-----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, R/OevaN9kK4ZVOlllciBDVFTroXjy56fkVgXCNzOyEQA5f61hVQkmg8dIxISVQUx Jh1SqhHhFvQMy6+oAbTeBg== 0001015402-01-501067.txt : 20010515 0001015402-01-501067.hdr.sgml : 20010515 ACCESSION NUMBER: 0001015402-01-501067 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010514 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: 1631325 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 doc1.txt 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, 2001 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 April 30, 2001, there were 21,831,136 shares of the Registrant's Common Stock outstanding. ELECTRONIC CLEARING HOUSE, INC. INDEX ----- PART I. FINANCIAL INFORMATION Page No. --------- Item 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED): Consolidated Balance Sheets 3 March 31, 2001 and September 30, 2000 Consolidated Statements of Operations 4 Three months and six months ended March 31, 2001 and 2000 Consolidated Statements of Cash Flows 5 Six months ended March 31, 2001 and 2000 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of 8 Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 5. Other Information 11 Item 6. Exhibits and Reports on Form 8-K 11 Signatures 12
PART I. FINANCIAL INFORMATION - -------------------------------- ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS ELECTRONIC CLEARING HOUSE, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED) ASSETS MARCH 31, SEPTEMBER 30, 2001 2000 ------------ --------------- Current assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . $ 4,161,000 $ 3,941,000 Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 964,000 1,017,000 Accounts receivable less allowance of $517,000 and $380,000 . . . . . . . 1,854,000 1,911,000 Inventory less allowance of $10,000 and $3,000 . . . . . . . . . . . . . 689,000 594,000 Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . 141,000 132,000 Note receivable from related party . . . . . . . . . . . . . . . . . . . 43,000 -0- ------------ --------------- Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . 7,852,000 7,595,000 Noncurrent assets: Long term receivables . . . . . . . . . . . . . . . . . . . . . . . . . . 21,000 19,000 Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . 3,214,000 2,949,000 Real estate held for investment . . . . . . . . . . . . . . . . . . . . . 252,000 252,000 Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . 974,000 1,214,000 Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 419,000 411,000 Goodwill, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,372,000 4,573,000 ------------ --------------- Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $17,104,000 $ 17,013,000 ============ =============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term borrowings and current portion of long-term debt . . . . . . . $ 181,000 $ 177,000 Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 559,000 290,000 Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 839,000 1,046,000 Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,000 53,000 ------------ --------------- Total current liabilities . . . . . . . . . . . . . . . . . . . . . . 1,630,000 1,566,000 Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 677,000 767,000 ------------ --------------- Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 2,307,000 2,333,000 ------------ --------------- Stockholders' equity: Convertible preferred stock, $.01 par value, 5,000,000 shares authorized: Series "K", 25,000 and 25,000 shares issued and outstanding - - Common stock, $.01 par value, 36,000,000 authorized: 21,831,136 and 21,888,036 shares issued; 21,674,144 and 21,730,934 shares outstanding . . . . . . . . . . . . . . . . . . . . . 218,000 219,000 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . 20,403,000 20,474,000 Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,355,000) (5,544,000) Less treasury stock at cost, 156,992 and 157,102 common shares . . . . . (469,000) (469,000) ------------ --------------- Total stockholders' equity. . . . . . . . . . . . . . . . . . . . . . 14,797,000 14,680,000 ------------ --------------- Total liabilities and stockholders' equity. . . . . . . . . . . . . . . $17,104,000 $ 17,013,000 ============ ===============
See accompanying notes to consolidated financial statements.
