<PAGE>


                                          
                                          
                         SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, D. C. 20549
                                          
                                    FORM 10-QSB
                                          
                     QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
                       OF THE SECURITIES EXCHANGE ACT OF 1934
                                          
                      FOR THE QUARTER ENDED SEPTEMBER 30, 1998
                                          
                           COMMISSION FILE NUMBER 0-22081
               __________________________________________________
                                          
                                          
                            ELECTRONIC PROCESSING, INC.
                                          
                                          

                MISSOURI                                 48-1056429
      (State or Other Jurisdiction of    (IRS Employer Identification Number)
        Incorporation or Organization)                
                                          
                 501 KANSAS AVENUE, KANSAS CITY, KANSAS 66105-1300
                      (Address of Principal Executive Office)
                                          
                                    913-321-6392
                            (Issuer's Telephone Number)


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 (or for such shorter
period that the registrant was required to file such reports),  and  (2) has
been subject to such filing requirements for the past 90 days.  Yes  X  No
                                                                    ----    ---

The number of shares outstanding of registrants common stock at October 31,
1998, was 4,633,268 shares


Transitional Small Business Disclosure Format (Check one):  Yes    No  X 
                                                                --    --



<PAGE>

                                          

                                          
                                          
                                          
                                          
                            ELECTRONIC PROCESSING, INC.
                                    FORM 10-QSB
                          QUARTER ENDED SEPTEMBER 30, 1998
                                          
                                      CONTENTS

<TABLE>
<CAPTION>
                                                                           PAGE
                                                                           ----
<S>                                                                        <C>
PART 1 - FINANCIAL INFORMATION

Item 1. Financial Statements

               Statements of Income -                            
                    Three months ended September 30, 1997 and 1998             3

               Balance Sheets - December 31, 1997 and September 30, 1998       4

               Statements of Cash Flows -    
                    Nine months ended September 30, 1997 and 1998              6

               Notes to Financial Statements - September 30, 1997 and 1998     7

Item 2. Management's Discussion and Analysis of Financial 
        Condition and Results of Operations                                    8



PART II - OTHER INFORMATION

Item 1.        Legal Proceedings                                              10
                    
Item 2.        Changes in Securities                                          10

Item 3.        Defaults Upon Senior Securities                                10

Item 4.        Submission of Matters to a Vote of Security Holders            10

Item 5.        Other Information                                              10

Item 6.        Exhibits and Reports on Form 8-K                               10

Signatures                                                                    11
                         
</TABLE>



<PAGE>


                                          
                                          
                                          
                            ELECTRONIC PROCESSING, INC.
                                STATEMENTS OF INCOME
       FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
                                    (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                         Nine Months Ended         Three Months Ended 
                                                           September  30              September  30
                                                      ------------------------    ------------------------
                                                         1997          1998          1997          1998
                                                      ----------    ----------    ----------    ----------
<S>                                                   <C>           <C>           <C>           <C>
OPERATING REVENUES                                    $6,096,467    $8,473,235    $2,223,385    $3,112,589

COST OF GOODS SOLD AND DIRECT COSTS
     Processing costs                                  2,151,158     2,837,476       769,748     1,016,683
     Depreciation and amortization                       763,408     1,032,387       284,539       388,164
                                                      ----------    ----------    ----------    ----------
                                                       2,914,566     3,869,863     1,054,287     1,404,847
                                                      ----------    ----------    ----------    ----------
                                                      ----------    ----------    ----------    ----------
GROSS PROFIT                                           3,181,901     4,603,372     1,169,098     1,707,742
                                                      ----------    ----------    ----------    ----------

OPERATING EXPENSES
      General and administrative                       2,284,361     3,138,005       814,367     1,204,797
      Depreciation and amortization                       67,984       119,766        23,105        39,033
                                                      ----------    ----------    ----------    ----------
                                                       2,352,345     3,257,771       837,382     1,243,830
                                                      ----------    ----------    ----------    ----------

INCOME FROM OPERATIONS                                   829,556     1,345,601       331,716       463,912
                                                      ----------    ----------    ----------    ----------
                                                      ----------    ----------    ----------    ----------

OTHER INCOME (EXPENSE)
      Interest income                                     48,490       239,801        16,633       160,713
      Interest expense                                  (130,957)      (91,285)      (25,949)      (10,224)
      Other                                                1,007       (15,067)          185       (15,391)
                                                      ----------    ----------    ----------    ----------
                                                         (81,460)      133,449        (9,131)      135,098
                                                      ----------    ----------    ----------    ----------

