**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C.  20549**





**FORM
      10-K**





x
            Annual
                Report Pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934 for the fiscal year ended **September 30,
                2007**





**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 incorporation
                or organization)
            
            (IRS
                EmployerIdentification No.)








**730
                Paseo Camarillo, Camarillo, California**
            
            **93010**(Address
                of principal executive offices)
            
            (Zip
                Code)





Registrant's
      telephone number,
      including area code:**(805)
      419-8700**, fax
      number:**(805)
      419-8682**





Securities
      registered pursuant to Section 12(b) of the Act:





**Title
                of each class**
            **Name
                of each exchange on which registered**None
            None





Securities
      registered pursuant to Section 12(g) of the Act:


Common
      Stock, $0.01 par value


(Title
      of
      class)





Indicate
      by check mark if the
      registrant is a well-known seasoned issuer, as defined in Rule 405 of the
      Securities Act.  Yes£NoR




Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act.  Yes  £    No  R




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:    YesRNo£




Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K (§229.405
      of this chapter) is not contained herein, and will not be contained, to the
      best
      of registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K.£




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer.  See definition of
      accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange
      Act.
      (Check one):


Large
                accelerated filer  £
            Accelerated
                filer  R
            Non-accelerated
                filer  £




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).       Yes£No
R




Based
      on
      a closing price of $11.61 as reported by the NASDAQ Stock Market on March 31,
      2007, the aggregate market value of the voting and non-voting common equity
      held
      by non-affiliates was $73,491,799 .





As
      of
      November 30 , 2007, the Registrant had outstanding  7,025,329 shares
      of Common Stock.





**DOCUMENTS
      INCORPORATED BY REFERENCE – Portions of the issuer’s definitive Proxy Statement
      to be filed pursuant to Regulation 14A within 120 days after the end of its
      last
      fiscal year are incorporated by reference into Part III of this
      report.**









**ELECTRONIC
      CLEARING HOUSE, INC.**


**2007
      FORM 10-K ANNUAL REPORT**








TABLE
      OF CONTENTS





**PART
                1**
            
            **3**ITEM
                1.
            Business
            3ITEM
                1A.
            Risk
                Factors
            13ITEM
                1B.
            Unresolved
                Staff Comments
            21ITEM
                2.
            Properties
            21ITEM
                3.
            Legal
                Proceedings
            21ITEM
                4.
            Submission
                of Matters to a Vote of Security
                Holders
            21**PART
                II**
            
            **22**ITEM
              5.
            Market
                  for Registrant's Common Equity, Related Stockholder Mattersand
                  Issuer Purchases of Equity Securities
            22ITEM
                6.
            Selected
                Financial Data
            24ITEM
                7.
            Management's
                Discussion and Analysis of Financial Condition
                and Results of Operations
            26ITEM
                7A.
            Quantitative
                and Qualitative Disclosures About Market
                Risk
            35ITEM
                8.
            Financial
                Statements and Supplementary
                Data
            35ITEM
                9.
            Changes
                in and Disagreements with Accountants on Accounting
                and Financial Disclosures
            35ITEM
                9A.
            Controls
                and Procedures
            35ITEM
                9B.
            Other
                Information
            36**PART
                III**
            
            **37**ITEM
                10.
            Directors,
                Executive Officers and Corporate
                Governance
            37ITEM
                11.
            Executive
                Compensation
            41ITEM
                12.
            Security
                of Certain Beneficial Owners and Management and
                Related Stockholder Matters
            41ITEM
                13.
            Certain
                Relationships and Related Transactions and Director
                Independence
            41ITEM
                14.
            Principal
                Accounting Fees and Services.
            41**PART
                IV**
            
            **42**ITEM
                15.
            Exhibits,
                Financial Statement Schedules
            42




2
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            of Contents***





**PART
      I**








**CAUTIONARY
      STATEMENT REGARDING FORWARD-LOOKING STATEMENTS**





This
      2007
      Annual Report on Form 10-K contains statements which constitute forward-looking
      statements within the meaning of Section 27A of the Securities Act of 1933,
      as
      amended, and Section 21E of the Securities Exchange Act of 1934, as
      amended.  Those statements include statements regarding our intent,
      belief or current expectations.  Examples of forward-looking
      statements include statements regarding our strategy, financial performance,
      revenue sources and anticipated expenditures.  Prospective investors
      are cautioned that any such forward-looking statements are not guarantees of
      future performance and involve risks and uncertainties, and that actual results
      may differ materially from those projected in the forward-looking statements
      as
      a result of various factors, including, but not limited to, such factors
      as
      fluctuations in demand for our products and services, the introduction of new
      products and services, our ability to maintain customer and strategic business
      relationships, the underlying businesses of our customers, strategic
      transactions or events (such as mergers, acquisitions or divestitures),
      transactions or events that require us to revise our strategic objectives or
      to
      implement new strategies, transactions or events outside the ordinary course
      of
      business that divert management’s attention from our strategic
      objectives,  technological advancements and our ability to implement
      new technologies, the impact of competitive products, services and pricing,
      growth in targeted markets, the adequacy of our liquidity and financial strength
      to support our growth and initiatives, and those other risk factors set
      forth elsewhere in this Annual Report.  See “Item 7. Management’s
      Discussion and Analysis of Financial Condition and Results of Operations – Risk
      Factors.”





**ITEM
                1.**
            **Business**





**OVERVIEW**





Electronic
      Clearing House, Inc. (*ECHO*) is an electronic payment processor that
      provides for the payment processing needs of retail, online and recurring
      payment merchants through its direct sales team as well as channel partners
      that include technology companies, banks, collection agencies and other trusted
      resellers.  The company derives the majority of its revenue from
      two main business segments: 1) bankcard and transaction processing services
      (“bankcard services”), whereby we provide solutions to merchants and banks to
      allow them to accept and process credit and debit card payments from consumers;
      and 2) check-related products (“check services”), whereby we provide various
      services to merchants and banks to allow them to accept and process check
      payments from consumers.  The principal services we offer within these
      two segments include, with respect to our bankcard services, debit and credit
      card processing (where we provide authorization, clearing and settlement for
      all
      major credit and debit card brands), and with respect to our check services,
      check guarantee (where, if we approve a check transaction and a check is
      subsequently dishonored by the check writer's bank, the merchant is reimbursed
      by us), check verification (where, prior to approving a check, we search our
      negative and positive check writer database to determine whether the check
      writer has a positive record or  delinquent check-related debts),
      electronic check conversion (the conversion of a paper check at the point of
      sale to a direct bank debit which is processed for settlement through the
      Federal Reserve System’s Automated Clearing House (“ACH”) network), eCheck (the
      processing of a payment generally originating from an internet or recurring
      payment merchant wherein the direct debit from a consumer’s checking account
      occurs via the ACH network), check re-presentment (where we attempt to clear
      a
      check on multiple occasions via the ACH network prior to returning the check
      to
      the merchant so as to increase the number of cleared check transactions), and
      check collection (where we provide national scale collection services for
      returned checks).  We operate our services under the following
      brands:





·
            *ECHO,*
                our retail and wholesale brand for credit card and check processing
                services to merchants, banks, technology partners and other trusted
                reseller channels;


·
            MerchantAmerica,
                Inc. our online presence for merchant reporting and web
                services;


·
            National
                Check Network (“NCN”), our proprietary database of negative and positive
                check writer accounts (i.e., accounts that show delinquent history
                in the
                form of non-sufficient funds and other negative transactions), for
                check
                verification, check conversion capture services, and for membership
                to
                collection agencies; and


·
            *XPRESSCHEX*,
                Inc. for check collection services.





3
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            of Contents***





We
      discuss our services in greater detail below.  Overall, our ability to
      program and oversee the management of a merchant’s point-of-sale (POS) system,
      provide credit card and debit card processing, provide multiple services for
      the
      processing of checks, provide both electronic and traditional collection
      services, and integrate all of these services into an Internet-based reporting
      capability allows us to provide for the majority of the payment processing
      needs
      of our customers.





Bankcard
      and transaction processing services provide for the majority of our
      revenues.  We typically receive a percentage-based fee (“Discount
      Rate”) on the dollar amount processed and a transaction fee on the number of
      transactions processed.  For the fiscal year 2007, the bankcard and
      transaction processing business segment accounted for approximately 81.4% of
      the
      Company’s total revenue.





We
      were
      incorporated in Nevada in December 1981.  Our executive offices are
      located at 730 Paseo Camarillo, Camarillo, California 93010, and our telephone
      number is (805) 419-8700.  Our common stock is traded on the NASDAQ
      Capital Market under the ticker symbol “ECHO.”  Information on our
      website, www.echo-inc.com, does not constitute part of this annual
      report.We
      make
      available, free of charge on our website, our annual report on Form 10-K,
      quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments
      to
      those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
      Exchange Act as soon as reasonably practicable after we electronically file
      such
      material with, or furnish it to the SEC through a link to the appropriate
      section of the SEC’s website.





In
      October 2006, the Unlawful Internet Gaming Enforcement Act was passed and signed
      into law.  As a result of the passed legislation, several of our
      Internet Wallet merchants, all of which used our check services, had a
      significant drop in processing activities during the quarter ended December
      31,
      2006 as we wound down the services we provided to them. During February 2007,
      the Company decided to cease processing and collection services for all Internet
      wallet customers.  On March 27, 2007, the Company entered into a
      Non-Prosecution Agreement pursuant to which the Office of the United States
      Attorney for the Southern District of New York agreed not to pursue actions
      against the Company and its subsidiaries for activities related to its provision
      of payment processing services to Internet wallets that provided services to
      online gaming websites during the period from January 2001 through and including
      the date of the signing of the Non-Prosecution Agreement.





On
      December 14, 2006, we entered into an Agreement and Plan of Merger (the Merger
      Agreement) to be acquired by Intuit, Inc. (Intuit) in a merger transaction
      in
      which we would have become a wholly owned subsidiary of Intuit (the Intuit
      merger).  Pursuant to the terms of the Merger Agreement and subject to
      the conditions thereof, Intuit would have acquired all of the outstanding shares
      of our common stock and all outstanding equity awards (which would have vested
      in connection with the transactions) for a cash amount of $18.75 per share,
      for
      a total purchase price of approximately $142 million on a fully diluted
      basis.  The transaction was subject to regulatory review, our
      shareholder approval and other customary closing conditions.  On March
      26, 2007, the Company mutually agreed with Intuit and Elan Acquisition
      Corporation, a Nevada corporation and wholly owned subsidiary of Intuit
      (“Elan”), to terminate the Merger Agreement.  The parties determined
      that it was in the mutual best interest of each party to terminate the proposed
      agreement.  In connection with the termination, the Company, Intuit
      and Elan agreed to release each other from all claims arising under or related
      to the terminated merger agreement.  The Company also cancelled its
      previously adjourned special stockholders’ meeting relating to the proposed
      acquisition, which was scheduled to reconvene on March 27, 2007.  As
      of result of the termination of the merger agreement, the Company recorded
      approximately $934,000 for the year ended September 30, 2007 of costs related
      to
      the merger.





**OUR
      HISTORY**





*ECHO*
      has been offering bankcard and check services for over 20 years.  We
      were incorporated in Nevada in 1981 under the name Bio Recovery Technology,
      Inc.
      and changed our name to Electronic Clearing House, Inc. with the acquisition
      of
      a credit card processing company, Electronic Financial Systems, Inc. in January
      1986. In 1986, *ECHO* developed the capability, utilizing the Federal
      Reserve System's Automated Clearing House ("ACH"), a network that serves as
      a
      nationwide, wholesale electronic payment and collection system by way of
      transferring funds between banks via the Federal Reserve System, to deposit
      funds into any U.S. bank of the merchant's choice. This development made it
      possible for remote banks and processors to provide the same processing services
      previously available only through the merchant's local bank.





4
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            of Contents***





In
      1999,
*ECHO* acquired Magic Software Development, Inc., a check processing
      company located in Albuquerque, New Mexico, that serviced National Check Network
      (“NCN”), an association of approximately 60 affiliated collection agencies
      across the nation. At the time, we provided a check guarantee service that
      only
      served California merchants, but with the addition of Magic's check processing
      capabilities, our check guarantee services have been offered on a national
      basis
      since 1999.  In fiscal 2000, Magic's corporate name was changed to
*X**PRESS**C**HE**X.*





In
      November 1999, we acquired Peak Collection Services, a collection agency in
      Albuquerque, New Mexico, and incorporated Peak into our *X**PRESS**C**HE**X*
      operations
      as our Collection Division in December of 1999. The *X**PRESS**C**HE**X*
      Collection
      Division conducts collections on a national basis. Having a fully integrated,
      nationally approved collection service allows *X**PRESS**C**HE**X*
      to operate
      as a central check clearing facility for NCN's collection agencies without
      each
      agency having to authorize such activity.





In
      January 2000, we acquired Rocky Mountain Retail Systems (“RMRS”) located in
      Boulder, Colorado, which provided a national check verification service to
      over
      200 collection agencies across the nation. RMRS maintained a national check
      database of negative and positive check writer records.





In
      May
      2001, we acquired the assets of National Check Network (“NCN”) and combined the
      NCN positive and negative check writer records with the RMRS database, resulting
      in a combined database of over 120 million check writer records which identify
      the positive and negative check writing activities occurring with individual
      check writers (including information related to accepted checks, bounced checks,
      and the frequency of delinquent transactions).





In
      May
      2001, *ECHO* launched MerchantAmerica.com, a web-based source of
      financial information whereby an *ECHO* merchant can access their
      transactional history, bank information, significant business and office-related
      services and build an online store and accept payment in the form of credit
      cards or checks. The site also contains a National Merchant Directory that
      is
      free to any merchant in the United States.  Additionally, it provides
      any merchant in the United States with the ability to edit and enhance their
      directory listing. While we believe that MerchantAmerica.com is a valuable
      and
      cost-effective resource for merchants, it provides us with a low-cost method
      of
      keeping our merchants informed and involved with us.





**OUR
      SERVICES**





**Bankcard
      and Transaction Processing Services**





*Services*


With
      our
      bankcard and transaction processing services, we provide payment solutions
      to
      merchants that allow them to accept credit and debit card payments from
      consumers.  Our bankcard and transaction processing services include
      the following:





*Debit
      and Credit Card Payment Processing*


*ECHO*
      currently provides 24-hour daily payment processing, "800" number access to
      customer service personnel and, as needed, various field support
      services.  Utilizing one of several methods of access to us, the
      merchants' systems connect to our host computers that are interfaced to all
      the
      major card authorizing centers, and receive credit card and debit card
      authorizations.  At the end of each day, electronic files of
      authorized transactions are transmitted to the major credit card organizations.
      They withdraw the funds from the card issuing banks and deposit a lump sum
      for
      the day’s processing activity into our processing bank on the following
      morning.  Using a distribution file that we provide to them daily, our
      processing bank then distributes and deposits the individual merchant’s funds
      into the bank account of the merchant's choice.





*Other
      Payment Processing Services*


We
      also
      provide various services related to our debit and credit card payment
      processing, including:





·
            Internet
                Processing – Utilizing our proprietary internet gateway or virtual
                terminal, *ECHO* allows merchants to accept both card and eCheck
                payment transactions in an online environment, providing immediate
                processing and near real-time web based
                reporting.




5
 ***Table
            of Contents***





·
            Batch
                File Processing – *ECHO* allows mail order, telephone order or
                direct marketing merchants to process and transmit payments by using
                Microsoft Excel®, Access® or any other program that can create a "flat
                file" of data.  In this process, the merchant can visit the
                *ECHO* Merchant Center, log on through a secure gateway, and
                upload
                the file to *ECHO's* processing center.  The transactions
                are processed immediately, with reporting available almost immediately
                on
                each transaction.




*Deriving
      Revenue*


Bankcard
      and transaction processing services provide for the majority of our
      revenue.  For the year ended September 30, 2007, bankcard and
      transaction processing accounted for approximately 81.4% of our
      revenue.  Bankcard and transaction processing volume rose 11.2% in
      fiscal 2007, from $1,775,063,000 in fiscal 2006 to $1,973,189,000 in fiscal
      2007, and revenue increased approximately 9.8%, from $56,983,000 in fiscal
      2006
      to $62,580,000 in fiscal 2007.





During
      the year ended September 30, 2007, one customer, Allegiant Travel Company
      (“Allegiant”), accounted for 10.1% of total revenue.  No customer
      accounted for 10% or more of total revenue for the fiscal years 2006 and 2005.
      At September 30, 2007 and 2006, Allegiant also accounted for 19.0% and 12.2%,
      respectively, of the net accounts receivable balance.





*ECHO’s*
      revenue for debit/credit card processing is derived primarily from three
      sources: the merchant's discount rate, the merchant's transaction fee and set
      monthly fees.





The
      discount rate is expressed as a percentage of the amount being processed and
      is
      deducted from the amount of each transaction submitted by the merchant, while
      the net amount is deposited into the merchant's bank account.





A
      transaction fee is charged for each transaction processed by *ECHO*,
      including MasterCard, Visa, American Express and Discover Card
      transactions.





Interchange,
      the discount rate and transaction fee charged by the card-issuing bank and
      paid
      each day when transactions are processed, normally constitutes 60% to 70% of
      the
      bankcard revenue. Other external costs, such as Visa and MasterCard dues and
      bank fees, increase external fees we pay to 67% to 75% of the total bankcard
      revenue.





Historically,
      *ECHO* has been effective in selling to merchants who operate in
      non-face-to-face, card not present environments, such as the Internet, mail
      order and telephone order types of businesses.  Approximately 70% of
      our monthly credit card volume comes from these types of merchants. Our Agent
      Bank program brings retail, face-to-face, card present types of merchants to
      us
      so we intend to continue to promote this channel going forward. In the
      Technology Partner channel we see a good balance between both card present
      and
      card not present merchants.  Our ability to effectively support this
      processing diversity should allow us to be more effective in attracting key
      technology companies as partners. Now that the Clearing module is installed
      and
      operational, we intend to broaden our marketing reach to actively pursue more
      retail types of business. Since there is more competition for this type of
      business, the price we charge to the merchant for our services will reflect
      lower margins than we have historically been accustomed to getting. While we
      intend to continue to pursue our historic higher margin merchant markets, the
      added scope of merchants we intend to pursue and the lower margins inherent
      in
      this market may compress our margins overall, depending upon how successful
      each
      channel is in bringing new merchant
      relationships.





*Sponsorship*


In
      order
      to engage in Visa and MasterCard processing, a cooperative relationship is
      required with a Visa/MasterCard Primary Member Bank that sponsors the merchants
      to accept Visa and MasterCard transactions. *ECHO’s* primary processing
      bank relationship is with First Regional Bank of Los Angeles,
      California.  *ECHO* also maintains a secondary sponsoring
      relationship with National Bank of California, located in Los Angeles
      California.  As a result of these relationships, *ECHO* is a
      registered Independent Sales Organization and Merchant Service Provider with
      Visa and MasterCard, respectively, which allows us to solicit and support
      merchants utilizing our services.  We have an agreement with First
      Regional Bank which continues our relationship through July 2010.  Our
      relationship with National Bank of California extends to April 2012. Pursuant
      to
      the terms of these agreements, among other matters, we market and sell merchant
      services and the bank provides various support services in connection with
      individual transactions, in exchange for our payment to the bank, on a monthly
      basis, of a payment of $0.01 to $0.02 per transaction.  The agreements
      do not allow either party to terminate other than for cause (as defined in
      the
      agreement) without incurring liability for breach of the agreement.





6
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            of Contents***





**Check-Related
      Products (or “Check Services”)**





*Services*


With
      our
      check services, we provide various services to merchants and banks to allow
      them
      to accept and process check payments from consumers.  Our check
      services include the following:





*Check
      Verification*


To
      facilitate the acceptance of a check, we will search NCN, our proprietary
      database of negative and positive check writer accounts, attempting to match
      a
      specific piece of information, such as a driver's license number or Magnetic
      Ink
      Character Recognition (“MICR”) number (the numeric data along the bottom of a
      check), provided by a merchant.  A match may identify whether the
      check writer has a positive record or a negative record of check cashing
      activity in the past. Upon notification of this match (via a coded response
      from
      the provider), the merchant decides whether to accept or decline the
      check.  Verification reduces the risk of accepting a bad check for the
      merchant; however, in providing this program alone, we typically offer no
      guarantee that the check will be honored by the check writer's bank and make
      no
      promise of reimbursement if the check is dishonored by the bank. Revenue from
      check verification is derived from fees collected from the merchants when a
      check is verified against our positive and negative check database. This revenue
      is recognized when the transaction is processed, since we have no further
      performance obligations.





The
      NCN
      database includes approximately 14 million negative check account records and
      28
      million positive records. Approximately 250 affiliated collection agencies
      continually contribute to the database to enrich its depth and value. Through
      its network of NCN members, *ECHO* can offer regional collection services
      and distribute collection items to one or more of a select group of NCN’s member
      agencies to maximize a merchant’s or bank’s ability to collect amounts on a
      local level.  NCN provides an ongoing revenue stream for *ECHO*
      as collection agencies, major national merchants, banks, other transaction
      processors, and thousands of small merchants access the NCN database daily
      to
      verify the status of a check writer in real time.  Check verification
      has been recognized as one of the lowest cost and most effective ways for
      retailers to lower the risks and losses experienced in accepting checks as
      a
      form of payment. Our NCN database is one of only four known national databases
      that can serve this market need on a national scale.  In addition to
      operating NCN, we provide a common platform where a business can also access
      other major negative check writer databases that are currently available in
      the
      nation.





*Check
      Guarantee*


With
      this
      service, if we approve a check transaction and the check is subsequently
      dishonored by the check writer's bank, the merchant is reimbursed by us and
      we
      must undertake any effort to collect the delinquent amount from the check
      writer.





The
      principal risk of providing this service is the risk of collecting the amount
      we
      guarantee from a delinquent or a fraudulent check writer whose check transaction
      was dishonored by his or her own bank.  If we are unable to collect
      the dishonored check, we incur a bad debt expense.  On average, we
      collect 60-70% of the amounts on those checks that become
      delinquent.  Given the risks associated with check guarantee,
      especially for large volume merchants, we exercise strict risk parameters with
      the merchants to which this service is offered.  We typically apply
      several risk management approaches with this service, which include searching
      NCN’s database, and “scoring” each transaction.  This includes several
      factors such as velocity (the number of times a check writer has been searched
      in a certain period of time), prior activity (historic negative or positive
      transactions with the check writer), check writer’s presence in other databases
      (these national databases are selectively searched based upon the size of the
      check and the prior activity with the check writer), size of the check, and
      historic bad check activity by geographic and/or merchant specific locations,
      to
      name a few. If our scoring system concludes that the risk is too high, we issue
      a coded response instructing the merchant that we will not guarantee the
      check.  If our scoring system results in a positive result, a coded
      response advises the merchant that we have guaranteed payment on that
      item.





7
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            of Contents***





*Electronic
      Check Conversion ("ECC")*


Check
      conversion is the ability to convert a paper check to an electronic item at
      the
      point of sale. Under the program, the merchant slips a customer's completely
      filled-in check either through a check reader that reads the MICR line on the
      check or a check imager that records the total image of the face of the check
      and the merchant enters the amount of the check into the system.  The
      merchant has the customer sign a receipt, much the same as in a credit card
      transaction, and gives a copy of the signed receipt along with the check to
      the
      customer. The electronic image, captured by the reader, is sent to our
      processing center and we settle the check transaction electronically. Merchants’
customers like this new system because they get their check back immediately
      and
      still have a hard copy receipt of the transaction. Banks like ECC because no
      paper has to be handled by the bank to settle the transaction. While most
      national merchants already have MICR check-reading equipment, small merchants
      will adopt the system only if their check volume justifies the capital
      investment in equipment, ranging from $125 to $150 per MICR reader and $300
      to
      $600 for an imager.





*Check
      Re-Presentment*


The
      Federal Reserve System's Automated Clearing House (“ACH”) provides the tools to
      electronically present, re-present and settle funds between banks. Our check
      re-presentment program allows a merchant to advise its bank that a returned
      check should be sent to the *X**PRESS**C**HE**X*data
      processing center in Albuquerque, New Mexico, rather than returned to the
      merchant. Upon receipt, *X**PRESS**C**HE**X*converts
      the check to an electronic ACH transaction for resubmission through the ACH
      network and marks the check for possible collection activity, should it become
      necessary.  One feature a merchant may choose is to time the
      re-presentment so as to coincide with a check writer’s typical payday to better
      the odds of collection.  Generally, the full face value of the check
      is returned to the merchant upon collection and a collection fee charged to
      the
      check writer, usually in the range of $15 to $25, is retained by *X**PRESS**C**HE**X*
      as payment
      for its services.





*Internet
      Check (eCheck), Batch Check and Virtual Terminal*


A
      check
      can be presented as a form of payment over the Internet and we support the
      multiple types of ACH entry classes.  *X**PRESS**C**HE**X*
      allows an
      e-commerce site to accept a check as payment, allows a batch of check data
      to be
      sent electronically for processing (this is commonly used by mail order or
      phone
      order businesses) and allows both verification-only and ACH transactions to
      be
      submitted by merchants via a secure logon and pass-code connection over the
      Internet.





*Visa
      POS Check Service Program (“Visa Program”)*


The
      Visa
      POS Check Program enables merchants to receive direct online authorization
      for
      checks written against consumer checking accounts, similar to the authorizations
      provided for debit card transactions.  The Visa Program was offered as
      a pilot program by Visa to its member banks from December of 2000 to December
      of
      2002 over which time several banks electronically connected their check writer
      data to the Visa network, making verification of the check writer’s bank account
      balance possible when checks drawn on these select banks were processed. In
      December of 2002, the program was officially released out of pilot and more
      banks have been added each year to the Visa network. As of September 2007,
      a
      national merchant could expect connection to around 20%-30% of the nation’s
      checking accounts from all locations and higher in some metropolitan
      locations





As
      described above, “check conversion” is the ability to convert a paper check to
      an electronic item at the point of sale.  The Visa Program provides
      Visa member banks with a check conversion service that they can sell to their
      bank merchants. The Visa Program allows the merchant to get an immediate
      authorization or decline on a check while the check writer is at the checkout
      counter.  If the check is approved, the service allows the merchant to
      immediately return the paper check to the check writer since the funds will
      be
      electronically withdrawn from the check writer’s account and deposited into the
      merchant’s account.





Being
      able to approve or decline a check in real time at the point of sale requires
      some method to verify the check writer has either an adequate balance in the
      bank to cover the check or, if that is not possible, to verify if the check
      written is in a negative check account database.  In order to provide
      this check service on 100% of the checks received by a merchant, Visa needed
      a
      solution to approve or decline (and for those approved, electronically deposit)
      the checks that processed through the program on a bank that had not yet
      connected its check writer data to the Visa network.  We are currently
      one of the few companies that provide this service to Visa as a Third-Party
      Processor.  When a Visa member bank signs up to offer the Visa Program
      to its merchants, it chooses a Third-Party Processor from the certified
      providers.





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When
      Visa
      receives electronic check data from a merchant and the bank upon which the
      check
      is drawn has not connected its check writer data to the Visa network, Visa
      routes that check to the Third-Party Processor that was chosen by the merchant’s
      bank when they set up the program.  The Third-Party Processor
      authorizes or declines a check based upon the negative and positive data
      contained in several national check account databases that are commercially
      available and, for those transactions that are approved, the Third-Party
      Processor will electronically move the funds from the check writer’s account to
      either the merchant bank’s master clearing account or directly to the merchant’s
      banking account (depending on the bank’s desired settlement method) utilizing
      the ACH.





An
      Acquirer Processor in the Visa Program is the party who accepts transactions
      from the merchant’s point-of-sale system and reformats them for submission to
      the Visa network.  We act as an Acquirer Processor for
      several   banks in the Visa Program.





We
      entered into a sponsorship agreement with our primary credit card processing
      bank, First Regional Bank, to enable us to sell the Visa Program directly to
      merchants with an obligation to pay a transaction fee per check to the bank.
      This allows the bank to realize added revenue, allows us to realize higher
      revenue in a marked-up pricing model, and a portion of the mark-up to be used
      to
      compensate and motivate resellers of our products and services to offer the
      Visa
      Program to merchants in the marketplace.  The balance of the mark-up
      after paying the bank and the sales organization would be additional revenue
      to
      us.  This will also enable us to use our direct sales channels to
      provide the Visa Program to *ECHO’s* current and potential merchant
      base.





The
      Visa
      infrastructure requires *ECHO* to coordinate and integrate its services
      with several parties and systems. As part of the Visa Program, we have written,
      tested and installed special merchant terminal software that meets specified
      Visa Program requirements and certified our terminal and host response code
      with
      Vital Processing Services, a major provider of terminal services to many major
      banks. *ECHO* has also developed special add-on services and reporting
      for specific banks or select merchants that desired to participate in the Visa
      Program. Additionally, *ECHO* has designed and implemented several risk
      management tools that contribute to the significant reduction in net bad debt
      seen by retailers, making the Visa Program a true competitive alternative to
      guarantee services.





As
      a more
      mature product offering, we continue to see value in the Visa POS Program as
      a
      competitive differentiator.  We will continue to leverage this unique
      capability throughout our direct and indirect sales channels, however, the
      market potential of this service is still unproven and its success is largely
      dependent on the continuing marketing support of Visa and Visa’s member
      banks.





*Deriving
      Revenue*


For
      the
      year ended September 30, 2007, check services accounted for approximately 18.6%
      of our revenue.  Revenue decreased approximately 22.0%, from
      $18,328,000 in fiscal 2006 to $14,304,000 in fiscal 2007.  The
      decrease in check revenue primarily reflects the wind-down of the Company’s
      Internet wallet business and the discontinuation of services to several merchant
      categories that management determined were carrying unacceptable levels of
      business or financial risk.





*ECHO’s*
      revenue in check services can come from several sources.  Typically,
      the merchant pays either a fixed fee for each transaction (verification,
      conversion, eCheck, etc.) or a fee based on the face amount of the check or
      both
      (check guarantee).  In the Visa model, *ECHO* can receive
      transaction fees for providing Third-Party services to Visa banks, whereby
      *ECHO* assists them in processing checks from banks not participating in
      the Visa Program.  In addition, *ECHO* may serve a Visa bank as
      a collector of the transaction data for the merchant and submitting such data
      to
      VisaNet, a process referred to as an Acquirer
      Processor.  *ECHO* can also participate in the mark-up over
      cost that is charged to those merchants *ECHO* sells directly through its
      own primary sales channels. Additional revenue is earned if the merchant
      utilizes *ECHO’s* collection services and it is primarily derived from
      the collection fee associated with successful collection of an item. If
*ECHO* refers a collection item to an NCN member, a small participation
      in the collection fee is returned to *ECHO* through agreement with the
      NCN member. Finally, when *ECHO* provides a guarantee service to a
      merchant directly or to a bank to offer to their merchants, it earns a
      percentage of every check processed from the
      merchant.  *ECHO’s* earnings in this case are directly tied to
      its success in collection and its risk management capability.





*X**PRESS**C**HE**X*collection
      revenue comes from two sources: service fees and percentage of the check
      collection agreements. When *X**PRESS**C**HE**X*
      is engaged
      by a merchant or a bank to immediately collect on returned checks that were
      converted from paper to an electronic item, *X**PRESS**C**HE**X*
      normally
      receives the service fee of $15 to $25 that is charged to the check writer,
      not
      the merchant.  Some merchants also engage *X**PRESS**C**HE**X*in
      the
      active collection of paper checks that have bounced or in the active collection
      of secondary efforts after all initial attempts at collection have been
      exhausted by the merchant. In these cases*, X**PRESS**C**HE**X*
      negotiates
      a percentage of the check amount, ranging from 10% to 30%, depending on several
      factors.





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*Sponsorship*


In
      order
      to process electronic check transactions into the ACH network, a sponsoring
      relationship with a Federal Reserve member bank is
      required.  *ECHO* currently maintains four such sponsoring
      relationships, First Regional Bank, Los Angeles, California, National Bank
      of
      California, Los Angeles, California, First Community Bank, Albuquerque, New
      Mexico and Regal Financial Bank, Seattle, Washington.





**OUR
      CUSTOMERS**





*ECHO*’s
      primary customer focus is in the area of niche markets, in particular, markets
      that are not well understood by our larger competitors.  Approximately
      70% of *ECHO*’s
      revenues come from merchants who operate their business in non-face-to-face
      environments such as mail order, phone order and the internet.  These
      relationships historically have higher margins than those seen with normal
      retail merchants because of the additional financial risk.  ECHO has
      historically been very successful in managing the risk associated with the
      non-face-to-face merchant.  We have specific merchant concentrations
      in the following areas;





*Specialty
      Retail*


Primarily
      driven by our unique product set in check services, we’ve been successful in
      gaining access to a number of markets within the retail merchant vertical,
      including grocery, convenience store and apparel.





