-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EivJhfFDvDb/lZePBimuTYeuqoFNHZFPwQDn+fQP+8Z36jY6lbcy+SevYJnQGWJ7 TeeboJmLE6k32cAyecH6cg== 0000912057-97-027580.txt : 19970814 0000912057-97-027580.hdr.sgml : 19970814 ACCESSION NUMBER: 0000912057-97-027580 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970813 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELECTRONIC PROCESSING INC CENTRAL INDEX KEY: 0001027207 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING SERVICES [7371] IRS NUMBER: 481056429 STATE OF INCORPORATION: MO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-22081 FILM NUMBER: 97658845 BUSINESS ADDRESS: STREET 1: 501 KANSAS AVENUE CITY: KANSAS CITY STATE: KS ZIP: 66105 BUSINESS PHONE: 9133216392 MAIL ADDRESS: STREET 1: 501 KANSAS AVENUE CITY: KANSAS CITY STATE: KS ZIP: 66105 10QSB 1 10QSB SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-QSB QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED JUNE 30, 1997 COMMISSION FILE NUMBER 0-22081 __________________________________________________ ELECTRONIC PROCESSING, INC. MISSOURI 48-1056429 (State or Other Jurisdiction of (IRS Employer Identification Number) Incorporation or Organization) 501 KANSAS AVENUE, KANSAS CITY, KANSAS 66105-1300 (Address of Principal Executive Office) 913-321-6392 (Issuer's Telephone Number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No The number of shares outstanding of registrants common stock at July 31, 1997, was 3,400,000 shares Transitional Small Business Disclosure Format (Check one): Yes__ No X ELECTRONIC PROCESSING, INC. FORM 10-QSB QUARTER ENDED JUNE 30, 1997 CONTENTS PAGE PART 1 - FINANCIAL INFORMATION Item 1. Financial Statements Statements of Income - Three months and six months ended June 30, 1997 and 1996 3 Balance Sheets - June 30, 1997 and December 31, 1996 4 Statements of Cash Flows - Six months ended June 30, 1997 and 1996 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and 8 Results of Operations PART II - OTHER INFORMATION Item 1. Legal Proceedings 10 Item 2. Changes in Securities 10 Item 3. Defaults Upon Senior Securities 10 Item 4. Submission of Matters to a Vote of Security Holders 10 Item 5. Other Information 10 Item 6. Exhibits and Reports on Form 8-K 10 Signatures 11 ELECTRONIC PROCESSING, INC. STATEMENTS OF INCOME FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
Six Months Ended June 30 Three Months Ended June 30 1997 1996 1997 1996 ---------- ---------- ---------- ---------- OPERATING REVENUES $3,873,081 $2,929,972 $2,015,961 $1,541,748 ---------- ---------- ---------- ---------- COST OF GOODS SOLD AND DIRECT COSTS Processing costs 1,381,409 1,177,307 710,921 628,955 Depreciation and amortization 478,869 366,086 246,717 189,268 ---------- ---------- ---------- ---------- 1,860,278 1,543,393 957,638 818,223 ---------- ---------- ---------- ---------- GROSS PROFIT 2,012,803 1,386,579 1,058,323 723,525 ---------- ---------- ---------- ---------- OPERATING EXPENSES General and administrative 1,469,992 1,081,791 787,031 565,309 Depreciation and amortization 44,972 44,207 21,044 22,218 ---------- ---------- ---------- ---------- 1,514,964 1,125,998 808,075 587,527 ---------- ---------- ---------- ---------- INCOME FROM OPERATIONS 497,839 260,581 250,248 135,998 ---------- ---------- ---------- ---------- OTHER INCOME (EXPENSE) Interest income 31,857 38 19,877 26 Interest expense (105,008) (128,854) (21,858) (59,468) Other 823 (382) 5 0 ---------- ---------- ---------- ---------- (72,328) (129,198) (1,972) (59,442) ---------- ---------- ---------- ---------- NET INCOME BEFORE INCOME TAXES $425,511 $131,383 $248,276 $76,556 ---------- ---------- ---------- ---------- PROVISION FOR INCOME TAXES Current 187,050 105,750 Deferred (13,948) (4,749) Deferred - Related to Conversion to C Corporation 272,900 ---------- ---------- 446,002 101,001 ---------- ---------- INCOME (LOSS) ($20,491) $131,383 $147,275 $76,556 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Earnings (loss) per share (.01) .04 PRO FORMA DATA Income before income taxes 425,511 131,383 248,276 76,556 Provision for income taxes 173,102 55,444 101,001 32,307 ---------- ---------- ---------- ---------- PRO FORMA NET INCOME $252,409 $75,939 $147,275 $44,249 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- PRO FORMA EARNINGS PER SHARE Net income $.08 $.04 $.04 $.02 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 3,099,448 1,800,000 3,400,000 1,800,000 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
