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                       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, 1998
 
  / /    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 No.)
       Incorporation or Organization)
 
             501 KANSAS AVENUE,                       913-321-6392
       KANSAS CITY, KANSAS 66105-1300          (Issuer's Telephone Number)
  (Address of principal executive offices)
 
         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. / /
 
    Revenues for the fiscal year ended December 31, 1998 were $11,546,273.
 
    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 National
Market) on March 11, 1999 was approximately $28,295,446. As of March 11, 1999
there were 4,634,468 shares of Common Stock outstanding.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
                                      NONE
 
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<PAGE>
                          ELECTRONIC PROCESSING, INC.
                          ANNUAL REPORT ON FORM 10-KSB
                               TABLE OF CONTENTS
 
<TABLE>
<S>        <C>                                                                          <C>
                                              PART 1
ITEM 1.    Description of Business....................................................           1
ITEM 2.    Description of Properties..................................................           7
ITEM 3.    Legal Proceedings..........................................................           7
ITEM 4.    Submission of Matters to a Vote of Security Holders........................           7
 
                                              PART II
ITEM 5.    Market for the Registrant's Common Equity and Related Stockholder
             Matters..................................................................           8
ITEM 6.    Management's Discussion and Analysis or Plan of Operation..................           8
ITEM 7.    Financial Statements.......................................................          12
ITEM 8.    Changes in and Disagreements with Accountants on Accounting And Financial
             Disclosure...............................................................          26
 
                                             PART III
ITEM 9.    Directors, Executive Officers, Promoters, and Control Persons; Compliance
             with Section 16(a) of the Exchange Act...................................          27
ITEM 10.   Executive Compensation.....................................................          28
ITEM 11.   Security Ownership of Certain Beneficial Owners and Management.............          30
ITEM 12.   Certain Relationships and Related Transactions.............................          30
ITEM 13.   Exhibits and Reports on Form 8-K...........................................          31
</TABLE>
 
                                       i
<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 federal bankruptcy
system, 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.
 
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
 
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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 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 is over $3 billion in cash proceeds being
administered in Chapter 7 by approximately 1,700 trustees. The Company estimates
there are in excess of 700,000 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 with successive releases of its Windows-based TCMS software.
In September, 1998, the Company announced that it was finalizing
 
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development of TCMS Version 4.0, which incorporates substantial new features and
technologies and projected a first quarter 1999 general release date.
 
    MARKET CONDITIONS IN CHAPTER 13
 
    For the twelve-month period ended September 30, 1998, there was an all-time
record number of new bankruptcy filings, approximately 28% of which were in
Chapter 13. 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 Windows and Oracle.
 
PRODUCTS
 
    The Company's products include TCMS (Trustee Case Management System) for
Chapter 7 and CasePower for Chapter 13. The TCMS product can also track Chapter
11 cases, and the CasePower product 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 Windows based package of
proprietary software, computer equipment and support services offered to Chapter
7 trustees through a national marketing arrangement with Bank of America. 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.
 
                                       3
<PAGE>
    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.
 
CHAPTER 13 PRODUCTS
 
    The Company's Chapter 13 products assist trustees in managing individual
reorganization bankruptcies, whereby the debtor makes payments to the trustee,
who in turn disburses the funds to creditors.
 
    CURRENT CHAPTER 13 PRODUCT: CASEPOWER
 
    The Company's Windows based CasePower product assists 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 may out-source various activities to EPI to facilitate the
preparation of large output jobs.
 
    Processing and report printing functions can be 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,
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
software prepares distribution checks for creditors to whom funds are due. EPI
can print the checks and reports at its data center in Kansas City as a
value-added service for the trustee.
 
    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.
 
                                       4
<PAGE>
    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
 
    CasePower helps 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.
 
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. Since that
time, the bank has been merged and the name of the bank changed to "Bank of
America." In this marketing arrangement, EPI and Bank of America 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.
The agreement with Bank of America 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 Bank of America, and the Company believes that it will maintain
this relationship. However, were the relationship with Bank of America 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. Bank of America
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 Bank of
America to build its deposit base in this market.
 
                                       5
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    The Company continues to support a limited number of trustee relationships
through other banks that predate the exclusive agreement with Bank of America.
 
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 Bank of America 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 Bank of America the cash
proceeds from all asset liquidations; and (3) the Company collects from Bank of
America 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 outsourced 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 Bank of America.
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 Bank of America (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.
 
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 700,000
pending Chapter 13 cases being managed by approximately 180 Chapter 13 trustees,
and that there is over $3 billion on deposit by approximately 1,700 Chapter 7
trustees. There are several companies in the market all competing for sales from
this finite
 
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group of customers, and some of the Company's competitors have substantially
greater financial and marketing resources than 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 DCS 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 customers who
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 80 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 TO A VOTE OF SECURITY HOLDERS
 
    No matters were submitted in the fourth quarter of 1998 to a vote of
security holders.
 
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                                    PART II
 
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
        MATTERS.
 
MARKET INFORMATION
 
    The Company's Common Stock is traded on the Nasdaq National Market-TM- under
the symbol "EPIQ." Trading in the Common Stock commenced on February 4, 1997,
the date on which the Company closed the initial public offering of its Common
Stock. The following table shows the reported high and low sales prices for the
common stock for the calendar quarters of 1998 and 1997 as reported by Nasdaq:
 
<TABLE>
<CAPTION>
                                                                                          1998                  1997
                                                                                  --------------------  --------------------
<S>                                                                               <C>        <C>        <C>        <C>
                                                                                    HIGH        LOW       HIGH        LOW
                                                                                  ---------  ---------  ---------  ---------
First Quarter...................................................................  $      20  $   9 1/4  $       4  $       3
Second Quarter..................................................................  $  15 3/8  $      11  $   4 7/8  $       3
Third Quarter...................................................................  $  15 1/2  $   8 1/2  $   7 1/4  $   4 1/2
Fourth Quarter..................................................................  $  11 3/4  $  8 1/16  $  12 1/8  $   6 1/4
</TABLE>
 
HOLDER
 
    As of March 11, 1999, there were approximately 2,100 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 certain stockholders following termination of the
Company's S Corporation status which represented 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 has not paid any cash dividends since March 6, 1997, and does
not expect to declare or pay any 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 DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
        OF OPERATIONS
 
RESULTS OF OPERATIONS
 
    Operating revenues increased 37.6%, or $3,157,129, to $11,546,273 in fiscal
1998, compared to $8,389,144 in fiscal 1997. Approximately 97.0% of the growth
in operating revenues were attributable to revenues generated by Chapter 7.
Chapter 7 sales increased 94.5%, or $3,088,268 to $6,355,429 in fiscal 1998,
compared to $3,267,161 in fiscal 1997. The Company has an exclusive national
marketing arrangement with Bank of America. The bank pays EPI a monthly fee
based on the total dollar amount of Chapter 7 deposits at Bank of America and a
fee for each new account installed. The increase in Chapter 7 revenue was due in
part to the growth in new Chapter 7 trustee business for the Company resulting
in higher
 
                                       8
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monthly fees paid to EPI. Chapter 13 revenue increased 5.5%, or $268,672 to
$5,190,853 in fiscal 1998 compared to $4,922,281 in fiscal 1997. The relatively
lower growth in Chapter 13 was primarily due to the Company's focus on
converting existing Chapter 13 trustee clients to CASEPOWER and to a constant
level of revenue from legal noticing caused by a change in service mix.
 
