-----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, FfMxvnJ2olkAozD4wtsjH4mrk4I7M9oN7owPumCJmZOCiVXmzixbWRStnDksuLQv dyb/urHtRsVKNC+RTs7cTA== 0000721773-00-000012.txt : 20000515 0000721773-00-000012.hdr.sgml : 20000515 ACCESSION NUMBER: 0000721773-00-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELECTRONIC CLEARING HOUSE INC CENTRAL INDEX KEY: 0000721773 STANDARD INDUSTRIAL CLASSIFICATION: FUNCTIONS RELATED TO DEPOSITORY BANKING, NEC [6099] IRS NUMBER: 930946274 STATE OF INCORPORATION: NV FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-15245 FILM NUMBER: 628652 BUSINESS ADDRESS: STREET 1: 28001 DOROTHY DR CITY: AGOURA HILLS STATE: CA ZIP: 91301-2697 BUSINESS PHONE: 8187068999 MAIL ADDRESS: STREET 1: 28001 DOROTHY DRIVE CITY: AGOURA HILLS STATE: CA ZIP: 91301 FORMER COMPANY: FORMER CONFORMED NAME: BIO RECOVERY TECHNOLOGY INC DATE OF NAME CHANGE: 19860122 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------------------------------- FORM 10-Q ---------------------------------------------- (Mark One) X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the period ended March 31, 2000 OR Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number: 0-15245 ELECTRONIC CLEARING HOUSE, INC. (Exact name of registrant as specified in its charter) Nevada 93-0946274 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 28001 Dorothy Drive, Agoura Hills, California 91301 (Address of principal executive offices) Telephone Number (818) 706-8999 www.echo-inc.com (Registrant's telephone number, including area code; web site address) 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 requirements for the past 90 days: Yes X No As of May 11, 1999, there were 21,590,703 shares of the Registrant's Common Stock outstanding. ELECTRONIC CLEARING HOUSE, INC. INDEX PART I. FINANCIAL INFORMATION Page No. Item 1. Consolidated Financial Statements: Consolidated Balance Sheet 3 March 31, 2000 and September 30, 1999 Consolidated Statement of Operations 4 Three months and six months ended March 31, 2000 and 1999 Consolidated Statement of Cash Flows 5 Six months ended March 31, 2000 and 1999 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of 9 Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 12 Signatures 13 PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements ELECTRONIC CLEARING HOUSE, INC. CONSOLIDATED BALANCE SHEET ASSETS
March 31, September 30, 2000 1999 (Unaudited) Current assets: Cash and cash equivalents . . . . . . . . . . $ 2,050,000 $ 2,900,000 Restricted cash. . . . . . . . . . . . . . . . 787,000 736,000 Accounts receivable less allowance of $1,132,000 and $1,001,000 . . . . . . . . 1,518,000 1,532,000 Inventory less allowance of $202,000 and $202,000 . . . . . . . . . . . . 787,000 580,000 Prepaid expenses and other assets. . . . . . . 180,000 88,000 Other receivable . . . . . . . . . . . . . . . 920,000 323,000 Total current assets. . . . . . . . . . . . . 6,242,000 6,159,000 Noncurrent assets: Other receivables. . . . . . . . . . . . . . . 21,000 27,000 Property and equipment, net .. . . . . . . . . 2,379,000 1,962,000 Real estate held for investment, net . . . . . . . . . . . . . . . 252,000 252,000 Deferred tax asset . . . . . . . . . . . . . . 1,385,000 1,392,000 Other assets, net. . . . . . . . . . . . . . . 1,530,000 1,222,000 Goodwill, net. . . . . . . . . . . . . . . . . 4,757,000 1,918,000 Total assets. . . . . . . . . . . . . . . . .$16,566,000 $12,932,000 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term borrowings and current portion of long-term debt . . . . . . . . . $ 230,000 $ 149,000 Accounts payable . . . . . . . . . . . . . . . 151,000 159,000 Accrued expenses . . . . . . . . . . . . . . . 701,000 779,000 Deferred revenue . . . . . . . . . . . . . . . 603,000 62,000 Total current liabilities . . . . . . . . . . 1,685,000 1,149,000 Long-term debt . . . . . . . . . . . . . . . . . 856,000 599,000 Total liabilities . . . . . . . . . . . . . . 2,541,000 1,748,000 Stockholders' equity: Convertible preferred stock, $.01 par value, 5,000,000 shares authorized: Series "K", 25,000 and 25,000 shares issued and outstanding. . . . . . . . . . . . Series "L", -0- and 40,000 shares issued and outstanding . . . . . . . . . . . Common stock, $.01 par value, 36,000,000 authorized: 21,590,703 and 19,874,126 shares issued; 21,433,491 and 19,788,213 shares outstanding. . . . .. . . . . . . . . 216,000 199,000 Additional paid-in capital . . . . . . . . . . 20,352,000 16,958,000 Accumulated deficit. . . . . . . . . . . . . . (6,073,000) (5,835,000) Less treasury stock at cost, 157,212 and 85,913 common shares. . . . . . . . . . . (470,000) (138,000) Total stockholders' equity . . . . . . . . . 14,025,000 11,184,000 . . . . . . . . . . . . . . . . . . . . . . .$16,566,000 $12,932,000 See accompanying notes to consolidated financial statements.
