-----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, UjQWoewa4KVw/z5a7BzNJ6CTcyGHFbPYkkyO6KlCuwxJgZi54eXguxieuH/bf3in 1dkK4IFLCrxQ9i9GBP9qwg== 0000721773-96-000001.txt : 19960216 0000721773-96-000001.hdr.sgml : 19960216 ACCESSION NUMBER: 0000721773-96-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960213 SROS: NASD 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: 1934 Act SEC FILE NUMBER: 000-15245 FILM NUMBER: 96517190 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 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended December 31, 1995 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) (Zip Code) Registrant's telephone number, including area code: (818) 706-8999 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 . At December 31, 1995, 11,296,804 shares of common stock, .01 par value, of the Registrant were outstanding. Total Sequential Pages: 13 ELECTRONIC CLEARING HOUSE, INC. INDEX Page No. PART I. FINANCIAL INFORMATION 3 Consolidated Balance Sheet 4 Consolidated Statement of Operations 5 Consolidated Statement of Cash Flows 6 Notes to Consolidated Financial Statements 7 Management's Discussion and Analysis of Financial Condition and Results of 8 Operations PART II. OTHER INFORMATION 11 SIGNATURES 13 PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements ELECTRONIC CLEARING HOUSE, INC. CONSOLIDATED BALANCE SHEET ASSETS
December 31 September 30 1995 1995 (Unaudited) Audited . . . . . . . . . . . . . . . . . . . . Current assets: Cash and cash equivalents. . . . . . . . . . $ 306,000 $ 97,000 Restricted cash. . . . . . . . . . . . . . . 294,000 313,000 Accounts receivable less allowance of $824,000 920,000 707,000 Inventory. . . . . . . . . . . . . . . . . . 560,000 393,000 Prepaid expenses and other assets. . . . . . 18,000 16,000 Notes receivable from stockholders and related parties. . . . . . . . . . . . . . . 195,000 1,721,000 Total current assets. . . . . . . . . . 2,293,000 1,721,000 Noncurrent assets: Property and equipment, net .. . . . . . . . 1,516,000 1,430,000 Real estate held for investment. . . . . . . 336,000 336,000 Other assets, net. . . . . . . . . . . . . . 576,000 576,000 . . . . . . . . . . . . . . . . . . . $4,721,000 $4,063,000 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term borrowings and current portion of long-term debt . . . . . . . . . . . . . . $ 821,000 $ 831,000 Accounts payable . . . . . . . . . . . . . . 655,000 245,000 Accrued expenses . . . . . . . . . . . . . . 1,045,000 764,000 Total current liabilities . . . . . . . 2,521,000 1,840,000 Long-term debt . . . . . . . . . . . . . . . . . 725,000 724,000 Total liabilities . . . . . . . . . . . 3,246,000 2,564,000 Stockholders' equity: Convertible Preferred stock, $.01 par value, 5,000,000 shares authorized: Series "A", 2,500 shares issued and outstanding: Series "D", 1,562 shares issued and outstanding: Series "H", 23,511 shares issued and outstanding: Common Stock, $.01 par value, 20,000,000 shares authorized: 11,296,804 and 11,046,804 shares issued; 11,290,563 and 11,040,563 shares outstanding. . . . . . 113,000 110,000 Additional paid-in capital . . . . . . . . . 10,821,000 10,724,000 Accumulated deficit . . . . . . . . . . . . (9,459,000) (9,336,000) Total stockholders' equity . . . . . . 1,475,000 1,499,000 . . . . . . . . . . . . . . . . . . . $4,721,000 $4,063,000 See accompanying notes to Consolidated Financial Statements.