NET INCOME BEFORE INCOME TAXES                          $748,096    $1,479,050      $322,585      $599,010
                                                      ----------    ----------    ----------    ----------
PROVISION FOR INCOME TAXES
       Current                                           279,993       481,470        92,883       150,089
       Deferred                                           24,400        88,669        38,348        66,500
       Deferred - Related to Conversion to
      "C" Corporation                                    272,900   
                                                      ----------    ----------    ----------    ----------
                                                         577,233       570,137       131,231       216,589
                                                      ----------    ----------    ----------    ----------

INCOME (LOSS)                                           $170,863      $908,913      $191,354      $382,421
                                                      ----------    ----------    ----------    ----------
                                                      ----------    ----------    ----------    ----------
       Earnings (loss) per share - diluted                   .05           .22           .06           .08

PRO FORMA DATA
       Income before income taxes                        748,096     1,479,050       322,585       599,010
       Provision for income taxes                        304,333       570,137       131,231       216,589
                                                      ----------    ----------    ----------    ----------
PRO FORMA NET INCOME                                    $443,763      $908,913      $191,354      $382,421
                                                      ----------    ----------    ----------    ----------
                                                      ----------    ----------    ----------    ----------

PRO FORMA EARNINGS PER SHARE
       Basic                                                $.14          $.23          $.06          $.08
                                                      ----------    ----------    ----------    ----------
                                                      ----------    ----------    ----------    ----------
       Diluted                                              $.13          $.22          $.05          $.08
                                                      ----------    ----------    ----------    ----------
                                                      ----------    ----------    ----------    ----------

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
       Basic                                           3,200,733     3,995,961     3,400,000     4,631,266
       Diluted                                         3,440,700     4,114,096     3,500,298     4,782,877
 
</TABLE>

                     SEE NOTES TO FINANCIAL STATEMENTS

<PAGE>



                                          
                            ELECTRONIC PROCESSING, INC.
                                   BALANCE SHEETS
                                          
                      DECEMBER 31, 1997 AND SEPTEMBER 30, 1998
                                    (UNAUDITED)
                                          
                                       ASSETS

<TABLE>
<CAPTION>
                                                    December 31,  September 30,
                                                        1997          1998
                                                    ------------  -------------
<S>                                                 <C>           <C>
CURRENT ASSETS
   Cash and cash equivalents                          $1,835,233  $11, 673,721
   Accounts receivable, trade, less allowance for
   doubtful accounts of $5,000                         1,114,424     1,625,847
   Prepaid expenses and other                            159,845       173,046
   Deferred income taxes                                  18,823        28,000
                                                      ----------  ------------
      Total Current Assets                             3,128,325    13,500,613
                                                      ----------  ------------

PROPERTY AND EQUIPMENT, At cost         
   Furniture and fixtures                                551,832       500,775
   Computer equipment                                  5,152,228     7,408,920
   Office equipment                                      325,429       320,106
   Leasehold improvements                                834,806       860,018
   Transportation equipment                               14,969        14,969
                                                      ----------  ------------
                                                       6,879,264     9,104,788
   Less accumulated depreciation                       3,338,301     3,775,205
                                                      ----------  ------------
                                                       3,540,963     5,329,583
                                                      ----------  ------------

SOFTWARE DEVELOPMENT COSTS, Net of
amortization                                           1,397,375     1,945,169
                                                      ----------  ------------

INTANGIBLE ASSETS, Net of amortization
   Excess of cost over fair value of net assets
    acquired                                              61,486        59,976
                                                      ----------  ------------

OTHER ASSETS
                                                          32,819         6,626
                                                      ----------  ------------


                                                      $8,160,968   $20,841,967
                                                      ----------  ------------
                                                      ----------  ------------
</TABLE>
   
SEE NOTES TO FINANCIAL STATEMENTS 


<PAGE>

   
   
   
   
                        LIABILITIES AND STOCKHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                     December 31,     September 30, 
                                                        1997              1998
                                                     ------------     -------------
<S>                                                  <C>              <C>
CURRENT LIABILITIES
   Note payable - line of credit                          $1,000
   Current maturities of long-term debt                 $626,665       221,958
   Accounts payable                                      491,217       794,638
   Accrued expenses                                      200,639       299,240
   Income Taxes Payable                                   32,960        99,250
                                                       ---------     ---------
      Total Current Liabilities                        1,352,481     1,415,086
                                                       ---------     ---------

