-----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, FPAANcVyCZhY/j1SICL8zP1Ek5WCkxRuorEKf75B7JYOLYkcaxmksxi31vHIpQqv Nz7ws4v1Xk87JvvwXEgizg== 0000721773-99-000003.txt : 19990225 0000721773-99-000003.hdr.sgml : 19990225 ACCESSION NUMBER: 0000721773-99-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990201 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELECTRONIC CLEARING HOUSE INC CENTRAL INDEX KEY: 0000721773 STANDARD INDUSTRIAL CLASSIFICATION: 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: 99517645 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, 1998 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 27, 1999, there were 17,149,861 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, 1998 and September 30, 1998 Consolidated Statement of Operations 4 Three months ended December 31, 1998 and 1997 Consolidated Statement of Cash Flows 5 Three months ended December 31, 1998 and 1997 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 1998 1998 (Unaudited) Current assets: Cash and cash equivalents . . . . . . . . . . $ 3,016,000 $ 2,486,000 Restricted cash. . . . . . . . . . . . . . . . 534,000 651,000 Accounts receivable less allowance of $1,854,000 and $1,829,000 . . . . . . . . . . 1,065,000 1,251,000 Inventory less allowance of $202,000 and $202,000. . . . . . . . . . . . . . . . . 760,000 718,000 Prepaid expenses and other assets. . . . . . . 60,000 16,000 Notes receivable from related parties . . . . 31,000 32,000 Total current assets . . . . . . . . . 5,466,000 5,154,000 Noncurrent assets: Long term receivables . . . . . . . . . . . . 324,000 320,000 Property and equipment, net . . . . . . . . . 1,689,000 1,606,000 Real estate held for investment, net . . . . 252,000 252,000 Other assets, net . . . . . . . . . . . . . . 676,000 693,000 $8,407,000 $8,025,000 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term borrowings and current portion of long-term debt . . . . . . . . . . . . . $ 79,000 $ 92,000 Accounts payable . . . . . . . . . . . . . 76,000 173,000 Accrued expenses . . . . . . . . . . . . . . . 827,000 845,000 Deferred income. . . . . . . . . . . . . . . . 433,000 433,000 Total current liabilities . . . . . . . 1,415,000 1,543,000 Long-term debt . . . . . . . . . . . . . . . . . 660,000 639,000 Total liabilities . . . . . . . . . . . 2,075,000 2,182,000 Stockholders' equity: Convertible preferred stock, $.01 par value, 5,000,000 shares authorized: Series "H", 23,511 shares issued and outstanding: Series "K", 100,000 and 325,000 shares issued and outstanding . . . . . . . . . . . . . . 1,000 3,000 Series "L", 104,000 and 168,000 shares issued and outstanding . . . . . . . . . . . . . . 1,000 2,000 Common stock, $.01 par value, 26,000,000 authorized: 16,841,541 and 15,120,541 shares issued; 16,835,300 and 15,114,300 shares outstanding. . . . .168,000 151,000 Additional paid-in capital. . . . . . . . . . 14,357,000 14,140,000 Accumulated deficit . . . . . . . . . . . . . (8,195,000) (8,453,000) Total stockholders' equity . . . . . . 6,332,000 5,843,000 $8,407,000 $8,025,000 See accompanying notes to consolidated financial statements.
ELECTRONIC CLEARING HOUSE, INC. CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended December 31, 1998 1997 (Unaudited) Revenues: Bankcard processing revenue. . . . . . . . . $3,376,000 $2,652,000 Bankcard transaction fees. . . . . . . . . . 1,771,000 1,446,000 Terminal sales and lease revenue . . . . . . 94,000 72,000 Other revenue. . . . . . . . . . . . . . . . 228,000 42,000 5,469,000 4,212,000 Costs and expenses: Bankcard processing and transaction expense . 3,721,000 2,979,000 Cost of terminals sold and leased . . . . . . 73,000 121,000 Other operating costs . . . . . . . . . . . . 257,000 210,000 Selling, general and administrative. . . . . . 1,169,000 833,000 5,220,000 4,143,000 Income from operations. . . . . . . . . . 249,000 69,000 Interest income. . . . . . . . . . . . . . . . . 48,000 21,000 Interest expense . . . . . . . . . . . . . . . . (25,000) (27,000) Income before income tax provision. . . . 272,000 63,000 Income tax provision, net . . . . . . . . . . . (14,000) (1,000) Net income . . . . . . . . . . . . . $ 258,000 $ 62,000 Earnings per share - Basic . . . . . $ 0.016 $ 0.004 Earnings per share - Diluted . . . . . . $ 0.011 $ 0.003 See accompanying notes to consolidated financial statements.
