-----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, GWvWdl1TPnEz7+h8q9MzuveriGAIvpvrwq1DdvMCBvahAOF3+DI66dTVnrz3159I gpzjoG1cH7vaOdY3+ci/tQ== 0001015402-02-000391.txt : 20020414 0001015402-02-000391.hdr.sgml : 20020414 ACCESSION NUMBER: 0001015402-02-000391 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020211 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: 02533662 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 DECEMBER 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 February 1, 2002, there were 5,775,373 shares of the Registrant's Common Stock outstanding. 1 ELECTRONIC CLEARING HOUSE, INC. INDEX ----- Page No. --------- PART I. FINANCIAL INFORMATION Item 1. CONSOLIDATED FINANCIAL STATEMENTS: Consolidated Balance Sheets 3 December 31, 2001 (unaudited) and September 30, 2001 Consolidated Statements of Operations 4 Three months ended December 31, 2001 and 2000 (unaudited) Consolidated Statements of Cash Flows 5 Three months ended December 31, 2001 and 2000 (unaudited) Notes to Consolidated Financial Statements (unaudited) 6 Item 2. Management's Discussion and Analysis of 9 Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 11 Signatures 12 2 PART I. FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS -----------------------------------
ELECTRONIC CLEARING HOUSE, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED) ASSETS DECEMBER 31, SEPTEMBER 30, 2001 2001 -------------- --------------- Current assets: Cash and cash equivalents $ 4,165,000 $ 4,147,000 Restricted cash 1,304,000 1,410,000 Accounts receivable less allowance of $460,000 and $313,000 1,774,000 1,864,000 Inventory, net 560,000 573,000 Prepaid expenses and other assets 177,000 137,000 -------------- --------------- Total current assets 7,980,000 8,131,000 Noncurrent assets: Long term receivables 16,000 21,000 Property and equipment, net . 3,985,000 3,754,000 Real estate held for investment, net 252,000 252,000 Deferred tax asset 758,000 778,000 Other assets 803,000 800,000 Goodwill, net 5,059,000 5,185,000 -------------- --------------- Total assets $ 18,853,000 $ 18,921,000 ============== =============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term borrowings and current portion of long-term debt $ 254,000 $ 240,000 Accounts payable 169,000 135,000 Settlement payable to merchants 695,000 618,000 Accrued expenses 1,296,000 1,395,000 Deferred income 50,000 50,000 -------------- --------------- Total current liabilities 2,464,000 2,438,000 Long-term debt 733,000 744,000 -------------- --------------- Total liabilities 3,197,000 3,182,000 -------------- --------------- Commitments and contingencies Stockholders' equity: Convertible preferred stock, $.01 par value, 5,000,000 shares authorized; Series "K", 25,000 and 25,000 shares issued and outstanding -0- -0- Common stock, $.01 par value, 36,000,000 authorized; 5,814,621 and 5,809,121 shares issued; 5,775,373 and 5,769,873 shares outstanding 58,000 58,000 Additional paid-in capital 21,271,000 21,260,000 Accumulated deficit (5,204,000) (5,110,000) Less treasury stock at cost, 39,248 common shares (469,000) (469,000) -------------- --------------- Total stockholders' equity 15,656,000 15,739,000 -------------- --------------- Total liabilities and stockholders' equity $ 18,853,000 $ 18,921,000 ============== ===============