LONG-TERM DEBT                                           889,046       128,650
                                                       ---------     ---------

DEFERRED INCOME TAXES                                    320,452       318,500


STOCKHOLDERS' EQUITY
   Common stock, $.01 par value; authorized 
     10,000,000 shares; issued and outstanding
     3,400,000 shares December 31, 1997 and 
     4,633,068 shares Sept. 30, 1998                      34,000        46,331

   Additional paid-in capital                          5,202,000    17,661,500
   Retained earnings                                     362,989     1,271,901
                                                       ---------     ---------
                                                       5,598,989    18,979,732
                                                       ---------     ---------


                                                      $8,160,968   $20,841,967
                                                       ---------     ---------
                                                       ---------     ---------

</TABLE>




<PAGE>

                             ELECTRONIC PROCESSING, INC.
                              STATEMENTS OF CASH FLOWS
               FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
                                    (UNAUDITED)
                                          
                                          

<TABLE>
<CAPTION>
                                                         1997           1998
                                                        -------      ---------
<S>                                                    <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income (loss)                                     170,863       908,913
   Items not requiring (providing) cash:
      Provision Deferred Income Taxes                    297,300       (11,129)
      Depreciation                                       584,216       838,356
      Amortization of software development costs         245,666       312,287
      Amortization of intangible assets                    1,510         1,510
      (Gain) loss on disposal of equipment                  (817)       15,912
   Changes in:
      Accounts receivable                               (201,169)     (511,423)
      Prepaid expenses and other assets                   16,051        12,992
      Accounts payable and accrued expenses             (155,915)      402,022

      Accrued income taxes                                61,933        66,290
                                                       ---------     ---------
        Net cash provided by operating activities      1,019,638     2,035,730
                                                       ---------     ---------

CASH FLOWS FROM INVESTING ACTIVITIES
   Proceeds from sale of property and equipment            2,800         1,200
   Purchase of property and equipment                   (956,786)   (1,654,667)
   Expenditures for software development costs          (380,341)     (852,406)
                                                       ---------     ---------
        Net cash used in investing activities         (1,334,327)   (2,505,873)
                                                       ---------     ---------

CASH FLOWS FROM FINANCING ACTIVITIES
   Net borrowings (payments) under line-of-credit 
      agreement                                         (499,000)
   Principal payments under capital lease obligation    (681,188)     (287,105)
   Principal payments on long-term debt               (1,045,761)   (1,876,095)
   Principal repayment subordinated note                (400,000)            0
   Dividends paid                                       (250,000)            0
   Stock issuance costs                                 (834,968)            0
   Proceeds stock issuance                             5,600,000    12,471,831
                                                       ---------     ---------
      Net cash provided by financing activities        1,889,083    10,308,631
                                                       ---------     ---------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS   1,574,394     9,838,488
                                                       ---------     ---------

CASH AND CASH EQUIVALENTS, BEGINNING PERIOD                4,882     1,835,233
                                                       ---------     ---------

CASH AND CASH EQUIVALENTS, END OF PERIOD              $1,579,276   $11,673,721
                                                       ---------     ---------

</TABLE>




SEE NOTES TO FINANCIAL STATEMENTS




<PAGE>


                            ELECTRONIC PROCESSING, INC.
                                          
                           NOTES TO FINANCIAL STATEMENTS
                                 DECEMBER 31, 1997
                                        AND 
                            SEPTEMBER 30, 1997 AND 1998

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. EPI serves a national client base with specialty products 
that facilitate the financial and administrative aspects of bankruptcy 
management and that are accompanied by a high level of coordinated support 
including network integration, post-installation support and value added 
services.  The Company extends unsecured credit to customers throughout the 
United States.

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:

                    Furniture and fixtures                  10 years
                    Computer equipment                      5 years
                    Office equipment                        5-10 years
                    Transportation equipment                3-5 years

               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.


<PAGE>

               




INTANGIBLE ASSETS

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

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 
trustee's deposits with that institution.  Revenues for Chapter 13 processing 
and noticing are recorded monthly at the completion of the services based on 
the trustee's 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. 
               