ELECTRONIC CLEARING HOUSE, INC. CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended December 31 1995 1994 (Unaudited) . . . . . . . . . . . . . . . . . . . . Revenues: Bankcard processing revenue . . . . . . . . $2,409,000 $1,836,000 Terminal sales and lease revenue . . . . . 401,000 3,242,000 Check guarantee fees . . . . . . . . . . . 42,000 57,000 Research and development. . . . . . . . . . 20,000 11,000 . . . . . . . . . . . . . . . . . . . . 2,872,000 5,146,000 Costs and expenses: Bankcard processing expense . . . . . . . . 1,763,000 1,432,000 Cost of terminals sold and leased . . . . . 346,000 2,398,000 Check guarantee . . . . . . . . . . . . . 21,000 32,000 Customer service. . . . . . . . . . . . . . 99,000 86,000 Selling . . . . . . . . . . . . . . . . . . 17,000 27,000 General and administrative. . . . . . . . . 642,000 615,000 Research and development . . . . . . . . . 63,000 77,000 . . . . . . 2,951,000 4,667,000 (Loss) income from operations. . . . . (79,000) 479,000 Interest income . . . . . . . . . . . . . . . . 8,000 6,000 Interest expense. . . . . . . . . . . . . . (52,000) (44,000) (Loss) income before income taxes. . . (123,000) 441,000 Income tax provision. . . . . . . . . . . . . . 1,000 1,000 Net (loss) income . . . . . . . . . . ($124,000) $440,000 Net (loss) income per share . . . . ($ .01) $ .04 See accompanying notes to Consolidated Financial Statements.
ELECTRONIC CLEARING HOUSE, INC. CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended December 31, 1995 1994 (unaudited) Cash flows from operating activities: Net (loss) income . . . . . . . . . . . ($ 124,000) $ 440,000 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation . . . . . . . . . . . . . 45,000 56,000 Provisions for losses on accounts and notes receivable 20,000 Changes in assets and liabilities: Restricted cash. . . . . . . . . . . . 19,000 19,000 Accounts receivable. . . . . . . . . . (213,000) (1,061,000) Inventory. . . . . . . . . . . . . . . (167,000) 683,000 Prepaid expenses and other current assets (2,000) 156,000 Other assets, net. . . . . . . . . . . (20,000) Accounts payable . . . . . . . . . . . 410,000 (249,000) Accrued expenses . . . . . . . . . . . 282,000 (1,151,000) Net cash provided (used) by operating activities . . . . . . . . 250,000 (1,107,000) Cash flows from investing activities: Purchase of equipment.. . . . . . . . . (31,000) (50,000) Investment in real estate . . . . . . . (880,000) Net cash used by investing activities (31,000) (930,000) Cash flows from financing activities: Proceeds from issuance of notes payable. . . . 1,174,000 Repayment of notes payable . . . . . . . . . . (10,000) Net cash (used) provided by financing activities. . . . . . . . . . . . . (10,000) 1,174,000 Net increase (decrease) in cash . . . . . . . . 209,000 (863,000) Cash at beginning of period . . . . . . . . . . 97,000 1,198,000 Cash at end of period . . . . . . . . . . . . . $ 306,000 $ 335,000 See accompanying notes to consolidated financial statements.
ELECTRONIC CLEARING HOUSE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - Basis of presentation: The accompanying Consolidated Balance Sheet as of December 31, 1995, the Consolidated Statement of Operations and the Consolidated Statement of Cash Flows for the three-month period ended December 31, 1995 and 1994 are unaudited, but in the opinion of management include all adjustments necessary for a fair presentation of the financial position and the results of operations for the periods presented. NOTE 2 - Earnings per share: Net (loss) earnings per share is computed based upon the weighted average number of shares outstanding of 11,043,251 and 10,950,553 for the three-month periods ended December 31, 1995 and 1994, respectively. NOTE 3 - Non-cash equity transaction: During the quarter ended December 31, 1995, $100,000 of computer equipment and Internet specific programs were purchased for 250,000 shares of the Company's Common Stock. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Three months ended December 31, 1995 and 1994 Electronic Clearing House, Inc. recorded a net loss of $124,000 for the quarter ended December 31, 1995, compared with net income of $440,000 for the quarter ended December 31, 1994. Transaction processing operations were profitable for the quarter with the loss attributable to smaller equipment deliveries during the quarter and corporate debt expense. Bankcard processing revenue and check guarantee fees increased 29% from $1,893,000 to $2,451,000, compared with the same period last year, directly reflecting an increase of 23% in the number of active merchants served by the Company, 5,279 as of December 31, 1995, compared to 4,288 one year ago. In November 1994, the Company transferred approximately 3,300 merchants from a previous processing bank, Charter Pacific Bank ("CPB") to its now primary processing bank, First Charter Bank ("FCB"), and ceased processing with CPB. Since the change to FCB, the number of active merchants served by the Company has steadily increased. The primary contingency related to processing profitability is the consistency and multiplicity of the Company's primary bank relationships. Additional primary banking relationships diminish