    Total cost of goods sold and direct costs increased 32.0%, or $1,278,990, to
$5,276,835 in the fiscal 1998, compared to $3,997,845 in fiscal 1997. Total cost
of goods sold and direct costs as a percentage of operating revenues decreased
to 45.7% in fiscal 1998 compared to 47.7% in fiscal 1997, primarily due to TCMS
for Chapter 7, which has higher gross margins, comprising a greater percentage
of operating revenues in 1998. Chapter 7 as a percentage of operating revenues
increased to 54.8% in fiscal 1998 from 38.9% in fiscal 1997. Processing costs
increased 29.8%, or $877,533, to $3,824,075 in fiscal 1998, compared to
$2,946,542 in fiscal 1997. The increase in 1998 resulted principally from an
increase in customer service expense to support the growth in Chapter 7 sales
and to support the new Chapter 13 product, CASEPOWER. Processing costs as a
percentage of operating revenues decreased to 33.1% in fiscal 1998 compared to
35.1% in fiscal 1997. Depreciation and amortization increased 38.2%, or
$401,457, to $1,452,760 in fiscal 1998, compared to $1,051,303 in fiscal 1997,
primarily due to the purchase of computer equipment for the Company's Chapter 7
product.
 
    Operating expenses increased 36.7%, or $1,177,515 to $4,386,081 in fiscal
1998, compared to $3,208,566 in fiscal 1997. Operating expenses as a percentage
of operating revenues was 38.0% in fiscal 1998 compared to 38.2% in fiscal 1997.
The dollar increase in operating expenses was due to increases in general and
administrative infrastructure necessary to support a higher level of revenues,
including additional sales and marketing expenses related to growth of the
Company's Chapter 7 product. Sales and marketing expenses include sales and
marketing salaries, trade show costs, travel associated with Chapter 7
installations, and advertising costs. Sales and marketing expenses increased
34.9%, or $351,771 to $1,358,716 in fiscal 1998, compared to $1,006,945 in
fiscal 1997.
 
    Other income (expense) which includes interest income and interest expense,
was $266,500 in fiscal 1998 compared to ($92,645) in fiscal 1997. This resulted
from a reduction in net interest expense due to interest income from the
investment of the net proceeds from the sale of 1,140,500 shares of Common Stock
in a secondary public offering completed in June 1998. Outstanding debt was paid
off with a portion of the net proceeds from the 1998 stock offering resulting in
a reduction in interest expense.
 
    In connection with the Company's initial public offering, the Company
changed its income tax status to a C corporation. Pro forma earnings information
for the year ended December 31, 1997 reflects the effects of corporate income
taxes on historical earnings as if the Company had been subject to federal taxes
for that period. The Company's effective tax rates were 38.6% and 41.4%
(pro-forma) for 1998 and 1997, respectively.
 
    Pro forma Net income increased 106.9%, or $682,219, to $1,320,618 in fiscal
1998, compared to pro forma net income of $638,399 in fiscal 1997. Pro forma net
income as a percentage of operating revenues increased to 11.4% in fiscal 1998
from 7.6% in fiscal 1997.
 
LIQUIDITY AND CAPITAL RESOURCES
 
    The Company's liquidity position is strong with total cash and short-term
investments of $11,520,256 at December 31, 1998 and working capital of
$12,190,920.
 
    The Company completed a public offering in June 1998 of 1,140,500 shares of
Common Stock at $12.875 a share to raise $12,727,980 in net proceeds. The
Company paid $1,724,089 of debt with a portion of these net proceeds.
 
    Net cash provided by operating activities was $2,937,735 during 1998 and
$1,608,257 during 1997. The net cash provided by operating activities in fiscal
1998 consisted primarily of net income before deferred taxes of $1,509,129,
depreciation and amortization of $1,606,854, and an increase of $385,329 in
accounts
 
                                       9
<PAGE>
payable and accrued expenses, offset by an increase in accounts receivable of
$471,879 and an increase in prepaid expenses and other assets of $107,272. The
increase in depreciation and amortization relates primarily to the purchase of
computer equipment for the installations of the Company's Chapter 7 product. The
outstanding accounts receivable balance has increased primarily due to the
growth in revenue.
 
    The net cash provided by operating activities in fiscal 1997 consisted
primarily of net income before deferred taxes of $667,128, depreciation and
amortization of $1,158,184, and an increase in accounts payable and accrued
expenses of $100,157 offset primarily by an increase in accounts receivable of
$316,194. The increase in depreciation and amortization relates primarily to the
purchase of computer equipment for the installations of the Company's Chapter 7
product. The outstanding accounts receivable balance has increased primarily due
to the growth in revenue.
 
    At December 31, 1998, short-term investments of $10,700,000 consisted of
Auction Rate Certificates, which are floating rate investments based on pooled
State and Federal agency securities. Such investments trade at par and are AAA
rated due to bond insurance. Auctions are every 35 days. Proceeds from the sale
of short-term investments totaled $51,403,000 for the year ended December 31,
1998.
 
    The Company invested in property and equipment totaling $3,421,690 and
$1,042,383 for 1998 and 1997, respectively, which related principally to the
installation of computer equipment for the Company's Chapter 7 product.
 
    The Company incurred expenditures for software development costs totaling
$1,041,960 and $498,392 for 1998 and 1997, respectively. In April of 1998 the
Company acquired a PC-based product for Chapter 13 trustees and this purchase is
reflected in the December 31, 1998 software expenditures. These expenditures are
capitalized and are being amortized on a straight-line basis over a maximum
five-year period. Internal software costs incurred in the creation of computer
software products are capitalized as soon as technological feasibility has been
established. Prior to the completion of a detailed program design, development
costs are expensed. Capitalized costs are amortized based on current and future
revenue for each product with an annual minimum equal to straight-line
amortization over the remaining estimated economic life of the product, not to
exceed five years. Additionally, the Company anticipates future software
development will be at or above the spending levels of prior years.
 
    The Company believes that the net proceeds from the June 1998 stock
offering, together with funds that may be generated from operations, will be
sufficient to finance the Company's currently anticipated working capital and
property and equipment expenditures for the foreseeable future.
 
YEAR 2000
 
    Many currently installed computer systems and software products are coded to
accept only two-digit entries to represent years. For example, the year "1998"
would be represented by "98." These systems and products will need to be able to
accept four digit entries to distinguish 21(st) century dates from 20(th)
century dates. Any programs that have time sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
the computer shutting down or performing incorrect computations. As a result, in
less than one year, computer systems and software products used by many
companies, that do not accept four-digit year entries, will need to be upgraded
or replaced to comply with such "Year 2000" requirements.
 
