<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1999
COMMISSION FILE NUMBER 0-22081
------------------------------
ELECTRONIC PROCESSING, INC.
MISSOURI 48-1056429
(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
501 KANSAS AVENUE, KANSAS CITY, KANSAS 66105-1300
(Address of Principal Executive Office)
913-321-6392
(Issuer's Telephone Number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
----- -----
The number of shares outstanding of registrants common stock at July 31, 1999,
was 4,637,068 shares.
Transitional Small Business Disclosure Format (Check one): Yes No X
----- -----
<PAGE>
ELECTRONIC PROCESSING, INC.
FORM 10-QSB
QUARTER ENDED JUNE 30, 1999
CONTENTS
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART 1 - FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements
Statements of Income -
Three months and six months ended June 30, 1999 and 1998 2
Balance Sheets - December 31, 1998 and June 30, 1999 3
Statements of Cash Flows -
Six months ended June 30, 1999 and 1998 5
Notes to Consolidated Financial Statements - June 30, 1999 and 1998 6
Item 2. Management's Discussion and Analysis of Financial Condition and 8
Results of Operations
PART II - OTHER INFORMATION
- ---------------------------
Item 2. Changes in Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
1
<PAGE>
ELECTRONIC PROCESSING, INC.
JUNE 30, 1999 FORM 10-QSB
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STATEMENTS OF INCOME
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30 Three Months Ended June 30
------------------------ --------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATING REVENUES $7,059,149 $5,360,646 $3,629,239 $2,824,851
COST OF GOODS SOLD AND DIRECT COSTS
Processing costs 2,397,902 1,820,793 1,257,764 928,958
Depreciation and amortization 982,289 644,223 518,828 358,804
---------- ---------- ---------- ----------
3,380,191 2,465,016 1,776,592 1,287,762
---------- ---------- ---------- ----------
GROSS PROFIT 3,678,958 2,895,630 1,852,647 1,537,089
---------- ---------- ---------- ----------
OPERATING EXPENSES
General and administrative 2,394,116 1,933,209 1,143,916 1,049,172
Depreciation and amortization 73,580 80,732 38,514 40,997
---------- ---------- ---------- ----------
2,467,696 2,013,941 1,182,430 1,090,169
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS 1,211,262 881,689 670,217 446,920
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE)
Interest income 263,478 79,087 128,147 57,981
Interest expense (12,114) (81,057) (5,063) (43,403)
Gain (loss) on disposition of assets (15,371) 325 (15,443) 0
---------- ---------- ---------- ----------
235,993 (1,645) 107,641 (14,578)
---------- ---------- ---------- ----------
INCOME BEFORE TAXES $1,447,255 $ 880,044 $ 777,858 $ 461,498
---------- ---------- ---------- ----------
PROVISION FOR INCOME TAXES
Current 485,091 331,383 262,146 183,754
Deferred 72,860 22,169 38,000 1,798
---------- ---------- ---------- ----------
557,951 353,552 300,146 185,552
INCOME (LOSS) $ 889,304 $ 526,492 $ 477,712 $ 275,946
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
EARNINGS PER SHARE
Basic .19 .15 .10 .07
Diluted .19 .14 .10 .07
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic 4,634,748 3,612,712 4,635,371 3,813,970
Diluted 4,805,047 3,790,164 4,793,086 3,988,226
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
2
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ELECTRONIC PROCESSING, INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND JUNE 30, 1999
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
December 31, 1998 June 30, 1999
----------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 820,256 $ 768,784
Short-term investment 10,700,000 9,600,000
Accounts receivable, trade, less allowance for
doubtful accounts of $5,000 1,586,303 2,689,199
Prepaid expenses and other 294,024 215,968
Deferred income taxes 39,345 53,000
----------- -----------
Total Current Assets 13,439,928 13,326,951
----------- -----------
PROPERTY AND EQUIPMENT, At cost
Furniture and fixtures 526,862 593,333
Computer equipment 7,254,072 8,544,986
Office equipment 329,775 334,600
Leasehold improvements 864,184 911,149
Transportation equipment 14,969 14,969
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8,989,862 10,399,037
Less accumulated depreciation 3,233,510 3,995,785
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5,756,352 6,403,252
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SOFTWARE DEVELOPMENT COSTS, Net of
amortization 2,016,946 2,114,152
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INTANGIBLE ASSETS, Net of amortization
Excess of cost over fair value of net assets acquired 59,473 58,466
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OTHER ASSETS 5,912 8,871
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$21,278,611 $21,911,602
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----------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
3
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LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, 1998 June 30, 1999
----------------- -------------
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt $ 159,151 87,122
Accounts payable 626,577 501,858
Accrued expenses 450,608 252,780
Income Taxes Payable 12,672 36,109
----------- -----------
Total Current Liabilities 1,249,008 877,869
----------- -----------
LONG-TERM DEBT (LESS CURRENT PORTION) 109,300 127,037
----------- -----------
DEFERRED INCOME TAXES 529,485 616,000
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; authorized 10,000,000
shares; issued and outstanding 4,633,268 shares
December 31, 1998 and 4,635,868 shares June 30, 1999 46,333 46,359
Additional paid-in capital 17,660,878 17,671,427
Retained earnings 1,683,607 2,572,910
----------- -----------
19,390,818 20,290,696
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$21,278,611 $21,911,602
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</TABLE>
4
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ELECTRONIC PROCESSING, INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) 889,304 526,492
Items not requiring (providing) cash:
Provision Deferred Income Taxes 72,860 20,371
Depreciation 826,411 528,760
Amortization of software development costs 228,451 195,189
Amortization of intangible assets 1,007 1,007
(Gain) loss on disposal of equipment 15,503 0
Changes in:
Accounts receivable (1,102,896) (290,545)
Prepaid expenses and other assets 75,187 21,330
Accounts payable and accrued expenses (322,549) (138,582)
Income taxes payable 23,437 (21,819)
----------- ------------
Net cash provided by operating activities 706,715 842,203
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (1,433,178) (368,563)
Expenditures for software development costs (325,657) (700,085)
----------- ------------
Proceeds from sale of property and equipment 11,292 0
Proceeds from sale of investments 1,100,000 0
----------- ------------
Net cash used in investing activities (647,543) (1,068,648)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments under capital lease obligations (114,501) (193,187)
Principal payments on long-term debt (6,718) (1,875,293)
Proceeds from stock issuance 10,575 12,611,092
----------- ------------
Net cash used in financing activities (110,644) 10,542,612
----------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (51,472) 10,316,167
----------- ------------
CASH AND CASH EQUIVALENTS, BEGINNING PERIOD 820,256 1,835,233
----------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 768,784 $ 12,151,400
----------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
ELECTRONIC PROCESSING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
AND JUNE 30, 1999 AND 1998
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Electronic Processing, Inc. (the Company) develops, markets, and
licenses proprietary software products and provides support services for
Chapter 7 and Chapter 13 bankruptcy trustees and other users of the federal
bankruptcy system. EPI serves a national client base with specialty products
that facilitate the financial and administrative aspects of bankruptcy
management and that are accompanied by a high level of coordinated support
including network integration, post-installation support and value added
services.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PROPERTY AND EQUIPMENT
Property and equipment are depreciated on a straight-line basis over the
estimated useful life of each asset as follows:
Furniture and fixtures 10 years
Computer equipment 4-5 years
Office equipment 5-10 years
Transportation equipment 3-5 years
Leasehold improvements are depreciated over the shorter of the lease
term or the estimated useful lives (5-10 years) of the improvements.
