2000 and 1999, and the results of its
operations and its cash flows for each of the years in the three-year
period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States of America. Also in our opinion,
the related financial statement schedule, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.

                                    /s/ KPMG LLP


New York, New York
January 22, 2001



                       OFFICIAL PAYMENTS CORPORATION
                               BALANCE SHEETS
              (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)



                                               DECEMBER 31,     DECEMBER 31,
                                                  2000             1999
                                               -----------      -----------

ASSETS
Current assets:
     Cash and cash equivalents..........      $   3,783        $   1,643
     Short-term investments.............         62,115           79,182
     Accounts receivable, net of allowance
      for doubtful accounts of $111 and $52
      in 2000 and 1999..................          2,210            1,135
     Prepaid expenses and other current
      assets.............................           600              538
                                              ---------        ---------
          Total current assets..........         68,708           82,498
     Property and equipment, net.........         7,511            1,802
     Other assets.......................             44               --
                                              ---------        ---------
          Total assets..................      $  76,263    $      84,300
                                              =========        =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Accounts payable...................      $   1,023    $         176
     Accrued merchant discount fees.....          1,123              419
     Accrued payroll....................            454              551
     Accrued expenses...................          3,961              931
     Deferred revenues..................             65               65
     Current portion of capital lease
      obligations.......................            580              206
                                              ---------        ---------
           Total current liabilities....          7,206            2,348
Long-term portion of capital lease obligations      604              391
                                              ---------        ---------
           Total liabilities............          7,810            2,739
                                              ---------        ---------

Stockholders' equity:
      Common stock, $.01 par value; 150,000,000
           shares authorized; 21,505,770 and
           21,262,820 shares issued and out-
           standing as of December 31, 2000
           and 1999.....................            215              213
      Additional paid-in capital........        129,473          127,707
      Deferred stock compensation.......        (19,803)         (34,965)
      Accumulated deficit...............        (41,432)         (11,394)
                                              ---------        ---------
                  Total stockholders' equity     68,453           81,561
                                              ---------        ---------
             Total liabilities and stockholder'
                equity..................      $  76,263     $     84,300
                                              =========        =========


               See accompanying notes to financial statements.



                       OFFICIAL PAYMENTS CORPORATION
                          STATEMENTS OF OPERATIONS
                   (IN THOUSANDS, EXCEPT PER SHARE DATA)


                                            YEARS ENDED DECEMBER 31,
                                         ------------------------------
                                            2000      1999       1998
                                         --------- ---------  ---------

Revenues:
     Transaction fees..............      $  25,793 $   8,592  $   2,076
     Other revenues................            291       249        293
                                         --------- ---------  ---------
          Total revenues...........         26,084     8,841      2,369
                                         --------- ---------  ---------
Cost of revenues:
     Cost of transaction fees......         14,943     4,072        442
     Cost of transaction fees to
      related party................          5,858     2,069        515
     Cost of other revenues........            106       204         71
                                         --------- ---------  ---------
          Total cost of revenues...         20,907     6,345      1,028
                                         --------- ---------  ---------
Gross profit.......................          5,177     2,496      1,341
                                         --------- ---------  ---------

Operating expenses:
     Sales and marketing...........          9,212     1,301        356
     Development costs.............          2,953     1,032        608
     General and administrative....         10,042     2,692        590
     Depreciation expenses.........          1,716       288         57
   Amortization of deferred stock-
    based compensation.............         15,728     7,940         --
                                         --------- ---------  ---------
          Total operating expenses.         39,651    13,253      1,611
                                         --------- ---------  ---------
Loss from operations...............        (34,474)  (10,757)      (270)
Other income (expense), net........          4,436       357        (55)
                                         --------- ---------  ---------
Net loss...........................        (30,038)$ (10,400) $    (325)
                                         ========= =========  =========

Basic and diluted net loss
per share..........................     $   (1.40)$   (0.66)$    (0.02)
                                         ========= =========  =========

Weighted-average shares used in
computing basic and diluted net
loss per share.....................         21,421    15,677     15,000
                                         ========= =========  =========


               See accompanying notes to financial statements.


                        OFFICIAL PAYMENTS CORPORATION
                      STATEMENTS OF STOCKHOLDERS' EQUITY
                                (IN THOUSANDS)


                                          ADDITION- DEFERRED ACCUMUL-  TOTAL
                            COMMON STOCK     AL      STOCK    ATED    STOCK-
                           -------------- PAID-IN  COMPENS-  (DEFIC-  HOLDERS'
                           SHARES AMOUNT  CAPITAL    ATION     IT)     EQUITY
                           ------ ------- ------- --------- -------   --------
Balance at December 31,
 1997..................... 15,000 $   150 $   428 $     --  $ (669) $    (91)
Capital contribution......     --      --     600       --      --       600
Net loss..................     --      --      --       --    (325)     (325)
                           ------ ------- ------- --------- -------   --------
Balance at December 31,
 1998..................... 15,000     150   1,028       --    (994)      184
Deferred stock
 compensation.............     --      --  42,905  (42,905)     --        --
Amortization of stock-based
    compensation..........     --      --      --    7,940      --     7,940
Services performed by stock
   holder.................     --      --     118       --      --       118
Issuance of common stock..    513       5   4,995       --      --     5,000
IPO proceeds, net of
issuance costs of $7,532..  5,750      58  78,661       --      --    78,719
Net loss..................     --      --      --       -- (10,400)  (10,400)
                           ------ ------- ------- --------- -------   --------
Balance at December 31,
 1999..................... 21,263     213  127,707 (34,965)(11,394)   81,561
                           ------ ------- ------- --------- -------   --------

