<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

                                   FORM 10-KSB

                   [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR
                    15 (d) OF THE SECURITIES EXCHANGE ACT OF
                                      1934


                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

              [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                         COMMISSION FILE NUMBER 0-22081
                      -------------------------------------

                           ELECTRONIC PROCESSING, INC.
                 (Name of small business issuer in its charter)

           Missouri                                     48-1056429
   (State or Other Jurisdiction of        (IRS Employer Identification Number)
   Incorporation or Organization)

                501 Kansas Avenue, Kansas City, Kansas 66105-1300
                     (Address of Principal Executive Office)
                                  913-321-6392
                           (Issuer's Telephone Number)

         Securities Registered Under Section 12(b) of the Exchange Act:

                                      None

         Securities Registered Under Section 12(g) of the Exchange Act:

                         Common Stock, Without Par Value

Check whether the issuer (1) filed all reports required to be filed by 
Section 13 or 15(d) of the Exchange Act during the past 12 months and (2) has 
been subject to such filing requirements for the past 90 days. Yes X No __

Check if disclosure of delinquent filers in response to Item 405 of 
Regulation S-B is not contained in this form, and no disclosure will 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-KSB or any amendment to this Form 10-KSB. [X]

Revenues for the fiscal year ended December 31, 1997  are $8,389,144

The aggregate market value of the Common Stock held by non-affiliates (based 
upon the last reported price on the bid-ask average on the Nasdaq SmallCap 
Market-TM-) on March 20, 1998 was approximately $22,800,000. As of March 20,
1998 there were 3,419,974 shares of Common Stock outstanding.


                         DOCUMENTS INCORPORATED BY REFERENCE
                                        NONE



<PAGE>

                                        PART I

ITEM 1.  DESCRIPTION OF BUSINESS

Electronic Processing, Inc. ("EPI" or the "Company") serves a national client 
base with specialty products that facilitate financial and administrative 
aspects of bankruptcy management, including legal noticing, claims 
management, funds distribution and government reporting. The Company 
develops, markets, licenses and supports internally developed and proprietary 
software products primarily to trustees under Chapter 7 and Chapter 13 of the 
Bankruptcy Code of 1978, as amended (the "Bankruptcy Code"), as well as to 
other users of the federal bankruptcy system, including trustees in Chapter 
11 and Chapter 12. EPI assimilates software development, network operations, 
value-added services and comprehensive post-installation support into an 
integrated environment that offers clients a high level of coordinated 
support.

Today, the Company's business is centered around two primary software 
products: TCMS (Trustee Case Management System) for Chapter 7 trustees and 
CasePower for Chapter 13 trustees. Both products are compatible with current 
computer technologies and offer an array of bankruptcy-specific functions 
that are useful in the daily operations of a bankruptcy trustee's office. The 
Company also continues to support a predecessor product for Chapter 13 
trustees that is founded on AS/400 technology.

INDUSTRY OVERVIEW

Title 11 of the U.S. Code establishes federal law governing bankruptcies. The 
participants in a bankruptcy proceeding include the debtor, the creditors, 
and a trustee, as well as the presiding judge. The trustee acts as an 
intermediary between the debtor and the creditors and is responsible for 
administering the bankruptcy case. The end user clients of the Company's 
products are trustees, not individual debtors or creditors.

The United States Trustee's office, a division of the Justice Department, 
oversees bankruptcy trustees and establishes administrative rules concerning 
trustees' activities. Local bankruptcy judges also direct trustees' 
activities and have a high level of authority in a bankruptcy case. The 
trustees' activities are guided by the Bankruptcy Code, the Federal Rules of 
Bankruptcy Procedure, the trustee handbooks developed by the United States 
Trustee, and local rules established by the courts.

There are five chapters of the Bankruptcy Code that define various 
configurations of bankruptcy cases:

     Chapter 7 - Liquidation

     Chapter 9 - Reorganization of Municipality

     Chapter 11 - Reorganization of Corporation

     Chapter 12 - Reorganization of Family Farm

     Chapter 13 - Reorganization of Individual Debt

The Company believes that Chapter 7 and Chapter 13 are the most attractive 
sectors in the bankruptcy industry to which it can provide service and has 
developed a strategic plan accordingly. In the aggregate, Chapters 9, 11, and 
12 represent only approximately 1% of overall national bankruptcy filings.

Chapter 7 and Chapter 13 bankruptcies serve different purposes and require 
different services and information. Chapter 7 of the Bankruptcy Code provides 
for liquidation of the assets of the debtor (which can be an individual, 
partnership or corporation) and for the disbursement of the resulting cash 
proceeds to the creditors. Chapter 13 provides for adjustments of debt 
whereby the debtor makes regular payments to the trustee, who in turn 
disburses the collected funds to the creditors. Assets are not liquidated in 
Chapter 13.

Bankruptcy trustees in Chapters 7 and 13 are appointed by the United States 
Trustee. A United States Trustee is appointed in most federal court districts 
and generally has responsibility for overseeing the integrity of the 
bankruptcy system. Bankruptcy trustees in Chapter 7 and Chapter 13 cases are 
charged with managing the administrative aspects of liquidation or 
reorganization bankruptcies. The trustee's primary responsibilities include 
collecting funds from the debtor (Chapter 13) or liquidating the debtor's 
assets (Chapter 7), distributing the collected funds to creditors pursuant to 
the orders of the bankruptcy court, and preparing regular status reports, 
including financial updates, for the United States Trustee and for the 
bankruptcy court. Trustees typically are attorneys or certified public 
accountants and manage many different bankruptcy cases simultaneously. A 
trustee client uses an EPI product to manage an entire caseload; the Company 
does not contract with trustees to manage specific individual cases. The 
Company estimates that Chapter 13


<PAGE>

trustees typically manage over one thousand cases simultaneously and that 
Chapter 7 trustees can manage over one hundred cases simultaneously. It is 
possible for a given individual trustee to have caseloads in both Chapter 7 
and Chapter 13 bankruptcies, but normally a trustee will specialize in one or 
the other.

     CHAPTER 7 BANKRUPTCY TRUSTEES

For Chapter 7 liquidation bankruptcy, each region of the country has a 
rotating "panel" of trustees. Because Chapter 7 comprises the overwhelming 
majority of bankruptcies, multiple trustees are required in most parts of the 
country to accommodate the caseload. As assets are liquidated and the first 
funds are received in each asset case, the trustee opens bank accounts for 
the case. In Chapter 7, each case must have its own bank accounts so that 
interest earned can be segregated. Because asset liquidation and litigation 
regarding the case may be a lengthy process, the trustee will deposit cash 
proceeds into an interest-bearing account for the benefit of the creditors 
who will eventually receive distributions. Typically, the trustee makes a 
single distribution at the conclusion of the case. The administration of a 
Chapter 7 case can take several years.

     CHAPTER 13 BANKRUPTCY TRUSTEES

There are fewer filings in Chapter 13 (individual debt reorganization) than 
in Chapter 7 (liquidation), so most areas of the country have a single 
standing Chapter 13 trustee who administers all Chapter 13 filings rather 
than the "panel" configuration associated with Chapter 7. In certain areas of 
the country, the trustee is responsible for sending various notices to the 
debtor, debtor's attorney, clerk of the court, United States Trustee and each 
creditor indicating that the case has been filed. Because the debtor's assets 
are not liquidated under Chapter 13, the trustee analyzes the debtor's income 
and expenses and directs the debtor to make regular cash payments to the 
trustee according to the court-approved plan of reorganization. Each month, 
the trustee disburses the monies received from the debtor to eligible 
creditors according to the plan. The trustee must provide regular status 
reports to the United States Trustee. Every six months, the trustee must also 
prepare a detailed ledger of financial activity in each bankruptcy case and 
mail it to each debtor and debtor's attorney. Chapter 13 reorganizations 
usually last between thirty-six and sixty months. Upon conclusion of the 
case, the trustee must submit a final report to the bankruptcy court 
outlining the financial history of the case.

        MARKET CONDITIONS

The Company estimates that there are approximately $3 billion in cash 
proceeds being administered in Chapter 7 by approximately 1,500 trustees. The 
Company estimates there are in excess of 550,000 cases pending in Chapter 13 
managed by approximately 180 standing Chapter 13 trustees.

        MARKET CONDITIONS IN CHAPTER 7

The Company believes that there are favorable market conditions for its 
Chapter 7 product and services. The Company has successfully entered key 
strategic markets, including California and New York, two of the largest 
national bankruptcy markets, with the TCMS Release 2.0, the second major 
Windows95-based version of the software. In September, 1997, the Company 
announced that it was finalizing development of TCMS Version 3.0, which 
incorporates substantial new features and technologies and projected a first 
quarter 1998 general release date. Additionally, the Company announced the 
development of Bankruptcy Link,-Registered Trademark- an Internet-based 
environment that will allow bankruptcy professionals to share information 
electronically.

<PAGE>

     MARKET CONDITIONS IN CHAPTER 13

For the twelve-month period ended September 30, 1997, Chapter 13 filings 
increased 18% according to the Administrative Office of U.S. Courts. The 
Company believes that market conditions are favorable for growth in the 
Chapter 13 sector because of nationally growing caseloads and the 
availability of the CasePower product for Windows95/Windows NT.

PRODUCTS

The Company's products include TCMS (Trustee Case Management System) for 
Chapter 7, CasePower for Chapter 13, and Midrange for Chapter 13. The TCMS 
product can also track Chapter 11 cases, and the Midrange/CasePower products 
can also track Chapter 12 cases. The Company produces its software 
applications internally with a full time staff of professional software 
developers.

CHAPTER 7 PRODUCTS

The Company's Chapter 7 product assists trustees to manage liquidation 
bankruptcies, whereby the trustee liquidates the debtor's assets and 
disburses the resulting funds to creditors.

     CURRENT CHAPTER 7 PRODUCT: TCMS

TCMS (Trustee Case Management System) is a Windows95/Windows NT based package 
of proprietary software, computer equipment and support services offered to 
Chapter 7 trustees through a national marketing arrangement with NationsBank. 
TCMS provides easy-to-use modules for asset management, financial record 
keeping and claims administration. An electronic banking link developed by 
the Company gives users an automated mechanism for entering banking 
transactions, and an electronic court interface allows users to download 
claim information into the trustee's database automatically.