SOFTWARE DEVELOPMENT COSTS
Certain internal software development costs incurred in the creation of
computer software products are capitalized once technological feasibility has
been established. Prior to the completion of a detailed program design,
development costs are expensed. Capitalized costs are amortized based on
current and future revenue for each product with an annual minimum equal to
the straight-line amortization over the remaining estimated economic life of
the product, not to exceed five years.
INTANGIBLE ASSETS
The excess of cost over fair value of net assets acquired is being
amortized on a straight-line basis over 40 years.
6
<PAGE>
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
REVENUE RECOGNITION
For the Company's Chapter 7 bankruptcy software product, monthly fees
are received from a national financial institution after the product is
installed and deposits are transferred based on the level of trustees'
deposits with that institution. Revenues for Chapter 13 processing and
noticing are recorded monthly at the completion of the services based on the
trustees' month-end caseloads. All ancillary fees are recognized as the
services are provided.
INCOME TAXES
Deferred tax liabilities and assets are recognized for the tax effects
of differences between the financial statement and tax bases of assets and
liabilities. A valuation allowance is established to reduce deferred tax
assets if it is more likely than not that a deferred tax asset will not be
realized.
CASH EQUIVALENTS
The Company considers all liquid investments with original maturities of
three months or less (primarily money market accounts) to be cash equivalents.
INTERIM FINANCIAL STATEMENTS
The balance sheet as of June 30, 1999 and the statements of income,
shareholders' equity and cash flows for the six month periods ended June 30,
1999 and 1998 have been prepared by the Company without audit. In the opinion
of management, all adjustments (which included only normal, recurring
adjustments) necessary for fair presentation have been made. The results for
these periods are not necessarily indicative of the results to be expected
for the full year.
NOTE 2: ADDITIONAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Six Months Ended
----------------
December 31, June 30
------------ -------
1998 1999 1998
---- ----- ----
(unaudited)
<S> <C> <C> <C>
NONCASH INVESTING AND FINANCING
ACTIVITIES
Capital lease obligation and notes
payable incurred for equipment $28,828 $66,296 $ 997,097
ADDITIONAL CASH INFORMATION
Interest paid 97,780 12,114 81,057
Income taxes paid 654,438 430,000 375,371
</TABLE>
7
<PAGE>
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SIX- MONTHS ENDED JUNE 30, 1999 COMPARED WITH SIX- MONTHS ENDED JUNE 30, 1998
Operating revenues increased 31.7%, or $1,698,503 to $7,059,149 in
the six-month period ended June 30, 1999, compared to $5,360,646 in the
six-month period ended June 30, 1998. Approximately 77.2% of the growth in
operating revenues was attributable to revenues generated by Chapter 7.
Chapter 7 sales increased 47.3%, or $1,310,590 to $4,083,377 in the six-month
period ended June 30, 1999, compared to $2,772,787 in the six-month period
ended June 30, 1998. The increase in Chapter 7 revenue was due in part to the
growth in new Chapter 7 trustee business for the Company resulting in higher
monthly fees paid to the Company and the release of version 4.0 of TCMS, the
Chapter 7 software product. Chapter 13 revenue increased 15.0%, or $387,913
to $2,975,776 in the six-month period ended June 30, 1999, compared to
$2,587,863 in the six-month period ended June 30, 1998. The sale of
additional hardware to existing Chapter 13 trustee clients as they converted
to CASEPOWER contributed to the increase.
Total cost of goods sold and direct costs increased 37.1%, or
$915,175 to $3,380,191 in the six-month period ended June 30, 1999, compared
to $2,465,016 in the six-month period ended June 30, 1998. Total cost of
goods sold and direct costs as a percentage of operating revenues increased
to 47.9% in the six-month period ended June 30, 1999, compared to 46.0% in
the six-month period ended June 30, 1998. Processing costs increased 31.7%,
or $577,109 to $2,397,902 in the six-month period ended June 30, 1999,
compared to $1,820,793 in the six-month period ended June 30, 1998. The
increase in 1999 resulted principally from an increase in customer service
expense to support the growth in Chapter 7 sales and to support the new
Chapter 13 product, CASEPOWER. Processing costs as a percentage of operating
revenues were 34.0% in the six-month period ended June 30, 1999, compared to
34.0% in the six-month period ended June 30, 1998. Depreciation and
amortization increased 52.5%, or $338,066, to $982,289 in the six-month
period ended June 30, 1999, compared to $644,223 in the six-month period
ended June 30, 1998, primarily due to the purchase of computer equipment for
the Company's Chapter 7 product.
Operating expenses increased 22.5%, or $453,755 to $2,467,696 in the
six-month period ended June 30, 1999, compared to $2,013,941 in the six-month
period ended June 30, 1998. Operating expenses as a percentage of operating
revenues was 35.0% in the six-month period ended June 30, 1999, compared to
37.6% in the six-month period ended June 30, 1998. The dollar increase in
operating expenses was due to increases in general and administrative
infrastructure necessary to support a higher level of revenues, including
additional sales and marketing expenses related to growth of the Company's
Chapter 7 product. Sales and marketing expenses include sales and marketing
salaries, trade show costs, travel associated with Chapter 7 installations,
and advertising costs. Sales and marketing expenses increased 30.0%, or
$185,879 to $805,630 in the six-month period ended June 30, 1999, compared to
$619,751 in the six-month period ended June 30, 1998.
Other income (expense), which includes interest income and interest
expense, was $235,993 in the six-month period ended June 30, 1999, compared
to ($1,645) in the six-month period ended June 30, 1998. This resulted from a
reduction in net interest expense due to interest income from the investment
of the net proceeds from the sale of 1,140,500 shares of Common Stock in a
secondary public offering completed in June of 1998. Outstanding debt was
paid off with a portion of the net proceeds from the stock offering resulting
in a reduction in interest expense.
8
<PAGE>
The Company's effective tax rates were 38.6% and 40.2% for the
six-month periods ended June 30, 1999 and June 30, 1998, respectively.
Net income increased 68.9%, or $362,812, to $889,304 in the
six-month period ended June 30, 1999, compared to net income of $526,492 in
the six-month period ended June 30, 1998. Net income as a percentage of
operating revenues increased to 12.6% in the six-month period ended June 30,
1999, from 9.8% in the six-month period ended June 30, 1998.