Deferred stock compensation   128       1     565     (566)     --        --
Amortization of stock-based
    compensation..........     --      --      --   15,728      --    15,728
Exercise of stock options.    115       1   1,201       --      --     1,202
Net loss..................     --      --      --       -- (30,038)  (30,038)
                           ------ ------- ------- --------- -------   --------
Balance at December 31,
 2000..................... 21,506 $  215  $129,473 $(19,803)$(41,432)$68,453
                           ====== ======= ======= ========= ======== ========


               See accompanying notes to financial statements.



                       OFFICIAL PAYMENTS CORPORATION
                          STATEMENTS OF CASH FLOWS
                               (IN THOUSANDS)



                                                  YEARS ENDED DECEMBER 31,
                                               --------------------------------
                                                 2000        1999       1998
                                               ----------  ---------  ---------
OPERATING ACTIVITIES:
    Net loss................................  $ (30,038) $ (10,400) $    (325)
    Adjustments to reconcile net loss
        to net cash used in operating
        activities:
             Depreciation and amortization        1,716        288         57
             Bad debt expense.........               59         47          5
             Amortization of deferred stock-
             based compensation.............     15,728      7,940         --
             Services performed by related party     --        118         --
             Changes in operating assets and
              liabilities:
                      Accounts receivable...     (1,134)      (628)      (294)
                      Prepaid expenses and other
                      assets................       (106)      (820)        25
                      Accounts payable accrued
                      expenses..............      4,183      1,423        250
                      Deferred revenues.....         --        (34)        37
                                               ----------  ---------  ---------
                       Net cash used in oper-
                       ating activities....      (9,592)    (2,066)      (245)

INVESTING ACTIVITIES:
      Net purchases (maturities) of short-term
         investments.........................    17,067    (78,871)        --
      Capital expenditures...................    (7,094)    (1,054)      (298)
                                               ----------  ---------  ---------
                       Net cash provided (used in)
                       investing activities...    9,973    (79,925)      (298)

FINANCING ACTIVITIES:
      Proceeds from issuance of common
       stock..................................       --     83,719         --
      Proceeds from stock option exercises....    1,202         --         --
      Capital contribution....................       --         --        600
      Repayment of notes payable to related
       party..................................       --     (3,300)        --
      Borrowing on sale-leaseback agreement...      857         --         --
      Notes payable to related party..........       --      2,800        500
      Repayment of notes payable and capital
       leases.................................     (300)      (216)      (108)
                                               ----------  ---------  ---------
                       Net cash provided by
                       financing activities...    1,759     83,003        992
                                               ----------  ---------  ---------
      Net increase in cash................        2,140      1,012        449
      Cash at the beginning of the year...        1,643        631        182
                                               ----------  ---------  ---------
      Cash at the end of the year.........      $ 3,783    $ 1,643    $   631
                                               ==========  =========  =========
      Supplemental disclosure of noncash
        activity:
                  Interest paid...........      $   319    $   185    $    38
                                               ==========  =========  =========
                  Assets acquired through
                   capital leases.........      $   968    $   503    $    41
                                               ==========  =========  =========


               See accompanying notes to financial statements.



                       OFFICIAL PAYMENTS CORPORATION
                       NOTES TO FINANCIAL STATEMENTS


1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

      Official Payments Corporation (the "Company" or "Official Payments")
is a leading provider of electronic payment options to government entities,
enabling consumers to use their credit cards and "pin- less" debit cards to
pay, by the Internet or the telephone, personal federal and state income
taxes, sales and use taxes, property taxes, tuition payments, motor
vehicles fees, fines for traffic violations and parking citations and other
government-imposed taxes and fees. The Company commenced operations on June
26, 1996, initially offering its credit card payment services for the
payment of fines for traffic violations, parking citations and property
taxes. In 1998, Official Payments signed a credit card payment contract
with the Internal Revenue Service ("IRS") and in 1999 began providing its
services for the balance-due payment of personal federal income taxes. In
2000, the Company extended its contract with the IRS, adding two additional
payment services, extension and estimated personal federal income taxes.
For the 2001 tax filing season, the Company has further extended its
contract with the IRS, adding an Internet payment option to its existing
automated interactive voice response telephone ("IVR") payment option for
balance-due, extension, and estimated personal federal income taxes.


USE OF ESTIMATES

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

RECLASSIFICATION

      Certain amounts in financial statements for prior years have been
reclassified to conform to the current year's presentation.

CASH AND CASH EQUIVALENTS

      Cash consists of demand deposits, money market funds and certificates
of deposit with original maturities of three months or less.

      In December 1999, the Company entered into a letter of credit
agreement to secure a facilities operating lease for the corporate
headquarters located in Stamford, Connecticut. As part of this agreement,
the Company is required to hold a 3-month certificate of deposit as a form
of security for the letter of credit. As of December 31, 2000, the 3-month
certificate of deposit amounted to $145,850, and this amount is included in
cash and cash equivalents.

