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 June 30, 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 August 9, 2000, there were 21,594,703 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
June 30, 2000 (unaudited) and September 30, 1999
Consolidated Statement of Operations 4
Three months and nine months ended
June 30, 2000 and 1999 (unaudited)
Consolidated Statement of Cash Flows 5
Nine months ended June 30, 2000 and 1999 (unaudited)
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of 10
Financial Condition and Results of
Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
ELECTRONIC CLEARING HOUSE, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
ASSETS
<CAPTION>
June 30, September 30,
2000 1999
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,282,000 $ 2,900,000
Restricted cash 856,000 736,000
Accounts receivable less allowance of
$1,145,000 and $1,001,000 1,961,000 1,532,000
Inventory less allowance of
$202,000 and $202,000 781,000 580,000
Prepaid expenses and other assets 150,000 88,000
Other receivable 366,000 323,000
Total current assets 6,396,000 6,159,000
Noncurrent assets:
Other receivables 19,000 27,000
Property and equipment, net . 2,345,000 1,962,000
Real estate held for investment, net 252,000 252,000
Deferred tax asset 1,364,000 1,392,000
Other assets, net 1,683,000 1,222,000
Goodwill, net 4,657,000 1,918,000
Total assets $16,716,000 $12,932,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current
portion of long-term debt $ 175,000 $ 149,000
Accounts payable 344,000 159,000
Accrued expenses 821,000 779,000
Deferred revenue 216,000 62,000
Total current liabilities 1,556,000 1,149,000
Long-term debt 812,000 599,000
Total liabilities 2,368,000 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:
21,594,703 and 19,874,126 shares issued;
21,437,491 and 19,788,213
shares outstanding 216,000 199,000
Additional paid-in capital 20,354,000 16,958,000
Accumulated deficit (5,752,000) (5,835,000)
Less treasury stock at cost,
157,212 and 85,913 common shares (470,000) (138,000)
Total stockholders' equity 14,348,000 11,184,000
Total liabilities and stockholders' equity $16,716,000 $12,932,000
See accompanying notes to consolidated financial statements.
</TABLE>
ELECTRONIC CLEARING HOUSE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Nine Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Processing revenue $3,808,000 $3,433,000$11,175,000 $9,882,000
Transaction revenue 2,714,000 2,235,000 7,807,000 5,798,000
Terminal sales and
lease revenue 1,415,000 346,000 1,684,000 1,918,000
Other revenue 85,000 119,000 135,000 363,000
8,022,000 6,133,000 20,801,000 17,961,000
Costs and expenses:
Processing and transaction
expense 4,637,000 3,828,000 13,528,000 11,058,000
Cost of terminals sold
and leased 1,009,000 169,000 1,224,000 1,048,000
Other operating costs 833,000 767,000 2,356,000 1,862,000
Selling, general
and administrative 1,142,000 1,135,000 3,482,000 3,067,000
Amortization of goodwill 102,000 39,000 256,000 39,000
7,723,000 5,938,000 20,846,000 17,074,000
Income (loss) from
operations 299,000 195,000 (45,000) 887,000
Interest income 68,000 45,000 230,000 131,000
Interest expense (23,000) (17,000) (64,000) (66,000)
Income before provision
for income taxes 344,000 223,000 121,000 952,000
Provision for income taxes (23,000) (14,000) (38,000) (41,000)
Net income $ 321,000 $ 209,000 $ 83,000 $ 911,000
Earnings per share -
Basic $ 0.01 $ 0.01 $ 0.00 $ 0.05
Earnings per share -
Diluted $ 0.01 $ 0.01 $ 0.00 $ 0.04
Shares used in computing
basic earnings per share 21,433,623 19,293,683 20,884,224 17,582,713
Shares used in computing
diluted earnings per share 23,660,559 23,625,089 23,289,674 23,158,504
See accompanying notes to Consolidated Financial Statements.