QUARTER ENDED JUNE 30, 1999 COMPARED WITH QUARTER ENDED JUNE 30, 1998
Operating revenues increased 28.5%, or $804,388, to $3,629,239 in
the three-month period ended June 30, 1999, compared to $2,824,851 in the
three-month period ended June 30, 1998. Approximately 52.6% of the growth in
operating revenues was attributable to Chapter 7. Chapter 7 revenues
increased 26.7%, or $422,930, to $2,007,132 in the three-month period ended
June 30, 1999, compared to $1,584,202 in the three-month period ended June
30, 1998. The increase in Chapter 7 revenue was due primarily to the growth
in new Chapter 7 trustee clients resulting in higher monthly fees paid to the
Company. Chapter 13 revenue increased 30.7%, or $381,458 to $1,622,107 in the
three-month period ended June 30, 1999, compared to $1,240,649 in the
three-month period ended June 30, 1998. The sale of additional hardware to
existing Chapter 13 trustee clients as they converted to CASEPOWER
contributed to the increase.
Total cost of goods sold and direct costs increased 38.0%, or
$488,830, to $1,776,592 in the three-month period ended June 30, 1999,
compared to $1,287,762 in the three-month period ended June 30, 1998. Total
cost of goods sold and direct costs as a percentage of operating revenues
increased to 49.0% in the three-month period ended June 30, 1999, compared to
45.6% in the three-month period ended June 30, 1998, primarily due to the
sale of additional hardware to existing Chapter 13 trustee clients as they
converted to CASEPOWER. These hardware sales have a much lower gross margin,
which serves to decrease the overall gross margin. Processing costs increased
35.4%, or $328,806, to $1,257,764 in the three-month period ended June 30,
1999, compared to $928,958 in the three month period ended June 30, 1998. The
increase in 1999 resulted principally from an increase in customer service
expense to support the growth in Chapter 7 sales and to support the new
Chapter 13 product, CASEPOWER. Depreciation and amortization increased 44.6%,
or $160,024, to $518,828 in the three-month period ended June 30, 1999,
compared to $358,804 in the three-month period ended June 30, 1998, primarily
due to the purchase of computer equipment for the Company's Chapter 7 product.
Operating expenses increased 8.5%, or $92,261, to $1,182,430 in the
three-month period ended June 30, 1999, compared to $1,090,169 in the
three-month period ended June 30, 1998. Operating expenses as a percentage of
operating revenues was 32.6% in the three-month period ended June 30, 1999,
compared to 38.6% in the three-month period ended June 30, 1998. The dollar
increase in operating expenses was due primarily to increases in general and
administrative infrastructure necessary to support a higher level of
revenues. Sales and marketing expenses increased 2.0%, or $7,102, to $356,711
in the three-month period ended June 30, 1999, compared to $349,609 in the
three-month period ended June 30, 1998.
Other income (expense), which includes interest income and interest
expense, was $107,641 in the three-month period ended June 30, 1999, compared
to $14,578 in the three-month period ended June 30, 1998. This resulted from
a reduction in net interest expense due to interest income from the
investment of the net proceeds from the sale of 1,140,500 shares of Common
Stock in a secondary public
9
<PAGE>
offering completed in June of 1998. Outstanding debt was paid off with a
portion of the net proceeds from the stock offering resulting in a reduction
in interest expense.
The Company's effective tax rates were 38.6% and 40.2% for the
three-month periods ended June 30, 1999 and June 30, 1998, respectively.
Net income increased 73.1%, or $201,766, to $477,712 in the
three-month period ended June 30, 1999, compared to net income of $275,946 in
the three-month period ended June 30, 1998. Net income as a percentage of
operating revenues increased to 13.2% in the three-month period ended June
30, 1999, from 9.8% in the three-month period ended June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company had total cash and short-term investments of $10,368,784
at June 30, 1999, and working capital of $12,449,082. In June of 1998, the
Company completed a sale of 1,140,500 shares of Common Stock, which resulted
in cash proceeds of $12,727,980.
Net cash provided by operating activities was $842,203 for the six
months ended June 30, 1998, and $706,714 for the six months ended June 30,
1999. The net cash provided by operating activities in the six months ended
June 30, 1998, consisted primarily of net income before deferred taxes of
$546,864, depreciation and amortization of $724,956, offset by an increase in
accounts receivable of $290,545 and a decrease in accounts payable and
accrued expenses of $138,582. The outstanding balance of accounts receivable
has increased primarily due to the growth in revenue.
The net cash provided by operating activities for the six months
ended June 30, 1999, consisted primarily of net income before deferred taxes
of $962,164, depreciation and amortization of $1,055,869, and a decrease in
prepaid expenses and other assets of $75,187, offset by an increase in
accounts receivable of $1,102,896 and a decrease in accounts payable and
accrued expenses of $322,550. The increase in depreciation and amortization
relates primarily to the purchase of computer equipment for the installations
of the Company's Chapter 7 product. The outstanding accounts receivable
balance has increased primarily due to the growth in revenue.
The Company invested in property and equipment totaling $1,365,660
and $1,500,104 for the six-month periods ended June 30, 1998 and June 30,
1999, respectively, which related principally to the installation of computer
equipment for the Company's Chapter 7 product.
The Company incurred expenditures for software costs totaling
$700,085 and $325,657 for the six months ended June 30, 1998 and June 30,
1999, respectively. In April of 1998, the Company acquired a PC-based product
for Chapter 13 trustees, and this purchase is reflected in the June 30, 1998
software expenditures. These expenditures are capitalized and are being
amortized on a straight-line basis over a maximum five-year period. Internal
software costs incurred in the creation of computer software products are
capitalized as soon as technological feasibility has been established. Prior
to the completion of a detailed program design, development costs are
expensed. Capitalized costs are amortized based on current and future revenue
for each product with an annual minimum equal to straight-line amortization
over the remaining estimated economic life of the product, not to exceed five
years. Additionally, the Company anticipates future software development will
be at or above the spending levels of prior years.
10
<PAGE>
The Company believes that the net proceeds from the stock offering
completed in June 1998, together with funds that may be generated from
operations, will be sufficient to finance the Company's currently anticipated
working capital and property and equipment expenditures for the foreseeable
future.
YEAR 2000
Many currently installed computer systems and software products are
coded to accept only two-digit entries to represent years. For example, the
year "1998" would be represented by "98." These systems and products will
need to be able to accept four digit entries to distinguish 21st century
dates from 20th century dates. Any programs that have time sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000.
This could result in the computer shutting down or performing incorrect
computations. As a result, in less than six months, computer systems and
software products used by many companies, that do not accept four-digit year
entries, will need to be upgraded or replaced to comply with such "Year 2000"
requirements.
