-----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, TW5j2ZtH+vF3ENvrCw6AAhBCe9Y7LfQNvT0d0hZkY12MaXD4TjHIwLYOiPZWG9q5 ki2kpGM+FG5g8cF8wBFkFA== 0000912057-97-017261.txt : 19970514 0000912057-97-017261.hdr.sgml : 19970514 ACCESSION NUMBER: 0000912057-97-017261 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970513 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: 97602691 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 MARCH 31, 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 April 30, 1997, was 3,400,000 shares Transitional Small Business Disclosure Format (Check one): Yes No X ----- ----- Page 2 - ------------------------------------------------------------------------------- ELECTRONIC PROCESSING, INC. FORM 10-QSB QUARTER ENDED MARCH 31, 1997 CONTENTS -------- PAGE ---- PART 1 - FINANCIAL INFORMATION - ------------------------------ Item 1. Financial Statements Consolidated Statements of Operations - Three months ended March 31, 1996 and 1997 3 Consolidated Balance Sheets - December 31, 1996 and March 31, 1997 4 Consolidated Statements of Cash Flows - Three months ended March 31, 1996 and 1997 6 Notes to Consolidated Financial Statements - March 31, 1996 and 1997 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 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 Page 3 - ------------------------------------------------------------------------------- ELECTRONIC PROCESSING, INC. STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 (UNAUDITED)
1996 1997 ------- ------- OPERATING REVENUES $1,388,224 $1,857,120 ---------- ---------- COST OF GOODS SOLD AND DIRECT COSTS Processing costs 548,354 670,489 Depreciation and amortization 176,818 232,152 ---------- ---------- 725,172 902,641 -------- -------- GROSS PROFIT 663,052 954,479 ------- ------- OPERATING EXPENSES General and administrative 516,482 682,961 Depreciation and amortization 21,989 23,928 -------- -------- 538,471 706,889 ------- ------- INCOME FROM OPERATIONS 124,581 247,590 --------- --------- OTHER INCOME (EXPENSE) Interest income 12 11,980 Interest expense (69,386) (83,154) Other (381) 817 --------- --------- (69,755) (70,357) --------- --------- INCOME BEFORE INCOME TAXES $ 54,826 $ 177,233 ---------- ---------- PROVISION FOR INCOME TAXES Current 81,300 Deferred (11,300) Deferred - Related to Conversion to "C" Corporation 272,900 ---------- 342,900 ---------- NET INCOME (LOSS) $ 54,826 $(165,667) ---------- ---------- Earnings per share (loss) (.06) PRO FORMA DATA Income before income taxes 54,826 177,233 Provision for income taxes 23,146 72,100 ------ ------ PRO FORMA NET INCOME $ 31,680 $ 105,133 ---------- ---------- PRO FORMA EARNINGS PER SHARE Net income $ .02 $ .04 ---------- ---------- WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 1,800,000 2,795,556 --------- ---------
SEE NOTES TO FINANCIAL STATEMENTS Page 4 - ------------------------------------------------------------------------------- ELECTRONIC PROCESSING, INC. BALANCE SHEETS DECEMBER 31, 1996 AND MARCH 31, 1997 (UNAUDITED) ASSETS
December 31, March 31, ------------ --------- 1996 1997 ---- ---- CURRENT ASSETS Cash and cash equivalents $ 4,882 $1,871,353 Accounts receivable, trade, less allowance for doubtful accounts of $5,000 798,230 807,452 Prepaid expenses and other 153,907 137,167 Deferred income taxes 8,200 ------- --------- Total Current Assets 957,019 2,824,172 ------- --------- PROPERTY AND EQUIPMENT, At cost Furniture and fixtures 390,599 390,599 Computer equipment 3,312,303 3,684,891 Office equipment 297,971 306,511 Leasehold improvements 247,494 262,534 Transportation equipment 14,969 14,969 ------ ------ 4,263,336 4,659,504 Less accumulated depreciation 2,087,483 2,283,999 --------- --------- 2,175,853 2,375,505 --------- --------- SOFTWARE DEVELOPMENT COSTS, Net of amortization 1,256,159 1,325,305 --------- --------- INTANGIBLE ASSETS, Net of amortization Excess of cost over fair value of net assets acquired 63,499 62,996 --------- --------- OTHER ASSETS Deferred stock issuance costs 271,563 Other 42,145 26,923 ------ ------ $4,766,238 $6,614,901 ---------- ----------
