UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------------------
FORM 10-Q
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(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, 2000
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 May 11, 1999, there were 21,590,703 shares of the Registrant's
Common Stock outstanding.
ELECTRONIC CLEARING HOUSE, INC.
INDEX
PART I. FINANCIAL INFORMATION
Page No.
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheet 3
March 31, 2000 and September 30, 1999
Consolidated Statement of Operations 4
Three months and six months ended
March 31, 2000 and 1999
Consolidated Statement of Cash Flows 5
Six months ended March 31, 2000 and 1999
Notes to Consolidated Financial Statements 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 12
Signatures 13
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
ELECTRONIC CLEARING HOUSE, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
ASSETS
<CAPTION>
March 31, September 30,
2000 1999
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . $ 2,050,000 $ 2,900,000
Restricted cash. . . . . . . . . . . . . . . . 787,000 736,000
Accounts receivable less allowance
of $1,132,000 and $1,001,000 . . . . . . . . 1,518,000 1,532,000
Inventory less allowance of
$202,000 and $202,000 . . . . . . . . . . . . 787,000 580,000
Prepaid expenses and other assets. . . . . . . 180,000 88,000
Other receivable . . . . . . . . . . . . . . . 920,000 323,000
Total current assets. . . . . . . . . . . . . 6,242,000 6,159,000
Noncurrent assets:
Other receivables. . . . . . . . . . . . . . . 21,000 27,000
Property and equipment, net .. . . . . . . . . 2,379,000 1,962,000
Real estate held for
investment, net . . . . . . . . . . . . . . . 252,000 252,000
Deferred tax asset . . . . . . . . . . . . . . 1,385,000 1,392,000
Other assets, net. . . . . . . . . . . . . . . 1,530,000 1,222,000
Goodwill, net. . . . . . . . . . . . . . . . . 4,757,000 1,918,000
Total assets. . . . . . . . . . . . . . . . .$16,566,000 $12,932,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current
portion of long-term debt . . . . . . . . . $ 230,000 $ 149,000
Accounts payable . . . . . . . . . . . . . . . 151,000 159,000
Accrued expenses . . . . . . . . . . . . . . . 701,000 779,000
Deferred revenue . . . . . . . . . . . . . . . 603,000 62,000
Total current liabilities . . . . . . . . . . 1,685,000 1,149,000
Long-term debt . . . . . . . . . . . . . . . . . 856,000 599,000
Total liabilities . . . . . . . . . . . . . . 2,541,000 1,748,000
Stockholders' equity:
Convertible preferred stock, $.01 par
value, 5,000,000 shares authorized:
Series "K", 25,000 and 25,000 shares
issued and outstanding. . . . . . . . . . . .
Series "L", -0- and 40,000 shares
issued and outstanding . . . . . . . . . . .
Common stock, $.01 par value,
36,000,000 authorized:
21,590,703 and 19,874,126 shares issued;
21,433,491 and 19,788,213
shares outstanding. . . . .. . . . . . . . . 216,000 199,000
Additional paid-in capital . . . . . . . . . . 20,352,000 16,958,000
Accumulated deficit. . . . . . . . . . . . . . (6,073,000) (5,835,000)
Less treasury stock at cost, 157,212
and 85,913 common shares. . . . . . . . . . . (470,000) (138,000)
Total stockholders' equity . . . . . . . . . 14,025,000 11,184,000
. . . . . . . . . . . . . . . . . . . . . . .$16,566,000 $12,932,000
See accompanying notes to consolidated financial statements.
</TABLE>
ELECTRONIC CLEARING HOUSE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Six Months
Ended March 31, Ended March 31,
2000 1999 2000 1999
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Processing revenue. . . . . . . .$3,732,000$3,073,000 $7,367,000 $6,449,000
Transactions revenue. . . . . . .2,631,000 1,768,000 5,093,000 3,539,000
Terminal sales and
lease revenue . . . . . . . . . 161,000 1,475,000 269,000 1,569,000
Other revenue . . . . . . . . . . 50,000 40,000 50,000 268,000
6,574,000 6,356,000 12,779,000 11,825,000
Costs and expenses:
Processing and
transactions expense . . . . . .4,530,000 3,496,000 8,891,000 7,230,000
Cost of terminals
sold and leased . . . . . . . . 120,000 807,000 215,000 879,000
Other operating costs . . . . . . 792,000 526,000 1,523,000 1,095,000
Selling, general
and administrative . . . . . . . 1,318,000 1,084,000 2,340,000 1,929,000
Amortization of goodwill. . . . . 102,000 -0- 154,000 -0-
. . . . . . . . . 6,862,000 5,913,000 13,123,000 11,133,000
(Loss) income from operations . .(288,000) 443,000 (344,000) 692,000
Interest income. . . . . . . . . . . 91,000 38,000 162,000 86,000
Interest expense . . . . . . . . . . (22,000) (24,000) (41,000)
(49,000) . . . . . . . . . . . .