The Company believes that its currently marketed software products
are Year 2000 compliant. In the first quarter of 1998, the Company began
shipping release 3.0 of TCMS, as part of the Company's continual process of
enhancing and upgrading its existing software products. Although release 3.0
of TCMS was written to be Year 2000 compliant, the impetus for its design was
the Company's desire to further streamline Chapter 7 case administration for
trustees. The Company introduced release 4.0 of TCMS in March, 1999, which
release was also introduced for market and enhancement purposes unrelated to
Year 2000 issues, but was written to be Year 2000 compliant. Similarly, in
1997 the Company began shipping CASEPOWER, a new proprietary
Windows95/NT-based client-server software application for Chapter 13
trustees. Like TCMS, CASEPOWER was written to be Year 2000 compliant. Also
like TCMS, the impetus for CASEPOWER'S design was the Company's commitment to
the development and marketing of new and competitive bankruptcy case
management conventions. The Company's national upgrade program for existing
Chapter 13 customers, from its older AS/400 legacy product to CASEPOWER, is
complete.
The Company is also in the process of discussing with its vendors
and customers the potential impact the Year 2000 issue may have on their
systems. More specifically, the Company has reviewed and assessed the
probability of a material adverse effect from the Year 2000 issue on the
Company's exclusive national marketing arrangement with Bank of America. Bank
of America has reported that it undertook a process of software inventory,
analysis, modification, testing and verification to assess the potential
impact of the Year 2000 issue on its systems. Bank of America expects to
substantially complete the Year 2000 software conversion projects for its
systems by the end of 1999. Bank of America's management believes that its
plans for dealing with the Year 2000 issue will result in timely and adequate
modifications of systems and technology. Over the next 6 months, the plans of
other third parties to address the Year 2000 issue will continue to be
monitored and any identified impact on the Company will be evaluated.
The Year 2000 issue also affects the Company's internal systems,
including information technology (IT) and non-IT systems. The Company has
assessed the readiness of its systems for handling the Year 2000. Management
currently believes that all material systems are either compliant, or will be
upgraded or replaced by the Year 2000. The costs associated with this project
are being expensed as incurred and are not expected to be material to the
Company's financial position or results of operations.
11
<PAGE>
As previously discussed, the Company believes their currently
marketed software products and internal systems are Year 2000 compliant or
will be by the end of 1999. Additionally, they are not aware of any vendors
or customers with Year 2000 problems which could materially impact their
operations. Accordingly, the Company has not specifically evaluated a
worst-case scenario, nor has it developed contingency plan of such scenario.
FORWARD-LOOKING STATEMENTS
This Form 10-QSB contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, including those
relating to the possible or assumed future results of operations and
financial condition of the Company. Because those statements are subject to a
number of uncertainties and risks, actual results may differ materially from
those expressed or implied by the forward-looking statements. Factors that
could cause actual results to differ from those expressed or implied include,
but are not limited to, any material changes in the total asset proceeds on
deposit by Chapter 7 trustees served by the Company, changes in the number of
bankruptcy filings each year, the Company's reliance on its marketing
arrangement for Chapter 7 revenue, the Company's ability to achieve or
maintain technological advantages, and any material adverse effect of the
Year 2000 issue and other factors described in the Company's filings with the
Securities and Exchange Commission under the Securities Act of 1933 and the
Securities Exchange Act of 1934. The Company undertakes no obligation to
update any forward-looking statements contained herein to reflect future
events or developments.
12
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ELECTRONIC PROCESSING, INC.
JUNE 30, 1999 FORM 10-QSB
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
At the June 1, 1999, annual meeting, the Company's shareholders approved the
amendment of ARTICLE THIRD of the Company's Articles of Incorporation,
creating a new class of preferred stock consisting of 2,000,000 shares to
provide an additional class of capital stock that could be issued in one or
more series by the Board of Directors for general corporate purposes. The
Company's shareholders also approved the elimination of ARTICLE TWELFTH of
the Company's Articles of Incorporation, because it conflicted with the
creation of the new class of preferred stock.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the Shareholders of the Company was held on June 1,
1999, to consider the election of directors, ratification of the appointment
of independent accountants for the Company for 1999 and to amend the
Company's Articles of Incorporation to create a new class of preferred stock
consisting of 2,000,000 shares. The results of the voting at the Annual
Meeting were as follows:
ELECTION OF DIRECTORS
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
Tom Olofson 4,374,122 5,600 0
Christopher E. Olofson 4,372,682 7,040 0
Robert C. Levy 4,374,122 5,600 0
W. Bryan Satterlee 4,374,122 5,600 0
Ratification of Baird 4,362,143 14,625 2,954
Kurtz & Dobson as
Independent
Accountants
Amend the Articles of 2,391,709 351,704 10,254
Incorporation to create a
new class of preferred stock
consisting of 2,000,000 shares
</TABLE>
No other matters were submitted to a vote of the shareholders at the annual
meeting.
13
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
The following Exhibits are filed by attachment to this Form 10-QSB:
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit Page
- ------ ---------------------- ----
<S> <C> <C>
3 Articles of Incorporation 16
27 Financial Data Schedule 32
</TABLE>
14
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act
of 1934, as amended, we have caused this report to be signed on our behalf by
the undersigned, thereunto duly authorized.
ELECTRONIC PROCESSING, INC.
Date: August 16, 1999 /s/ Tom W. Olofson
-------------------
Tom W. Olofson
Chairman of the Board
Chief Executive Officer
(Principal Executive Officer)
Director
Date: August 16, 1999 /s/ Michael A. Rider
---------------------
Michael A. Rider
Controller and Assistant Secretary
(Chief Accounting Officer)
15
<PAGE>
EXHIBIT 3
ARTICLES OF INCORPORATION
OF
NEWCO RGLG 1, INC.
The undersigned, being a natural person of the age of eighteen years or
more, for the purpose of forming a corporation under "The General and
Business Corporation Law of Missouri", does hereby adopt the following
Articles of Incorporation:
FIRST. The name of the corporation is: Newco RGLG 1, Inc.
SECOND. The address of its initial registered office in the State of
Missouri is 2300 City Center Square, P. O. Box 26278, Kansas City, Missouri
64196, and the name of its initial registered agent at such address is Marvin
L. Rich.
THIRD. The aggregate number of shares which the corporation shall have
authority to issue shall be one million (1,000,000) shares of common stock,
each of the par value of one cent ($.01) per share.
FOURTH. The name and place of residence of the incorporator are as
follows:
Name Residence
Marvin L. Rich 6632 Wenonga Road
Mission, Kansas 66208
FIFTH. The number of directors to constitute the first board of
directors of the corporation is five (5). Thereafter the number of directors
shall be fixed by, or in the manner provided in, the bylaws of the
corporation. Any change in the number of directors shall be reported to the
Secretary of State within thirty (30) calendar days of such change.
Directors need not be shareholders unless the bylaws require them to be
shareholders.