A typical TCMS system is provided to the end-user trustee client without 
direct charge and includes the following products and services: (i) a license 
to use the proprietary TCMS software and subsequent upgrades; (ii) computer 
hardware, laser printer, modem, tape backup and operating software, which are 
returned to EPI if the trustee's bankruptcy deposits leave the bank 
designated by EPI; (iii) database conversion from previous computer system; 
(iv) configuration and installation of hardware by EPI personnel; (v) on-site 
software training; (vi) customization of reports conforming to local 
bankruptcy court regulations; (vii) toll-free customer service; and (viii) 
remote diagnostics. The Company's revenues are based upon the total funds 
kept on deposit. See "Pricing -- Chapter 7 Pricing."

     SOFTWARE FEATURES

The TCMS software streamlines administrative tasks associated with Chapter 7 
liquidation bankruptcies. Most trustees use the system on a daily basis for 
record keeping and to meet reporting requirements.

Asset Management. As assets are identified, the trustee enters them into TCMS 
through a convenient spreadsheet-like interface. The system automatically 
tracks the remaining values of assets as they are liquidated and provides a 
summary overview of properties within each case.

Banking. An online banking module developed by the Company allows the trustee 
to open and close bank accounts electronically as well as to enter funds 
transfers. Simple to sophisticated financial transactions can be recorded on 
an online computer screen that resembles a personal check register. The 
system prepares MICR encoded laser checks and deposit slips on demand.

Claims Administration. TCMS categorizes each claim by class and desired 
priority level for distribution. Distribution checks are calculated and 
printed automatically, and all financial ledgers are updated. An extensive 
library of financial reports provides detailed information for each case. A 
proprietary feature allows information to be downloaded from the court into 
the trustee's database.

Calendaring and Docketing. Key events in asset cases are posted automatically 
to a central trustee's calendar that can be printed regularly. The software 
automatically schedules tasks required to close cases in a timely fashion.

Customized District Reports. EPI develops custom tailored final reports and 
final accounts for each district where TCMS is marketed. Preparing these 
documents has traditionally been one of the most time consuming tasks in 
Chapter 7 case administration. With TCMS, trustees can quickly generate a 
fully formatted, polished report with all figures calculated and filled in.

180 Day Reports. The United States Trustee requires the trustee to submit 
detailed status reports for each case every six months in a very specific 
reporting format. TCMS prints these reports in compliance with the most 
recent regulations.


<PAGE>

CHAPTER 13 PRODUCTS

The Company's Chapter 13 products assist trustees to manage individual 
reorganization bankruptcies, whereby the debtor makes payments to the 
trustee, who in turn disburses the funds to creditors:

     CURRENT CHAPTER 13 PRODUCTS: CASEPOWER AND MIDRANGE

CasePower is based on Windows95/NT and Oracle technology, while Midrange is 
based on IBM mini-computer AS/400 technology. The CasePower product, on the 
market since 1997, replaces the older Midrange product. The Company continues 
to support the Midrange product as existing customers are converted to the 
CasePower environment. See Year 2000 discussion.

Both products assist Chapter 13 trustees managing databases containing from 
approximately 500 to over 10,000 active bankruptcies simultaneously. Because 
Chapter 13 bankruptcy cases typically undergo thirty-six to sixty consecutive 
monthly distributions, Chapter 13 is considerably more transaction intensive 
and paperwork intensive than Chapter 7, where a single distribution is 
normally made at the end of the case. Chapter 13 trustee clients out-source 
various activities to EPI to facilitate the preparation of large output jobs.

Processing and report printing functions are divided between the client-site 
and EPI's data center in Kansas City. Both products are installed in a 
multi-user configuration that allows each member of the trustee's office 
staff to access the database and enter transactions throughout the business 
day. The trustee's live database resides in his or her office. The size of a 
Chapter 13 trustee's office staff varies proportionally with the caseload 
managed.

The trustee's office staff enters financial information into CasePower or 
Midrange, including cash receipts, financial adjustments and payment 
instructions for each claim. EPI's proprietary program logic interprets a 
wide variety of court-directed payment scenarios and consolidates them into 
easy-to-understand codes that are entered by users. Daily reports and 
customized inquiries can be requested and printed inside the trustee's office.

At the end of each month, the trustee forwards a copy of the database to EPI 
in Kansas City. EPI prints distribution checks for each eligible creditor and 
prepares detailed laser output for every case in the database as a billable 
service. Checks and reports are shipped overnight back to the trustee for 
inspection, approval and mailout.

In certain parts of the country, the Chapter 13 trustee is responsible for 
noticing parties-in-interest of key developments in each bankruptcy case, 
including the setting of the mandatory first meeting of creditors. The 
Company's products automate this meeting notice for the trustees. Each 
evening, EPI's data center receives a modem transmission of daily noticing 
activity from the client-site. EPI prints and reviews the notices, inserts 
them into envelopes and mails them the next day. Trustees are billed directly 
for noticing services based upon the number of documents generated.

Some bankruptcy courts require additional information, such as a photocopy of 
the plan of reorganization, to be included with the notice. EPI offers such 
document reproduction and assembly services to trustees at an additional 
charge.

     SOFTWARE FEATURES

The CasePower and Midrange software help trustees manage administrative 
aspects of Chapter 13 bankruptcy. The trustee and office staff typically use 
the system each day to monitor activity in their caseload.

Noticing. When new cases are entered on the system, the EPI data center in 
Kansas City can extract relevant information and prepare mandatory first 
meeting of creditors notices for each case. Subsequent forms, such as reset 
notices, correcting notices, motions to allow claims, motions to allow 
additional claims and motions to dismiss, can also be selected and prepared 
through the system.

Case Management. The products store and monitor key dates, names, addresses 
and text notes for every case in the system. A variety of retrieval 
mechanisms enable users to view case information from various perspectives.

Financial History. The office staff enters cash receipts and financial 
adjustments in the system as part of the daily bank deposit. The software 
updates the balances in each case and summarizes the day's financial 
transactions. Each month, the software prepares a single-page summary of the 
receipts and disbursements in every case.

Monthly Distribution. The software's advanced distribution logic interprets 
payment orders from the bankruptcy court. Several different payment 
methodologies (e.g., pro rata, fixed monthly payment, per capita, etc.) may 
be spread over 99 separate distribution priority levels. Individual checks or 
voucher checks can be printed for each creditor. Claims having objections 
filed on them can continue to accrue distributions without releasing funds 
until the objection has been settled.

Inquiry. Chapter 13 offices receive a multitude of outside inquiries each day 
from creditors' and debtors' attorneys. The software provides instantaneous 
inquiry access to the financial status of each debtor and claim in the 
system. An optional creditor dial-in system gives outside parties inquiry 
only access to the system through a modem connection.


<PAGE>

CHAPTER 7 MARKETING ARRANGEMENT

On November 22, 1993, the Company established an exclusive national marketing 
arrangement with NationsBank of Texas, N.A. ("NationsBank"), a subsidiary of 
NationsBank Corporation, for its Chapter 7 products. In this marketing 
arrangement, EPI and NationsBank promote products and services to trustees in 
all states. Because Chapter 7 trustees are discouraged from incurring direct 
costs for computer services, it is essential for EPI to align with a bank or 
series of banks to earn revenues in Chapter 7. NationsBank Corporation, 
headquartered in Charlotte, North Carolina, is the fourth largest national 
banking company.

The agreement with NationsBank does not have an expiration date. The 
termination clause stipulates that either party must provide the other 90 
days' notice if it wishes to end the agreement. The Company believes its 
representatives have developed positive, close working relationships with 
their counterparts at NationsBank, and the Company believes that it will 
maintain this relationship. However, were the relationship with NationsBank 
to end, there is no assurance that the Company would be able to establish a 
new banking relationship or series of relationships with comparable terms.

EPI holds the primary responsibility for developing all facets of the TCMS 
system and for driving the national sales and marketing effort. NationsBank 
personnel provide additional assistance in the marketing effort and are 
responsible for administering the banking services provided to the trustee 
clients.

Through this arrangement, EPI has a continual revenue stream from its Chapter 
7 operations. The structure of the marketing alliance assists NationsBank to 
build its deposit base in this market.

The Company continues to support a limited number of trustee relationships 
through other banks that predate the exclusive agreement with NationsBank.

PRICING

     CHAPTER 7 PRICING

Unlike Chapter 13, the application of Chapter 7 bankruptcy regulations has 
the practical effect of discouraging trustees from incurring direct 
administrative costs for computer expenses. All nationally marketed Chapter 7 
systems are provided to trustees without direct billing to the trustee 
because of traditional market conventions. Clients typically choose systems 
based upon the capability of the software and the quality of technical 
support services. EPI has aligned with NationsBank to provide computer 
services to Chapter 7 trustees without direct charges to the Chapter 7 
trustee under an arrangement whereby (1) EPI licenses its proprietary 
software to the trustee and furnishes hardware, conversion services, training 
and customer support, all at no cost to the trustee, (2) the trustee agrees 
to deposit with NationsBank the cash proceeds from all asset liquidations; 
and (3) NationsBank pays the Company a fee each month based upon the total 
deposits in the Chapter 7 bankruptcy portfolio.

     CHAPTER 13 PRICING

The Company typically receives an initial licensing fee and conversion charge 
from the Chapter 13 trustee. It also receives monthly fees from each Chapter 
13 trustee client based on the total number of cases in that trustee's 
database and the number of noticing documents generated. Variables affecting 
pricing for EPI Chapter 13 clients include the number of cases in the 
database, the type of equipment installed, the volume of noticing to be out 
sourced to EPI, and the level of support service selected by the trustee. EPI 
prepares individualized price quotes for each client.

Sales and Distribution

The Company's products and services are marketed directly to trustees through 
on-site sales calls by the Company's internal sales department and, in the 
case of Chapter 7, by supporting representatives of NationsBank. Trustees 
make their own decisions for software and service providers. The Company 
believes that the most important factors in attracting business are the 
quality of the software products and the quality of the post-installation 
support. The Company estimates that the typical cycle for Chapter 7 business 
lasts between two and four months.

The Company's Chapter 7 and Chapter 13 service agreements with trustees 
typically include provisions for (i) descriptions of the products and 
services included in the agreement, (ii) a limited warranty and 
indemnification clauses, (iii) the trustee's agreement to deposit funds with 
NationsBank (applicable in Chapter 7 only), and (iv) termination information.

The Executive Office of the United States Trustee in Washington, D.C., 
regularly issues a directory of all current bankruptcy trustees. The Company 
obtains this directory as it is issued and uses it as its prospect list.

The Company's sales representatives attend approximately eight bankruptcy 
trade shows annually. The Company conducts direct mail campaigns and 
advertises in trade journals to heighten its exposure and to stimulate sales.