the potential for disruptions in processing operations. The Company initiated an Agent Bank program during the current quarter to identify potential primary bank relationships and to increase processing volume at a faster pace as a result of the existing merchant relationships already with the prospective banks. During the quarter, two banks have been secured under the Company's Agent Bank program and the Company is making the necessary software enhancements to allow both banks to serve as alternate primary banks during the current fiscal year. Processing-related expenses, consisting of bankcard processing expense, check guarantee expense and customer service expense, increased 21% from $1,550,000 to $1,883,000 as compared the same period one year ago, reflecting the increased volume processed. Terminal sales and lease revenue decreased 88% from $3,242,000 to $401,000, as compared to the quarter ended December 31, 1994, reflecting the large orders delivered during the December 31, 1994, quarter. Correspondingly, related costs have decreased 86%. During the current quarter, orders were received in excess of $2,000,000 and are scheduled for delivery in the second and fourth quarters of fiscal 1996. In November 1995, the Company received an order for 1,800 systems from one of its customers and was awarded a contract from the United States Postal Service to design and deploy 575 money order systems under a pilot program scheduled to begin in September of 1996. The primary variables affecting equipment sales are inventory levels, the timing of customer orders and the lead time required for delivery of such orders. Without maintaining on-hand inventory, the time from receipt of a customer's order to delivery for an EB9 terminal is presently four (4) months, primarily due to the lead times on electronic components for the system. Research and development expense, net of related income, decreased 35% from $66,000 to $43,000 compared to the same period one year ago reflecting the completion in fiscal 1994 and 1995 of specific developmental projects in response to the requirements of one of the Company's existing customers and the United States Postal Service. Research and development expense is expected to increase during the current fiscal year due to additional developmental effort required under the United States Postal Service contract. There was a 37% reduction in selling expense from $27,000 to $17,000 compared to the quarter ended December 31, 1994, reflecting the continued migration from a Company-underwritten sales force to commission-based third party sales organizations. General and administrative expense increased 4% from $615,000 to $642,000, reflecting increases in employee related expenses. Interest expense was $52,000 as compared to $44,000 in the same period one year ago which reflects the December 1994 issuance of $600,000 in notes payable. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1995, the Company had available cash of $306,000, $294,000 of restricted cash in reserve with its processing bank and a $228,000 working capital deficit. The Consolidated Statement of Cash Flows discloses cash provided by an increase in accounts payable and a significant down-payment on a point of sale equipment order, as reflected by the increase in accrued expenses. The most significant components of purchased equipment are tooling for the Company's manufacturing processes and the buy-out on the lease of a company automobile. The report of the Company's independent accountants during the past ten years has contained an explanatory paragraph as to the uncertainty of the Company's ability to continue as a going concern resulting from recurring losses, an accumulated deficit and a shortfall in current assets. Management has taken the steps discussed in the following paragraphs to mitigate this uncertainty. The Company has historically contracted with small undercapitalized banks that served as primary processing banks for merchants solicited by the Company. Due to frequent management changes and financial difficulties that can arise very quickly with small banks, the Company has had to change banks in the past which has negatively affected the number of merchants served by the Company and, thereby, the financial performance of the Company. Multiple bank relationships would make the change from one bank to another much less costly and traumatic to the Company and its merchants. In November 1994, the Company transferred approximately 3,300 merchants sponsored by Charter Pacific Bank to First Charter Bank and ceased processing with Charter Pacific Bank. This transition occurred smoothly because the banking relationship with First Charter Bank was already established. Under the Agent Bank program initiated in October, 1996, the Company has established two new bank relationships that are expected to develop into additional primary bank relationships by the third quarter of 1996. The Company intends to continue the promotion of its Agent Bank program throughout the current year and secure more Agent Bank relationships as a result. While additional primary banks will be secured for contingency purposes, the Company intends to develop marketing