The persons to constitute the first board of directors, each of whom
shall hold office until the first annual meeting of the shareholders or until
his successor shall have been elected and qualified, are as follows:
Rex Wiggins
Tom Olofson
Terry Matlack
Max Muller
SIXTH. The duration of the corporation is perpetual.
SEVENTH. This corporation is formed for the following purposes:
(a) To engage in every aspect of data processing, creation of data
bases, communication and other computer related activities.
16
<PAGE>
(b) To buy, lease, rent or otherwise acquire, own, hold, use,
divide, partition, develop, improve, operate and sell, lease, mortgage or
otherwise dispose of, deal in and turn to account real estate, leaseholds and
any and all interests or estates therein or appertaining thereto; and to
construct, manage, operate, improve, maintain and otherwise deal with
buildings, structures and improvements situated or to be situated on any real
estate or leasehold.
(c) To engage in any mining, manufacturing, chemical,
metallurgical, processing or related business, and to buy, lease, construct
or otherwise acquire, own, hold, use, sell, lease, mortgage or otherwise
dispose of, plants, works, facilities and equipment therefor.
(d) To buy, utilize, lease, rent, import, export, manufacture,
produce, design, prepare, assemble, fabricate, improve, develop, sell, lease,
mortgage, pledge, hypothecate, distribute and otherwise deal in at wholesale,
retail or otherwise, and as principal, agent or otherwise, all commodities,
goods, wares, merchandise, machinery, tools, devices, apparatus, equipment
and all other personal property, whether tangible or intangible, of every
kind without limitation as to description, location or amount.
(e) To apply for, obtain, purchase, lease, take licenses in
respect of or otherwise acquire, and to hold, own, use, operate, enjoy, turn
to account, grant licenses in respect of, manufacture under, introduce, sell,
assign, mortgage, pledge or otherwise dispose of:
1. Any and all inventions, devices, processes and formulae and
any improvements and modifications thereof;
2. Any and all letters patent of the United States or of any
other country, state or locality, and all rights connected therewith or
appertaining thereto;
3. Any and all copyrights granted by the United States or any
other country, state or locality;
4. Any and all trademarks, trade names, trade symbols and other
indications of origin and ownership granted by or recognized under the
laws of the United States or of any other country, state or locality;
and to conduct and carry on its business in any or all of its various
branches under any trade name or trade names.
(f) to engage in, carry on and conduct research, experiments,
investigations, analyses, studies and laboratory work, for the purpose of
discovering new products or to improve products, articles and things, and to
buy, construct or otherwise acquire, own, operate, maintain, lease, sell,
mortgage or otherwise dispose of, laboratories and similar facilities, plants
and any and all other establishments, and to procure, construct, own, use,
hold and dispose of all necessary equipment in respect thereof, for the
purposes aforesaid.
(g) To enter into any lawful contract or contracts with persons,
firms, corporations, other entities, governments or any agencies or
subdivisions thereof, including guaranteeing the performance of any contract
or any obligation of any person, firm, corporation or other entity.
(h) To purchase and acquire, as a going concern or otherwise, and
to carry on, maintain and operate all or any part of the property or business
of any corporation, firm, association, entity, syndicate or person
whatsoever, deemed to be of benefit to the corporation, or of use in any
17
<PAGE>
manner in connection with any of its purposes; and to dispose thereof upon
such terms as may seem advisable to the corporation.
(i) To purchase or otherwise acquire, hold, sell, pledge, reissue,
transfer or otherwise deal in, shares of the corporation's own stock provided
that it shall not use its funds or property for the purchase of its own
shares of stock when such use would be prohibited by law, by the articles of
incorporation or by the bylaws of the corporation; and, provided further,
that shares of its own stock belonging to it shall not be voted upon directly
or indirectly.
(j) To invest, lend and deal with moneys of the corporation in any
lawful manner, and to acquire by purchase, by the exchange of stock or other
securities of the corporation, by subscription or otherwise, and to invest
in, to hold for investment or for any other purpose, and to use, sell, pledge
or otherwise dispose of, and in general to deal in any interest concerning or
enter into any transaction with respect to (including "long" and "short"
sales of) any stocks, bonds, notes, debentures, certificates, receipts and
other securities and obligations of any government, state, municipality,
corporation, association or other entity, including individuals and
partnerships and, while owner thereof, to exercise all of the rights, powers
and privileges of ownership, including, among other things, the right to vote
thereon for any and all purposes and to give consents with respect thereto.
(k) To borrow or raise money for any purpose of the corporation
and to secure any loan, indebtedness or obligation of the corporation and the
interest accruing thereon, and for that or any other purpose to mortgage,
pledge, hypothecate or charge all or any part of the present or hereafter
acquired property, rights and franchises of the corporation, real, personal,
mixed or of any character whatever, subject only to limitations specifically
imposed by law.
(l) To do any or all of the things hereinabove enumerated alone
for its own account, or for the account of others, or as the agent for
others, or in association with others or by or through others, and to enter
into all lawful contracts and undertakings in respect thereof.
(m) To have one or more offices, to conduct its business, carry on
its operations and promote its objects within and without the State of
Missouri and anywhere in the world, without restriction as to place, manner
or amount, but subject to the laws applicable thereto; and to do any or all
of the things herein set forth to the same extent as a natural person might
or could do and in any part of the world, either alone or in the company with
others.
(n) In general, to carry on any other business in connection with
each and all of the foregoing or incidental thereto, and to carry on,
transact and engage in any and every lawful business or other lawful thing
calculated to be of gain, profit or benefit to the corporation as fully and
freely as a natural person might do, to the extent and in the manner, and
anywhere within and without the State of Missouri, as it may from time to
time determine; and to have and exercise each and all of the powers and
privileges, either direct or incidental, which are given and provided by or
are available under the laws of the State of Missouri in respect of general
and business corporations organized for profit thereunder; provided, however,
that the corporation shall not engage in any activity for which a corporation
may not be formed under the laws of the State of Missouri.
None of the purposes and powers specified in any of the paragraphs of
this Article SEVENTH shall be in any way limited or restricted by reference
to or inference from the terms of any other paragraph, and the purposes and
powers specified in each of the paragraphs of this Article SEVENTH shall be
regarded as independent purposes and powers. The enumeration of specific
purposes and powers
18
<PAGE>
in this Article SEVENTH shall not be construed to restrict in any manner the
general purposes and powers of this corporation, nor shall the expression of
one thing be deemed to exclude another, although it be of like nature. The
enumeration of purposes or powers herein shall not be deemed to exclude or in
any way limit by inference any purposes of powers which this corporation has
power to exercise, whether expressly by the laws of the State of Missouri,
now or hereafter in effect, or impliedly by any reasonable construction of
such laws.
EIGHTH. (a) Except as may be otherwise specifically provided by
statute, or the articles of incorporation or the bylaws of the corporation,
as from time to time amended, all powers of management, direction and control
of the corporation shall be, and hereby are, vested in the board of directors.