<PAGE>

COMPETITION

The Company works in an industry with a limited number of Chapter 7 and 
Chapter 13 trustees. The Company estimates that there are in excess of 
550,000 pending Chapter 13 cases being managed by approximately 180 Chapter 
13 trustees, and that there is between $2 and $3 billion on deposit by 
approximately 1,200 Chapter 7 trustees. There are several companies in the 
market all competing for sales from this finite group of customers, and some 
of the Company's competitors have substantially greater financial and 
marketing resources than does the Company. For its Chapter 7 product, the 
Company competes with the Chase Manhattan Bank and Union Bank of California, 
as well as other regional competitors in selected markets. For its Chapter 13 
product, the Company competes with DCI Corporation of Memphis, Tennessee, a 
private company, and other competitors. Although the Company believes that 
the requisite detailed knowledge of the bankruptcy system makes it difficult 
for new competitors to successfully enter the market, and there are presently 
a limited number of firms that offer services that directly compete with the 
Company's, there can be no assurance that other firms with resources 
significantly greater than the Company's will not enter the Company's 
industry. The Company's future financial performance will depend on its 
ability to maintain existing customer accounts and to attract business from 
customer accounts which are currently using a competitor's software product.

PROPRIETARY RIGHTS

Historically, the Company has not protected its intellectual property rights 
through patents or formal copyright registration. It has relied on trade 
secret, copyright, and trademark law and non-disclosure agreements to 
establish and protect its proprietary rights in its products. The Company 
believes, however, that its financial performance will depend more upon the 
innovation, technological expertise and marketing abilities of its associates 
than upon such protection.

There is no assurance that the Company will be able to protect its trade 
secrets or that others will not independently develop substantially 
equivalent proprietary information and techniques or otherwise gain access to 
the Company's trade secrets. There is no assurance that intellectual property 
laws will protect the Company's intellectual property rights. In addition, 
litigation may be necessary to enforce the Company's intellectual property 
rights, to protect the Company's trade secrets, to determine the validity and 
scope of the proprietary rights of others or to defend against claims of 
infringements. Such litigation could result in substantial costs and 
diversion of management and other resources and could have a material adverse 
effect on the Company's business, financial condition and results of 
operation.

EMPLOYEES

The Company employs approximately 70 full-time employees and believes its 
relationships with its employees are good.


ITEM 2.  PROPERTIES

The Company's corporate offices are located in a 30,000-square-foot facility 
leased in Kansas City, Kansas. In connection with corporate growth and the 
development of new products, this facility has been recently renovated with 
additional office space. The Company believes that this facility will be 
adequate for use for at least the next full year. The leased facility is 
partially owned by a related party. See Item 12 "Certain Relationships and 
Related Transactions."


ITEM 3.  LEGAL PROCEEDINGS

The Company presently is not a party to any material litigation, although it 
occasionally becomes involved in litigation arising in the normal course of 
business.


ITEM 4.  SUBMISSION OF MATTERS

No matters were submitted in the fourth quarter to a vote of security holders.


<PAGE>

                                   PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.

MARKET INFORMATION

The Comnpany's Common Stock is traded on the Nasdaq SmallCap Market-TM- under 
the symbol "EPIQ." Trading in the Common Stock commenced on Febrary 4, 1997, 
the dat on which the Company closed the initial public offering of its Common 
Stock. Accordingly, there was no trading in the Common Stock during 1996. The 
following table shows the reported high and low sales prices for the common 
stock for the calendar quarters of 1997 as reported by Nasdaq:

<TABLE>
<CAPTION>
                                                              1997
                                                              ----
                                                      HIGH              LOW
                                                      ----              ---
         <S>                                          <C>              <C>
         First Quarter                                $4               $3
         Second Quarter                                4 7/8            3
         Third Quarter                                 7 1/8            4 1/2
         Fourth Quarter                                12 1/8           6 1/4

</TABLE>

HOLDER

As of December 19, 1997, there were approximately 1,200 holders of record of 
the Common Stock.

DIVIDENDS

The Company elected to be treated as an S Corporation for federal and certain 
 state income tax purposes commencing July 15, 1988. Unlike a C Corporation, 
an  S Corporation is generally not subject to income tax at the corporate 
level.  Instead, the S Corporation's income generally passes through to the  
stockholders and is taxed on their personal income tax returns. The Company  
terminated its status as an S Corporation and became a C Corporation as of  
February 4, 1997 (the "Termination Date"). After the Termination Date, the  
Company will no longer be treated as an S Corporation and will, accordingly, 
be  fully taxable under federal and state income tax laws. The Company paid a 
final  S Corporation distribution to present stockholders following 
termination of the  Company's S Corporation status. It was previously agreed 
that this final S  Corporation distribution would not exceed $250,000 and 
would represent the  company's previously undistributed earnings only since 
January 1, 1996 through  the termination date. The amount of this final S 
Corporation distribution was  $250,000 and it was paid on March 6, 1997.

The Company does not expect to declare or pay any other cash dividends in the 
foreseeable future. The Company currently intends to retain any earnings for 
use in the operation and expansion of its business. The payment of future 
dividends is within the discretion of the Board of Directors and will depend 
upon the Company's future earnings, if any, its capital requirements, 
financial condition and other relevant factors.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Operating revenues for 1997 were $8,389,144 compared to $6,319,192 for 1996, 
an increase of 32.8% . Chapter 7 sales increased $1,851,993 or 130.9% between 
years. The Company has an exclusive national marketing arrangement with 
NationsBank. The bank pays EPI a monthly fee based on the total dollar amount 
of Chapter 7 deposits at NationsBank and a fee for each new account 
installed. The increase in revenue was due in part to the growth in new 
Chapter 7 trustee business for the Company resulting in higher monthly fees 
paid to EPI. Chapter 13 revenue in 1997 compared to 1996 increased $479,392 
or 10.79%. The additional revenue experienced in 1997 was due to an increase 
in caseloads managed by Chapter 13 trustee clients. Also, the number of new 
bankruptcy filings in 1997 was greater than in 1996 resulting in increased 
legal noticing revenue of $154,233 or 10.3% which is a part of Chapter 13 
revenue.

Processing costs increased to $2,946,542 during fiscal 1997 from $2,498,109 
or a 17.9 % increase. The increase in 1997 resulted principally from an 
increase in customer service expense resulting from hiring additional 
trainers, hardware


<PAGE>

installers and other customer service functions to support the growth in 
Chapter 7 sales. Depreciation and amortization increased to $1,051,303 during 
fiscal 1997 from $810,939 in 1996 or a 29.6 % increase. The increase related 
primarily to the purchase of computer equipment for the installations of the 
company's Chapter 7 product. Total cost of goods sold and direct costs 
increased to $3,997,845 during fiscal 1997 from $3,309,048 in 1996 or a 20.8% 
increase. The cost of goods sold and direct costs was 47.7% of total revenue 
in 1997 and 52.4% of total revenue in 1996.

Gross profit increased 45.9% or $1,381,155 to $4,391,299 in 1997 compared to 
$3,010,144 for 1996. Gross profit as a percentage of operating revenues 
increased to 52.3% for the 1997 period from 47.6% for the 1996 period due 
primarily to TCMS (Trustee Case Management System) for Chapter 7, which has 
higher gross margin, comprising a greater percentage of operating revenues in 
1997.

Operating expenses as a percentage of operating revenue were 38.2% for the 
twelve months ended December 31, 1997 compared to 38.0% for 1996. Sales and 
marketing expenses, which include sales and marketing salaries, trade show 
costs, and advertising costs, were $1,006,945 in 1997 compared to $714,067 in 
1996. The increase in sales and marketing expenses was attributable to the 
marketing of the Windows95/Windows NT version of TCMS and CasePower.

Income from operations increased 93.7% to $1,182,733 in 1997, compared to 
$610,759 for 1996, principally due to increased sales and higher gross profit 
margins.

Other income (expense) which includes interest income and interest expense 
was ($92,645) in 1997 compared to ($276,806) in 1996. This reduction in net 
interest expense was due to interest income from the investment of the net 
proceeds from the sale of 1,600,000 shares of common stock from the February 
1997 public offering and the reduction in interest expense due to the debt 
retired at the time of the public offering.

In connection with the issuance of common stock to the public, the Company 
changed its income tax status to a C corporation. At such time, the company 
recorded a tax provision of $272,900 to account for the effects of temporary 
differences between assets and liabilities presented on the financial 
reporting bases and the income tax basis. As required by FASB#109, this 
amount is also included in the 1997 provision for income taxes in the 
accompanying statements of income.

Pro Forma earnings information reflects the effects of corporate income taxes 
on historical earnings as if the Company had been subject to income taxes for 
all the periods presented and also eliminates the effect of the above tax 
provision of $272,900 resulting from the initial conversion to a C 
corporation. The Company's effective tax rates, on a pro-forma basis, were 
41% and 43% for 1997 and 1996, respectively.

For the twelve months ended December 31, 1997, the Company reported pro forma 
net income of $638,399 compared to pro forma net income of $189,953 for the 
twelve months ended December 31, 1996.

CAPITAL RESOURCES AND LIQUIDITY

The Company's liquidity position remains strong with total cash and cash 
equivalents of $1,835,233 at December 31, 1997 and working capital of 
$1,775,844 . On February 4, 1997 , the Company sold 1,600,000 shares of 
common stock in a public offering. The proceeds of this sale, net of 
underwriting discounts and commissions and expenses, were $4,493,460.

The Company generated net cash from operations of $1,608,257 during the 
twelve months ended December 31, 1997 representing principally net income 
before deferred taxes of $667,128 plus depreciation and amortization of 
$1,158,184 and an increase of $100,157 in accounts payable and accrued 
expense offset primarily by an increase in accounts receivable of $316,194. 
The outstanding accounts receivable balance has increased primarily due to 
the growth in revenue.

The Company's has a $500,000 operating line of credit from a financial 
institution, of which $1,000 was outstanding at December 31, 1997. The 
Company has two equipment lines of credit, one for $500,000 and another for 
$1,000,000. The balance outstanding on the equipment lines of credit totaled 
$904,491 at December 31, 1997. The Company anticipates no difficulties in 
obtaining a renewal or extension of the loans when they become due in June of 
1999 and August of 1998.

The Company paid a final S Corporation distribution of $250,000 to the 
stockholders following the termination of the Company's S Corporation status. 
In addition, the Company incurred expenditures for software development costs 
totaling $498,392 for the twelve months ending December 31, 1997. The Company 
invested in property and equipment


<PAGE>

totaling $2,180,517 in 1997. The company anticipates financing its 
operations, capital expenditures and software expenditures from internally 
generated funds and through bank borrowings.

YEAR 2000

The "year 2000" issue is the result of computer programs being written using 
two digits rather than four to define the applicable year.