SEE NOTES TO FINANCIAL STATEMENTS Page 5 - ------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, March 31, 1996 1997 CURRENT LIABILITIES Current maturities of long-term debt 1,508,889 $ 407,012 Accounts payable 534,519 235,831 Accrued expenses 90,140 46,775 Income Taxes Payable 81,300 --------- ---------- Total Current Liabilities 2,133,548 770,918 --------- ---------- LONG-TERM DEBT 1,242,660 488,816 --------- ---------- DEFERRED INCOME TAXES 269,800 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 March 31, 18,000 34,000 1997 Additional paid-in capital 282,000 5,219,543 Retained earnings (deficit) 690,030 (168,177) --------- ---------- 990,030 5,085,366 --------- ---------- $4,766,238 $6,614,901 ---------- ----------
Page 6 - ------------------------------------------------------------------------------- ELECTRONIC PROCESSING, INC. STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 (UNAUDITED)
1996 1997 ---------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 54,826 (165,667) Items not requiring (providing) cash: Provision Deferred Income Taxes 261,600 Depreciation 127,589 191,867 Amortization of software development costs 70,716 63,710 Amortization of intangible assets 504 503 (Gain) loss on disposal of equipment 382 (817) Changes in: Accounts receivable (120,327) (9,222) Prepaid expenses and other assets (32,519) 31,962 Accounts payable and accrued expenses 169,317 (342,053) Accrued income taxes 81,300 ---------- ----------- Net cash provided by operating activities 270,488 113,183 ---------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of property and equipment 350 2,800 Purchase of property and equipment (197,737) (393,509) Expenditures for software development costs (140,675) (132,856) ---------- ----------- Net cash used in investing activities (338,062) (523,565) ---------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Net borrowings (payments) under line-of-credit agreement 25,000 (499,000) Proceeds from long-term debt 168,890 131,886 Principal payments under capital lease obligation (92,064) (492,482) Principal payments on long-term debt (54,564) (996,126) Principal repayment subordinated note (400,000) Dividends paid (250,000) Stock issuance costs (817,425) Proceeds stock issuance 5,600,000 ---------- ----------- Net cash provided by financing activities 47,262 2,276,853 ---------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (20,312) 1,866,471 CASH AND CASH EQUIVALENTS, BEGINNING PERIOD 26,938 4,882 ---------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,626 $1,871,353 ---------- -----------
SEE NOTES TO FINANCIAL STATEMENTS Page 7 - ------------------------------------------------------------------------------- ELECTRONIC PROCESSING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1996 AND 1997 (UNAUDITED) INTERIM STATEMENT PRESENTATION The accompanying unaudited consolidated 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 the three-month period are not necessarily indicative of the operating results for the entire year. 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. ADDITIONAL CASH FLOWS INFORMATION 1996 1997 (unaudited) (unaudited) ----------- ----------- NON-CASH INVESTING AND FINANCING ACTIVITIES Capital lease obligation and notes payable incurred for equipment $168,890 $131,886 ADDITIONAL CASH INFORMATION Interest Paid 69,386 83,154 (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, in the three months ended March 31, 1997, to retire approximately $2,400,000 of debt and to purchase additional computer equipment related to the Company's Chapter 7 product. The Company had 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 being equal to the initial public offering price. Page 8 - ------------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Operating revenues for the three months ended March 31, 1997 increased to $1,857,120 from $1,388,224 for the quarter ended March 31,1996, an increase of 33.8%. Chapter 7 revenue increased $434,065 or 209.9%. The increase in revenue was due in part to the growth in new Chapter 7 trustee business for the Company and a higher overall portfolio of deposits from existing trustee clients. This growth in deposits resulted in higher monthly fees paid to EPI. In addition, the Company received increased installation revenue due to the new clients installed. 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. Chapter 13 revenue in 1997 compared to 1996 increased $81,637 or 7.5%. 