ELECTRONIC CLEARING HOUSE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) THREE MONTHS SIX MONTHS ENDED MARCH 31, ENDED MARCH 31, --------------------------------------- -------------------------- 2001 2000 2001 2000 ------------------ ------------------- ------------ ------------ Revenues: Processing revenue. . . . . . . . . . . . . . . . . $ 3,550,000 $ 3,732,000 $ 7,138,000 $ 7,367,000 Transactions revenue. . . . . . . . . . . . . . . . 3,469,000 2,631,000 6,661,000 5,093,000 Terminal sales. . . . . . . . . . . . . . . . . . . 108,000 161,000 206,000 269,000 Other revenue . . . . . . . . . . . . . . . . . . . 253,000 50,000 354,000 50,000 ------------------ ------------------- ------------ ------------ 7,380,000 6,574,000 14,359,000 12,779,000 ------------------ ------------------- ------------ ------------ Costs and expenses: Processing and transactions expense . . . . . . . . 4,496,000 4,530,000 9,113,000 8,891,000 Cost of terminals sold. . . . . . . . . . . . . . . 96,000 120,000 192,000 215,000 Other operating costs . . . . . . . . . . . . . . . 933,000 792,000 1,789,000 1,523,000 Selling, general and administrative expenses. . . . 1,403,000 1,318,000 2,648,000 2,340,000 Amortization expense - acquisitions . . . . . . . . 102,000 102,000 204,000 154,000 ------------------ ------------------- ------------ ------------ 7,030,000 6,862,000 13,946,000 13,123,000 ------------------ ------------------- ------------ ------------ Income (loss) from operations. . . . . . . . . 350,000 (288,000) 413,000 (344,000) Interest income . . . . . . . . . . . . . . . . . . . 54,000 91,000 117,000 162,000 Interest expense. . . . . . . . . . . . . . . . . . . (20,000) (22,000) (42,000) (41,000) ------------------ ------------------- ------------ ------------ Income (loss) before provision for income tax. 384,000 (219,000) 488,000 (223,000) Provision for income taxes. . . . . . . . . . . . . . (217,000) -0- (299,000) (15,000) ------------------ ------------------- ------------ ------------ Net income (loss) . . . . . . . . . . . . . . $ 167,000 $ (219,000) $ 189,000 $ (238,000) ================== =================== ============ ============ Earnings (loss) per share - Basic . . . . . . $ 0.01 $ (0.01) $ 0.01 $ (0.01) ================== =================== ============ ============ Earnings (loss) per share - Diluted . . . . . $ 0.01 $ (0.01) $ 0.01 $ (0.01) ================== =================== ============ ============ Shares used in computing basic earnings per share. . . . . . . . . . . . . . 21,724,268 21,458,330 21,727,638 20,710,156 ================== =================== ============ ============ Shares used in computing diluted earnings per share. . . . . . . . . . . . . . 22,499,691 21,458,330 22,518,255 20,710,156 ================== =================== ============ ============
See accompanying notes to consolidated financial statements.
ELECTRONIC CLEARING HOUSE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED MARCH 31, ------------------------- 2001 2000 ----------- ------------ Cash flows from operating activities: Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . $ 189,000 $ (238,000) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . 178,000 175,000 Amortization of software and goodwill . . . . . . . . . . . . . . 384,000 248,000 Provision for losses on accounts and notes receivable . . . . . . 202,000 211,000 Provision for obsolete inventory . . . . . . . . . . . . . . . . 7,000 -0- Provision for deferred income taxes . . . . . . . . . . . . . . . 240,000 7,000 Fair value of stock issued in connection with directors' compensation . . . . . . . . . . . . . . . . . . . . -0- 45,000 Changes in assets and liabilities, net of effects of acquisitions: Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . 53,000 (51,000) Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . (145,000) (79,000) Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . (102,000) (207,000) Prepaid expenses and other assets . . . . . . . . . . . . . . . . (9,000) (75,000) Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . 269,000 (22,000) Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . (207,000) (216,000) Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . (2,000) 541,000 Other receivable. . . . . . . . . . . . . . . . . . . . . . . . . (2,000) -0- ----------- ------------ Net cash provided by operating activities . . . . . . . . . . . . 