SEE NOTES TO FINANCIAL STATEMENTS ELECTRONIC PROCESSING, INC. BALANCE SHEETS JUNE 30, 1997 AND DECEMBER 31, 1996 ASSETS
June 30, 1997 Dec. 31, 1996 (Unaudited) (Note) ---------- ---------- CURRENT ASSETS Cash and cash equivalents $1,728,129 $4,882 Accounts receivable, trade, less allowance for doubtful accounts of $5,000 978,963 798,230 Prepaid expenses and other 125,658 153,907 Deferred income taxes 8,200 ---------- ---------- Total Current Assets 2,840,950 957,019 ---------- ---------- PROPERTY AND EQUIPMENT, At cost Furniture and fixtures 390,599 390,599 Computer equipment 3,874,606 3,312,303 Office equipment 306,511 297,971 Leasehold improvements 507,540 247,494 Transportation equipment 14,969 14,969 ---------- ---------- 5,094,225 4,263,336 Less accumulated depreciation 2,468,959 2,087,483 ---------- ---------- 2,625,265 2,175,853 ---------- ---------- SOFTWARE DEVELOPMENT COSTS, Net of amortization 1,378,164 1,256,159 ---------- ---------- INTANGIBLE ASSETS, Net of amortization Excess of cost over fair value of net assets acquired 62,492 63,499 ---------- ---------- OTHER ASSETS Deferred stock issuance costs 271,563 Other 27,569 42,145 ---------- ---------- $6,934,440 $4,766,238 ---------- ---------- ---------- ----------
NOTE: THE BALANCE SHEET AT DECEMBER 31, 1996, HAS BEEN DERIVED FROM THE AUDITED BALANCE SHEET AT THAT DATE, BUT IT DOES NOT INCLUDE ALL OF THE INFORMATION AND FOOTNOTES REQUIRED BY GENERALLY ACCEPTED ACCOUNTING PRINCIPLES FOR COMPLETE FINANCIAL STATEMENTS. SEE NOTES TO FINANCIAL STATEMENTS LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, Dec. 31, 1997 1996 ---------- ---------- CURRENT LIABILITIES Current maturities of long-term debt $ 450,875 $1,508,889 Accounts payable 330,285 534,519 Accrued expenses 86,332 90,140 Income Taxes Payable 64,050 ---------- ---------- Total Current Liabilities 931,542 2,133,548 ---------- ---------- LONG-TERM DEBT 518,669 1,242,660 ---------- DEFERRED INCOME TAXES 267,152 SUBORDINATED DEBT 400,000 ---------- STOCKHOLDERS' EQUITY Common stock, $.01 par value; authorized 5,000,000 shares; issued and outstanding 1,800,000 shares December 31, 1996 and 3,400,000 shares June 30, 1997 34,000 18,000 Additional paid-in capital 5,206,078 282,000 Retained earnings (deficit) (23,001) 690,030 ---------- ---------- 5,217,077 990,030 ---------- ---------- ---------- ---------- $6,934,440 $4,766,238 ---------- ---------- ---------- ----------
ELECTRONIC PROCESSING, INC. STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
1997 1996 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ (20,491) $131,383 Items not requiring (providing) cash: Provision Deferred Income Taxes 258,952 Depreciation 381,829 263,258 Amortization of software development costs 141,005 146,029 Amortization of intangible assets 1,007 1,007 (Gain) loss on disposal of equipment (823) 382 Changes in: Accounts receivable (180,733) (374,176) Prepaid expenses and other assets 42,825 (65,153) Accounts payable and accrued expenses (208,042) 165,360 Accrued income taxes 64,050 ---------- ---------- Net cash provided by operating activities 479,579 268,090 ---------- ---------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of property and equipment 2,800 350 Purchase of property and equipment (517,142) (615,014) Expenditures for software development costs (263,010) (238,079) ---------- ---------- Net cash used in investing activities (777,352) (852,743) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Net borrowings (payments) under line-of-credit agreement (499,000) 75,000 Proceeds from long-term debt 0 260,901 Proceeds from capital leases 0 544,204 Principal payments under capital lease obligation (587,694) (195,908) Principal payments on long-term debt (1,011,391) (109,800) Principal repayment subordinated note (400,000) Dividends paid (250,000) Stock issuance costs (830,895) Proceeds stock issuance 5,600,000 ---------- ---------- Net cash provided by financing activities 2,021,020 574,397 ---------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,723,247 (10,256) CASH AND CASH EQUIVALENTS, BEGINNING PERIOD 4,882 26,938 ---------- ---------- CASH AND CASH EQUIVALENTS, END OF PERIOD $1,728,129 $16,682 ---------- ---------- ---------- ----------