SHORT-TERM INVESTMENTS

      As of December 31, 2000, the Company had investments of $62.1
million. The Company classifies its investments as "available-for-sale."
Financial instruments classified as short-term investments include
government securities and commercial paper (with a Standard and Poor's
rating of A- 1 or better), mostly with remaining maturity dates of less
than six months. Such investments are recorded at fair value based on
quoted market prices, with unrealized gains and losses , which are de
minimus for all periods presented recorded, net of tax, as a separate
component of stockholders' equity.

CONCENTRATION OF CREDIT RISK

      Financial instruments that potentially subject the Company to a
concentration of credit risk consist principally of cash, short-term
investments and accounts receivable. The Company performs ongoing credit
evaluations of its clients and generally does not require collateral.
Uncollectible accounts have been insignificant to date. The Company had one
client that accounted for greater than 10% of accounts receivable at
December 31, 2000.

      In the year ended December 31, 2000 and 1999, transaction fees from
IRS payments accounted for 69% and 49% of total revenues, respectively. The
Company's agreements with the IRS covered credit card payments for 1999 and
1998 tax returns filed during the 2000 and 1999 tax filing seasons,
respectively. The agreement was renewed for the 2000 tax returns for the
2001 tax filing season by mutual consent of both parties.

INTERNALLY DEVELOPED SOFTWARE

      The Company has adopted Statement of Position ("SOP") 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use", which requires that certain costs for the development of
internal use software should be capitalized, including the costs of coding,
software configuration, upgrades and enhancements. Upon completion of the
application and infrastructure development stage, the Company amortizes
these costs on a straight-line basis over an estimated useful life of three
years. In the 2000 and 1999 fiscal years, during the application and
infrastructure development stage, the Company capitalized approximately
$2.8 million and $200,000 of internally developed software costs,
respectively. Virtually all of the costs that were capitalized during 2000
were for the development of the Company's Web site that allows consumers to
pay their taxes via the Internet. The net book value of these costs is
approximately $2.9 million and $94,000 as of December 31, 2000 and 1999,
respectively.

PROPERTY AND EQUIPMENT

      Property and equipment are stated at cost, less accumulated
depreciation. Depreciation is calculated using the straight-line method
over the estimated useful lives of the property and equipment, generally
three years for purchased software and office equipment and five years for
furniture and fixtures and IVR systems. Leasehold improvements are
amortized using the straight-line method over the shorter of the respective
lease term or the estimated useful life of the asset.

IMPAIRMENT OF LONG-LIVED ASSETS

      In accordance with Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of," the Company periodically
evaluates its long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of such assets may not
be recoverable. Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of any asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized in the current period is measured
by the amount by which the carrying amount of the assets exceed the fair
value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell. Since June 26, 1996
(inception) through December 31, 2000, no impairment losses have been
identified.

STOCK-BASED COMPENSATION

      The Company uses the intrinsic value method of accounting for all of
its employee stock-based compensation plans. Expense associated with
stock-based compensation is being amortized on a straight- line basis over
the vesting period of the individual award consistent with the method
described in Accounting Principles Board (APB) Opinion No. 25.



COMPREHENSIVE INCOME (LOSS)

      The Company has no material or significant components of other
comprehensive income (loss).

REVENUE RECOGNITION

      The Company's revenues are derived primarily from convenience fees
paid by consumers for credit card payment services provided by the Company.
Convenience fees are charged based on the amount of the payment processed
and the type of government obligation being paid. Revenues are recognized
in the period in which the services are provided. The revenues are
presented net of a provision for convenience fees when the collection of
the amount due is not reasonably assured but is estimated and established
in the period in which the services are provided.

ADVERTISING EXPENSE

      The cost of advertising is expensed as incurred. Such costs are
included in selling and marketing expense on the statement of operations
and totaled approximately $5.2 million, $69,000, and $28,000 for the years
ended December 31, 2000, 1999, and 1998, respectively.

      In November 2000, the Company entered into a cooperative advertising
agreement with MasterCard where MasterCard contributed $255,000 to the
Company for use in the Company's 2001 advertising campaign. The Company
will consider these funds as a reimbursement of costs incurred and will net
the proceeds against sales and marketing expenses as incurred.

ACCOUNTING FOR INCOME TAXES

      Income taxes are recorded using the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carry-forwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. A valuation allowance is recorded
to reduce deferred tax assets reported if, based on the weight of the
available evidence, it is more likely than not that some portion or all of
the deferred tax asset will not be realized..

LOSS PER SHARE

      Net income (loss) per share is computed in accordance with SFAS No.
128, "Earnings per Share." Under the provisions of SFAS No. 128, basic net
income (loss) per share is computed by dividing the net income (loss) for
the period by the weighted-average number of outstanding shares of common
stock during the period. Diluted net loss per share is computed using the
weighted-average number of shares of common stock outstanding and, when
dilutive, potential common shares from options to purchase common stock
using the treasury stock method.

       Net loss per share for the year ended December 31, 2000 and 1999
does not include the effect of 4,870,423 and 6,146,743 options to purchase
common stock with a weighted average exercise price of $1.51 and $4.66 per
share, respectively, because the effects are anti-dilutive.