1,055,000 339,000 ----------- ------------ Cash flows from investing activities: Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . (29,000) (76,000) Purchase of equipment and software. . . . . . . . . . . . . . . . (605,000) (868,000) Increase in notes receivable . . . . . . . . . . . . . . . . . . -0- (1,177,000) Repayment of notes receivable . . . . . . . . . . . . . . . . . . -0- 250,000 Cash acquired through acquisition . . . . . . . . . . . . . . . . -0- 80,000 ----------- ------------ Net cash used in investing activities . . . . . . . . . . . . . . (634,000) (1,791,000) ----------- ------------ Cash flows from financing activities: Proceeds from issuance of notes payable . . . . . . . . . . . . . -0- 400,000 Repayment of notes payable . . . . . . . . . . . . . . . . . . . (86,000) (62,000) Proceeds from common stock warrants exercised . . . . . . . . . . -0- 140,000 Proceeds from exercise of stock options . . . . . . . . . . . . . -0- 124,000 Repurchase of common stock . . . . . . . . . . . . . . . . . . . (115,000) -0- ----------- ------------ Net cash (used in) provided by financing activities . . . . . . . (201,000) 602,000 ----------- ------------ Net increase (decrease) in cash . . . . . . . . . . . . . . . . . . . 220,000 (850,000) Cash and cash equivalents at beginning of period . . . . . . . . . . 3,941,000 2,900,000 ----------- ------------ Cash and cash equivalents at end of period . . . . . . . . . . . . . $4,161,000 $ 2,050,000 =========== ============
See accompanying notes to consolidated financial statements. ELECTRONIC CLEARING HOUSE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 - BASIS OF PRESENTATION: - ------------------------------------ The accompanying consolidated financial statements as of March 31, 2001, 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 statement 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, 2000. The result of operations for the three and six months ended March 31, 2001 are not necessarily indicative of the likely results of operations for the entire fiscal year ending September 30, 2001. NOTE 2 - EARNINGS (LOSS) PER SHARE: - ----------------------------------------- The Company calculates net earnings (loss) per share as required by SFAS No. 128, "Earnings per Share".
Three months ended Six months ended March 31, March 31, ------------------------- ------------------------- 2001 2000 2001 2000 ----------- ------------ ----------- ------------ Net income (loss) $ 167,000 $ (219,000) $ 189,000 $ (238,000) =========== ============ =========== ============ Shares: Denominator for basic earnings per share - weighted-average shares outstanding 21,724,268 21,458,330 21,727,638 20,710,156 Effect of dilutive securities: Employee stock options 675,423 -0- 690,617 -0- Series K Convertible Preferred Stock 100,000 -0- 100,000 -0- ----------- ------------ ----------- ------------ Dilutive potential common shares 775,423 -0- 790,617 -0- ----------- ------------ ----------- ------------ Denominator for diluted earnings per share - adjusted weighted-average shares and assumed conversions 22,499,691 21,458,330 22,518,255 20,710,156 =========== ============ =========== ============ Basic earnings (loss) per share $ 0.01 $ (0.01) $ 0.01 $ (0.01) Diluted earnings (loss) per share $ 0.01 $ (0.01) $ 0.01 $ (0.01)
Approximately 1,685,000 stock options for the three and six months ended March 31, 2001 and approximately 3,426,000 and 3,533,000 common stock equivalents for the three and six months ended March 31, 2000, respectively, were excluded from the calculation of diluted earnings per share as their effect would be antidilutive. However, these common stock equivalents could be dilutive in the future. NOTE 3 - NON-CASH TRANSACTIONS: - ----------------------------------- Significant non-cash transaction for the six months ended March 31, 2001 was as follows: - An employee exercised stock options and executed a promissory note to the Company in the amount of $43,000. The note is interest bearing and fully secured by the underlying stock. Significant non-cash transaction for the six months ended March 31, 2000 were as follows: - In connection with the acquisition of Peak Services, a collection division of XPRESSCHEX, Inc. (formerly 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 value 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. NOTE 4 - INVENTORY: - ---------------------- The components of inventory are as follows:
March 31 September 30 2001 2000 -------- ------------ Raw materials $ 68,000 $ 98,000 Finished goods 631,000 499,000 -------- ------------ $699,000 $ 597,000 Less: Allowance for obsolescence 10,000 3,000 -------- ------------ $689,000 $ 594,000 ======== ============