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 33.8% of the total Chapter 13 revenue for 1997. Processing costs increased to $670,489 for the three months ended March 31, 1997 compared to $548,354 for the 1996 period or a 22.3% increase. The increase for the first quarter of 1997 resulted principally from an increase in customer service expense, resulting from hiring additional trainers, hardware installers and other customer service functions to support the growth of Chapter 7 sales. Depreciation and amortization for the quarter ended March 31, 1997 increased to $232,152 from $176,818 for the same period in the prior year or a 31.3% increase. This 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 $902,641 for the first quarter of 1977 compared to $725,172 for the first quarter of the prior year or a 24.5% increase. Gross profit increased $291,427 or 44.0% to $954,479 for the first quarter of 1997 compared to $663,052 for the similar period in 1996.Gross profit increased to 51.4% of operating revenues for the three months ended March 31, 1997 compared to a gross profit of 47.8% for the quarter ended March 31, 1996 due primarily to TCMS, which has higher gross margins, comprising a greater percentage of operating revenues in 1997. Operating expenses as a percentage of operating revenues were 38.1% for the three months ended March 31, 1997 compared to 38.8% for the first quarter of 1996. Total operating expenses increased 31.3% over the same period last year. Sales and marketing expenses, which include sales and marketing salaries, trade show costs, and advertising costs increased 61.3% the for the three months ended March 31, 1997. The Company increased its marketing activities in 1997 related to the marketing of the Windows 95 version of TCMS. Income from operations increased 98.7% to $247,590 for the first quarter of 1997, compared to $124,581 for the similar period in 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 Page 9 - ------------------------------------------------------------------------------- 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 quarter of 1997 and 1996, respectively. For the three months ended March 31, 1997, the Company reported pro forma net income of $105,133 compared to pro forma net income of $31,680 for the three months ended March 31, 1996, a 231.9% increase. CAPITAL RESOURCES AND LIQUIDITY 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 approximately $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 $1,871,353 at March 31,1997 and working capital of $2,053,254. The company generated net cash from operations of $113,183 as of March 31, 1997 representing principally net income before taxes of $177,233 plus depreciation and amortization of $256,080 and an decrease in prepaid expenses and other assets of $31,962 offset in part by a decrease in accounts payable and accrued expense of $342,053. The Company has a $500,000 operating line of credit from a financial institution, of which $1,000 was outstanding at March 31, 1997 . The Company may borrow up to 80% of eligible accounts receivable against this line. The Company has an $250,000 equipment line of credit from the same financial institution of which $132,886 was outstanding at March 31, 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 $132,856 for the first three months of 1997. The Company invested in property and equipment totaling $393,509 in the first quarter of 1997. The Company anticipates financing its operations, capital expenditures and software expenditures from internally generated funds and through bank borrowings and capital leases. Page 10 - ------------------------------------------------------------------------------- ELECTRONIC PROCESSING, INC. MARCH 31, 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 Page 11 - ------------------------------------------------------------------------------- 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: May 15, 1997 /s/ Tom W. Olofson ------------------------------ Tom W. Olofson Chairman of the Board Chief Executive Officer (Principal Executive Officer) Director Date: May 15, 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 ended March 31, 1997 and Consolidated Balance Sheet as at March 31, 1997 qualified in its entirety by reference to such financial statements. EX-27 2 EXHIBIT 27 FDS
5 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 1,871,353 0 812,452 5,000 0 2,824,172 4,659,504 2,283,999 6,614,901 770,918 0 0 0 34,000 5,051,366 6,614,901 1,857,120 1,857,937 902,641 902,641 706,889 0 83,154 177,233 342,900 (165,667) 0 0 0 (165,667) (.06) (.06) REFLECTS RETAINED EARNINGS PAID IN CAPITAL REFLECTS OPERATING REVENUES AND INCOME CALCULATED ON A PRO-FORMA BASIS WOULD BE .04
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