ECHO Revenue Increased 11.2% in Second Quarter

Financial Highlights Revenue for the second quarter of fiscal 2005 was $13.3 million, an increase of 11.2%, versus $12 million in the prior year quarter. Bankcard processing and transaction revenue was up by 5.8% from $9.3 million for the prior year quarter to $9.9 million in Q2 2005. This expansion was mainly caused by organic growth in transactions with existing customers and new merchants generated from other marketing programs. Check-related revenues increased 30.1% to $3.4 million, or 25.9% of total revenue, for the three months ended March 31, 2005, compared with $2.7 million, or 22.2% of total revenue, in the prior-year quarter. This increase was attributable to higher ACH processing transactions, which grew from 5.4 million to 7.7 million, a 41.6% increase. Gross margin from processing and transaction services remained relatively constant at 35.4% for the current quarter as compared to 35.6% for the same period last year. This slight decrease was due to a higher commission expense that was offset by relatively fixed data center processing costs. Other operating costs, such as personnel costs, telephone and depreciation expenses were $1.4 million, or 10.6% of total revenues, as compared to $1.3 million, or 11% of total revenues, in Q2 2004. Research and development expense increased to $469,000, as the Company continued investing in several major software development projects. Several of these projects are in the final phase of development, and the Company anticipates that this investment level will continue throughout the remainder of this fiscal year. Selling, general and administrative (SG&A) expenses rose to $2.6 million, or 19.8% of revenues, for the current fiscal quarter from $1.9 million, or 16.1% of revenues, in Q2 2004. This increase was primarily attributable to: 1) $225,000 of legal expense primarily related to a patent litigation claim; 2) $300,000 of selling expenses in promoting the MERCHANTAMERICA San Diego campaign, which was rolled out in January 2005; and 3) approximately $94,000 in professional service expenses and salaries for Sarbanes-Oxley Act Section 404 Compliance efforts currently in progress. Operating income was $238,000, or 1.8% of revenue, in Q2 2005, compared to $87,000, or 0.7% of revenue in the prior quarter, and $706,000, or 5.9% of revenue in the same period last year. The decrease in operating income from last year was primarily due to the increase in research and development expense and selling, general and administrative expenses as described above. The Company reported net income of $144,000, or $0.02 per share on a fully diluted basis, in the second quarter of fiscal 2005, as compared to $52,000, or $0.01 per share, in the first quarter of fiscal 2005 and $1.2 million, or $0.17 per fully diluted share, in the second quarter of fiscal 2004.