NOTE 5 - 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 2001 2000 2001 2000 ----------- ----------- ------------ ------------ Revenues: Bankcard and transaction processing $6,219,000 $5,869,000 $12,278,000 $11,757,000 Terminal sales 108,000 161,000 206,000 269,000 Check-related products 1,053,000 544,000 1,875,000 753,000 ----------- ----------- ------------ ------------ $7,380,000 $6,574,000 $14,359,000 $12,779,000 =========== =========== ============ ============ Operating income (loss): Bankcard and transaction processing $ 440,000 $ 33,000 $ 714,000 $ 399,000 Terminal sales (110,000) (95,000) (197,000) (175,000) Check-related products 20,000 (226,000) (104,000) (568,000) ----------- ----------- ------------ ------------ $ 350,000 $ (288,000) $ 413,000 $ (344,000) =========== =========== ============ ============
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, 2001 and 2000 - ------------------------------------------------- NET INCOME. Electronic Clearing House, Inc. recorded a net income of $167,000 for the second quarter of fiscal year 2001 as compared to a net loss of $219,000 in the same period last year. Both basic and diluted net income per share was $.01 for the three months ended March 31, 2001, as compared to both basic and diluted loss per share of $.01 for the three months ended March 31, 2000. REVENUE. Total revenue for this quarter was $7,380,000, compared to $6,574,000 for the same period last year, an increase of 12.3%. 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 excluding check-related activities increased 6.0%, from $5,869,000 in the second fiscal quarter 2000 to $6,219,000 for this current fiscal quarter. This increase was the result of a slight increase in bankcard processing volume year-over-year, an increase in U-Haul transaction processing revenue and partially offset by the sale of the innoVentry bankcard processing joint venture in September 2000. Check-related revenue increased from $544,000 for the three months ended March 31, 2000 to $1,053,000 for the three months ended March 31, 2001, a 93.6% increase. This was mainly attributable to the additional check services being offered to the merchants in the current fiscal year and the continued higher growth experienced in the check-related business segment. For the quarter ended March 31, 2001, the Company's check-related business segment started to generate a positive operating income of $20,000. The Company has fully integrated the check services, such as check verification, check conversion, check guarantee, and debit and credit card transactions through a Verifone terminal platform. This is one of the first terminal applications available in the market today that includes check conversion and captures check images with a scanner. The new terminals and their applications are being offered to all merchants and all U-Haul dealers and are also being marketed through the Company's various sales channels. Transaction revenues generated from one of our major customers, U-Haul International, increased 31.4% over the same period in the prior year as a result of the additional terminal deployment during fiscal year 2000. Total processing and transaction revenue for this quarter increased 10.3%, from $6,363,000 in fiscal 2000 to $7,019,000 in fiscal 2001. Revenue related to terminal sales is recognized when the equipment is shipped. Terminal sales for the three months ended March 31, 2001 were $108,000, which represented a 32.9% decrease from $161,000 for the same fiscal quarter last year. This reflects the Company's sales effort in the transaction business and not terminal sales. Other revenue increased from $50,000 in the second fiscal quarter 2000 to $253,000 in this fiscal quarter as a result of additional billable software development work completed during the current quarter. In December 2000, the Company signed an agreement with VISA, U.S.A. to participate in a check processing pilot program as a "Third Party Provider". Under the pilot, any one of over 14,000 VISA member banks who choose to participate ("Participating Member") can offer check conversion (converting a paper check to an electronic transaction at the point of sale), check conversion with check verification and/or check conversion with check guarantee to their merchants and utilize VISA's dedicated communications network and banking relationships to clear check activity using direct debits from the check writer's account. Conversion requests for checks drawn on Participating Members go from VISA directly to the Participating Member bank, which responds based on the check writer's current checking account balance. Conversion requests for checks drawn on other banks go to the Company as the Third Party Provider to conduct check conversion and funds settlement using the