    The Company believes that its currently marketed software products are Year
2000 compliant. In the first quarter of 1998, the Company began shipping release
3.0 of TCMS, as part of the Company's continual process of enhancing and
upgrading its existing software products. Although release 3.0 of TCMS was
written to be Year 2000 compliant, the impetus for its design was the Company's
desire to further streamline Chapter 7 case administration for trustees.
Similarly, in 1997 the Company began shipping CASEPOWER, a new proprietary
Windows95/NT-based client-server software application for Chapter 13
 
                                       10
<PAGE>
trustees. Like TCMS, CASEPOWER was written to be Year 2000 compliant. Also like
TCMS, the impetus for CASEPOWER'S design was the Company's commitment to the
development and marketing of new and competitive bankruptcy case management
conventions. The Company estimates that its national upgrade program for
existing Chapter 13 customers, from its older AS/400 legacy product to
CASEPOWER, is 90% completed. All Chapter 13 trustees are scheduled to be
upgraded by June 1999.
 
    The Company is also in the process of discussing with its vendors and
customers the potential impact the Year 2000 issue may have on their systems.
More specifically, the Company has reviewed and assessed the probability of a
material adverse effect from the Year 2000 issue on the Company's exclusive
national marketing arrangement with Bank of America. Bank of America has
reported that it undertook a process of software inventory, analysis,
modification, testing and verification to assess the potential impact of the
Year 2000 issue on its systems. Bank of America expects to substantially
complete the Year 2000 software conversion projects for its systems by the end
of 1999. Bank of America's management believes that its plans for dealing with
the Year 2000 issue will result in timely and adequate modifications of systems
and technology. Over the next 9 months, the plans of other third parties to
address the Year 2000 issue will be monitored and any identified impact on the
Company will be evaluated.
 
    The Year 2000 issue also affects the Company's internal systems, including
information technology (IT) and non-IT systems. The Company has assessed the
readiness of its systems for handling the Year 2000. Management currently
believes that all material systems are either compliant, or will be upgraded or
replaced by the Year 2000. The costs 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.
 
    As previously discussed, the Company believes their currently marketed
software products and internal systems are Year 2000 compliant or will be by the
end of 1999. Additionally, they are not aware of any vendors or customers with
Year 2000 problems which could materially impact their operations. Accordingly,
the Company has not specifically evaluated a worst-case scenario, nor has it
developed contingency plan of such scenario.
 
FORWARD-LOOKING STATEMENTS
 
    This Form 10-KSB contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended, including those relating to the
possible or assumed future results of operations and financial condition of the
Company. Because those statements are subject to a number of uncertainties and
risks, actual results may differ materially from those expressed or implied by
the forward-looking statements. Factors that could cause actual results to
differ from those expressed or implied include, but are not limited to, any
material changes in the total asset proceeds on deposit by Chapter 7 trustees
served by the Company, changes in the number of bankruptcy filings each year,
the Company's reliance on its marketing arrangement for Chapter 7 revenue, the
Company's ability to achieve or maintain technological advantages, and any
material adverse effect of the Year 2000 issue. The Company undertakes no
obligation to update any forward-looking statements contained herein to reflect
future events or developments.
 
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, 1998 and 1997.
 
                                       11
<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, 1998 and 1997, 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 audits 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, 1998 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
 
                                          /s/ BAIRD, KURTZ & DOBSON
 
Kansas City, Missouri
February 8, 1999
 
                                       12
<PAGE>
                          ELECTRONIC PROCESSING, INC.
 
                                 BALANCE SHEETS
 
                           DECEMBER 31, 1998 AND 1997
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                                                           1998           1997
                                                                                       -------------  ------------
<S>                                                                                    <C>            <C>
CURRENT ASSETS
  Cash and cash equivalents..........................................................  $     820,256  $  1,835,233
  Short-term investments.............................................................     10,700,000
  Accounts receivable, trade, less allowance for doubtful accounts of $5,000.........      1,586,303     1,114,424
  Prepaid expenses and other.........................................................        294,024       159,845
  Deferred income taxes..............................................................         39,345        18,823
                                                                                       -------------  ------------
      Total Current Assets...........................................................     13,439,928     3,128,325
                                                                                       -------------  ------------
PROPERTY AND EQUIPMENT, At cost
  Furniture and fixtures.............................................................        526,862       551,832
  Computer equipment.................................................................      7,254,072     5,152,228
  Office equipment...................................................................        329,775       325,429
  Leasehold improvements.............................................................        864,184       834,806
  Transportation equipment...........................................................         14,969        14,969
                                                                                       -------------  ------------
                                                                                           8,989,862     6,879,264
      Less accumulated depreciation..................................................      3,233,510     3,338,301
                                                                                       -------------  ------------
                                                                                           5,756,352     3,540,963
                                                                                       -------------  ------------
SOFTWARE DEVELOPMENT COSTS, Net of amortization......................................      2,016,946     1,397,375
                                                                                       -------------  ------------
OTHER ASSETS
  Excess of cost over fair value of net assets acquired..............................         59,473        61,486
  Other..............................................................................          5,912        32,819
                                                                                       -------------  ------------
                                                                                              65,385        94,305
                                                                                       -------------  ------------
                                                                                       $  21,278,611  $  8,160,968
                                                                                       -------------  ------------
                                                                                       -------------  ------------
</TABLE>
 
                       See Notes to Financial Statements
 
                                       13
<PAGE>
                          ELECTRONIC PROCESSING, INC.
 
                      LIABILITIES AND STOCKHOLDERS' EQUITY
 
<TABLE>
<CAPTION>
                                                                                           1998           1997
                                                                                       -------------  ------------
<S>                                                                                    <C>            <C>
CURRENT LIABILITIES
  Note payable--line of credit.......................................................                 $      1,000
  Current maturities of long-term debt...............................................  $     159,151       626,665
  Accounts payable...................................................................        626,577       491,217
  Accrued expenses...................................................................        450,608       200,639
  Income taxes payable...............................................................         12,672        32,960
                                                                                       -------------  ------------
      Total Current Liabilities......................................................      1,249,008     1,352,481
                                                                                       -------------  ------------
 
LONG-TERM DEBT.......................................................................        109,300       889,046
                                                                                       -------------  ------------
 
DEFERRED INCOME TAXES................................................................        529,485       320,452
                                                                                       -------------  ------------
 
STOCKHOLDERS' EQUITY
  Common stock, $.01 par value; authorized 10,000,000 shares; issued and
    outstanding--4,633,268 and 3,400,000 shares at 1998 and 1997, respectively.......         46,333        34,000
  Additional paid-in capital.........................................................     17,660,878     5,202,000
  Retained earnings..................................................................      1,683,607       362,989
                                                                                       -------------  ------------
                                                                                          19,390,818     5,598,989
                                                                                       -------------  ------------
                                                                                       $  21,278,611  $  8,160,968
                                                                                       -------------  ------------
                                                                                       -------------  ------------
</TABLE>
 
                                       14
<PAGE>
                          ELECTRONIC PROCESSING, INC.
                              STATEMENTS OF INCOME
                     YEARS ENDED DECEMBER 31, 1998 AND 1997
 