*Online
      Travel*


As
      a
      result of one key relationship, *ECHO* has established a presence in the
      dynamic online travel segment.  Our current business includes an
      online travel company selling travel packages to leisure destinations, both
      on a
      stand-alone basis (airfare only) and bundled with hotel rooms, rental cars
      and
      other travel related services.





*Direct
      Marketing*


*ECHO*
      has invested over 10 years in developing our reputation in the Direct Marketing
      vertical.  Our business consists of a wide range of merchant groups,
      including seminars, direct sales and multi-level marketing organizations as
      well
      as number of web based product and service categories.





*Cashing
      Services*


*ECHO*
      has
      established an integrated processing relationship with the largest check cashing
      provider to the land-based gaming and casino market.  Our services are
      primarily centered on providing check verification (using our NCN database),
      funds movement, collections and several sophisticated risk management services
      that are used to assist the provider in confidently accepting
      checks.





*Specialty
      Finance*


Specialty
      finance represents a diverse market.  Our primary focus is in the area
      of warranty, insurance and subscription services where there are significant
      concentrations of recurring payments.  Our warranty portfolio consists
      mainly of auto warranties and the companies that serve this market, including
      administrators, finance companies and sales agents.  Our insurance
      business includes merchants selling auto, watercraft, homeowners, condominium,
      renters and umbrella products.  Subscription Services include
      merchants selling health club memberships, daycare and internet
      services.





*Small
      Merchant Enterprise (SME)*


Through
      both internet based marketing initiatives as well as a number of key reseller
      relationships, *ECHO* has built a solid business supporting small
      merchants both in the internet and brick and mortar category.





**OUR
      STRATEGY**





*Overview*





In
      2007,***ECHO***has refocused on its sales and
      service strategy which is to provide merchants, banks, technology partners
      and
      collection agencies with electronic payment services that combine credit card,
      debit card and electronic check and collection services with quality customer
      support.  We believe this “All-In-One” offering represents a
      significant competitive differentiator for *ECHO*.
*ECHO**’s* services enable merchants to maximize revenue
      by
      offering a wide variety of payment options, minimize costs by dealing with
      one
      source and improve their bad debt collection rates through use of
*ECHO*’s integrated collection and risk management services.





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As
      a
      niche processor, our strategy is to continue building upon the success of our
      core markets and focus our sales effort towards adjacent markets that offer
      high
      growth potential; that can drive processing volume and that have recurring
      or
      scheduled payments.   We view the non-face-to-face environment as
      one of our largest growth opportunities.  This segment includes both
      internet sites and recurring billing merchants.  All of these
      merchants benefit from our ability to handle both a retail or online credit
      card
      or eCheck transaction quickly and securely.





*Sales
      and Marketing*





Our
      sales
      and marketing strategy is to pursue direct sales opportunities where there
      is a
      significant amount of card and check acceptance; to build processing
      relationships with certain providers of POS software/hardware that serve select
      merchant markets; to maximize cross-selling opportunities within our existing
      base of retail merchants and financial institutions; to sell integrated suites
      of check, credit and debit card processing services through small banks; and
      to
      pursue associations aggressively.





*ECHO*
      offers its payment services through three sales channels.




·
            *Direct
                Sales*– Direct sales personnel are dedicated to focused industries
                and/or services. We employ approximately 20 people who serve in either
                field or office positions that are dedicated to sales.




·
            *Channel
                Partnerships*– We have a well established base of channel
                partnerships.  These include Banks, our network of nearly 250
                NCN Collection Agencies, Independent Sales Agents and
                Associations.  These relationships offer lower margins to us due
                to their participation in the overall revenue generated from the
                payment
                processing fees.




·
            *Technology
                Partnerships*– *ECHO* has launched a new channel focused on
                securing relationships with companies who provide technology solutions
                to
                our target merchant segments.  This will be a new focus for the
                company in 2008.





*Direct
      Sales*


We
      currently employ approximately 20 direct sales executives.  The field
      sales force is dispersed geographically throughout the United States and is
      tasked with securing processing relationships with merchants in our designated
      niche markets.  We also maintain a telesales force within the
      corporate headquarters.  This staff provides first line sales for all
      business generated through our various marketing initiatives, including web,
      mail and print.  Additionally, the telesales team acts as a closing
      channel for all new business referred by our Channel and Technology
      partnerships.





*Promote
      Merchant Payment Processing for Community Banks*


*ECHO*
      pursues small regional and community banks for credit card and check payment
      programs that are characterized by having an asset base in the $500 million
      range or less, and/or equity capital in the $10 to $50 million
      range.  *ECHO* has developed a service that allows smaller
      banks to offer credit card and check processing services on a private-label
      basis using our back-end infrastructure with little or no technical involvement
      by the bank.  Much of the reporting to the merchant utilizes the
      Internet as a delivery channel, an environment in which we have significant
      experience and knowledge.  Due to the high fixed costs, most small
      banks are either unable or unwilling to compete with national banks in providing
      credit card and real time check processing services and Internet-based reporting
      tools to their merchants.  We have designed the program to be adopted
      by a bank at little or no cost while it allows the bank to generate revenue
      and
      earnings in competition to those earned by much larger banks that have had
      to
      make major investments in the technology.





*ECHO*
      estimates that there are approximately 8,000 community banks in the United
      States. Based on third-party research, we estimate that approximately 57% of
      these banks offer payment solutions for their merchants. We believe these banks
      will be very responsive to the *ECHO* value proposition when a comparison
      of features and costs is reviewed.





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Along
      similar lines, we believe there are quality independent sales organizations,
      many of which are focused on select markets, where we can establish a viable
      and
      mutually profitable relationship wherein they sell our processing
      services.





*Associations*


There
      are
      over 8,000 associations and guilds in the United States and many of the 4.1
      million merchants belong to one of these organizations.  We believe
      our combination of services and our controlled cost structure will allow us
      to
      attract many of these organizations to actively refer their members to us for
      meeting their payment processing needs.





*Technology
      Partners Providing POS Systems*


We
      believe there are significant opportunities in working closely with those firms
      that specialize in certain industries and provide a point-of-sale (POS)
      capability to merchants of some nature. By integrating our processing with
      these
      parties, we believe we can leverage our sales activity and have longer term
      relationships with merchants than are historically the case for most
      processors.  We also believe our full processing capability allows us
      to provide the POS system partner with some economic benefit from the processing
      volume of the users of its system.





**OUR
      COMPETITION**





Bankcard
      processing and check processing services are highly competitive industries
      and
      are characterized by consolidation, rapid technological change, rapid rates
      of
      product obsolescence and introductions of competitive products often at lower
      prices and/or with greater functionality than those currently on the
      market.  Credit card and debit card processors have similar direct
      costs and therefore their products are becoming somewhat of a commodity product
      where a natural advantage accrues to the highest volume processors. To offset
      this fact, we have focused on marketing to niche markets where we can maintain
      the margins we deem necessary to operate profitably but no assurance can be
      given that this strategy will be successful in the future.





Of
      the
      top 50 credit card acquirers in the nation, the majority are independent sales
      organizations or banks that may manage the front-end authorization service
      but
      they outsource the back-end clearing and settlement services from a full service
      processor.  There are probably 10 or fewer firms capable of full
      credit card processing and these would include First Data Corporation, Total
      Systems, NPC (Bank of America), Global Payments, Heartland Payments, Alliance
      Data Systems and RBS Lynk.  We believe we hold the distinction of
      being the smallest public company who serves as a full service processor in
      credit cards and check services.  All of our competitors have greater
      financial and marketing resources than us.  As a result, they may be
      better able to respond more quickly to new or emerging technologies and changes
      in customer requirements.  Competitors also may enjoy per transaction
      cost advantages due to their high processing volumes that may make it difficult
      for *ECHO* to compete.





There
      are
      a number of competitors in the check services industry, the largest of which
      are
      TeleCheck (the leading provider of conversion and guarantee services and a
      subsidiary of First Data Corporation), SCAN/eFunds (the largest verification
      provider in the nation), Certegy (purchased by Fidelity) and Global
      Payments.  While all four have major national accounts, we have been
      successful in winning the processing relationships for national accounts when
      competing for such business against these parties.  *ECHO*
      believes that it can effectively compete due to its ownership of the NCN
      database, its integrated set of check and collection services and the
      technological advantage of having been certified as both a Third-Party Processor
      and Acquirer Processor with the Visa POS Check Program.





We
      believe that being the smallest processor also has some
      advantages.  There are many merchants who are sizable to us that the
      larger processors do not consider to be major merchants.  We are
      finding that these merchants appreciate receiving preferential treatment from
      their processor.  Also, our willingness to send top management into
      the field to meet regularly with our major merchants at their locations is
      a
      perceived distinction and we are using it as a merchant retention
      tool.  While we understand that slightly lower costs can be generated
      by processing high volumes, we do not think the economic advantages that high
      volume affords are enough to eliminate *ECHO* as an acceptable and
      competitive processor in most cases. Despite these potential advantages, we
      believe that our success will depend largely on our ability to continuously
      exceed expectations in terms of performance, service, and price, on our ability
      to develop new products and services, and on how well and how quickly we enhance
      our current products and introduce them into the
      market.





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**OUR
      EMPLOYEES**





As
      of
      September 30, 2007, we employed 239 individuals, 222 of whom were full time
      employees.





On
      December 11, 2007, we entered into amended and restated separation agreements
      with each of our principal executive officers (CEO and CFO) and each of our
      senior vice presidents whereby, in the event of a change in control of
*ECHO* (as defined in each agreement) each such executive officer would
      be entitled, to the extent they remain employed by us at the time of such change
      in control, to the following: (i) an acceleration of vesting with respect to
      all
      stock option and restricted stock grants then outstanding and not yet vested,
      (ii) a portion of such executive’s anticipated cash or sales commission-based
      bonus, as applicable, for the fiscal year in which the change in control
      occurred, and (iii) in the event that the executive is terminated without cause
      (as defined in each agreement), or ceases to provide services to us (or our
      successor) as a result of an involuntary termination (as defined in each
      agreement) within the two year period following the change in control, then
      the
      executive would be entitled to a one-time lump sum cash payment equal to a
      percentage of the executive’s anticipated total compensation for the fiscal year
      in which the change in control occurred, plus continued medical benefits for
      a
      period of time following such termination.  The amount of lump sum payout
      ranges from 1 1⁄2 to 2 years of anticipated total compensation, and duration of
      continued medical benefits ranges between 1 1⁄2 and 2 years depending on position
      held by the principal executive or senior vice president.  These
      agreements amend and restate separation agreements previously entered into
      with
      each of these executives.





Further,
      on December 11, 2007, we entered into indemnification agreements with each
      of
      our principal executive officers, senior vice presidents and
      directors.  Pursuant to the terms of the indemnification agreements,
      we have agreed to provide indemnification for, and the advancement of expenses
      to, our executive officers, senior vice presidents and directors, under certain
      circumstances and in accordance with Nevada law, all as more completely
      described within the agreements.





**REPORTABLE
      SEGMENTS**





Refer
      to
      Note 18 “Segment Information” in the accompanying Notes to Consolidated
      Financial Statements for reportable segment information.





**ITEM
      1A.  Risk Factors**





Our
      business, and accordingly, your investment in our common stock, is subject
      to a
      number of risks.  These risks could affect our operating results and
      liquidity.  You should consider the following risk factors, among
      others, before investing in our common stock:





**Risks
      Related To Our Business**





**We
      rely on cooperative relationships with, and sponsorship by, banks, the absence
      of which may affect our operations.**





We
      currently rely on cooperative relationships with, and sponsorship by, banks
      in
      order to process our Visa, MasterCard and other bankcard
      transactions.  We also rely on several banks for access to the
      Automated Clearing House (“ACH”) for submission of both credit card and check
      settlements.  Our banking relationships are currently with smaller
      banks (with assets of less than $500,000,000). Even though smaller banks tend
      to
      be more susceptible to mergers or acquisitions and are therefore less stable,
      these banks find the programs we offer more attractive and we believe we cannot
      obtain similar relationships with larger banks at this time. A bank could at
      any
      time curtail or place restrictions on our processing volume because of its
      internal business policies or due to other adverse circumstances.  If
      a volume restriction is placed on us, it could materially adversely affect
      our
      business operations by restricting our ability to process credit card
      transactions and receive the related revenue.  Our relationships with
      our customers and merchants would also be adversely affected by our inability
      to
      process these transactions.





We
      currently have two primary bankcard processing and sponsorship relationships,
      one with First Regional Bank in Los Angeles, California, and another one with
      National Bank of California in Los Angeles, California, entered into on April
      12, 2007.  Our agreement with First Regional Bank continues through
      July 2010 and our agreement with National Bank of California continues through
      April 2012. We also maintain several banking relationships for ACH
      processing.  While we believe our current bank relationships are
      sound, we cannot assure that these banks will not restrict our increasing
      processing volume or that we will always be able to maintain these relationships
      or establish new banking relationships. Even if new banking relationships are
      available, they may not be on terms acceptable to us.  With respect to
      First Regional Bank, while we believe their ability to terminate our
      relationship is cost-prohibitive, they may determine that the cost of
      terminating their agreement is less than the cost of continuing to perform
      in
      accordance with its terms, and may therefore determine to terminate their
      agreement prior to its expiration.  Ultimately, our failure to
      maintain these banking relationships and sponsorships may have a material
      adverse effect on our business and results of operations.





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**Merchant
      fraud with respect to bankcard and ACH transactions could cause us to incur
      significant losses.**





We
      significantly rely on the processing revenue derived from bankcard and ACH
      transactions.  If any merchants were to submit or process unauthorized
      or fraudulent bankcard or ACH transactions, depending on the dollar amount,
      *ECHO* could incur significant losses which could have a material adverse
      effect on our business and results of operations.  *ECHO*
      assumes and compensates the sponsoring banks for bearing the risk of these
      types
      of transactions.





We
      have
      implemented systems and software for the electronic surveillance and monitoring
      of fraudulent bankcard and ACH use.  As of September 30, 2007, we
      maintained a dedicated chargeback reserve of $853,000 at our primary bank
      specifically earmarked for such activity.  Additionally, through our
      sponsoring bank, as of September 30, 2007, we had access to approximately $20.3
      million in merchant deposits to cover any potential chargeback
      losses.  Despite a long history of managing such risk, we cannot
      guarantee that these systems will prevent fraudulent transactions from being
      submitted and processed or that the funds set aside to address such activity
      will be adequate to cover all potential situations that might
      occur.  We do not have insurance to protect us from these
      losses.  There is no assurance that our chargeback reserve will be
      adequate to offset against any unauthorized or fraudulent processing losses
      that
      we may incur.  Depending on the size of such losses, our results of
      operations could be immediately and materially adversely affected.





**Excessive
      chargeback losses could significantly affect our results of operations and
      liquidity.**





Our
      agreements with our sponsoring banks require us to assume and compensate the
      banks for bearing the risk of “chargeback” losses. Under the rules of Visa and
      MasterCard, when a merchant processor acquires card transactions, it has certain
      contingent liabilities for the transactions processed.  This
      contingent liability arises in the event of a billing dispute between the
      merchant and a cardholder that is ultimately resolved in the cardholder’s
      favor.  In such a case, the disputed transaction is charged back to
      the merchant and the disputed amount is credited or otherwise refunded to the
      cardholder.  If we are unable to collect this amount from the
      merchant’s account, or if the merchant refuses or is unable to reimburse us for
      the chargeback due to merchant fraud, insolvency or other reasons, we will
      bear
      the loss for the amount of the refund paid to the cardholders.





A
      cardholder, through its issuing bank, generally has until the later of up to
      four months after the date a transaction is processed or the delivery of the
      product or service to present a chargeback to our sponsoring banks as the
      merchant processor.  Therefore, management believes that the maximum
      potential exposure for the chargebacks would not exceed the total amount of
      transactions processed through Visa and MasterCard for the last four months
      and
      other unresolved chargebacks in the process of resolution.  For the
      last four months through September 30, 2007, this potential exposure totaled
      approximately $650 million.  At September 30, 2007, we, through our
      sponsoring bank, had approximately $75,000 of unresolved chargebacks that were
      in the process of resolution.  At September 30, 2007, we, through our
      sponsoring bank, had access to $20.3 million belonging to our merchants. This
      money has been deposited at the sponsoring bank by the merchants to cover any
      potential chargeback losses.





For
      the
      fiscal years ended September 30, 2007 and 2006, we processed approximately
      $2.0
      billion and $1.8 billion, respectively, of Visa and MasterCard transactions,
      which resulted in $11.1 million in gross chargeback activities for the fiscal
      year ended September 30, 2007 and $9.8 million for the fiscal year ended
      September 30, 2006. Substantially all of these chargebacks were recovered from
      the merchants.





Nevertheless,
      if we are unable to recover these chargeback amounts from merchants, having
      to
      pay the aggregate of any such amounts would significantly affect our results
      of
      operations and liquidity.





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**Excessive
      check return activity could significantly affect our results of operations
      and
      liquidity**





All
      check
      settlement funds are moved utilizing the Automated Clearing House (ACH) system
      of the Federal Reserve.  Submission of an ACH request to withdraw
      funds may be refused by the receiving bank for a number of reasons, the two
      most
common being the account did not have an adequate balance to honor the request
      or the account was closed.  In each of these situations, we first look
      to the merchant account for the return of any funds deposited.  In
      some situations, specific merchant reserves are set up in advance in order
      to
      honor all returns.  In the event neither the merchant bank account nor
      a specific reserve is adequate to cover a return, we allow either of the
      processing banks to look to our reserve accounts to cover the return
      activity.  In such cases, we then actively look to recover our
      advanced funds from the merchant, either from a subsequent day’s processing
      activity or from one-time deposits requested of the merchant.  In the
      event such recovery is not possible, we could suffer a loss on return ACH
      activity which could affect our results of operations and liquidity. The amount
      we considered uncollectible for fiscal 2007 was $38,000.





**Failure
      to participate in the Visa POS Check Service Program would cause us to
      significantly shift our operating and marketing strategy.**





We
      have
      significantly increased our infrastructure, personnel and marketing strategy
      to
      focus on the potential growth of our check services through the Visa POS Check
      Service Program.  We currently provide critical back-end
      infrastructure for the service, including our**NCN database for
      verification and our access to the Federal Reserve System’s Automated Clearing
      House for funds settlement and for checks written on bank accounts with banks
      not participating in the program.





Because
      we believe the market will continue to gain acceptance of the Visa POS Check
      Service Program, we have expended significant resources to market our check
      conversion services and verification services to our merchant base, to solidify
      our strategic relationships with the various financial institutions that have
      chosen us as their Acquirer Processor and Third-Party processor under the
      program, and to sell our other check products such as electronic check
      re-presentments and check guarantee to the Visa member banks.  We have
      also increased our personnel to handle the increased volume of transactions
      arising directly from our participation in the program.





Our
      failure to adequately market our services through this relationship could
      materially affect our marketing strategy going forward.  Additionally,
      if we fail to adequately grow our infrastructure to address increases in the
      volume of transactions, cease providing services as a Third-Party processor
      or
      Acquirer Processor or are otherwise removed or terminated from the Visa Program,
      this would require us to dramatically shift our current operating
      strategy.





**Our
      inability to implement, and/or the inability of third-party software vendors
      to
      continue to support and provide maintenance services with respect to, the
      third-party vendors’ products, could significantly affect our results of
      operations and financial condition.**





We
      utilize various third-party software applications and depend on the providers
      of
      such software applications to provide support and maintenance services to
      us.  In the event that a third-party software vendor fails to continue
      to support and maintain its software application, or fails to do so in a timely
      manner, this could significantly affect our results of operations and financial
      condition.





Our
      inability to ultimately implement, or a determination to cease the
      implementation of various of our software technology initiatives will
      significantly adversely affect our results of operations and financial
      condition.





We
      have
      spent significant time and monetary resources implementing several software
      technologies, which resulted in significant cost being capitalized by us as
      non-current software assets.  The implementation of these technologies
      will provide us with substantial operational advantages that would allow us
      to
      attract and retain larger merchants, as well as the small and mid-market
      merchants that have been our target market.  Management believes that
      the implementation of these software technologies, and the technologies
      themselves, continues to be in the best interests of, and the most viable
      alternative for, the Company.  However, the inability to ultimately
      implement, or a determination to cease the implementation of these software
      technologies would cause these assets to become impaired, and the corresponding
      impairment would significantly adversely affect our results of operations and
      financial condition.





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**A
      significant amount of our bankcard processing revenue is dependent on
      approximately 100 merchant accounts, several of which are very large
      merchants.  The loss of a substantial portion of these accounts would
      adversely affect our results of operations.**





We
      depend
      on approximately 100 key merchant accounts for our organic growth and
      profitability. One merchant accounted for approximately 12.4% of our bankcard
      processing revenue during the year ended September 30, 2007.  The loss
      of this account or the loss of merchants from this select group could adversely
      affect our results of operations.





**The
      business activities of our merchants, third party independent sales
      organizations and/or third party processors could affect our business, financial
      condition and results of operations.**





We
      provide direct and back-end bankcard and check processing and collection
      services (including check verification, conversion and guarantee services)
      to
      merchants across many industries.  We provide these services directly
      and through third party independent sales organizations and third party
      processors.  To the extent any of these merchants, independent sales
      organizations or third party processors conduct activities which are deemed
      illegal, whether as a result of the interpretation or re-interpretation of
      existing law by federal, state or other authorities, or as a result of newly
      introduced legislation, and/or to the extent these merchants, independent sales
      organizations or third party processors otherwise become involved in activities
      that incur civil liability from third parties, (including from federal, state
      or
      other authorities), those legal authorities and/or those third parties could
      attempt to pursue claims against us, including, without limitation, for aiding
      the activities of those merchants.  Those legal authorities and/or
      those third parties could also pursue claims against us based on their
      interpretation or re-interpretation of existing law, based on their
      interpretation or re-interpretation of newly introduced legislation, and/or
      based on alternative causes of action that we can not predict.  While
      we believe that the services we provide are not illegal, and while we believe
      that our services do not directly or indirectly aid in the activities of our
      merchants, independent sales organizations or third party processors, and while
      we have no intent to assist any such activities, of our merchants, independent
      sales organizations or third party processors (other than to provide general
      processing and collection services, or check verification, conversion and
      guarantee services in the case of check services, consistent with past
      practice), any claims by legal authorities or third parties would require us
      to
      expend financial and management resources to address and defend such
      claims.  Additionally, the aggregate resolution of any such claims
      could require us to disgorge revenues or profits, pay damages or make other
      payments.  The occurrence of any of the foregoing would have an
      adverse impact on our business, financial condition and results of
      operations.





As
      we
      have previously disclosed, several of our former merchants provided consumers
      access to “Internet wallets,” which subsequently permitted consumers to use
      funds in those “Internet wallets” to, among other transactions, participate in
      gaming activities over the Internet.  In October 2006, the Unlawful
      Internet Gaming Enforcement Act was passed and signed into law.  As a
      result of the passed legislation, several of our Internet wallet merchants,
      all
      of which used our check services, had a significant drop in processing
      activities during the quarter ended December 31, 2006 as we wound down the
      services we provided to them. During February 2007, we decided to cease
      processing and collection services for all Internet wallet
      customers.  Our “Internet wallet” merchants comprised approximately
      11.0% of our check revenue for the year ended September 30, 2007, of which
      no
      amounts were recorded after March 2007.  On March 27, 2007, we entered
      into a Non-Prosecution Agreement pursuant to which the Office of the United
      States Attorney for the Southern District of New York agreed not to pursue
      actions against us and our subsidiaries for activities related to our provision
      of payment processing services to Internet wallets that provided services to
      online gaming websites during the period from January 2001 through and including
      the date of the signing of the Non-Prosecution Agreement.  Pursuant to
      the terms of the Non-Prosecution Agreement, we agreed to pay estimated profits
      to the United States in the amount of a $2,300,000 civil disgorgement settlement
      upon the execution of the Non-Prosecution Agreement, which represented our
      management’s estimate of our profits from processing and collection services
      provided to Internet wallets since 2001. We agreed to maintain a permanent
      restriction upon providing automated clearing house services to any business
      entity providing Internet gambling services to customers in the United States,
      so long as the processing services and gambling services are illegal under
      the
      laws of the United States.  Additionally, we agreed to, among other
      matters, cooperate fully and actively with the U.S. Attorney’s Office, the
      Federal Bureau of Investigation, and with any other agency of the government
      designated by the U.S. Attorney’s Office, and to not commit any violations of
      law. Our cooperation obligations will continue until the later of one year
      from
      the date of the signing of the Non-Prosecution Agreement or the date upon which
      all prosecutions arising out of the conduct described in the Non-Prosecution
      Agreement are final.





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**Actions
      by federal, state or other authorities, or private third parties, could attempt
      to seize or otherwise attempt to take action against the reserve and settlement
      accounts we hold pursuant to our agreements with our merchants (to protect
      against returns and other losses we may incur), the loss of which could
      adversely affect our financial condition and results of
      operation.**





We
      hold
      reserve and settlement accounts on behalf of our bankcard and check merchants
      to
      protect us against returns and other losses we may incur as a result of the
      merchant’s activities.  To the extent any of these merchants conduct
      activities which are deemed illegal, whether as a result of the interpretation
      or re-interpretation of existing law by federal, state or other authorities,
      or
      as a result of newly introduced legislation, and/or to the extent these
      merchants otherwise become involved in activities that incur civil liability
      from third parties (including from federal, state or other authorities), those
      federal, state or other authorities, and/or those private third parties, could
      attempt to seize or otherwise attempt to take action against the reserve and
      settlement accounts we hold pursuant to our agreements with those
      merchants.  The loss or decrease of any of these reserve or settlement
      accounts could cause us to become directly responsible for returns and other
      losses, which could adversely affect our financial condition and results of
      operation.





**New
      or amended legislation and/or regulations could significantly affect our
      business operations and the business operations of our
      merchants.**





We
      provide direct and back-end bankcard and check processing and collection
      services (including check verification, conversion and guarantee services)
      to
      merchants across many industries.  We provide these services directly
      and through third party independent sales organizations and third party
      processors.  To the extent any of these industries, or our services
      within these industries, become subject to new legislation or regulations,
      or
      existing law or regulations are amended in a manner that affects our provision
      of services within these industries, this could significantly affect our
      business operations and the business operations of those merchants.





**The
      business in which we compete is highly competitive and there is no assurance
      that our current products and services will stay competitive or that we will
      be
      able to introduce new products and services to compete
      successfully.**





We**are
      in the business of processing payment transactions and designing and
      implementing integrated systems for our customers so that they can better use
      our services.  This business is highly competitive and is
      characterized by rapid technological change, rapid rates of product
      obsolescence, and rapid rates of new product introduction.  Our market
      share is relatively small as compared to most of our competitors and most of
      these competitors have substantially more financial and marketing resources
      to
      run their businesses.  While we believe our small size provides us the
      ability to move quickly in some areas, our competitors’ greater resources enable
      them to investigate and embrace new and emerging technologies, to quickly
      respond to changes in customers’ needs, and to devote more resources to product
      and services development and marketing.  We may face increased
      competition in the future and there is no assurance that current or new
      competition will allow us to keep our customers.  If we lose
      customers, our business operations may be materially adversely affected, which
      could cause us to cease our business or curtail our business to a point where
      we
      are no longer able to generate sufficient revenue to fund
      operations.  There is no assurance that our current products and
      services will stay competitive with those of our competitors or that we will
      be
      able to introduce new products and services to compete successfully in the
      future.





**If
      we are unable to process significantly increased volume activity, this could
      affect our operations and we could lose our competitive
      position.**





We
      have
      built transaction processing systems for check verification, check conversion,
      ACH processing, and bankcard processing activities.  While current
      estimates regarding increased volume are within the capabilities of each system,
      it is possible that a significant increase in volume in one of the markets
      would
      exceed a specific system’s capabilities.  To minimize this risk, we
      have redesigned and upgraded our check related processing systems and previously
      purchased a high end system to process bankcard activity. No assurance can
      be
      given that it would be able to handle a significant increase in volume or that
      the operational enhancements and improvements will be completed in time to
      avoid
      such a situation.  In the event we are unable to process increases in
      volume, this could significantly adversely affect our banking relationships,
      our
      merchant customers and our overall competitive position, and could potentially
      result in violations of service level agreements which would require us to
      pay
      penalty fees to the other parties to those agreements.  Losses of such
      relationships, or the requirement to pay penalties, may severely impact our
      results of operations and financial condition.





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**We
      incur financial risk from our check guarantee service.**




The
      check
      guarantee business is essentially a risk management business.  Any
      limitation of a risk management system could result in financial obligations
      being incurred by *ECHO* relative to our check guarantee
      activity.  While *ECHO* has provided check guarantee services
      for several years, there can be no assurance that our current risk management
      systems are adequate to assure against any financial loss relating to check
      guarantee.  *ECHO* is enhancing its current risk management
      systems and it is being conservative with reference to the type of merchants
      to
      which it offers guarantee services in order to minimize this risk but no
      assurance can be given that such measures will be adequate.  During
      the year ended September 30, 2007, we incurred $348,000 in losses from
      uncollected guaranteed checks.




**Security
      breaches could impact our continued operations, our results of operations and
      liquidity.**




We
      process confidential financial information and maintain several levels of
      security to protect this data. Security includes hand and card-based
      identification systems at our data center locations that restrict access to
      the
      specific facilities, various employee monitoring and access restriction
      policies, and various firewall and network management methodologies that
      restrict unauthorized access through the Internet. With the exception of one
      incident in December 2006, these systems have worked effectively in the
      past.  The Company continues to strengthen its security processes and
      systems but there can be no assurance that they will continue to operate without
      a security breach in the future.  Depending upon the nature of the
      breach, the consequences of security breaches could be significant and dramatic
      to *ECHO*’s continued operations, results of operations and
      liquidity.





**The
      industry in which we operate involves rapidly changing technology and our
      failure to improve our products and services or to offer new products and
      services could cause us to lose customers.**





Our
      business industry involves rapidly changing technology.  Recently, we
      have observed rapid changes in technology as evidenced by the Internet and
      Internet-related services and applications, new and better software, and faster
      computers and modems.  As technology changes, *ECHO’s*
      customers desire and expect better products and services.  Our success
      depends on our ability to improve our existing products and services and to
      develop and market new products and services.  The costs and expenses
      associated with such an effort could be significant to us.  There is
      no assurance that we will be able to find the funds necessary to keep up with
      new technology or that if such funds are available that we can successfully
      improve our existing products and services or successfully develop new products
      and services.  Our failure to provide improved products and services
      to our customers or any delay in providing such products and services could
      cause us to lose customers to our competitors.  Loss of customers
      could have a material adverse effect on *ECHO*.





**Our
      inability to protect or defend our trade secrets and other intellectual property
      could hurt our business.**





We
      have
      expended a considerable amount of time and money to develop information systems
      for our merchants.  We regard these information systems as trade
      secrets that are extremely important to our payment processing
      operations.  We rely on trade secret protection and confidentiality
      and/or license agreements with employees, customers, partners and others to
      protect this intellectual property and have not otherwise taken steps to obtain
      additional intellectual property protection or other protection on these
      information systems.  We cannot be certain that we have taken adequate
      steps to protect our intellectual property.  In addition, our
      third-party confidentiality agreements can be breached and, if they are, there
      may not be an adequate remedy available to us.  If our trade secrets
      become known, we may lose our competitive position, including the loss of our
      merchant and bank customers.  Such a loss could severely impact our
      results of operations and financial condition.





Additionally,
      while we believe that the technology underlying our information systems does
      not
      infringe upon the rights of any third parties, there is no assurance that third
      parties will not bring infringement claims against us.  We also have
      the right to use the technology of others through various license
      agreements.  If a third party claimed our activities and/or these
      licenses were infringing their technology, while we may have some protection
      from our third-party licensors, we could face additional infringement claims
      or
      otherwise be obligated to stop utilizing intellectual property critical to
      our
      technology infrastructure.  If we are not able to implement other
      technology to substitute the intellectual property underlying a claim, our
      business operations could be severely effected.  Additionally,
      infringement claims would require us to incur significant defense costs and
      expenses and, to the extent we are unsuccessful in defending these claims,
      could
      cause us to pay monetary damages to the person or entity making the
      claim.  Continuously having to defend such claims or otherwise making
      monetary damages payments could materially adversely affect our results of
      operations.