SEE NOTES TO FINANCIAL STATEMENTS ELECTRONIC PROCESSING, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1997 AND 1996 (UNAUDITED) (1) INTERIM STATEMENT PRESENTATION The accompanying unaudited financial statements included all adjustments (consisting only of normal recurring accruals ) which, in the opinion of management, are necessary for a fair presentation of financial position, results of operations and cash flows. The results of operations for the interim periods shown are not necessarily indicative of the operating results for the entire year. (2) PRO FORMA In connection with the issuance of common stock to the public, the Company changed its income tax status to a C corporation. At such time, the Company recorded a deferred tax payable of $272,900 to account for the effects of temporary differences between assets and liabilities presented on the financial reporting basis and the income tax basis. As required by FASB # 109 "Accounting for Income Taxes", this amount is also included in the 1997 provision for income taxes in the accompanying statements of income. Pro forma earnings information has been provided to reflect the effects of corporate income taxes on historical earnings, including the effects of permanent and temporary differences in reporting income and expenses for tax and financial reporting purposes, as if the Company had been subject to income taxes for all the periods presented. Pro forma adjustments reflect the provision for corporate income taxes. Pro forma earnings also eliminates the effect of the above tax provision of $272,900 resulting from the initial conversion to a C Corporation. (3) ADDITIONAL CASH FLOWS INFORMATION 1997 1996 -------- --------- NON-CASH INVESTING AND FINANCING ACTIVITIES Capital lease obligation and notes payable incurred for equipment $316,080 $555,105 ADDITIONAL CASH INFORMATION Interest Paid 105,008 128,854 (4) INITIAL PUBLIC OFFERING On February 4, 1997, the Company completed a public offering of 1,600,000 shares of common stock at $3.50 per share to raise $4,782,575 in net proceeds. The proceeds from the offering were used to retire $2,387,608 of debt, purchase additional computer equipment related to the Company's Chapter 7 product, fund additional software development costs for new products, and fund expansion of the company's sales/marketing program. The Company has reserved 270,000 shares of common stock for issuance of stock options to employees, officers and directors of the Company. Upon completion of the offering, the Company issued options for 119,500 of these shares with the exercise price equal to the initial public offering price. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1996 Operating revenues for the six months ended June 30, 1997 were $3,873,081 compared to $2,929,972 for the similar 1996 period, an increase of 32.2%. Chapter 7 revenue increased $662,792 or 139.0%. The Company has an exclusive national marketing arrangement with NationsBank. The bank pays EPI a monthly fee based on the total dollar amount of Chapter 7 deposits at NationsBank and a fee for each new account installed. The increase in revenue was due in part to the growth in new Chapter 7 trustee business for the Company resulting in higher monthly fees paid to EPI. Chapter 13 revenue in the 1997 period compared to the similar 1996 period increased $237,922 or 11.2%. The additional revenue experienced in 1997 was due to an increase in caseloads managed by Chapter 13 trustee clients. Also, the number of new bankruptcy filings in 1997 was greater than in 