See accompanying notes to consolidated financial statements 3 ELECTRONIC CLEARING HOUSE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, ------------------------ 2001 2000 ----------- ----------- Revenues: Processing revenue $3,807,000 $3,588,000 Transaction revenue 4,039,000 3,192,000 Terminal sales 75,000 98,000 Other revenue -0- 101,000 ----------- ----------- 7,921,000 6,979,000 ----------- ----------- Costs and expenses: Processing and transaction expense 5,049,000 4,617,000 Cost of terminals sold 76,000 96,000 Other operating costs 1,005,000 856,000 Selling, general and administrative expenses 1,739,000 1,245,000 Amortization expense - goodwill 128,000 102,000 ----------- ----------- 7,997,000 6,916,000 ----------- ----------- (Loss) income from operations (76,000) 63,000 Interest income 22,000 63,000 Interest expense (14,000) (22,000) ----------- ----------- (Loss) income before provision for income taxes (68,000) 104,000 Provision for income taxes (25,000) (82,000) ----------- ----------- Net (loss) income $ (93,000) $ 22,000 =========== =========== (Loss) earnings per share - Basic $ (0.02) $ 0.00 =========== =========== (Loss) earnings per share - Diluted $ (0.02) $ 0.00 =========== =========== Shares used in computing basic (loss) earnings per share 5,769,933 5,432,733 =========== =========== Shares used in computing diluted (loss) earnings per share 5,769,933 5,629,325 =========== ===========
See accompanying notes to consolidated financial statements. 4
ELECTRONIC CLEARING HOUSE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) THREE MONTHS ENDED DECEMBER 31, -------------------------------- 2001 2000 ------------------- ----------- Cash flows from operating activities: Net (loss) income $ (93,000) $ 22,000 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation 149,000 114,000 Amortization of software 107,000 88,000 Amortization of goodwill 128,000 102,000 Provisions for losses on accounts and notes receivable 153,000 157,000 Provision for obsolete inventory -0- 3,000 Provision for deferred income taxes 20,000 62,000 Changes in assets and liabilities: Restricted cash 106,000 207,000 Accounts receivable (63,000) 228,000 Inventory 13,000 (50,000) Prepaid expenses and other current assets (40,000) 2,000 Accounts payable 34,000 77,000 Settlement payable to merchants 77,000 (12,000) Accrued expenses (100,000) (319,000) Other receivable 5,000 - 0- ------------------- ----------- Net cash provided by operating activities 496,000 681,000 ------------------- ----------- Cash flows from investing activities: Other assets (14,000) (9,000) Purchase of equipment and software (391,000) (321,000) ------------------- ----------- Net cash used in investing activities (405,000) (330,000) ------------------- ----------- Cash flows from financing activities: Repayment of notes payable (84,000) (42,000) Proceeds from exercise of stock options 11,000 -0- ------------------- ----------- Net cash used in financing activities (73,000) (42,000) ------------------- ----------- Net increase in cash 18,000 309,000 Cash and cash equivalents at beginning of period 4,147,000 3,941,000 ------------------- ----------- Cash and cash equivalents at end of period $ 4,165,000 $4,250,000 =================== ===========
See accompanying notes to consolidated financial statements. 5 ELECTRONIC CLEARING HOUSE, INC. ------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ NOTE 1 - BASIS OF PRESENTATION: - ------------------------------- The accompanying consolidated financial statements as of December 31, 2001, 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 statement of the results 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 to Stockholders incorporated by reference in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2001. The results of operations for the three months ended December 31, 2001 are not necessarily indicative of the likely results for the entire fiscal year ending September 30, 2002. NOTE 2 - (LOSS) EARNINGS PER SHARE: - ----------------------------------- The Company calculates net (loss) earnings per share as required by Statement of Financial Accounting Standard No. 128, "Earnings per Share".
