Electronic Clearing House (ECHO) Revenue Increases 17%

The increase is primarily attributable to 7.0% growth in the bankcard and transaction processing revenue and 29.4% growth in check services revenues. This growth occurred organically from our existing merchants and from the implementation of new marketing initiatives during the quarter, as well as from our continued participation in the Visa POS Check program. Operating income was $656,000 in the fourth quarter of 2004, as compared to $869,000 in the year-ago quarter. This decrease is primarily attributable to a $300,000 litigation accrual during the fourth quarter. The Company reported net income of $403,000, or $0.06 per share on a fully diluted basis, in the fourth quarter of fiscal 2004, versus $518,000, or $0.08 per share in the fourth quarter of fiscal 2003, before any adjustment for the cumulative effect of an accounting change. For the fiscal year ended September 30, 2004, the Company earned $0.41 per fully diluted share on revenue of $47,584,000. This compares to a loss of $0.56 per fully diluted share on revenue of $40,636,000 for the fiscal year ended September 30, 2003. Excluding the cumulative effect of an accounting change, the Company earned $0.22 per share in fiscal 2003. Bankcard processing and transaction revenue increased 7.0% to $9,112,000 in the fourth quarter of fiscal 2004 from $8,517,000 in the prior year quarter. This increase was primarily attributable to the Company’s continuous organic growth in bankcard processing volume from existing merchants and new merchants generated as a result of other marketing programs. Check-related revenues increased 29.4% to $3,199,000 for the three months ended September 30, 2004, compared with $2,473,000 in the prior year quarter. This was primarily due to ongoing growth in ACH processing revenue, which increased as a result of a 17.2% increase in total ACH transactions processed and an increase of check conversion revenue as a result of growing acceptance of ECHO’s Visa POS Check Service program. Gross margin from processing and transaction services remained constant at 37.3% in the fourth quarter of 2004 from 37.2% in the year-ago quarter. However, gross margin for the full fiscal year improved from 33.9% in fiscal 2003 to 37.4% in fiscal 2004. This improvement in gross margin was primarily due to: 1) higher-margin check-related revenue which made up 24.0% of the total revenue in fiscal 2004, as compared to 20.2% of the total revenue in fiscal 2003; 2) a rate adjustment which was applied to a broad base of bankcard merchants during fiscal 2004 to offset increases in direct bankcard processing expenses; and 3) continuing low chargeback losses. Other operating costs increased 18.5%, from $4,373,000 in fiscal 2003 to $5,182,000 in fiscal 2004, primarily due to increases in the volume of transactions processed. For the three months ended September 30, 2004, other operating costs decreased 3.4% from $1,324,000 in prior year quarter to $1,279,000 in the current year quarter. Research and development expenses remained relatively constant, from $1,464,000 in fiscal 2003 to $1,465,000 in fiscal 2004. Almost all of our major development projects were in the coding and testing phases in fiscal 2004. Several major development projects should be completed during fiscal year 2005. However, given the rapid changes in technology occurring in this industry, we plan to continue to invest in product developments in both the bankcard processing business segment and the check-related products segment in order to remain competitive in these financial services markets. Selling, general and administrative (SG&A) expenses increased 37.3% from $5,714,000 in fiscal 2003 to $7,846,000 in fiscal 2004. This increase was primarily attributable to: 1) greater personnel costs due to cost of living adjustments and greater employee benefits costs, such as health insurance