<TABLE>
<CAPTION>
                                                                                           1998           1997
                                                                                       -------------  ------------
<S>                                                                                    <C>            <C>
OPERATING REVENUES...................................................................  $  11,546,273  $  8,389,144
                                                                                       -------------  ------------
COST OF GOODS SOLD AND DIRECT COSTS
  Processing costs...................................................................      3,824,075     2,946,542
  Depreciation and amortization......................................................      1,452,760     1,051,303
                                                                                       -------------  ------------
                                                                                           5,276,835     3,997,845
                                                                                       -------------  ------------
GROSS PROFIT.........................................................................      6,269,438     4,391,299
                                                                                       -------------  ------------
OPERATING EXPENSES
  General and administrative.........................................................      4,231,987     3,101,685
  Depreciation and amortization......................................................        154,094       106,881
                                                                                       -------------  ------------
                                                                                           4,386,081     3,208,566
                                                                                       -------------  ------------
INCOME FROM OPERATIONS...............................................................      1,883,357     1,182,733
                                                                                       -------------  ------------
OTHER INCOME (EXPENSE)
  Interest income....................................................................        392,114        66,667
  Interest expense...................................................................        (89,755)     (160,393)
  Other..............................................................................        (35,859)        1,081
                                                                                       -------------  ------------
                                                                                             266,500       (92,645)
                                                                                       -------------  ------------
INCOME BEFORE INCOME TAXES...........................................................      2,149,857     1,090,088
PROVISION FOR INCOME TAXES...........................................................        829,239       724,589
                                                                                       -------------  ------------
NET INCOME...........................................................................  $   1,320,618  $    365,499
                                                                                       -------------  ------------
                                                                                       -------------  ------------
EARNINGS PER SHARE INFORMATION
  Basic..............................................................................  $         .32  $        .11
                                                                                       -------------  ------------
                                                                                       -------------  ------------
  Diluted............................................................................  $         .31  $        .11
                                                                                       -------------  ------------
                                                                                       -------------  ------------
PRO FORMA DATA
  Income before income taxes.........................................................  $   2,149,857  $  1,090,088
  Provision for income taxes.........................................................        829,239       451,689
                                                                                       -------------  ------------
  Net income.........................................................................  $   1,320,618  $    638,399
                                                                                       -------------  ------------
                                                                                       -------------  ------------
  Per share information
    Basic............................................................................  $         .32  $        .20
                                                                                       -------------  ------------
                                                                                       -------------  ------------
    Diluted..........................................................................  $         .31  $        .19
                                                                                       -------------  ------------
                                                                                       -------------  ------------
</TABLE>
 
                       See Notes to Financial Statements
 
                                       15
<PAGE>
                          ELECTRONIC PROCESSING, INC.
                 STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                     YEARS ENDED DECEMBER 31, 1998 AND 1997
 
<TABLE>
<CAPTION>
                                                                                      ADDITIONAL
                                                                           COMMON       PAID-IN       RETAINED
                                                               TOTAL        STOCK       CAPITAL       EARNINGS
                                                           -------------  ---------  -------------  -------------
<S>                                                        <C>            <C>        <C>            <C>
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
  Net proceeds from public offering......................     12,409,311     11,405     12,397,906
  Proceeds from the exercise of stock options and
    warrants.............................................         61,900        928         60,972
  Net income.............................................      1,320,618                                1,320,618
                                                           -------------  ---------  -------------  -------------
BALANCE, DECEMBER 31, 1998...............................  $  19,390,818  $  46,333  $  17,660,878  $   1,683,607
                                                           -------------  ---------  -------------  -------------
                                                           -------------  ---------  -------------  -------------
</TABLE>
 
                        See Notes to Finacial Statements
 
                                       16
<PAGE>
                          ELECTRONIC PROCESSING, INC.
                            STATEMENTS OF CASH FLOWS
                     YEARS ENDED DECEMBER 31, 1997 AND 1996
 
<TABLE>
<CAPTION>
                                                                                           1998          1997
                                                                                       -------------  -----------
<S>                                                                                    <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income.........................................................................  $   1,320,618  $   365,499
  Items not requiring (providing) cash:
    Depreciation.....................................................................      1,182,452      820,570
    Amortization of software development costs.......................................        422,389      335,601
    Amortization of intangible assets................................................          2,013        2,013
    (Gain) loss on disposal of equipment.............................................         35,862       (4,406)
    Deferred income taxes............................................................        188,511      301,629
  Changes in:
    Accounts receivable..............................................................       (471,879)    (316,194)
    Prepaid expenses and other assets................................................       (107,272)       3,388
    Accounts payable and accrued expenses............................................        385,329      100,157
    Income taxes payable.............................................................        (20,288)
                                                                                       -------------  -----------
      Net cash provided by operating activities......................................      2,937,735    1,608,257
                                                                                       -------------  -----------
CASH FLOWS FROM INVESTING ACTIVITIES
  Sale of short-term investments.....................................................     51,403,000
  Purchase of short-term investments.................................................    (62,103,000)
  Proceeds from sale of property and equipment.......................................         16,814       20,818
  Purchase of property and equipment.................................................     (3,421,690)  (1,042,383)
  Expenditures for software development costs........................................     (1,041,960)    (498,392)
                                                                                       -------------  -----------
      Net cash used in investing activities..........................................    (15,146,836)  (1,519,957)
                                                                                       -------------  -----------
CASH FLOWS FROM FINANCING ACTIVITIES
  Net payments under line-of-credit agreement........................................         (1,000)    (499,000)
  Proceeds from long-term debt.......................................................        968,270
  Principal payments under capital lease obligation..................................       (368,435)    (777,023)
  Principal payments on long-term debt...............................................     (1,875,922)  (1,096,949)
  Repayment of subordinated debt.....................................................                    (400,000)
  Dividends paid.....................................................................                    (250,000)
  Stock issuance costs...............................................................       (318,669)    (172,977)
  Proceeds from exercise of stock options and warrants...............................         61,900
  Proceeds from public offering......................................................     12,727,980    4,938,000
                                                                                       -------------  -----------
      Net cash provided by financing activities......................................     11,194,124    1,742,051
                                                                                       -------------  -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.....................................     (1,014,977)   1,830,351
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR.........................................      1,835,233        4,882
                                                                                       -------------  -----------
CASH AND CASH EQUIVALENTS, END OF YEAR...............................................  $     820,256  $ 1,835,233
                                                                                       -------------  -----------
                                                                                       -------------  -----------
</TABLE>
 
                       See Notes to Financial Statements
 
                                       17
<PAGE>
                          ELECTRONIC PROCESSING, INC.
 
                         NOTES TO FINANCIAL STATEMENTS
 
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
NATURE OF OPERATIONS
 
    Electronic Processing, Inc. (the Company) develops, markets and licenses
proprietary software products and provides support services for Chapter 7 and
Chapter 13 bankruptcy trustees and other users of the federal bankruptcy system.
 
OPERATING SEGMENTS
 
    The Company has two segments in which it allocates resources and assesses
performance: Chapter 7 and Chapter 13 bankruptcy services. For each of these
segments, the Company serves a national client base by developing specialty
software products and providing coordinated support (network integration,
post-installation support and other value-added services), which facilitate the
administrative aspects of bankruptcy management for court-appointed trustees.
The individual segments have similar operating and economic characteristics and
have been reported as one aggregated operating segment. The Company's major
revenue source, which exceeds 10% of revenues, is discussed in Note 11.
 