Three months ended December 31, 2001 2000 ----------- ---------- Net (loss) income $ (93,000) $ 22,000 =========== ========== Shares: Denominator for basic earnings per share - weighted-average shares outstanding 5,769,933 5,432,733 Effect of dilutive securities: Employee stock options -0- 171,592 Series K Convertible Preferred Stock -0- 25,000 ----------- ---------- Dilutive potential common shares -0- 196,592 ----------- ---------- Denominator for diluted earnings per share - adjusted weighted-average shares and assumed conversions 5,769,933 5,629,325 =========== ========== Basic (loss) earnings per share $ (0.02) $ 0.00 =========== ========== Diluted (loss) earnings per share $ (0.02) $ 0.00 =========== ==========
6 Dilutive common stock equivalents have been excluded from the calculation of diluted loss per share for the three months ended December 31, 2001, as their inclusion would be anti-dilutive to the loss per share calculation. Approximately 313,750 stock options for the three months ended December 31, 2000, were excluded from the calculation of diluted earnings per share as their effect would be anti-dilutive. However, these common stock equivalents could be dilutive in the future. NOTE 3 - NON-CASH TRANSACTIONS: - ------------------------------- Significant non-cash transaction for the three months ended December 31, 2001 was as follows: - Capital equipment of $87,000 was acquired under capital leases. There were no significant non-cash transactions for the three months ended December 31, 2000. NOTE 4 - INVENTORY: - -------------------
The components of inventory are as follows: December 31, September 30, 2001 2001 ------------- -------------- Raw materials $ 59,000 $ 62,000 Finished goods 519,000 529,000 ------------- -------------- 578,000 591,000 Less: Allowance for obsolescence 18,000 18,000 ------------- -------------- $ 560,000 $ 573,000 ============= ==============
NOTE 5 - SEGMENT INFORMATION: - ----------------------------- The Company currently primarily operates in two business segments: Bankcard and transaction processing 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 the Company's product lines. The Company evaluates performance based upon two primary factors, one is the segment's operating income and the other is based on the segment's contribution to the Company's future strategic growth. The Company has consolidated the segment information for terminal sales into the bankcard and transaction processing segment due to the decreased significance of terminal sales. 7
For the Three Months Ended December 31, 2001 2000 ----------- ----------- Revenues: Bankcard and transaction processing $6,595,000 $6,056,000 Check-related products 1,326,000 822,000 Other -0- 101,000 ----------- ----------- $7,921,000 $6,979,000 =========== =========== Operating income (loss): Bankcard and transaction processing $ 785,000 $ 617,000 Check-related products (114,000) (128,000) Other - corporate expenses (747,000) (426,000) ----------- ----------- $ (76,000) $ 63,000 =========== ===========
NOTE 6: LITIGATION - ------------------ On January 25, 2002, closing arguments in Premier Lifestyle International Corporation v. Electronic Clearing House, Inc. concluded and the case was submitted to the judge for deliberations. The judge strongly encouraged the parties to enter into settlement negotiations during her deliberation. Although management, based upon the advice of legal counsel, believes that the Company has meritorious defenses to this lawsuit, there is no assurance that the ultimate resolution of these claims will not result in material liability to the Company. 8 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 December 31, 2001 and 2000 - --------------------------------------------- NET LOSS. Electronic Clearing House, Inc. recorded a net loss of $93,000 for the first quarter of fiscal year 2002 as compared to a net income of $22,000 in the same period last year. Loss before provision for income taxes for the first quarter of fiscal year 2002 was $68,000 versus income before provision for income taxes of $104,000 for the same period last year. Both basic and diluted loss per share were $.02 for the three months ended December 31, 2001, as compared to both basic and diluted earnings per share of nil for the same period last year. REVENUE. Total revenue for this quarter was $7,921,000, compared to $6,979,000 for the same period last year, an increase of 13.5%. Total processing and transaction revenue for this fiscal quarter increased 15.7%, from $6,780,000 in fiscal 2001 to $7,846,000 in fiscal 2002. Bankcard processing and transaction revenue increased 8.9%, from $6,056,000 in first fiscal quarter 2001 to $6,595,000 for this fiscal quarter. This increase was mainly attributable to an 8.8% increase in bankcard processing volume as a result of the Company's organic merchant growth despite a decrease in consumer spending in this quarter. Check-related revenues increased from $822,000 for the three