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**If
      we do not continue to invest in research and development, and/or otherwise
      improve our technology platforms, we could lose our competitive
      position.**





Because
      technology in the payment processing industry evolves rapidly, we need to
      continue to invest in research and development in both the bankcard processing
      business segment and the check-related products segment in order to remain
      competitive. This includes investments in our technology platforms to permit
      them to process higher transaction volumes, to transition some of these
      technologies to more commonly used platforms, to permit us to process foreign
      currency transactions, and to expand our point-of-sale connection capability
      for
      our bankcard processing services. Research and development expenses increased
      from $1,539,000 in fiscal 2006 to $2,134,000 in fiscal 2007. Most of our
      development project costs were capitalized once we entered into coding and
      testing phases. We continue to evaluate projects, which we believe will assist
      us in our efforts to stay competitive.  Although we believe that our
      investment in these projects will ultimately increase earnings, there is no
      assurance as to when or if these new products will show profitability or if
      we
      will ever be able to recover the costs invested in these
      projects.  Additionally, if we fail to commit adequate resources to
      grow our technology on pace with market growth, we could quickly lose our
      competitive position, including the loss of our merchant and bank
      customers.





**Failure
      to obtain additional funds can impact our operations and future
      growth.**





We
      use
      funds generated from operations, as well as funds obtained through credit
      facilities and equity financing, to finance our operations.  As a
      result of the cash flow generated from operations, we believe we have sufficient
      cash to support our business activities, including research, development and
      marketing costs.  However, future growth may depend on our ability to
      continue to raise additional funds, either through operations, bank borrowings,
      or equity or debt financings.  There is no assurance that we will be
      able to continue to raise the funds necessary to finance growth or continue
      to
      generate the funds necessary to finance operations, and even if such funds
      are
      available, that the terms will be acceptable to us.  The inability to
      generate the necessary funds from operations or from third parties in the future
      may require us to scale back our research, development and growth opportunities,
      which could harm our overall operations.





**While
      we maintain insurance protection against claims related to our services, there
      is no assurance that such protection will be adequate to cover potential claims
      and our inability to otherwise pay such claims could harm our
      business.**





We
      maintain errors and omissions insurance for the services we
      provide.  While we believe the limit on our errors and omissions
      insurance policy is adequate and consistent with industry practice, if claims
      are brought by our customers or other third parties, we could be required to
      pay
      the required claim or make significant expenditures to defend against such
      claims in amounts that exceed our current insurance coverage.  There
      is no assurance that we will have the money to pay potential plaintiffs for
      such
      claims if they arise beyond the amounts insured by us.  Making these
      payments could have a material adverse effect on our business.





**Involvement
      in litigation could harm our business.**





We
      are
      involved in various lawsuits arising in the ordinary course of
      business.  Although we believe that the claims asserted in such
      lawsuits are without merit, the cost to us for the fees and expenses to defend
      such lawsuits could have a material adverse effect on our financial condition,
      results of operations or cash flow.  In addition, there can be no
      assurance that we will not at some time in the future experience significant
      liability in connection with such claims.  During 2007, we spent
      approximately $1,701,000 in legal fees, of which $874,000 related to our
      Internet wallet settlement and $475,000 related to our failed merger with
      Intuit.





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**Our
      inability to recover from natural disasters could harm our
      business.**




We
      currently maintain two data centers: one in Camarillo, California, and one
      in
      Albuquerque, New Mexico (co-location facility). Should a natural disaster occur
      in any of the locations, it is possible that we would not be able to fully
      recover full functionality at one of our data centers. To minimize this risk,
      we
      centralized our data processing functionality in Camarillo during fiscal 2005
      and completed a full back-up site in Albuquerque in October of
      2006.  Despite such contingent capabilities, it is possible a natural
      disaster could limit or completely disable a specific service offered by
*ECHO* until such time that the specific location could resume its
      functionality.  Our inability to provide such service could have a
      material adverse effect on our business and results of operations.




**Increases
      in the costs and requirements of technical compliance could harm our
      business.**




The
      services which we offer require significant technical
      compliance.  This includes compliance to both Visa and MasterCard
      regulations and association rules, NACHA guidelines and regulations with regard
      to the Federal Reserve System’s Automated Clearing House and check related
      issues, and various banking requirements and regulations. We have personnel
      dedicated to monitoring our compliance to the specific industries we serve
      and
      when possible, we are moving the technical compliance responsibility to other
      parties.  As the compliance issues become more defined in each
      industry, the costs and requirements associated with that compliance may present
      a risk to *ECHO*.  These costs could be in the form of
      additional hardware, software or technical expertise that we must acquire and/or
      maintain. Additionally, burdensome or unclear requirements could increase the
      cost of compliance. While *ECHO* currently has these costs under control,
      we have no control over those entities that set the compliance requirements
      so
      no assurance can be given that we will always be able to underwrite the costs
      of
      compliance in each industry wherein we compete.





**Risks
      Associated With Our Common Stock**




**If
      we need to sell or issue additional shares of common stock or assume additional
      debt to finance future growth, our stockholders’ ownership could be diluted or
      our earnings could be adversely impacted.**





Our
      business strategy may include expansion through internal growth, by acquiring
      complementary businesses or by establishing strategic relationships with
      targeted customers and suppliers.  In order to do so, or to fund our
      other activities, we may issue additional equity securities that could dilute
      our stockholders’ stock ownership.  We may also assume additional debt
      and incur impairment losses related to goodwill and other tangible assets if
      we
      acquire another company and this could negatively impact our results of
      operations.  As of the date of this report, management has no plan to
      raise additional capital through the sale of securities and believes that our
      cash flow from operations together with cash on hand will be sufficient to
      meet
      our working capital and other commitments.





**We
      have adopted a number of anti-takeover measures that may depress the price
      of
      our common stock.**





Our
      rights agreement, our ability to issue additional shares of preferred stock
      and
      some provisions of our articles of incorporation and bylaws could make it more
      difficult for a third party to make an unsolicited takeover attempt of
      us.  These anti-takeover measures may depress the price of our common
      stock by making it more difficult for third parties to acquire us by offering
      to
      purchase shares of our stock at a premium to its market price.





**Our
      stock price has been volatile.**





Our
      common stock is quoted on the NASDAQ Capital Market, and there can be
      substantial volatility in the market price of our common stock.  Over
      the course of the quarter ended September 30, 2007, the market price of our
      common stock has been as high as $14.90, and as low as
      $8.40.  Additionally, over the course of the year ended September 30,
      2007, the market price of our common stock was as high as $18.73 and as low
      as
      $8.40.  The market price of our common stock has been, and is likely
      to continue to be, subject to significant fluctuations due to a variety of
      factors, including quarterly variations in operating results, operating results
      which vary from the expectations of securities analysts and investors, changes
      in financial estimates, changes in market valuations of competitors,
      announcements by us or our competitors of a material nature, loss of one or
      more
      customers, additions or departures of key personnel, future sales of common
      stock and stock market price and volume fluctuations. In addition, general
      political and economic conditions such as a recession, or interest rate or
      currency rate fluctuations may adversely affect the market price of our common
      stock.





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**We
      have not paid and do not currently plan to pay dividends, and you must look
      to
      price appreciation alone for any return on your
      investment.**





Some
      investors favor companies that pay dividends, particularly in general downturns
      in the stock market.  We have not declared or paid any cash dividends
      on our common stock.  We currently intend to retain any future
      earnings for funding growth, and we do not currently anticipate paying cash
      dividends on our common stock in the foreseeable future.  Because we
      may not pay dividends, your return on this investment likely depends on your
      selling our stock at a profit.





**ITEM
                1B.**
            **Unresolved
                Staff Comments**





None.





**ITEM
                2.**
            **Properties**





In
      October 2003, we signed a five-year lease for 21,566 square feet of a 40,000
      square foot building in Camarillo, California.  Our principal
      executive offices, including customer support, data center and other operational
      departments were moved to this Camarillo location. We signed an addendum to
      the
      Camarillo lease in July 2004 and added 11,103 square feet to the
      lease.  We currently occupy 32,669 square feet of the Camarillo
      building. The lease payment for this facility as of September 2007 was $38,000
      per month.





We
      have
      additional real property leases in Albuquerque, New Mexico; Lakewood, Colorado;
      Provo, Utah; and South Jordan, Utah for sales, data center and other operations,
      under various agreements, which expired at various times during
      2007.  The total of these lease payments are approximately $18,000 per
      month. Subsequent to September 30, 2007, we entered into new leases at new
      locations for our Albuquerque, New Mexico and Lakewood, Colorado
      facilities.





**ITEM
                3.**
            **Legal
                Proceedings**





We
      are
      involved in various lawsuits arising in the ordinary course of
      business.  Based upon current information, management, after
      consultation with legal counsel, believes the ultimate disposition of these
      lawsuits will have no material effect upon either our results of operations,
      financial position, or cash flows.





**ITEM
                4.**
            **Submission
                of Matters to a Vote of Security
                Holders**





Reference
      is made to our Quarterly Report on Form 10-Q for the period ended June 30,
      2007.  There were no such matters during the quarter ended September
      30, 2007.





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**PART
      II**





**ITEM
                5.**
            **Market
                for Registrant's Common Equity, Related Stockholder Matters and Issuer
                Purchases of Equity
                Securities**





Since
      January 17, 1986, we have been trading on the over-the-counter market under
      the
      name Electronic Clearing House, Inc.  On October 2, 1989, we were
      accepted for listing on the National Association of Securities Dealers Automated
      Quotation System ("NASDAQ") and trade under the symbol of *"ECHO"* on the
      NASDAQ Capital Market.  The following table sets forth the range of
      high and low closing prices for each quarter for our common stock during the
      fiscal periods indicated, as reported on the NASDAQ Capital
      Market.





FISCAL
                YEAR ENDED
              SEPTEMBER
                30
            
            High
            
            
            Low2007First
                Quarter
            
            $
            18.49
            
            
            $
            10.97Second
                Quarter
            
            $
            18.73
            
            
            $
            11.14Third
                Quarter
            
            $
            14.50
            
            
            $
            11.28Fourth
                Quarter
            
            $
            14.90
            
            
            $
            8.402006First
                Quarter
            
            $
            11.00
            
            
            $
            9.00Second
                Quarter
            
            $
            13.66
            
            
            $
            10.01Third
                Quarter
            
            $
            18.19
            
            
            $
            12.51Fourth
                Quarter
            
            $
            18.08
            
            
            $
            13.16





The
      prices set forth above are not necessarily indicative of liquidity of the
      trading market.  Trading in our common stock is limited and sporadic,
      as indicated by the average monthly trading volume of approximately
      1,149,000    shares for the period from October 2006 to
      September 2007.  On November 30, 2007, the closing representative
      price per share of our common stock, as reported on the NASDAQ Capital Market,
      was $10.01.





**Holders
      of Common Stock**





As
      of
      November 30, 2007, there were 786 record holders and 1,966 beneficial holders
      of
      our common stock, with shares outstanding. The number of holders of record
      is based on the actual number of holders registered on the books of our transfer
      agent and does not reflect holders of shares in "street name" or persons,
      partnerships, associations, corporations or other entities identified in
      security position listings maintained by depository trust
      companies.





**Dividend
      Policy**





We
      have
      not paid any dividends in the past and have no current plan to pay any
      dividends.  We intend to devote all funds to the operation of our
      businesses.





**Equity
      Compensation Plan Information**





The
      following table sets forth information concerning our equity compensation plans
      as of September 30, 2007.




Plan
                  Category
              
              (a)
                  Number of
                securities
                  to be
                issued
                  upon
                exercise
                  of
                outstanding
                  options
              
              
              (b)
                  Weighted-average
                exercise
                  price of
                outstanding
                  options
              
              
              (c)
                  Number of securities
                remaining
                  available for
                future
                  issuance under
                equity
                  compensation
                (excluding
                  securities
                reflected
                  in column (a))Equity
                  compensation plans approved by security holders[1]
              
              
              767,925
              
              
              $
              5.94
              
              
              
              74,324


[1]
              Plan
                  represents the Officers and Key Employees Incentive Stock Option
                  Plan,
                  which expired in May 2002, and our 2003 Incentive Stock Option
                  Plan.


22
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            of Contents***


**Purchases
        of Equity Securities**





We
      have
      not repurchased, nor has any affiliated purchaser repurchased, shares of our
      common stock during fiscal 2007.







**PERFORMANCE
      GRAPH**





The
      following graph shows a five-year comparison of the total cumulative returns
      of
      investing $100 on September 30, 2002, in Electronic Clearing House, Inc.
      (“*ECHO*”) Common Stock, the NASDAQ-Composite Index, and the
      NASDAQ-Finance Index.  The NASDAQ-Composite Index represents a broad
      market group in which we participate.  The NASDAQ-Finance Index was
      chosen as having a representative peer group of companies for the 2007 Form
      10K
      and includes Electronic Clearing House, Inc.  All comparisons of stock
      price performance shown assume the reinvestment of dividends, although we have
      not historically paid any dividends on shares of our Common
      Stock.

















Measurement


Point


Sep-02
            
            
            Sep-03
            
            
            Sep-04
            
            
            Sep-05
            
            
            Sep-06
            
            
            Sep-07ECHO
            
            $
            100.00
            
            
            $
            586.67
            
            
            $
            733.33
            
            
            $
            770.83
            
            
            $
            1,504.17
            
            
            $
            900.00NASDAQ
                - Composite
            
            $
            100.00
            
            
            $
            152.35
            
            
            $
            161.85
            
            
            $
            184.73
            
            
            $
            194.81
            
            
            $
            230.57NASDAQ
                - Finance
            
            $
            100.00
            
            
            $
            124.59
            
            
            $
            147.07
            
            
            $
            161.79
            
            
            $
            182.31
            
            
            $
            183.99




23
 ***Table
            of Contents***





**ITEM
                6.**
            **Selected
                Financial
                Data**





The
      following table sets forth certain selected consolidated financial data, which
      should be read in conjunction with the Consolidated Financial Statements and
      Management's Discussion and Analysis of Financial Condition and Results of
      Operations included in Items 7 and 8 below.  The following data,
      insofar as it relates to each of the five years ended September 30, has been
      derived from our annual financial statements, including the consolidated balance
      sheets at September 30, 2007 and 2006, and the related consolidated statements
      of operations and of cash flows for the three years ended September 30, 2007,
      2006 and 2005, and notes thereto appearing elsewhere herein.





Effective
      October 1, 2005, we began recording compensation expense associated with stock
      options in accordance with SFAS No. 123(R), Share-Based Payment.  We
      have adopted the modified prospective transition method provided under SFAS
      No.
      123(R), and as a result, have not retroactively adjusted results from prior
      periods.  Under this transition method, compensation expense
      associated with stock options recognized in fiscal year 2006 and 2007 includes
      expense related to the remaining unvested portion of all stock option awards
      granted prior to October 1, 2005, based on the grant date fair value estimated
      in accordance with the original provisions of SFAS No. 123.  See Note
      1 and Note 12 to the financial statements for more information.





**Year
                Ended September 30****2007**
            
            
            **2006**
            
            
            **2005**
            
            
            **2004**
            
            
            **2003****( ----
                Amounts in thousands, except per share ----
                )****Statement
                of Operations Data:**Revenue
            
            $
            76,884
            
            
            $
            75,311
            
            
            $
            55,551
            
            
            $
            48,320
            
            
            $
            41,149Costs
                and expenses
            
            
            81,996
            
            
            
            71,157
            
            
            
            53,872
            
            
            
            44,863
            
            
            
            38,724(Loss)
                income from operations
            
            
            (5,112
            )
            
            
            4,154
            
            
            
            1,679
            
            
            
            3,457
            
            
            
            2,425Interest
                income (expense), net
            
            
            422
            
            
            
            197
            
            
            
            23
            
            
            
            (104
            )
            
            
            (172
            )Gain
                on sale of assets
            
            
            -0-
            
            
            
            -0-
            
            
            
            -0-
            
            
            
            1,319
            
            
            
            -0-(Loss)
                income before income tax (provision) benefit and cumulative effect
                of an
                accounting change
            
            
            (4,690
            )
            
            
            4,351
            
            
            
            1,702
            
            
            
            4,672
            
            
            
            2,253Benefit
                (provision) for income taxes
            
            
            2,309
            
            
            
            (2,034
            )
            
            
            (669
            )
            
            
            (1,823
            )
            
            
            (925
            )(Loss)
                income before cumulative effect of an accounting change
            
            
            (2,381
            )
            
            
            2,317
            
            
            
            1,033
            
            
            
            2,849
            
            
            
            1,328Cumulative
                effect of an accounting change to adopt SFAS 142[1]
            
            
            -0-
            
            
            
            -0-
            
            
            
            -0-
            
            
            
            -0-
            
            
            
            (4,707
            )Net
                (loss) income
            
            
            (2,381
            )
            
            $
            2,317
            
            
            $
            1,033
            
            
            $
            2,849
            
            
            $
            (3,379
            )(Loss)
                earnings per share-basic
            
            $
            (0.35
            )
            
            $
            0.35
            
            
            $
            0.16
            
            
            $
            0.45
            
            
            $
            (0.58
            )(Loss)
                earnings per share-diluted
            
            $
            (0.35
            )
            
            $
            0.33
            
            
            $
            0.15
            
            
            $
            0.41
            
            
            $
            (0.56
            )Weighted
                average number of common shares and equivalents
                outstanding-basic
            
            
            6,747
            
            
            
            6,614
            
            
            
            6,485
            
            
            
            6,312
            
            
            
            5,812Weighted
                average number of common shares and equivalents
                outstanding-diluted
            
            
            6,747
            
            
            
            7,005
            
            
            
            6,939
            
            
            
            6,900
            
            
            
            6,024




24
 ***Table
            of Contents***





**Balance
      Sheet Data:**


Working
                capital
            
            $
            10,120
            
            
            $
            12,542
            
            
            $
            8,037
            
            
            $
            8,004
            
            
            $
            3,201Current
                assets
            
            
            21,940
            
            
            
            41,893
            
            
            
            29,207
            
            
            
            29,869
            
            
            
            9,619Total
                assets
            
            
            35,134
            
            
            
            55,007
            
            
            
            40,714
            
            
            
            39,374
            
            
            
            18,748Current
                liabilities
            
            
            11,820
            
            
            
            29,351
            
            
            
            21,170
            
            
            
            21,865
            
            
            
            6,418Long-term
                debt, and payables to stockholders and related parties, less current
                portion
            
            
            834
            
            
            
            448
            
            
            
            705
            
            
            
            704
            
            
            
            1,961Total
                stockholders' equity
            
            $
            22,480
            
            
            $
            22,286
            
            
            $
            17,772
            
            
            $
            16,240
            
            
            $
            10,369





[1]
            The
                Company completed the transitional impairment testing required by
                SFAS No.
                142 in the first quarter of fiscal 2003 and determined that its goodwill
                was fully impaired and a $4.7 million goodwill write-off was
                recognized.





25
 ***Table
            of Contents***





**ITEM
                7.**
            **Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations**





**OVERVIEW**


Electronic
      Clearing House, Inc. is an electronic payment processor that provides for the
      payment processing needs of merchants, banks and collection
      agencies.  We derive the majority of our revenue from two main
      business segments, bankcard and transaction processing services (“bankcard
      services”), whereby we provide solutions to merchants and banks to allow them to
      accept credit and debit card payments from consumers, and check-related products
      (“check services”), whereby we provide various services to merchants and banks
      to allow them to accept and process check payments from
      consumers.  The principal services we offer within these two segments
      include, with respect to our bankcard services, debit and credit card
      processing, and with respect to our check services, check guarantee, check
      verification, electronic check conversion, check re-presentment, and check
      collection.





We
      organize our service offerings under the following brand names:





·
            MerchantAmerica:
                *ECHO’s* retail provider of payment processing services to both
                merchant and bank markets;


·
            National
                Check Network (“NCN”): for check verification, check conversion capture
                services and for membership to collection
                agencies;


·
            *X**PRESS**C**HE**X*:
                for
                check collection services; and


·
            *ECHO*:
                for wholesale credit card and check processing
                services.





**CRITICAL
      ACCOUNTING POLICIES AND ESTIMATES**


Management's
      discussion and analysis of financial condition and results of operations is
      based upon our consolidated financial statements, which have been prepared
      in
      accordance with accounting principles generally accepted in the United States.
      The preparation of these financial statements requires management to make
      estimates and judgments that affect the reported amounts of assets, liabilities,
      revenue and expenses, and related disclosure of contingent assets and
      liabilities. On an on-going basis, management evaluates its estimates, including
      those related to revenue recognition, deferred taxes, reserve for doubtful
      accounts, capitalization of software costs, contingencies and litigation.
      Management bases its estimates on historical experience and on various other
      assumptions that are believed to be reasonable under the circumstances, the
      results of which form the basis for making judgments about the carrying values
      of assets and liabilities that are not readily apparent from other sources.
      Actual results may differ from these estimates.





Management
      applies the following critical accounting policies in the preparation of our
      consolidated financial statements:





**-****Revenue Recognition Policy.** We earn revenue from services which include
      the following: debit and credit card processing, check verification, ACH
      services, check conversion, check re-presentment, check collection, and check
      guarantee.  All of these services are performed pursuant to a contract
      with customers which states the terms and fixed price for all contracted
      services.  The price of a service may be a fixed fee for each
      transaction and/or a percentage of the transaction processed, depending on
      the
      service.  We generally collect our fee and recognize revenue at the
      time we process the transaction and, accordingly, collectibility of the service
      fee is reasonably assured.





Revenue
      from debit and credit card (collectively called bankcards) and transaction
      processing revenue is based on a percentage of the transaction value, commonly
      referred to as a discount fee on a credit and debit card transaction processed
      by us.  In addition, there is a per transaction fee associated with
      each bankcard transaction which is charged to the merchant.  We
      recognize the processing and transaction revenue when the services are
      performed.





Revenue
      from check verification is derived from fees collected from the merchants when
      a
      check is verified against our own positive and negative check database and
      other
      check databases that we use. This revenue is recognized when the transaction
      is
      processed, since we have no further performance obligations.





Revenue
      from check conversion is derived from fees collected from merchants to convert
      the paper check received by merchants into an ACH transaction, which allows
      us
      to settle the transaction electronically for the merchant.  We
      recognize the revenue related to check conversion fees when the services are
      performed.





26
 ***Table
            of Contents***





Revenue
      from check re-presentment is derived from fees charged to check
      writers.  Check re-presentment is a service that allows merchants to
      collect a paper check through the ACH network after a check has previously
      been
      presented to the bank for collection unsuccessfully at least
      once.  The fees earned from the check writer are recognized when
      collected, as collectibility is not reasonably assured until that
      point.





Revenue
      from check guarantee is derived from a percentage of the gross amount of the
      check and guarantees payment of the check to the merchant in the event the
      check
      is not honored by the check writer’s bank.  Merchants typically
      present customer checks for processing on a regular basis and, therefore,
      dishonored checks are generally identified within a few days of the date the
      checks are guaranteed by us. We recognize revenue when the checks are processed
      at the point of sale.   At the time the guarantee revenue is
      recognized, we provide a reserve for estimated guarantee losses based upon
      our
      historical loss experience.  In the event the check is dishonored, we
      have the right to collect the full amount of the check from the check writer.
      We
      establish a receivable from the delinquent check writer for the full amount
      of
      the guaranteed check. The check guarantee service also earns revenue based
      on
      fees collected from delinquent check writers, which collection fee is recognized
      when collected, as collectibility is not reasonably assured until that
      point.





Revenue
      from check collection is derived from collection activities performed on behalf
      of a merchant on uncollected checks.  The merchants usually keep the
      face amount of the uncollected checks if the collection effort is
      successful.  Our revenue is derived from the collection fee collected
      from the check writer.  If we refer the collection item to another
      collection agency, we will receive a fee from the collection agency upon its
      successful efforts.  Collection fee revenue is recognized when
      collected, as collectibility is not reasonably assured until that
      point.





**-****Deferred Taxes.** Deferred taxes are determined based on the differences
      between the financial statement and tax bases of assets and liabilities, using
      enacted tax rates in effect for the year in which the differences are expected
      to reverse. Valuation allowances are established when necessary to reduce
      deferred tax assets to the amounts expected to be realized. In assessing the
      need for a valuation allowance, management considers estimates of future taxable
      income and ongoing prudent and feasible tax planning strategies.





**-****Chargeback Losses.**  Chargeback losses occur when a credit
      card holder presents a valid claim against one of our merchants and the merchant
      has insufficient funds or is no longer in business resulting in the charge
      being
      absorbed by us.  We record a receivable for those chargebacks for
      which the merchant is liable but has not made payment.  We record a
      provision for estimated chargeback losses at the time bankcard transactions
      are
      processed.  A reserve is estimated based upon a
      historically-determined percentage of gross credit card processing volume and
      actual losses experienced.





**-
      Research and Development Expense.**  Expenditures for
      activities relating to product development and improvement are charged to
      expense as incurred.  Such expenditures amounted to $2,134,000 in
      fiscal year 2007 and $1,539,000 in fiscal year 2006.





**-****Capitalization of Software Costs.** The costs of purchased and internally
      developed software used to provide services to customers or for the process
      of
      internal administration are capitalized and amortized on a straight-line basis
      over the lesser of three years or estimated useful life. Under the provisions
      of
      Statement of Position 98-1, "Accounting for the Costs of Computer Software
      Developed or Obtained for Internal Use," we capitalize software costs when
      both
      the preliminary project stage is completed and management has authorized further
      funding for the completion of the project. Capitalization of costs ceases when
      the project is substantially complete and the software is ready for its intended
      use.  Software developed or obtained for internal use is tested for
      impairment whenever events or changes in circumstances indicate that its
      carrying amount may not be recoverable.





**-****Stock-Based Compensation.**  Effective October
      1, 2005, we began recording compensation expense associated with stock options
      in accordance with SFAS No. 123(R), Share-Based Payment.  Estimates
      include risk-free interest rate, expected volatility, expected dividend yield,
      expected forfeiture rate, and expected stock option life. Prior to October
      1,
      2005, we accounted for stock-based compensation related to stock options under
      the recognition and measurement principles of Accounting Principles Board
      Opinion No. 25; therefore, we measured compensation expense for our stock option
      plan using the intrinsic value method, that is, as the excess, if any, of the
      fair market value of our stock at the grant date over the amount required to
      be
      paid to acquire the stock, and provided the disclosures required by SFAS Nos.
      123 and 148.  We have adopted the modified prospective transition
      method provided under SFAS No. 123(R), and as a result, have not retroactively
      adjusted results from prior periods.  Under this transition method,
      compensation expense associated with stock options recognized in fiscal year
      2006 and 2007 includes expense related to the remaining unvested portion of
      all
      stock option awards granted prior to October 1, 2005, based on the grant date
      fair value estimated in accordance with the original provisions of SFAS No.
      123.  We have not issued any stock options since the adoption of SFAS
      No. 123(R).





27
 ***Table
            of Contents***





**RESULTS
      OF OPERATIONS**





**Fiscal
      years 2007 and 2006**





Financial
      highlights for fiscal 2007 as compared to fiscal 2006 were as
      follows:





--
            Total
                revenue increased 2.1% to $76.9
                million




--
            Gross
                margin from processing and transaction revenue decreased to 29.6%
                from
                33.5%




--
            Operating
                income decreased from $4.2 million to an operating loss of $5.1
                million




--
            Diluted
                loss per share was $0.35 as compared to diluted earnings of $0.33
                per
                share




--
            Bankcard
                and transaction processing revenue increased by 9.8% to $62.6
                million




--
            Bankcard
                processing volume increased 11.2% to $2.0
                billion




--
            Check-related
                revenue decreased by 22.0% to $14.3
                million




--
            ACH
                processing volume decreased 27.7% to 27.5 million
                transactions




REVENUE.  Total
      revenue
      increased 2.1% to $76,884,000 for fiscal 2007, from $75,311,000 for fiscal
      2006.
      The increase was primarily attributable to 9.8% growth in bankcard and
      transaction processing revenue offset by the 22.0% decline in check services
      revenue year-over-year. The bankcard and transaction processing revenue growth
      has occurred organically from our existing merchants and from our marketing
      initiatives during the year. The decrease in check revenue primarily reflects
      the wind-down of the Company’s Internet wallet business and the discontinuation
      of services to several merchant categories that management determined were
      carrying unacceptable levels of business or financial risk.





The
      bankcard and transaction processing revenue increase was mainly attributable
      to
      an 11.2% increase in bankcard processing volume as compared to fiscal
      2006.  This increase was the result of our organic growth and the
      growth from our various marketing channels such as the Agent Bank
      program.





The
      check-related processing revenue decrease was attributable to a 27.7% decrease
      in ACH processing volume.  The decrease in ACH revenue was mainly due
      to the Internet wallet wind-down described above and as a result of declining
      check usage overall.





COST
      OF
      SALES.  Bankcard processing expenses are directly related to the
      changes in processing revenue. A majority of our bankcard processing expenses
      are fixed costs and are reflected as a percentage of the total face amount
      of
      each bankcard transaction, and the remaining costs are based on a fixed rate
      applied to the number of transactions processed. Processing-related expenses,
      consisting of bankcard processing expense and transaction and check processing
      expense, increased 8.2% for the year, from $50,072,000 in fiscal 2006 to
      $54,158,000 in fiscal 2007.  The increase was primarily due to the
      9.8% increase in bankcard and transaction processing revenue for the year,
      and a
      $911,000 increase in amortization expense, offset by the 22.0% decrease in
      check-related revenue.





28
 ***Table
            of Contents***





Total
      gross margin from processing and transaction services decreased from 33.5%
      in
      fiscal 2006 to 29.6% in fiscal 2007.  Gross margin from bankcard and
      transaction processing increased from 25.0% in fiscal 2006
      to       25.2% in fiscal 2007.  The
      increase in gross margin was primarily related to the Company clearing its
      own
      processed transactions as opposed to outsourcing this function until January
      2007.  This was offset by several high volume merchants who negotiated
      lower than average discount rates due to the size of their accounts.
      Additionally, gross margin from check processing decreased from 60.1% in fiscal
      2006 to 48.5% in fiscal 2007. The check services gross margin decrease was
      mainly attributable to the decrease in Internet wallet transactions described
      above, which typically yields higher margins.





EXPENSE.
      Other operating costs such as personnel costs, telephone, depreciation expenses
      and outside services increased 13.0%, from $5,775,000 in fiscal 2006 to
      $6,523,000 in fiscal 2007. This was primarily due to an increase in salaries
      of
      12.4% from $3,539,000 in fiscal 2006 to $3,979,000 for fiscal 2007.





Research
      and development expenses increased 38.7%, from $1,539,000 in fiscal 2006 to
      $2,134,000 in fiscal 2007.  Research and development initiatives are
      critical for us to remain competitive with our peers. Several major development
      projects were completed during fiscal year 2006 and early
      2007.  However, given the rapid change in technology in our industry,
      we plan to continue to invest in product development in both the bankcard
      processing business segment and the check-related products segment in order
      to
      stay ahead of our competitors.





Selling,
      general and administrative (SG&A) expenses increased 15.4% from $12,162,000
      in fiscal 2006 to $14,036,000 in fiscal 2007.  This increase was
      primarily attributable to: 1) an $814,000 increase in salaries and bonus due
      to
      the increase in employees to support the Company’s growth and the executive
      compensation expense approved by the Board of Directors for 2007; and 2) a
      $753,000 increase in professional fees, of which $426,000 related to the
      investigation, customer notification and administration of a security incident.
      As a percentage of total revenue, SG&A expenses increased from 16.1% in
      fiscal 2006 to 18.3% in fiscal 2007.





Legal
      Settlements and Fees - On March 27, 2007, we entered into a Non-Prosecution
      Agreement pursuant to which the Office of the United States Attorney for the
      Southern District of New York agreed not to pursue actions against us or our
      subsidiaries for activities related to its provision of payment processing
      services to Internet wallets that provided services to online gaming websites
      during the period from January 2001 through and including the date of the
      signing of the Non-Prosecution Agreement.  Pursuant to the terms of
      the Non-Prosecution Agreement, we agreed to pay estimated profits to the United
      States in the amount of a $2,300,000 civil disgorgement settlement upon the
      execution of the Non-Prosecution Agreement, which represented management’s
      estimate of our profits from processing and collection services provided to
      Internet wallets since 2001.  Also included is approximately $880,000
      for legal fees and expenses related to the negotiation and resolution of the
      Non-Prosection Agreement.  For the year ended September 30, 2006, we
      settled a patent related lawsuit for $600,000 and also incurred $661,000 of
      related legal expenses.





