-----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, WnShfBSgWPNUzTxG4HsuXrFh3O9CD5HskJZQFfKpL8BpVYTMcmi2NFyP893aEoUQ q+UHxndLJlqwUoqfK+iSJg== 0000721773-98-000003.txt : 19980128 0000721773-98-000003.hdr.sgml : 19980128 ACCESSION NUMBER: 0000721773-98-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980127 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: SEC FILE NUMBER: 000-15245 FILM NUMBER: 98514033 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 December 31, 1997 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 January 23, 1998, there were 14,976,541 shares of the Registrant's Common Stock outstanding. ELECTRONIC CLEARING HOUSE, INC. INDEX Page No. PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements: Consolidated Balance Sheet 3 December 31, 1997 and September 30, 1997 Consolidated Statement of Operations 4 Three months ended December 31, 1997 and 1996 Consolidated Statement of Cash Flows 5 Three months ended December 31, 1997 and 1996 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of 7 Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 10 Signatures 11 PART I. FINANCIAL INFORMATION ITEM 1. Consolidated Financial Statements ELECTRONIC CLEARING HOUSE, INC. CONSOLIDATED BALANCE SHEET
ASSETS December 31 September 30 1997 1997 (Unaudited) Current assets: Cash and cash equivalents . . . . . . . . . .$ 948,000 $ 772,000 Restricted cash . . . . . . . . . . . . . . . 446,000 323,000 Accounts receivable less allowance of $993,000 and $1,025,000 . . . . . . . . .1,446,000 1,129,000 Inventory less allowance of $88,000 and $70,000. . . . . . . . . . . . . 873,000 749,000 Prepaid expenses and other assets . . . . . . 70,000 23,000 Notes receivable from stockholders and related parties less allowance of $148,000. . . . . . . . . . . . . . . . . 51,000 51,000 Total current assets. . . . . . . . . . . 3,834,000 3,047,000 Noncurrent assets: Long term receivables . . . . . . . . . . . . 335,000 373,000 Property and equipment, net . . . . . . . . .1,559,000 1,570,000 Real estate held for investment, net . . . . 252,000 252,000 Other assets, net . . . . . . . . . . . . . . 836,000 842,000 . . . . . . . . . . . . . . . . . . . .$6,816,000 $6,084,000 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term borrowings and current portion of long-term debt . . . . . . . . $ 135,000 $ 150,000 Accounts payable . . . . . . . . . . . . 92,000 112,000 Accrued expenses. . . . . . . . . . . . . . . 1,247,000 731,000 Total current liabilities . . . . . . . .1,474,000 993,000 Long-term debt . . . . . . . . . . . . . . . . . 670,000 681,000 Total liabilities . . . . . . . . . . . . . . 2,144,000 1,674,000 Stockholders' equity: Convertible preferred stock, $.01 par value, 5,000,000 shares authorized: Series "H", 23,511 shares issued and outstanding: . . . . . . . . . . Series "K", 325,000 and 375,000 shares issued and outstanding . . . . . . . 3,000 4,000 Series "L", 168,000 and 172,000 shares issued and outstanding . . . . . . . 2,000 2,000 Common stock, $.01 par value, 26,000,000 authorized: 14,976,541 and 14,600,541 shares issued; 14,970,300 and 14,594,300 shares outstanding. . . . . . . . . . . . . 150,000 146,000 Additional paid-in capital. . . . . . . . . .14,062,000 13,865,000 Accumulated deficit . . . . . . . . . . . . . (9,545,000) (9,607,000) Total stockholders' equity . . . . . . . 4,672,000 4,410,000 $6,816,000 $6,084,000 See accompanying notes to consolidated financial statements.
ELECTRONIC CLEARING HOUSE, INC. CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended December 31, 1997 1996 (Unaudited) Revenues: Bankcard processing revenue . . . . . . . . $2,652,000 $2,858,000 Bankcard transaction fees . . . . . . . . . 1,446,000 1,020,000 Terminal sales and lease revenue . . . . . 72,000 153,000 Check guarantee fees . . . . . . . . . . . 18,000 26,000 Research and development. . . . . . . . . . 24,000 30,000 . . . . . . . . . . . . . . . . . . . . 4,212,000 4,087,000 Costs and expenses: Bankcard processing . . . . . . . . . . . . 2,979,000 2,883,000 Cost of terminals sold and leased . . . . . 121,000 153,000 Check guarantee . . . . . . . . . . . . . 7,000 10,000 Customer service. . . . . . . . . . . . . . 98,000 104,000 Selling . . . . . . . . . . . . . . . . . . 6,000 7,000 General and administrative. . . . . . . . . 827,000 725,000 Research and development . . . . . . . . . 105,000 90,000 . . . . . . 4,143,000 3,972,000 Income from operations . . . . . . . . 69,000 115,000 Interest income. . . . . . . . . . . . . . . . 21,000 13,000 Interest expense . . . . . . . . . . . . . . . (27,000) (65,000) Loss reserve for notes receivable. . . . . . . 0 (12,000) Income before provision for income tax 63,000 51,000 Provision for income tax . . . . . . . . . . . (1,000) (1,000) Net income . . . . . . . . . . . . $ 62,000 $ 50,000 Earnings per share . . . . . . . . $ .004 $ .004 See accompanying notes to consolidated financial statements.