               Prior to the Company's initial public offering in February, 
1997, the Company, with the consent of its shareholders, had elected under 
the Internal Revenue Code to be taxed as an S corporation.  In lieu of 
corporate income taxes, the shareholders were taxed on their proportionate 
shares of the Company's taxable income.  

CASH EQUIVALENTS

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

INTERIM FINANCIAL STATEMENTS

               The balance sheet as of September 30, 1998 and the statements 
of income, shareholders' equity and cash flows for the nine month periods 
ended September 30, 1997 and 1998 have been prepared by the Company without 
audit.  In the opinion of management, all adjustments (which included only 
normal, recurring adjustments) necessary for fair presentation have been 
made.  The results for these periods are not necessarily indicative of the 
results to be expected for the full year.

NOTE 2:  INITIAL PUBLIC OFFERING

               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.



<PAGE>



               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>
<CAPTION>
<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 adjustment for 1997 eliminated the 
initial income tax provision of $272,900.

NOTE 3:   ADDITIONAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                                  Nine Months Ended
                                                                ---------------------
                                               December 31,         September 30
                                                  1997            1997         1998
                                               ------------     ---------   ---------
                                                                      (unaudited)
<S>                                            <C>              <C>         <C>
NONCASH INVESTING AND FINANCING
     ACTIVITIES
Capital lease obligation and notes 
  payable incurred for equipment                $1,138,134        $696,079    $997,097

ADDITIONAL CASH INFORMATION
     Interest paid                                 181,410         130,957      91,285
     Income taxes paid                             390,000         218,000     535,350

</TABLE>



<PAGE>





MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF 
OPERATIONS

NINE-MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH NINE-MONTHS ENDED 
SEPTEMBER 30, 1997 

        Operating revenues increased 39.0%, or  $2,376,768 to $8,473,235 in 
the nine-month period ended September 30, 1998, compared to $6,096,467 in the 
nine-month period ended September 30, 1997. Approximately 97.4% of the growth 
in operating revenues were attributable to revenues generated by Chapter 7. 
Chapter 7 sales increased 104.1%, or $2,314,493 to $4,538,574 in the 
nine-month period ended September 30, 1998, compared to $2,224,081 in the 
nine-month period ended September 30, 1997. 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 monthly fees paid to EPI.  Chapter 13 revenue 
increased 1.6 %, or $62,275 to $3,934,661 in the nine- month period ended 
September 30, 1998 compared to $3,872,386 in the nine-month period ended 
September 30, 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 32.8%, or 
$955,297 to $3,869,863 in the nine-month period ended September 30, 1998, 
compared to $2,914,566 in the nine-month period ended September 30, 1997. 
Total cost of goods sold and direct costs as a percentage of operating 
revenues decreased to 45.7 % in the nine-month period ended September 30, 
1998 compared to 47.8% in the six-month period ended September 30, 1997, 
primarily due to TCMS for Chapter 7, which has higher gross margins, 
comprising a greater percentage of operating revenues in the nine-month 
period ended September 30, 1998. Chapter 7 as a percentage of operating 
revenues increased to 53.6% in the nine-month period ended September 30, 1998 
from 36.5% in the nine-month period ended September 30, 1997. Processing 
costs increased 31.9%, or  $686,318, to $2,837,476 in the nine-month period 
ended September 30, 1998, compared to $2,151,158 in the nine-month period 
ended September 30, 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 33.5% in the nine-month period 
ended September 30, 1998 compared to 35.3% in the nine-month period ended 
September 30, 1997.  Depreciation and amortization increased 35.2%, or 
$268,979, to $1,032,387 in the nine-month period ended September 30, 1998, 
compared to $763,408 in the nine-month period ended September 30, 1998, 
primarily due to the purchase of computer equipment for the Company's 
Chapter 7 product.

           Operating expenses increased 38.5%, or $905,426 to $3,257,771 in 
the nine-month period ended September 30, 1998, compared to $2,352,345 in the 
nine-month period ended September 30, 1997. Operating expenses as a 
percentage of operating revenues was 38.4 % in the nine-month period ended 
September 30, 1998 compared to 38.6 % in the nine-month period ended 
September 30, 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 41.4 %, or $310,744 to $1,060,701 in the 
nine-month period ended September 30, 1998, compared to $749,957 in the 
nine-month period ended September 30, 1997. 