RECENT ACCOUNTING PRONOUNCEMENTS

      In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") 101, Revenue Recognition in Financial
Statements which provides guidance related to revenue recognition based on
interpretations and practices followed by the SEC. SAB 101 requires
companies to report any changes in revenue recognition as cumulative change
in accounting principle at the time of implementation in accordance with
Accounting Principles Board Opinion 20, "Accounting Changes." SAB 101 also
provides guidance as the recognizing revenue on the "gross" versus "net"
basis. The Company adopted the provisions of SAB 101 during the first
quarter of fiscal 2000 and SAB 101 does not have any impact on the
Company's financial position or results of operations.

      In April 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, ("FIN 44"), Accounting for Certain Transactions
Involving Stock Compensation-an Interpretation of APB 25. This
Interpretation clarifies (a) the definition of employee for purposes of
applying Opinion 25, (b) the criteria for determining whether a plan
qualifies as a non compensatory plan, (c) the accounting consequence of
various modifications to the terms of a previously fixed stock option or
award, and (d) the accounting for an exchange of stock compensation awards
in business combinations. This Interpretation became effective July 1,
2000, but certain conclusions in this Interpretation cover specific events
that occur after either December 15, 1998, or January 12, 2000. The
adoption of FIN 44 did not have a material impact on the Company's
financial position or results of operations.

      In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative financial instruments and hedging
activities related to those instruments, as well as other hedging
activities. The Company does not currently hold any derivative instruments
and does not engage in hedging activities, the Company expects the adoption
of SFAS No. 133 will not have a material impact on its financial position,
results of operation or cash flows. The Company will be required to adopt
SFAS No. 133 in fiscal 2001.

2. FINANCIAL STATEMENT COMPONENTS

INVESTMENTS

      The following is a summary of available for sale securities (in
thousands):


                                                  DECEMBER 31, 2000
                                              -------------------------
                                               AMORTIZED
                                                 COST       FAIR VALUE
                                              -----------   -----------

Commercial paper...........................   $    62,007   $    62,007
Government money market fund...............           108           108
                                              -----------   -----------

                                              $    62,115   $    62,115
                                              ===========   ===========

Included in short-term investments.........   $    62,115   $    62,115
                                              -----------   -----------

                                              $    62,115   $    62,115
                                              ===========   ===========

      The following is a summary of contractual maturities of the Company's
available for sale securities as of December 31 (in thousands):


                                             2000
                                           --------
Amount maturing within one year.........   $  62,115
Amount maturing greater than one year...         --
                                           --------
Securities available for sale...........   $  62,115
                                           ========

PROPERTY AND EQUIPMENT

      Property and equipment consisted of the following as of December 31
(in thousands):


                                             2000      1999
                                           --------  --------
Computer Equipment......................   $  8,999  $  1,836
Furniture and fixtures..................        747       485
                                           --------  --------
                                              9,746     2,321
Less:  Accumulated depreciation and
       amortization                           2,235       519
                                           --------  --------
                                           $  7,511  $  1,802
                                           ========  ========

      Certain computer equipment, software and office equipment are
recorded under capital leases that aggregated $1.6 million and $567,000 as
of December 31, 2000 and 1999, respectively. Accumulated amortization on
the assets recorded under capital leases aggregated $513,000 and $62,000 as
of December 31, 2000 and 1999, respectively. Depreciation and amortization
expense was $1.7 million and $288,000 as of December 31, 2000 and 1999,
respectively, which includes amortization expense for assets under capital
leases of $452,000 and $42,000 as of December 31, 2000 and 1999,
respectively.

AMORTIZATION OF STOCK-BASED COMPENSATION

      Deferred stock-based compensation included as a component of
stockholders equity is being amortized over the vesting period of the stock
options. Such charges are non-cash and have been presented as a separate
component of operating expenses in the Company's statement of operations.
The following table shows the cost (in thousands) of such charges as
allocated to sales and marketing, development costs and general and
administrative expenses, which allocation is based on the functional
responsibilities of the underlying employees in the years ended December
31:


                                             2000      1999     1998
                                           --------  --------  -------
Sales and marketing.....................   $  1,887  $  2,250    ---
Development costs.......................         85     1,089    ---
General and administrative..............     13,756     4,601    ---
                                           ---------------------------
                                           $ 15,728  $  7,940    ---
                                           ===========================


OTHER INCOME (EXPENSE), NET

      Other income (expense), net, consists of the following (in
thousands):


                                            YEARS ENDED DECEMBER 31,
                                           ---------------------------
                                             2000      1999     1998
                                           --------  --------  -------
Interest income.........................   $  4,749  $    468  $    16
Interest expense........................       (319)     (135)     (38)
Other income (expense)..................          6        24      (33)
                                           --------  --------  -------
                                           $  4,436  $    357  $   (55)
                                           ========  ========  =======


3. LEASE OBLIGATIONS AND COMMITMENTS

      In April 2000, the Company entered into a sale-leaseback agreement
for approximately $968,000 in IVR equipment. The sale-leaseback transaction
did not result in any profit or loss for the Company because the selling
price of the equipment was equal to the cost on the closing date of the
agreement. The term of the agreement is 36 months. The leased equipment was
accounted for as a capital lease, in accordance with SFAS No. 13,
"Accounting for Leases," and is included as computer equipment as of
December 31, 2000.