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
                                                                        5-10
Office equipment.................................................      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 product with an annual minimum equal to the
straight-line amortization over the remaining estimated economic life of the
product, not to exceed five years.
 
                                       18
<PAGE>
                          ELECTRONIC PROCESSING, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
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
on a straight-line basis over 40 years.
 
REVENUE RECOGNITION
 
    For the Company's Chapter 7 bankruptcy software product, 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. Revenues for Chapter 13 processing and noticing are recorded
monthly at the completion of the services based on the trustees' month-end
caseloads. 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.
 
CASH EQUIVALENTS
 
    The Company considers all liquid investments with original maturities of
three months or less (primarily money market accounts) to be cash equivalents.
 
SHORT-TERM INVESTMENTS
 
    Debt and marketable equity securities which the Company holds for short-term
investment purposes are classified as available-for-sale securities and are
carried at fair value. At December 31, 1998, short-term investments consist of
Auction Rate Certificates, which are floating rate investments based on pooled
State and Federal agency securities. Such investments trade at par so no
realized or unrealized gains or losses were present during 1998. Proceeds from
the sale of short-term investments totalled $51,403,000 for the year ended
December 31, 1998.
 
FUTURE CHANGES IN ACCOUNTING PRINCIPLES
 
    In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement establishes the accounting
for derivative instruments, including certain derivative instruments imbedded in
other contracts and hedging activities. This Statement is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. Management has
not yet determined the applicability of this pronouncement on the Company's
results of operations or financial position.
 
                                       19
<PAGE>
                          ELECTRONIC PROCESSING, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 2: SOFTWARE DEVELOPMENT COSTS
 
    The following is a summary of software development costs capitalized:
 
<TABLE>
<CAPTION>
                                                                      1998           1997
                                                                  -------------  -------------
<S>                                                               <C>            <C>
Amounts capitalized, net of retirements.........................  $   2,670,196  $   2,854,876
                                                                  -------------  -------------
Accumulated amortization, Beginning of year.....................     (1,457,501)    (1,121,900)
Amortization expense............................................       (422,389)      (335,601)
Software retired................................................      1,226,640
                                                                  -------------
Accumulated amortization, end of year...........................       (653,250)    (1,457,501)
                                                                  -------------  -------------
Net software development costs..................................  $   2,016,946  $   1,397,375
                                                                  -------------  -------------
                                                                  -------------  -------------
</TABLE>
 
    Included in the above are development costs relating to products not yet
released. Such costs totaled $521,164 and $391,155 at December 31, 1998 and
1997, respectively.
 
NOTE 3: NOTE PAYABLE AND LONG-TERM DEBT
 
    Note payable represents advances against a $500,000 operating line of
credit. Interest is 1% in excess of the bank's base lending rate per annum and
is adjusted and payable on a quarterly basis, with the outstanding balance being
due on March 4, 1999. The note is collateralized by accounts receivable and
customer contracts.
 
    Long-term debt includes the following at December 31, 1998 and 1997:
 
<TABLE>
<CAPTION>
                                                                         1998         1997
                                                                      ----------  ------------
<S>                                                                   <C>         <C>
Note payable, bank(A)...............................................              $    436,372
Note payable, bank(B)...............................................                   468,119
Capital lease obligations(C)........................................  $  264,879       604,487
Other...............................................................       3,572         6,733
                                                                      ----------  ------------
                                                                         268,451     1,515,711
Less current maturities.............................................     159,151       626,665
                                                                      ----------  ------------
                                                                      $  109,300  $    889,046
                                                                      ----------  ------------
                                                                      ----------  ------------
</TABLE>
 
------------------------
 
(A) Revolving equipment line of credit of $500,000, with interest (1% in excess
    of bank's base lending rate) 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. The line of credit was paid off during the year ended December
    31, 1998.
 
 (B) 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 any unpaid balance
     being due in 1999.
 
 (C) Obligations include leases for the use of computer equipment for no more
     than five years, expiring in 2003.
 
    For the above obligations, the carrying value approximates fair value.
 
                                       20
<PAGE>
                          ELECTRONIC PROCESSING, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 3: NOTE PAYABLE AND LONG-TERM DEBT (CONTINUED)
    Aggregate annual maturities of long-term debt and payments on capital lease
obligations at December 31, 1998 are as follows:
 
<TABLE>
<CAPTION>
                                                                        LONG-TERM
                                                                          DEBT        CAPITAL
                                                                       (EXCLUDING      LEASE
                                                                         LEASES)    OBLIGATIONS
                                                                       -----------  -----------
<S>                                                                    <C>          <C>
1999.................................................................   $   3,572    $ 176,883
2000.................................................................                   51,899
2001.................................................................                   42,358
2002.................................................................                   29,523
2003.................................................................                    2,096
                                                                       -----------  -----------
                                                                        $   3,572      302,759
                                                                       -----------
                                                                       -----------
Less amount representing interest....................................                   37,880
                                                                                    -----------
Present value of future minimum lease payments.......................                  264,879
Less current maturities..............................................                  155,579
                                                                                    -----------
Noncurrent portion...................................................                $ 109,300
                                                                                    -----------
                                                                                    -----------
</TABLE>
 
    Property and equipment include the following property under capital leases:
 
<TABLE>
<CAPTION>
                                                                         1998         1997
                                                                      ----------  ------------
<S>                                                                   <C>         <C>
Computer equipment..................................................  $  993,991  $  1,293,779
Less accumulated depreciation.......................................     474,696       461,239
                                                                      ----------  ------------
                                                                      $  519,295  $    832,540
                                                                      ----------  ------------
                                                                      ----------  ------------
</TABLE>
 
NOTE 4: OPERATING LEASES
 
    The Company has a noncancellable operating lease for office space, which
expires in February 2011. A principal shareholder 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).
 
    Future minimum lease payments at December 31, 1998 are as follows:
 
<TABLE>
<S>                                                       <C>
1999....................................................  $ 157,800
2000....................................................    162,400
2001....................................................    167,200
2002....................................................    173,000
2003 and thereafter.....................................  1,602,200
                                                          ---------
                                                          $2,262,600
                                                          ---------
                                                          ---------
</TABLE>
 
    Rental expense under this lease was $154,000 and $149,250 for the years
ended December 31, 1998 and 1997, respectively.
 
                                       21
<PAGE>
                          ELECTRONIC PROCESSING, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 5: RELATED PARTY TRANSACTIONS
 
    The Company was reimbursed for property taxes from the related party
disclosed at Note 4. Reimbursement for property taxes amounted to approximately
$30,000 for each of the years ended December 31, 1998 and 1997. In addition, the
related party reimbursed the Company for consulting services in the amount of
$19,000 for the year ended December 31, 1998.
 
    A principal shareholder reimbursed the Company for expenses paid on his
behalf in the amount of $30,000 for the year ended December 31, 1998.
 
NOTE 6: 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 $96,825 and $63,182
for the years ended December 31, 1998 and 1997, respectively.
 
NOTE 7: PUBLIC OFFERINGS
 
    In February 1997, the Company completed a public offering of 1,600,000
shares of common stock (the IPO) 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 the
year ended December 31, 1997, as discussed above.
 