          Other income (expense) which includes interest income and interest 
expense, was $133,449 in the nine-month period ended September 30, 1998 
compared to ($81,460) in the 




<PAGE>


nine-month period ended September 30, 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 1,600,000 shares of Common Stock in the Company's 
February 1997 initial public offering and 1,000,000 shares of Common Stock in 
a secondary public offering in June, 1998. Outstanding debt was paid off with 
a portion of the net proceeds from the stock offerings 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 nine-month period ended September 30, 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 38.5% and 40.1% (pro-forma) for the nine-month periods ended 
September 30, 1998 and September 30, 1997, respectively.

        Net income increased 104.8%, or $465,150, to  $908,913 in the 
nine-month period ended September 30, 1998, compared to pro forma net income 
of  $443,763 in the nine-month period ended September 30, 1997. Net income 
as a percentage of operating revenues increased to 10.7% in the nine-month 
period ended September 30, 1998 from 7.3% in the nine month period ended 
September 30, 1997.

QUARTER ENDED SEPTEMBER 30, 1998 COMPARED WITH QUARTER ENDED 
SEPTEMBER 30, 1997

         Operating revenues increased 40.0%, or $889,204, to $3,112,589 in 
the three-month period ended September 30, 1998, compared to $2,223,385 in 
the three-month period ended September 30, 1997.  All of the growth in 
operating revenues was attributable to Chapter 7. Chapter 7 revenues 
increased 110.2 %, or $925,806, to $1,765,785 in the three-month period ended 
September 30, 1998, compared to $839,979 in the three-month period ended 
September 30, 1997.  The increase in Chapter 7 revenue was due primarily to 
the growth in new Chapter 7 trustee clients resulting in higher monthly fees 
paid to EPI. Chapter 13 revenue decreased 2.6 %, or $36,602 to $1,346,804 in 
the three-month period ended September 30, 1998 compared to $1,383,406 in the 
three-month period September 30, 1997. The decrease in Chapter 13 revenue 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. Also, additional cost savings in 
direct processing costs were passed on to the Chapter 13 trustees by reducing 
the monthly fee charged.

           Total cost of goods sold and direct costs increased 33.3%, or 
$350,560, to $1,404,847 in the three-month period ended September 30, 1998, 
compared to $1,054,287 in the three-month period ended September 30, 1997. 
Total cost of goods sold and direct costs as a percentage of operating 
revenues decreased to 45.1 % in the three-month period ended September 30, 
1998, compared to 47.4% in the three-month period ended September 30, 1997, 
primarily due to TCMS for Chapter 7, which has a higher gross margin, 
comprising a greater percentage of operating revenues in the three-month 
period ended June 30, 1998. Chapter 7 as a percentage of operating revenues 
increased to 56.7% in the three-month period ended September 30, 1998, from 
37.8%   in the three-month period ended September 30, 1997. Processing costs 
increased 32.1%, or $246,935, to $1,016,683 in the three-month period ended 
September 30, 1998, compared to $769,748 in the three-month period ended 
September 30, 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.  Deprecation and 
amortization increased 36.4%, or $103,625, to $388,164 in the three-month 
period ended September 30, 1998, compared to $284,539 in the three-month 
period ended September 30, 1997, primarily due to the purchase of computer 
equipment for the Company's Chapter 7 product.




<PAGE>


           Operating expenses increased 48.5%, or $406,448, to $1,243,830 in 
the three-month period ended September 30, 1998, compared to $837,382 in the 
three-month period ended September 30, 1997. Operating expenses as a 
percentage of operating revenues was 40.0% in the three-month period ended 
September 30, 1998 compared to 37.7% in the three-month period ended 
September 30, 1997. The increase in operating expenses was due primarily to 
increases in general and administrative infrastructure necessary to support a 
higher level of revenues, including additional sales and marketing expenses. 
Sales and marketing expenses increased 74.2%, or $182,771, to $429,173 in the 
three-month period ended September 30, 1998, compared to $246,402 in the 
three-month period ended September 30, 1997.  
            
            Other income (expense), which includes interest income and 
interest expense, was $135,098 in the three-month period ended September 30, 
1998, compared to ($9,131) in the three-month period ended September 30, 
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 1,000,000 
shares of Common Stock in the Company's June 1998 stock Offering.