The Company has conducted a comprehensive review of its products and services 
and has made modifications to ensure that the computer systems as so modified 
will operate correctly across the century boundary. The expenses associated 
with this project are being expensed as incurred and are not expected to be 
material.

FORWARD-LOOKING STATEMENTS

This Form 10-KSB contains forward-looking statements that involve a number of 
risks and uncertainties. Among the important factors that could cause actual 
results to differ materially from those indicated by such forward-looking 
statements are a significant change in on-going bankruptcy filings in the 
United States, legislative or regulatory changes affecting bankruptcy filings 
or the way bankruptcy trustees carry out their duties, entry into the market 
of new competitors or development by competitors of new or superior product 
technologies and other risks detailed from time to time in the company's 
reports and registration statements filed with the Securities and Exchange 
Commission.


ITEM 7.  FINANCIAL STATEMENTS

Following are the report of Baird, Kurtz & Dobson, Kansas City, Missouri, 
independent auditors for the Company, and the financial statements of the 
Company as of and for the 12 month periods ended December 31, 1997 and 1996.


<PAGE>


                         INDEPENDENT ACCOUNTANTS' REPORT



Board of Directors
Electronic Processing, Inc.
Kansas City, Kansas


     We have audited the accompanying balance sheets of ELECTRONIC 
PROCESSING, INC. as of December 31, 1997 and 1996, and the related statements 
of income, changes in 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 generally accepted auditing 
standards. 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. 
An audit also includes 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 financial statements referred to above present 
fairly, in all material respects, the financial position of ELECTRONIC 
PROCESSING, INC. as of December 31, 1997 and 1996, and the results of its 
operations and its cash flows for the years then ended in conformity with 
generally accepted accounting principles.






Kansas City, Missouri
February 12, 1998



<PAGE>


                         ELECTRONIC PROCESSING, INC.

                                BALANCE SHEETS

                         DECEMBER 31, 1997 AND 1996


                                    ASSETS

<TABLE>
<CAPTION>
                                                                1997               1996
                                                            -----------            -----
<S>                                                         <C>                 <C>

                        CURRENT ASSETS
                        --------------
Cash and cash equivalents                                     $1,835,233         $     4,882
Accounts receivable, trade, less allowance for
  doubtful accounts of $5,000                                  1,114,424             798,230
Prepaid expenses and other                                       159,845             153,907
Deferred income taxes                                             18,823
                                                              ----------          ----------
           Total Current Assets                                3,128,325             957,019
                                                              ----------          ----------
PROPERTY AND EQUIPMENT, At cost
  Furniture and fixtures                                         551,832             390,599
  Computer equipment                                           5,152,228           3,767,008
  Office equipment                                               325,429             297,971
  Leasehold improvements                                         834,806             247,494
  Transportation equipment                                        14,969              14,969
                                                              ----------          ----------
                                                               6,879,264           4,718,041
  Less accumulated depreciation                                3,338,301           2,520,613
                                                              ----------          ----------
                                                               3,540,963           2,197,428
                                                              ----------          ----------
SOFTWARE DEVELOPMENT COSTS, Net of
  amortization                                                 1,397,375           1,234,584
                                                              ----------          ----------
OTHER ASSETS
  Excess of cost over fair value of net assets acquired           61,486              63,499
  Deferred stock issuance costs                                                      271,563
  Other                                                           32,819              42,145
                                                              ----------          ----------
                                                                  94,305             377,207
                                                              ----------          ----------
                                                              $8,160,968          $4,766,238
                                                              ----------          ----------
                                                              ----------          ----------

</TABLE>






See Notes to Financial Statements

<PAGE>

                     LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                   1997                1996
                                                                              -------------       ------------
<S>                                                                           <C>                 <C>
               CURRENT LIABILITIES
               -------------------
  Note payable -- line of credit                                               $      1,000       $    500,000
  Current maturities of long-term debt                                              626,665          1,008,889
  Accounts payable                                                                  491,217            534,519
  Accrued expenses                                                                  200,639             90,140
  Income taxes payable                                                               32,960
                                                                               ------------       ------------
           Total Current Liabilities                                              1,352,481          2,133,548
                                                                               ------------       ------------
LONG-TERM DEBT                                                                      889,046          1,242,660
                                                                               ------------       ------------
DEFERRED INCOME TAXES                                                               320,452
                                                                               ------------       ------------
SUBORDINATED DEBT                                                                                      400,000

STOCKHOLDERS' EQUITY
  Common stock, $.01 par value; authorized 10,000,000 shares; issued and
    outstanding -- 3,400,000 and 1,800,000
    shares at 1997 and 1996, respectively                                            34,000             18,000
  Additional paid-in capital                                                      5,202,000            282,000
  Retained earnings                                                                 362,989            690,030
                                                                               ------------       ------------
                                                                                  5,598,989            990,030
                                                                               ------------       ------------
                                                                               $  8,160,968       $  4,766,238
                                                                               ------------       ------------
                                                                               ------------       ------------

</TABLE>


<PAGE>

                         ELECTRONIC PROCESSING, INC.

                             STATEMENTS OF INCOME

                   YEARS ENDED DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>
                                                          1997                   1996
                                                        ----------           -----------
<S>                                                     <C>                  <C>
OPERATING REVENUES                                      $8,389,144           $ 6,319,192
                                                        ----------           -----------
COST OF GOODS SOLD AND DIRECT COSTS
  Processing costs                                       2,946,542             2,498,109
  Depreciation and amortization                          1,051,303               810,939
                                                        ----------           -----------
                                                         3,997,845             3,309,048
                                                        ----------           -----------
GROSS PROFIT                                             4,391,299             3,010,144
                                                        ----------           -----------
OPERATING EXPENSES
  General and administrative                             3,101,685             2,309,491
  Depreciation and amortization                            106,881                89,894
                                                        ----------           -----------
                                                         3,208,566             2,399,385
                                                        ----------           -----------
INCOME FROM OPERATIONS                                   1,182,733               610,759
                                                        ----------           -----------
OTHER INCOME (EXPENSE)
  Interest income                                           66,667                    48
  Interest expense                                        (160,393)             (280,158)
  Other                                                      1,081                 3,304
                                                        ----------           -----------
                                                           (92,645)             (276,806)
                                                        ----------           -----------
INCOME BEFORE INCOME TAXES                               1,090,088               333,953
PROVISION FOR INCOME TAXES                                 724,589
                                                        ----------           -----------
NET INCOME                                              $  365,499           $   333,953
                                                        ----------           -----------
                                                        ----------           -----------
EARNINGS PER SHARE INFORMATION
  Basic                                                    $   .11
                                                           -------
                                                           -------
  Diluted                                                  $   .11
                                                           -------
                                                           -------
UNAUDITED PRO FORMA DATA
  Income before income taxes                            $1,090,088           $   333,953
  Provision for income taxes                               451,689               144,000
                                                        ----------           -----------
PRO FORMA NET INCOME                                    $  638,399           $   189,953
                                                        ----------           -----------
                                                        ----------           -----------
PRO FORMA PER SHARE INFORMATION
  Basic                                                    $   .20                $  .11
                                                           -------                ------
                                                           -------                ------
  Diluted                                                  $   .19                $  .11
                                                           -------                ------
                                                           -------                ------

</TABLE>

See Notes to Financial Statements

<PAGE>

                          ELECTRONIC PROCESSING, INC.

                STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                    YEARS ENDED DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>

                                                                                         Additional
                                                                            Common        Paid-In         Retained
                                                              Total         Stock           Capital       Earnings
                                                         ----------        -------      ------------     ----------
<S>                                                      <C>               <C>          <C>              <C>
BALANCE, DECEMBER 31, 1995                               $  758,242        $ 18,000     $    282,000     $ 458,242

  Net income                                                333,953                                        333,953

  Dividends                                                (102,165)                                      (102,165)
                                                         -----------       --------     ------------     ----------
BALANCE, DECEMBER 31, 1996                                  990,030          18,000          282,000       690,030

  Dividends                                                (250,000)                                      (250,000)

  Recapitalization prior to
    public offering                                                                          442,540      (442,540)

  Net proceeds from public offering                       4,493,460          16,000        4,477,460             0

  Net income                                                365,499                                        365,499
                                                         -----------       --------     ------------     ----------
BALANCE, DECEMBER 31, 1997                               $5,598,989        $ 34,000     $  5,202,000     $ 362,989
                                                         -----------       --------     ------------     ----------
                                                         -----------       --------     ------------     ----------

</TABLE>

See Notes to Financial Statements

<PAGE>

                         ELECTRONIC PROCESSING, INC.

                          STATEMENTS OF CASH FLOWS

                    YEARS ENDED DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>
                                                                                     1997              1996
                                                                              -----------          ----------
<S>                                                                           <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                                                  $   365,499          $  333,953
  Items not requiring (providing) cash:
      Depreciation                                                                820,570             604,330
      Amortization of software development costs                                  335,601             294,490
      Amortization of intangible assets                                             2,013               2,013
      Gain on disposal of equipment                                                (4,406)             (1,909)
      Deferred income taxes                                                       301,629
  Changes in:
      Accounts receivable                                                        (316,194)           (322,868)
      Prepaid expenses and other assets                                             3,388             (42,472)
      Accounts payable and accrued expenses                                       100,157             293,895
                                                                              ------------         -----------
             Net cash provided by operating activities                          1,608,257           1,161,432
                                                                              ------------         -----------
CASH FLOWS FROM INVESTING ACTIVITIES
  Proceeds from sale of property and equipment                                     20,818               4,930
  Purchase of property and equipment                                           (1,042,383)           (133,256)
  Expenditures for software development costs                                    (498,392)           (511,471)
                                                                              ------------         -----------
              Net cash used in investing activities                            (1,519,957)           (639,797)
                                                                              ------------         -----------
CASH FLOWS FROM FINANCING ACTIVITIES
  Net borrowings (payments) under line-of-credit agreement                       (499,000)            175,000
  Proceeds from long-term debt                                                                        250,000
  Principal payments under capital lease obligation                              (777,023)           (450,989)
  Principal payments on long-term debt                                         (1,096,949)           (230,563)
  Repayment of subordinated debt                                                 (400,000)
  Dividends paid                                                                 (250,000)           (102,165)
  Stock issuance costs                                                           (172,977)           (143,974)
  Payment to retire stock warrant                                                                     (41,000)
  Proceeds from public offering                                                 4,938,000
                                                                              ------------         -----------
              Net cash provided by (used in) financing activities               1,742,051            (543,691)
                                                                              ------------         -----------
INCREASE (DECREASE) IN CASH AND CASH
  EQUIVALENTS                                                                   1,830,351             (22,056)

CASH AND CASH EQUIVALENTS,
  BEGINNING OF YEAR                                                                 4,882              26,938
                                                                              ------------         -----------

CASH AND CASH EQUIVALENTS,
  END OF YEAR                                                                 $ 1,835,233          $    4,882
                                                                              ------------         -----------
                                                                              ------------         -----------

</TABLE>



See Notes to Financial Statements

<PAGE>

                        ELECTRONIC PROCESSING, INC.