      The Company is in compliance with all financial covenants under these
leases as of December 31, 2000.

      Future minimum debt and capital lease payments as of December 31,
2000 were as follows (in thousands):


YEAR ENDING DECEMBER 31,

2001....................................   $    580
2002....................................        543
2003....................................        228
                                           --------
Total minimum lease payments............      1,351
Less:  Amount representing imputed
           interest.....................        167
                                           --------
Present value of minimum lease
 payments...............................      1,184
Less:  current portion..................        580
                                           --------
Minimum lease payments, less current
 portion................................   $    604
                                           ========


      Future minimum lease payments under non-cancellable operating leases
as of December 31, 2000 were as follows (in thousands):


YEAR ENDING DECEMBER 31,

2001....................................   $    648
2002....................................        670
2003....................................        684
2004....................................        698
2005....................................        335
Thereafter..............................         --
                                           --------
Total minimum lease payments. under        $  3,035
operating leases........................
                                           ========


      Rental expense under operating leases for the years ended December
31, 2000, 1999 and 1998 was $556,000, $206,000, and $75,000, respectively.

4. STOCKHOLDERS' EQUITY

      In January 1998, Imperial Bank for $3,010,000 purchased 9 million
shares of common stock or 75% of the 12 million shares of common stock in
the Company owned by Beranson Holdings, Inc. In addition, Imperial
Ventures, a wholly owned subsidiary of Imperial Bank, transferred its 3
million shares of common stock in the Company to Imperial Bank.

      Imperial Bank and Beranson Holdings were the holders of 80% and 20%
of the Company's common stock, respectively, as of December 31, 1998.

      In August 1999, the Company issued 2,400 shares of common stock to
Imperial Bank for an aggregate consideration of $8.00, and 600 shares of
common stock to Beranson Holdings for an aggregate consideration of $2.00.
In connection with the merger of U.S. Audiotex, LLC into U.S. Audiotex
Corporation, the limited liability company interests of Imperial Bank and
Beranson Holdings in U.S. Audiotex, LLC were exchanged for 11,997,600 and
2,999,400 shares of the Company's common stock, respectively.

      In November 1999, the Company sold to E*Trade Group, Inc. (E*TRADE)
512,820 shares of common stock at a price of $9.75 per share for a total
consideration of approximately $5 million.

      On November 29, 1999, the Company completed the initial public
offering of its common stock. The Company sold 5,750,000 shares of common
stock, including 750,000 shares sold in connection with the exercise of the
underwriters' over-allotment option. The initial public offering price was
$15.00 per share for an aggregate initial public offering of $86.2 million.
The Company paid a total of $6.0 million in underwriting discounts and
commissions and approximately $1.5 million has been incurred for other
offering expenses. After deducting the underwriting discounts and
commissions and the offering expenses the estimated net proceeds to the
Company from the offering were approximately $78.7 million.

STOCK SPLIT

      In October 1999, the Company's Board of Directors authorized a
three-for-one split of all the outstanding shares of the Company's common
stock. Shares and per share information has been restated for all periods
presented to give effect to this stock split.

1999 STOCK INCENTIVE PLAN

      The Company's Board of Directors adopted the 1999 Stock Incentive
Plan (the "1999 Plan") in August 1999. The 1999 Plan provides for the grant
of stock options to employees, outside directors, consultants or
independent advisors of the Company. A total of 7,650,000 shares of the
Company's common stock are reserved for issuance under the 1999 Plan,
900,000 of which are available for grants to outside directors.

      Awards under the 1999 Plan are made at the discretion of the
Compensation Committee of the Company's Board of Directors or the Board of
Directors (in the case of awards made to outside directors). Options
granted under the 1999 Plan may be designated as incentive stock options or
non-qualified stock options at the discretion of the granting authority,
with exercise prices for incentive stock options of not less than the fair
value of the underlying stock at the date of grant. Options granted under
the 1999 Plan typically vest over a maximum three-year period and expire
ten years from the date of grant (provided the employee remains employed by
the Company). As of December 31, 2000, there were 6,194,708 non- forfeited
employee stock options and 503,750 non-forfeited outside director stock
options granted under the 1999 Plan and 951,542 shares were available for
future issuance.

2000 STOCK INCENTIVE PLAN

      The Company's Board of Directors adopted the 2000 Stock Incentive
Plan (the "2000 Plan") in June 2000. The 2000 Incentive Plan provides for
the grant of shares of restricted stock and non-qualified stock options to
employees (excluding the Company's directors and executive officers),
consultants and independent advisors. A total of 1,250,000 shares of the
Company's common stock are reserved for issuance under the 2000 Incentive
Plan.

      Awards under the 2000 Plan are made at the discretion of the
Compensation Committee of the Company's Board of Directors. Options granted
under the 2000 Plan typically vest over a three-year period and expire ten
years from the date of grant (provided the employee remains employed by the
Company). As of December 31, 2000, there were 127,950 non-forfeited shares
of restricted stock and 203,000 non-forfeited stock options granted under
the 2000 Incentive Plan, and 919,050 shares were available for future
issuance.