Automated Clearing House (ACH) network. ACH-based conversions take advantage of the National Check Information Service (NCIS) verification system, developed and operated by the Companys Rocky Mountain Retail Systems subsidiary, accessing its database of over 12 million negative check writers. Funds settle through the fully automated ACH service developed and operated by XPRESSCHEX, the Company's check processing subsidiary located in Albuquerque, New Mexico. Several banks have chosen to participant with the Company in the VISA pilot program and the Company is currently finalizing the transaction delivery processes for these early participants with initial release of the service planned for the third quarter of calendar 2001. VISA estimated the new check service annual volume will approach 265,000,000 transactions within five years. COST AND EXPENSES. Processing-related expenses, consisting of bankcard processing expense, transaction and check processing expense, remained relatively unchanged from $4,530,000 in the second fiscal quarter of 2000 to $4,496,000 in the current fiscal quarter, a .8% decrease. This was the result of the 10.3% increase in bankcard processing and transaction revenue combined with the following factors: 1) lower communication costs negotiated with long distance provider; 2) lower processing cost paid to one of the sponsoring banks; and 3) higher gross margin generated from processing and check related products. Overall, gross margins from processing and transaction revenue increased from 28.8% in the second fiscal quarter 2000 to 35.9% in the current fiscal quarter. Since check-related products normally yield a higher gross margin than the bankcard processing activities, as the Company's check-related revenue continues to grow, the gross margins should continue to improve accordingly. Cost of terminals sold decreased from $120,000 for the quarter ended March 31, 2000 to $96,000 in the current fiscal quarter. This was reflective of the lower terminal sales. Other operating costs increased from $792,000 in the second fiscal quarter 2000 to $933,000 in this fiscal quarter, a 17.8% increase. This increase was mainly attributable to the increased operating expenses related to the 12.3% revenue growth and the continuous investment made by the Company as it completes the development of check products. Selling and general and administrative expenses for the current fiscal quarter increased 6.4%, from $1,318,000 in the second fiscal quarter 2000 to $1,403,000 in second fiscal quarter 2001. This increase is directly attributable to the additional infrastructure costs to support the growth of the Company. As a percentage of total revenue, selling, general and administrative expenses decreased from 20.0% in the second fiscal quarter 2000 to 19.0% for the current quarter. In April 2001, the Company decided to withdraw its bank application with the Office of the Controller of the Currency ("OCC") and the Federal Deposit Insurance Corporation ("FDIC"). The Company had filed the application in December 1999 to charter a national bank to provide merchants with electronic payment services. The decision to withdraw the application was made for several reasons. One of the main reasons was the uncertainty of the market condition and the Company's current stock value. The Company felt that finalizing the application, which would initiate the bank's funding deadlines, would be difficult to accomplish under the current market environment. Several other banking options have been presented to the Company since filing the application that may provide similar benefits and deserve further evaluation by the Company. Six Months Ended March 31, 2001 and 2000 - ----------------------------------------------- NET INCOME. Electronic Clearing House, Inc. recorded a net income of $189,000 for the six months period ended March 31, 2001, compared to a net loss of $238,000 for the same period last year. Both basic and diluted net income was $.01 per share for the six months ended March 31, 2001 versus basic and diluted net loss of $.01 per share for the same period last year. REVENUE. Revenue for the six months of fiscal 2001 was $14,359,000, compared to $12,779,000 for the same period last year, an increase of 12.4%. Bankcard and transaction processing revenue was $13,799,000 for the six months ended March 31, 2001 as compared to $12,460,000 for the same period last year, a 10.7% increase. Check-related revenue increased from $753,000 for the six months ended March 31, 2000 to $1,875,000 for the six months ended March 31, 2001, an increase of 149.0%. Terminal sales for the six months