Upgrades allowing check service to stay competitive. (Corporate Focus).

A year of upgrading systems and software seems to be paying off for check verification service company Electronic Clearing House Inc.

"Overall, the industry is characterized by rapid technological change along with high rates of product obsolescence and introductions of new products," said Howard Halpern, an analyst with New York-based Taglich Brothers Inc.

"We believe the primary advantage the company has is its small size, which allows it to respond quickly to an individual customer," he said.

After a year of expensive upgrades and retooling its products and services to better compete with competitors with high-end check verification, credit card processing and electronic deposit services, Agoura Hills-based Electronic Clearing House is seeing improved revenue, but more importantly, a profit in its most recent quarter.

For its second quarter ending March 31, the company reported $268,000 in net income or $0.05 per share on $9.8 million in sales, compared to a year earlier when it lost $1.9 million or $0.33 per share on total sales of $8.4 million.

The company's stock price reached its 52-week high of $4.40 in April before settling down to $3.43 on May 22. Its 52-week low was $1.08 reached on July 12.

The company's focus on truck rental firm U-Haul and most of its 15,000 dealers nationwide has been one of the biggest reasons for rapid growth, while it also continues to expand its program with Visa USA and its Point of Sale check processing system, Halpern said.

The point of sales program, which had been a pilot program and is now being fully implemented, allows merchants to immediately debit an account rather than waiting for the transaction to be processed the next day.

"The company could be impacted if the expansion of the Visa Program does not begin to show results throughout 2003," he cautioned.

But Electronic Clearing House Chief Executive Joel M. Barry said he expects the company's numbers to continue to improve.

"We are gaining momentum in both, the interest in and the implementation of our payment processing solutions and we are optimistic that we will continue our strong double-digit growth," Barry said.

For the latest quarter, the company's bankcard and transaction revenue grew by 13.4 percent over the same period last year, going from $6.9 million to $7.8 million. Check-related revenues increased by 30 percent during the period, going from $1.5 million to $2 million.

Internet program

With the Visa program getting underway, the company is aggressively pushing its MerchantAmerica program which allows small banks to provide credit card and check processing services via the Internet using Electronic Clearing House's infrastructure.

Through the service, merchants are able to access a customer's check images on line, providing a record of all transaction activity in one location on the Internet.

The company is also focusing on mid-sized retailers by touting its ability to reduce costs on check collection services.

According to the American Collectors Association's most recent study, of the estimated 70 billion checks written in 2000, 675 million checks, or 9.6 percent, were worthless.

But whether it can continue its current growth will depend on continued acceptance of its services by merchants and small community banks in particular, Halpern said.

"The growth of both transaction and processing services is based on our belief that the Visa POS program will gain momentum as the year progresses," he added.

The company had been developing new software and check processing and verifying systems during 2001 and 2002, resulting in increased costs and loss of market share. But Barry said the company has now integrated its improved technology and is looking to continue its growth through aggressive marketing and partnerships, such as the deal with Kansas-based TouchNet Information Systems which introduces the Visa Point of Service program to colleges and universities it serves.

While the company continues to move forward, it faces potential trouble with declining consumer spending in recent months.

[GRAPH OMITTED]

Electronic Clearing House Inc.

Stock Prices


May 22, 2002  $1.75
Nay 22, 2003  $3.43

Note: Table made from line graph

YEAR (Sept. 30)                     2002     2001

Revenue (millions)                 $33.3    $29.9
Operating Expenses (millions)       13.7      9.7
Operating Income (Loss)(millions)   (3.7)     0.5
Net Income (Loss) (millions)        (2.4)     1.0
Earnings (Loss) Per Share          ($0.41)  $0.07

SUMMARY

Business: Check and credit card processing

Headquarters: Agoura Hills

CEO: Joel M. Barry

Market Cap: $19.4 million

Dividend Yield: N/A *

Total Liabilities: $14 million

P/E: N/A

Long-Term Debt: $2 million

* Electronic Clearing House does not pay dividends.