DEFERRED STOCK-BASED COMPENSATION

      The Company uses the intrinsic value method to account for its 1999
and 2000 Incentive Plans. Accordingly, compensation cost is recognized for
stock options when, on the date of grant, the current market value of the
underlying common stock exceeds the exercise price of the stock options at
the date of grant. In the year ended December 31, 1999, the Company
recorded deferred compensation of approximately $42.9 million for options
granted to employees to purchase approximately 4,654,923 shares of the
Company's common stock. In the year ended December 31, 2000, the Company
recorded deferred compensation of approximately $633,000, representing the
fair value of restricted stock granted to employees as performance based
awards and also in replacement of, and in exchange for, cancelled, unvested
stock options with exercise prices in excess of the fair market value of
the Company's common stock at the time of grant. Unamortized deferred
stock-based compensation recorded as a component of stockholders's equity
on the Company's balance sheets was $19.8 million at December 31, 2000 and
$34.9 million at December 31, 1999.

      A summary of the Company's stock plans are as follows for the year
ended December 31:


                                        2000                       1999
                             --------------------------- ----------------------
                                 SHARES
                                              WEIGHTED-              WEIGHTED-
                                               AVERAGE                AVERAGE
                                              EXERCISE               EXERCISE
                                                PRICE     SHARES       PRICE
                             --------------  ----------- ----------- ----------
Outstanding at the
beginning of the period...      6,150,743         $4.68         --           --
Granted at fair value ....      1,216,000        $18.68  1,495,820       $15.12
Granted at less than fair
value.....................             --            --  4,654,923        $1.33
Exercised.................       (115,000)       $10.25         --           --
Cancelled.................       (465,285)       $34.77         --           --
                             --------------  ----------- ----------- ----------
Outstanding at end of period    6,786,458         $5.02  6,150,743        $4.68
                             ==============  =========== ===========
Exercisable at end of period    3,039,424         $3.48    685,161        $1.33
                             ==============  =========== ===========
Weighted-average fair value
    of options granted during
    the period at fair
    value.................                       $11.56                   $9.72
Weighted-average fair value
   of options granted during
   the period at less than fair
   value..................                           --                  $10.24

      The following table summarizes information about stock options
outstanding and exercisable as of December 31, 2000:


                                     OUTSTANDING                   EXERCISABLE
                        ----------------------------------   ------------------

                                  WEIGHTED-
                                   AVERAGE     WEIGHTED-              WEIGHTED-
                                  REMAINING     AVERAGE                 AVERAGE
RANGE OF EXERCISE    NUMBER OF   CONTRACTUAL    EXERCISE   NUMBER OF   EXERCISE
    PRICES             SHARES    LIFE (YEARS)     PRICE      SHARES      PRICE
-------------------- ---------  -------------  ---------- ----------- ---------

$  1.33 - $  2.00... 4,614,923      8.73         $  1.33   2,561,501     $ 1.33
$  4.09 - $  6.14...   230,500      9.36         $  4.51          --         --
$  6.63 - $  9.95...   527,000      9.68         $  7.28          --         --
$ 15.00 - $ 22.50... 1,334,035      8.88          $15.03     477,923     $15.00
$ 30.00 - $ 45.00...    80,000      9.13          $37.81          --         --
                     ---------                            -----------
                     6,786,458      8.87         $  5.02   3,039,424     $ 3.48
                     =========                            ===========


ACCOUNTING FOR STOCK-BASED COMPENSATION

      The Company uses the intrinsic value-based method of accounting for
its employee stock-based compensation plans. Accordingly, no compensation
cost is recognized for any of its stock options when the exercise price of
each option equals or exceeds the fair value of the underlying common stock
as of the grant date for each stock option.

      Had compensation cost been determined in accordance with the fair
value approach set forth by SFAS No. 123 for all of the Company's
stock-based compensation plans, net loss and net loss per share would have
been reduced to the following pro forma amounts (in thousands, except per
share data):



                                                 YEARS ENDED DECEMBER 31,
                                           -----------------------------------
                                              2000         1999         1998
                                           ----------- ------------- ---------
Net loss:
   As reported............................ $ (30,038)  $  (10,400)   $   (325)
   Pro forma.............................. $ (35,132)  $  (12,824)   $   (325)
Basic and diluted net loss per share:.....
   As reported............................ $   (1.40)  $    (0.66)   $  (0.02)
   Pro forma.............................. $   (1.64)  $    (0.82)   $  (0.02)


      For all option grants that were granted prior to the Company's
initial public offering in November 1999, the fair value of these options
was determined using the minimum value method, which assumes no volatility,
and the following weighted-average assumptions: no dividend yield,
risk-free interest rate of 5%, and expected lives of 4 years. For the
remaining options granted in 1999 but subsequent to the Company's initial
public offering, the fair value of these options was estimated at the date
of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions: zero dividend yield, expected volatility of
85%, risk-free interest rate of 5.00% and expected lives of 4 years. The
fair value for the options granted in 2000 was estimated at the date of
grant using a Black-Scholes option pricing model with the following
weighted-average assumptions: zero dividend yield, expected volatility of
100%, risk-free interest rate of 5.11%, and expected lives of 10 years.