ELECTRONIC CLEARING HOUSE, INC. CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Six Months Ended March 31, Ended March 31, 2000 1999 2000 1999 (Unaudited) (Unaudited) Revenues: Processing revenue. . . . . . . .$3,732,000$3,073,000 $7,367,000 $6,449,000 Transactions revenue. . . . . . .2,631,000 1,768,000 5,093,000 3,539,000 Terminal sales and lease revenue . . . . . . . . . 161,000 1,475,000 269,000 1,569,000 Other revenue . . . . . . . . . . 50,000 40,000 50,000 268,000 6,574,000 6,356,000 12,779,000 11,825,000 Costs and expenses: Processing and transactions expense . . . . . .4,530,000 3,496,000 8,891,000 7,230,000 Cost of terminals sold and leased . . . . . . . . 120,000 807,000 215,000 879,000 Other operating costs . . . . . . 792,000 526,000 1,523,000 1,095,000 Selling, general and administrative . . . . . . . 1,318,000 1,084,000 2,340,000 1,929,000 Amortization of goodwill. . . . . 102,000 -0- 154,000 -0- . . . . . . . . . 6,862,000 5,913,000 13,123,000 11,133,000 (Loss) income from operations . .(288,000) 443,000 (344,000) 692,000 Interest income. . . . . . . . . . . 91,000 38,000 162,000 86,000 Interest expense . . . . . . . . . . (22,000) (24,000) (41,000) (49,000) . . . . . . . . . . . . (Loss) income before provision for income tax. . . .(219,000) 457,000 (223,000) 729,000 Provision for income taxes . . . . . -0- (13,000) (15,000) (27,000) Net (loss) income . . . . . . . $ (219,000)$ 444,000$ (238,000) $ 702,000 (Loss) earnings per share - Basic . . . . . . .$ (0.01) $ 0.03 $ (0.01) $ 0.04 (Loss) earnings per share - Diluted . . . . . .$ (0.01) $ 0.02 $ (0.01) $ 0.03 See accompanying notes to consolidated financial statements.