(b) The bylaws of the corporation may from time to time be
altered, amended, suspended or repealed, or new bylaws may be adopted, in any
of the following ways: (i) by the affirmative vote, at any annual or special
meeting of the shareholders, of the holders of a majority of the outstanding
shares of stock of the corporation entitled to vote; or (ii) by resolution
adopted by a majority of the full board of directors at a meeting thereof, or
adopted by a majority of the full board of directors at a meeting thereof, or
(iii) by unanimous written consent of all the shareholders or all the
directors in lieu of a meeting; provided, however, that the power of the
directors to alter, amend, suspend or repeal the bylaws or any portion
thereof may be denied as to any bylaws or portion thereof enacted by the
shareholders if at the time of such enactment the shareholders shall so
expressly provide.
(c) The corporation may agree to the terms and conditions upon
which any director, officer, employee or agent accepts his office or position
and in its bylaws or otherwise may agree to indemnify and protect any
director, officer, employee or agent to the extent permitted by the laws of
Missouri.
NINTH. Insofar as it is permitted under the laws of Missouri and except
as may be otherwise provided by the bylaws of the corporation, no contract or
other transaction between this corporation and any other firm or corporation
shall be affected or invalidated solely by reason of the fact that any
director or officer of this corporation is interested in, or is a member,
shareholder, director or officer of such other firm or corporation; and any
director or officer of this corporation, individually or jointly with one or
more other directors or officers of this corporation, may be a party to, or
may be interested in, any contract or transaction of this corporation or in
which this corporation is interested, and no such contract or transaction
shall be invalidated thereby.
TENTH. The directors shall have power to hold their meetings and to
keep the books (except any books required to be kept in the State of
Missouri, pursuant to the laws thereof) at any place within or without the
State of Missouri.
ELEVENTH. The corporation shall be entitled to treat the registered
holder of any shares of the corporation as the owner of such shares and of
all rights derived from such shares for all purposes. The corporation shall
not be obligated to recognize any equitable or other claim to or interest in
such shares or rights on the part of any other person, including, but without
limiting the generality of the term "person", a purchaser, pledgee, assignee
or transferee of such shares or rights, unless and until such person becomes
the registered holder of such shares, and the foregoing shall apply whether
or not the corporation shall have either actual or constructive notice of the
interest of such person.
TWELFTH. The corporation reserves the right to alter, amend or repeal
any provision contained in its articles of incorporation in the manner now or
hereafter prescribed by the statutes of
19
<PAGE>
Missouri, and all rights and powers conferred herein are granted subject to
this reservation; and, in particular, the corporation reserves the right and
privilege to amend its articles of incorporation from time to time so as to
authorize other or additional classes of shares (including preferential
shares), to increase or decrease the number of shares of any class now or
hereafter authorized, to establish, limit or deny to shareholders of any
class the right to purchase or subscribe for any shares of stock of the
corporation of any class, whether now or hereafter authorized or whether
issued for cash, property or services or as a dividend or otherwise, or to
purchase or subscribe for any obligations, bonds, notes, debentures, or
securities or stock convertible into shares of stock of the corporation or
carrying or evidencing any right to purchase shares of stock of any class,
and to vary the preference, priorities, special powers, qualifications,
limitations, restrictions and the special or relative rights or other
characteristics in respect of the shares of each class, and to accept and
avail itself of, or subject itself to, the provisions of any statutes of
Missouri hereafter enacted pertaining to general and business corporations,
to exercise all the rights, powers and privileges conferred upon corporations
organized thereunder or accepting the provisions thereof and to assume the
obligations and duties imposed therein, upon the affirmative vote of the
holders of a majority of the shares of stock entitled to vote thereon, or, in
the event the laws of Missouri require a separate vote by classes of shares,
upon the affirmative vote of the holders of a majority of the shares of each
class whose separate vote is required thereon.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 13th
day of July, 1988.
/s/ Marvin L. Rich
------------------------------
Marvin L. Rich
Incorporator
20
<PAGE>
STATE OF MISSOURI - OFFICE OF SECRETARY OF STATE
JAMES C. KIRKPATRICK, SECRETARY OF STATE
AMENDMENT OF ARTICLES OF INCORPORATION
(TO BE SUBMITTED IN DUPLICATE BY AN ATTORNEY)
HONORABLE JAMES C. KIRKPATRICK
SECRETARY OF STATE
STATE OF MISSOURI
JEFFERSON CITY, MO. 65101
Pursuant to the provisions of The General and Business Corporation Law
of Missouri, the undersigned Corporation certifies the following:
(1) The present name of the Corporation is Newco RGLG 1, Inc.
The name under which it was originally organized was Newco RGLG 1, Inc.
(2) An amendment to the Corporation's Articles of Incorporation was
adopted by the shareholders on July 29, 1988.
(3) Article #1 is amended to read as follows:
The name of the corporation is: Electronic Processing, Inc.
(4) Of the 300,000 shares outstanding, 300,000 of such shares were
entitled to vote on such amendment.
The number of outstanding shares of any class ENTITLED TO VOTE THEREON
as a class were as follows:
NUMBER OF
CLASS OUTSTANDING SHARES
Common 300,000
(5) The number of shares voted for and against the amendment was as
follows:
CLASS NO. VOTED FOR NO. VOTED AGAINST
Common 300,000 0
(6) If the amendment changed the number or par value of authorized
shares having a par value the amount in dollars of authorized shares having a
par value as changed is: n/a.
21
<PAGE>
If the amendment changed the number of authorized shares without par
value, the authorized number of shares without par value as changed and the
consideration proposed to be received for such increased authorized shares
without par value as are to be presently issued are: n/a.
(7) If the amendment provides for an exchange, reclassification, or
cancellation of issued shares, or a reduction of the number of authorized
shares of any class below the number of issued shares of that class, the
following is a statement of the manner in which such reduction shall be
effected: n/a.
IN WITNESS WHEREOF, the undersigned, Max Muller, President, has executed
this instrument and its Assistant Secretary, Peggy Mitchell, has affixed its
corporate seal hereto and attested said seal on the 10th day of August, 1988.
NEWCO RGLG 1, INC.
(Name of Corporation)
PLACE
CORPORATE SEAL
HERE
(IF NO SEAL, STATE "NONE") By: /s/ Max Muller
------------------------
President
NONE
ATTEST:
/s/ Peggy J. Mitchell
- ---------------------------------
Asst. Secretary
22
<PAGE>
STATE OF MISSOURI . . . OFFICE OF SECRETARY OF STATE
AMENDMENT OF ARTICLES OF INCORPORATION
(TO BE SUBMITTED IN DUPLICATE BY AN ATTORNEY)
SECRETARY OF STATE
STATE OF MISSOURI
P. O. BOX 778
JEFFERSON CITY, MO 65102
Pursuant to the provisions of The General and Business Corporation Law
of Missouri, the undersigned Corporation certifies the following:
1. The present name of the Corporation is Electronic Processing, Inc.
The name under which it was originally organized was NEWCO
RGLG, I, Inc.