1996 resulting in increased legal noticing revenue, which constituted 34.1% of the total Chapter 13 revenue for 1997. Processing costs increased to $1,381,409 for the first half of 1997 compared to $1,177,307 for the 1996 period or a 17.3% increase. The increase for the first half of 1997 resulted principally from an increase in customer service expense, trainers, hardware installers and other customer service functions to support the growth of the Chapter 7 sales. Depreciation and amortization for the six months ended June 30, 1997 increased to $478,869 from $366,086 for the same period in the prior year or a 30.8% increase. The increase related primarily to the purchase of computer equipment for the installations of the company's new Chapter 7 product. Total cost of goods sold and direct costs increased to $1,860,278 for the first half of 1997 compared to $1,543,393 for the first half of the prior year or a 20.5% increase. Gross profit increased $626,224 or 45.2% to $2,012,803 for the six months ended June 30, 1997 compared to $1,386,579 for the similar period in 1996. Gross profit as a percentage of operating revenues increased to 52.0% for the 1997 period from 47.3% for the 1996 period due primarily to TCMS (Trustee Case Management System) for Chapter 7, which has higher gross margins, comprising a greater percentage of operating revenues in 1997. Operating expenses as a percentage of operating revenues were 39.1% for the six months ended June 30, 1997 compared to 38.4% for the first half of 1996. Total operating expenses increased 34.5% over the same period last year. Sales and marketing expenses, which include sales and marketing salaries, trade show costs, and advertising costs increased 51.7% for the six months ended June 30, 1997. The Company increased its marketing activities in 1997 related to the marketing of the Windows 95 version of TCMS. Income from operations increased 91.0% to $497,839 for the first half of 1997 compared to $260,581 for the first half of 1996, principally due to increased sales and higher gross profit margins. In connection with the issuance of common stock to the public, the Company changed its income tax status to a C corporation. At such time, the company recorded a deferred tax payable of $272,900 to account for the effects of temporary differences between assets and liabilities presented on the financial reporting bases and the income tax basis. As required by FASB #109, this amount is also included in the 1997 provision for income taxes in the accompanying statements of income. Pro forma earnings information reflects the effects of corporate income taxes on historical earnings as if the Company had been subject to income taxes for all the periods presented and also eliminates the effect of the above tax provision of $272,900 resulting from the initial conversion to a C corporation. The Company's effective tax rates were 41% and 42% for the first half of 1997 and 1996, respectively. For the six months ended June 30, 1997, the Company reported pro forma net income of $252,409 compared to pro forma net income of $75, 939 for the six months ended June 30, 1997, a 232.4% increase. THREE MONTHS ENDED JUNE 30, 1997 COMPARED WITH THREE MONTHS JUNE 30, 1996. Operating revenues for the three months ended June 30, 1997 were $2,015,961 compared to $1,541,748 for the similar 1996 period, an increase of 30.8%. The principal reasons for the increases in operations for the three months ended June 30, 1997 versus 1996 are outlined in the discussion of the six-month results. Processing costs increased to $710,921 for the second quarter ended June 30, 1997 compared to $628,955 for the similar 1996 period, a 13.0% increase. Total cost of goods sold and direct costs increased to $957,638 for the three months ended June 30, 1997 compared to $818,223 for the similar period in 1996 or a 17.0% increase. Gross profit was $1,058,323 or 52.5% of operating revenues in the second quarter of 1997 versus $723,525 or 46.9% of operating revenues in the second quarter of 1996. See six-month results above for further discussion. Operating