ELECTRONIC CLEARING HOUSE, INC. CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended March 31, 2000 1999 (unaudited) Cash flows from operating activities: Net (loss) income . . . . . . . . . . . . . .$ (238,000) $ 702,000 Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: Depreciation . . . . . . . . . . . . . . . . 175,000 107,000 Amortization. . . . . . . . . . . . . . . . . 248,000 35,000 Provision for losses on accounts and notes receivable . . . . . . . . . . . . 211,000 374,000 Provision for deferred income taxes . . . . . 7,000 -0- Fair value of stock issued in connection with directors' compensation. . . 45,000 45,000 Changes in assets and liabilities: Restricted cash . . . . . . . . . . . . . . . (51,000) 97,000 Accounts receivable . . . . . . . . . . . . . (79,000) (1,002,000) Inventory . . . . . . . . . . . . . . . . . . (207,000) 141,000 Prepaid expenses and other assets . . . . . . (75,000) (31,000) Accounts payable . . . . . . . . . . . . . . (22,000) (27,000) Accrued expenses. . . . . . . . . . . . . . . (216,000) (82,000) Deferred income . . . . . . . . . . . . . . . 541,000 (412,000) Net cash provided by (used in) operating activities . . . . . . . . . . . . 339,000 (53,000) Cash flows from investing activities: Other assets. . . . . . . . . . . . . . . . . (400,000) (281,000) Purchase of equipment.. . . . . . . . . . . (544,000) (165,000) (Increase) decrease in notes receivable . . .(1,177,000) 5,000 Repayment of notes receivable . . . . . . . . 250,000 -0- Cash acquired through acquisition . . . . . 80,000 -0- Net cash used in investing activities . . . .(1,791,000) (441,000) Cash flows from financing activities: Proceeds from issuance of notes payable . . . 400,000 -0- Repayment of notes payable. . . . . . . . . . (62,000) (56,000) Proceeds from common stock warrants exercised 140,000 260,000 Proceeds from exercise of stock options . . . 124,000 174,000 Net cash provided by financing activities . . 602,000 378,000 Net decrease in cash . . . . . . . . . . . . . . . (850,000) (116,000) Cash and cash equivalents at beginning of period . 2,900,000 2,486,000 Cash and cash equivalents at end of period . . . .$2,050,000 $2,370,000 See accompanying notes to consolidated financial statements.
ELECTRONIC CLEARING HOUSE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - Basis of presentation: The accompanying consolidated financial statements as of March 31, 2000, and for the three and six month periods then ended, are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and the results of operations for the interim periods. The consolidated financial statements herein should be read in conjunction with the consolidated financial statements and notes thereto, together with management's discussion and analysis of financial condition and results of operations, contained in the Company's Annual Report to Stockholders incorporated by reference in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1999. The result of operations for the three and six months ended March 31, 2000 are not necessarily indicative of the likely results for the entire fiscal year ending September 30, 2000. NOTE 2 - Earnings (loss) per share: The Company calculates net earnings (loss) per share as required by SFAS No. 128, "Earnings per Share". SFAS No. 128 replaced the calculation of primary and fully diluted earnings per share with the basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share exclude any dilutive effect of stock options, warrants and convertible securities.
Three months Six months ended March 31, ended March 31, 2000 1999 2000 1999 Net (loss)income $(219,000) $444,000 $(238,000) $702,000 Weighted average shares outstanding (basic) 21,458,330 17,596,509 20,710,156 16,727,228 Dilutive effect of stock options warrants and preferred stock -0- 5,463,797 -0- 6,197,983 Dilutive shares outstanding 21,458,330 23,060,306 20,710,156 22,925,211 Basic (loss) earnings per share $(0.01) $0.03 $(0.01) $0.04 Diluted (loss) earnings per share $(0.01) $0.02 $(0.01) $0.03
For the three and six months ended March 31, 2000, 3,425,913 and 3,532,902, of combined options, warrants and preferred stock, respectively, were not included in the calculation of diluted (loss) earnings per share, as their effect would have been antidilutive. NOTE 3 - Non-cash transactions: Significant non-cash transactions for the six months ended March 31, 2000 were as follows: In connection with the acquisition of Peak Services, a collection division of Magic Software Development, Inc., the Company issued 20,000 shares of common stock with a market value of $22,000. 1,000,000 shares of common stock valued at $3,080,000 were issued for the acquisition of Rocky Mountain Retail Systems, Inc. 70,345 shares of treasury stock were acquired for repayment of a note receivable. Significant non-cash transaction for the six months ended March 31, 1999 was as follows: Capital equipment of $43,000 was acquired under capital leases. NOTE 4 - Inventory: The components of inventory are as follows:
March 31 September 30 2000 1999 Raw materials $477,000 $249,000 Finished goods 512,000 533,000 $989,000 $782,000 Less: Allowance for obsolescence 202,000 202,000 $787,000 $580,000
NOTE 5 - Note Receivable: In November 1999, the Company completed a $1,000,000 post-petition secured financing arrangement with Tropical Beaches, Inc. dba New Strategies, a bankcard processing merchant who filed for Chapter 11 protection on June 29, 1999. This loan is collateralized by all the assets of New Strategies and also has super-priority administrative claim status with respect to any unpaid administrative claims in the Chapter 11 case. This loan bears interest at eighteen percent (18%) per annum. The loan is being repaid at $200,000 each month and is scheduled to be fully retired by July 2000. NOTE 6 - Note Payable: In January 2000, the Company borrowed $400,000 from a bank to fund various equipment purchases. This note is collateralized by the equipment and payable over a five year term and bears interest at prime rate. NOTE 7 - Segment Information: The Company currently operates in three business segments: bankcard and transaction processing, terminal sales and leasing, and check-related products, all of which are located in the United States. The Company's reportable operating segments have been determined in accordance with the Company's internal management structure, which is organized based on operating activities.