                       NOTES TO FINANCIAL STATEMENTS

                        DECEMBER 31, 1997 AND 1996


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

NATURE OF OPERATIONS

     The Company is engaged primarily in the development, marketing and 
licensing of advanced proprietary software for electronic management, 
including processing and noticing, of bankruptcy cases. An extensive array of 
support services complements the software. The Company extends unsecured 
credit to customers throughout the United States.

YEAR 2000

     The approach of the year 2000 raises a general issue with hardware and 
software on a world-wide basis concerning potential problems caused by date 
comparisons and calculations across the century boundary. The Company is 
thoroughly analyzing its products and services and is undertaking the work 
necessary to ensure that they continue to operate correctly across the 
century boundary. The expenses associated with this project are being 
expensed as incurred and are not expected to be material to the Company's 
financial position or results of operations.

USE OF ESTIMATES

     The preparation of financial statements in conformity with generally 
accepted accounting principles requires management to make estimates and 
assumptions that affect the reported amounts of assets and liabilities and 
disclosure of contingent assets and liabilities at the date of the financial 
statements and the reported amounts of revenues and expenses during the 
reporting period. Actual results could differ from those estimates.

PROPERTY AND EQUIPMENT

     Property and equipment are depreciated on a straight-line basis over the 
estimated useful life of each asset as follows:

<TABLE>
                <S>                                                  <C>
                Furniture and fixtures                                 10 years
                Computer equipment                                      5 years
                Office equipment                                     5-10 years
                Transportation equipment                              3-5 years

</TABLE>

     Leasehold improvements are depreciated over the shorter of the lease 
term or the estimated useful lives (5-10 years) of the improvements.

SOFTWARE DEVELOPMENT COSTS

     Certain internal software development costs incurred in the creation of 
computer software products are capitalized once technological feasibility has 
been established. Prior to the completion of a detail program design, 
development costs are expensed. Capitalized costs are amortized based on 
current and future revenue for each

<PAGE>

                        ELECTRONIC PROCESSING, INC.

                       NOTES TO FINANCIAL STATEMENTS

                        DECEMBER 31, 1997 AND 1996


product with an annual minimum equal to the straight-line amortization over 
the remaining estimated economic life of the product.

<PAGE>

                        ELECTRONIC PROCESSING, INC.

                       NOTES TO FINANCIAL STATEMENTS

                        DECEMBER 31, 1997 AND 1996


NOTE 1:  NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  
         (CONTINUED)

INTANGIBLE ASSETS

     The excess of cost over fair value of net assets acquired is being 
amortized over 40 years. Organizational costs are being amortized over seven 
years. All amortization is provided by the straight-line method.

REVENUE RECOGNITION

     Revenues for Chapter 13 processing and noticing are recorded monthly at 
the completion of the services based on the trustees' month-end caseloads. 
For Chapter 7 bankruptcy services, monthly fees are received from a national 
financial institution after the product is installed and deposits are 
transferred based on the level of trustees' deposits with that institution. 
All ancillary fees are recognized as the services are provided.

INCOME TAXES

     Deferred tax liabilities and assets are recognized for the tax effects 
of differences between the financial statement and tax bases of assets and 
liabilities. A valuation allowance is established to reduce deferred tax 
assets if it is more likely than not that a deferred tax asset will not be 
realized.

     Prior to the Company's initial public offering (SEE NOTE 8), the 
Company, with the consent of its stockholders, had elected under the Internal 
Revenue Code to be taxed as an S corporation. In lieu of corporation income 
taxes, the stockholders were taxed on their proportionate shares of the 
Company's taxable income. Therefore, the 1996 statements do not include any 
provision for corporation income taxes.

CASH EQUIVALENTS

     The Company considers all liquid investments with original maturities of 
three months or less (primarily money market accounts) to be cash equivalents.

FUTURE CHANGES IN ACCOUNTING PRINCIPLE

     In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive 
Income." This Statement establishes standards for reporting and display of 
comprehensive income and its components. Comprehensive income is defined as 
the change in equity of a business enterprise during a period from 
transactions and other events and circumstances from nonowner sources. It 
includes all changes in equity except those resulting from investments by 
owners and distributions to owners. This Statement is effective for fiscal 
years beginning after December 15, 1997. Management believes the impact of 
this Statement on the Company's results of operations or financial position 
will not be material.


<PAGE>

                        ELECTRONIC PROCESSING, INC.

                       NOTES TO FINANCIAL STATEMENTS

                        DECEMBER 31, 1997 AND 1996


NOTE 1:  NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (CONTINUED)

     In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments 
of an Enterprise and Related Information." This Statement establishes 
standards for reporting information about operating segments in annual 
financial statements of public business enterprises and requires disclosure 
of selected information about operating segments in interim financial 
reports. The Statement is effective for financial statements for periods 
beginning after December 15, 1997. Management believes that the adoption of 
this Statement will not have a material effect on the Company's results of 
operations or financial position.

     The Accounting Standards Executive Committee has recently issued 
Statement of Position (SOP), No. 97-2, "Software Revenue Recognition." This 
SOP provides guidance on applying generally accepted accounting principles in 
recognizing revenue on software transactions and is effective for 
transactions entered into in fiscal years beginning after December 15, 1997. 
Management believes the impact of this SOP will not be material on the 
Company's results of operations or financial position.

NOTE 2:  SOFTWARE DEVELOPMENT COSTS

     The following is a summary of software development costs capitalized:

<TABLE>
<CAPTION>

                                                                               Years Ended December 31,
                                                                           -----------------------------
                                                                               1997               1996
                                                                           -----------      ------------
          <S>                                                              <C>              <C>
          Amounts capitalized, net of retirements                          $ 2,854,876       $ 2,356,484
                                                                           -----------       -----------
          Accumulated amortization,
               beginning of year                                            (1,121,900)         (827,410)
          Amortization expense                                                (335,601)         (294,490)
                                                                           -----------       -----------
          Accumulated amortization, end of year                             (1,457,501)       (1,121,900)
                                                                           -----------       -----------
          Net software development costs                                   $ 1,397,375       $ 1,234,584
                                                                           -----------       -----------
                                                                           -----------       -----------

</TABLE>

     Included in the above are development costs relating to products not yet 
released. Such costs totaled $391,355 and $713,849 at December 31, 1997 and 
1996, respectively.

<PAGE>

                        ELECTRONIC PROCESSING, INC.

                       NOTES TO FINANCIAL STATEMENTS

                        DECEMBER 31, 1997 AND 1996


NOTE 3:   NOTES PAYABLE AND LONG-TERM DEBT

     Note payable at December 31, 1997 and 1996 represents advances against a 
$500,000 working capital line of credit. Interest is 1% in excess of the 
bank's base lending rate (9 1/2% at December 31, 1997) per annum and is 
adjusted and payable on a quarterly basis. Principal is due on October 1, 
1998. The note is collateralized by accounts receivable and customer 
contracts.

     Long-term debt includes the following at December 31, 1997 and 1996:

<TABLE>
<CAPTION>
                                                                                 1997                1996
                                                                         ------------         ------------
          <S>                                                            <C>                  <C>
          Note payable, bank (A)                                                               $   511,151
          Note payable, bank (B)                                          $   436,372              235,307
          Note payable, bank (C)                                                                   250,000
          Note payable, bank (D)                                              468,119
          Capital lease obligations (E)                                       604,487            1,245,560
          Other                                                                 6,733                9,531
                                                                          -----------          -----------
                                                                            1,515,711            2,251,549
          Less current maturities                                             626,665            1,008,889
                                                                          -----------          -----------
                                                                          $   889,046          $ 1,242,660
                                                                          -----------          -----------
                                                                          -----------          -----------

</TABLE>

          (A)  Principal and interest (2% in excess of bank's base lending 
               rate - 10.25% at December 31, 1996) payable in monthly 
               installments of $18,792 with final payment due in June 1999; 
               collateralized by substantially all assets and personally 
               guaranteed by the majority stockholder.

          (B)  Revolving equipment line of credit of $500,000, with interest 
               (1% in excess of bank's base lending rate - 9.5% at December 
               31, 1997) payable monthly, in addition to monthly principal 
               reductions equal to one thirty-sixth of the outstanding 
               principal balance, with the unpaid balance being due in 1999; 
               collateralized by equipment.

          (C)  Note and accrued interest (1% in excess of highest prime rate 
               in WALL STREET JOURNAL, calculated daily - 9.25% at December 
               31, 1996); due in October 1997; personally guaranteed by 
               majority stockholder.

          (D)  Revolving equipment line of credit of $1,000,000 with interest 
               (1/2% in excess of bank's base lending rate - 9% at December 
               31, 1997), payable monthly, in addition to monthly principal 
               reductions equal to one thirty-sixth of the outstanding 
               principal balance with the unpaid balance being due in 1999; 
               collateralized by equipment.

          (E)  Obligations include leases for the use of computer equipment 
               for no more than five years, expiring in 2002.


<PAGE>

                        ELECTRONIC PROCESSING, INC.

                       NOTES TO FINANCIAL STATEMENTS

                        DECEMBER 31, 1997 AND 1996


NOTE 3:  NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)

      For the above obligations, the carrying value approximates fair value.

      Aggregate annual maturities of long-term debt and payments on capital 
lease obligations are as follows:

<TABLE>
<CAPTION>

                                                                   Long-Term             Capital
                                                                     Debt                 Lease
                                                                 (Exc. Leases)         Obligations
                                                                 -------------         -----------
             <S>                                                 <C>                   <C>
             1998                                                  $  261,772           $  407,029
             1999                                                     649,452              165,541
             2000                                                                           44,371
             2001                                                                           34,830
             2002                                                                           21,996
                                                                   ----------           ----------
                                                                   $  911,224              673,767
                                                                   ----------           
                                                                   ----------           
             Less amount representing interest                                              69,280
                                                                                        ----------
             Present value of future minimum lease payments                                604,487
             Less current maturities                                                       364,893
                                                                                        ----------
             Noncurrent portion                                                         $  239,594
                                                                                        ----------
                                                                                        ----------

</TABLE>

      Property and equipment include the following property under capital
leases:

<TABLE>
<CAPTION>
                                                                       Year Ended December 31,
                                                                   -------------------------------
                                                                        1997                 1996
                                                                   ----------           ----------
             <S>                                                   <C>                  <C>
             Computer equipment                                    $1,293,779           $1,822,113
             Less accumulated depreciation                            461,239              412,717
                                                                   ----------           ----------
                                                                   $  832,540           $1,409,396
                                                                   ----------           ----------
                                                                   ----------           ----------

</TABLE>

NOTE 4:  OPERATING LEASES

      The Company has a noncancellable operating lease for office space which 
expires in February 2001 with options which would extend the lease to 2011. 
The majority stockholder of the Company is a partner in the partnership that 
leases office space to the Company. The lease requires the Company to pay all 
executory costs (property taxes, maintenance and insurance).