ELECTRONIC CLEARING HOUSE, INC. CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended December 31, 1998 1997 (unaudited) Cash flows from operating activities: Net income . . . . . . . . . . . . . . . . . . . .$ 258,000 $ 62,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation . . . . . . . . . . . . . . . . . . . 63,000 62,000 Amortization. . . . . . . . . . . . . . . . . . . . 18,000 22,000 Provisions for losses on accounts and notes receivable . . . . . . . . . . . . . . . . . 25,000 (32,000) Provision for obsolete inventory. . . . . . . . . . -0- 18,000 Changes in assets and liabilities: Restricted cash . . . . . . . . . . . . . . . . . . 117,000 (123,000) Accounts receivable . . . . . . . . . . . . . . . . 156,000 (247,000) Inventory . . . . . . . . . . . . . . . . . . . . (41,000) (142,000) Prepaid expenses and other assets . . . . . . . . . (44,000) (47,000) Other assets . . . . . . . . . . . . . . . . . . . (1,000) (16,000) Accounts payable . . . . . . . . . . . . . . . . . (97,000) (20,000) Accrued expenses. . . . . . . . . . . . . . . . . . (18,000) 516,000 Net cash provided by operating activities. . . . . . 436,000 53,000 Cash flows from investing activities: Purchase of equipment.. . . . . . . . . . . . . . . (103,000) (25,000) Net cash used in investing activities. . . . . . . . (103,000) (25,000) Cash flows from financing activities: Decrease in notes receivable from related parties . . . . . . . . . . . . . . . . . . 1,000 -0- Repayment of notes payable . . . . . . . . . . . . . (35,000) (52,000) Proceeds from issuance of preferred stock . . . . . -0- 200,000 Proceeds from common stock warrants exercised. . . 190,000 -0- Proceeds from exercise of stock options. . . . . . . 41,000 -0- Net cash provided by financing activities. . . . . . 197,000 148,000 Net increase in cash . . . . . . . . . . . . . . . . . 530,000 176,000 Cash and cash equivalents at beginning of period . . . 2,486,000 772,000 Cash and cash equivalents at end of period . . . . . .$3,016,000 $ 948,000 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, 1998, 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 period. 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 on Form 10-K for the fiscal year ended September 30, 1998. The result of operations for the three months ended December 31, 1998 are not necessarily indicative of the likely results for the entire fiscal year ending September 30, 1999. NOTE 2 - Net income per share: Net income per share is based on the weighted average number of common shares and dilutive common equivalent shares outstanding during the period. The shares issuable upon conversion of preferred stock and exercise of options and warrants are included in the weighted average for the calculation of net income per share except where it would be anti-dilutive. For the net income per common share, the convertible preferred stock is not considered to be equivalent to common stock. Earnings per share - basic amounts included in the consolidated statement of operations are based upon average shares outstanding of 15,876,845 and 14,793,150 in the three months ended December 31, 1998 and 1997, respectively. Earnings per share - diluted amounts included in the consolidated statements of operations are based upon average shares outstanding of 22,768,053 and 21,490,500 in the three months ended December 31, 1998 and 1997, respectively. Earnings per share - diluted assuming full dilution for the first quarter of fiscal 1999 was determined on the assumption that the convertible preferred stock was converted, and the warrants and all the options were exercised on October 1, 1998 or the issuance date, whichever is later. NOTE 3 - Non-cash transactions Siginificant non-cash transaction for the three months ended December 31, 1998 was as follows: - Capital equipment of $43,000 was acquired under capital leases. Significant non-cash transaction for the three months ended December 31, 1997 was as follows: - Capital equipment of $26,000 was acquired under capital leases. 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, 1998 and 1997 Revenues. Electronic Clearing House, Inc. recorded a net income of $258,000 for the first quarter of fiscal year 1999 as compared to a net income of $62,000 in the same period for the prior year, a 316.1% increase. This is the result of an overall increase in revenue growth of 29.8% compared with the same period last fiscal year. The increase reflected revenue growth of 25.6% in bankcard processing and transaction revenue combined with a 442.9% increase in other 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 attributable to three areas: (1) 8.5% increase in processing volume along with the rate increases for the entire merchant base as a result of the interchange rate increases implemented by Visa and MasterCard in April 1998; (2) 60.2% increase in inventory transaction volume with U-Haul International due to the additional systems deployed during the past year; and (3) the implementation of certain industry specific fees in the third quarter of fiscal 1998. As of December 1998, the Company processed for over 17,000 active retail merchant accounts and equipment rental dealers located around the country. Revenue related to terminal sales is recognized when the equipment is shipped. Terminal sales and lease revenue for the three months ended December 31, 1998 were $94,000 which represented a 30.6% increase over the same fiscal quarter last year. The Company is currently scheduled to deploy another 2,500 U-Haul systems in the second quarter of fiscal 1999. The total number of active U- Haul systems in the field will be approximately 11,500 after this deployment is completed. Other revenue increased 442.9% for the current fiscal quarter over the same fiscal quarter last year, reflecting software development work currently underway for a casino cash advance provider. The Company is in negotiation with this casino cash advance provider to finalize the contractual arrangements regarding this project. 