    In May 1998, the Company completed a secondary public offering of 1,000,000
shares of common stock and received net proceeds (prior to stock issuance costs)
of $11,160,000. In June 1998, the underwriter exercised its over-allotment
option associated with the secondary offering by purchasing 140,500 additional
shares at a net price of $1,567,980.
 
                                       22
<PAGE>
                          ELECTRONIC PROCESSING, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 8: INCOME TAXES
 
    The provision for income taxes includes the following components:
 
<TABLE>
<CAPTION>
                                                                           1998        1997
                                                                        ----------  ----------
<S>                                                                     <C>         <C>
Taxes currently payable...............................................  $  640,728  $  422,960
Deferred income taxes.................................................     188,511      28,729
                                                                        ----------  ----------
                                                                        $  829,239  $  451,689
                                                                        ----------  ----------
                                                                        ----------  ----------
</TABLE>
 
    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>
                                                                           1998        1997
                                                                        ----------  ----------
<S>                                                                     <C>         <C>
Computed at the statutory rate (34%)..................................  $  731,000  $  370,600
Increase in taxes resulting from:
  Nondeductible expenses..............................................      29,300      24,300
  State income taxes, net of federal tax effect and other.............      68,939      56,789
                                                                        ----------  ----------
    Tax Provision.....................................................  $  829,239  $  451,689
                                                                        ----------  ----------
                                                                        ----------  ----------
</TABLE>
 
    Also included in the provision for the year ended 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 7).
 
    The tax effects of temporary differences related to deferred taxes shown on
the accompanying balance sheets are as follows:
 
<TABLE>
<CAPTION>
                                                                         1998         1997
                                                                      -----------  -----------
<S>                                                                   <C>          <C>
Deferred tax assets:
  Allowance for doubtful accounts...................................  $     1,900  $     1,900
  Accrued compensated absences......................................       37,445       16,923
  Accrued stock options.............................................       13,035
                                                                      -----------
                                                                           52,380       18,823
Deferred tax liabilities:
  Property and equipment............................................      542,520      320,452
                                                                      -----------  -----------
                                                                      $  (490,140) $  (301,629)
                                                                      -----------  -----------
                                                                      -----------  -----------
</TABLE>
 
    The above net deferred tax liability is presented on the balance sheets as
follows:
 
<TABLE>
<CAPTION>
                                                                         1998         1997
                                                                      -----------  -----------
<S>                                                                   <C>          <C>
Deferred tax asset--current.........................................  $    39,345  $    18,823
Deferred tax liability--long-term...................................     (529,485)    (320,452)
                                                                      -----------  -----------
                                                                      $  (490,140) $  (301,629)
                                                                      -----------  -----------
                                                                      -----------  -----------
</TABLE>
 
                                       23
<PAGE>
                          ELECTRONIC PROCESSING, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 9: NET INCOME PER SHARE
 
    The details of the basic and diluted net income per share calculations are
as follows:
 
<TABLE>
<CAPTION>
                                                       1998                                   1997
                                      --------------------------------------  -------------------------------------
<S>                                   <C>           <C>          <C>          <C>          <C>          <C>
                                                     WEIGHTED                               WEIGHTED
                                                      AVERAGE                                AVERAGE
                                                      SHARES      PER SHARE                  SHARES      PER SHARE
                                       NET INCOME   OUTSTANDING    AMOUNT     NET INCOME   OUTSTANDING    AMOUNT
                                      ------------  -----------  -----------  -----------  -----------  -----------
Net income..........................  $  1,320,618                             $ 365,499
                                      ------------                            -----------
Net income per share:
  Income available to common
    shareholders....................  $  1,320,618   4,126,679    $     .32    $ 365,499    3,250,959    $     .11
                                      ------------                    -----   -----------                    -----
                                      ------------                    -----   -----------                    -----
Effect of dilutive securities:
  Warrants..........................                    30,979                                 40,214
  Stock options.....................                   125,436                                 76,210
                                                    -----------                            -----------
Net income per share--Diluted:
  Income available to common
    shareholders and assumed
    conversions.....................  $  1,320,618   4,283,094    $     .31    $ 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
7). For 1998 and 1997, the pro forma earnings per share information was as
follows:
 
<TABLE>
<CAPTION>
                                                                                     1998         1997
                                                                                     -----        -----
<S>                                                                               <C>          <C>
Basic...........................................................................         .32          .20
                                                                                          --           --
                                                                                          --           --
Diluted.........................................................................         .31          .19
                                                                                          --           --
                                                                                          --           --
</TABLE>
 
    As of December 31, 1998, the Company had 69,500 options outstanding, which
were anti-dilutive and, therefore, not considered in the diluted earnings per
share calculation above.
 
NOTE 10: STOCK OPTIONS
 
    The Company's 1995 Stock Option Plan (the Plan) permits the issuance of
stock options for up to 500,000 shares of common stock to selected employees and
outside directors of the Company. The terms of each award shall be determined by
the Board of Directors. Under the terms of the Plan, options granted may be
either nonqualified or incentive stock options (ISOs). The exercise price for
ISOs may not be less than the fair value on the date of the grant.
 
                                       24
<PAGE>
                          ELECTRONIC PROCESSING, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 10: STOCK OPTIONS (CONTINUED)
    A summary of the Company's stock options outstanding as of December 31, 1998
and 1997 is presented below:
 
<TABLE>
<CAPTION>
                                                           1998                     1997
                                                  -----------------------  -----------------------
                                                               WEIGHTED                 WEIGHTED
                                                                AVERAGE                  AVERAGE
                                                               EXERCISE                 EXERCISE
                                                    SHARES       PRICE       SHARES       PRICE
                                                  ----------  -----------  ----------  -----------
<S>                                               <C>         <C>          <C>         <C>
Outstanding, beginning of year..................     225,000   $    4.65
Granted.........................................     171,250       10.53      237,000   $    4.59
Forfeited.......................................     (30,200)       6.53      (12,000)       3.50
Exercised.......................................      (7,400)       3.82
Outstanding, end of year........................     358,650        7.26      225,000        4.65
</TABLE>
 
    The following table summarizes information about stock options under the
plan outstanding at December 31, 1998:
 
<TABLE>
<CAPTION>
                                 OPTIONS OUTSTANDING                      OPTIONS EXERCISABLE
                             ----------------------------               ------------------------
<S>                          <C>          <C>              <C>          <C>          <C>
                                             WEIGHTED-
                                              AVERAGE       WEIGHTED-                 WEIGHTED-
                                             REMAINING       AVERAGE                   AVERAGE
         RANGE OF              NUMBER       CONTRACTUAL     EXERCISE      NUMBER      EXERCISE
      EXERCISE PRICES        OUTSTANDING       LIFE           PRICE     EXERCISABLE     PRICE
---------------------------  -----------  ---------------  -----------  -----------  -----------
$3.85 to $ 4.95............      50,000       3.5 years     $    4.40       50,000    $    4.40
$6.80 to $12.00............      80,000       9.5 years     $    9.25       25,000    $    6.80
$3.50 to $ 9.50............     156,150       9.0 years     $    5.51
$7.86 to $12.63............      72,500       9.5 years     $   11.06
</TABLE>
 
    The Company accounts for this plan under APB Opinion No. 25, under which
only an immaterial amount of compensation cost has been recognized. Had
compensation cost been determined based on the fair value at the grant dates
using FASB Statement No. 123, the Company's December 31, 1998 and 1997 net
income and earnings per share would have been reduced to the following pro forma
amounts:
 
<TABLE>
<CAPTION>
                                                                         1998         1997
                                                                     ------------  ----------
<S>                                                  <C>             <C>           <C>
Net income.........................................  As Reported     $  1,320,618  $  365,499
                                                     Pro forma       $    820,925  $  178,024
 
Net income per share--Basic........................  As reported     $        .32  $      .11
                                                     Pro forma       $        .20  $      .05
 
Net income per share--Diluted......................  As reported     $        .31  $      .11
                                                     Pro forma       $        .19  $      .05
</TABLE>
 
    Proforma amounts presented here are based on actual earnings and consider
only the effects of estimated fair values of stock options.
 