months ended December 31, 2000 to $1,326,000 for the three months ended December 31, 2001, an increase of 61.3%. This was attributable to the increased marketplace acceptance of our new check product offerings. Management believes that the growth rate of the check-related business segment will continue to outpace the growth rate of the bankcard and transaction processing business segments in the coming years. Terminal sales and lease revenue for the three months ended December 31, 2001 was $75,000, which represented an 23.5% decrease from $98,000 for the same fiscal quarter last year. This reflects the Company's growth strategy being focused in the transaction business and not in terminal sales. Other revenue decreased from $101,000 in the first fiscal quarter 2001 to $0 in this fiscal quarter due to no external customer software development work completed during the current quarter. COST AND EXPENSES. Bankcard processing expenses should always reflect the changes in processing revenue. A majority of the Company's bankcard processing expenses are fixed as a percentage of each transaction amount, with the remaining costs being based on a fixed rate applied to the transactions processed. Processing-related expenses, consisting of bankcard processing expense and transaction and check processing expense, increased from $4,617,000 9 in the first fiscal quarter of 2001 to $5,049,000 in the current fiscal quarter, a 9.4% increase. This was directly related to the 15.7% increase in processing and transaction revenues for the current fiscal quarter as compared to the same period prior year. Gross margin from processing and transaction processing increased from 31.9% in the first fiscal quarter last year to 35.6% in this fiscal quarter. This improvement in gross margin was primarily attributable to the changes in the Company's revenue mix. Check services revenue made up 16.7% of total processing and transaction revenues in this quarter as compared to 11.8% in the prior year. On the average, check services revenue yield a much higher gross margin than bankcard processing revenue. Cost of terminals sold and leased decreased from $96,000 in the first quarter of fiscal year 2001 to $76,000 in the current fiscal quarter, a decrease of 20.8% as a result of a 23.5% decrease in terminal sales revenue. Other operating costs increased from $856,000 in the first fiscal quarter 2001 to $1,005,000 in this fiscal quarter, an increase of 17.4%. This increase was attributable to two major factors: 1) a 15.7% increase in processing and transaction revenue and 2) the increased research and development expenses as it continues to support the Visa POS check pilot program. The Company is currently investing a substantial amount in personnel costs in the management and software development of this Visa opportunity without any offsetting revenue prior to the anticipated deployment of this program to the Visa member banks in the July 2002 time frame. Selling, and general and administrative expenses increased from $1,245,000 in the first fiscal quarter 2001 to $1,739,000 in this current quarter, an increase of 39.7%. Approximately $255,000 or 20.4% of this increase was attributable to the legal and consulting fees related to the ongoing litigation as disclosed in previous filings. The remaining 19.3% increase was due to the higher personnel costs required to support the 61.3% growth and management of the various new check services. As a percentage of total revenue, selling, general and administrative expenses increased from 17.8% in the first quarter 2001 to 22.0% in the current fiscal quarter. LIQUIDITY AND CAPITAL RESOURCES As of December 31, 2001, the Company had available cash of $4,165,000, restricted cash of $1,304,000 in reserve with its primary processing banks and a working capital of $5,516,000. Accounts receivable net of allowance for doubtful accounts decreased slightly from $1,864,000 at September 30, 2001 to $1,774,000 at December 31, 2001. Inventory costs remained relatively unchanged at $560,000 at December 31, 2001 as compared to $573,000 at September 30, 2001. Net cash provided by operating activities decreased from $681,000 for the prior year three months ended December 31, 2000 to $496,000 for the three-month period ended December 31, 2001. In the three months ended December 31, 2001, the Company used $391,000 for the purchase of equipment and capitalized software costs. At the present, the Company's cash position and its cash flows from operations are sufficient to support the current level of developments costs and to adequately support and become a primary Third-Party Processor for the Visa POS check pilot program which is currently in progress. 10 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- None. 11 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: February 8, 2002 By: \s\Alice Cheung --------------------------- Alice Cheung, Treasurer and Chief Financial Officer 12 -----END PRIVACY-ENHANCED MESSAGE-----