</TABLE>
ELECTRONIC CLEARING HOUSE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months
Ended June 30,
2000 1999
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $83,000 $911,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 276,000 171,000
Amortization 401,000 105,000
Provisions for losses on accounts
and notes receivable 224,000 354,000
Provision for deferred income taxes 28,000 -0-
Fair value of stock issued in connection
with director's compensation 45,000 45,000
Changes in assets and liabilities:
Restricted cash (120,000) (34,000)
Accounts receivable (533,000) (223,000)
Inventory (201,000) 146,000
Prepaid expenses and other assets (45,000) (45,000)
Accounts payable 171,000 (81,000)
Accrued expenses (96,000) (135,000)
Deferred income 154,000 (423,000)
Net cash provided by operating activities 387,000 791,000
Cash flows from investing activities:
Other assets (605,000) (343,000)
Purchase of equipment. (612,000) (312,000)
(Increase) decrease in notes receivable (1,223,000) 5,000
Repayment of notes receivable 850,000 -0-
Cash acquired through acquisition 80,000 -0-
Net cash used in investing activities (1,510,000) (650,000)
Cash flows from financing activities:
Proceeds from issuance of notes payable 400,000 -0-
Repayment of notes payable (161,000) (75,000)
Proceeds from common stock
warrants exercised 140,000 260,000
Proceeds from exercise of stock options 126,000 365,000
Net cash provided by financing activities 505,000 550,000
Net (decrease) increase in cash (618,000) 691,000
Cash and cash equivalents at beginning of period 2,900,000 2,486,000
Cash and cash equivalents at end of period $2,282,000 $3,177,000
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 June 30, 2000,
and for the three and nine 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. Certain amounts in the fiscal 1999
financial statements have been reclassified to conform to the fiscal 2000
presentation. The result of operations for the three and nine months ended
June 30, 2000 are not necessarily indicative of the likely results for the
entire fiscal year ending September 30, 2000.
NOTE 2 - Earnings per share:
The Company calculates net earnings per share as required by Statement of
Financial Accounting Standard No. 128, "Earnings per Share".
<TABLE>
<CAPTION>
Three months Nine months
ended June 30, ended June 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net income $ 321,000 $ 209,000 $ 83,000 $ 911,000
Weighted average shares
outstanding (basic) 21,433,623 19,293,683 20,884,22417,582,713
Dilutive effect of stock options
warrants and preferred stock 2,226,936 4,331,406 2,405,450 5,575,791
Dilutive shares outstanding 23,660,559 23,625,089 23,289,67423,158,504
Basic earnings per share $0.01 $0.01 $0.00$0.05
Diluted earnings per share $0.01 $0.01 $0.00$0.04
</TABLE>
NOTE 3 - Non-cash transactions:
Significant non-cash transactions for the nine months ended June 30, 2000 were
as follows:
- In connection with the acquisition of Peak Services, a collection
division of XpressCheX, Inc., formerly Magic Software Development, Inc.,
the Company issued 20,000 shares of common stock with a market value of
$22,000.
- 1,000,000 shares of common stock 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 transactions for the nine months ended June 30, 1999 were
as follows:
- Capital equipment of $43,000 was acquired under capital leases.
- 1,000,000 shares of common stock valued at $2,000,000 was issued for the
acquisition of Magic Software Development, Inc.
- 63,000 shares of treasury stock were acquired for repayment of certain
former merchant chargeback receivables.
NOTE 4 - Inventory:
The components of inventory are as follows:
<TABLE>
<CAPTION>
June 30, September 30,
2000 1999
<S> <C> <C>
Raw materials $377,000 $249,000
Finished goods 606,000 533,000
$983,000 $782,000
Less:
Allowance for obsolescence 202,000 202,000
$781,000 $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 both the principal and accrued interest should be fully retired by
August 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 the bank's prime rate.
The average interest rate for the nine months ended June 30, 2000 was 9.04%.
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 Nine Months
Ended
June 30, June 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Revenues:
Bankcard and transaction
processing $6,078,000 $5,668,000 $17,878,000 $15,680,000
Terminal sales and leasing 1,415,000 346,000 1,684,000 1,918,000
Check-related products 529,000 119,000 1,239,000 363,000
$8,022,000 $6,133,000 $20,801,000 $17,961,000
Operating income:
Bankcard and transaction
processing $ 220,000 $ 464,000 $ 617,000 $836,000
Terminal sales and leasing 316,000 (63,000) 148,000 252,000
Check-related products (237,000) (206,000) (810,000)
(201,000)
$ 299,000 $195,000 $ (45,000) $887,000
</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 June 30, 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
as of the beginning of the periods presented. 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 acquisition
actually taken place as of the beginning of the periods presented or what may
be obtained in the future:
<TABLE>
<CAPTION>
Nine Months
Ended June 30,
2000 1999
(unaudited) (unaudited)
<S> <C> <C>
Revenue $21,107,000 $18,470,000
Net income $102,000 $949,000
Earnings per share - basic $0.00 $0.05
Earnings per share - diluted $0.00 $0.04
</TABLE>
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 June 30, 2000 and 1999
Net Income. Electronic Clearing House, Inc. recorded a net income of
$321,000 for the third quarter of fiscal year 2000 as compared to a net income
of $209,000 in the same period last year, a 53.6% increase. Both basic and
diluted net loss per share was $.01 for the three months ended June 30, 2000
versus basic and diluted earnings per share of $.01 for the three months ended
June 30, 1999.