    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 being risk-free
interest rates of 5.0%--6.7%, no expected dividends and expected volatility of
238% and 367% for the years ended December 31, 1998 and 1997, respectively.
 
                                       25
<PAGE>
                          ELECTRONIC PROCESSING, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 10: STOCK OPTIONS (CONTINUED)
    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.
 
    In connection with the initial public offering (SEE NOTE 8), the Company
issued warrants to purchase 160,000 shares of stock at $4.20 per share to its
underwriters. During the year ended December 31, 1998, 104,200 warrants were
converted in a cashless exercise, resulting in 77,368 shares of stock being
issued. In addition, 8,000 warrants were exercised for their exercise price,
resulting in the issuance of an additional 8,000 shares of common stock. At
December 31, 1998, warrants to purchase 47,800 shares of stock remain
outstanding.
 
NOTE 11: 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.
 
      For its Chapter 7 software product, the Company collects revenue from its
      Chapter 7 trustee clients through a marketing agreement with a national
      financial institution in which the Company receives revenues based on the
      level of trustees' deposits with that institution. Revenues generated by
      Chapter 7 trustee clients, that are collected through the agreement with
      the financial institution, totalled $6,288,585 and $3,219,255 for the
      years ended December 31, 1998 and 1997, respectively. Additionally, that
      institution represented 57% of the Company's December 31, 1998 accounts
      receivable balance.
 
NOTE 12: ADDITIONAL CASH FLOWS INFORMATION
 
<TABLE>
<CAPTION>
                                                                                             1998         1997
                                                                                           ---------  ------------
<S>                                                                                        <C>        <C>
NONCASH INVESTING AND FINANCING ACTIVITIES
  Capital lease obligation and notes payable Incurred for equipment......................  $  28,828  $  1,138,134
 
ADDITIONAL CASH INFORMATION
  Interest paid..........................................................................     97,780       181,410
  Income taxes paid......................................................................    654,438       390,000
</TABLE>
 
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.
 
    None.
 
                                       26
<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
11, 1999, and their positions with the Company are set forth below.
 
<TABLE>
<CAPTION>
NAME                                                   AGE                              POSITION
-------------------------------------------------      ---      --------------------------------------------------------
<S>                                                <C>          <C>
Tom W. Olofson*..................................          57   Chairman, Chief Executive Officer, and Director
Christopher E. Olofson...........................          29   President, Chief Operating Officer, and Director
Richard A. Winegar...............................          58   Senior Vice President
Albert T. Annillo................................          48   Senior Vice President
Reve Butler......................................          48   Vice President--Human Resources
Reed A. Eichner..................................          41   Vice President--Operations
Nanci R. Trutna..................................          45   Vice President-Finance and Secretary
Robert C. Levy*..................................          51   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, 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, and
effective October 1, 1998, Mr. Olofson was named President of the Company. He
earned an AB degree from Princeton University in 1992, SUMMA CUM LAUDE. He was
named a Fulbright Scholar and 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.
 
                                       27
<PAGE>
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
        COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT (CONTINUED)
    REVE BUTLER joined EPI as Vice President Human Resources in June, 1998.
During 1998, Ms. Butler was Human Resources Manager in the corporate office at
Sprint Corp. She was Human Resources Manager for Investors Fiduciary Trust
Company from 1986 to 1998 and Employee Development Manager of DST Systems, Inc.
from 1981 to 1986. Ms. Butler has a BS in Business Administration from Culver
Stockton College, and an MS in Counseling from Central Missouri State
University.
 
    NANCI R. TRUTNA assumed her present position as Vice President--Finance in
June 1993. In 1998, she assumed the position of Corporate Secretary. She was
with Merchants Bank, Kansas City, Missouri from 1981 to June 1993 where she
became a Senior Vice President. Ms. Trutna is a Certified Public Accountant and
earned a BSBA in 1975 from the University of North Dakota.
 
    RICHARD A. WINEGAR joined EPI in October 1998 as a Senior Vice President.
Mr. Winegar was previously President of CFDS Limited, a Toronto based subsidiary
of Boston Financial Data Services from 1994 to 1997, and Executive Vice
President/Chief Operations Officer with Investors Fiduciary Trust Company from
1981 to 1994, a Kansas City based unit of State Street Corporation. Mr. Winegar
earned a BS from Central Missouri State University.
 
    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 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
 
    Based upon the Company's review of Forms 3, 4 and 5 filed by directors,
officers and beneficial owners of more than 10% of the Common Stock of the
Company with respect to calendar year 1998, the Company has determined that Ms.
Butler and Mr. Winegar failed to file on a timely basis an initial statement of
beneficial ownership of securities in the Company on Form 3 after each was named
an officer of the Company. The required Form 3's were filed by Ms. Butler and
Mr. Winegar at the time Form 5's were filed on behalf of certain other directors
and officers of the Company.
 
ITEM 10. EXECUTIVE COMPENSATION
 
EXECUTIVE COMPENSATION
 
    The following table sets forth the cash and other compensation paid in 1998,
1997, and 1996 to the Company's Chief Executive Officer and each other executive
officer of the Company who earned in excess of $100,000 in 1998.
 
                                       28
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION (CONTINUED)
                           SUMMARY COMPENSATION TABLE
 
<TABLE>
<CAPTION>
                                                                                     ANNUAL
                                                                                  COMPENSATION
                                                                                  OTHER ANNUAL        ALL OTHER
NAME AND PRINCIPAL POSITION                     YEAR       SALARY      BONUS    COMPENSATION(1)   COMPENSATION(2)(3)
--------------------------------------------  ---------  ----------  ---------  ----------------  ------------------
<S>                                           <C>        <C>         <C>        <C>               <C>
Tom W. Olofson..............................       1998  $  100,114  $       0     $    2,688         $   11,026
  Chairman/CEO                                     1997  $  100,489  $       0     $   31,573         $   11,537
                                                   1996  $   50,000  $  24,000     $   36,827         $   11,434
Christopher E. Olofson......................       1998  $  138,102  $       0     $    3,063         $    6,000
  President/COO                                    1997  $  120,101  $       0     $    2,754         $    3,600
                                                   1996  $  108,101  $       0     $    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 $2,688 in 1998, $3,011
    in 1997 and $3,045 in 1996 for personal use of a Company automobile.
    Includes $3,063 for 1998, $2,754 for 1997 and $3,349 for 1996 for
    Christopher E. Olofson for personal use of Company automobile.
 