Merger
      Related Costs - On March 26, 2007, we mutually agreed with Intuit and Elan
      Acquisition Corporation, a Nevada corporation and wholly owned subsidiary of
      Intuit (“Elan”), to terminate the Agreement and Plan of Merger previously
      entered into on December 14, 2006.  The Company incurred approximately
      $934,000 of legal, professional and other fees and expenses related to the
      merger for the year ended September 30, 2007.





Severance
      Costs – The Company recorded $1,031,000 as a result of its retirement and
      separation agreement with the former Chairman and Chief Executive Officer Joel
      M. Barry.  Such costs included cash compensation, accelerated vesting
      of certain equity-based awards and other non-monetary benefits.





OPERATING
      INCOME.  Operating income decreased from $4,154,000 in fiscal 2006 to
      an operating loss of $5,112,000 in fiscal 2007, a decrease of 223.1%. The
      decrease in operating income was primarily attributable to the 2.1% increase
      in
      revenue offset by the 3.9% decrease in the gross margin percentage, the
      increased selling, general and administrative expenses and non-recurring
      expenses described above.





INTEREST
      INCOME AND EXPENSE.  Interest expense decreased to $66,000 for fiscal
      2007 from $92,000 for fiscal 2006. The decrease was due to the full repayment
      of
      one note and some capital leases during fiscal 2006, offset by a new equipment
      financing entered into in July 2007. Interest income increased from $289,000
      in
      fiscal 2006 to $488,000 in fiscal 2007 due to higher cash balances on hand
      throughout fiscal year 2007 and those balances earning higher rates as compared
      to 2006.





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EFFECTIVE
      TAX RATE. The income tax benefit was $2,309,000 for fiscal 2007 as compared
      to
      an income tax provision of $2,034,000 for fiscal 2006.  Our effective
      tax rate was a benefit of 49.2% for fiscal 2007, as compared to a provision
      of
      46.7% for fiscal 2006. The difference was primarily due to the Company having
      a
      loss before income taxes for the year ended September 30, 2007 as compared
      to
      income before taxes for the corresponding prior year period.  The
      Company also, based upon a study conducted during the year ended September
      30,
      2007, recorded certain research and development tax credits for fiscal years
      ended September 30, 2003 through 2007.  These tax credits resulted in
      an income tax benefit of $787,000.  See Notes to Consolidated
      Financial Statements included elsewhere herein for a further explanation of
      the
      income tax expense and a reconciliation of reported income taxes to the amount
      utilizing the statutory rate.





NET
      INCOME. Net loss for fiscal 2007 was $2,381,000, as compared to net income
      of
      $2,317,000 for fiscal 2006. This decrease was primarily attributable to the
      factors described above.





SEGMENT
      RESULTS


*Bankcard
      and Transaction Processing.* For the year ended September 30, 2007, bankcard
      processing and transaction revenue accounted for approximately 81.4% of our
      revenue, compared to 75.7% in fiscal 2006.  Bankcard processing and
      transaction revenue increased 9.8%, from $56,983,000 in fiscal 2006 to
      $62,580,000 in fiscal 2007. This increase was mainly attributable to an 11.2%
      increase in bankcard processing volume as compared to fiscal 2006. We continue
      to increase our bankcard processing business primarily through organic growth
      and various sales and marketing programs.





In
      fiscal
      2007, the bankcard and transaction processing segment generated operating income
      of $9,236,000, or 14.8% of the related revenue, as compared to $8,495,000,
      or
      14.9% of the related revenue in fiscal 2006. This increase in operating income
      was primarily due to the increase in revenue offset by SG&A
      expense.





In
      fiscal
      2003, we purchased a fully integrated, multi-modular bankcard processing system
      from Oasis Technologies for approximately $1.6 million which included three
      payment processing modules: Clearing, Merchant Accounting System (MAS) and
      Switch. We incurred an additional $2.6 million of internal development costs
      thus far in implementing this system. The implementation of this system will
      give us greater flexibility to price our credit card processing services,
      allowing us to attract and retain larger merchants as well as the small and
      mid-market merchants that have been our target market.  Integration of
      the Clearing module was finalized in September 2006 and all merchants were
      moved
      to the platform in January 2007.





*Check
      Related Products.* Check-related revenue decreased from $18,328,000 for
      fiscal 2006 to $14,304,000 for fiscal 2007, a decrease of 22.0%. Check
      verification revenue decreased 10.6% to $3,805,000 for fiscal 2007 from
      $4,258,000 for fiscal 2006. Check conversion, ACH services and check
      re-presentment revenue decreased 36.0% to $6,303,000 for fiscal 2007, from
      $9,842,000 for fiscal 2006.  Additionally, check collection revenue
      decreased 0.7%, from $3,879,000 in fiscal 2006 to $3,850,000 in fiscal
      2007.  The decrease in check revenue primarily reflects the wind-down
      of the Company’s Internet wallet business and the discontinuation of services to
      several merchant categories that management determined were carrying
      unacceptable levels of business or financial risk.Total
      ACH transactions processed during fiscal 2007 were 27.5 million transactions,
      as
      compared to 38.0 million transactions processed in fiscal 2006, a decrease
      of
      27.7%.





Check
      services revenue made up 18.6% of the total processing and transaction revenue
      for fiscal 2007 as compared to 24.3% of the total processing and transaction
      revenue for fiscal 2006.  Check-related operating loss was $1,116,000
      in fiscal 2007, as compared to operating income of $4,384,000 in fiscal 2006,
      a
      decrease of 125.5%. The decrease in operating income was mainly due to the
      22.0%
      decrease in check-related revenue due to the factors previously
      described.





30
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**Fiscal
      years 2006 and 2005**





Financial
      highlights for fiscal 2006 as compared to fiscal 2005 were as
      follows:





--
            Total
                revenue increased 35.6% to $75.3
                million




--
            Gross
                margin from processing and transaction revenue decreased to 33.5%
                from
                35.4%




--
            Operating
                income increased from $1.7 million to $4.2
                million




--
            Diluted
                earnings per share were $0.33 as compared to $0.15 per
                share




--
            Bankcard
                and transaction processing revenue increased by 38.7% to $57.0
                million




--
            Bankcard
                processing volume increased 49.6% to $1.8
                billion




--
            Check-related
                revenue increased by 26.8% to $18.3
                million




--
            ACH
                processing volume increased 18.3% to 38.0 million
                transactions




REVENUE.  Total
      revenue increased 35.6% to $75,311,000 for fiscal 2006, from $55,551,000 for
      fiscal 2005. The increase was primarily attributable to 38.7% growth in bankcard
      and transaction processing revenue and 26.8% growth in check services revenue
      year-over-year. This growth has occurred organically from our existing merchants
      and from our marketing initiatives during the year.





The
      bankcard and transaction processing revenue increase was mainly attributable
      to
      a 49.6% increase in bankcard processing volume as compared to fiscal
      2005.  This increase was the result of our organic growth and the
      growth from our various marketing channels such as the Agent Bank
      program.





The
      check-related processing revenue increase was attributable to a 19.3% increase
      in ACH services revenue and an 85.0% increase in check collection
      revenue.  The high growth in ACH revenue was mainly due to Internet
      wallet funding activities and increases in overall ACH activities.





COST
      OF
      SALES.  Bankcard processing expenses are directly related to the
      changes in processing revenue. A majority of our bankcard processing expenses
      are fixed costs and are reflected as a percentage of the total face amount
      of
      each bankcard transaction, and the remaining costs are based on a fixed rate
      applied to the number of transactions processed. Processing-related expenses,
      consisting of bankcard processing expense and transaction and check processing
      expense, increased 39.6% for the year, from $35,867,000 in fiscal 2005 to
      $50,072,000 in fiscal 2006.  The increase was primarily due to the
      35.6% increase in total revenue for the year, and a $750,000 increase in
      amortization expense.





Total
      gross margin from processing and transaction services decreased from 35.4%
      in
      fiscal 2005 to 33.5% in fiscal 2006.  Gross margin from bankcard and
      transaction processing decreased from 27.5% in fiscal 2005 to 25.0% in fiscal
      2006.  The decrease in gross margin was primarily attributable to
      several high volume merchants who negotiated lower than average discount rates
      due to the size of their accounts. Additionally, gross margin from check
      processing increased from 58.0% in fiscal 2005 to 60.1% in fiscal 2006. The
      check services gross margin increase was mainly attributable to an increase
      in
      Internet wallet transactions, which yields higher margins.





EXPENSE.
      Other operating costs such as personnel costs, telephone, depreciation expenses
      and outside services increased 2.2%, from $5,653,000 in fiscal 2005 to
      $5,775,000 in fiscal 2006. This was primarily due to the increases to support
      the 35.6% revenue growth in fiscal 2006.





Research
      and development expenses decreased 4.4%, from $1,609,000 in fiscal 2005 to
      $1,539,000 in fiscal 2006.  Research and development initiatives are
      critical for us to remain competitive with our peers. Several major development
      projects were completed during fiscal year 2006.  However, given the
      rapid change in technology in our industry, we plan to continue to invest in
      product development in both the bankcard processing business segment and the
      check-related products segment in order to stay ahead of our
      competitors.





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Selling,
      general and administrative (SG&A) expenses increased 36.0% from $8,944,000
      in fiscal 2005 to $12,162,000 in fiscal 2006.  This increase was
      primarily attributable to: 1) a $1,234,000 increase in salaries, bonus and
      payroll taxes due to the increase in employees to support the Company’s growth
      and the executive compensation expense approved by the Board of Directors for
      2006, as well as an increase in bonus compensation; 2) a $1,357,000 increase
      in
      stock compensation expense as a result of the implementation of SFAS No. 123(R)
      starting this fiscal year, including $204,000 of additional stock compensation
      expense to correct certain prior year stock option errors of which $177,000
      related to prior periods (see Note 15); and 3) a $648,000 increase in
      professional fees mainly related to Sarbanes-Oxley (“SOX”) expenses. As a
      percentage of total revenue, SG&A expenses remained consistent at 16.1% in
      fiscal 2005 and fiscal 2006.





Legal
      Settlements and Fees – During 2006, we settled a patent related lawsuit for
      $600,000 and also incurred $661,000 of related legal expenses.  During
      2005, we settled a lawsuit for $450,000 and also incurred $1,349,000 of related
      legal expenses.





Merger
      Related Costs - On March 26, 2007, we mutually agreed with Intuit and Elan
      Acquisition Corporation, a Nevada corporation and wholly owned subsidiary of
      Intuit (“Elan”), to terminate the Agreement and Plan of Merger previously
      entered into on December 14, 2006.  The Company incurred approximately
      $348,000 of legal, professional and other fees and expenses related to the
      merger for the year ended September 30, 2006.





OPERATING
      INCOME.  Operating income increased from $1,679,000 in fiscal 2005 to
      $4,154,000 in fiscal 2006, an increase of 147.4%. The increase in operating
      income was primarily attributable to the 35.6% increase in revenue offset by
      the
      1.9% decrease in gross margin and the increased selling, general and
      administrative expenses described above.





INTEREST
      INCOME AND EXPENSE.  Interest expense decreased to $92,000 for fiscal
      2006 from $113,000 for fiscal 2005. The decrease was due to the full repayment
      of one note and some capital leases during fiscal 2006. Interest income
      increased from $136,000 in fiscal 2005 to $289,000 in fiscal 2006 due to higher
      cash balances on hand throughout fiscal year 2006 and those balances earning
      higher rates as compared to 2005.





EFFECTIVE
      TAX RATE. The income tax provision was $2,034,000 for fiscal 2006 as compared
      to
      $669,000 for fiscal 2005.  Our effective tax rate was 46.7% for fiscal
      2006, as compared to 39.3% for fiscal 2005.  The increase was
      primarily due to non-deductible stock compensation expense related to the
      adoption of SFAS No. 123(R) in 2006. See Notes to Consolidated Financial
      Statements included elsewhere herein for a further explanation of the income
      tax
      expense and a reconciliation of reported income taxes to the amount utilizing
      the statutory rate.





NET
      INCOME. Net income for fiscal 2006 was $2,317,000, as compared to $1,033,000
      for
      fiscal 2005. This increase was primarily attributable to the increase in
      revenues.





SEGMENT
      RESULTS


*Bankcard
      and Transaction Processing.* For the year ended September 30, 2006, bankcard
      processing and transaction revenue accounted for approximately 75.7% of our
      revenue, compared to 74.0% in fiscal 2005.  Bankcard processing and
      transaction revenue increased 38.7%, from $41,093,000 in fiscal 2005 to
      $56,983,000 in fiscal 2006. This increase was mainly attributable to a 49.6%
      increase in bankcard processing volume as compared to fiscal 2005. We continue
      to increase our bankcard processing business primarily through organic growth
      and various sales and marketing programs.





In
      fiscal
      2006, the bankcard and transaction processing segment generated operating income
      of $8,495,000, or 14.9% of the related revenue, as compared to $5,829,000,
      or
      14.2% of the related revenue in fiscal 2005. This increase in operating income
      was primarily due to the increase in revenue offset by lower gross margin and
      SG&A expense.





We
      purchased a fully integrated, multi-modular bankcard processing system from
      Oasis Technologies for approximately $1.6 million which included three payment
      processing modules: Clearing, Merchant Accounting System (MAS) and Switch.
      We
      have incurred an additional $2.4 million of internal development costs thus
      far
      in implementing this system. The implementation of this system will give us
      greater flexibility to price our credit card processing services, allowing
      us to
      attract and retain larger merchants as well as the small and mid-market
      merchants that have been our target market.  Integration of the
      Clearing module was in its final testing phase in September 2006 and select
      merchants were moved to the platform in October 2006.  Full deployment
      of the total base is expected to occur by December of 2006.





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*Check
      Related Products.* Check-related revenue increased from $14,458,000 for
      fiscal 2005 to $18,328,000 for fiscal 2006, an increase of 26.8%. Check
      verification revenue increased 16.8% to $4,258,000 for fiscal 2006 from
      $3,645,000 for fiscal 2005. Check conversion, ACH services and check
      re-presentment revenue increased 19.3% to $9,842,000 for fiscal 2006, from
      $8,251,000 for fiscal 2005.  Additionally, check collection revenue
      increased 85.0%, from $2,096,000 in fiscal 2005 to $3,879,000 in fiscal 2006.
      The high growth in ACH revenue was due to Internet wallet activities and the
      overall increase in the ACH and conversion product. Total ACH transactions
      processed during fiscal 2006 were 38.0 million transactions, as compared to
      32.1
      million transactions processed in fiscal 2005, an increase of
      18.3%.





Check
      services revenue made up 24.3% of the total processing and transaction revenue
      for fiscal 2006 as compared to 26.0% of the total processing and transaction
      revenue for fiscal 2005.  Check-related operating income was
      $4,384,000 in fiscal 2006, as compared to operating income of $2,204,000 in
      fiscal 2005, an increase of 98.9%. The increase in operating income was mainly
      due to the 26.8% increase in check-related revenue.








**LIQUIDITY
      AND CAPITAL RESOURCES**





As
      of
      September 30, 2007, we had available cash and cash equivalents of $10,752,000,
      restricted cash of $1,168,000 in reserve with our primary processing banks
      and
      working capital of $10,120,000.





Accounts
      receivable, net of allowance for doubtful accounts, increased to $3,322,000
      at
      September 30, 2007 from $2,914,000 at the end of fiscal 2006. Allowance for
      doubtful accounts, which reflects chargeback losses decreased to $321,000 at
      the
      end of fiscal 2007 from $392,000 at September 30, 2006.  The increase
      in accounts receivable was due to the higher processing revenue generated in
      fiscal 2007 and therefore higher month-end balances.  In addition, the
      decrease in allowance for doubtful accounts was mainly due to the write-off
      of
      receivables from certain merchants.





Net
      cash
      provided by operating activities for the year ended September 30, 2007 was
      $2,489,000, as compared to net cash provided by operating activities of
      $9,649,000 for fiscal 2006. The $7,160,000 decrease in cash from operations
      was
      primarily attributable to the $4,698,000 decrease in net income between fiscal
      2007 and 2006, and a decrease of $2,841,000 in deferred income
      taxes.





Net
      cash
      used in investing activities was $4,906,000 for fiscal 2007 as compared to
      $5,197,000 for the fiscal 2006. During fiscal 2007, we purchased less equipment
      and incurred less capitalized software costs as compared to  fiscal
      2006.





Net
      cash
      provided by financing activities was $1,565,000 for the current fiscal year
      as
      compared to $420,000 for fiscal year 2006.  During fiscal 2007, we
      paid off $344,000 in notes payable and capitalized leases.  During
      fiscal 2007, we received $838,000 from the exercise of employee stock options
      and $932,000 from a new equipment loan.





During
      2006, we utilized the remainder of our previous net operating loss carryforwards
      for federal and state tax purposes.  The Company, based upon a study
      conducted during the year ended September 30, 2007, recorded certain research
      and development credits for fiscal years ended September 30, 2003 through
      2007.  These research and development credits resulted in an income
      tax benefit of $0.8 million. We expect our effective income tax rate to be
      approximately 40% in 2008, and do not expect to make tax cash payments until
      the
      research and development credits and net operating loss carryforwards are fully
      utilized.





As
      of
      September 2007, we had a $3,000,000 working capital credit line with Bank of
      the
      West which has yet to be utilized.  We were in compliance with our
      amended debt covenants at September 30, 2007.





33
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At
      September, 2007, we had the following contractual obligations and cash
      commitments:





Payments
      Due By Period








ContractualObligations
            
            Total
            
            
            Less
                than
              1
                year
            
            
            1-3
                years
            
            
            3-5
                years
            
            
            More
                Than
              5
                yearsLong-term
                debt including interest
            
            $
            1,463,000
            
            
            $
            542,000
            
            
            $
            695,000
            
            
            $
            226,000
            
            
            $
            -0-Capital
                lease obligations
            
            
            34,000
            
            
            
            34,000
            
            
            
            -0-
            
            
            
            -0-
            
            
            
            -0-Operating
                leases
            
            
            499,000
            
            
            
            499,000
            
            
            
            -0-
            
            
            
            -0-
            
            
            
            -0-Minimum
                vendor commitments
            
            
            250,000
            
            
            
            250,000
            
            
            
            -0-
            
            
            
            -0-
            
            
            
            -0-Total
                contractual cash obligations
            
            $
            2,246,000
            
            
            $
            1,325,000
            
            
            $
            695,000
            
            
            $
            226,000
            
            
            $
            -0-




Our
      primary source of liquidity is expected to be cash flow generated from
      operations and cash and cash equivalents currently on
      hand.  Management believes that our cash flow from operations together
      with cash on hand and our established line of credit with Bank of the West
      will
      be sufficient to meet our working capital and other commitments for a period
      of
      at least twelve months.





**OFF-BALANCE
      SHEET ARRANGEMENTS**





At
      September 30, 2007, we did not have any off-balance sheet
      arrangements.





**NEW
      ACCOUNTING PRONOUNCEMENTS**





In
      2006,
      the FASB issued SFAS No. 157, “*Fair Value Measurement*” (SFAS No.
      157).  SFAS No. 157 provides guidance for using fair value to measure
      assets and liabilities.  The standard expands required disclosures
      about the extent to which companies measure assets and liabilities at fair
      value, the information used to measure fair value, and the effect of fair value
      measurements on earnings.  SFAS No. 157 applies whenever other
      standards require (or permit) assets or liabilities to be measured at fair
      value.  SFAS No. 157 does not expand the use of fair value in any new
      circumstances.  SFAS No. 157 is effective for financial statements
      issued for fiscal years beginning after November 15, 2007, and interim periods
      within those fiscal years.  We are currently evaluating the impact of
      adopting SFAS No. 157 on our consolidated financial statements.




In
      2007,
      the FASB issued SFAS No. 159, “*The Fair Value Option for Financial
      Assets and Financial Liabilities-including an amendment of FASB Statement
      No. 115*”**(“SFAS No. 159”). SFAS No. 159 permits entities
      to measure at fair value many financial instruments and certain other items
      that
      are not currently required to be measured at fair value, with unrealized gains
      and losses related to these financial instruments reported in earnings at each
      subsequent reporting date. SFAS 159 is effective for fiscal years beginning
      after November 15, 2007. We are currently evaluating the impact of adopting
      SFAS 159 on our consolidated financial statements.





In
      2006,
      the SEC issued Staff Accounting Bulletin No. 108 (SAB No. 108) “*Considering
      the Effects of Prior Year Misstatements when Quantifying Misstatements in
      Current Year Financial Statements*” which addresses quantifying the
      financial statement effects of misstatements, specifically, how the effects
      of
      prior year uncorrected errors must be considered in quantifying misstatements
      in
      the current year financial statements.  SAB No. 108 is effective for
      fiscal years ending after November 15, 2006.  We adopted the
      provisions of SAB No. 108 as of October 1, 2006, and it did not have a material
      impact to our financial condition or results of operations.





In
      2006,
      the FASB issued Interpretation No. 48, “*Accounting for Uncertainty in Income
      Taxes*– *an interpretation of FASB Statement 109*” (FIN
      48).  This interpretation clarifies the accounting for uncertain taxes
      recognized in a company’s financial statements in accordance with SFAS No. 109,
“Accounting for Income Taxes.” The interpretation requires us to analyze the
      amount at which each tax position meets a “more likely than not” standard for
      sustainability upon examination by taxing authorities.  Only tax
      benefit amounts meeting or exceeding this standard will be reflected in tax
      provision expense and deferred tax asset balances.  The interpretation
      also requires that any differences between the amounts of tax benefits reported
      on tax returns and tax benefits reported in the financial statements be recorded
      in a liability for unrecognized tax benefits.  The liability for
      unrecognized tax benefits is reported separately from deferred tax assets and
      liabilities and classified as current or noncurrent based upon the expected
      period of payment.  Additional disclosure in the footnotes to the
      audited financial statements will be required concerning the income tax
      liability for unrecognized tax benefits, any interest and penalties related
      to
      taxes that are included in the financial statements, and open statutes of
      limitations for examination by major tax jurisdictions.  FIN 48 is
      effective for annual periods beginning after December 15, 2006 and any
      cumulative effect of adopting FIN 48 will be recorded as a change in accounting
      principle in the financial statements for the three months ending December
      31,
      2007.  We do not expect the impact of FIN 48 to be material to our
      consolidated financial statements.





34
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In
      2006,
      the Emerging Issues Task Force (EITF) reached a consensus on EITF 06-3, “*How
      Taxes Collected From Customers and Remitted to Government Authorities Should
      Be
      Presented in the Income Statement (That is, Gross Versus Net
      Presentation)*”.**EITF 06-3 discussed the correct accounting
      treatment of taxes charged to a customer but collected and remitted by a
      reporting entity.  We currently report our revenue net of any sales
      tax collected on our Consolidated Statement of
      Operations.





**ITEM
                7A.**
            **Quantitative
                and Qualitative Disclosures About Market Risk**





We
      are
      currently not exposed to any significant financial market risks from changes
      in
      foreign currency exchange rates or changes in interest rates and do not use
      derivative financial instruments. All of our revenue and capital spending is
      transacted in U.S. dollars.  However, in the future, we may enter into
      transactions in other currencies.  An adverse change in exchange rates
      would result in a decline in income before taxes, assuming that each exchange
      rate would change in the same direction relative to the U.S.
      dollar.  In addition to the direct effects of changes in exchange
      rates, such changes typically affect the volume of sales or foreign currency
      sales price as competitors’ products become more or less
      attractive.





Our
      exposure to interest rate risk is very limited.  A hypothetical 1%
      interest rate change would have no impact on our results of
      operations.





**ITEM
                8.**
            **Financial
                Statements and Supplementary
                Data**





The
      Financial Statements and Supplementary Data are listed under "Item 15. Exhibits,
      Financial Statements, and Financial Statement Schedules".





**ITEM
                9.**
            **Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure**




None.





**ITEM
                9A.**
            **Controls
                and Procedures**





**Conclusion
      Regarding the Effectiveness of Disclosure Controls and
      Procedures**





As
      of
      September 30, 2007, the end of the period covered by this report, under the
      supervision and with the participation of management, including our Chief
      Executive Officer and our Chief Financial Officer, we have evaluated the
      effectiveness of the design and operation of our disclosure controls and
      procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities
      Exchange Act of 1934).  Based upon that evaluation, our Chief
      Executive Officer and our Chief Financial Officer have concluded that as of
      September 30, 2007, our disclosure controls and procedures were
      effective.





**Management’s
      Report on Internal Control over Financial Reporting**





The
      management of *ECHO* is responsible for establishing and maintaining
      adequate internal control over financial reporting. Internal control over
      financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under the
      Securities Exchange Act of 1934, as amended, as a process designed by, or under
      the supervision of, the Company's principal executive and principal financial
      officers and effected by the Company's board of directors, management and other
      personnel to provide reasonable assurance regarding the reliability of financial
      reporting and the preparation of financial statements for external purposes
      in
      accordance with generally accepted accounting principles and includes those
      policies and procedures that:





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(i) pertain
      to the
      maintenance of records that in reasonable detail, accurately and fairly reflect
      the transactions and dispositions of the assets of the Company;





(ii) provide
      reasonable
      assurance that transactions are recorded as necessary to permit preparation
      of
      financial statements in accordance with generally accepted accounting
      principles, and that receipts and expenditures of the Company are being made
      only in accordance with authorizations of management and directors of the
      Company; and





(iii) provide
      reasonable
      assurance regarding prevention or timely detection of unauthorized acquisition,
      use or disposition of the Company's assets that could have a material effect
      on
      the financial statements.





Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Projections of any evaluation of effectiveness
      to future periods are subject to the risks that controls may become inadequate
      because of changes in conditions, or that the degree of compliance with the
      policies or procedures may deteriorate.





Our
      management assessed the effectiveness of the Company's internal control over
      financial reporting as of September 30, 2007. In making this assessment, our
      management used the criteria set forth by the Committee of Sponsoring
      Organizations of the Treadway Commission (COSO) in Internal Control-Integrated
      Framework.





Based
      on
      our assessment, management believes that, as of September 30, 2007, the
      Company's internal control over financial reporting is effective.





Our
      effectiveness of the Company’s internal control over financial reporting as of
      September 30, 2007 and 2006 has been audited by BDO Seidman, LLP, an independent
      registered public accounting firm, as stated in their report which appears
      herein.





**Changes
      in Internal Control over Financial Reporting**





During
      the quarter ended September 30, 2007, there was no change in our internal
      control over financial reporting that materially affects, or that is reasonably
      likely to materially affect, our internal control over financial
      reporting.





**ITEM
                9B.**
            **Other
                Information**





None.





36
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**PART
      III**





**ITEM
                10.**
            **Directors,
                Executive Officers and Corporate
                Governance**





The
      executive officers and directors of *ECHO* are:





Name
            
            Position
            
            Date
                first became
              Officer
                or DirectorCharles
                J. Harris
            
            Director,  Chief
                Executive Officer
            
            2005William
                Wied
            
            Chief
                Information Officer
            
            2006Alice
                L. Cheung
            
            Chief
                Financial Officer, Treasurer
            
            1996Karl
                Asplund
            
            Senior
                Vice President
            
            2006Sharat
                Shankar
            
            Senior
                Vice President
            
            2003Patricia
                M. Williams
            
            Senior
                Vice President
            
            1997Jack
                Wilson
            
            Senior
                Vice President
            
            1994Kris
                Winckler
            
            Senior
                Vice President
            
            1999Steve
                Hoofring
            
            Senior
                Vice President
            
            2003Rick
                Slater
            
            Chief
                Technology Officer, Vice President
            
            1998Herbert
                L. Lucas, Jr.
            
            Director
            
            1991Aristides
                W. Georgantas
            
            Director
            
            1999Richard
                D. Field
            
            Director
            
            2004Jerry
                McElhatton
            
            Director
            
            2007Keith
                Hall
            
            Director
            
            2007








CHARLES
      J. HARRIS, age 45, joined *ECHO* in September 2005 as President, Chief
      Operating Officer and a Director to serve on the Board of Directors of
*ECHO*.  In July 2007, he was appointed Chief Executive Officer
      when the then-current CEO retired. Prior to joining the Company, Mr. Harris
      served in executive, operational and sales leadership positions at prominent
      organizations including Paymentech and Electronic Data Systems.  His
      last position was as President of Merchant Link, a wholly-owned subsidiary
      of
      Paymentech, which supplies electronic payment technologies and outsourced
      services to the point-of-sale market.




WILLIAM
      WIED, age 39, joined *ECHO* in January 2006 as the Company’s Chief
      Information Officer. Prior to joining *ECHO*, Mr. Wied was the Director
      of Software Technology for TransCore LP/Roper Industries, Scottsdale, Arizona.
      Prior to that, he served as Vice President of Engineering for CarrierPoint,
      Inc., a division of the TransCore LP group of companies. Mr. Wied’s background
      includes responsibility in the areas of design, development and deployment
      of
      enterprise software solutions in a number of different industries including
      semiconductor, telecommunications, retail and transportation logistics. Mr.
      Wied
      resigned from the company on October 31, 2007.





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ALICE
      L.
      CHEUNG, age 50, has served as Treasurer and Chief Financial Officer since July
      1996.  Ms. Cheung  became a Certified Public Accountant in
      May 1982.  From February 1988 to January 1996, Ms. Cheung was the
      Treasurer and Chief Financial Officer of American Mobile Systems (AMS). AMS
      merged with Nextel Communications, Inc. in 1995.  Ms. Cheung is an
      active member of the American Institute of Certified Public Accountants and
      Financial Executive Institute.





KARL
      ASPLUND, age 46, joined *ECHO* in May 2006 in the newly established
      position of Senior Vice President of Sales.  Before joining
*ECHO*, Mr. Asplund was the Senior Vice President of Genpass Technologies
      in Irving, Texas.  Prior to that, he served as Group Manager of
      Business Development for First USA/Paymentech and was the Founder and President
      of Merchant Card Management Systems.





SHARAT
      SHANKAR, age 37, joined *ECHO* in June 2003 as Vice President Risk
      Management and Business Intelligence and in December 2003, he was promoted
      to
      Senior Vice President.  In April 2005, Mr. Shankar was appointed to
      hold the position of General Manager Check Services. In January 2006, he was
      given the additional responsibility of building and leading the strategic
      partnership group focused on growth through mutually beneficial
      alliances.  Prior to joining *ECHO*, Mr. Shankar worked at
      TeleCheck for approximately eight years where he held a variety of positions
      leading up to Vice President of Risk Management. Prior to TeleCheck, Mr. Shankar
      held positions at MetLife as well as Hong Kong and Shanghai Bank, Madras, India.





PATRICIA
      M. WILLIAMS, age 42, joined *ECHO* in September 1996, serving as Director
      of Program Management. Ms. Williams was appointed Vice President Corporate
      Program Management in October 1997 and Vice President  Check Services
      in October 2001. In June of 2003, Ms. Williams was appointed to the position
      of
      Vice President  Sales and Marketing and in December 2003, was promoted
      to Senior Vice President. In April 2005 Ms. Williams was appointed to hold
      the
      position of General Manager of Credit Card Services. Prior to joining*ECHO*, Ms. Williams was an Operations Manager for Bank of America Systems
      Engineering in San Francisco. Ms. Williams has also served as a Senior Program
      manager for the Los Angeles office of LANSystems, Inc., a nationwide systems
      integrator as well as a Senior Project Manager and Systems Engineer for Bank
      of
      America Systems Engineering in Los Angeles.





JACK
      WILSON, age 63, has served as Vice President of Merchant Services since June
      1994 and was Director of Bankcard Relations for *ECHO* from October 1992
      until May 1994.  In December 2003, he was promoted to Senior Vice
      President Merchant Services and in April 2005, he was appointed to the position
      of Senior Vice President Credit Card Services. Mr. Wilson served as Vice
      President for Truckee River Bank from August 1989 until September
      1992.  Previously, he was Senior Vice President/Cashier of Sunrise
      Bancorp and a Vice President of First Interstate Bank.





KRIS
      WINCKLER, age 42, joined *ECHO* in April, 1999, as Vice President of
*ECHO*’s *X**PRESS**C**HE**X*
      subsidiary.  In December 2003, he was promoted to Senior Vice
      President Product and Strategic Planning and in April 2005, he was appointed
      to
      the position of Senior Vice President Check Services. Prior to joining
*ECHO*, Mr. Winckler was a consultant at Andersen Consulting and the
      President of Magic Software, a company specializing in check verification,
      conversion, and ACH software.  Mr. Winckler has been active in the
      check and collection industry for over ten years and has been a member of the
      Electronic Check Council of NACHA since 1998.