5. INCOME TAXES

      Since its inception, the Company has incurred net operating losses
and has incurred no federal or state income tax expense.



The 2000 and 1999 income tax expense differed from the amounts computed by
applying the federal income tax rate of 34% to pretax income as a result of
the following (in thousands):

                                                     12/31/00      12/31/99
                                                    -----------   -----------
Federal tax at statutory rate...................      ($10,213)      ($3,536)
State taxes, net of federal income tax benefit..             1             1
Increase in valuation allowance.................        10,186         3,526
Non-deductible expenses.........................            26             9
                                                    -----------   -----------
Total tax expense...............................    $       --   $        --
                                                    ===========   ===========

The types of temporary differences that give rise to significant portions
of the Company's deferred tax assets and liabilities are set out below (in
thousands):

                                                     12/31/00      12/31/99
                                                    -----------   -----------
Deferred tax assets:
  Accruals......................................    $       130   $       305
  State income taxes............................             --           300
 Employee stock compensation....................          6,485         3,402
 Deferred revenue...............................             27            --
  Net operating loss and credit carry-forwards..          9,149           411
                                                    -----------   -----------
Gross deferred tax assets.......................         15,762         4,117
Valuation allowance.............................       (15,721)        (4,064)
                                                    -----------   -----------
Total deferred tax assets.......................             41            53

Deferred tax liabilities:
  Plant and equipment...........................           (41)           (53)
                                                    -----------   -----------
Total deferred tax liabilities..................           (41)           (53)

Net deferred tax assets (liabilities):              $       --    $        --
                                                    ===========   ===========


      For federal income tax purposes, the Company has net operating loss
("NOL") carryforwards of approximately $23.6 million and $1.1 million for
the year ended December 31, 2000 and 1999, respectively, expiring in 2019
and 2020. The U.S. Tax Reform Act of 1986 contains provisions that limit
the NOL carryforwards available to be used in any given year upon the
occurrence of certain events, including a significant change of ownership.
Management believes that a change in ownership occurred in connection with
Comerica's acquisition of Imperial Bancorp and, as a result, the ability of
the Company to utilize the NOL's to offset income in the future could be
limited.

      In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable
income during periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income and tax planning in making
these assessments. Due to the Company's operating losses, there is
uncertainty surrounding whether the Company will ultimately realize its
deferred tax assets.

6.    SEGMENT INFORMATION

      The Company operates in a single operating segment. The Chief
Executive Officer ("CEO") has been identified as the Chief Operating
Decision Maker because he has final authority over resource allocation
decisions and performance assessment. The CEO reviews financial information
by disaggregated revenues by product for purposes of making operating
decisions and assessing financial performance. The financial information
reviewed by the CEO is consistent with the information presented in the
accompanying statements of operations.


                                                   YEARS ENDED DECEMBER 31,
                                                ------------------------------
                                                  2000       1999      1998
                                                ---------  --------- ---------
Revenues by product are:
      Transaction fees:
           Federal...........................   $  17,960  $   4,343 $      --
           State.............................       2,481        557        --
           Local.............................       5,352      3,692     2,076
      Other revenues.........................         291        249       293
                                                ---------  --------- ---------
      Total revenues.........................   $  26,084  $   8,841 $   2,369
                                                =========  ========= =========

7.    RELATED PARTY TRANSACTIONS

      In January 1998, Imperial Bank increased its ownership interest of
U.S. Audiotex LLC from 20% to 80% by purchasing a 60% membership interest,
or 75% of Beranson Holdings, Inc.'s membership interest, from Beranson
Holdings, Inc. for $3,010,000, of which $2,510,000 was immediately payable
to Beranson Holdings, Inc. Upon the Company's formation on August 24, 1999,
the balance of $500,000 and $82,000 of accrued interest, was paid to
Beranson Holdings, Inc. U.S. Audiotex LLC was merged into the Company in
September 1999, with the Company being the surviving entity.

      In 1999 Imperial Bank and Beranson Holdings, Inc. made advances to
the Company under lines of credit in the combined amount of $2.8 million
which bears interest at a floating rate equal to Imperial Bank's prime rate
plus 2% per annum. The Company repaid the balance of all amounts
outstanding, together with the accrued interest, prior to December 31,
1999.

      Imperial Bank is one of the merchant banks the Company uses to
process credit card transactions and perform traditional merchant credit
card settlement services. During 2000, 1999 and 1998, the Company paid
Imperial Bank approximately $5.8 million, $2.1 million, and $515,000,
respectively, for performing these processing and settlement services,
which represent 31%, 33% and 51%, respectively, of the total merchant
discount fees paid by the Company during those periods.

      Imperial Bank has provided other services to the Company. These
services included payroll processing, benefits administration and employee
recruiting. During the fiscal year ended December 31, 2000, the Company
paid Imperial a fee of $135,000 for these services. During the fiscal year
ended December 31, 1999, the Company incurred a fee of $151,000 for these
services, of which $33,000 was paid for in cash by the Company and the
remaining $118,000 was not paid for by the Company and, accordingly, was
recorded as an expense and a contribution to capital. The Company did not
pay any fees to Imperial Bank for these services in 1998. The Company
expects related party expenses to decrease in 2001 since as of January 1,
2001, the Company began administering its payroll processing and benefits
programs internally and through unaffiliated third-party vendors.