2. An amendment to the Corporation's Articles of Incorporation was
adopted by the shareholders on October 12, 1995.
3. Article Third is amended to read as follows:
Third. The aggregate number of shares, class and par value, if
any, which the corporation shall have authority to issue shall be
3,000,000 shares of common stock, each with a par value of $.01.
There are no preferences, qualifications, limitations, restrictions,
or special or relative rights, including convertible rights, if any,
with respect to the authorized shares of stock.
4. Of the 300,000 shares outstanding, 300,000 of such shares were
entitled to vote on such amendment.
The number of outstanding shares of any class entitled to vote
thereon as a class were as follows:
Class Number of Outstanding Shares
----- ----------------------------
Common 300,000
23
<PAGE>
5. The number of shares voted for and against the amendment was as
follows:
Class No. Voted For No. Voted Against
----- ------------- -----------------
Common 300,000 -0-
6. If the amendment changed the number of par value of authorized
shares having a par value, the amount in dollars of authorized
shares having a par value as changed is: $30,000.00.
If the amendment changed the number of authorized shares without
par value, the authorized number of shares without par value as
changed and the consideration proposed to be received for such
increased authorized shares without par value as are to be
presently issued are: N/A
7. If the amendment provides for an exchange, reclassification, or
cancellation of issued shares, or a reduction of the number of
authorized shares of any class below the number of issued shares of
that class, the following is a statement of the manner in which
such reduction shall be effected: N/A
IN WITNESS WHEREOF, the undersigned, Tom W. Olofson, President, has
executed this instrument and Robert C. Levy, its Secretary has affixed its
corporate seal hereto and attested said seal on the 31st day of October, 1995.
PLACE CORPORATE
SEAL HERE
ELECTRONIC PROCESSING, INC.
By: /s/ Tom W. Olofson
---------------------------
Tom W. Olofson, President
ATTEST:
By: /s/ Robert C. Levy
-------------------------
Robert C. Levy, Secretary
24
<PAGE>
STATE OF MISSOURI . . . OFFICE OF SECRETARY OF STATE
AMENDMENT OF ARTICLES OF INCORPORATION
(TO BE SUBMITTED IN DUPLICATE BY AN ATTORNEY)
SECRETARY OF STATE
STATE OF MISSOURI
P. O. BOX 778
JEFFERSON CITY, MO 65102
Pursuant to the provisions of The General and Business Corporation Law
of Missouri, the undersigned corporation hereby certifies the following:
1. The present name of the Corporation is Electronic Processing, Inc.
The name under which it was originally organized was NEWCO RGLG I,
Inc.
2. An amendment to the corporation's Articles of Incorporation was
adopted by the directors and shareholders on April 1, 1996.
3. Article Third is amended to read as follows:
THIRD. The aggregate number of shares, class and par value, if
any, which the corporation shall have authority to issue shall be
5,000,000 shares of common stock, each with a par value of $.01.
There are no preferences, qualifications, limitations,
restrictions, or special or relative rights, including convertible
rights, if any, with respect to the authorized shares of stock.
4. Of the 300,000 shares of the corporation outstanding, 300,000 of
such shares were entitled to vote on such amendment.
The number of outstanding shares of any class entitled to vote
thereon as a class were as follows:
Class Number of Outstanding Shares
----- ----------------------------
Common 300,000
25
<PAGE>
5. The number of shares voted for and against such amendment were as
follows:
Class No. Voted For No. Voted Against
----- ------------- -----------------
Common 300,000 -0-
6. If the amendment changed the number of par value of authorized
shares having a par value, the amount in dollars of authorized
shares having a par value as changed is: $50,000.00.
If the amendment changed the number of authorized shares without
par value, the authorized number of shares without par value as
changed and the consideration proposed to be received for such
increased authorized shares without par value as are to be
presently issued are: N/A
7. If the amendment provides for an exchange, reclassification, or
cancellation of issued shares, or a reduction of the number of
authorized shares of any class below the number of issued shares of
that class, the following is a statement of the manner in which
such reduction shall be effected: N/A
IN WITNESS WHEREOF, the undersigned, Tom W. Olofson, President, has
executed this instrument and Robert C. Levy, its Secretary has affixed its
corporate seal hereto and attested said seal on the 1st day of April, 1996.
PLACE CORPORATE
SEAL HERE
ELECTRONIC PROCESSING, INC.
By: /s/ Tom W. Olofson
----------------------------
Tom W. Olofson, President
ATTEST:
By: /s/ Robert C. Levy
----------------------------
Robert C. Levy, Secretary
26
<PAGE>
STATE OF MISSOURI . . . OFFICE OF SECRETARY OF STATE
AMENDMENT OF ARTICLES OF INCORPORATION
(TO BE SUBMITTED IN DUPLICATE BY AN ATTORNEY)
SECRETARY OF STATE
STATE OF MISSOURI
P. O. BOX 778
JEFFERSON CITY, MO 65102
Pursuant to the provisions of The General and Business Corporation Law
of Missouri, the undersigned Corporation certifies the following:
1. The present name of the Corporation is Electronic Processing, Inc.
The name under which it was originally organized was NEWCO RGLG I,
Inc.
2. An amendment to the Corporation's Articles of Incorporation was
adopted by the shareholders on June 3, 1997.
3. Article Third is amended to read as follows:
THIRD. The aggregate number of shares, class and par value, if
any, which the corporation shall have authority to issue shall be
10,000,000 shares of common stock, each with a par value of $.01.
4. Of the 3,400,000 shares outstanding, 3,400,000 of such shares were
entitled to vote on such amendment.
The number of outstanding shares of any class entitled to vote
thereon as a class were as follows:
Class Number of Outstanding Shares
----- ----------------------------
Common 3,400,000
5. The number of shares voted for and against the amendment was as
follows:
27
<PAGE>
Class No. Voted For No. Voted Against
----- ------------- -----------------
Common 3,304,255 12,230
6. If the amendment changed the number of par value of authorized
shares having a par value, the amount in dollars of authorized
shares having a par value as changed is: $100,000.
If the amendment changed the number of authorized shares without
par value, the authorized number of shares without par value as
changed and the consideration proposed to be received for such
increased authorized shares without par value as are to be
presently issued are:
N/A
7. If the amendment provides for an exchange, reclassification, or
cancellation of issued shares, or a reduction of the number of
authorized shares of any class below the number of issued shares of
that class, the following is a statement of the manner in which
such reduction shall be effected:
N/A
IN WITNESS WHEREOF, the undersigned, Tom W. Olofson, President, has
executed this instrument and Robert C. Levy, its Secretary has affixed its
corporate seal hereto and attested said seal on the 24th day of February,
1998.