ELECTRONIC CLEARING HOUSE, INC. CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended December 31, 1997 1996 (unaudited) Cash flows from operating activities: Net income . . . . . . . . . . . . . . . . . $ 62,000 $ 50,000 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation . . . . . . . . . . . . . . . . 62,000 47,000 Amortization . . . . . . . . . . . . . . . . 22,000 Provisions for losses on accounts and notes receivable. . . . . . . . . . . . (32,000) 75,000 Provision for obsolete inventory . . . . . . 18,000 6,000 Changes in assets and liabilities: Restricted cash. . . . . . . . . . . . . . . (123,000) (18,000) Accounts receivable. . . . . . . . . . . . . (247,000) (339,000) Inventory . . . . . . . . . . . . . . . . . (142,000) (160,000) Prepaid expenses and other assets. . . . . . (47,000) 7,000 Other assets . . . . . . . . . . . . . . . . (16,000) (91,000) Accounts payable . . . . . . . . . . . . . . (20,000) 51,000 Accrued expenses . . . . . . . . . . . . . . 516,000 479,000 Net cash provided by operating activities . . 53,000 107,000 Cash flows from investing activities: Purchase of equipment. . . . . . . . . . . . (25,000) (31,000) Net cash used in investing activities . . . . (25,000) (31,000) Cash flows from financing activities: Repayment of notes payable. . . . . . . . . . (52,000) (38,000) Proceeds from issuance of preferred stock . . 200,000 Common stock warrants exercised. . . . . . . 44,000 Proceeds from exercise of stock options . . . 59,000 Net cash provided by financing activities . . 148,000 65,000 Net increase in cash . . . . . . . . . . . . . . 176,000 141,000 Cash and cash equivalents at beginning of period 772,000 172,000 Cash and cash equivalents at end of period . . . $ 948,000 $ 313,000 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 December 31, 1997, and for the three-month period 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 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, 1997. The result of operations for the three- months ended December 31, 1997 are not necessarily indicative of the results for the entire fiscal year ending September 30, 1998. NOTE 2 - Earnings per share: Earnings per share is computed based upon the weighted average number of common shares outstanding of 14,793,150 and 11,770,399 for the three-month periods ended December 31, 1997 and 1996, respectively. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS When used in the Management's Discussion and Analysis of Financial Condition and Results of Operations or elsewhere in this document, the word "believes", "anticipates", "contemplates", and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those projected. Those risks and uncertainties include changes in laws and regulations affecting the Company's primary lines of business. The Company undertakes no obligation to publicly release the results of any revisions to those forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Result of Operations Three Months Ended December 31, 1997 and 1996 Revenues. Electronic Clearing House, Inc. recorded a net income of $62,000 for the first quarter of fiscal year 1998 as compared to a net income of $50,000 in the same period for the prior year, a 24% increase. Overall revenue increased 3% over the same period in the prior year. The increase reflected revenue growth of 6% in bankcard processing and transaction revenue and a 53% decrease in terminal sales and lease revenue over the same period in the prior fiscal year. Revenues derived from the electronic processing of transactions are recognized at the time the transactions are processed by the merchant. The increase in bankcard processing revenue and transaction revenue is primarily from the increase in the number of active retail merchant accounts, modification in the Company's pricing policy with reference to monthly fees, and the increased transaction revenue generated from dealers associated with a major equipment rental customer. As of December 31, 1997, the Company processed for over 8,000 active retail merchant accounts and approximately 6,000 equipment rental dealers located around the country. The Company's expanding merchant base and profitability is primarily attributable to: (i) the effective sales efforts of an independent processing- related sales organization that presently accounts for about 70% of the Company's new merchant relationships; (ii) the referral from the Company's existing merchant base; (iii) the direct response to the Company's Internet Home Page, which accounts for approximately 20% of the Company's merchant growth; (iv) marketing to targeted retail merchant industry segments which generally have higher discount rates and processing volume as compared to a typical retail merchant; (v) the growing number of installed equipment rental dealers; and (vi) referrals from two new primary banks. An important contingency related to processing profitability is the consistency and multiplicity of the Company's primary bank relationships. Primary bank relationships are necessary to assure access to the major credit card issuing organizations and the Company currently has four primary bank relationships. Multiple primary bank relationships diminish the potential for disruptions in processing operations that might occur due to changes in management or ownership of one of the