Revenue. Total revenue for this quarter was $8,022,000, compared to
$6,133,000 for the same period last year, an increase of 30.8%.
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 15.1%, from $5,668,000 in third
fiscal quarter 1999 to $6,522,000 for this fiscal quarter. This increase was
primarily the result of a 16.7% increase in bankcard processing volume year-
over-year. Check related revenues increased from $119,000 for the three months
ended June 30, 1999 to $529,000, a 344.5% increase, which was mainly
attributable to the acquisition of Rocky Mountain Retail Systems (RMRS),
completed in January 2000.
Transaction revenues generated from one of our major customers, U-Haul
International, increased 4.9% over the same period in prior year as a result
of the additional terminal deployment. This increase was partially offset by
a rate adjustment in December 1999. The additional 4,100 terminals delivered
to U-Haul during May through July time frame this year will also increase
transaction volume over the coming quarters.
Revenue related to terminal sales is recognized when the equipment is shipped.
Terminal sales and lease revenue for the three months ended June 30, 2000 were
$1,415,000, which represented a 309.0% increase over $346,000 for the same
fiscal quarter last year. This increase reflected the delivery of
approximately 3,100 terminals to the U-Haul dealers during this fiscal
quarter. An additional 1,000 terminals were delivered in July 2000. The total
U-Haul dealer base served by the Company nationwide has now grown to
approximately 15,000 as a result of these latest terminal deployments.
Other revenue decreased from $119,000 in the third fiscal quarter 1999 to
$85,000 in this fiscal quarter due to less billable software development work
completed during the current quarter.
XpressCheX, Inc. formerly named Magic Software Development, Inc., was acquired
in April, 1999, and operates as the check clearing center for all check
operations.
XpressCheX, Inc. initiated its new ACH backbone service in May 2000. With a
benchmark throughput in excess of 5.6 million transactions per day, a tenfold
system processing improvement, this ACH system was designed with redundancy
and scalability to allow multiple benchmark levels to be implemented and
sustained simultaneously. This backbone will be used for check conversion
(Point-of-Presence "POP"), check-representment (RCK), accounts receivable
truncated check (ARTC, lockbox), on-line check acceptance, and batch
processing. This system is completely configurable by merchant. Some of the
features include automated sales commission tracing, multiple re-initiation of
items and service fees, fully automated funds distribution of all fees and
payments, integrated fraud protection, and automated return matching.
XpressCheX also has initiated a full RCK standard collection service with
Internet-based reporting and check imaging. This collection service has grown
from processing 1,000 checks a month to over 3,000 checks in the first three
months of operations. This collection agency service is currently licensed in
31 states and Puerto Rico with full national registration planned by November
2000.
Cost and Expenses. Bankcard processing expenses should always reflect the
changes in processing revenue. A majority of the Company's bankcard
processing expenses are fixed as a percentage of each transaction amount, with
the remaining costs being based on a fixed rate applied to the transactions
processed. Processing-related expenses, consisting of bankcard processing
expense and transaction expense, increased from $3,828,000 in the third fiscal
quarter of 1999 to $4,637,000 in the current fiscal quarter, a 21.1% increase.
This was in direct relation to the 15.1% increase in processing and
transaction revenues for the current fiscal quarter. The Company increased its
estimated provision for chargeback losses by approximately $100,000 for the
current quarter as compared to the prior year. Additionally, the Company also
recorded a one-time telephone fee credit of $100,000 in the prior year
quarter. These two items accounted for a 5.2% increase in bankcard processing
expenses for the current quarter as compared to the prior year quarter.
Cost of terminals sold and leased increased from $169,000 in the third quarter
of fiscal year 1999 to $1,009,000 in the current fiscal quarter, an increase
of 497.0%. This is directly attributable to the 3,100 terminals delivered to
U-Haul during this fiscal quarter as reflected by a 309.0% increase in
terminal sales and lease revenue for the same three months period.
Other operating costs increased from $767,000 in the third fiscal quarter 1999
to $833,000 in this fiscal quarter, a 8.6% increase. This increase was mainly
attributable to the XpressCheX and RMRS acquisitions.
Selling and general and administrative expenses remained relatively constant
from $1,135,000 in the third fiscal quarter 1999 to $1,142,000 in the third
fiscal quarter 2000, a 0.6% increase. As a percentage of total revenue,
selling and general and administrative expenses decreased from 18.5% in the
third quarter 1999 to 14.2% in the third quarter 2000. This small increase was
the result of a reduction in telemarketing expense for the current year
quarter as compared to the prior year combined with the XpressCheX and RMRS
acquisitions.