(2) Includes $5,026 in 1998, $6,789 in 1997 and $9,075 in 1996 for group
    insurance and $6,000 in 1998, $4,748 in 1997 and $2,359 in 1996 for Company
    matching contributions under the 401(k) plan for Tom W. Olofson. Includes
    $6,000 in 1998, $3,600 in 1997 and $1,620 in 1996 for Company matching
    contributions under the 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
55,000 shares of common stock during the year-ended December 31, 1998. Tom W.
Olofson was not granted any stock options in 1998. The table also includes
information regarding grants of options to other executive officers in 1998.
 
<TABLE>
<CAPTION>
                                                           NUMBER OF
                                                          SECURITIES
                                                          UNDERLYING      EXERCISE     EXPIRATION
NAME                                                    OPTIONS GRANTED     PRICE         DATE
------------------------------------------------------  ---------------  -----------  -------------
<S>                                                     <C>              <C>          <C>
Reve Butler...........................................         5,000      $   12.00          2008
                                                               5,000      $    9.00          2008
                                                               1,000      $    9.50          2008
Christopher Olofson...................................        25,000      $   12.00          2008
                                                              30,000      $    9.00          2008
Nanci Trutna..........................................         5,000      $   12.00          2008
                                                               1,000      $    9.50          2008
Richard Winegar.......................................        10,000      $    8.25          2008
                                                              10,000      $    9.50          2008
Reed Eichner..........................................         1,000      $    9.50          2008
Al Annillo............................................         1,000      $    9.50          2008
TOTAL.................................................        94,000
</TABLE>
 
                                       29
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION (CONTINUED)
    The percent of total options granted to the above officers was 54.9% of the
total number of options granted in 1998. No stock options were exercised during
1998 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 MANAGEMENT
 
    The following table sets forth certain information regarding the beneficial
ownership of shares of Common Stock as of the March 11, 1999 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>
                                                                NUMBER OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1)                           SHARES    PERCENTAGE OWNED
--------------------------------------------------------------  ----------  -----------------
<S>                                                             <C>         <C>
Tom W. Olofson................................................   1,400,000(2)         30.2%
Christopher E. Olofson........................................     209,500(3)          4.5%
Robert C. Levy................................................      22,500           1.0%
W. Bryan Satterlee............................................      10,000(4)             *
All directors and executive officers
  as a group (9 persons)......................................   1,656,000(5)         35.7%
</TABLE>
 
------------------------
 
*   Less than 1%
 
(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 130,000 shares of Common Stock issuable upon exercise of options
    that are currently exercisable.
 
(4) Includes 3,000 shares of Common Stock issuable upon exercise of options that
    are currently exercisable. Excludes 4,500 shares of Common Stock issuable
    upon exercise of options held by Mr. Satterlee that are not currently
    exercisable and will not become exercisable within 60 days.
 
(5) Includes 146,000 shares of Common Stock issuable upon exercise of options
    that are currently exercisable. Excludes 78,000 shares of Common Stock
    issuable 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
 
                                       30
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (CONTINUED)
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. 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 a six-for-one stock split). The Company 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 ("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 "1997
             Registration Statement")
 
      3.1a   Amendment of Articles of Incorporation, dated August 10, 1988; incorporated by reference to Exhibit 3.1a
             to the 1997 Registration Statement.
 
      3.1b   Amendment of Articles of Incorporation, dated October 31, 1995; incorporated by reference to Exhibit
             3.1b to the 1997 Registration Statement.
 
      3.1c   Amendment of Articles of Incorporation, dated April 1, 1996; incorporated by reference to Exhibit 3.1c
             to the 1997 Registration Statement.
 
      3.1d   Amendment of Articles of Incorporation dated February 24, 1998; incorporated by reference to Exhibit
             3.1d to the annual report on Form 10-KSB for the year ended December 31, 1997 (the "1997 Form 10-KSB.")
 
      3.2    Bylaws, as amended and restated; incorporated by reference to Exhibit 3.2 to the Company's Registration
             Statement on Form SB-2 dated May 1, 1998 (Registration Number 333-51525) (the "1998 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 1997 Registration
             Statement.
 
     10.2    Lease between T&J Investment Company and the Company, dated February 20, 1996; incorporated by reference
             to Exhibit 10.2 to the 1997 Registration Statement.
</TABLE>
 
                                       31
<PAGE>
ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
 
<TABLE>
<CAPTION>
  EXHIBIT
  NUMBER                                                   DESCRIPTION
-----------  --------------------------------------------------------------------------------------------------------
<S>          <C>
     10.2a   Amendment to Lease referred to in Exhibit 10.2 dated December 9, 1997; incorporated by reference to
             Exhibit 10.2a to the 1997 Form 10-KSB.
 
     10.3    Form of Underwriters Warrant; incorporated by reference to Exhibit 4.1 to the 1997 Registration
             Statement.
 
     10.4    Loan Agreement between Industrial State Bank and the Company dated March 4, 1997; incorporated by
             reference to Exhibit 10.4b to the 1997 Form 10-KSB.
 
     10.5    Loan Agreement between Industrial State Bank and the Company, dated June 4, 1997; incorporated by
             reference to Exhibit 10.6b to the 1997 Form 10-KSB.
 
     10.6    Loan Agreement between Exchange National Bank and the Company, dated July 21, 1997; incorporated by
             reference to Exhibit 10.7 to the 1997 Form 10-KSB.
 
     10.7    1995 Stock Option Plan, as amended, incorporated by reference to Exhibit 10.7 to the 1998 Registration
             Statement.
 
     23.1    Consent of Baird, Kurtz & Dobson, Certified Public Accountants
 
     27.1    Financial Data Schedule
</TABLE>
 
  -  FILED HEREWITH.
 
REPORTS ON FORM 8-K
 
NONE
 
                                       32
<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 26, 1999
 
<TABLE>
<S>                             <C>  <C>
                                ELECTRONIC PROCESSING, INC.
 
                                By:              /s/ TOM W. OLOFSON
                                     -----------------------------------------
                                                   Tom W. Olofson
                                                    CHAIRMAN/CEO
</TABLE>
 
    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 26, 1998.
 
          SIGNATURE                      CAPACITY
------------------------------  --------------------------
 
                                Chairman of the Board
      /s/ TOM W. OLOFSON          Chief Executive Officer
------------------------------    (Principal Executive
        Tom W. Olofson            Officer)
                                  Director
 
  /s/ CHRISTOPHER E. OLOFSON    President
------------------------------    Chief Operating Officer
    Christopher E. Olofson        Director
 
                                Vice President of Finance
     /s/ NANCI R. TRUTNA          (Principal Financial
------------------------------    Officer and Principal
       Nanci R. Trutna            Accounting Officer)
 
      /s/ ROBERT C. LEVY
------------------------------  Director
        Robert C. Levy
 
    /s/ W. BRYAN SATTERLEE
------------------------------  Director
      W. Bryan Satterlee
 
                                       33