strategies for the new primary banks that do not interfere with its existing primary bank relationship. The Company's primary marketing efforts will remain focused through First Charter Bank, its lead processing bank. Profitable operations of the Company's hardware subsidiary, Computer Based Controls ("CBC"), have been closely tied to the orders received from a single purchaser, a national credit card issuer. The primary strategy to assure the profitability of CBC's equipment manufacturing and sales has been to diminish its dependence on this single customer by expanding the customer base. This is being done by providing specialized programming, adapting the EB9 product to a variety of applications and actively marketing the enhanced product. In both fiscal 1993 and 1994, 67% of terminal sales were to CBC's primary purchaser. This number was reduced to 60% in fiscal 1995, due to several new customer contracts being secured with no new orders anticipated in the current year from the single large customer. Under-capitalization has been a limiting factor to the increase in equipment sales by restricting both the stockpiling of long-lead electronic components and the maintenance of basic inventory reserves of assembled systems in order to reduce the time between order and delivery. With a growth-oriented banking relationship in place, the Company, through its independent sales organization, has increased the number of active merchants allowing the Company to exceed the break-even point in processing. This occurred in the fourth quarter of fiscal 1995. Consequently, the Company's transaction processing operations is expected to contribute significantly to a positive cash flow in fiscal 1996. The primary focus of the Company's equipment design and manufacturing efforts in fiscal 1996 will be directed toward performance under the contract with the United States Postal Service. Management expects the growth in transaction processing revenues to fully compensate for the temporary shift in emphasis from equipment sales to development by the fourth quarter of the current fiscal year. Until that time, two other possible sources of capital will be used for working capital purposes. The first potential source of capital is direct investment in or loans to the Company. The board of directors has authorized the private placement of additional securities or the establishment of loan relationships to meet cash flow requirements as needed. Debt and equity placements are currently being considered. The second potential source of capital is resolution of a current lawsuit. The Company received a judgement on November 17, 1994 in favor of the Company against a guarantor of a merchant account to recover approximately $260,000 that the Company was required to advance in 1993 to cover chargeback activity of the merchant and related legal expenses. Enforcement of the judgement and collection of the funds is currently underway in Louisiana. Based upon continued growth in its processing operations, the current order and down-payment for 1,800 EB9 systems and the additional financing discussed above, cash flow is expected to meet liquidity needs throughout 1996. As described above in "Results of Operations", contingencies that could impact liquidity are mitigated by continuing successes in the expansion of the customer base for sales of the EB9 system and by the establishment of multiple banking relationships. $100,000 of short-term debt represents notes with detached warrants due April 1, 1996. $600,000 of short-term debt represents notes with detached warrants which were due December 28, 1995 and were extended to December 31, 1996. The other significant portions of current debt are the short-term portion of the mortgage on the Company's office facility and the current portion of capital leases which are paid monthly out of operating income. Long-term debt consists of the long-term portion of the mortgage on the Company's office facility and capital leases paid monthly out of operating income. No major capital expenditures are presently planned through December 1996. As of December 31, 1995, the Company's consolidated capital resource commitments included three capital leases for computer systems with total payments of $38,000 over the next 3 to 21 months, and other leased equipment with payments due over the next 33 months aggregating $90,000. At December 31, 1995, the ratio of current assets to current liabilities was .91:1 compared to .94:1 at September 30, 1995. The twelve-month average collection period for receivables was 26 days for the quarter ended December 31, 1995 as compared with 25 days during fiscal year 1995. The Company's annualized inventory turnover ratio for the current period was 2.91 as compared to 5.12 during fiscal year 1995. PART II. OTHER INFORMATION Items 1, 2, 3, 4 & 5 These items are not applicable. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None. (b) Reports on Form 8-K The following reports on Form 8-K were filed during the quarter ended December 31, 1995: Date of Filing Item Reported None. None. 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: By: David Olert, Treasurer and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----