RICK
      SLATER, age 46, joined *ECHO* in May 1995 as Vice President of Computer
      Based Controls, Inc. (“CBC”).  Mr. Slater was appointed President of
      CBC in December 1995, Vice President of *ECHO* in November 1998 and Chief
      Technology Officer in October 1999, focusing on security, regulatory, process
      improvement, and strategic technical planning.  Prior to joining
*ECHO*, Mr. Slater was President of Slater Research, which provided
      contract engineering services to various institutions.  During this
      time, Mr. Slater directly participated in the U.S. Coast Guard COMSTA upgrade
      project including site surveys, systems design and system upgrade integration
      in
      a number of sites within the U.S.  Prior to this position, Mr. Slater
      served as a group leader at Aiken Advanced Systems.





STEVE
      HOOFRING, age 47, joined *ECHO* in October 2001 as Implementation Manager
      for the Check Services group and was appointed Vice President Visa POS Check
      and
      Client Services in October 2003 and Senior Vice President Operations in August
      2005. Mr. Hoofring was President of Running Dog Software, Inc., which developed
      ‘Enterprise’ software for small to medium size businesses.  Prior to
      this, Mr. Hoofring held several management positions with Emerson Power
      Transmission, a subsidiary of Emerson Electric,
      Inc.





38
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            of Contents***





SHAWN
      ALIKIAN, age 37, joined *ECHO* as General Counsel in May 2007. Mr.
      Alikian was the founder and Executive Vice President of After Hours Pediatrics,
      Inc., an exclusive pediatric urgent care center.  Prior to this, Mr.
      Alikian was Division Counsel and Senior Vice President of Corporate Development
      at Homestore, Inc. In addition, Mr. Alikian was the General Counsel at
      Homes.com, Inc. and practiced as a corporate attorney at several large law
      firms.





HERBERT
      L. LUCAS, JR., age 81, has been a Director since 1991. He served as President
      from 1972 to 1981 of Carnation International in Los Angeles and as a member
      of
      the Board of Directors of the Carnation Company.  Since 1982, Mr.
      Lucas has managed his family investment business.  He has served on
      the Board of Directors of various financial and business institutions including
      Wellington Trust Company, Arctic Alaska Fisheries, Inc., Scolr Pharma, Inc.
      and
      Sunworld International Airways, Inc.  Mr. Lucas has served as a
      Trustee of The J. Paul Getty Trust, the Los Angeles County Museum of Art, The
      Morgan Library, National Association of Independent Schools and Winrock
      International. He was formerly a member of the Board of Trustees of Princeton
      University.





ARISTIDES
      W. GEORGANTAS, age 63, has served as a Director since February
      1999.  Mr. Georgantas, prior to his retirement, was Executive Vice
      President and Chief Operating Officer at Chase Manhattan Bank’s Global Asset
      Management/Private Banking Division.  He serves as a director of
      Horizon Blue Cross Blue Shield of New Jersey, the Glenmede Corporation, the
      Glenmede Trust Company, Mathematica Policy Research, Inc. the Pew Charitable
      Trusts, and the Rita Allen Foundation.





RICHARD
      D. FIELD, age 67, became a Director of *ECHO* in July 2004. Mr. Field has
      worked in the financial services industry for over 40 years as an executive
      of
      the Bank of New York, Chase, and Citigroup, and a director of Mastercard
      International and Chairman of its U.S. Board.  Since retiring from
      full time employment in 1997, he has continued his career in the specialty
      financial areas as a co-founder and director of LendingTree, Inc. as well as
      serving on the boards of Providian Financial Corporation and HPSC,
      Inc.





KEITH
      B.
      HALL, age 54, became a director in October 2007.  Mr. Hall recently
      retired as the Senior Vice President and Chief Financial Officer of LendingTree,
      Inc., which went public under his tutelage in 2000.  LendingTree was
      subsequently purchased by InterActive Corp. (IACI).  Prior to
      LendingTree, Mr. Hall held chief financial officer positions with three public
      companies (Broadway & Seymour, Inc., Loctite Corporation, and Legent
      Corporation), all of which were subsequently acquired. He also was employed
      for
      over twelve years in various financial positions at United Technologies
      Corporation (UTX), including chief financial officer of Carrier Corporation’s
      North American Operations. Mr. Hall currently serves on the Board of
      privately-held NewRiver, Inc. and on the Board of Trustees at Coe
      College.





JERRY
      McELHATTON, age 68, became a Director of *ECHO* in July 2007. Mr.
      McElhatton served as the President of Global Technology and Operations for
      MasterCard International from 1994 to 2005 and as President and Chief Executive
      Officer of Payment Systems Technology and Consulting from 1988 to
      1994.  Mr. McElhatton currently is President of Virtual
      Resources, Inc. which provides strategic direction, consulting, and managed
      services to numerous payment systems, technology clients and has a
      management contract and holds the position of CEO of a major call center
      company.  Additionally, he serves as a director on the board of Center
      for Security Technologies, Enterprise Bank and Trust, as well as serving on
      the
      Board of Advisors of the Washington University Business School and a Trustee
      for
      the University of Dallas.





All
      directors are to be elected to three year terms by the stockholders and serve
      until their respective terms have expired. The Annual Meeting of Stockholders
      was held on July 2, 2007, and the election of directors was held at that
      time.  All officers serve at the pleasure of our Board of
      Directors.





**Code
      of Ethical Conduct**





Our
      Board
      of Directors has adopted a Code of Ethical Conduct (the "Code of Conduct").
      We
      require all employees, directors and officers, including our Chief Executive
      Officer and Chief Financial Officer, to adhere to the Code of Conduct in
      addressing legal and ethical issues encountered in conducting their
      work.  The Code of Conduct requires that these individuals avoid
      conflicts of interest, comply with all laws and other legal requirements,
      conduct business in an honest and ethical manner and otherwise act with
      integrity and in our best interest.  The Code of Conduct contains
      additional provisions that apply specifically to our Chief Financial Officer
      and
      other financial officers with respect to full and accurate
      reporting.  The Code of Conduct is available on our website at
      www.echo-inc.com.





39
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**Audit
      Committee Financial Expert**





Our
      Board
      of Directors has determined that Messrs. Aristides W. Georgantas and Keith
      B.
      Hall are both “audit committee financial experts” as defined in Item 401(h) of
      Regulation S-K.  Messrs. Georgantas and Hall are “independent” for
      purposes of Rule 4200(a)(15) of the NASDAQ Marketplace Rules.





**Identification
      of Audit Committee**





Our
      Board
      of Directors has a separately standing Audit Committee.  The Audit
      Committee currently consists of Richard D. Field, Aristides W. Georgantas,
      Herbert L. Lucas, Jr., Jerry McElhatton, and Keith Hall.  Messrs.
      Field, Georgantas,  Lucas, McElhatton and Hall are “independent
      directors” within the meaning of Rule 10A-3 promulgated under the Securities
      Exchange Act of 1934, as amended, and the NASDAQ Marketplace Rules. The Audit
      Committee’s primary duties and responsibilities include appointment of the
      independent auditors, evaluation of the performance and independence of such
      auditors and review of the annual audited financial statements and the quarterly
      financial statements, as well as the adequacy of our internal
      controls.





**Section
      16(a) Beneficial Ownership Reporting Compliance**





Section
      16(a) of the Securities Exchange Act of 1934, as amended, requires our directors
      and executive officers and the holders of 10% or more of our Common Stock to
      file with the Securities and Exchange Commission initial reports of ownership
      and reports of changes in ownership of our equity securities.  Based
      solely on our review of the copies of the forms received by us and written
      representations from certain reporting persons that they have complied with
      the
      relevant filing requirements, we believe that, during the year ended September
      30, 2007, all of our executive officers, directors and the holders of 10% or
      more of our Common Stock complied with all Section 16(a) filing requirements,
      except for  H. Eugene Lockhart, our director, Patricia Williams, our
      Senior Vice President, and Kris Winckler, our Senior Vice President, each of
      whom did not timely file one Form 4.





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**ITEM
                11.**
            **Executive
                Compensation**





The
      information concerning executive compensation will appear in our definitive
      Proxy Statement to be filed pursuant to Regulation 14A within 120 days after
      the
      end of our last fiscal year (the “Proxy Statement”), and is incorporated herein
      by reference.





**ITEM
                12.**
            **Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters**





The
      information concerning the security ownership of certain beneficial owners
      and
      management and related stockholder matters will appear in our definitive Proxy
      Statement and is incorporated herein by e\reference.





**ITEM
                13.**
            **Certain
                Relationships and Related Transactions, and Director
                Independence**





The
      information concerning certain relationship and related transactions will appear
      in our definitive Proxy Statement and is incorporated herein by
      reference.





**ITEM
                14.**
            **Principal
                Accounting Fees and
                Services**




The
      information concerning principal accounting fees and services will appear in
      our
      definitive Proxy Statement and is incorporated herein by reference.





41
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**PART
      IV**




**ITEM
                15.**
            **Exhibits,
                Financial Statement
                Schedules**





(a)
      The
      following documents are filed as part of this report:





(1)  Consolidated
      Financial Statements


PageReports
                of Independent  Registered Public Accounting
                Firms
            F-1Consolidated
                Balance Sheets at September 30, 2007 and 2006
            F-4Consolidated
                Statements of Operations for each of the three years in the period
                ended
                September 30, 2007
            F-5Consolidated
                Statements of Changes in Stockholders' Equity for each of the three
                years
                in the period ended September 30, 2007
            F-6Consolidated
                Statements of Cash Flows for each of the three years in the period
                ended
                September 30, 2007
            F-7Notes
                to Consolidated Financial Statements
            F-8(2)
                Financial Statement Schedule:Report
                on Financial Statement Schedule
            S-1Schedule
                II - Valuation and Qualifying Accounts and Reserves
            S-2





All
      other
      schedules are omitted because they are not applicable or the required
      information is shown in the Consolidated Financial Statements or Notes
      thereto.





Exhibits:





Exhibit
              Number
            
            Description
                of Document2.1
            
            Copy
                of Merger Agreement and Plan of Reorganization between Electronic
                Clearing
                House, Inc., *ECHO* Acquisition Corporation, and Magic Software
                Development, Inc., dated April 20, 1999.[3]2.2
            
            Copy
                of Merger Agreement and Plan of Reorganization between Electronic
                Clearing
                House, Inc., *ECHO* Acquisition Corporation, and Rocky Mountain
                Retail Systems, Inc., dated January 4, 2000.[4]2.3
            
            Agreement
                and Plan of Merger dated December 14, 2006 by and among Intuit Inc.,
                Elan
                Acquisition Corporation and Electronic Clearing House, Inc. [11]2.4
            
            Mutual
                Termination and Release Agreement dated as of March 26, 2007 by and
                among
                Electronic Clearing House, Inc., Intuit Inc., and Elan Acquisition
                Corporation. [12]3.1
            
            Articles
                of Incorporation of Bio Recovery Technology, Inc., filed with the
                Nevada
                Secretary of State on December 11, 1981. [10]3.1.1
            
            Amendment
                to the Articles of Incorporation of Electronic Clearing House, Inc.
                filed
                with the Nevada Secretary of State on June 21, 1990. [10]3.1.2
            
            Amendment
                to the Articles of Incorporation of Electronic Clearing House, Inc.
                filed
                with the Nevada Secretary of State on September 27, 1991. [10]




42
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3.1.3
            
            Amendment
                to the Articles of Incorporation of Electronic Clearing House, Inc.
                filed
                with the Nevada Secretary of State on August 5, 1993. [10]3.1.4
            
            Amendment
                to the Articles of Incorporation of Electronic Clearing House, Inc.
                filed
                with the Nevada Secretary of State on April 7, 1995. [10]3.1.5
            
            Amendment
                to the Articles of Incorporation of Electronic Clearing House, Inc.
                filed
                with the Nevada Secretary of State on April 7, 1997. [10]3.1.6
            
            Amendment
                to the Articles of Incorporation of Electronic Clearing House, Inc.
                filed
                with the Nevada Secretary of State on March 13, 1998. [10]3.1.7
            
            Amendment
                to the Articles of Incorporation of Electronic Clearing House, Inc.
                filed
                with the Nevada Secretary of State on June 21, 1999. [10]3.1.8
            
            Amendment
                to the Articles of Incorporation of Electronic Clearing House, Inc.
                filed
                with the Nevada Secretary of State on September 6, 2001. [10]3.2
            
            By-Laws
                of Bio Recovery Technology, Inc.[1]3.2.1
            
            Amendment
                to the By-Laws of Electronic Clearing House, Inc., dated April 25,
                2005.
                [10]3.2.2
            
            Amendment
                to the By-Laws of Electronic Clearing House, Inc., dated September
                9,
                2005. [10]4.1
            
            Amended
                and Restated Rights Agreement between Electronic Clearing House,
                Inc. and
                OTR, Inc., dated January 29, 2003.  [5]4.1.1
            
            Amendment
                Number One to Amended and RestatedRights
                Agreement dated September 27, 2004. [6]4.1.2
            
            Amendment
                Number Two to Amended and Restated Rights Agreement dated December
                14,
                2006. [11]4.1.3
            
            Amendment
                Number Three to Amended and Restated Rights Agreement dated April
                24,
                2007. [13]4.2
            
            Specimen
                Common Stock Certificate. [2]4.3
            
            Amended
                and Restated 2003 Incentive Stock Option Plan. [7]4.4
            
            Amended
                and Restated 1992 Officers and Key Employees Incentive Stock Option
                Plan.
                [8]10.35
            
            Copy
                of Merchant Marketing and Processing Services Agreement between Electronic
                Clearing House, Inc. and First Regional Bank, dated June 24, 1997.
[14]10.46
            
            Copy
                of Amended and Restated Merchant Marketing and Processing Services
                Agreement between Electronic Clearing House, Inc. and First Regional
                Bank,
                dated August 1, 2000.[4]10.47
            
            Copy
                of Addendum to Amended and Restated Merchant Marketing and Processing
                Services Agreement between Electronic Clearing House, Inc. and First
                Regional Bank, dated August 1, 2000.[4]10.48
            
            Copy
                of POS Check Third-Party Services Agreement between Visa U.S.A.,
                Inc. and
                Electronic Clearing House, Inc., dated December 12, 2000.[15]10.51
            
            Copy
                of First Amendment to the POS Check Third-Party Servicer Agreement
                between
                Visa U.S.A., Inc. and Electronic Clearing House, Inc. dated December
                12,
                2000. [16]10.52
            
            Copy
                of Second Amendment to the POS Check Third-Party Servicer Agreement
                between Visa U.S.A.,  and Electronic Clearing House, Inc. dated
                December 12, 2000. [16]10.53
            
            Copy
                of Third Amendment to the POS Check Third-Party Servicer Agreement
                between
                Visa U.S.A.,    and Electronic Clearing House, Inc.
                dated December 12, 2000. [16]10.56
            
            Office
                Lease dated May 21, 2003, by and between the Registrant and the 1989
                Sheehan Family Trust dated October 24, 1989, with respect to principal
                executive offices located at 730 Paseo Camarillo, Camarillo, California
                93010.[17]10.57
            
            First
                Amendment to Lease dated July 10, 2003, by and between the Registrant
                and
                the 1989 Sheehan Family Trust dated October 24, 1989, with respect
                to
                principal executive offices located at 730 Paseo Camarillo, Camarillo,
                California 93010. [10]10.58
            
            Addendum
                to Office Lease dated July 7, 2004, by and between the Registrant
                and the
                1989 Sheehan Family Trust dated October 24, 1989, with respect to
                principal executive offices located at 730 Paseo Camarillo, Camarillo,
                California 93010. [18]10.60
            
            Sample
                Amended and Restated Separation Agreement between Electronic Clearing
                House, Inc. and Company Executives.10.61
            
            Form
                of Voting Agreement between Intuit Inc. and the Officers and Directors
                of
                Electronic Clearing House, Inc. [11]10.62
            
            Electronic
                Clearing House, Inc. Non-Prosecution Agreement dated March 27, 2007,
                with
                the United States Attorney for the Southern District of New York.
[12]10.63
            
            Separation
                and Release Agreement between Electronic Clearing House, Inc. and
                Joel M.
                Barry dated August 10, 2007 and effective July 2, 2007.10.64
            
            Form
                of Indemnification Agreement.11.1
            
            Statement
                re computation of per share earnings, incorporated herein by reference
                to
                Note 10 of the Notes to Consolidated Financial
                Statements.21.0
            
            Subsidiaries
                of Registrant as of September 30, 2006. [10]




43
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23.1
            
            Consent
                of PricewaterhouseCoopers LLP23.2
            
            Consent
                of BDO Seidman, LLP24.1
            
            Power
                of Attorney [9]31.1
            
            Certificate
                of Charles J. Harris, Chief Executive Officer of Electronic Clearing
                House, Inc. pursuant to     Rule 13a-14(b) under
                the Securities and Exchange Act of 1934, as amended.31.2
            
            Certificate
                of Alice L. Cheung, Chief Financial Officer of Electronic Clearing
                House,
                Inc. pursuant to Rule 13a-14(b) under the Securities and Exchange
                Act of
                1934, as amended.32.1
            
            Certificate
                of Charles J. Harris, Chief Executive Officer of Electronic Clearing
                House, Inc. pursuant to Rule 13a-14(b) under the Securities and Exchange
                Act of 1934, as amended.32.2
            
            Certificate
                of Alice L. Cheung, Chief Financial Officer of Electronic Clearing
                House,
                Inc. pursuant to Rule 13a-14(b) under the Securities and Exchange
                Act of
                1934, as amended.


_________________________________




[1]
              Filed
                  as an Exhibit to
                  Registrant's Annual Report on Form 10-K for the fiscal year ended
                  September 30, 1988 and incorporated herein by
                  reference.[2]
              Filed
                  as an Exhibit to
                  Registrant's Form S-1, Amendment No. 3, effective November 13,
                  1990 and
                  incorporated herein by reference.[3]
              Filed
                  as an Exhibit to
                  Registrant's Annual Report on Form 10-K for fiscal year ended September
                  30, 1999 and incorporated herein by reference.[4]
              Filed
                  as an Exhibit to
                  Registrant's Annual Report on Form 10-K for fiscal year ended September
                  30, 2000 and incorporated herein by reference.[5]
              Filed
                  as an Exhibit to
                  Registrant’s Form 8-A dated February 10, 2003 and incorporated herein by
                  reference.[6]
              Filed
                  as an Exhibit to Registrant’s Form 8-K dated September 30, 2004 and
                  incorporated herein by reference.[7]
              Filed
                  as an Exhibit to
                  Registrant’s Notice of Annual Meeting of Shareholders dated February 7,
                  2005 and incorporated herein by reference.[8]
              Filed
                  as an Exhibit to
                  Registrant’s Notice of Annual Meeting of Shareholders dated February 4,
                  1999 and incorporated herein by reference.[9]
              Included
                  on signature
                  page.[10]
              Filed
                  as an Exhibit to
                  Registrant’s Annual Report on Form 10-K for fiscal year ended September
                  30, 2005 and incorporated herein by reference.[11]
              Filed
                  as an Exhibit to
                  Registrant’s Form 8-K dated December 14, 2006 and incorporated herein by
                  reference.[12]
              Filed
                  as an Exhibit to
                  Registrant’s Quarterly Report on Form 10-Q for fiscal quarter ended March
                  31, 2007 and incorporated herein by reference.[13]
              Filed
                  as an Exhibit to
                  Registrant’s Form 8-K dated April 26, 2007 and incorporated herein by
                  reference.[14]
              Filed
                  as an Exhibit to
                  Registrant's Annual Report on Form 10-K for fiscal year ended September
                  30, 1997 and incorporated herein by reference.[15]
              Filed
                  as an Exhibit to
                  Registrant’s Annual Report on Form 10-K for fiscal year ended September
                  30, 2001 and incorporated herein by reference.[16]
              Filed
                  as an Exhibit to
                  Registrant’s Annual Report on Form 10-K for fiscal year ended September
                  30, 2002 and incorporated herein by reference.[17]
              Filed
                  as an Exhibit to
                  Registrant’s Annual Report on Form 10-K for fiscal year ended September
                  30, 2003 and incorporated herein by reference.[18]
              Filed
                  as an Exhibit to
                  Registrant’s Annual Report on Form 10-K for fiscal year ended September
                  30, 2004 and incorporated herein by
                  reference.




44
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            of Contents***





**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) 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.By:
            /s/  Charles
                J. HarrisCharles
                J. Harris, Chief Executive Officer





POWER
      OF
      ATTORNEY




Each
      person whose signature appears below constitutes and appoints Charles J. Harris
      and Alice L. Cheung, and each of them, as their true and lawful
      attorneys-in-fact and agents with full power of substitution and resubstitution,
      for them and in their name, place and stead, in any and all capacities, to
      sign
      any or all amendments to this Annual Report on Form 10-K and to file the same,
      with all exhibits thereto, and other documents in connection therewith, with
      the
      Securities and Exchange Commission, granting unto said attorneys-in-fact and
      agents, and each of them, full power and authority to do and perform each and
      every act and thing requisite and necessary to be done in and about the
      foregoing, as fully to all intents and purposes as he might or could do in
      person, hereby ratifying and confirming all that said attorneys-in-fact and
      agents, or either of them, or their substitutes, may lawfully do or cause to
      be
      done by virtue hereof.





Pursuant
      to the requirements of the Securities Exchange Act of 1934, this Report has
      been
      signed by the following persons in the capacities and on the dates
      indicated.








**Signature**
            
            **Title**
            
            **Date**/s/  Charles
                J. Harris
            
            Director,  Chief
                ExecutiveCharles
                J. Harris
            
            Officer
            )
            December
                14, 2007)/s/  Aristides
                W. Georgantas
            
            Director
            )Aristides
                W. Georgantas
            
            
            ))/s/  Herbert
                L. Lucas, Jr.
            
            Director
            )Herbert
                L. Lucas, Jr.
            
            
            ))/s/  Richard
                D. Field
            
            Director
            )Richard
                D. Field
            
            
            ))/s/  Jerry
                McElhatton
            
            Director
            )Jerry
                McElhatton
            
            
            ))/s/  Keith  Hall
            
            Director
            )Keith  Hall
            
            Keith
                Hall
            ))/s/  Alice
                L. Cheung
            
            Chief
                Financial Officer
            )Alice
                L. Cheung
            
            and
                Treasurer
            ))/s/
                Jeffrey Jacobs
            
            Director
                of Accounting
            )Jeffrey
                Jacobs
            
            
            )




45
 ***Table
            of Contents***





**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**








To
      the
      Stockholders and Board of Directors of


Electronic
      Clearing House, Inc.


Camarillo,
      California





We
      have
      audited the accompanying consolidated balance sheets of Electronic Clearing
      House, Inc. and subsidiaries (the “Company”) as of September 30, 2007 and 2006
      and the related consolidated statements of operations, stockholders’ equity and
      cash flows for the years then ended. These financial statements are the
      responsibility of the Company’s management. Our responsibility is to express an
      opinion on these financial statements based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. An audit also includes examining,
      on a test basis, evidence supporting the amounts and disclosures in the
      financial statements, assessing the accounting principles used and significant
      estimates made by management, as well as evaluating the overall financial
      statement presentation. We believe that our audits provide a reasonable basis
      for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of Electronic Clearing House,
      Inc. and subsidiaries as of September 30, 2007 and 2006 and the results of
      their
      operations and their cash flows for the years then ended in conformity with
      accounting principles generally accepted in the United States of
      America.





As
      more
      fully described in Note 1 to the consolidated financial statements, effective
      October 1, 2005, the Company adopted the provisions of SFAS No. 123(R),
“Share-Based Payment.”





We
      have
      also audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), Electronic Clearing House, Inc.’s internal
      control over financial reporting as of September 30, 2007, based on criteria
      established in *Internal Control — Integrated Framework*issued by the
      Committee of Sponsoring Organizations of the Treadway Commission (the COSO
      criteria) and our report dated December 14, 2007 expressed an unqualified
      opinion thereon.





/s/
      BDO
      Seidman, LLP







BDO
      Seidman, LLP


Los
      Angeles, CA


December
      14, 2007





F-1
 ***Table
            of Contents***





To
      the
      Stockholders and Board of Directors of


Electronic
      Clearing House, Inc.


Camarillo,
      California








We
      have
      audited Electronic Clearing House, Inc.’s internal control over financial
      reporting as of September 30, 2007, based on criteria**established
      in *Internal Control−Integrated Framework*issued by the Committee of
      Sponsoring Organizations of the Treadway Commission (the COSO criteria). The
      Company’s management is responsible for maintaining effective internal control
      over financial reporting and for its assessment of the effectiveness of internal
      control over financial reporting included in the accompanying Item 9A,
      Management’s Report on Internal Control Over Financial Reporting. Our
      responsibility is to express an opinion on the Company’s internal control over
      financial reporting based on our audit.





We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether effective
      internal control over financial reporting was maintained in all material
      respects. Our audit included obtaining an understanding of internal control
      over
      financial reporting, assessing the risk that a material weakness exists, testing
      and evaluating the design and operating effectiveness of internal control based
      on the assessed risk, and performing such other procedures as we considered
      necessary in the circumstances. We believe that our audit provides a reasonable
      basis for our opinion.





A
      company’s internal control over financial reporting is a process designed to
      provide reasonable assurance regarding the reliability of financial reporting
      and the preparation of financial statements for external purposes in accordance
      with generally accepted accounting principles.  A company’s internal
      control over financial reporting includes those policies and procedures that
      (i)
      pertain to the maintenance of records that, in reasonable detail, accurately
      and
      fairly reflect the transactions and dispositions of the assets of the company;
      (ii) provide reasonable assurance that transactions are recorded as necessary
      to
      permit preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the company are
      being made only in accordance with authorizations of management and directors
      of
      the company; and (iii) provide reasonable assurance regarding prevention or
      timely detection of unauthorized acquisition, use or disposition of the
      company’s assets that could have a material effect on the financial
      statements.





Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate.





In
      our
      opinion, the Company maintained, in all material respects, effective internal
      control over financial reporting as of September 30, 2007 based on the COSO
      criteria.





We
      have
      also audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the Company’s consolidated balance sheets as of
      September 30, 2007 and 2006 and the related consolidated statements of
      operations, stockholders’ equity, and cash flows for the years ended September
      30, 2007and 2006 and our report dated December 14, 2007 expressed an unqualified
      opinion on those financial statements.





/s/
      BDO
      Seidman, LLP








BDO
      Seidman, LLP


Los
      Angeles, California


December
      14, 2007





F-2
 ***Table
            of Contents***





**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**








To
      the
      Board of Directors and Shareholders:







In
      our
      opinion, the accompanying consolidated statements of operations, stockholders’
equity (deficit) and cash flows present fairly, in all material
      respects,  the results of operations and cash flows of Electronic
      Clearing House, Inc. and its subsidiaries for the year ended September 30,
      2005,
      in conformity with accounting principles generally accepted in the United States
      of America. In addition, in our opinion, the financial statement schedule listed
      in the index appearing under Item 15(a) 2 for the year ended September 30,
      2005
      presents fairly, in all material respects, the information set forth therein
      when read in conjunction with the related consolidated financial statements.
      These financial statements and financial statement schedule are the
      responsibility of the Company’s management; our responsibility is to express an
      opinion on these financial statements and financial statement schedule based
      on
      our audit. We conducted our audits of these statements in accordance with the
      standards of the Public Company Accounting Oversight Board (United States).
      Those standards require that we plan and perform the audit to obtain reasonable
      assurance about whether the financial statements are free of material
      misstatement. An audit includes examining, on a test basis, evidence supporting
      the amounts and disclosures in the financial statements, assessing the
      accounting principles used and significant estimates made by management, and
      evaluating the overall financial statement presentation. We believe that our
      audit provides a reasonable basis for our opinion.






/s/    PricewaterhouseCoopers
      LLP




PricewaterhouseCoopers
      LLP


Los
      Angeles, California


December
      7, 2005





F-3
 ***Table
            of Contents***





**ELECTRONIC
      CLEARING HOUSE, INC.**


**CONSOLIDATED
      BALANCE SHEETS**




September
                30,2007
            
            
            2006ASSETSCurrent
                assets:Cash
                and cash equivalents
            
            $
            10,752,000
            
            
            $
            11,604,000Restricted
                cash
            
            
            1,168,000
            
            
            
            1,594,000Settlement
                deposits and funds held in trust
            
            
            4,588,000
            
            
            
            23,282,000Settlement
                receivables less allowance of $58,000 and $16,000
            
            
            1,163,000
            
            
            
            1,499,000Accounts
                receivable less allowance of $321,000 and $392,000
            
            
            3,322,000
            
            
            
            2,914,000Prepaid
                expenses and other assets
            
            
            522,000
            
            
            
            494,000Deferred
                tax asset
            
            
            425,000
            
            
            
            506,000Total
                current assets
            
            
            21,940,000
            
            
            
            41,893,000Noncurrent
                assets:Property
                and equipment, net
            
            
            2,444,000
            
            
            
            2,521,000Software,
                net
            
            
            10,535,000
            
            
            
            10,340,000Other
                assets, net
            
            
            215,000
            
            
            
            253,000Total
                assets
            
            $
            35,134,000
            
            
            $
            55,007,000LIABILITIES
                AND STOCKHOLDERS' EQUITYCurrent
                liabilities:Short-term
                borrowings and current portion of long-term debt
            
            $
            493,000
            
            
            $
            291,000Accounts
                payable
            
            
            657,000
            
            
            
            352,000Accrued
                expenses
            
            
            1,989,000
            
            
            
            1,643,000Accrued
                professional fees
            
            
            902,000
            
            
            
            614,000Settlement
                payable and trust payable
            
            
            5,751,000
            
            
            
            24,781,000Accrued
                compensation expenses
            
            
            2,028,000
            
            
            
            1,670,000Total
                current liabilities
            
            
            11,820,000
            
            
            
            29,351,000Noncurrent
                liabilities:Long-term
                debt, net of current portion
            
            
            834,000
            
            
            
            448,000Deferred
                tax liability
            
            
            -0-
            
            
            
            2,922,000Total
                liabilities
            
            
            12,654,000
            
            
            
            32,721,000Commitments
                and contingencies (see Note 13)
            
            
            -
            
            
            
            -Stockholders'
                equity:Preferred
                stock, $.01 par value, 5,000,000 shares authorized, none outstanding
                at
                September 30, 2007 and September 30, 2006
            
            
            -0-
            
            
            
            -0-Common
                stock, $.01 par value, 36,000,000 shares authorized; 7,056,848 and
                6,839,333 shares issued, 7,018,579 and 6,801,064 shares outstanding,
                respectively
            
            
            70,000
            
            
            
            68,000Additional
                paid-in capital
            
            
            29,923,000
            
            
            
            27,350,000Accumulated
                deficit
            
            
            (7,047,000
            )
            
            
            (4,666,000
            )Less
                treasury stock at cost, 38,269 and 38,269 common shares
            
            
            (466,000
            )
            
            
            (466,000
            )Total
                stockholders' equity
            
            
            22,480,000
            
            
            
            22,286,000Total
                liabilities and stockholders' equity
            
            $
            35,134,000
            
            
            $
            55,007,000





See
      accompanying notes to consolidated financial statements.