      Imperial Bank guarantees the performance of the Company's obligations
under six equipment leases. These leases are comprised of a master lease
agreement with one lessor for five leases for various furniture and
computer equipment and a separate lease agreement for network equipment.
Imperial Bank will continue to guarantee the six leases until the leases
expire.

      Bruce Nelson, one of the Company's Board of Directors, provides
certain consulting services in connection with the Company's marketing and
advertising campaigns and corporate positioning strategies.

8.    SIGNIFICANT EMPLOYMENT AGREEMENTS

      During the second quarter of 2000, the Company incurred approximately
$4.1 million in severance and other related charges in conjunction with the
departure of its former Chief Financial Officer, Brian W. Nocco, which are
included in general and administrative expenses on the statement of
operations. The largest of this expense was a non-cash deferred stock-based
compensation charge of $3.6 million, representing the acceleration (in
connection with the termination of Mr. Nocco's employment and pursuant to
the terms of his employment agreement with the Company) of the vesting of
stock options granted to Mr. Nocco in August, September and November 1999
at exercise prices below the fair market value of the Company's common
stock at the date of grant. The remaining $522,000 is attributable to
severance, relocation and other contractual obligations incurred in the
second quarter of 2000. As of December 31, 2000, $130,000 remains unpaid
and is included in accrued payroll and severance on the balance sheet.

9.    SIGNIFICANT EMPLOYMENT AGREEMENTS

      In August 2000, the Company entered into an employment agreement with
Edward J. DiMaria, the Company's Chief Financial Officer. The employment
agreement provides for an annual base salary of $195,000, a one-time bonus
of $60,000 (paid in August 2000), and a minimum annual bonus of $35,000 for
2001. If Mr. DiMaria's employment is terminated by the Company without
"cause" or if he terminates his employment for "good reason," including a
"change in control," as these terms are defined in the written employment
agreement, the Company will be required to pay him his base salary and
benefits for one year, and the number of unvested stock options that would
have otherwise vested at the first anniversary date of his employment will
vest upon such termination.

10.   SELECTED QUARTERLY FINANCIAL DATA

                 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
                 (dollars in thousands, except per share data)


                                        FIRST    SECOND   THIRD    FOURTH
                                        QUARTER  QUARTER  QUARTER  QUARTER
                                        -------- ------- -------- --------
YEAR 2000:
Net revenue............................ $  1,824 $17,715 $  3,414  $ 3,131
Gross profit...........................      314   3,463      731      669
Net loss...............................   (8,949) (8,928)  (6,076)  (6,085)
Loss per share......................... $   0.42 $  0.42 $   0.28  $  0.28

YEAR 1999:
Net revenue............................ $    830 $ 5,283 $  1,095  $ 1,633
Gross profit...........................      424     924      550      598
Net income/(loss)......................     (121)     61   (1,480)  (8,860)
Net income/(loss) per share............ $  (0.01)$    -- $  (0.10) $ (0.50)


11.   SUBSEQUENT EVENTS (UNAUDITED)

      In March 2001, Official Payments entered into a cooperative
advertising agreement with American Express for $255,000. The Company will
utilize these funds for an advertising campaign related to its federal
income tax payment program with the IRS, which will run in March and April
2001.

      On January 30, 2001, Imperial Bancorp, the parent holding company of
Imperial Bank (which then owned approximately 55% of the Company's
outstanding common stock), was acquired by Comerica in a tax-free,
stock-for-stock transaction. Consummation of the merger resulted in the
acceleration of various employee stock options and restricted stock granted
under the Company's 2000 Stock Incentive Plan and 1999 Stock Incentive
Plan. The acceleration of the employee stock options resulted in the
Company recognizing in January 2001 a non-cash expense for previously
deferred compensation of approximately 19.8 million. In addition, under the
respective employment agreements for Messrs. Evans, Presto and Barrett,
this event enables each of them to terminate his employment with the
Company for "good reason" after July 30, 2001 and in connection therewith
to continue receiving payment of his base salary and benefits for one year
following such date. Mr. DiMaria's employment agreement contains a similar
provision, but he is only eligible to terminate this employment for good
reason due to this event between April 30, 2001 and May 30, 2001. In March
2001, Imperial Bank transferred ownership of its shares of Company common
stock to its new parent holding company, Comerica.



                       OFFICIAL PAYMENTS CORPORATION
                                SCHEDULE II
                     VALUATION AND QUALIFYING ACCOUNTS
                YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998



                                                                  BALANCE AT
                               BALANCE AT                           END OF
                              BEGINNING OF  COSTS AND WRITE-OFFS CLASSIFICATION
CLASSIFICATION                   PERIOD     EXPENSES  DEDUCTIONS    PERIOD
--------------                ------------ ---------- ---------- --------------

Year ended December 31, 2000
Allowance for doubtful
  accounts...................    $52,000    $ 59,099        --    $ 111,099
Year ended December 31, 1999
Allowance for doubtful
  accounts...................      5,000      47,000        --       52,000
Year ended December 31, 1998
Allowance for doubtful
  accounts...................         --       5,000        --        5,000