(Loss) income before
provision for income tax. . . .(219,000) 457,000 (223,000) 729,000
Provision for income taxes . . . . . -0- (13,000) (15,000)
(27,000)
Net (loss) income . . . . . . . $ (219,000)$ 444,000$ (238,000) $ 702,000
(Loss) earnings
per share - Basic . . . . . . .$ (0.01) $ 0.03 $ (0.01) $ 0.04
(Loss) earnings
per share - Diluted . . . . . .$ (0.01) $ 0.02 $ (0.01) $ 0.03
See accompanying notes to consolidated financial statements.
</TABLE>
ELECTRONIC CLEARING HOUSE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months
Ended March 31,
2000 1999
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income . . . . . . . . . . . . . .$ (238,000) $ 702,000
Adjustments to reconcile net (loss)
income to net cash provided by
(used in) operating activities:
Depreciation . . . . . . . . . . . . . . . . 175,000 107,000
Amortization. . . . . . . . . . . . . . . . . 248,000 35,000
Provision for losses on accounts
and notes receivable . . . . . . . . . . . . 211,000 374,000
Provision for deferred income taxes . . . . . 7,000 -0-
Fair value of stock issued in
connection with directors' compensation. . . 45,000 45,000
Changes in assets and liabilities:
Restricted cash . . . . . . . . . . . . . . . (51,000) 97,000
Accounts receivable . . . . . . . . . . . . . (79,000) (1,002,000)
Inventory . . . . . . . . . . . . . . . . . . (207,000) 141,000
Prepaid expenses and other assets . . . . . . (75,000) (31,000)
Accounts payable . . . . . . . . . . . . . . (22,000) (27,000)
Accrued expenses. . . . . . . . . . . . . . . (216,000) (82,000)
Deferred income . . . . . . . . . . . . . . . 541,000 (412,000)
Net cash provided by (used in)
operating activities . . . . . . . . . . . . 339,000 (53,000)
Cash flows from investing activities:
Other assets. . . . . . . . . . . . . . . . . (400,000) (281,000)
Purchase of equipment.. . . . . . . . . . . (544,000) (165,000)
(Increase) decrease in notes receivable . . .(1,177,000) 5,000
Repayment of notes receivable . . . . . . . . 250,000 -0-
Cash acquired through acquisition . . . . . 80,000 -0-
Net cash used in investing activities . . . .(1,791,000) (441,000)
Cash flows from financing activities:
Proceeds from issuance of notes payable . . . 400,000 -0-
Repayment of notes payable. . . . . . . . . . (62,000) (56,000)
Proceeds from common stock warrants exercised 140,000 260,000
Proceeds from exercise of stock options . . . 124,000 174,000
Net cash provided by financing activities . . 602,000 378,000
Net decrease in cash . . . . . . . . . . . . . . . (850,000) (116,000)
Cash and cash equivalents at beginning of period . 2,900,000 2,486,000
Cash and cash equivalents at end of period . . . .$2,050,000 $2,370,000
See accompanying notes to consolidated financial statements.
</TABLE>
ELECTRONIC CLEARING HOUSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Basis of presentation:
The accompanying consolidated financial statements as of March 31, 2000,
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 presentation 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, 1999. The result of operations for the three
and six months ended March 31, 2000 are not necessarily indicative of the
likely results for the entire fiscal year ending September 30, 2000.
NOTE 2 - Earnings (loss) per share:
The Company calculates net earnings (loss) per share as required by SFAS
No. 128, "Earnings per Share". SFAS No. 128 replaced the calculation of
primary and fully diluted earnings per share with the basic and diluted
earnings per share. Unlike primary earnings per share, basic earnings per
share exclude any dilutive effect of stock options, warrants and convertible
securities.
<TABLE>
<CAPTION>
Three months Six months
ended March 31, ended March 31,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net (loss)income $(219,000) $444,000 $(238,000) $702,000
Weighted average shares
outstanding (basic) 21,458,330 17,596,509 20,710,156 16,727,228
Dilutive effect of
stock options warrants
and preferred stock -0- 5,463,797 -0- 6,197,983
Dilutive shares outstanding 21,458,330 23,060,306 20,710,156 22,925,211
Basic (loss) earnings
per share $(0.01) $0.03 $(0.01) $0.04
Diluted (loss) earnings
per share $(0.01) $0.02 $(0.01) $0.03
</TABLE>
For the three and six months ended March 31, 2000, 3,425,913 and 3,532,902, of
combined options, warrants and preferred stock, respectively, were not
included in the calculation of diluted (loss) earnings per share, as their
effect would have been antidilutive.