      For the years ended December 31, 1997 and 1996, an agreement was 
reached with the partnership whereby the Company was reimbursed for the 
property taxes which amounted to approximately $30,000 for both 1997 and 1996.


<PAGE>

                        ELECTRONIC PROCESSING, INC.

                       NOTES TO FINANCIAL STATEMENTS

                        DECEMBER 31, 1997 AND 1996


NOTE 4:  OPERATING LEASES (CONTINUED)

      Future minimum lease payments at December 31, 1997 are as follows:

<TABLE>
             <S>                                           <C>
             1998                                          $154,000
             1999                                           157,800
             2000                                           162,400
             2001                                            27,200
                                                           --------
                                                           $501,400
                                                           --------
                                                           --------
</TABLE>

      Rental expense under this lease was $149,250 and $145,500 for the years 
ended December 31, 1997 and 1996, respectively.

NOTE 5:  SUBORDINATED DEBT

      The Company had the following subordinated debt outstanding with the 
majority stockholder at December 31, 1996:

<TABLE>
           <S>                                                  <C>
           10% interest payable monthly, principal
             balance due July 1998                              $ 400,000
                                                                ---------
                                                                ---------
</TABLE>

      Interest expense under this agreement was $7,778 and $40,000 
for the years ended December 31, 1997 and 1996, respectively.

      In February  1997, a portion of the proceeds of the public  offering  
(SEE NOTE 8) were  utilized to retire the $400,000 subordinated debt 
obligation noted above.

NOTE 6:  RELATED PARTY TRANSACTIONS

      Included in accounts payable at December 31, 1996 was $45,000 due to 
the majority stockholder. Additionally, included in accounts receivable at 
December 31, 1997 was $28,855 from the partnership that leases office space 
to the Company (SEE NOTE 4).

NOTE 7:  PROFIT SHARING PLAN

      The Company has adopted a 401(k) plan covering substantially all 
employees. The Company matches the first 10% of employee contributions and 
also has the option of making discretionary contributions. Employees are 
fully vested in such contributions after four years. Contributions amounted 
to $63,182 and $18,113 for the years ended December 31, 1997 and 1996, 
respectively.

NOTE 8:  INITIAL PUBLIC OFFERING


<PAGE>

                        ELECTRONIC PROCESSING, INC.

                       NOTES TO FINANCIAL STATEMENTS

                        DECEMBER 31, 1997 AND 1996


      In February 1997, the Company completed a public offering of 1,600,000 
shares of common stock and received net proceeds (prior to stock issuance 
costs) of $4,938,000.

      In connection with the issuance of common stock to the public, the 
Company changed its income tax status to a C corporation. At the time of 
becoming a C corporation, the Company accrued an income tax provision of 
$272,900 to record the deferred tax effects of temporary differences between 
financial statement and tax bases of assets and liabilities as follows:

<TABLE>
            <S>                                                <C>
            Deferred tax assets:
               Allowance for doubtful accounts                 $   1,900
               Accrued compensated absences                        4,200
               Other                                               1,200
                                                               ---------
                                                                   7,300
            Deferred tax liabilities:
               Property and equipment                           (280,200)
                                                               ---------
            Net deferred tax liability                         $(272,900)
                                                               ---------
                                                               ---------

</TABLE>

      Pro forma earnings information has been provided to reflect the effects 
of corporate income taxes on historical earnings, including the effects of 
permanent and temporary differences in reporting income and expenses for tax 
and financial reporting purposes, as if the Company had been subject to 
income taxes for all the periods presented, including the period in 1997 
prior to the IPO. Pro forma adjustments reflect the provision for corporate 
income taxes for 1996 and the elimination of the initial income tax provision 
for 1997, as discussed above.

NOTE 9:  INCOME TAXES

      The provision for income taxes includes these components:

<TABLE>
<CAPTION>
                                                               1997           1996
                                                          ---------    -----------
                                                                   (Pro Forma)
             <S>                                          <C>             <C>
             Taxes currently payable                      $ 422,960       $179,000
             Deferred income taxes                           28,729        (35,000)
                                                          ---------       ---------
                                                          $ 451,689       $144,000
                                                          ---------       ---------
                                                          ---------       ---------

</TABLE>


NOTE 9:  INCOME TAXES (CONTINUED)


<PAGE>

                        ELECTRONIC PROCESSING, INC.

                       NOTES TO FINANCIAL STATEMENTS

                        DECEMBER 31, 1997 AND 1996


      A reconciliation of the provision for income taxes at the statutory 
rate to provision for income taxes at the Company's effective rate is shown 
below:

<TABLE>
<CAPTION>
                                                                      1997               1996
                                                                ----------          ----------
                                                                          (Pro Forma)
             <S>                                                <C>                 <C>
             Computed at the statutory rate (34%)               $  370,600          $  113,500
             Increase in taxes resulting from:
                 Nondeductible expenses                             24,300              12,800
                 State income taxes, net of federal
                    tax effect and other                            56,789              17,700
                                                                ----------          ----------
                        Tax Provision                           $  451,689          $  144,000
                                                                ----------          ----------
                                                                ----------          ----------

</TABLE>

      Also included in the provision for 1997 is the initial income tax 
provision of $272,900 to record the effects of temporary differences at the 
date of the change in tax status (SEE NOTE 8).

      The tax effects of temporary  differences  related to deferred taxes 
shown on the accompanying 1997 balance sheet are as follows:

<TABLE>
<CAPTION>

                                                                     1997
                                                                ---------
             <S>                                                <C>
             Deferred tax assets (current):
                 Allowance for doubtful accounts                $   1,900
                 Accrued compensated absences                      16,923
                                                                ---------
                                                                   18,823
             Deferred tax liabilities (noncurrent):
                 Property and equipment                           320,452
                                                                 --------
                                                                 $301,629
                                                                 --------
                                                                 --------

</TABLE>


NOTE 10:  EARNINGS PER SHARE

<PAGE>

                        ELECTRONIC PROCESSING, INC.

                       NOTES TO FINANCIAL STATEMENTS

                        DECEMBER 31, 1997 AND 1996


      The details of the basic and diluted earnings per share 
calculations for the year ended December 31, 1997 are as follows:

<TABLE>
<CAPTION>
                                                                            Weighted Average
                                                            Net                Shares        Per Share
                                                           Income           Outstanding        Amount
                                                         ----------         -----------      ----------
             <S>                                         <C>                <C>              <C>

             Net income                                  $  365,499
                                                         ----------
             Basic earnings per share:
                 Income available to common
                    stockholders                          $  365,499          3,250,959          $.11
                                                          ----------                             ----
                                                          ----------                             ----
             Effect of dilutive securities:
                 Warrants                                                        40,214
                 Stock options                                                   76,210
                                                                               --------
             Diluted earnings per share:
                 Income available to common
                    stockholders and assumed
                    conversions                           $  365,499           3,367,383         $.11
                                                          ----------           ---------         ----
                                                          ----------           ---------         ----

</TABLE>

      Pro forma earnings per share information has been provided to reflect 
the effects of corporate income taxes, on a consistent basis for both years 
(SEE NOTE 8) with the weighted average shares outstanding being 1,800,000 in 
1996 for both the basic and diluted earnings per share calculations. For 1997 
and 1996, the pro forma earnings per share information was as follows:

<TABLE>
<CAPTION>
                                                   1997                        1996
                                                   ----                        ----
                    <S>                            <C>                         <C>
                    Basic                           .20                         .11
                                                   ----                        ----
                                                   ----                        ----
                    Diluted                         .19                         .11
                                                   ----                        ----
                                                   ----                        ----

</TABLE>


NOTE 11:  STOCK OPTIONS

      The Company's 1995 Stock Option Plan (the Plan) permits the issuance of 
stock options for up to 270,000 shares of common stock to selected employees 
and outside directors of the Company. The term of each award shall






<PAGE>

                        ELECTRONIC PROCESSING, INC.

                       NOTES TO FINANCIAL STATEMENTS

                        DECEMBER 31, 1997 AND 1996


be determined by the committee of the Board of Directors charged with 
administering the Plan. Under the terms of the Plan, options granted may be 
either nonqualified or incentive stock options (ISO's). The exercise price 
for ISO's may not be less than the fair value on the date of the grant.

      A summary of the Company's stock options outstanding as of December 31, 
1997 is presented below:

<TABLE>
<CAPTION>
                                                                             Weighted
                                                                             Average
                                                                             Exercise
                                                     Shares                    Price
                                                    -------                  --------
          <S>                                       <C>                      <C>
          Outstanding, beginning of year                  0                  $     0
          Granted                                   237,000                     4.59
          Forfeited                                 (12,000)                    3.50
          Exercised                                       0                        0
          Outstanding, end of year                  225,000                  $  4.65

</TABLE>

      The following information applies to options outstanding at December 31,
1997:

<TABLE>
<CAPTION>

                      Exercise            Date of           Expiration           Number
                       Price           Full Vesting         of Options        Outstanding
                      --------         ------------         ----------        -----------
                      <S>              <C>                  <C>               <C>
                      $  3.50               2002               2007               82,500
                         3.85               1997               2002               25,000
                         4.50               2002               2007               43,500
                         4.95               1997               2002               25,000
                         6.80               1998               2007               25,000
                         6.80               2002               2007               18,000
                         8.06               2002               2007                6,000
                                                                               ---------
                                                                                 225,000
                                                                               ---------
                                                                               ---------

</TABLE>

NOTE 11:  STOCK OPTIONS (CONTINUED)

      The Company's 1995 Stock Option Plan (the Plan) permits the issuance of 
stock options for up to 270,000 shares of common stock to selected employees 
and outside directors of the Company. The Company accounts for this plan 
under APB Opinion No. 25, under which only an immaterial amount of 
compensation cost has been

<PAGE>

                        ELECTRONIC PROCESSING, INC.