             The Company's effective tax rates were 36.2% and 40.7%  for the 
three-month periods ended September 30, 1998 and September 30, 1997, 
respectively.

              Net income increased 99.9%, or $191,067, to $382,421 in the 
three-month period ended September 30, 1998, compared to net income of 
$191,354 in the three-month period ended September 30, 1997. Net income as a 
percentage of operating revenues increased to 12.3% in the three-month period 
ended September 30, 1998 from 8.6% in the three-month period ended 
September 30, 1997.

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 
21st century dates from 20th 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 two years, 
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 this year, 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 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.



<PAGE>


               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 this year.  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 
13 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.

LIQUIDITY AND CAPITAL RESOURCES

     The Company's liquidity position is strong with total cash and cash 
equivalents of $11,673,721 at September 30, 1998 and working capital of 
$12,085,527.

     The Company completed a public offering in June, 1998 of 1,000,000 
shares of Common Stock and 140,500 shares of Common Stock in an 
over-allotment at $12.00 a share to raise $12,727,980 in net proceeds. 
$1,724,089 of debt was paid off with these net proceeds. 

     Net cash provided by operating activities was $1,019,638 for the 
nine-months ended September 30, 1997 and  $2,035,730 for the nine-months 
ended September 30, 1998. The net cash provided by operating activities in 
the nine-months ended September 30, 1997 consisted primarily of net income 
before taxes of  $530,096, depreciation and amortization of $831,392, offset 
by an increase in accounts receivable of $201,169 and a decrease in accounts 
payable and accrued expenses of $155,915. The outstanding balance of accounts 
receivable balance has increased primarily due to the growth in revenue.

     The net cash provided by operating activities for the nine-months ended 
September 30, 1998 consisted primarily of net income before taxes of  
$964,074, depreciation and amortization of $1,152,153, and an increase in 
accounts payable and accrued expenses of $402,022 offset primarily by an 
increase in accounts receivable of $511,423. 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 Company invested in property and equipment totaling $1,652,865 and 
$2,651,764 for the nine-month period ended September 30, 1997, and September 
30, 1998, respectively, which related principally to the installation of 
computer equipment for the Company's Chapter 7 product.

     The Company incurred expenditures for software costs totaling $380,341 
and $852,406 for the nine-months ended September 30, 1997, and September 30, 
1998, 



<PAGE>


respectively. In April of 1998 the Company acquired a PC-based product for 
Chapter 13 trustees and this purchase is reflected in the September 30, 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. 

FORWARD-LOOKING STATEMENTS

               This Form 10-QSB 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, 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.

                                          

                                      
<PAGE>

                            ELECTRONIC PROCESSING, INC.
                           SEPTEMBER 30, 1998 FORM 10-QSB
                                          
                            PART II - OTHER INFORMATION
                                          
ITEM 1. LEGAL PROCEEDINGS

None

ITEM 2. CHANGES IN SECURITIES

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5.  OTHER INFORMATION

None


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) EXHIBITS
The following Exhibit is filed by attachment to this Form 10-QSB:

<TABLE>
<CAPTION>

Exhibit
Number         Description of Exhibit                      Page  
--------       -----------------------                   ---------
<S>            <C>                                       <C>
  27           Financial Data Schedule                       13

</TABLE>

(b) REPORTS ON FORM 8-K:

None
                                          
                                          


<PAGE>

                                          
                                          
                                     SIGNATURES
                                          
                                          
               In accordance with the requirements of the Exchange Act, the 
registrant caused this report to be signed on its behalf by the undersigned, 
thereunto duly authorized.

                              
                         

                                                
                                        ELECTRONIC PROCESSING, INC.
                                             

Date:          November 12, 1998        /s/  Tom W. Olofson 
                                        ------------------------
                                             Tom W. Olofson
                                             Chairman of the Board
                                             Chief Executive Officer
                                             (Principal Executive Officer)
                                             Director


Date:          November 12, 1998        /s/ Nanci R. Trutna
                                        -------------------------
                                             Nanci R. Trutna
                                             Vice President Finance
                                             (Principal Financial Officer)
                                             




                    
FINANCIAL DATA SCHEDULE

This schedule contains summary financial information extracted from 
Electronic Processing, Inc. Statement of Income for the nine months ended 
September 30, 1998 and Balance Sheet as of September 30, 1998 qualified in 
its entirety by reference to such financial statements.