NOTE 3 - Non-cash transactions:
Significant non-cash transactions for the six months ended March 31, 2000 were
as follows:
In connection with the acquisition of Peak Services, a collection
division of 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 valued 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.
Significant non-cash transaction for the six months ended March 31, 1999 was
as follows:
Capital equipment of $43,000 was acquired under capital leases.
NOTE 4 - Inventory:
The components of inventory are as follows:
<TABLE>
<CAPTION>
March 31 September 30
2000 1999
<S> <C> <C>
Raw materials $477,000 $249,000
Finished goods 512,000 533,000
$989,000 $782,000
Less:
Allowance for obsolescence 202,000 202,000
$787,000 $580,000
</TABLE>
NOTE 5 - Note Receivable:
In November 1999, the Company completed a $1,000,000 post-petition
secured financing arrangement with Tropical Beaches, Inc. dba New Strategies,
a bankcard processing merchant who filed for Chapter 11 protection on June 29,
1999. This loan is collateralized by all the assets of New Strategies and
also has super-priority administrative claim status with respect to any unpaid
administrative claims in the Chapter 11 case. This loan bears interest at
eighteen percent (18%) per annum. The loan is being repaid at $200,000 each
month and is scheduled to be fully retired by July 2000.
NOTE 6 - Note Payable:
In January 2000, the Company borrowed $400,000 from a bank to fund
various equipment purchases. This note is collateralized by the equipment and
payable over a five year term and bears interest at prime rate.
NOTE 7 - 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.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31 March 31
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Revenues:
Bankcard and transaction
processing $5,869,000 $4,870,000 $11,757,000 $10,231,000
Terminal sales and leasing 161,000 1,475,000 269,000 1,569,000
Check-related products 544,000 11,000 753,000 25,000
$6,574,000 $6,356,000 $12,779,000 $11,825,000
Operating income:
Bankcard and transaction
processing $33,000 $31,000 $399,000 $440,000
Terminal sales and leasing (95,000) 412,000 (175,000) 247,000
Check-related products (226,000) -0- (568,000) 5,000
$(288,000) $443,000 $(344,000) $692,000
</TABLE>
NOTE 8 - Business Acquisition:
On January 4, 2000, the Company acquired Rocky Mountain Retail Systems,
Inc. (RMRS). The acquisition was accounted for using the purchase method of
accounting and, accordingly, the purchase price was allocated to the assets
purchased and the liabilities assumed based upon their estimated fair values
at the date of acquisition. Results of RMRS' operations from the date of
acquisition to March 31, 2000, have been included in the consolidated
financial statements.
Pursuant to the Merger Agreement, the Company issued a total of 1,000,000
shares of common stock to the selling shareholders of RMRS. An additional
1,500,000 shares of common stock will be placed into escrow to be issued to
the RMRS selling shareholders under a performance clause wherein, should the
RMRS subsidiary's performance meet or exceed predetermined earnings goals for
years 2000 through 2002, a proportionate number of performance-based shares
will be issued. This additional consideration will be recorded as goodwill
when and if it is paid, in accordance with the Merger Agreement. As a result
of this transaction, the Company recorded approximately $2,973,000 in goodwill
and other acquisition costs which are being amortized over fifteen years.
Pro Forma Disclosures
The following summary, prepared on a pro forma basis, combines the
operating results of the Company and RMRS, as if the acquisition had occurred
on October 1, 1999. In addition, the pro forma results reflect the
amortization of goodwill. The pro forma operating results are not necessarily
indicative of what would have occurred had the merger actually taken place on
October 1, 1999:
(unaudited)
Revenue $13,085,000
Net income (loss) $(200,000)
Net loss per share - basic $(0.01)
The following pro forma results of operations assume the acquisition of
RMRS occurred as of October 1, 1998:
(unaudited)
Revenue $12,334,000
Net income $664,000
Earnings per share - basic $0.04
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, 2000 and 1999
Net (loss) income. Electronic Clearing House, Inc. recorded a net loss of
$219,000 for the second quarter of fiscal year 2000 as compared to a net
income of $444,000 in the same period last year. Both basic and diluted net
loss per share was $.01 for the three months ended March 31, 2000 versus basic
earnings per share of $.03 and diluted earnings per share of $.02 in the
second fiscal quarter of 1999.