PLACE CORPORATE
SEAL HERE
ELECTRONIC PROCESSING, INC.
By: /s/ Tom W. Olofson
---------------------------
Tom W. Olofson, President
ATTEST:
By: /s/ Robert C. Levy
----------------------------
Robert C. Levy, Secretary
28
<PAGE>
STATE OF MISSOURI - OFFICE OF SECRETARY OF STATE
AMENDMENT OF ARTICLES OF INCORPORATION
(TO BE SUBMITTED IN DUPLICATE BY AN ATTORNEY)
SECRETARY OF STATE
STATE OF MISSOURI
P. O. BOX 778
JEFFERSON CITY, MO 65102
Pursuant to the provisions of The General and Business Corporation Law
of Missouri, the undersigned Corporation certifies the following:
1. The present name of the Corporation is Electronic Processing, Inc.
The name under which it was originally organized was NEWCO RGLG I,
Inc.
2. An amendment to the Corporation's Articles of Incorporation was
adopted by the shareholders on June 1, 1999.
3. ARTICLE THIRD of the Corporation's Articles of Incorporation is
amended in its entirety to read as follows:
THIRD: The total number of shares of all classes of stock which
the corporation shall have the authority to issue is Twelve Million
(12,000,000), consisting of Ten Million (10,000,000) shares of Common
Stock, $0.01 par value per share, and Two Million (2,000,000) shares of
Preferred Stock, $1.00 par value per share.
A. COMMON STOCK
1. GENERAL. The voting, dividend and liquidation rights of the
holders of the Common Stock are subject to and qualified by the
rights of the holders of the Preferred Stock of any series as may
be designated by the Board of Directors upon any issuance of the
Preferred Stock of any series.
2. VOTING. The holders of the Common Stock are entitled to one vote
for each share held at all meetings of shareholders (and written
actions in lieu of meetings). There shall be no cumulative voting.
3. DIVIDENDS. Dividends may be declared and paid on the Common Stock
from funds lawfully available therefor as and when determined by
the Board of Directors and subject to any preferential dividend
rights of any then outstanding series of Preferred Stock.
4. LIQUIDATION. Upon the dissolution or liquidation of the
Corporation, whether voluntary or involuntary, holders of Common
Stock will be entitled to receive all assets of the
29
<PAGE>
Corporation available for distribution to its shareholders, subject
to any rights of any then outstanding series of Preferred Stock.
B. PREFERRED STOCK.
Preferred Stock may be issued from time to time in one or more
series, each of such series to have such terms as stated or expressed
herein and in the resolution or resolutions providing for the issue of
such series adopted by the Board of Directors of the Corporation as
hereinafter provided. Authority is hereby expressly granted to the
Board of Directors from time to time to issue the Preferred Stock in one
or more series, and in connection with the creation of any such series,
by resolution or resolutions providing for the issue of the shares
thereof, to determine and fix such voting powers, full or limited, or no
voting powers and such designations, preferences and relative,
participating, optional or other special rights, and qualifications,
limitations and restrictions thereof, including without limitation,
dividend rights, conversion rights, redemption privileges and
liquidation preferences, as shall be stated and expressed in such
resolutions, all to the full extent now or hereafter permitted by the
General and Business Corporation Law of Missouri. Without limiting the
generality of the foregoing, except as otherwise provided in the
resolutions providing for the issuance of any series of Preferred Stock,
the resolutions providing for issuance of any series of Preferred Stock
may provide that such series shall be superior or rank equally or be
junior to the Preferred Stock of any other series to the extent
permitted by law. Except as otherwise provided in the resolutions
providing for the issuance of any series of Preferred Stock, no vote of
the holders of the Preferred Stock or Common Stock shall be a
prerequisite to the issuance of any shares of any series of the
Preferred Stock authorized by and complying with the conditions of these
Articles of Incorporation.
C. GENERAL.
No shareholder shall be entitled as a matter of right to subscribe
for, purchase or receive any part of any new or additional issue of
stock of any class, whether now or hereafter authorized, or of any
bonds, debentures or other securities convertible into stock of any
class, and all such additional shares of stock, bonds, debentures or
other securities convertible into stock may be issued by the Board of
Directors to such person or persons, on such terms and for such
consideration as the Board of Directors, in their discretion, may
determine.
ARTICLE TWELFTH of the Corporation's Articles of Incorporation is
deleted in its entirety.
4. Of the 4,635,068 shares outstanding, 4,635,068 of such shares were
entitled to vote on such amendment.
The number of outstanding shares of any class entitled to vote
thereon as a class were as follows:
Class Number of Outstanding Shares
----- ----------------------------
Common 4,635,068
30
<PAGE>
5. The number of shares voted for and against the amendment was as
follows:
Class No. Voted For No. Voted Against
----- ------------- -----------------
Common 2,391,709 361,958
6. If the amendment changed the number of par value of authorized
shares having a par value, the amount in dollars of authorized
shares having a par value as changed is: N/A
If the amendment changed the number of authorized shares without
par value, the authorized number of shares without par value as
changed and the consideration proposed to be received for such
increased authorized shares without par value as are to be
presently issued are: N/A
7. If the amendment provides for an exchange, reclassification, or
cancellation of issued shares, or a reduction of the number of
authorized shares of any class below the number of issued shares of
that class, the following is a statement of the manner in which
such reduction shall be effected: N/A
IN WITNESS WHEREOF, the undersigned, Christopher E. Olofson, President,
has executed this instrument and Michael Rider, its Assistant Secretary has
affixed its corporate seal hereto and attested said seal on the 19th day of
July, 1999.
PLACE CORPORATE
SEAL HERE
ELECTRONIC PROCESSING, INC.
By: /s/ Christopher E. Olofson
-------------------------------------
Christopher E. Olofson, President
ATTEST:
By: /s/ Michael Rider
-------------------------------
Michael Rider, Assistant Secretary
31
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ELECTRONIC
PROCESSING, INC. STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND
BALANCE SHEET AS OF JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 768,784
<SECURITIES> 9,600,000
<RECEIVABLES> 2,694,199
<ALLOWANCES> 5,000
<INVENTORY> 0
<CURRENT-ASSETS> 13,326,951
<PP&E> 10,399,037
<DEPRECIATION> 3,995,785
<TOTAL-ASSETS> 21,911,602
<CURRENT-LIABILITIES> 877,869
<BONDS> 0
0
0
<COMMON> 17,717,786
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 21,911,602
<SALES> 7,059,149
<TOTAL-REVENUES> 7,059,149
<CGS> 3,380,191
<TOTAL-COSTS> 3,380,191
<OTHER-EXPENSES> 2,219,589
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,114
<INCOME-PRETAX> 1,447,255
<INCOME-TAX> 557,951
<INCOME-CONTINUING> 889,304
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 889,304
<EPS-BASIC> 0.19
<EPS-DILUTED> 0.19
</TABLE>