                       NOTES TO FINANCIAL STATEMENTS

                        DECEMBER 31, 1997 AND 1996


recognized. Had compensation cost been determined based on the fair value at 
the grant dates using FASB Statement No. 123, the Company's 1997 net income 
and earnings per share would have been reduced to the following pro forma 
amounts:

<TABLE>
<CAPTION>
             <S>                              <C>                      <C>
             Net income                       As Reported              $  365,499
                                              Pro forma                $  178,024

             Basic earnings per share         As reported              $      .11
                                              Pro forma                $      .05

             Diluted EPS:                     As reported              $      .11
                                              Pro forma                $      .05

</TABLE>

      The fair value of the above options was estimated at the date of grant 
using the Black-Scholes option-pricing model with the key assumptions for 
1997 being risk-free interest rates of 6.2 - 6.7%, no expected dividends and 
expected volatility of 367%.

      The Black-Scholes option valuation model was developed for use in 
estimating the fair value of traded options which have no vesting 
restrictions and are fully transferrable. In addition, option valuation 
models require the input of highly subjective assumptions, including the 
expected stock price volatility. Because the Company's employee stock options 
have characteristics significantly different from those of traded options and 
because changes in the subjective input assumptions can materially affect the 
fair value estimate, in management's opinion, the existing models do not 
necessarily provide a reliable single measure of the fair value of its 
employee stock options.

NOTE 12:  SIGNIFICANT ESTIMATES AND CONCENTRATIONS

      Generally accepted accounting principles require disclosure of certain 
significant estimates and current vulnerabilities due to certain 
concentrations. Those matters include the following:

      --    The Company capitalizes and amortizes costs incurred in the 
            development of software products. Ultimate recoverability is 
            dependent upon future revenues over the life of each product.


<PAGE>

                        ELECTRONIC PROCESSING, INC.

                       NOTES TO FINANCIAL STATEMENTS

                        DECEMBER 31, 1997 AND 1996


NOTE 12:  SIGNIFICANT ESTIMATES AND CONCENTRATIONS (CONTINUED)

      --    A significant portion of the Company's revenues are generated 
            from processing and noticing services for Chapter 13 bankruptcy 
            cases. For Chapter 7 bankruptcy services, the Company has an 
            agreement with a national financial institution which provides 
            for the generation of significant monthly revenues based on the 
            level of trustees' deposits with that institution.


NOTE 13:   ADDITIONAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>

                                                                                   Years Ended December 31,
                                                                            --------------------------------
                                                                                 1997                  1996
                                                                            ----------           -----------
<S>                                                                         <C>                  <C>
NONCASH INVESTING AND FINANCING ACTIVITIES
   Capital lease obligation and notes payable
     Incurred for equipment                                                 $1,138,134           $ 1,161,347

ADDITIONAL CASH INFORMATION
   Interest paid                                                               181,410               265,252
   Income taxes paid                                                           390,000

</TABLE>




<PAGE>

ITEM 8.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL 
DISCLOSURE.

None.



<PAGE>
                                    PART III


ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS; 
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT 

DIRECTORS AND EXECUTIVE OFFICERS

The executive officers and directors of the Company, their ages as 
of March 4, 1998, and their positions with the Company are set forth below.

<TABLE>
<CAPTION>

          NAME                            AGE                                        POSITION
<S>                                       <C>            <C>
Tom W. Olofson*                            56            Chairman, President and Chief Executive Officer

Christopher E. Olofson                     28            Executive Vice President, Chief Operating Officer, and Director

Albert T. Annillo                          47            Senior Vice President
Reed A. Eichner                            40            Vice President - Operations
Nanci R. Trutna                            44            Vice President - Finance
Sally D. MacDonald                         51            Vice President - Human Resources
Robert C. Levy *                           51            Secretary and Director
W. Bryan Satterlee *                       63            Director

</TABLE>

  *     Member of Audit Committee

   TOM W. OLOFSON led a private investor group that acquired the Company in 
   July 1988, and has served as Chief Executive Officer and Chairman of the 
   Board since that time. During his business career, Mr. Olofson has held 
   various management positions with Xerox Corporation and was a Senior Vice 
   President and member, Office of the President of Marion Laboratories (now 
   Hoechst Marion Roussel, Inc.). Mr. Olofson is a director of Saztec 
   International, Inc., a provider of information management services, and 
   also serves as a director of various private companies in which he is an 
   investor. He earned a BBA from the University of Pittsburgh in 1963, and 
   is currently a member of the Board of Visitors of the Katz Graduate School 
   of Business at the University of Pittsburgh. He is the father of 
   Christopher E. Olofson.

   CHRISTOPHER E. OLOFSON joined EPI as a Vice President in June 1993, and 
   was a part-time employee of the Company from 1988 to 1993. In January 
   1994, he was named Senior Vice President - Operations, and became 
   Executive Vice President and a member of the Board of Directors effective 
   January 1, 1995. Effective July 1, 1996, Mr. Olofson also assumed the 
   duties of Chief Operating Officer. He earned an AB degree from Princeton 
   University in 1992, SUMMA CUM LAUDE. He was named a Fulbright Scholar; as 
   which he completed a one-year program of study at the Stanford University 
   Center in Taipei, Taiwan in 1993. He is the son of Tom W. Olofson.

   ALBERT T. ANNILLO has been Senior Vice President since January 1995. Mr. 
   Annillo joined the Company in October 1992 as a corporate Vice President. 
   He was Assistant Director, Executive Office for United States Trustees, 
   Department of Justice, Washington, D.C. for six years before his 
   association with the Company. He earned an MBA and an MED from William 
   Patterson College in 1975 and 1979, respectively.

   REED A. EICHNER joined the Company as Vice President - Sales and Marketing 
   in September 1995. He became Vice President - Operations on September 1, 
   1996. From May 1991 through August 1995 he served as President and owner 
   of Connexions, Inc., a company which provided system integration and 
   document conversion services. He was General Manager of Innovision 
   Systems, Inc. from September 1989 to May 1991. Mr. Eichner earned a BA 
   from the University of North Carolina in 1982.

   NANCI R. TRUTNA assumed her present position as Vice President -Finance in 
   June 1993. She was with Merchants Bank, Kansas City, Missouri from 1981 to 
   June 1993 where she became a Senior Vice


<PAGE>

   President. Ms. Trutna is a Certified Public Accountant and earned a BSBA 
   in 1975 from the University of North Dakota.

   SALLY D. MACDONALD joined the Company as Vice President - Human 
   Resources in January 1996. She served as Regional Human Resources 
   Manager for Network General, Inc. from 1992 to 1994, as Manager, 
   Employment with North Supply Company from 1989 to 1991, and as Manager, 
   Employment and Employee Relations with Informix Software, Inc. 
   from  1986  to  1989. Ms. MacDonald earned a BS in Business Administration 
   from the University of San Francisco in 1984.

   ROBERT C. LEVY is a director, stockholder and executive committee member 
   of the law firm of Seigfreid, Bingham, Levy, Selzer & Gee in Kansas City, 
   Missouri. He has been the Corporate Secretary and a Director of the 
   Company since July 1988. He earned a BS from Northwestern University in 
   1968, and a J.D. from the University of California at Berkeley in 1971. 
   Mr. Levy formerly was Chairman of the Board of Directors of Blue Cross and 
   Blue Shield of Kansas City.

   W. BRYAN SATTERLEE was elected to the Company's Board of Directors on 
   February 7, 1997. Mr. Satterlee has been a partner since 1989 in NorthEast 
   Ventures, a consulting firm based in Hartford, Connecticut which 
   specializes in business development services for and evaluations of 
   technology-based venture companies. He has extensive general management 
   and marketing experience in technology-based firms. Mr. Satterlee's 
   background includes ten years of management experience with IBM, as well 
   as having been a founder of a computer leasing/software business, 
   telecommunications company and a venture investment services business. He 
   earned a BS in 1956 from Lafayette College.

   SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

   The Company believes that during the fiscal year ended December 31, 1997, 
   all Section 16(a) filing requirements applicable to its officers, 
   directors, and greater than 10% beneficial owners were satisfied.

   ITEM 10.  EXECUTIVE COMPENSATION

   EXECUTIVE COMPENSATION

   The following table sets forth the cash and other compensation paid in 
   1997 to the Company's Chief Executive Officers and each other executive 
   officer of the Company who earned in excess of $100,000 in 1997.

                            SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>

                                                                  ANNUAL COMPENSATION
                                                                  -------------------
   NAME AND PRINCIPAL POSITION                                           OTHER ANNUAL            ALL OTHER
                                        YEAR     SALARY       BONUS      COMPENSATION (1)     COMPENSATION (2)(3)
                                        ----     ------       -----      -----------------    -------------------

   <S>                                  <C>     <C>         <C>          <C>                  <C>
   Tom W. Olofson, Chairman/CEO         1997    $100,489        ---               $31,573                 $11,537
                                        1996     $50,000    $24,000               $36,827                 $11,434

   Christopher E. Olofson, EVP/COO      1997    $120,101        ---                $2,754                  $3,600
                                        1996    $108,101        ---                $3,349                  $1,620

</TABLE>

   (1)  Includes $28,562 in 1997 and $33,782 in 1996 for payment of annual 
        life insurance premiums on policies owned by Tom W. Olofson, which 
        designate Jeanne H. Olofson, his wife, as the beneficiary, and $3,011 
        in 1997 and $3,045 in 1996 for personal use of Company automobile. 
        Includes $2,754 for 1997 and $3,349 for 1996 for Christopher E. 
        Olofson for personal use of company automobile.

   (2)  Company benefits which include $6,789 in 1997 and $9,075 in 1996 
        for group insurance and $4,748 in 1997 and $2,359 in 1996 for 
        Company matching contributions to 401(k) plan for


<PAGE>


        Tom W. Olofson.  Includes $3,600 in 1997 and $1,620 in 1996 for 
        Company matching contributions to 401(k) plan for Christopher E. 
        Olofson.
   (3)  Does not  include  interest  of $7,778 in 1997 and  $40,000  in 1996 
        on  amounts  borrowed  by the  Company  from Tom W. Olofson.  See 
        "Certain Transactions."

   The Company does not have a long-term incentive compensation plan.