The Company previously announced that the results of the first two quarters of
fiscal 2000 would reflect the development costs associated with the new check
services, the integration costs associated with two recent acquisitions, Magic
Software Development, Inc. and Rocky Mountain Retail Systems, Inc. and one-
time costs associated with the initiation of a subsidiary bank application
filed in December 1999.
The new services being developed or enhanced include 1) internet-based check
processing; 2) electronic and conventional check collection services with full
internet reporting capability; 3) check verification and check guarantee; and
4) check conversion at the point-of-sale.
Revenue. Total revenue for this second fiscal quarter was $6,574,000, compared
to $6,356,000 for the same period last year, an increase of 3.4%.
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 increased 31.4%, from $4,841,000 in second
fiscal quarter 1999 to $6,363,000 for this fiscal quarter. This increase was
primarily the result of a 24.9% increase in bankcard processing volume year-
over-year. Transaction revenue increase was also due to the addition of the
check services revenue from Magic Software Development Inc. (Magic) and Rocky
Mountain Retail Systems, Inc. (RMRS). Check related revenues increased from
$11,000 for the three months ended March 31, 1999 to $544,000.
Transaction revenues earned from one of our major customers, U-Haul
International, also increased 12.2% over the same prior year quarter mainly
due to the additional terminal deployment over the last year. Revenue related
to terminal sales is recognized when the equipment is shipped. Terminal sales
and lease revenue for the three months ended March 31, 2000 were $161,000,
which represented a 89.1% decrease from $1,475,000 for the same fiscal quarter
last year. This decrease reflected a significant equipment order from U-Haul
during this quarter last year.
U-Haul recently increased its equipment order placed in January 2000 from
2,500 terminals to over 4,000 terminals. In connection with the U-Haul
equipment orders, the Company has received approximately $540,000 as a down-
payment toward such orders. Delivery and deployment is expected to occur
during the May to July 2000 time frame and management expects this deployment
will increase the summer transaction volume processed by U-Haul. The total U-
Haul dealer base will grow to approximately 15,000 after this deployment is
completed.
The relationship between the provision for income taxes and the net loss is a
result of the permanent differences arising primarily from the Company's
acquisitions and its related amortization expenses.
Cost and Expenses. Bankcard processing expenses have generally remained
constant as a percentage of processing revenue. A majority of the Company's
bankcard processing expenses are fixed as a percentage of each transaction
amount, with the remaining costs being based on a fixed rate applied to the
transactions processed. Processing-related expenses, consisting of bankcard
processing expense and transaction expense, increased from $3,496,000 in the
second fiscal quarter of 1999 to $4,530,000 in the current fiscal quarter, a
29.6% increase. This was in direct relation to the 31.4% increase in
processing and transaction revenues for the current fiscal quarter.
Cost of terminals sold and leased decreased from $807,000 in the second
quarter of fiscal year 1999 to $120,000 in the current fiscal quarter, a
decrease of 85.1%. This is reflective of the 89.1% decrease in terminal sales
and lease revenue for the same three month period.
Other operating costs increased from $526,000 in the second fiscal quarter
1999 to $792,000 in this fiscal quarter, a 50.6% increase. This increase was
mainly attributable to the Magic and RMRS acquisitions. The Company also
increased program management staff to integrate the various services and
products. In addition, the Company accelerated a complete rewrite and upgrade
of Magic's electronic check settlement system during this quarter. Management
believes that it was necessary to rewrite the system as it was determined that
the previous electronic check settlement system would not be able to handle
the anticipated transaction load as projected from the various sales channels.
Selling, general and administrative expenses increased from $1,084,000 in the
second fiscal quarter 1999 to $1,318,000 in the second fiscal quarter 2000, a
21.6% increase. As a percentage of total revenue, selling, general and
administrative expenses increased from 17.1% in the second quarter 1999 to
20.0% in the second quarter 2000. This increase was also mainly due to the
Magic and RMRS acquisitions and the additional sales and marketing expenses
incurred to promote the various new check services and products.
Six Months Ended March 31, 2000 and 1999
Net (loss) income. Electronic Clearing House, Inc. recorded a net loss of
$238,000 for the six months period ended March 31, 2000, compared to a net
income of $702,000 for the same period last year. Both basic and diluted net
loss per share was $.01 for the six months ended March 31, 2000 versus basic
earnings per share of $.04 and diluted earnings per share of $.03 for the same
period last year.