ended March 31, 2001 was $206,000 as compared to $269,000 for the same six month period ended March 31, 2000, a decrease of 23.4%. COST AND EXPENSES. Processing and transaction expenses increased 2.5% for the six months ended March 31, 2001 as compared to the same six months period last year. This is directly attributable to the 10.7% increase in processing and transaction revenue for the same six months period and the reduction in certain processing expenses. As a result, gross margin on processing and transaction activities has improved from 28.6% for the six months ended March 31, 2000 to 34.0% for the same six months period this year. This gross margin improvement was mainly attributable to the increase of the check services revenue, which typically yields a higher gross margin as compared to the bankcard processing revenue. Cost of terminals sold decreased 10.7% for the six months ended March 31, 2001 as compared to the same six months period last year. This was in direct relation to the 23.4% decrease in terminal sales revenue. Other operating costs increased 17.5% for the six months ended March 31, 2001, as compared to the same six months period last year. This was attributable to the 12.4% increase in total revenue and the continued investment made by the Company to complete all the check product development work. Selling, general and administrative expenses increased 13.2% for the six months ended March 31, 2001, as compared to the same six months last year. This was due to of the additional infrastructure cost to support the 12.4% revenue growth year-over-year. LIQUIDITY AND CAPITAL RESOURCES As of March 31, 2001, the Company had available cash of $4,161,000, restricted cash of $964,000 in reserve with its primary processing banks and a working capital of $6,222,000. Accounts receivable net of allowance for doubtful accounts decreased from $1,911,000 at September 30, 2000 to $1,854,000 at March 31, 2001. Inventory costs increased slightly, from $594,000 at September 30, 2000 to $689,000 at March 31, 2001. Net cash provided by operating activities increased from $339,000 for the prior year six months ended March 31, 2000 to $1,055,000 for the six months ended March 31, 2001. In the six months ended March 31, 2001, the Company used $605,000 for the purchase of equipment and capitalized software costs. Total net cash used in investing activities was $634,000 for the six months ended March 31, 2001, as compared to $1,791,000 for the six months ended March 31, 2000. In March 2001, the Company's Board of Directors authorized up to 1,000,000 shares of stock to be repurchased in open market transactions at market and as business conditions warrant. The stock repurchase program is effective through September 15, 2001. Accordingly, the Company used $115,000 for the repurchase of common stock for the six months ended March 31, 2001. Total net cash used in financing activities was $201,000 for the six months ended March 31, 2001, as compared to $602,000 of net cash provided by financing activities for the six months ended March 31, 2000. At the present, the Company's cash positions and its flows from operations are sufficient to effect the stock repurchase program as conditions warrant and to support the current level of development costs and marketing costs to fully deploy the new check services to the merchant market. PART II. OTHER INFORMATION Item 5. Other Information ------------------ On April 10, 2001, the Company received a Nasdaq Staff Determination indicating that the Company fails to comply with the minimum bid price requirement for continued listing on the Nasdaq SmallCap Market. The Company requested a hearing before a Nasdaq Listing Qualifications Panel to review the Nasdaq Staff Determination which stays any delisting action. The Company has been notified that its request and proposed compliance plan will be considered at a hearing by written submission. This hearing will be held on May 31, 2001. Management remains optimistic about the outcome of this hearing, however, there can be no assurance of a successful appeal. Item 6. Exhibits and Reports on Form 8-K ------------------------------------- The following reports on Form 8-K were filed during the quarter ended March 31, 2001: Date of Filing Item Reported - ---------------- -------------- March 15, 2001 Board of Directors' authorization to repurchase up to 1,000,000 shares of the corporation's outstanding common stock. 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 10, 2001 By: \s\ Alice Cheung ------------------ Alice Cheung, Treasurer and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----