   STOCK OPTIONS ISSUED

   As shown in the table below Christopher E. Olofson was granted options for 
   75,000 shares of common stock during the year-ended December 31, 1997. 
   Prior to 1997, the Company did not grant any stock options. Tom W. Olofson 
   was not granted any stock options in 1997. Table also includes other 
   executive officer's options granted in 1997.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
NAME                   NUMBER OF SECURITIES          EXERCISE PRICE  EXPIRATION DATE
                       UNDERLYING OPTIONS GRANTED
----------------------------------------------------------------------------------------
<S>                    <C>                           <C>             <C>
Christopher E.         25,000                        $3.85           2002
Olofson
----------------------------------------------------------------------------------------
                       25,000                        $4.95           2002
----------------------------------------------------------------------------------------
                       25,000                        $6.80           2007
----------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------
Nanci R. Trutna        5,000                         $3.50           2007
----------------------------------------------------------------------------------------
                       5,000                         $4.50           2007
----------------------------------------------------------------------------------------
                       5,000                         $6.80           2007
----------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------
Reed A. Eichner        5,000                         $3.50           2007
----------------------------------------------------------------------------------------
                       5,000                         $4.50           2007
----------------------------------------------------------------------------------------
                       5,000                         $6.80           2007
----------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------
Sally D.               5,000                         $3.50           2007
MacDonald
----------------------------------------------------------------------------------------
                       5,000                         $4.50           2007
----------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------
Albert T. Annillo      7,500                         $3.50           2007
----------------------------------------------------------------------------------------
                       5,000                         $4.50           2007
----------------------------------------------------------------------------------------
                       5,000                         $6.80           2007
----------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------
TOTAL                  132,500
----------------------------------------------------------------------------------------
</TABLE>

   The percent of total options granted to above employees in the last fiscal 
   year was 58.9%. No stock options were exercised during 1997 by the named 
   executives.

   COMPENSATION OF DIRECTORS

   The Company pays its non-employee directors a fee of $750 per quarter and 
   $750 per meeting attended.

 ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND


<PAGE>

                  MANAGEMENT

   The following table sets forth certain information regarding the 
   beneficial ownership of shares of Common Stock as of the March 4, 1998 for 
   (i) each director of the Company; (ii) each person known to the Company to 
   be the beneficial owner of more than 5% of the outstanding shares; and 
   (iii) all directors and executive officers as a group. Except pursuant to 
   applicable community property laws or as otherwise indicated, each 
   stockholder has sole voting and investment power with respect to the 
   shares beneficially owned.

<TABLE>
<CAPTION>

       NAME AND ADDRESS OF BENEFICIAL OWNER (1)           NUMBER OF SHARES       PERCENTAGE OWNED
       <S>                                                <C>                    <C>
              Tom W. Olofson                                1,620,000 (2)                      46.9%
              Christopher E. Olofson                          159,500 (3)                       4.6%
              Robert C. Levy                                   22,500                           1.0%
              W. Bryan Satterlee                                8,500 (4)
              All directors and executive officers                                             52.6%
              as a group (8 persons)                        1,816,500 (5)

</TABLE>

   (1)  The address of all of the named individuals is c/o Electronic 
        Processing, Inc., 501 Kansas Avenue, Kansas City, Kansas 66105.

   (2)  Excludes 40,500 shares owned by Mr. Olofson's adult son, Scott W. 
        Olofson, as to which shares Mr. Olofson disclaims beneficial 
        ownership.

   (3)  Includes 50,000 shares of common stock issuable upon exercise of 
        options that are currently exercisable. Excludes 25,000 shares of 
        common stock issued upon exercise of options held by Mr. Olofson that 
        are not currently exercisable and will not become exercisable within 
        60 days.

   (4)  Includes 1,500 shares of Common Stock issuable upon exercise of 
        options that are currently exercisable. Excludes 6,000 shares of 
        common stock issued upon exercise of options held by Mr. Satterlee 
        that are not currently exercisable and will not become exercisable 
        within 60 days.

   (5)  Includes 56,000 shares of common stock issuable upon exercise of 
        options that are currently exercisable. Excludes 89,000 shares of 
        common stock issued upon exercise of options held by directors and 
        executive officers that are not currently exercisable and will not 
        become exercisable within 60 days.

   ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   In July 1988, an unaffiliated venture capital firm purchased a $400,000 
   subordinated note and a stock purchase warrant from the Company. In 
   October 1991, the Company's Board of Directors deemed it in the best 
   interest of the Company to purchase the subordinated note and stock 
   purchase warrant from the venture capital firm. Because the Company could 
   not then complete this transaction without incurring additional debt, Tom 
   W. Olofson, Chairman and Chief Executive Officer, purchased the 
   subordinated note and stock purchase warrant. The note provided for 
   interest at the rate of 10% with a maturity date of July 1998. Interest 
   paid to Tom W. Olofson under this agreement was $40,000 per year for 1996, 
   1995 and 1994. The stock purchase warrant provided for the acquisition of 
   969,228 shares of the Company's Common Stock at $.4125 per share at any 
   time prior to July 14, 1998 (giving retroactive effect to the six-for-one 
   stock split). The Company has calculated and recorded a value of such 
   stock purchase warrant in the amount of $41,000, with the value being 
   calculated using the difference between net book value and exercise price 
   per share. In an October 11, 1996 agreement between the Company and Mr. 
   Olofson, it was agreed that the Company would pay $41,000 to Mr. Olofson 
   on or before December 31, 1996, at which time the stock purchase warrant 
   would be retired. The Company repaid the $400,000 outstanding face value 
   of the subordinated note to Mr. Olofson from the proceeds of its Common 
   stock offering in February, 1997.

   The Company has a noncancellable operating lease for its corporate 
   headquarters which expires in February 28, 2001 with options if exercised,
   to extend the lease to February 28, 2011. Tom W. Olofson holds a 50% 
   interest, as a general partner, in T & J Investment Company, a Kansas 
   general partnership

<PAGE>

   ("T & J Investment Company") that leases this facility to the Company. The 
   lease requires the Company to pay all executory costs (property taxes, 
   maintenance and insurance).

   ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K

   EXHIBITS

   The following exhibits are filed with this Form 10-KSB or are incorporated 
   herein by reference:

<TABLE>
<CAPTION>

   EXHIBIT
   NUMBER    DESCRIPTION
   <S>       <C>
     3.1     Articles of Incorporation, dated July 13, 1988; incorporated by 
             reference to Exhibit 3.1 to the Registration Statement on Form 
             SB-2 dated February 4, 1997.  (Registration Number 333-16805) 
             (the "Registration Statement")

     3.1a    Amendment of Articles of Incorporation , dated August 10, 1988; 
             incorporated by reference to Exhibit 3.1a to the Registration 
             Statement.

     3.1b    Amendment of Articles of Incorporation, dated October 31, 1995; 
             incorporated by reference to Exhibit 3.1b to the Registration 
             Statement.

     3.1c    Amendment of Articles of Incorporation, dated April 1, 1996; 
             incorporated by reference to Exhibit 3.1c to the Registration 
             Statement.

     3.1d    Amendment of Articles of Incorporation dated February 24, 1998. *

     3.2     Bylaws; incorporated by reference to Exhibit 3.2 to the 
             Registration Statement.

     4.1     Form of Underwriters Warrant; incorporated by reference to 
             Exhibit 4.1 to the Registration Statement.

     4.3     1995 Stock Option Plan; incorporated by reference to Exhibit 4.3 
             to the Registration Statement .

     10.1    Agreement for Computerized Trustee Case Management System 
             between the Company and NationsBank of Texas, N.A., dated 
             November 22, 1993; incorporated by reference to Exhibit 10. 1 to 
             the Registration Statement.

     10.2    Lease between T&J Investment Company and the Company, dated 
             February 20, 1996; incorporated by reference to Exhibit10.2 to 
             the Registration Statement.

     10.2a   Amendment to Lease between T & J Investment Company and the 
             Company dated December 9, 1997. *

     10.3    Subordinated Note to Tom Olofson; incorporated by reference to 
             Exhibit 10.3 to the Registration Statement .

     10.4    Loan Agreement between Industrial State Bank and the Company,
             dated June 17, 1996;

</TABLE>

<PAGE>

<TABLE>
     <S>     <C>
             incorporated by reference to Exhibit 10.4 to the Registration 
             Statement.

     10.4a   Modification to Loan Agreement between Industrial State Bank and 
             the Company, dated October 31, 1996, incorporated by reference 
             to Exhibit 10.4a to the Registration Statement.

     10.4b   Loan Agreement between Industrial State Bank and the Company  
             dated March 4, 1997.*

     10.5    Loan Agreement between Industrial State Bank and the Company, 
             dated June 8, 1994; incorporated by reference to Exhibit 10.5 to 
             the Registration Statement.

     10.5a   Modification to Loan Agreement between Industrial State Bank and 
             the Company, dated June 17, 1996; incorporated by reference to 
             Exhibit 10.5a to the Registration Statement.

     10.6    Loan Agreement between Industrial State Bank and the Company, 
             dated June 8, 1994 incorporated by reference to Exhibit 10.6 to 
             the Registration Statement.

     10.6a   Modification to Loan Agreement between Industrial State Bank and 
             the Company, dated June 17, 1996; incorporated by reference to 
             Exhibit 10.6a to the Registration Statement.

     10.6b   Loan Agreement between Industrial State Bank and the Company 
             dated June 4, 1997. *

     10.7    Loan Agreement between Exchange National Bank and the Company 
             dated July 21, 1997.*

     10.8    Form of Service Agreement between EPI and Trustee; incorporated 
             by reference to Exhibit 10.8 to the Registration Statement.

     23.1    Consent of Baird, Kurtz & Dobson to incorporation by reference 
             of their report in the company's registration statement on Form 
             S-8. *

     27.1    Financial Data Schedule

</TABLE>

   *   FILED HEREWITH.

   REPORTS ON FORM 8-K

   NONE

<PAGE>

                                  SIGNATURES



In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed by the undersigned, thereunto duly authorized.

Dated:   March 23, 1998


ELECTRONIC PROCESSING, INC.



By:   /s/ Tom W. Olofson
   -------------------------------

Tom W. Olofson
Chairman/CEO


In accordance with the Exchange Act this report has been signed below by the
following persons on behalf of the registrant and in the capacities indicated on
March 23, 1998.

<TABLE>
<CAPTION>

Signature                                            Capacity
---------                                            --------
<S>                                                  <C>
/s/ Tom W. Olofson                                   Chairman of the Board
-------------------------------                      Chief Executive Officer
Tom W. Olofson                                       (Principal Executive Officer)
                                                     Director


/s/ Christopher E. Olofson                           Executive Vice President
-------------------------------                      Chief Operating Officer
Christopher E. Olofson                               Director


/s/Nanci R. Trutna                                   Vice President of Finance
-------------------------------                      (Principal Financial Officer and Principal Accounting
Nanci R. Trutna                                      Officer)


/s/ Robert C. Levy                                   Director
-------------------------------
Robert C. Levy


/s/ W. Bryan Satterlee                               Director
-------------------------------
W.    Bryan Satterlee


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