F-4
 ***Table
            of Contents***





**ELECTRONIC
      CLEARING HOUSE, INC.**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**





Year
                ended September 30,2007
            
            
            2006
            
            
            2005REVENUES
            
            $
            76,884,000
            
            
            $
            75,311,000
            
            
            $
            55,551,000COSTS
                AND EXPENSES:Processing
                and transaction expense
            
            
            54,158,000
            
            
            
            50,072,000
            
            
            
            35,867,000Other
                operating costs
            
            
            6,523,000
            
            
            
            5,775,000
            
            
            
            5,653,000Research
                and development expense
            
            
            2,134,000
            
            
            
            1,539,000
            
            
            
            1,609,000Selling,
                general and administrative expenses
            
            
            14,036,000
            
            
            
            12,162,000
            
            
            
            8,944,000Legal
                settlements and fees
            
            
            3,180,000
            
            
            
            1,261,000
            
            
            
            1,799,000Merger
                related costs
            
            
            934,000
            
            
            
            348,000
            
            
            
            -0-Severance
                costs
            
            
            1,031,000
            
            
            
            -0-
            
            
            
            -0-81,996,000
            
            
            
            71,157,000
            
            
            
            53,872,000(Loss)
                income from operations
            
            
            (5,112,000
            )
            
            
            4,154,000
            
            
            
            1,679,000Interest
                income
            
            
            488,000
            
            
            
            289,000
            
            
            
            136,000Interest
                expense
            
            
            (66,000
            )
            
            
            (92,000
            )
            
            
            (113,000
            )(Loss)
                income before benefit (provision) for income taxes
            
            
            (4,690,000
            )
            
            
            4,351,000
            
            
            
            1,702,000Benefit
                (provision) for income taxes
            
            
            2,309,000
            
            
            
            (2,034,000
            )
            
            
            (669,000
            )Net
                (loss) income
            
            $
            (2,381,000
            )
            
            $
            2,317,000
            
            
            $
            1,033,000Basic
                net (loss) earnings per share
            
            $
            (0.35
            )
            
            $
            0.35
            
            
            $
            0.16Diluted
                net (loss) earnings per share
            
            $
            (0.35
            )
            
            $
            0.33
            
            
            $
            0.15Weighted
                average shares outstanding:Basic
            
            
            6,747,092
            
            
            
            6,613,541
            
            
            
            6,485,125Diluted
            
            
            6,747,092
            
            
            
            7,004,557
            
            
            
            6,939,381




See
      accompanying notes to consolidated financial statements.





F-5
 ***Table
            of Contents***





**ELECTRONIC
      CLEARING HOUSE, INC.**


**CONSOLIDATED
      STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY**





Stock
            
            
            Common
            
            
            Additional
              Paid-in
            
            
            Treasury
            
            
            Unearned
              Stock
            
            
            AccumulatedTreasury
            
            
            Common
            
            
            Stock
            
            
            Capital
            
            
            Stock
            
            
            Compensation
            
            
            Deficit
            
            
            TotalBalance
                at September 30, 2004
            
            
            38,269
            
            
            
            6,451,331
            
            
            
            64,000
            
            
            $
            24,658,000
            
            
            $
            (466,000
            )
            
            $
            -0-
            
            
            $
            (8,016,000
            )
            
            $
            16,240,000Exercise
                of stock options
            
            
            
            
            
            
            119,200
            
            
            
            1,000
            
            
            
            393,000
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            394,000Issuance
                of restricted stock
            
            
            
            
            
            
            50,000
            
            
            
            1,000
            
            
            
            424,000
            
            
            
            
            
            
            
            (419,000
            )
            
            
            
            
            
            
            6,000Expense
                related to stock option issuance
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            8,000
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            8,000Tax
                benefit from stock options exercised
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            91,000
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            91,000Net
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,033,000
            
            
            
            1,033,000Balance
                at September 30, 2005
            
            
            38,269
            
            
            
            6,620,531
            
            
            
            66,000
            
            
            
            25,574,000
            
            
            
            (466,000
            )
            
            
            (419,000
            )
            
            
            (6,983,000
            )
            
            
            17,772,000Exercise
                of stock options
            
            
            
            
            
            
            131,200
            
            
            
            1,000
            
            
            
            579,000
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            580,000Issuance
                of restricted stock
            
            
            
            
            
            
            83,088
            
            
            
            
            
            
            
            -0-
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            -0-Amortization
                of restricted stock grants
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            207,000
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            207,000Issuance
                of restricted stock tooutside
                director
            
            
            
            
            
            
            4,514
            
            
            
            1,000
            
            
            
            49,000
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            50,000Share-based
                compensation expense – options
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            909,000
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            909,000Share-based
                compensation expense – performance
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            217,000
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            217,000Reclassification
                in connection withadopting
                SFAS No. 123R
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (419,000
            )
            
            
            
            
            
            
            (419,000
            )
            
            
            
            
            
            
            -0-Excess
                tax benefit from stock-basedcompensation
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            234,000
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            234,000Net
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            2,317,000
            
            
            
            2,317,000Balance
                at September 30, 2006
            
            
            38,269
            
            
            
            6,839,333
            
            
            
            68,000
            
            
            
            27,350,000
            
            
            
            (466,000
            )
            
            
            -0-
            
            
            
            (4,666,000
            )
            
            
            22,286,000Exercise
                of stock options
            
            
            
            
            
            
            188,450
            
            
            
            2,000
            
            
            
            836,000
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            838,000Issuance
                of restricted stock
            
            
            
            
            
            
            27,500
            
            
            
            
            
            
            
            -0-
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            -0-Forfeiture
                of restricted stock grants
            
            
            
            
            
            
            (14,012
            )
            
            
            
            
            
            
            -0-
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            -0-Issuance
                of restricted stock to outside directors
            
            
            
            
            
            
            15,577
            
            
            
            
            
            
            
            13,000
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            13,000Amortization
                of restricted stock grants
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            329,000
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            329,000Share-based
                compensation expense – options
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            664,000
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            664,000Share-based
                compensation expense – performance
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            354,000
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            354,000Excess
                tax benefit from stock-based compensation
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            139,000
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            139,000Share-based
                compensation expense related to severance costs
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            238,000
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            238,000Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (2,381,000
            )
            
            
            (2,381,000
            )Balance
                at September 30, 2007
            
            
            38,269
            
            
            
            7,056,848
            
            
            $
            70,000
            
            
            $
            29,923,000
            
            
            $
            (466,000
            )
            
            $
            -0-
            
            
            $
            (7,047,000
            )
            
            $
            22,480,000





See
      accompanying notes to consolidated financial statements.





F-6
 ***Table
            of Contents***





**ELECTRONIC
      CLEARING HOUSE, INC.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**





Year
                ended September 30,2007
            
            
            2006
            
            
            2005Cash
                flows from operating activities:Net
                (loss) income
            
            $
            (2,381,000
            )
            
            $
            2,317,000
            
            
            $
            1,033,000Adjustments
                to reconcile net (loss) income to net cash provided by operating
                activities:Loss
                on sale of assets
            
            
            324,000
            
            
            
            84,000
            
            
            
            -0-Depreciation
            
            
            978,000
            
            
            
            891,000
            
            
            
            776,000Amortization
                of software and other intangibles
            
            
            3,524,000
            
            
            
            2,617,000
            
            
            
            1,865,000Provisions
                for losses on accounts and notes receivable
            
            
            311,000
            
            
            
            380,000
            
            
            
            43,000Provision
                for obsolete inventory
            
            
            -0-
            
            
            
            -0-
            
            
            
            10,000Deferred
                income taxes
            
            
            (2,841,000
            )
            
            
            1,598,000
            
            
            
            532,000Stock-based
                compensation
            
            
            1,627,000
            
            
            
            1,383,000
            
            
            
            14,000Tax
                benefit from exercise of stock option
            
            
            -0-
            
            
            
            -0-
            
            
            
            91,000Excess
                tax benefit from stock-based compensation
            
            
            (139,000
            )
            
            
            (234,000
            )
            
            
            -0-Changes
                in assets and liabilities:Restricted
                cash
            
            
            426,000
            
            
            
            (146,000
            )
            
            
            (424,000
            )Settlement
                deposits and funds held in trust
            
            
            18,694,000
            
            
            
            (6,188,000
            )
            
            
            1,188,000Accounts
                receivable
            
            
            (668,000
            )
            
            
            (882,000
            )
            
            
            (518,000
            )Settlement
                receivable
            
            
            285,000
            
            
            
            (612,000
            )
            
            
            (484,000
            )Settlement
                payable and trust payable
            
            
            (19,030,000
            )
            
            
            6,809,000
            
            
            
            (707,000
            )Accrued
                compensation expenses
            
            
            329,000
            
            
            
            789,000
            
            
            
            181,000Accounts
                payable
            
            
            305,000
            
            
            
            47,000
            
            
            
            -0-Accrued
                professional fees
            
            
            288,000
            
            
            
            117,000
            
            
            
            286,000Accrued
                expenses
            
            
            485,000
            
            
            
            788,000
            
            
            
            (3,000
            )Prepaid
                expenses
            
            
            (28,000
            )
            
            
            (109,000
            )
            
            
            5,000Net
                cash provided by operating activities
            
            
            2,489,000
            
            
            
            9,649,000
            
            
            
            3,888,000Cash
                flows from investing activities:Other
                assets
            
            
            -0-
            
            
            
            3,000
            
            
            
            4,000Purchase
                of equipment
            
            
            (948,000
            )
            
            
            (1,084,000
            )
            
            
            (781,000
            )Purchased
                and capitalized software
            
            
            (3,958,000
            )
            
            
            (4,116,000
            )
            
            
            (3,859,000
            )Net
                cash used in investing activities
            
            
            (4,906,000
            )
            
            
            (5,197,000
            )
            
            
            (4,636,000
            )Cash
                flows from financing activities:Proceeds
                from issuance of notes payable
            
            
            932,000
            
            
            
            -0-
            
            
            
            400,000Repayment
                of notes payable
            
            
            (344,000
            )
            
            
            (282,000
            )
            
            
            (438,000
            )Repayment
                of capitalized leases
            
            
            -0-
            
            
            
            (112,000
            )
            
            
            (452,000
            )Proceeds
                from exercise of stock options
            
            
            838,000
            
            
            
            580,000
            
            
            
            394,000Excess
                tax benefit from stock-based compensation
            
            
            139,000
            
            
            
            234,000
            
            
            
            -0-Net
                cash provided by (used in) financing activities
            
            
            1,565,000
            
            
            
            420,000
            
            
            
            (96,000
            )Net
                (decrease) increase in cash
            
            
            (852,000
            )
            
            
            4,872,000
            
            
            
            (844,000
            )Cash
                and cash equivalents at beginning of period
            
            
            11,604,000
            
            
            
            6,732,000
            
            
            
            7,576,000Cash
                and cash equivalents at end of period
            
            $
            10,752,000
            
            
            $
            11,604,000
            
            
            $
            6,732,000




See
      accompanying notes to consolidated financial statements.





F-7
 ***Table
            of Contents***





**ELECTRONIC
      CLEARING HOUSE, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**








NOTE
      1
      - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
      POLICIES:





Electronic
      Clearing House, Inc. (*ECHO* or the Company) is a Nevada
      corporation.  The Company provides bankcard authorizations, electronic
      deposit services, check guarantee, check verification, check conversion, and
      check collection
      services.





The
      following comments describe the more significant accounting
      policies.





Principles
      of Consolidation





The
      accompanying consolidated financial statements include the accounts of the
      Company and its wholly owned subsidiaries.  All significant
      intercompany transactions and accounts have been eliminated.





Cash
      and Cash Equivalents





Cash
      and
      cash equivalents consist of unrestricted balances only.  The Company
      considers all highly liquid investments with original maturities of three months
      or less to be cash equivalents.





Restricted
      Cash





Under
      the
      terms of the processing agreements with the Company's primary processing banks,
      the Company maintains several cash accounts as a reserve against chargeback
      losses. As processing fees are received by the processing banks, they are
      allocated per the processing agreement to the reserve accounts.





Chargeback
      Losses





Chargeback
      losses occur when a credit card holder presents a valid claim against one of
      the
      Company's merchants and the merchant has insufficient funds or is no longer
      in
      business, resulting in the charge being absorbed by the Company.  The
      Company records a receivable for those chargebacks for which the merchant is
      liable but has not made payment. The Company records a provision for estimated
      chargeback losses at the time bankcard transactions are processed. A reserve
      is
      estimated based upon a historically-determined percentage of gross credit card
      processing volume and actual losses experienced.





Settlement
      Deposits, Receivables and Payables





Settlement
      receivable/payable results from timing differences in the Company’s settlement
      process with merchants. These timing differences are primarily due to the timing
      between the funds received in the Company’s bank accounts and settlement
      payments made to the merchants.  Cash held by the Company associated
      with this settlement process is classified as settlement deposits in the
      consolidated balance sheets.  Cash held by the Company in trust for
      others is classified in settlement deposits with the related liability included
      in settlement and trust payable.





Allowance
      for Doubtful Accounts




We
      make
      ongoing assumptions relating to the collectibility of our accounts receivable.
      The accounts receivable amount on our balance sheet includes an allowance for
      accounts that might not be paid.  We regularly review the allowance by
      considering factors such as historical experience, credit quality, age of the
      accounts receivable balances and current economic conditions that may affect
      a
      customer's ability to pay.  Our reserves have generally been adequate
      to cover our actual credit losses. However, since we cannot predict future
      changes in the financial stability of our customers, we cannot guarantee that
      our reserves will continue to be adequate. If actual credit losses are
      significantly greater than the allowance we have established, our estimates
      of
      the recoverability of amounts due to us could be overstated, and additional
      allowances could be required, which could have an adverse impact on our
      operations. Conversely, if actual credit losses are significantly less than
      our
      allowance, this would eventually have a positive impact on our
      operations.  Receivables are charged against the allowance when
      management believes the uncollectibility of a receivable balance, or portion
      thereof, has been confirmed.





F-8
 ***Table
            of Contents***




NOTE
      1: (Continued)




Property
      and Equipment





Property
      and equipment are stated at cost, less accumulated depreciation and
      amortization. Expenditures for additions and major improvements are
      capitalized.  Repair and maintenance costs are expensed as
      incurred.  When property and equipment are retired or otherwise
      disposed of, the related cost and accumulated depreciation are removed from
      the
      accounts.  Gains or losses from retirements and disposals are credited
      or charged to income.  Depreciation and amortization are computed
      using the straight-line method over the shorter of the estimated useful lives
      of
      the respective assets or terms of the related leases.  The useful
      lives and lease terms for depreciable assets are as follows:





Computer
                equipment and software
            
            3-5
                yearsFurniture,
                fixtures and equipment
            
            5
                yearsLeasehold
                improvements
            
            Useful
                life or life of lease, whichever is
                shorter





Other
      Assets





Other
      assets consist primarily of deposits and intangible assets such as patents
      and
      trademarks. Costs related to obtaining a patent and trademark are capitalized
      and amortized over the estimated life of the patent and trademark. Disclosures
      regarding intangible assets as required under SFAS No. 142 are included in
      Note
      5.





Software
      Development Costs





Under
      the
      provisions of Statement of Position 98-1, "Accounting for the Costs of Computer
      Software Developed or Obtained for Internal Use," the Company capitalizes costs
      associated with software developed for internal use when both the preliminary
      project stage is completed and management has authorized further funding for
      the
      completion of the project. Capitalized costs include only (1) external direct
      costs of materials and services consumed in developing or obtaining internal-use
      software, (2) payroll and payroll-related costs for employees who are directly
      associated with the software project, and (3) interest costs incurred, when
      material, while developing internal-use software.  Capitalization of
      such costs ceases no later than the point at which the project is substantially
      complete and ready for its intended purpose. Software developed or obtained
      for
      internal use is tested for impairment whenever events or changes in circumstance
      indicates that its carrying amount may not be recoverable. Capitalized software
      development costs are amortized using the straight-line method over the lesser
      of three years or estimated useful life.





Costs
      incurred to establish the technological feasibility of software and other
      computer software maintenance costs are recorded as research and development
      costs and are charged to expense when incurred.





Long-Lived
      Assets




The
      Company assesses potential impairments to its long-lived assets in accordance
      with the provisions of SFAS No. 144, “Accounting for the Impairment or
      Disposal of Long-lived Assets.” An impairment review is performed whenever
      events or changes in circumstances indicate that the carrying value may not
      be
      recoverable. Factors considered by the Company include, but are not limited
      to:
      significant underperformance relative to expected historical or projected future
      operating results; significant changes in the manner of use of the acquired
      assets or the strategy for the Company’s overall business; significant negative
      industry or economic trends; a significant decline in the Company’s stock price
      for a sustained period of time; and the Company’s market capitalization relative
      to net book value. When the Company determines that the carrying value of a
      long-lived asset may not be recoverable based upon the existence of one or
      more
      of the above indicators of impairment, the Company estimates the future
      undiscounted cash flows expected to result from the use of the asset and its
      eventual disposition. If the sum of the expected future undiscounted cash flows
      is less than the carrying amount of the asset, the Company recognizes an
      impairment loss to reduce the carrying amount of the asset to its fair
      value.  There was no impairment recognized during the years ended
      September 30, 2007, 2006 or 2005.





F-9
 ***Table
            of Contents***




NOTE
      1: (Continued)





Revenue
      Recognition





The
      Company earns revenue from services which include the following: debit and
      credit card processing, check guarantee, check verification, check conversion,
      check re-presentment, check collection and inventory tracking.  All of
      these services are performed pursuant to a contract with customers which states
      the terms and fixed price for all contracted services.  The price of a
      service may be a fixed fee for each transaction and/or a percentage of the
      transaction processed, depending on the service.  At the time the
      guarantee revenue is recognized, the Company provides a reserve for estimated
      guarantee losses based upon its historical loss experience. The Company
      generally collects its fee at the time it processes the transaction and
      accordingly, collectibility is assured. Based on the Company’s underwriting
      criteria and ongoing credit monitoring of customers, collectibility on service
      transactions is reasonably assured.





Revenue
      from debit and credit card (collectively called “bankcards”) and transaction
      processing revenue is based on a percentage of the transaction value, commonly
      referred to as a discount fee on a credit and debit card transaction processed
      by the Company.  In addition, there is a per transaction fee
      associated with each bankcard transaction which is charged to the
      merchant.  The Company recognizes the processing and transaction
      revenue when the services are performed.





Revenue
      from check guarantee is derived from a percentage of the gross amount of the
      check and guarantees payment of the check to the merchant in the event the
      check
      is not honored by the check writer’s bank.  Merchants typically
      present customer checks for processing on a regular basis and, therefore,
      dishonored checks are generally identified within a few days of the date the
      checks are guaranteed by the Company. The Company recognizes revenue when the
      checks are processed at the point of sale.  In the event a check is
      dishonored, the Company has the right to collect the full amount of the check
      from the check writer.  The Company establishes a receivable from the
      delinquent check writer for the full amount of the guaranteed
      check.  The Company establishes a reserve against these receivables
      based on historical loss experience.  The check guarantee service also
      earns revenue based on fees collected from delinquent check writers, which
      collection fee is recognized when collected, as collectibility is not reasonably
      assured until that point.





Revenue
      from check verification is derived from fees collected from the merchants when
      a
      check is verified against the Company’s positive and negative check
      database.  This revenue is recognized when the transaction is
      processed, since the Company has no further performance
      obligations.





Revenue
      from check conversion is derived from fees collected from merchants to convert
      the paper check received by merchants into an ACH transaction, which allows
      the
      Company to settle the transaction electronically for the
      merchant.  The Company recognizes the revenue related to check
      conversion fees when the services are performed.





Revenue
      from check re-presentment is derived from fees charged to check
      writers.  Check re-presentment is a service that allows merchants to
      collect a paper check through the Automated Clearing House (“ACH”) network after
      a check has previously been presented to the bank for collection unsuccessfully
      at least once.  The fees earned from check writer are recognized when
      collected, as collectibility is not reasonably assured until that
      point.





F-10
 ***Table
            of Contents***




NOTE
      1: (Continued)





Revenue
      from check collection is derived from collection activities performed on behalf
      of a merchant on uncollected checks.  The merchant usually keeps the
      face amount of the uncollected checks if the collection effort is
      successful.  The Company’s revenue is derived from the collection fee
      collected from the check writer.  If the Company refers the collection
      item to another collection agency, the Company will receive a fee from the
      collection agency
      upon its successful efforts. Collection fee revenue is recognized when
      collected, as collectibility is not reasonably assured until that
      point.





Income
      Taxes





The
      Company accounts for income taxes in accordance with Statement of Financial
      Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
      109).  SFAS 109 requires the recognition of deferred tax liabilities
      and assets for the expected future tax consequences of temporary differences
      between the carrying amounts and the tax bases of assets and liabilities, and
      operating loss and tax credit carryforwards. A valuation allowance is
      established, when necessary, to reduce deferred tax assets to the amount
      expected to be realized.  The Company also determines its tax
      contingencies in accordance with SFAS No. 5, Accounting for Contingencies (“SFAS
      5”). The Company records estimated tax liabilities to the extent the
      contingencies are probable and can be reasonably estimated.





Earnings
      (Loss) Per Share





Earnings
      (loss) per share are based on the weighted average number of common shares
      and
      dilutive common equivalent shares outstanding during the period.  The
      shares issuable upon conversion of preferred stock and exercise of options
      and
      warrants are included in the weighted average for the calculation of diluted
      net
      income per share except where it would be anti-dilutive.





Stock-Based
      Compensation





Effective
      October 1, 2005, the Company began recording compensation expense associated
      with stock options in accordance with SFAS No.123(R), Share-Based Payment.
      Prior
      to October 1, 2005, the Company accounted for stock-based compensation related
      to stock options under the recognition and measurement principles of Accounting
      Principles Board Opinion No. 25; therefore, the Company measured compensation
      expense for its stock option plan using the intrinsic value method, that is,
      as
      the excess, if any, of the fair market value of the Company’s stock at the grant
      date over the amount required to be paid to acquire the stock, and provided
      the
      disclosures required by SFAS Nos. 123 and 148. The Company has adopted the
      modified prospective transition method provided under SFAS No. 123(R), and
      as a
      result, has not retroactively adjusted results from prior periods. Under this
      transition method, compensation expense associated with stock options recognized
      in fiscal year 2006 includes expense related to the remaining unvested portion
      of all stock option awards granted prior to October 1, 2005, based on the grant
      date fair value estimated in accordance with the original provisions of SFAS
      No.
      123. The Company has not issued any stock options since the adoption of SFAS
      No.
      123(R).  See Note 12 for information on the impact of our adoption of
      SFAS No. 123(R) and the assumptions we use to calculate the fair value of
      stock-based compensation.





Accounting
      Estimates





The
      preparation of financial statements in conformity with generally accepted
      accounting principles in the United States requires management to make estimates
      and assumptions that affect the reported amounts of assets and liabilities,
      the
      disclosure of contingent liabilities, and the reported amounts of revenues
      and
      expenses during the reporting period.  Significant estimates include
      allowance for chargeback losses and deferred tax assets. Actual results could
      differ from those estimates.





F-11
 ***Table
            of Contents***




NOTE
      1: (Continued)





Fair
      Value of Financial Instruments





The
      amount recorded for financial instruments in the Company's consolidated
      financial statements approximates their fair value as defined in SFAS No. 107,
      "Disclosures about Fair Value of Financial Instruments".





Reclassifications





Certain
      amounts in the September 30, 2006 and 2005 consolidated financial statements
      have been reclassified to conform to the current year presentation.





At
      September 30, 2005, the Company reclassified a small portion of Settlement
      Receivable relating to an accrual resulting in a corresponding reduction of
      Settlement Payable.  The Statement of Cash Flows was also adjusted
      accordingly for the affected periods.





New
      Accounting Pronouncements





In
      2006,
      the FASB issued SFAS No. 157, “*Fair Value Measurement*” (SFAS No.
      157).  SFAS No. 157 provides guidance for using fair value to measure
      assets and liabilities.  The standard expands required disclosures
      about the extent to which companies measure assets and liabilities at fair
      value, the information used to measure fair value, and the effect of fair value
      measurements on earnings.  SFAS No. 157 applies whenever other
      standards require (or permit) assets or liabilities to be measured at fair
      value.  SFAS No. 157 does not expand the use of fair value in any new
      circumstances.  SFAS No. 157 is effective for financial statements
      issued for fiscal years beginning after November 15, 2007, and interim periods
      within those fiscal years.  The Company is currently evaluating the
      impact of adopting SFAS No. 157 on its consolidated financial
      statements..




In
      2007,
      the FASB issued SFAS No. 159, “*The Fair Value Option for Financial
      Assets and Financial Liabilities-including an amendment of FASB Statement
      No. 115*(“SFAS No. 159”)”. SFAS No. 159 permits entities to measure at
      fair value many financial instruments and certain other items that are not
      currently required to be measured at fair value, with unrealized gains and
      losses related to these financial instruments reported in earnings at each
      subsequent reporting date. SFAS No. 159 is effective for fiscal years beginning
      after November 15, 2007. The Company is currently evaluating the impact of
      adopting SFAS 159 on its consolidated financial statements.





In
      2006,
      the SEC issued Staff Accounting Bulletin No. 108 (SAB No. 108) “*Considering
      the Effects of Prior Year Restatements when Quantifying Misstatements in Current
      Year Financial Statements*”,which addresses quantifying the financial
      statement effects of misstatements, specifically, how the effects of prior
      year
      uncorrected errors must be considered in quantifying misstatements in the
      current year financial statements.  SAB No. 108 is effective for
      fiscal years ending after November 15, 2006.  The Company adopted the
      provisions of SAB No. 108 as of October 1, 2006, and it did not have a material
      impact to its financial condition or results of operations.





In
      2006,
      the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income
      Taxes – an interpretation of FASB Statement 109” (FIN 48).  This
      interpretation clarifies the accounting for uncertain taxes recognized in a
      company’s financial statements in accordance with SFAS No. 109, “Accounting for
      Income Taxes.” The interpretation requires us to analyze the amount at which
      each tax position meets a “more likely than not” standard for sustainability
      upon examination by taxing authorities.  Only tax benefit amounts
      meeting or exceeding this standard will be reflected in tax provision expense
      and deferred tax asset balances.  The interpretation also requires
      that any differences between the amounts of tax benefits reported on tax returns
      and tax benefits reported in the financial statements be recorded in a liability
      for unrecognized tax benefits.  The liability for unrecognized tax
      benefits is reported separately from deferred tax assets and liabilities and
      classified as current or noncurrent based upon the expected period of
      payment.  Additional disclosure in the footnotes to the audited
      financial statements will be required concerning the income tax liability for
      unrecognized tax benefits, any interest and penalties related to taxes that
      are
      included in the financial statements, and open statutes of limitations for
      examination by major tax jurisdictions.  FIN 48 is effective for
      annual periods beginning after December 15, 2006 and any cumulative effect
      of
      adopting FIN 48 will be recorded as a change in accounting principle in the
      financial statements for the three months ended December 31,
      2007.  Management of the Company does not expect the impact of FIN 48
      to be material to the Company’s consolidated financial statements.





F-12
 ***Table
            of Contents***





NOTE
      1: (Continued)





In
      2006,
      the Emerging Issues Task Force (EITF) reached a consensus on EITF 06-3, “*How
      Taxes Collected From Customers and Remitted to Government Authorities Should
      Be
      Presented in the Income Statement (That is, Gross Versus Net
      Presentation)*”.  EITF 06-3 discussed the correct accounting
      treatment of taxes charged to a customer but collected and remitted by a
      reporting entity.  The Company currently reports its revenue net of
      any sales tax collected on its Consolidated Statement of
      Operations.





Concentration
      of Business and Credit Risks





The
      Company operates in the market for electronic payment processing in the United
      States.  The industry is characterized by ongoing technological
      developments, frequent new product introductions and changes in end user
      requirements. The Company’s future success will depend on its ability to
      develop, introduce and market enhancements to its existing products and
      services, to introduce new products and services in a timely manner that meet
      customer requirements, and to respond to competitive pressures and technological
      advances.  Further, the emergence of new industry standards, whether
      through adoption by regulatory agencies or widespread use by financial
      institutions or other financial institution data processing vendors, could
      require the Company to redesign its products and services. The Company currently
      has two primary bankcard processing and sponsorship relationships. The Company
      also maintains several banking relationships for ACH
      processing.  While we believe our banking relationships are sound, we
      can not assure that these banks will not restrict our increasing processing
      volume or that we will always be able to maintain these relationships or
      establish new banking relationships.





During
      the year ended September 30, 2007, one customer accounted for 10.1% of total
      revenue.  No customer accounted for 10% or more of total revenue for
      the fiscal years 2006 and 2005. At September 30, 2007 and 2006, one customer
      accounted for 19.0% and 12.2%, respectively, of the net accounts receivable
      balance.





Bankcard
      and transaction processing services accounted for approximately 81.4%, 75.7%
      and
      74.0% of total revenue for the years ended September 30, 2007, 2006 and 2005,
      respectively.  Check related revenue accounted for approximately
      18.6%, 24.3% and 26.0% of total revenue for the years ended September 30, 2007,
      2006, and 2005, respectively.





The
      Company performs ongoing credit evaluations of its customers’ financial
      condition and limits the amount of credit extended when deemed necessary, and
      in
      certain instances, requires collateral.  Management believes that any
      risk of loss is significantly reduced due to the nature of the customers as
      well
      as the number of its customers and geographic areas. The Company maintains
      an
      allowance for doubtful accounts for estimated losses associated with the
      potential inability of its customers to make required payments or for resolution
      of potential billing disputes.  Receivables are charged against the
      allowance when management believes the uncollectibility of a receivable balance,
      or portion thereof, has been confirmed.





The
      Company has cash in financial institutions that is insured by the Federal
      Deposit Insurance Corporation (“FDIC”) up to $100,000 per
      institution.  At September 30, 2007 and 2006, the Company had cash and
      cash equivalent accounts in excess of the FDIC insured limits in the amount
      of
      $14,414,000 and $11,644,000, respectively.





F-13
 ***Table
            of Contents***





NOTE
      2
      -STATEMENT OF CASH FLOWS:





September
                302007
            
            
            2006
            
            
            2005Cash
                paid for:Interest
            
            $
            66,000
            
            
            $
            92,000
            
            
            $
            113,000Income
                taxes
            
            
            310,000
            
            
            
            126,000
            
            
            
            154,000





Significant
      non-cash transactions for fiscal 2007 are as follows:





·
            Restricted
                stock valued at $372,000 was issued to certain executives and
                employees.





Significant
      non-cash transactions for fiscal 2006 are as follows:





·
            Restricted
                stock valued at $1,060,000 was issued to certain executives and
                employees.





·
            Capital
                equipment of $2,000 was acquired under a capital
                lease.





Significant
      non-cash transactions for fiscal 2005 are as follows:





·
            A
                note was issued for $39,000 for the purchase of capital
                equipment.





·
            Restricted
                stock valued at $425,000 was issued to an executive of the
                company.








NOTE
      3
      - PROPERTY AND EQUIPMENT:





Property
      and equipment are comprised of the following:





September
                302007
            
            
            2006Computer
                equipment
            
            $
            5,664,000
            
            
            $
            5,052,000Furniture,
                fixtures and equipment
            
            
            1,224,000
            
            
            
            1,066,000Leasehold
                improvements
            
            
            263,000
            
            
            
            195,000Auto
            
            
            17,000
            
            
            
            56,000Cost
            
            
            7,168,000
            
            
            
            6,369,000Less:  accumulated
                depreciation and amortization
            
            
            (4,724,000
            )
            
            
            (3,848,000
            )Net
                book value
            
            $
            2,444,000
            
            
            $
            2,521,000





Included
      in property and equipment are assets under capital lease of $155,000 at
      September 30, 2007 and 2006, with related accumulated depreciation of $123,000
      and  $92,000.  Amortization of assets recorded under capital
      leases is included with depreciation expense.





F-14
 ***Table
            of Contents***





NOTE
      4
– CAPITALIZED SOFTWARE





The
      following table sets forth information regarding the costs associated with
      software purchased and developed for internal use:





September
                302007
            
            
            2006Capitalized
                software
            
            $
            21,238,000
            
            
            $
            18,775,000Less:
                accumulated amortization
            
            
            (10,703,000
            )
            
            
            (8,435,000
            )Net
                book value
            
            $
            10,535,000
            
            
            $
            10,340,000




NOTE
      5
– OTHER ASSETS





Other
      assets consist of the following:





September
                302007
            
            
            2006Patents
            
            $
            173,000
            
            
            $
            173,000Trademarks
            
            
            280,000
            
            
            
            280,000Other
            
            
            160,000
            
            
            
            160,000Cost
            
            
            613,000
            
            
            
            613,000Less:
                accumulated amortization
            
            
            (398,000
            )
            
            
            (360,000
            )Net
                Book Value
            
            $
            215,000
            
            
            $
            253,000





Amortization
      expense for each of the years ended September 30, 2007, 2006 and 2005 was
      $38,000.  Based on the current amount of intangible assets subject to
      amortization, the estimated amortization expense for each of the five succeeding
      years is $38,000.