Three Months Ended Six Months Ended March 31 March 31 2000 1999 2000 1999 Revenues: Bankcard and transaction processing $5,869,000 $4,870,000 $11,757,000 $10,231,000 Terminal sales and leasing 161,000 1,475,000 269,000 1,569,000 Check-related products 544,000 11,000 753,000 25,000 $6,574,000 $6,356,000 $12,779,000 $11,825,000 Operating income: Bankcard and transaction processing $33,000 $31,000 $399,000 $440,000 Terminal sales and leasing (95,000) 412,000 (175,000) 247,000 Check-related products (226,000) -0- (568,000) 5,000 $(288,000) $443,000 $(344,000) $692,000
NOTE 8 - Business Acquisition: On January 4, 2000, the Company acquired Rocky Mountain Retail Systems, Inc. (RMRS). The acquisition was accounted for using the purchase method of accounting and, accordingly, the purchase price was allocated to the assets purchased and the liabilities assumed based upon their estimated fair values at the date of acquisition. Results of RMRS' operations from the date of acquisition to March 31, 2000, have been included in the consolidated financial statements. Pursuant to the Merger Agreement, the Company issued a total of 1,000,000 shares of common stock to the selling shareholders of RMRS. An additional 1,500,000 shares of common stock will be placed into escrow to be issued to the RMRS selling shareholders under a performance clause wherein, should the RMRS subsidiary's performance meet or exceed predetermined earnings goals for years 2000 through 2002, a proportionate number of performance-based shares will be issued. This additional consideration will be recorded as goodwill when and if it is paid, in accordance with the Merger Agreement. As a result of this transaction, the Company recorded approximately $2,973,000 in goodwill and other acquisition costs which are being amortized over fifteen years. Pro Forma Disclosures The following summary, prepared on a pro forma basis, combines the operating results of the Company and RMRS, as if the acquisition had occurred on October 1, 1999. In addition, the pro forma results reflect the amortization of goodwill. The pro forma operating results are not necessarily indicative of what would have occurred had the merger actually taken place on October 1, 1999: (unaudited) Revenue $13,085,000 Net income (loss) $(200,000) Net loss per share - basic $(0.01) The following pro forma results of operations assume the acquisition of RMRS occurred as of October 1, 1998: (unaudited) Revenue $12,334,000 Net income $664,000 Earnings per share - basic $0.04 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements The following discussion of the financial condition and results of operations of Electronic Clearing House, Inc. ("ECHO" or the "Company") should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere herein. This discussion contains forward-looking statements, including statements regarding the Company's strategy, financial performance and revenue sources, which involve risks and uncertainties. The Company's actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth elsewhere herein. Three Months Ended March 31, 2000 and 1999 Net (loss) income. Electronic Clearing House, Inc. recorded a net loss of $219,000 for the second quarter of fiscal year 2000 as compared to a net income of $444,000 in the same period last year. Both basic and diluted net loss per share was $.01 for the three months ended March 31, 2000 versus basic earnings per share of $.03 and diluted earnings per share of $.02 in the second fiscal quarter of 1999. The Company previously announced that the results of the first two quarters of fiscal 2000 would reflect the development costs associated with the new check services, the integration costs associated with two recent acquisitions, Magic Software Development, Inc. and Rocky Mountain Retail Systems, Inc. and one- time costs associated with the initiation of a subsidiary bank application filed in December 1999. The new services being developed or enhanced include 1) internet-based check processing; 2) electronic and conventional check collection services with full internet reporting capability; 3) check verification and check guarantee; and 4) check conversion at the point-of-sale. Revenue. Total revenue for this second fiscal quarter was $6,574,000, compared to $6,356,000 for the same period last year, an increase of 3.4%. Revenues derived from the electronic processing of transactions are recognized at the time the transactions are processed by the merchant. Bankcard processing and transaction revenue increased 31.4%, from $4,841,000 in second fiscal quarter 1999 to $6,363,000 for this fiscal quarter. This increase was primarily the result of a 24.9% increase in bankcard processing volume year- over-year. Transaction revenue increase was also due to the addition of the check services revenue from Magic Software Development Inc. (Magic) and Rocky Mountain Retail Systems, Inc. (RMRS). Check related revenues