Company's primary banks. The Company's Internet-related product, ECHONLINE, was introduced in January 1997 and has been adopted by several Internet Service Providers (ISP). The Company anticipates additional growth in merchant volume as additional ISP's finalize their interface programs to ECHONLINE. Revenue related to terminal sales are recognized when the equipment is shipped. Terminal sales and lease revenue for the three months ended December 31, 1997 were $72,000 which represented a 53% decrease over the same fiscal quarter last year. This was primarily attributable to the declining number of referrals from one of the Company's leading terminal leasing agents. The Company is introducing ECHOTEL, a method of transaction entry that utilizes the telephone, which is expected to replace the revenues the Company normally recognizes through its terminal leasing activities. Research and development revenue remained relatively constant for the current fiscal quarter over the same fiscal quarter last year, reflecting development work done for existing customers. Check guarantee fees decreased by $8,000 for the current fiscal quarter over the same fiscal quarter last year. The reduction is the result of the absence of active marketing or development of the Company's check guarantee services. The Company is currently evaluating whether check guarantee should be retained as a product line and, if retained, what its total product line should include and how it can be effectively marketed outside the state of California. 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, transaction expense and customer service expense, increased 3% in the current fiscal quarter over the same fiscal period last year. This was in direct relation to the 6% increase in processing revenues. Cost of terminals sold and leased decreased 21% in the current quarter of fiscal year 1998 as compared to the same fiscal quarter last year. This relates directly to the 53% decrease in terminal and lease sales. Research and development expense increased 17% in the current fiscal quarter as compared to the same fiscal quarter last year. This is reflective of the strategic investments made by the Company in programming personnel and specialized developmental equipment. Check guarantee expense decreased 30% in the current fiscal quarter over the same fiscal quarter in the prior year as a result of the 31% decrease in check guarantee revenue generated. Selling and general and administrative expenses increased 14% in the current fiscal quarter as compared to the same fiscal quarter last year. This was mainly attributable to the higher employee-related costs associated with the 3% overall revenue increase and the incremental increase in operating costs to support the Company's infrastructure. LIQUIDITY AND CAPITAL RESOURCES As of December 31, 1997, the Company had available cash of $948,000, restricted cash of $446,000 in reserve with its primary processing banks and a working capital of $2,360,000. Accounts receivable net of allowance for doubtful accounts increased $317,000 during the three-month period ended December 31, 1997. This was primarily due to the increase in chargeback receivables from two former merchants. The Company is currently seeking to recover these chargeback receivables through legal means. Inventory costs increased $142,000 which was mainly attributable to the inventory build-up related to an equipment order of 3,100 terminals which are scheduled to be delivered during the second and third fiscal quarters of 1998. Currently, the Company's cash flow from operations is sufficient to support the research and development costs and marketing costs which would allow the Company to be competitive in the electronic commerce industry. In January 1998, the United States Postal Service ("USPS") advised the Company that a pilot program, which was initiated in May 1997, has been extended an additional six months. The USPS has requested and agreed to pay for the development of additional features to be incorporated in the terminal-based operating system used in the postal Electronic Money Order Dispenser ("EMOD"). Due primarily to the increased forms costs and a need for consistency in operations, the USPS has decided to utilize a wide forms format for any national EMOD program. This will require that the printer used in the current EMOD system be changed to a wide carriage type of printer. The Company is investigating various printers to determine the one best suited to work in the EMOD environment and will provide its suggestions to the USPS during the extended pilot period. At December 31, 1997, the ratio of current assets to current liabilities was 2.60:1 as compared to 1.16:1 at December 31, 1996. The Company's debt to equity ratio was .46:1 at December 31, 1997 as compared to 1.30:1 at December 31, 1996. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on form 8-K No reports on Form 8-K were filed during the quarter ended December 31, 1997. 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: January 27, 1998 By: \s\Alice Cheung Alice Cheung, Treasurer and Chief Financial Officer EX-27 2
5 1,000 3-MOS SEP-30-1998 DEC-31-1997 948 0 2,439 993 873 3,834 3,568 2,009 6,816 1,474 670 0 5 150 4,517 6,816 72 4,212 121 3,084 938 0 27 63 1 62 0 0 0 62 .004 0
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