NOTE
      6
      - INCOME TAXES





The
      provision (benefit) for income taxes consists of the following
      components:





September
                302007
            
            
            2006
            
            
            2005CurrentFederal
            
            $
            662,000
            
            
            $
            258,000
            
            
            $
            -0-State
            
            
            (124,000
            )
            
            
            193,000
            
            
            
            5,000Total
                current provision
            
            
            538,000
            
            
            
            451,000
            
            
            
            5,000DeferredFederal
            
            
            (2,047,000
            )
            
            
            1,369,000
            
            
            
            537,000State
            
            
            (800,000
            )
            
            
            214,000
            
            
            
            127,000Total
                deferred provision (benefit)
            
            
            (2,847,000
            )
            
            
            1,583,000
            
            
            
            664,000Income
                tax provision (benefit)
            
            $
            (2,309,000
            )
            
            $
            2,034,000
            
            
            $
            669,000




F-15
 ***Table
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NOTE
      6: (Continued)





The
      effective tax rate varies from the U.S. Federal statutory tax rate principally
      due to the following:





September
                302007
            
            
            2006
            
            
            2005U.S.
                Federal statutory tax rate
            
            
            (34.00
            %)
            
            
            34.00
            %
            
            
            34.00
            %Add
                (deduct):Stock-based
                compensation
            
            
            2.60
            %
            
            
            4.70
            %
            
            
            -0-State
                and local taxes
            
            
            (4.00
            %)
            
            
            6.20
            %
            
            
            5.10
            %Change
                in valuation allowance
            
            
            2.60
            %
            
            
            -0-
            
            
            
            -0-Research
                and development credit
            
            
            (16.80
            %)
            
            
            -0-
            
            
            
            -0-All
                other
            
            
            0.40
            %
            
            
            1.80
            %
            
            
            0.20
            %Effective
                tax rate
            
            
            (49.20
            %)
            
            
            46.70
            %
            
            
            39.30
            %








Components
      of the deferred tax asset (liabilities) include:





September
                302007
            
            
            2006Deferred
                tax assets:Net
                operating loss (“NOL”) carryforwards
            
            $
            1,116,000
            
            
            $
            -0-Research
                and development credit
            
            
            1,464,000
            
            
            
            -0-Reserve
                for bad debts
            
            
            63,000
            
            
            
            41,000Performance
                stock grant
            
            
            263,000
            
            
            
            99,000Accrued
                bonus and severance
            
            
            585,000
            
            
            
            317,000State
                tax expense
            
            
            2,000
            
            
            
            32,000Business
                credit
            
            
            25,000
            
            
            
            25,000AMT
                credit
            
            
            164,000
            
            
            
            90,000Other
            
            
            5,000
            
            
            
            20,000Total
                gross deferred tax assets
            
            
            3,687,000
            
            
            
            624,000Less
                valuation allowance on deferred tax assets
            
            
            (122,000
            )
            
            
            -0-Deferred
                tax assets
            
            
            3,565,000
            
            
            
            624,000Deferred
                tax liabilities:Capitalized
                software
            
            
            (3,140,000
            )
            
            
            (3,040,000
            )Net
                deferred tax assets (liabilities)
            
            $
            425,000
            
            
            $
            (2,416,000
            )




The
      Company, based upon a study conducted during the year ended September 30, 2007,
      recorded certain research and development credits for fiscal years ended
      September 30, 2003 through 2007.  These research and development
      credits resulted in an income tax benefit of $0.8 million, net of
      reserve.





In
      assessing the realizability of deferred tax assets, management considers whether
      it is more likely than not that some portion or all of the Company’s deferred
      tax assets will not be realized. The ultimate realization of the Company’s
      deferred tax assets is dependent upon the future utilization of the resulting
      research and development credit carryforwards.  As of September 30,
      2007, the Company recognized a valuation allowance of $122,000 on some portion
      of the Company’s deferred tax assets.





F-16
 ***Table
            of Contents***




NOTE
      6: (Continued)





The
      Company had total federal and state NOL carryforwards of approximately $3.3
      million each available to offset future taxable income at September 30,
      2007.  If not used to offset future taxable income, the federal NOLs
      will expire between the fiscal years 2024 and 2026 and the state NOLs wil expire
      between the fiscal years 2011 and 2026. The Company has research and development
      credits of $1.5 million at September 30, 2007 expiring between fiscal years
      2022
      and 2026, except for the state research and development credit of $0.8 million,
      which has no limit on the carryforward period.





NOTE
      7
      - SHORT-TERM BORROWINGS AND LONG-TERM DEBT:





Short-term
      borrowings and long-term debt consist of the following:





September
                302007
            
            
            2006Term
                loan, collateralized by various assets of the Company, due July,
                2011,
                interest at 7.62% at September 30, 2007
            
            $
            899,000
            
            
            $
            -0-Term
                loan, collateralized by various assets of the Company, due October
                2008,
                interest at prime rate plus .50%, 8.25% at September 30,
                2007
            
            
            162,000
            
            
            
            312,000Term
                loan, collateralized by various assets of the Company, due January
                2010,
                interest at  7.32%
            
            
            233,000
            
            
            
            333,000Term
                loan, collateralized by an asset of the Company, due March 2010,
                interest
                at 2%, paid in full during 2007
            
            
            -0-
            
            
            
            28,000Capital
                leases
            
            
            33,000
            
            
            
            66,0001,327,000
            
            
            
            739,000Less:  current
                portion
            
            
            (493,000
            )
            
            
            (291,000
            )Long-term
                debt
            
            $
            834,000
            
            
            $
            448,000




The
      weighted average interest rate on the prime rate term loans for the period
      they
      were outstanding during the year ended September 30, 2007 was
      8.74%.





The
      term
      loans contain restrictive debt covenants consisting of quick ratio, cash flow
      to
      debt ratio, debt service coverage ratio and tangible net worth requirements.
      The
      Company obtained a modification for the cash flow to debt ratio covenant with
      which it was not in compliance at June 30, 2007 and for the remainder of the
      fiscal year.. The Company has a $3,000,000 credit line with a bank, which was
      unused during fiscal year 2007.  The credit line matures in April 2008
      and is collateralized by assets of the Company.  The credit line also
      contains restrictive covenants, including quick ratio, debt service coverage
      ratio and tangible net worth requirements.  The Company was in
      compliance with each of these covenants as of September 30, 2007.





F-17
 ***Table
            of Contents***




NOTE
      7: (Continued)





Future
      maturities of debt are as follows:





Fiscal
                year ended September 302008
            
            $
            493,0002009
            
            
            339,0002010
            
            
            277,0002011
            
            
            218,000$
            1,327,000




NOTE
      8
– SETTLEMENTS PAYABLE AND DEPOSITS





Settlement
      receivable/payable results from timing differences in the Company’s settlement
      process with merchants. These timing differences are primarily due to the timing
      between the funds received in the Company’s bank accounts and settlement
      payments made to the merchants. Cash held by the Company associated with this
      settlement process is classified as settlement deposits in the consolidated
      balance sheets.  Cash held by the Company in trust for others is
      classified in settlement deposits with the related liability included in trust
      payable.





Included
      in settlement deposits was $733,000 and $983,000 of funds held in trust at
      September 30, 2007 and 2006, respectively.  In addition, included in
      settlement payable was $733,000 and $983,000 of trust payable at September
      30,
      2007 and 2006, respectively.





NOTE
      9
–  ACCRUED EXPENSES:





Accrued
      expenses are comprised of the following:


September
                302007
            
            
            2006Accrued
                bankcard fees
            
            $
            588,000
            
            
            $
            435,000Accrued
                communication costs
            
            
            173,000
            
            
            
            113,000Accrued
                commission
            
            
            316,000
            
            
            
            294,000Accrued
                merchant deposits
            
            
            565,000
            
            
            
            565,000Income
                tax payable
            
            
            -0-
            
            
            
            54,000Other
            
            
            347,000
            
            
            
            182,000$
            1,989,000
            
            
            
            1,643,000




NOTE
      10 – 401(K) PLAN





Employees
      who are eligible to participate in the Electronic Clearing House, Inc. 401(k)
      Plan may contribute up to 90% of their pre-tax salary to the Plan, subject
      to
      limitations imposed by the Internal Revenue Code.  Full-time and
      part-time employees who work at least 500 hours per year are eligible to enroll
      if they are at least 21 years of age and have worked for the Company for six
      months. The Plan allows the Company to make matching
      contributions.  During fiscal 2006, we matched employee contributions
      of 50% of the first 6% of salary contributed by the employee, subject to IRS
      limitations.  Twenty percent of matching contributions vest after two
      years of service by the employee and 20% of matching contributions vests yearly
      thereafter.  Matching contributions were $245,000 in fiscal 2007,
      $196,000 in fiscal 2006 and $158,000 in fiscal 2005.  Participating
      employees who are age 50 or older may also make catch-up contributions; however,
      these contributions are not matched.





F-18
 ***Table
            of Contents***





NOTE
      11 - STOCKHOLDERS' EQUITY:





Amended
      and Restated Rights Agreement





The
      Company is a party to an Amended and Restated Rights Agreement dated January
      29,
      2003 as amended.  As amended, the Rights Agreement provides that all
      stockholders have one preferred share purchase right (a "Right") for each
      outstanding share of common stock of the Company. Each Right entitles the
      registered holder to purchase from the Company four one-hundredths of a share
      of
      Series A Junior Participating Preferred Stock, $0.01 par value ("Preferred
      Stock") of the Company at a price of $2.00 per one one-hundredth of a share
      of
      Preferred Stock ("Purchase Price").  However, the Rights are not
      immediately exercisable and will become exercisable only upon the occurrence
      of
      certain events.





Generally,
      if a person or group acquires, or announces a tender or exchange offer that
      would result in the acquisition of 20% or more of the Company’s common stock
      while the Rights Agreement remains in place, then, unless the Rights are
      redeemed by the Company, the Rights will become exercisable by all holders
      of
      rights other than the acquiring person or group for the Company’s shares or
      shares of the third party acquirer having a value of eight times the Right’s
      then-current exercise price.  The Rights Agreement is designed to
      guard against partial tender offers and other coercive tactics to gain control
      of the Company without offering a fair and adequate price and terms to all
      of
      the Company’s shareholders.  The Rights Agreement was not adopted in
      response to any efforts to acquire the Company.





Prior
      to
      September 30, 2006, two Rights existed for each outstanding share of common
      stock of the Company.  On September 30, 2006, one of the Rights
      expired.  The remaining Right will expire on January 29, 2013, unless
      such Right is earlier redeemed or exchanged by the Company as described in
      the
      Rights Agreement.


Each
        1/100th of a
        share of Preferred Stock carries with it the following principal rights (at
        such
        time as, and only if, a Right becomes exercisable): (a) one vote, voting
        together with the Common Stock, (b) a minimum preferential dividend payment
        of
        one times the dividend declared for the Common Stock (when, as and if declared),
        (c) in the event of a merger, consolidation, or other transaction in which
        Common Stock is exchanged, each 1/100th of a
        share of
        Preferred Stock will be entitled to receive the amount received per share
        of
        Common Stock, and (d) in the event of a liquidation, each 1/100th of a share
        of
        Preferred Stock will receive a $1.00 minimum preferential liquidation payment,
        in addition to the payment made for each share of Common Stock.


Earnings
      Per Share





The
      following table sets forth the computation of basic and diluted earnings per
      share:





September
                302007
            
            
            2006
            
            
            2005Numerator:Net
                income
            
            $
            (2,381,000
            )
            
            $
            2,317,000
            
            
            $
            1,033,000Denominator:Weighted
                average shares outstanding for basic (loss) earnings per
                share
            
            
            6,747,092
            
            
            
            6,613,541
            
            
            
            6,485,125Effect
                of dilutive stock options and restricted stock units
            
            
            -0-
            
            
            
            391,016
            
            
            
            454,256Adjusted
                weighted average shares outstanding for diluted (loss) earnings per
                share
            
            
            6,747,092
            
            
            
            7,004,557
            
            
            
            6,939,381Basic
                net (loss) earnings per share
            
            $
            (0.35
            )
            
            $
            0.35
            
            
            $
            0.16Diluted
                net (loss) earnings per share
            
            $
            (0.35
            )
            
            $
            0.33
            
            
            $
            0.15




Due
      to
      the net loss for the fiscal year ended September 30, 2007, the diluted share
      calculation result was antidilutive.  Thus, the basic weighted average
      shares were used and potential common shares of approximately 888,000 shares
      were excluded from the calculations. For the years ended September 30, 2006
      and
      2005, approximately 14,000 and  72,500 shares, respectively,
      attributable to the exercise of outstanding options and restricted stock grants,
      were excluded from the calculation of diluted EPS because the effect was
      antidilutive.





F-19
 ***Table
            of Contents***





NOTE
      12 - COMMON STOCK OPTIONS AND RESTRICTED STOCK:





As
      a
      result of the adoption of SFAS No. 123 (R), the Company’s net income for the
      years ended September 30, 2007 and 2006 includes $1,627,000 and $1,383,000
      of
      compensation expense and $14,000 and $13,000, respectively, of income tax
      benefits related to the Company’s stock options for the years then
      ended.  The effect of adopting SFAS No. 123 (R) had a negative effect
      to basic and diluted earnings per common share for the year ended September
      30,
      2007 of $0.15, and $0.13 and $0.12 for basic and diluted earnings, respectively,
      for the year ended September 30, 2006. The compensation expense related to
      all
      of the Company’s stock-based compensation arrangements is recorded as a
      component of selling, general and administrative expenses.  Prior to
      the Company’s adoption of SFAS No. 123(R), the Company presented tax benefits
      resulting from the disqualified dispositions of stock options as cash flows
      from
      operating activities on the Company’s consolidated statements of cash
      flows.  SFAS No. 123(R) requires that cash flows resulting from tax
      deductions in excess of the cumulative compensation cost recognized for options
      exercised (excess tax benefits) be classified as cash inflows from financing
      activities and cash outflows from operating activities.





**Stock
      Options:**





At
      September 30, 2007, the Company had one stock option plan.  Under the
      Company’s current stock option plan, the Board of Directors may grant options to
      purchase up to 1,150,000 shares of the Company’s common stock to officers, key
      employees and non-employee directors of the Company.  At September 30,
      2007, only 74,324 shares remained available for future grant under the
      plan.  Options cancelled due to forfeiture or expiration return to the
      pool available for grant.  The plan is administered by the Board of
      Directors or its designees and provides that options granted under the plan
      will
      be exercisable at such times and under such conditions as may be determined
      by
      the Board of Directors at the time of grant of such options; however, options
      may not be granted for terms in excess of ten years.  Compensation
      expense related to stock options granted is recognized ratably over the service
      vesting period for the entire option award.  The total number of stock
      option awards expected to vest is adjusted by estimated forfeiture
      rates.  The terms of the plan provide for the granting of options at
      an exercise price not less than 100% of the fair market value of the stock
      at
      the date of grant, as determined by the closing market
      value stock price on the grant date.  All options outstanding at
      September 30, 2007 were issued at 100% of the fair market value of the stock
      at
      the date of grant (except for certain option grants with measurement date errors
      – see Note 14) and have five-year vesting terms.





The
      estimated fair value of each option award granted was determined on the date
      of
      grant using the Black-Scholes option valuation model with the following
      weighted-average assumptions for option grants during the year ended September
      30, 2005.  There were no options granted during the years ended
      September 30, 2006 and 2007.





Year
                EndedSeptember
                30, 2005Risk-free
                interest rate
            
            3%Expected
                volatility of common stock
            
            76.6%Dividend
                yield
            
            -0-Expected
                option term
            
            7
                years




The
      computation of the expected term is based on a weighted average calculation
      combining the average life of options that have already been exercised or
      cancelled with the estimated life of all unexercised options.  The
      expected volatility is based on the historical volatility of the Company’s
      stock. The risk-free interest rate is based on the implied yield on U.S.
      Treasury constant maturities with a remaining term equal to the expected term
      of
      the option.  The dividend yield is projected to be zero.





A
      summary
      of the status of the Company’s stock option plan as of September 30, 2006 and
      2007 and of changes in options outstanding under the plan during the years
      ended
      September 30, 2006 and 2007 is as follows:





F-20
 ***Table
            of Contents***




NOTE
      12: (Continued)





Weighted-Average
            
            
            Weighted-Exercise
            
            
            Average Remaining
            
            
            AggregateNumber of
            
            
            Price
                per
            
            
            Contractual
                Term
            
            
            IntrinsicShares
            
            
            Share
            
            
            (in
                years)
            
            
            ValueOptions
                outstanding at September 30, 2005
            
            
            1,116,125
            
            
            $
            5.51Options
                granted
            
            
            -0-Options
                exercised
            
            
            (131,200
            )
            
            $
            4.42Options
                forfeited or expired
            
            
            (12,650
            )
            
            $
            9.00Options
                outstanding at September 30, 2006
            
            
            972,275
            
            
            $
            5.61
            
            
            
            6.4
            
            
            $
            12,099,000Options
                granted
            
            
            -0-Options
                exercised
            
            
            (188,450
            )
            
            $
            4.44Options
                forfeited or expired
            
            
            (15,900
            )
            
            $
            8.82Options
                outstanding at September 30, 2007
            
            
            767,925
            
            
            $
            5.94
            
            
            
            5.0
            
            
            $
            3,733,000Options
                vested and exercisable at September 30, 2006
            
            
            481,675
            
            
            $
            5.03
            
            
            
            5.3
            
            
            $
            6,272,000Options
                vested and exercisable at September 30, 2007
            
            
            517,525
            
            
            $
            5.55
            
            
            
            4.1
            
            
            $
            2,719,000





Nonvested
      share activity under our Stock Option Plan for the years ended September 30,
      2006 and 2007 is summarized as follows:




WeightedNonvested
            
            
            AverageNumber
            
            
            Grant-DateOf
                Shares
            
            
            Fair
                ValueNonvested
                balance at October 1, 2005
            
            
            684,625
            
            
            $
            4.28Vested
            
            
            (193,625
            )
            
            $
            3.80Forfeited
            
            
            (400
            )
            
            $
            0.93Nonvested
                balance at September 30, 2006
            
            
            490,600
            
            
            $
            4.47Vested
            
            
            (230,800
            )
            
            $
            3.98Forfeited
            
            
            (9,400
            )
            
            $
            5.62Nonvested
                balance at September 30, 2007
            
            
            250,400
            
            
            $
            4.68




F-21
 ***Table
            of Contents***




NOTE
      12: (Continued)





As
      of
      September 30, 2007, there was $802,000 of unamortized compensation cost related
      to non-vested stock option awards, which is expected to be recognized over
      a
      remaining weighted-average vesting period of 2.2 years.





Cash
      received from stock option exercises for the years ended September 30, 2007,
      2006, and 2005 was $838,000, $580,000 and $394,000, respectively. The
      income tax benefits from stock option exercises totaled $139,000, $234,000,
      and
      $91,000 for the years ended September 30, 2007, 2006, and 2005,
      respectively.





For
      stock options granted
      prior to the adoption
      of
      SFAS No. 123(R),
      the following table illustrates the
      pro forma effect on net income and earnings per common share as if the Company
      had applied the fair valuerecognition
      provisions of SFAS No.
      123(R)in determining stock-based
      compensation for awards
      under the plan:





For the Fiscal Year EndedSeptember
                30,2005Net
                income, as reported
            
            $
            1,033,000Add:
                Stock-based compensation expense included in reported net income, net
                of related tax effects
            
            
            5,000Deduct:
                Total stock-based compensation expense determined under fair
                value-based method for all awards, net of related  tax
                effects
            
            
            (529,000
            )Pro
                forma net income
            
            $
            509,000Earnings
                per common share:Basic
                – as reported
            
            $
            0.16Basic
                – pro forma
            
            $
            0.08.Diluted
                – as reported
            
            $
            0.15Diluted
                – pro forma
            
            $
            0.07




**Restricted
      Stock:**





Restricted
      Stock is granted under the 2003 Plan.  Compensation expense related to
      restricted stock issued is recognized ratably over the service vesting
      period.  Restricted stock grants are normally vested over a five-year
      period.





In
      accordance with SFAS No. 123(R), the fair value of restricted stock awards
      is
      estimated based on the closing market value stock price on the date of share
      issuance. The total number of restricted stock awards expected to vest is
      adjusted by estimated forfeiture rates.  As of September 30, 2007,
      there was $1,315,000 of unamortized compensation cost related to non-vested
      restricted stock awards, which is expected to be recognized over a remaining
      weighted-average vesting period of 3.85 years.





F-22
 ***Table
            of Contents***




NOTE
      12: (Continued)





A
      summary
      of the status of the Company’s restricted stock awards as of September 30, 2006
      and 2007, and of changes in restricted stock nonvested under the plan during
      the
      years ended September 30, 2006 and 2007, is as follows:





Weighted-AverageGrant
                DateNumber
            
            
            Fair
                ValueOf
                Shares
            
            
            Per
                ShareRestricted
                stock awards nonvested at September 30, 2005
            
            
            50,000
            
            
            $
            8.50Shares
                issued
            
            
            87,602
            
            
            $
            12.67Shares
                vested
            
            
            (22,029
            )
            
            $
            9.62Shares
                forfeited
            
            
            -0-
            
            
            $
            -0-Restricted
                stock awards nonvested at September 30, 2006
            
            
            115,573
            
            
            $
            11.44Shares
                issued
            
            
            43,077
            
            
            $
            12.27Shares
                vested
            
            
            (24,940
            )
            
            $
            11.28Shares
                forfeited
            
            
            (14,012
            )
            
            $
            10.25Restricted
                stock awards nonvested at September 30, 2007
            
            
            119,698
            
            
            $
            11.92




The
      Company issued 1,077 and 4,514 shares of restricted stock as compensation in
      lieu of cash payments to one outside director during 2007 and 2006,
      respectively.  The Company issued an additional 14,500 shares of
      restricted stock to its outside directors as compensation during
      2007.





Common
      Stock issued and outstanding in Stockholders’ Equity includes 161,076 and
      133,088 shares of restricted stock grants at September 30, 2007 and September
      30, 2006, respectively, of which 119,698 and 115,573 were unvested at each
      respective year end.





The
      Company had a 1992 Officers and Key Employees Incentive Stock Option Plan (the
      “1992 Plan”), which provided for the issuance of up to 1,343,750 stock options,
      each to purchase one share of the common stock at a price not less than 100%
      of
      the market price at the date of grant.  In May 2002, the 1992 Plan
      expired.





The
      2003
      Incentive Stock Option Plan was approved at the Annual Shareholders’ Meeting in
      February 2003. The 2003 Incentive Stock Option Plan has similar provisions
      as
      the 1992 Plan.  In February 2005, the shareholders approved an
      amendment and restatement of the 2003 Incentive Stock Option Plan to, among
      other matters, (i) increase the number of shares to be issued under the 2003
      Incentive Stock Option Plan from 900,000 shares to 1,150,000 shares, and (ii)
      permit the grant of restricted stock under the plan.





F-23
 ***Table
            of Contents***




NOTE
      12: (Continued)





Stock
      option and restricted stock activity during 2007, 2006, and 2005 was as
      follows:





Exercise
              PriceOptions
                outstanding September 30, 2004
            
            
            1,133,925
            
            
            $
            1.29
            
            
            
            -
            
            
            $
            16.48Granted
            
            
            260,000
            
            
            
            7.60
            
            
            
            -
            
            
            
            9.16Forfeited
            
            
            (158,600
            )
            
            
            1.29
            
            
            
            -
            
            
            
            9.56Exercised
            
            
            (119,200
            )
            
            
            1.30
            
            
            
            -
            
            
            
            7.00Options
                outstanding September 30, 2005
            
            
            1,116,125
            
            
            $
            1.30
            
            
            
            -
            
            
            $
            16.48Granted
            
            
            -0-Forfeited
            
            
            (12,650
            )
            
            
            1.30
            
            
            
            -
            
            
            
            16.48Exercised
            
            
            (131,200
            )
            
            
            1.30
            
            
            
            -
            
            
            
            9.56Options
                outstanding September 30, 2006
            
            
            972,275
            
            
            $
            1.30
            
            
            
            -
            
            
            $
            16.48Granted
            
            
            -0-Forfeited
            
            
            (15,900
            )
            
            
            2.10
            
            
            
            -
            
            
            
            10.24Exercised
            
            
            (188,450
            )
            
            
            1.30
            
            
            
            -
            
            
            
            16.48Options
                outstanding September 30, 2007
            
            
            767,925
            
            
            $
            1.30
            
            
            
            -
            
            
            $
            10.24Options
                exercisable at September 30, 2005
            
            
            440,500
            
            
            $
            1.30
            
            
            
            -
            
            
            $
            16.48Options
                exercisable at September 30, 2006
            
            
            481,675
            
            
            $
            1.30
            
            
            
            -
            
            
            $
            16.48Options
                exercisable at September 30, 2007
            
            
            517,525
            
            
            $
            1.30
            
            
            
            -
            
            
            $
            10.24Restricted
                stock nonvested
            
            
            50,000
            
            
            $
            8.50September
                30, 2005Granted
            
            
            87,602
            
            
            $
            10.25
            
            
            
            -
            
            
            $
            17.45Vested
            
            
            (22,029
            )
            
            
            8.50
            
            
            
            -
            
            
            
            10.25Restricted
                stock nonvested September 30, 2006
            
            
            115,573
            
            
            $
            8.50
            
            
            
            -
            
            
            $
            17.45Granted
            
            
            43,077
            
            
            $
            10.41
            
            
            
            -
            
            
            $
            14.00Vested
            
            
            (24,940
            )
            
            
            8.50
            
            
            
            -
            
            
            
            17.45Forfeited
            
            
            (14,012
            )
            
            
            10.25Restricted
                stock nonvested September 30, 2007
            
            
            119,698
            
            
            $
            8.50
            
            
            
            -
            
            
            $
            17.45Authorized
                shares available for grant at September 30, 2005
            
            
            285,600Authorized
                shares available for grant at September 30, 2006
            
            
            147,912Authorized
                shares available for grant at September 30, 2007
            
            
            74,324




F-24
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NOTE
      12: (Continued)





Both
      options and restricted stock are granted under the 2003 Plan.  The
      exercise price of the incentive stock options shall be 100% of the fair market
      value on the date the option is granted. Options granted to officers and
      employees are normally vested over a five-year period.  Options are
      exercisable for a period of five years from date of vest.  Restricted
      stock grants are normally vested over a five-year period.





The
      following table summarizes information about stock options outstanding at
      September 30, 2007:




Options
                Outstanding
            
            
            Options
                ExercisableWeightedAverage
            
            
            Weighted
            
            
            
            
            
            WeightedNumber
            
            
            Remaining
            
            
            Average
            
            
            Number
            
            
            AverageRange
                of
            
            
            Outstanding
                at
            
            
            Contractual
            
            
            Exercise
            
            
            Exercisable
                at
            
            
            ExerciseExercise
                Prices
            
            
            Sept.
                30, 2007
            
            
            Life/Years
            
            
            Price
            
            
            Sept.
                30, 2007
            
            
            Price$
            1.30
            
            
            
            -
            
            
            $
            2.10
            
            
            
            72,400
            
            
            
            5.13
            
            
            $
            1.83
            
            
            
            53,000
            
            
            $
            1.73$
            2.15
            
            
            
            -
            
            
            $
            3.96
            
            
            
            142,075
            
            
            
            3.59
            
            
            $
            2.85
            
            
            
            128,075
            
            
            $
            2.73$
            4.00
            
            
            
            -
            
            
            $
            5.88
            
            
            
            10,000
            
            
            
            0.87
            
            
            $
            4.19
            
            
            
            10,000
            
            
            $
            4.19$
            6.85
            
            
            
            -
            
            
            $
            10.24
            
            
            
            543,450
            
            
            
            5.40
            
            
            $
            7.33
            
            
            
            326,450
            
            
            $
            7.31767,925
            
            
            
            4.98
            
            
            $
            5.94
            
            
            
            517,525
            
            
            $
            5.55




In
      May
      2006, the Company entered into an agreement with certain of its employees and
      executives to potentially grant 80,000 shares of restricted stock and 10,000
      equivalent shares payable in cash.  The restricted stock would only be
      granted and cash only be paid if the Company achieves predetermined cumulative
      Earnings Before Income Taxes and Depreciation and Amortization (“EBITDA”) for
      the fiscal years ending 2006, 2007 and 2008 or upon a change in
      control.  Cumulative EBITDA results must be reached or a reduced
      number of shares will be granted, if any.  As required by SFAS 123(R),
      80,000 shares of this award have been treated as an equity award, with the
      fair
      value measured at the grant date and 10,000 shares have been treated as a
      liability award, with the fair value measured at the grant date and remeasured
      at the end of each reporting period (marked to market).  In June 2007,
      the cumulative EBITDA targets were reduced and this was treated as a
      modification of an award under SFAS No. 123(R).  During 2007, 25,000
      shares of restricted stock and 4,000 shares payable in cash were
      forfeited.  As the Company believes the cumulative EBITDA targets will
      be achieved, the Company recognized compensation expense of $178,000 and
      $255,000 for the years ended September 30, 2007 and 2006,
      respectively.





In
      June
      2007, the Company entered into an agreement with certain of its employees and
      executives to potentially grant 100,000 shares of restricted stock and 21,000
      equivalent shares payable in cash.  The restricted stock will only be
      granted and cash only be paid if the Company achieves predetermined cumulative
      EBITDA for the fiscal years ending 2007, 2008 and 2009 or upon a change in
      control.  Cumulative EBITDA results must be reached or a reduced
      number of shares will be granted, if any.  As required by SFAS 123(R),
      100,000 shares of this award have been treated as an equity award, with the
      fair
      value measured at the grant date and 21,000 shares have been treated as a
      liability award, with the fair value measured at the grant date and remeasured
      at the end of each reporting period (marked to market).  During 2007,
      2,000 shares payable in cash were forfeited.  As the Company believes the
      cumulative EBITDA targets will be achieved, the Company recognized $205,000
      of
      compensation expense related to this award for the year ended September 30,
      2007.





F-25
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NOTE
      13 – COMMITMENTS, CONTINGENT LIABILITIES, AND GUARANTEES:





The
      Company currently relies on cooperative relationships with, and sponsorship
      by,
      two banks in order to process its Visa, MasterCard and other bankcard
      transactions.  The agreement between the banks and the Company require
      the Company to assume and compensate the banks for bearing the risk of
“chargeback” losses. Under the rules of Visa and MasterCard, when a merchant
      processor acquires card transactions, it has certain contingent liabilities
      for
      the transactions processed.  This contingent liability arises in the
      event of a billing dispute between the merchant and a cardholder that is
      ultimately resolved in the cardholder’s favor.  In such a case, the
      disputed transaction is charged back to the merchant and the disputed amount
      is
      credited or otherwise refunded to the cardholder.  If the Company is
      unable to collect this amount from the merchant’s account, and if the merchant
      refuses or is unable to reimburse the Company for the chargeback due to merchant
      fraud, insolvency or other reasons,
      the Company will bear the loss for the amount of the refund paid to the
      cardholders.  The Company is also exposed to financial risk in
      providing Automated Clearing House (“ACH”) services to the
      merchants.  As the Third-Party processor for multiple originating
      banks, the Company is liable for any fraudulent activities committed by the
      merchants initiating the ACH activities. The Company utilizes stringent
      underwriting guidelines combined with a number of systems and procedures to
      manage merchant risk. In addition, the Company requires cash deposits by certain
      merchants, which are held by the Company’s sponsoring banks to minimize the risk
      related to merchant frauds and chargebacks.





A
      cardholder, through its issuing bank, generally has until the later of up to
      four months after the date a transaction is processed or the delivery of the
      product or service to present a chargeback to the Company’s sponsoring bank as
      the merchant processor. Therefore, management believes that the maximum
      potential exposure for the chargebacks would not exceed the total amount of
      transactions processed through Visa and MasterCard for the last four months
      and
      other unresolved chargebacks in the process of resolution.  For the
      last four months through September 30, 2007, this potential exposure totaled
      approximately $650 million. At September 30, 2007, the Company, through its
      sponsoring banks, had approximately $75,000 of unresolved chargebacks that
      were
      in the process of resolution.  At September 30, 2007, the Company,
      through its sponsoring banks, had access to $20.3  million belonging
      to our merchants.  This money has been deposited at the sponsoring
      bank by the merchants to cover any potential chargeback losses.





For
      the
      fiscal years 2007 and 2006, the Company processed approximately $2.0 billion
      (2007) and $1.8 billion (2006) of Visa and MasterCard transactions, which
      resulted in $11.1 million in gross chargeback activities for the fiscal year
      ended 2007 and $9.8 million in gross chargeback activities for the fiscal year
      ended 2006. Substantially all of these chargebacks were recovered from the
      merchants.