increased from $11,000 for the three months ended March 31, 1999 to $544,000. Transaction revenues earned from one of our major customers, U-Haul International, also increased 12.2% over the same prior year quarter mainly due to the additional terminal deployment over the last year. Revenue related to terminal sales is recognized when the equipment is shipped. Terminal sales and lease revenue for the three months ended March 31, 2000 were $161,000, which represented a 89.1% decrease from $1,475,000 for the same fiscal quarter last year. This decrease reflected a significant equipment order from U-Haul during this quarter last year. U-Haul recently increased its equipment order placed in January 2000 from 2,500 terminals to over 4,000 terminals. In connection with the U-Haul equipment orders, the Company has received approximately $540,000 as a down- payment toward such orders. Delivery and deployment is expected to occur during the May to July 2000 time frame and management expects this deployment will increase the summer transaction volume processed by U-Haul. The total U- Haul dealer base will grow to approximately 15,000 after this deployment is completed. The relationship between the provision for income taxes and the net loss is a result of the permanent differences arising primarily from the Company's acquisitions and its related amortization expenses. Cost and Expenses. Bankcard processing expenses have generally remained constant as a percentage of processing revenue. A majority of the Company's bankcard processing expenses are fixed as a percentage of each transaction amount, with the remaining costs being based on a fixed rate applied to the transactions processed. Processing-related expenses, consisting of bankcard processing expense and transaction expense, increased from $3,496,000 in the second fiscal quarter of 1999 to $4,530,000 in the current fiscal quarter, a 29.6% increase. This was in direct relation to the 31.4% increase in processing and transaction revenues for the current fiscal quarter. Cost of terminals sold and leased decreased from $807,000 in the second quarter of fiscal year 1999 to $120,000 in the current fiscal quarter, a decrease of 85.1%. This is reflective of the 89.1% decrease in terminal sales and lease revenue for the same three month period. Other operating costs increased from $526,000 in the second fiscal quarter 1999 to $792,000 in this fiscal quarter, a 50.6% increase. This increase was mainly attributable to the Magic and RMRS acquisitions. The Company also increased program management staff to integrate the various services and products. In addition, the Company accelerated a complete rewrite and upgrade of Magic's electronic check settlement system during this quarter. Management believes that it was necessary to rewrite the system as it was determined that the previous electronic check settlement system would not be able to handle the anticipated transaction load as projected from the various sales channels. Selling, general and administrative expenses increased from $1,084,000 in the second fiscal quarter 1999 to $1,318,000 in the second fiscal quarter 2000, a 21.6% increase. As a percentage of total revenue, selling, general and administrative expenses increased from 17.1% in the second quarter 1999 to 20.0% in the second quarter 2000. This increase was also mainly due to the Magic and RMRS acquisitions and the additional sales and marketing expenses incurred to promote the various new check services and products. Six Months Ended March 31, 2000 and 1999 Net (loss) income. Electronic Clearing House, Inc. recorded a net loss of $238,000 for the six months period ended March 31, 2000, compared to a net income of $702,000 for the same period last year. Both basic and diluted net loss per share was $.01 for the six months ended March 31, 2000 versus basic earnings per share of $.04 and diluted earnings per share of $.03 for the same period last year. Revenue. Revenue for the six months of fiscal 2000 was $12,779,000, compared to $11,825,000 for the same period last year, an increase of 8.1%. Bankcard and transaction processing revenue was $12,460,000 for the six months ended March 31, 2000 as compared to $9,988,000 for the same period last year, an increase of 24.7 %. Check related revenue increased from $25,000 for the six months ended March 31, 1999 to $753,000 for the six months ended March 31, 2000. Terminal sales and lease revenue for the six months ended March 31, 2000 was $269,000 as compared to $1,569,000 for the same six month period ended March 31, 1999, a decrease of 82.9% This was reflective of a large equipment order from U-Haul delivered during the same six month period in the prior year. Cost and Expenses. Processing and transaction expenses increased 23.0% for the six months ended March 31, 2000 as compared to the same six month period last year. This is directly attributable to the 24.7% increase