Nine Months Ended June 30, 2000 and 1999
Revenue. Electronic Clearing House, Inc. recorded a net income of $83,000
for the nine months period ended June 30, 2000, compared to a net income of
$911,000 for the same period last year. Both basic and diluted net income per
share was nil for the nine months ended June 30, 2000 versus basic earnings
per share of $.05 and diluted earnings per share of $.04 for the same period
last year.
Revenue for the nine months of fiscal 2000 was $20,801,000, compared to
$17,961,000 for the same period last year, an increase of 15.8%. Bankcard and
transaction processing revenue was $18,982,000 for the nine months ended June
30, 2000 as compared to $15,680,000 for the same period last year, an increase
of 21.1%. Check related revenue increased from $363,000 for the nine months
ended June 30, 1999 to $1,239,000 for the nine months ended June 30, 2000, an
increase of 241.3% increase. Terminal sales and lease revenue for the nine
months June 30, 2000 was $1,684,000 as compared to $1,918,000 for the same
nine month period ended June 30, 1999, a decrease of 12.2%. This is
reflective of two similar sized U-Haul equipment orders delivered during the
same nine month period combined with a slightly reduced per unit sales price.
Cost and Expenses. Processing and transaction expenses increased 22.3%
for the nine months ended June 30, 2000 as compared to the same nine month
period last year. This is directly attributable to the 21.1% increase in
processing and transaction revenue for the same nine months period. Gross
margin on processing and transaction activities has slightly decreased from
29.5% for the nine month period ended June 30, 1999 to 28.7% for the nine
month period June 30, 2000.
Cost of terminals sold and leased increased 16.8% for the nine month period
ended June 30, 2000 as compared to the same nine month period last year. This
was directly related to the U-Haul terminal pricing reduction combined with
cost increases in parts purchased in the current fiscal year.
Other operating costs increased 26.5% for the nine month period ended June 30,
2000 as compared to the same nine month period in the prior year. This was due
to the XpressChex and RMRS acquisitions.
Selling, general and administrative expenses increased 13.5% also as a result
of the XpressChex and RMRS acquisitions.
Overall, the Company has invested substantially and has made significant
progress in enhancing and integrating a suite of new check services during
this fiscal year. Management expects that once these new products and
services are fully deployed, we can offer a complete payment solution to all
of our existing merchants and new merchants. The Company plans to bundle
these services and become a one-stop payment processor who provides the
merchants with a low cost payment solution combined with superior customer
support.
The Company filed an application to start an Internet-base bank with the
Office of the Controller of the Currency (OCC) in December 1999 and also filed
an application with the Federal Deposit Insurance Corporation (FDIC) in
January 2000. The bank would provide services exclusively to merchants and
is, therefore, being considered a "special purpose" bank by both the OCC and
the FDIC. The Company was advised that the regional offices of both the OCC
and the FDIC would refer the bank applications to their Washington D.C.
offices where special purpose banks receive final review. Management believes
that the Company should receive a response from the central office of the OCC
and the FDIC within the next 60 days. Even though management is encouraged by
the feedback received from the OCC and the FDIC thus far, there can be no
assurance that these applications will be approved. If the OCC and the FDIC
approvals are obtained, the Company will immediately file with the Federal
Reserve Bank to become a bank holding company, a process estimated to take at
least 60 days.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, the Company had available cash of $2,282,000, restricted
cash of $856,000 in reserve with its primary processing banks and a working
capital of $4,840,000.
Accounts receivable net of allowance for doubtful accounts remained relatively
constant during the nine-month period ended June 30, 2000. Inventory costs
increased from $580,000 at September 30, 1999 to $781,000 at June 30, 2000.
This was due to the inventory purchases made by the Company to fill the large
U-Haul order, which was completed in July 2000.
Other receivable mainly consisted of the remaining unpaid principal 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 June 30, 2000 also included accrued interest.
In accordance with the court approved payment schedule, the loan is being
repaid at $200,000 each month and both the principal and accrued interest
should be fully retired by August 2000.
At the present, the Company's cash flows from operations is sufficient to
support the current level of developments 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.
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No.
133"), subsequently amended by SFAS No. 137, which the Company is required to
adopt effective October 1, 2000. 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 Company does not believe that the new standard will have a material impact
on the Company's financial statements.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements",
which provides the SEC's views on applying generally accepted accounting
principles to selected revenue recognition issues. The SAB is effective
fourth fiscal quarter of fiscal years beginning after December 15, 1999. The
Company does not believe that the SAB will have a material impact on the
Company's financial statements.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
None.
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: August 11, 2000 By: \s\Alice Cheung
Alice Cheung, Treasurer and
Chief Financial Officer