The
      Company’s contingent obligation with respect to chargebacks constitutes a
      guarantee as defined in Financial Accounting Interpretation No. 45, “Guarantor’s
      Accounting and Disclosure requirements for Guarantees, Including Indirect
      Guarantees of Others” (“FIN 45”).  FIN 45 requires that guarantees
      issued or modified subsequent to December 31, 2002 be initially recorded as
      liabilities in the Statement of Financial Position at fair
      value.  Since the Company’s agreement with its sponsoring bank which
      establishes the guarantee obligation was entered into prior to December 31,
      2002
      and has not been modified since that date, the measurement provisions of FIN
      45
      are not applicable to this guarantee arrangement.  The Company also
      entered into an arrangement with another sponsoring bank during the fourth
      quarter of the 2007 fiscal year; however, the only transactions processed
      through this new bank were for transactions with no potential of chargebacks.
      Therefore, no additional liabilities are considered to be applicable under
      FIN
      45 for the year ended September 30, 2007.  The Company will record any
      FIN 45 liability that is applicable for fiscal 2008 under the new sponsoring
      bank agreement.





In
      accordance with SFAS No. 5, “Accounting for Contingencies”, the Company records
      a reserve for chargeback losses based on its processing volume and historical
      trends and data.  As of September 30, 2007 and 2006, the allowance for
      chargeback losses, which is classified as a component of the allowance for
      uncollectible accounts receivable, was $219,000 and $304,000,
      respectively.  The expense associated with the chargeback allowance is
      included in processing and transaction expense in the accompanying consolidated
      statements of income.  The Company expensed $210,000, $315,000, and
      $13,000 for the years ended September 30, 2007, 2006 and 2005, respectively,
      for
      bankcard processing chargeback losses.





F-26
 ***Table
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NOTE
      13: (Continued)





The
      Company has a check guarantee business.  The Company charges the
      merchant a percentage of the face amount of the check and guarantees payment
      of
      the check to the merchant in the event the check is not honored by the check
      writer’s bank.  Merchants typically present customer checks for
      processing on a regular basis and, therefore, dishonored checks are generally
      identified within a few days of the date the checks are guaranteed
      by the Company.  Accordingly, management believes that its best
      estimate of the Company’s maximum
      potential exposure for dishonored checks at any given balance sheet date would
      not exceed the total amount of checks guaranteed in the last 10 days prior
      to
      the balance sheet date. As of September 30, 2007, the Company estimates that
      its
      maximum potential dishonored check exposure was approximately
      $2,590,000.





For
      the
      fiscal years ended 2007 and 2006, the Company guaranteed approximately
      $94,575,000 (2007) and $67,855,000 (2006) of merchant checks, which resulted
      in
      $516,000 or 0.5% (2007) and $561,000 or 0.8% (2006) of dishonored checks
      presented to the Company for payments.  The Company has the right to
      collect the full amount of the check from the check writer.  The
      Company establishes a reserve for this activity based on historical and
      projected loss experience. The expense associated with the guarantee costs
      is
      included in processing and transaction expense in the accompanying consolidated
      statements of income.





In
      May
      2006, we entered into separation agreements with each of our principal executive
      officers (CEO, CFO and COO) and each of our senior vice presidents whereby,
      in
      the event of a change in control of *ECHO* (as defined in each agreement)
      each such executive officer would be entitled, to the extent they remain
      employed by us at the time of such change in control, to the following: (i)
      an
      acceleration of vesting with respect to all stock option and restricted stock
      grants then outstanding and not yet vested, (ii) a portion of such executive’s
      anticipated cash or sales commission-based bonus, as applicable, for the fiscal
      year in which the change in control occurred, and (iii) in the event that the
      executive is terminated without cause (as defined in each agreement), or ceases
      to provide services to us (or our successor) as a result of an involuntary
      termination (as defined in each agreement) within the two year period following
      the change in control, then the executive would be entitled to a one-time lump
      sum cash payment equal to a percentage of the executive’s anticipated total
      compensation for the fiscal year in which the change in control occurred, plus
      continued medical benefits for a period of time following such
      termination.  The amount of lump sum payout ranges from 1 1⁄2 to 2 years of
      anticipated total compensation, and duration of continued medical benefits
      ranges between 1 1⁄2 and 2 years depending on position held by the principal
      executive or senior vice president.





Lease
      Commitments





The
      Company leases equipment and real property under agreements, which expire at
      various times next year.  The Company's future minimum rental payments
      for capital and operating leases at September 30, 2007 are as
      follows:




Fiscal
                Year
            
            Capital
                Leases
            
            
            Operating
                Leases2008
            
            $
            34,000
            
            
            $
            499,000Total
                minimum lease payments
            
            
            34,000
            
            
            $
            499,000Less:
                imputed interest of 7.23%
            
            
            (1,000
            )Present
                value of net minimum lease payment
            
            $
            33,000




Rent
      expense for the years ended September 30, 2007, 2006, and 2005 totaled $
      771,000, $775,000 and $663,000, respectively. Certain operating leases have
      renewal options at the end of the lease term solely at the Company’s
      discretion.  In May 2003, the Company leased new corporate office
      space in Camarillo, California.  The lease is for a period of five
      years at a current monthly rate of $38,000. Subsequent to September 30, 2007,
      we
      entered into new





F-27
 ***Table
            of Contents***





NOTE
      13: (Continued)





leases
      in
      new locations for our Albuquerque, New Mexico and Lakewood, Colorado facilities.
      See Footnote 17 for additional detail on the new leases.





At
      September 30, 2007, the Company had long-term contracts with minimum commitments
      with vendors that provide various services.  These contracts include
      minimum annual commitments as follows:





2008
            
            $
            250,000Total
                vendor commitments
            
            $
            250,000




Payments
      made under these contracts amounted to $300,000 for each of the years ended
      September 30, 2007,  2006, and 2005, respectively.





NOTE
      14 – LEGAL PROCEEDINGS





On
      March
      27, 2007, the Company entered into a Non-Prosecution Agreement pursuant to
      which
      the Office of the United States Attorney for the Southern District of New York
      agreed not to pursue actions against us or our subsidiaries for activities
      related to its provision of payment processing services to Internet wallets
      that
      provided services to online gaming websites during the period from January
      2001
      through and including the date of the signing of the Non-Prosecution
      Agreement.  Pursuant to the terms of the Non-Prosecution Agreement,
      the Company agreed to pay estimated profits to the United States in the amount
      of a $2,300,000 civil disgorgement settlement upon the execution of the
      Non-Prosecution Agreement, which represented management’s estimate of the
      Company’s profits from processing and collection services provided to Internet
      wallets since 2001.  Management agreed to maintain a permanent
      restriction upon providing automated clearing house services to any business
      entity providing Internet gambling services to customers in the United States,
      so long as the processing services and gambling services are illegal under
      the
      laws of the United States.  Additionally, management agreed to, among
      other matters, cooperate fully and actively with the U.S. Attorney’s Office, the
      Federal Bureau of Investigation, and with any other agency of the government
      designated by the U.S. Attorney’s Office, and to not commit any violations of
      law. The Company’s cooperation obligations will continue until the later of one
      year from the date of the signing of the Non-Prosecution Agreement or the date
      upon which all prosecutions arising out of the conduct described in the
      Non-Prosecution Agreement are final.  Also included in legal
      settlements and fees are approximately $880,000 for legal fees and expenses
      related to the settlement.  For the year ended September 30, 2006, the
      Company settled a patent related lawsuit for $600,000 and also incurred $661,000
      of related legal expenses. For the year ended September 30, 2005, the Company
      defended and settled various lawsuits, incurring $1,349,000 of legal expenses
      and a lawsuit settlement of $450,000.





The
      Company is involved in various lawsuits arising in the ordinary course of
      business.  Based upon current information, management, after
      consultation with legal counsel, believes the ultimate disposition of these
      lawsuits will have no material effect upon either the Company’s results of
      operations, financial position, or cash flows.





NOTE
      15 – MERGER TRANSACTION





On
      December 14, 2006, the Company entered into an Agreement and Plan of Merger
      (the
      Merger Agreement) to be acquired by Intuit, Inc. (Intuit) in a merger
      transaction in which *ECHO*would have become a wholly owned subsidiary
      of Intuit (the merger).  Pursuant to the terms of the Merger Agreement
      and subject to the conditions thereof, Intuit would have acquired all of the
      outstanding shares of the Company’s common stock and all outstanding equity
      awards (which would have vested in connection with the transactions) for a
      cash
      amount of $18.75 per share (less the applicable exercise price in the case
      of
*ECHO* options), for a total purchase price of approximately $142 million
      on a fully diluted basis.  The transaction was subject to regulatory
      review, the Company’s shareholder approval and other customary closing
      conditions. On March 26, 2007, the Company mutually agreed with Intuit and
      Elan
      Acquisition Corporation, a Nevada corporation and wholly owned subsidiary of
      Intuit (“Elan”), to terminate the Merger Agreement. The parties determined that
      it was in the mutual best interest of each party to terminate the proposed
      agreement.  In connection with the termination, the Company, Intuit
      and Elan agreed to release each other from all claims arising under or related
      to the terminated merger agreement. The Company also cancelled its previously
      adjourned special stockholders’ meeting relating to the proposed acquisition,
      which was scheduled to reconvene on March 27, 2007.  As of result of
      the termination of the merger agreement, the Company recorded approximately
      $934,000 of costs related to the merger for the year ended September 30,
      2007.





F-28
 ***Table
            of Contents***





NOTE
      16 – CEO RETIREMENT AND SEPARATION





In
      connection with the retirement of our Chairman and Chief Executive Officer,
      Joel
      M. (“Jody”) Barry on July 2, 2007 (the “Effective Date”), the Company entered
      into a separation agreement (the “Agreement”) with him on August 10,
      2007.  The agreement resulted in a charge of approximately $1.0
      million to the Company. Under the Agreement, Mr. Barry is entitled to cash
      severance payments totaling $742,800 to be paid as follows: (a) an initial
      lump
      sum payment of $300,000 that was paid within three days of August 10, 2007
      and
      (b) two payments of $221,400 each to be paid on January 2, 2008 and 2009, which
      payments may be accelerated and become payable within three business days upon
      Mr. Barry’s written request.  All stock options issued to Mr. Barry
      under the Company’s 1992 Plan will expire in accordance with their terms as of
      the Effective Date.  All unvested stock options issued to Mr. Barry
      under the Company’s 2003 Plan vested immediately as of the Effective Date and
      will expire on the 360th day
      thereafter.  The Company paid an amount of approximately $21,930 in
      respect to the payoff amount for Mr. Barry’s company vehicle, which he will be
      entitled to retain.  The Company will also make equivalent medical
      benefits available to Mr. Barry for a two year period.  Mr. Barry has
      agreed to certain noncompetition and nonsolicitation provisions for a 12 month
      period.  In exchange for his severance benefits, Mr. Barry has
      relinquished his right to make claims against the Company.  As part of
      the agreement, Mr. Barry also forfeited his unvested restricted stock with
      compensation previously recorded of $146,000. Amounts still due Mr. Barry under
      the Agreement totaled approximately $450,000 at September 30, 2007 and are
      included in accrued compensation expenses.





NOTE
      17: SUBSEQUENT EVENTS





Operating
      Leases:





Subsequent
      to September 30, 2007, the Company entered into new leases for its Albuquerque,
      New Mexico (Albuquerque) and Lakewood, Colorado (Lakewood)
      facilities.   The new Albuquerque lease is for a term of five
      years with an option to extend for an additional five year term and the Lakewood
      lease is for a term of three years and three months with an option to extend
      for
      an additional three year term.





Indemnification
      Rights of Directors:





On
      December 11, 2007, the Company entered into indemnification agreements with
      each
      of its principal executive officers (CEO and CFO), senior vice presidents and
      directors.  Pursuant to the terms of the indemnification agreements,
      the Company has agreed to provide indemnification for, and the advancement
      of
      expenses to, our executive officers, senior vice presidents and directors,
      under
      certain circumstances and in accordance with Nevada law, all as more completely
      described within the agreements.





Amended
      and Restated Separation Agreements:





On
      December 11, 2007, the Company entered into amended and restated separation
      agreements with each of its principal executive officers (CEO and CFO) and
      each
      of its senior vice presidents whereby, in the event of a change in control
      of
      the Company (as defined in each agreement) each such executive officer would
      be
      entitled, to the extent they remain employed by the Company at the time of
      such
      change in control, to the following: (i) an acceleration of vesting with
      respect to all stock option and restricted stock grants then outstanding and
      not
      yet vested, (ii) a portion of such executive’s anticipated cash or sales
      commission-based bonus, as applicable, for the fiscal year in which the change
      in control occurred, and (iii) in the event that the executive is terminated
      without cause (as defined in each agreement), or ceases to provide services
      to
      the Company (or its successor) as a result of an involuntary termination (as
      defined in each agreement) within the two year period following the change
      in
      control, then the executive would be entitled to a one-time lump sum cash
      payment equal to a percentage of the executive’s anticipated total compensation
      for the fiscal year in which the change in control occurred, plus continued
      medical benefits for a period of time following such termination.  The
      amount of the lump sum payout ranges from 1 1⁄2 to 2 years of anticipated total
      compensation, and the duration of continued medical benefits ranges between
      1 1⁄2
and 2 years depending on the position held by the principal executive or senior
      vice president.  These agreements amend and restate separation
      agreements previously entered into with each of these executives.


In
        November 2007, the Board of Directors approved a cash-based Stock Appreciation
        Rights Plan.  The plan has 150,000 stock appreciation units reserved
        for issuance to all non-Executive employees of the Company.  No units
        have been issued to date, and there are currently no planned
        grants.  Additionally, there is no timeframe for when the units will
        be granted.  In addition, there has been no determination as to how
        these units will be allocated among employees.


F-29
 ***Table
            of Contents***





NOTE
      18 - SEGMENT INFORMATION





The
      Company has adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
      and Related Information" (FAS 131).  FAS 131 established revised
      standards for public companies related to the reporting of financial and
      descriptive information about their operating segments in financial
      statements.





Certain
      information is disclosed, per FAS 131, based on the way management organizes
      financial information for making operating decisions and assessing
      performance.





The
      Company currently operates in two business segments: Bankcard and Transaction
      Processing and Check Related Products, all of which are located in the United
      States. The Company also has certain corporate expenses such as salaries and
      benefits, legal and professional fees, rent, and litigation accrual expenses
      which are not allocated to the two business segments.





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.  The accounting policies of the operating
      segments are the same as those described in the summary of significant
      accounting policies.  The Company evaluates performance based upon two
      primary factors, one is the segment's operating income and the other is based
      on
      the segment's contribution to the Company's future strategic
      growth.








September
                30,Business
                Segments
            
            2007
            
            
            2006
            
            
            2005Revenues:Bankcard
                and Transaction Processing
            
            $
            62,580,000
            
            
            $
            56,983,000
            
            
            $
            41,093,000Check
                Related Products
            
            
            14,304,000
            
            
            
            18,328,000
            
            
            
            14,458,000$
            76,884,000
            
            
            $
            75,311,000
            
            
            $
            55,551,000Operating
                income:Bankcard
                and Transaction Processing
            
            $
            9,236,000
            
            
            $
            8,495,000
            
            
            $
            5,829,000Check
                Related Products
            
            
            (1,116,000
            )
            
            
            4,384,000
            
            
            
            2,204,000Other
                – Corporate Expenses
            
            
            (13,232,000
            )
            
            
            (8,725,000
            )
            
            
            (6,354,000
            )$
            (5,112,000
            )
            
            $
            4,154,000
            
            
            $
            1,679,000Depreciation
                and Amortization:Bankcard
                and Transaction Processing
            
            $
            1,828,000
            
            
            $
            1,009,000
            
            
            $
            954,000Check
                Related Products
            
            
            2,673,000
            
            
            
            2,499,000
            
            
            
            1,702,000$
            4,501,000
            
            
            $
            3,508,000
            
            
            $
            2,656,000Capital
                Expenditures:Bankcard
                and Transaction Processing
            
            $
            2,683,000
            
            
            $
            3,386,000
            
            
            $
            2,167,000Check
                Related Products
            
            
            2,279,000
            
            
            
            1,829,000
            
            
            
            2,505,000$
            4,962,000
            
            
            $
            5,215,000
            
            
            $
            4,672,000Total
                Assets:Bankcard
                and Transaction Processing
            
            $
            11,904,000
            
            
            $
            12,707,000
            
            
            $
            9,452,000Check
                Related Products
            
            
            13,233,000
            
            
            
            31,412,000
            
            
            
            24,616,000Other
            
            
            9,997,000
            
            
            
            10,888,000
            
            
            
            6,646,000$
            35,134,000
            
            
            $
            55,007,000
            
            
            $
            40,714,000





F-30
 ***Table
            of Contents***




NOTE
      18: (Continued)




In
      2007,**the Company refocused its sales and service strategy to
      provide merchants, banks, technology partners and collection agencies with
      electronic payment services that combine credit card, debit card and electronic
      check and collection services.  The Company believes this “All-In-One”
offering represents a significant competitive differentiator. In addition,
      the
      Company’s services enable merchants to maximize revenue by offering a wide
      variety of payment options, minimize costs by dealing with one source and
      improve their bad debt collection rates through use of the Company’s integrated
      collection and risk management services.   As such, the Company
      will be combining its Bankcard and Transaction Processing with its Check Related
      Products segments into one “payment processing” segment for
      2008.   The Company believes one segment is more representative
      of how the Company is structured and will be operated for 2008.





NOTE
      19-  QUARTERLY FINANCIAL DATA (Unaudited)





The
      following summarizes the quarterly financial results of the Company for the
      fiscal years ended September 30, 2007 and September 30, 2006 (in thousands,
      except share data):





Year
                Ended September 30, 2007First
            
            
            Second
            
            
            Third
            
            
            FourthQuarter
            
            
            Quarter
            
            
            Quarter
            
            
            QuarterNet
                revenues
            
            $
            19,379
            
            
            $
            19,993
            
            
            $
            19,029
            
            
            $
            18,483Gross
                profit
            
            
            6,429
            
            
            
            6,045
            
            
            
            5,226
            
            
            
            5,026Profit
                (loss) from operations
            
            
            560
            
            
            
            (3,169
            )
            
            
            (1,668
            )
            
            
            (835
            )Net
                income (loss)
            
            
            339
            
            
            
            (1,925
            )
            
            
            (682
            )
            
            
            (113
            )Earnings
                (loss) per share - basic
            
            $
            0.05
            
            
            $
            (0.29
            )
            
            $
            (0.10
            )
            
            $
            (0.02
            )Earnings
                (loss) per share - diluted
            
            $
            0.05
            
            
            $
            (0.29
            )
            
            $
            (0.10
            )
            
            $
            (0.02
            )








Year
                Ended September 30, 2006First
            
            
            Second
            
            
            Third
            
            
            FourthQuarter
            
            
            Quarter
            
            
            Quarter
            
            
            QuarterNet
                revenues
            
            $
            16,926
            
            
            $
            19,228
            
            
            $
            19,869
            
            
            $
            19,288Gross
                profit
            
            
            5,783
            
            
            
            6,313
            
            
            
            6,570
            
            
            
            6,573Profit
                from operations
            
            
            1,061
            
            
            
            781
            
            
            
            1,785
            
            
            
            527Net
                income
            
            
            592
            
            
            
            424
            
            
            
            1,010
            
            
            
            291Earnings
                per share - basic
            
            $
            0.09
            
            
            $
            0.06
            
            
            $
            0.15
            
            
            $
            0.04Earnings
                per share - diluted
            
            $
            0.09
            
            
            $
            0.06
            
            
            $
            0.14
            
            
            $
            0.04




F-31
 ***Table
            of Contents***





**REPORT
      ON FINANCIAL STATEMENT SCHEDULE**








Board
      of
      Directors and Stockholders


Electronic
      Clearing House, Inc.





The
      audit
      referred to in our report dated December 14, 2007 relating to the consolidated
      financial statements for the years ended September 30, 2007 and 2006 of
      Electronic Clearing House, Inc., which is presented on the page set forth in
      Item 15 of this Form 10−K, included the audit of the financial statement
      schedule presented on page S-2 of this Form 10-K. This financial statement
      schedule is the responsibility of the Company’s management. Our responsibility
      is to express an opinion on this financial statement schedule based upon our
      audit.





In
      our
      opinion, such financial statement schedule presents fairly, in all material
      respects, the information set forth therein.








/s/
      BDO
      Seidman, LLP








BDO
      Seidman, LLP


Los
      Angeles, California


December
      14, 2007





S-1
 ***Table
            of Contents***





**ELECTRONIC
      CLEARING HOUSE, INC. AND CONSOLIDATED SUBSIDIARIES**




**SCHEDULE
      II TO FORM 10K**




**RULE
      12-09 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES**








DESCRIPTION
            
            BALANCE AT
              09/30/2004
            
            
            CHARGED TO
              EXPENSE
            
            
            REDUCTION IN
              RESERVE
                AND ACCOUNTS
              RECEIVABLE
            
            
            BALANCE AT
              09/30/2005
            
            
            CHARGED TO
              EXPENSE
            
            
            REDUCTION IN
              RESERVE
                AND
              ACCOUNTS
              RECEIVABLE
            
            
            BALANCE AT
              09/30/2006
            
            
            CHARGED TO
              EXPENSE
            
            
            REDUCTION IN
              RESERVE
                AND
              ACCOUNTS
              RECEIVABLE
            
            
            BALANCE AT
              09/30/2007Allowance
                for  trade receivables/ chargeback /settlement
                receivables
            
            $
            133,000
            
            
            $
            295,000
            
            
            $
            311,000
            
            
            $
            117,000
            
            
            $
            380,000
            
            
            $
            89,000
            
            
            $
            408,000
            
            
            $
            311,000
            
            
            $
            340,000
            
            
            $
            379,000Allowance
                for obsolete inventories
            
            $
            46,000
            
            
            $
            10,000
            
            
            $
            56,000
            
            
            $
            -0-
            
            
            $
            -0-
            
            
            $
            -0-
            
            
            $
            -0-
            
            
            $
            -0-
            
            
            $
            -0-
            
            
            $
            -0-




S-2
 ***Table
            of Contents***





Exhibit
              Number
            
            Description
                of Document2.1
            
            Copy
                of Merger Agreement and Plan of Reorganization between Electronic
                Clearing
                House, Inc., *ECHO* Acquisition Corporation, and Magic Software
                Development, Inc., dated April 20, 1999.[3]2.2
            
            Copy
                of Merger Agreement and Plan of Reorganization between Electronic
                Clearing
                House, Inc., *ECHO* Acquisition Corporation, and Rocky Mountain
                Retail Systems, Inc., dated January 4, 2000.[4]2.3
            
            Agreement
                and Plan of Merger dated December 14, 2006 by and among Intuit Inc.,
                Elan
                Acquisition Corporation and Electronic Clearing House, Inc. [11]2.4
            
            Mutual
                Termination and Release Agreement dated as of March 26, 2007 by and
                among
                Electronic Clearing House, Inc., Intuit Inc., and Elan Acquisition
                Corporation. [12]3.1
            
            Articles
                of Incorporation of Bio Recovery Technology, Inc., filed with the
                Nevada
                Secretary of State on December 11, 1981. [10]3.1.1
            
            Amendment
                to the Articles of Incorporation of Electronic Clearing House, Inc.
                filed
                with the Nevada Secretary of State on June 21, 1990. [10]3.1.2
            
            Amendment
                to the Articles of Incorporation of Electronic Clearing House, Inc.
                filed
                with the Nevada Secretary of State on September 27, 1991. [10]3.1.3
            
            Amendment
                to the Articles of Incorporation of Electronic Clearing House, Inc.
                filed
                with the Nevada Secretary of State on August 5, 1993. [10]3.1.4
            
            Amendment
                to the Articles of Incorporation of Electronic Clearing House, Inc.
                filed
                with the Nevada Secretary of State on April 7, 1995. [10]3.1.5
            
            Amendment
                to the Articles of Incorporation of Electronic Clearing House, Inc.
                filed
                with the Nevada Secretary of State on April 7, 1997. [10]3.1.6
            
            Amendment
                to the Articles of Incorporation of Electronic Clearing House, Inc.
                filed
                with the Nevada Secretary of State on March 13, 1998. [10]3.1.7
            
            Amendment
                to the Articles of Incorporation of Electronic Clearing House, Inc.
                filed
                with the Nevada Secretary of State on June 21, 1999. [10]3.1.8
            
            Amendment
                to the Articles of Incorporation of Electronic Clearing House, Inc.
                filed
                with the Nevada Secretary of State on September 6, 2001. [10]3.2
            
            By-Laws
                of Bio Recovery Technology, Inc.[1]3.2.1
            
            Amendment
                to the By-Laws of Electronic Clearing House, Inc., dated April 25,
                2005.
                [10]3.2.2
            
            Amendment
                to the By-Laws of Electronic Clearing House, Inc., dated September
                9,
                2005. [10]4.1
            
            Amended
                and Restated Rights Agreement between Electronic Clearing House,
                Inc. and
                OTR, Inc., dated January 29, 2003.  [5]4.1.1
            
            Amendment
                Number One to Amended and RestatedRights
                Agreement dated September 27, 2004. [6]4.1.2
            
            Amendment
                Number Two to Amended and Restated Rights Agreement dated December
                14,
                2006. [11]4.1.3
            
            Amendment
                Number Three to Amended and Restated Rights Agreement dated April
                24,
                2007. [13]4.2
            
            Specimen
                Common Stock Certificate. [2]4.3
            
            Amended
                and Restated 2003 Incentive Stock Option Plan. [7]4.4
            
            Amended
                and Restated 1992 Officers and Key Employees Incentive Stock Option
                Plan.
                [8]10.35
            
            Copy
                of Merchant Marketing and Processing Services Agreement between Electronic
                Clearing House, Inc. and First Regional Bank, dated June 24, 1997.
[14]10.46
            
            Copy
                of Amended and Restated Merchant Marketing and Processing Services
                Agreement between Electronic Clearing House, Inc. and First Regional
                Bank,
                dated August 1, 2000.[4]10.47
            
            Copy
                of Addendum to Amended and Restated Merchant Marketing and Processing
                Services Agreement between Electronic Clearing House, Inc. and First
                Regional Bank, dated August 1, 2000.[4]10.48
            
            Copy
                of POS Check Third-Party Services Agreement between Visa U.S.A.,
                Inc. and
                Electronic Clearing House, Inc., dated December 12, 2000.[15]10.51
            
            Copy
                of First Amendment to the POS Check Third-Party Servicer Agreement
                between
                Visa U.S.A., Inc. and Electronic Clearing House, Inc. dated December
                12,
                2000. [16]10.52
            
            Copy
                of Second Amendment to the POS Check Third-Party Servicer Agreement
                between Visa U.S.A.,  and Electronic Clearing House, Inc. dated
                December 12, 2000. [16]10.53
            
            Copy
                of Third Amendment to the POS Check Third-Party Servicer Agreement
                between
                Visa U.S.A.,    and Electronic Clearing House, Inc.
                dated December 12, 2000. [16]




***Table
          of Contents***




10.56
            
            Office
                Lease dated May 21, 2003, by and between the Registrant and the 1989
                Sheehan Family Trust dated October 24, 1989, with respect to principal
                executive offices located at 730 Paseo Camarillo, Camarillo, California
                93010.[17]10.57
            
            First
                Amendment to Lease dated July 10, 2003, by and between the Registrant
                and
                the 1989 Sheehan Family Trust dated October 24, 1989, with respect
                to
                principal executive offices located at 730 Paseo Camarillo, Camarillo,
                California 93010. [10]10.58
            
            Addendum
                to Office Lease dated July 7, 2004, by and between the Registrant
                and the
                1989 Sheehan Family Trust dated October 24, 1989, with respect to
                principal executive offices located at 730 Paseo Camarillo, Camarillo,
                California 93010. [18]10.60
            
            Sample
                Amended and Restated Separation Agreement between Electronic Clearing
                House, Inc. and Company Executives.10.61
            
            Form
                of Voting Agreement between Intuit Inc. and the Officers and Directors
                of
                Electronic Clearing House, Inc. [11]10.62
            
            Electronic
                Clearing House, Inc. Non-Prosecution Agreement dated March 27, 2007,
                with
                the United States Attorney for the Southern District of New York.
[12]10.63
            
            Separation
                and Release Agreement between Electronic Clearing House, Inc. and
                Joel M.
                Barry dated August 10, 2007 and effective July 2, 2007.10.64
            
            Form
                of Indemnification Agreement.11.1
            
            Statement
                re computation of per share earnings, incorporated herein by reference
                to
                Note 10 of the Notes to Consolidated Financial
                Statements.21.0
            
            Subsidiaries
                of Registrant as of September 30, 2006. [10]23.1
            
            Consent
                of PricewaterhouseCoopers LLP23.2
            
            Consent
                of BDO Seidman, LLP24.1
            
            Power
                of Attorney [9]31.1
            
            Certificate
                of Charles J. Harris, Chief Executive Officer of Electronic Clearing
                House, Inc. pursuant to     Rule 13a-14(b) under
                the Securities and Exchange Act of 1934, as amended.31.2
            
            Certificate
                of Alice L. Cheung, Chief Financial Officer of Electronic Clearing
                House,
                Inc. pursuant to Rule 13a-14(b) under the Securities and Exchange
                Act of
                1934, as amended.32.1
            
            Certificate
                of Charles J. Harris, Chief Executive Officer of Electronic Clearing
                House, Inc. pursuant to Rule 13a-14(b) under the Securities and Exchange
                Act of 1934, as amended.32.2
            
            Certificate
                of Alice L. Cheung, Chief Financial Officer of Electronic Clearing
                House,
                Inc. pursuant to Rule 13a-14(b) under the Securities and Exchange
                Act of
                1934, as amended.


_________________________________


[1]
                Filed
                    as an Exhibit to
                    Registrant's Annual Report on Form 10-K for the fiscal year ended
                    September 30, 1988 and incorporated herein by
                    reference.[2]
                Filed
                    as an Exhibit to
                    Registrant's Form S-1, Amendment No. 3, effective November 13,
                    1990 and
                    incorporated herein by reference.[3]
                Filed
                    as an Exhibit to
                    Registrant's Annual Report on Form 10-K for fiscal year ended
                    September
                    30, 1999 and incorporated herein by reference.[4]
                Filed
                    as an Exhibit to
                    Registrant's Annual Report on Form 10-K for fiscal year ended
                    September
                    30, 2000 and incorporated herein by reference.[5]
                Filed
                    as an Exhibit to
                    Registrant’s Form 8-A dated February 10, 2003 and incorporated herein by
                    reference.[6]
                Filed
                    as an Exhibit to Registrant’s Form 8-K dated September 30, 2004 and
                    incorporated herein by reference.[7]
                Filed
                    as an Exhibit to
                    Registrant’s Notice of Annual Meeting of Shareholders dated February 7,
                    2005 and incorporated herein by reference.[8]
                Filed
                    as an Exhibit to
                    Registrant’s Notice of Annual Meeting of Shareholders dated February 4,
                    1999 and incorporated herein by reference.[9]
                Included
                    on signature
                    page.[10]
                Filed
                    as an Exhibit to
                    Registrant’s Annual Report on Form 10-K for fiscal year ended September
                    30, 2005 and incorporated herein by reference.[11]
                Filed
                    as an Exhibit to
                    Registrant’s Form 8-K dated December 14, 2006 and incorporated herein by
                    reference.[12]
                Filed
                    as an Exhibit to
                    Registrant’s Quarterly Report on Form 10-Q for fiscal quarter ended March
                    31, 2007 and incorporated herein by reference.[13]
                Filed
                    as an Exhibit to
                    Registrant’s Form 8-K dated April 26, 2007 and incorporated herein by
                    reference.[14]
                Filed
                    as an Exhibit to
                    Registrant's Annual Report on Form 10-K for fiscal year ended
                    September
                    30, 1997 and incorporated herein by reference.[15]
                Filed
                    as an Exhibit to
                    Registrant’s Annual Report on Form 10-K for fiscal year ended September
                    30, 2001 and incorporated herein by reference.[16]
                Filed
                    as an Exhibit to
                    Registrant’s Annual Report on Form 10-K for fiscal year ended September
                    30, 2002 and incorporated herein by reference.[17]
                Filed
                    as an Exhibit to
                    Registrant’s Annual Report on Form 10-K for fiscal year ended September
                    30, 2003 and incorporated herein by reference.[18]
                Filed
                    as an Exhibit to
                    Registrant’s Annual Report on Form 10-K for fiscal year ended September
                    30, 2004 and incorporated herein by
                    reference.