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 24.9% in the current fiscal quarter over the same fiscal period last year. This was in direct relation to the 25.6% increase in processing and transaction revenues for the current fiscal quarter. Cost of terminals sold and leased decreased 39.7% in the first quarter of fiscal year 1999 as compared to the same fiscal quarter last year. This relates to the decrease in lease receivable bad debt provisions for the current fiscal quarter as compared to the prior year. Research and development expense for the current fiscal quarter increased 45.7% when compared with the same fiscal quarter last year. This is reflective of the on-going investments made by the Company both in programming personnel and specialized cash advance developmental project. Selling and general and administrative expenses increased 40.3% in the current fiscal quarter as compared to the same fiscal quarter last year. This reflects the Company's commitment toward several sales programs which was implemented during the current fiscal quarter. Additionally, the higher general and administrative expense is also associated with the 29.8% overall revenue increase and the incremental increase in operating costs to support the Company's infrastructure. LIQUIDITY AND CAPITAL RESOURCES As of December 31, 1998, the Company had available cash of $3,016,000, restricted cash of $534,000 in reserve with its primary processing banks and working capital of $4,051,000. Accounts receivable net of allowance for doubtful accounts decreased $186,000 during the three-month period ended December 31, 1998. Inventory costs increased $42,000 which was due to the inventory build-up for the U-Haul equipment order which is scheduled to be delivered during the second fiscal quarter of 1999. At the present, the Company's cash flows from operations is sufficient to support the current level of research and developments costs and marketing costs which would allow the Company to further develop its suite of Internet products and services which is believed to be essential to the Company's future growth. The Company's current ratio improved from 2.60 to 1 at December 31, 1997 to 3.86 to 1 at December 31, 1998. The Company's debt to equity ratio also improved from .46 to 1 at December 31, 1997 to .33 to 1 at December 31, 1998. Other - Year 2000 Issue Many existing computer systems and related software applications, and other control devices, use only two digits to identify a year in a date field, without considering the impact of the upcoming change in the century. Such systems, applications and/or devices could fail or create erroneous results unless corrected so that they can process data related to the Year 2000. The Company relies on computer systems, applications and devices in operating and monitoring all major aspects of its business, including, but not limited to, its financial systems, customer services, internal networks and telecommunication equipment, and end products. The Company also relies, directly and indirectly, on the external systems of various independent business enterprises, such as its customers, sponsoring banks, suppliers, creditors, financial organizations, and of governments for the accurate exchange of data and related information. In fiscal 1997, the Company received independent certification of Year 2000 compliance from Visa and from MasterCard for processing authorization requests. All possible paths for such transactions were demonstrated to be compliant. In fiscal 1998, the Company assessed the Year 2000 issues in depth and developed a comprehensive plan. The Company is currently executing its plan to minimize the potential impact of the Year 2000 issues on its business and expects to be in a testing mode in the first calendar quarter of 1999. The Company spent approximately $200,000 in fiscal year 1998 in connection with the Year 2000 problems. Management's current estimate is that the costs associated with the Year 2000 issue will be approximately $250,000 in fiscal 1999. The assignment of resources to address the Year 2000 issue has had a minor impact on development and/or delay of other Company projects. The Company's existing contingency plan for business resumption during and following catastrophic events has been augmented to provide for longer-term outages that could result from Year 2000 issues. For example, the Uninterruptible Power Supply system that has served the Company since 1987 has been replaced with a much more robust system. In addition, a stand-alone power generator is currently being installed to increase the Company's ability to sustain longer-term outages. However, despite the Company's efforts to address the Year 2000 impact on its internal systems, the Company may have failed to fully identify all areas and, once discovered, the Company may not be able to resolve such areas without disruption of its business and without incurring significant expenses. In addition, even if the internal systems of the Company are not materially affected by the Year 2000 issue, the Company could be affected adversely as a result of any disruption in the operation of the various third-party enterprises with which the Company interacts. Significant care is being taken to confirm other key providers/vendors are fully compliant with Year 2000 issues but no assurance can be given that the Company's efforts in this regard or that the representations made regarding compliance with Year 2000 by vendors will prove successful. 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, 1998. 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 28, 1999 By: \s\Alice Cheung Alice Cheung, Treasurer and Chief Financial Officer EX-27 2
5 1000 3-MOS SEP-30-1999 DEC-31-1998 3016 0 2919 1854 760 5466 3924 2235 8407 1415 660 0 2 168 6162 8407 94 5469 73 3978 1169 0 25 272 14 258 0 0 0 258 .016 .011
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