in processing and transaction revenue for the same six month period. Gross margin on processing and transaction activities has improved from 27.6% for the six month period ended March 31, 1999 to 28.6% for the six month period ended March 31, 2000. This improvement was mainly attributable to the check services revenue, which typically yields a higher gross margin as compared to bankcard processing revenue. Cost of terminals sold and leased decreased 75.5% for the six month period ended March 31, 2000 as compared to the same six month period last year. This was in direct relation to the 82.9% decrease in terminal sales and lease revenue. Other operating costs increased 39.1% for the six month period ended March 31, 2000, as compared to the same six month period in the prior year. This was mainly due to the Magic and RMRS acquisitions. Selling, general and administrative expenses increased 21.3% also as a result of the Magic and RMRS acquisitions. During this fiscal year, the Company incurred certain legal and filing expenses in connection with a bank application filing with the Office of the Controller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) to start an internet-based bank. This process is continuing and management expects approval in late May to early June from the OCC and FDIC. However, there can be no assurance that the application will be approved at this time. In the event approval is received, an application to become a bank holding company will be filed with the OCC and is expected to take 60 to 90 days to be reviewed and acted upon by the OCC. LIQUIDITY AND CAPITAL RESOURCES As of March 31, 2000, the Company had available cash of $2,050,000, restricted cash of $787,000 in reserve with its primary processing banks and a working capital of $4,557,000. Accounts receivable net of allowance for doubtful accounts remained relatively constant during the six month period ended March 31, 2000. Inventory costs increased from $580,000 at September 30, 1999 to $787,000 at March 31, 2000. This was due to parts being purchased by the Company in order to fulfill a large U-Haul order received during this six month period. Other receivable mainly consisted of the remaining unpaid balance of a $1,000,000 post-petition secured financing arrangement with Tropical Beaches, Inc. d.b.a. New Strategies, a bankcard processing merchant who filed for Chapter 11 protection on June 29, 1999. This loan is collateralized by all the assets of New Strategies and also has super-priority administrative claim status with respect to any unpaid administrative claims in the Chapter 11 case. The loan balance as of March 31, 2000 also includes accrued interest. In accordance with the court approved payment schedule, the loan is being repaid at $200,000 per month and should be fully retired by July 2000. The Company's cash flows from operations is sufficient to support the current level of development costs and marketing costs which would allow the Company to further develop all of its check related products and services and fully integrate its sales and marketing efforts as a result of the recent acquisitions. However, if the bank application is approved by the OCC and FDIC, the Company will need to seek additional funding to satisfy the anticipated capital requirements for the bank. There is no assurance that the funding will be obtained based on terms that are acceptable to the Company. The Company's current ratio decreased from 5.3 to 1 at March 31, 1999 to 3.7 to 1 at March 31, 2000. The Company's debt to equity ratio improved from .23 to 1 at March 31, 1999 to .18 to 1 at March 31, 2000. NEW ACCOUNTING PRONOUNCEMENT In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". This Statement requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives will be recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designed as part of a hedge transaction and, if it is the type of hedge transaction. The new rules will be effective the first quarter of 2000. The Company does not believe that the new standard will have a material impact on the Company's financial statements. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K The following reports on Form 8-K were filed during the quarter ended March 31, 2000: Date of Filing Item Reported January 19, 2000 Acquisition of Rocky Mountain Retail Systems, Inc. into a wholly-owned subsidiary of the Company. March 10, 2000 Pro Forma financial information regarding the acquisition of Rocky Mountain Retail Systems, Inc. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ELECTRONIC CLEARING HOUSE, INC. (Registrant) Date: May 11, 2000 By: \s\Alice Cheung Alice Cheung, Treasurer and Chief Financial Officer EX-27 2
5 1,000 6-MOS SEP-30-2000 MAR-31-2000 2050 0 2650 1132 787 6242 4997 2618 16566 1685 856 0 0 216 13809 16566 161 6574 120 5322 1420 0 22 (219) 0 (219) 0 0 0 (219) (0.01) (0.01)
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