Revenue. Revenue for the six months of fiscal 2000 was $12,779,000, compared
to $11,825,000 for the same period last year, an increase of 8.1%. Bankcard
and transaction processing revenue was $12,460,000 for the six months ended
March 31, 2000 as compared to $9,988,000 for the same period last year, an
increase of 24.7 %. Check related revenue increased from $25,000 for the six
months ended March 31, 1999 to $753,000 for the six months ended March 31,
2000. Terminal sales and lease revenue for the six months ended March 31, 2000
was $269,000 as compared to $1,569,000 for the same six month period ended
March 31, 1999, a decrease of 82.9% This was reflective of a large equipment
order from U-Haul delivered during the same six month period in the prior
year.
Cost and Expenses. Processing and transaction expenses increased 23.0% for the
six months ended March 31, 2000 as compared to the same six month period last
year. This is directly attributable to the 24.7% increase in processing and
transaction revenue for the same six month period. Gross margin on processing
and transaction activities has improved from 27.6% for the six month period
ended March 31, 1999 to 28.6% for the six month period ended March 31, 2000.
This improvement was mainly attributable to the check services revenue, which
typically yields a higher gross margin as compared to bankcard processing
revenue.
Cost of terminals sold and leased decreased 75.5% for the six month period
ended March 31, 2000 as compared to the same six month period last year. This
was in direct relation to the 82.9% decrease in terminal sales and lease
revenue.
Other operating costs increased 39.1% for the six month period ended March 31,
2000, as compared to the same six month period in the prior year. This was
mainly due to the Magic and RMRS acquisitions.
Selling, general and administrative expenses increased 21.3% also as a result
of the Magic and RMRS acquisitions.
During this fiscal year, the Company incurred certain legal and filing
expenses in connection with a bank application filing with the Office of the
Controller of the Currency (OCC) and the Federal Deposit Insurance Corporation
(FDIC) to start an internet-based bank. This process is continuing and
management expects approval in late May to early June from the OCC and FDIC.
However, there can be no assurance that the application will be approved at
this time. In the event approval is received, an application to become a bank
holding company will be filed with the OCC and is expected to take 60 to 90
days to be reviewed and acted upon by the OCC.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, the Company had available cash of $2,050,000, restricted
cash of $787,000 in reserve with its primary processing banks and a working
capital of $4,557,000.
Accounts receivable net of allowance for doubtful accounts remained relatively
constant during the six month period ended March 31, 2000. Inventory costs
increased from $580,000 at September 30, 1999 to $787,000 at March 31, 2000.
This was due to parts being purchased by the Company in order to fulfill a
large U-Haul order received during this six month period.
Other receivable mainly consisted of the remaining unpaid balance of a
$1,000,000 post-petition secured financing arrangement with Tropical Beaches,
Inc. d.b.a. New Strategies, a bankcard processing merchant who filed for
Chapter 11 protection on June 29, 1999. This loan is collateralized by all
the assets of New Strategies and also has super-priority administrative claim
status with respect to any unpaid administrative claims in the Chapter 11
case. The loan balance as of March 31, 2000 also includes accrued interest.
In accordance with the court approved payment schedule, the loan is being
repaid at $200,000 per month and should be fully retired by July 2000.
The Company's cash flows from operations is sufficient to support the current
level of development costs and marketing costs which would allow the Company
to further develop all of its check related products and services and fully
integrate its sales and marketing efforts as a result of the recent
acquisitions.
However, if the bank application is approved by the OCC and FDIC, the Company
will need to seek additional funding to satisfy the anticipated capital
requirements for the bank. There is no assurance that the funding will be
obtained based on terms that are acceptable to the Company.
The Company's current ratio decreased from 5.3 to 1 at March 31, 1999 to 3.7
to 1 at March 31, 2000. The Company's debt to equity ratio improved from .23
to 1 at March 31, 1999 to .18 to 1 at March 31, 2000.
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This Statement requires that all
derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of derivatives will be recorded each period in
current earnings or other comprehensive income, depending on whether a
derivative is designed as part of a hedge transaction and, if it is the type
of hedge transaction. The new rules will be effective the first quarter of
2000. The Company does not believe that the new standard will have a material
impact on the Company's financial statements.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
The following reports on Form 8-K were filed during the quarter ended March
31, 2000:
Date of Filing Item Reported
January 19, 2000 Acquisition of Rocky Mountain Retail Systems, Inc. into a
wholly-owned subsidiary of the Company.
March 10, 2000 Pro Forma financial information regarding the acquisition
of Rocky Mountain Retail Systems, Inc.
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 11, 2000 By: \s\Alice Cheung
Alice Cheung, Treasurer and
Chief Financial Officer
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