expenses as a percentage of operating revenues were 40.1% for the three months ending June 30, 1997 compared to 38.1% for the 1996 period. Total operating expenses increased $220,548 or 37.5% over 1996. The increase resulted primarily from expanded marketing and promotional costs for TCMS as discussed above. Income from operations increased 84.0% to $250,248 for the second quarter of 1997. For the second quarter ended June 30, 1997, the Company reported pro forma net income of $147,275 compared to pro forma net income of $44,249 for the second quarter ended June 30, 1996, a 232.8% increase. CAPITAL RESOURCES AND LIQUIDITY AT JUNE 30, 1997 The Company completed an initial public offering of its common stock on February 4, 1997, when it sold 1,600,000 shares of common stock at $3.50 per share to raise $4,782,575 in net proceeds. The proceeds from the stock offering were used to pay off $2,387,608 in debt and to purchase computer equipment related principally to the installation of computer equipment for the Company's Chapter 7 product. The Company's liquidity position is strong with total cash and cash equivalents of $1,728,129 at June 30, 1997 and working capital of $1,909,408. The company generated net cash from operations of $479,579 during the six months ended June 30, 1997 representing principally net income before taxes of $425,511 plus depreciation and amortization of $523,841 offset in part by a decrease in accounts payable and accrued expense of $208,042 and increase in accounts receivable of $180,733. The Company has a $500,000 operating line of credit from a financial institution, of which $1,000 was outstanding at June 30, 1997 . The Company may borrow up to 80% of eligible accounts receivable against this line. The Company has an $500,000 equipment line of credit from the same financial institution of which $302,504 was outstanding at June 30, 1997. Both loans expire in March 1998, and the Company anticipates no difficulties in obtaining a renewal or extension of the loans. The Company paid a final S Corporation distribution of $250,000 to the stockholders following the termination of the Company's S Corporation status. In addition , the Company incurred expenditures for software development costs totaling $263,010 for the first half of 1997. The Company invested in property and equipment totaling $833,222 in the first half of 1997. The Company anticipates financing its operations, capital expenditures and software expenditures from internally generated funds and through bank borrowings and capital leases. ELECTRONIC PROCESSING, INC. JUNE 30, 1997 FORM 10-QSB PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS The following Exhibit is filed by attachment to this Form 10-QSB: Exhibit NUMBER DESCRIPTION OF EXHIBIT PAGE - ------- ---------------------- ----- 27 Financial Data Schedule 13 (b) REPORTS ON FORM 8-K: None SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ELECTRONIC PROCESSING, INC. Date: August 14, 1997 /s/ TOM W. OLOFSON ------------------------------------ Tom W. Olofson Chairman of the Board Chief Executive Officer (Principal Executive Officer) Director Date: August 14, 1997 /s/ NANCI R. TRUTNA ------------------------------------ Nanci R. Trutna Vice President Finance (Principal Financial Officer) This schedule contains summary financial information extracted from Electronic Processing, Inc. Consolidated Statement of Income for the three months and six months ended June 30, 1997 and Consolidated Balance Sheet as at June 30, 1997 qualified in its entirety by reference to such financial statements. EX-27 2 FDS
5 6-MOS JUN-30-1997 JAN-01-1997 JUN-30-1997 1,728,129 0 983,963 5,000 0 2,840,950 5,094,225 2,468,959 6,934,440 931,542 0 0 0 34,000 5,183,077 6,934,440 3,873,081 3,905,761 1,860,278 1,860,278 1,514,964 0 105,008 425,511 446,002 (20,491) 0 0 0 (20,491) (.01) (.01) RELECTS RETAINED EARNINGS PAID IN CAPITAL RELECTS OPERATING REVENUES AND INCOME CALCULATED ON A PRO-FORMA BASIS WOULD BE $252,409 CALCULATED ON A PRO-FORMA BASIS WOULD BE $.08
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