SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 22, 1999
ELECTRONIC CLEARING HOUSE, INC.
(Exact name of registrant as specified in its charter)
NEVADA 0-15245 93-0946274
(State or other (Commission (IRS Employer
jurisdiction File Number) Identification No.)
of incorporation)
28001 Dorothy Drive, Agoura Hills, California 91301
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (818) 706-8999
(Former name or former address, if changes since last report)
ITEM 5. OTHER EVENTS
On March 8, 1999, Electronic Clearing House, Inc. (the "Company")
issued a press release announcing that it has entered into a letter
of intent, dated February 22, 1999, to acquire the assets of Magic
Software Development, Inc. of Albuquerque, New Mexico ("Magic").
Magic provides electronic check conversion, electronic check
representment, payday loan, check verification and check guarantee
solutions to financial services companies and retailers. The
transaction consideration contemplates a fixed number of the
Company's stock and a performance-based earn-out component. The
closing of the proposed acquisition is subject to negotiation and
execution of definitive agreements and satisfaction of certain pre-
closing conditions.
The press release issued by the Company is attached hereto as
Exhibit 99.1 and is incorporated herein by reference.
ITEM 7. EXHIBITS
Exhibit
Number Description of Document
99.1 Press release issued and dated March 8, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ELECTRONIC CLEARING HOUSE, INC.
(Registrant)
By \s\ Alice L. Cheung
Alice L. Cheung, Treasurer &
Chief Financial Officer
Dated: March 8, 1999
EXHIBIT 99.1
FOR IMMEDIATE RELEASE
March 8, 1999
ECHO ANNOUNCES AGREEMENT IN PRINCIPAL
TO ACQUIRE MAGIC SOFTWARE DEVELOPMENT, INC.
Agoura Hills, Calif. -- Electronic Clearing House Inc. (NASDAQ:ECHO) today
announced it has signed a letter of intent to acquire Magic Software
Development, Inc (Magic). Magic provides electronic check conversion,
electronic check re-presentment, payday loan, check verification, and check
guarantee solutions to financial services companies and retailers. The
transaction consideration will include a fixed number of shares of ECHO's
common stock and a performance-based earn-out component.
"Merchants are asking for a complete solution that includes electronic check
conversion and re-presentment along with credit card processing", stated Joel
M. Barry, Chairman and Chief Executive Officer of ECHO. "Magic brings the
check processing power and industry knowledge that complements ECHO's
offerings."
Based in Albuquerque, New Mexico, Magic has 11 employees and processes over 75
million check verification transactions per year, totaling over two billion
dollars. Since 1992, Magic has been an industry leader in check verification
and guarantee processing. The company has a depth of experience, processing
for large accounts such as National Check Network (NCN). NCN is a coalition
of 68 independently owned check collection agencies, which have formed one of
the largest national databases by sharing negative check information.
In addition to current offerings, Magic is a pioneer in the development of
electronic check conversion and re-presentment services. Several merchants
are benefiting from these services and full market rollout will commence in
1999. In addition, Magic is actively shaping the development of future
services through their membership in the Electronic Check Council (ECC). The
ECC develops new rules and regulations for the National Automated Clearing
House Association (NACHA). The ECC has developed a program for check
conversion and re-presentment, and is currently developing a pilot program for
account receivable check truncation. Magic is well positioned to take
advantage of these exciting new financial products.
"Electronic processing is lowering the cost of doing business for merchants",
said Kris D. Winckler, President of Magic Software Development. "Merchants are
driven to add electronic processing to become more cost efficient." New
financial products, such as those described above, are the future of
electronic commerce and few companies are prepared for the emerging landscape.
By providing a complete check conversion system that includes a front-end
authorization and capture and back-end processing and settlement, Magic is
strategically positioned to capitalize on these new markets.
Market Environment for Electronic Checks
Today's financial environment is favorable for the benefits electronic check
services can provide. Checks are a popular and still a viable payment method
and are forecasted to remain so into the foreseeable future. Check volume is
increasing by 1.5 billion per year and estimated to increase until 2025.
Industry statistics show 200 million Americans have checking accounts and 84%
use checks as their primary method of payment. Over 65 billion checks are
written annually and of these approximately 18 billion are written at the
retail point-of-sale.
Though the use of checks is beneficial for customers, the costs associated
with fraud, deposit preparation, transportation, clearing, return item
handling and collection are significant to retailers. Check fraud in 1996
resulted in over $12 billion in losses with supermarkets alone losing more
than $111 million. In the past two years, 54% of retailers report an increase
in returned checks; 46% say they have had an increase in bad check write-offs.
The benefits of electronic check processing on fraud reduction and costs are
significant. Without electronic check processing, merchants must rely on a
slow, paper-based check clearing system to receive final payment or to be
notified of a return. An electronic check can be automatically re-presented
two additional times without manual intervention and mail delays. This
reduces the collection timeframe by ten or more days, improves cash
management, and reduces risk. Merchants prefer this collection method since a
collection agency will not be initially calling their customers.
Electronic Check Conversion Process
Electronic check conversion is the process whereby a check is converted at the
point-of-sale into a debit transaction that is electronically processed
through the Automated Clearing House (ACH) network. The customer presents a
blank paper check at the point-of-sale, which is used to initiate an
electronic transaction. The check is scanned through a check reader where the
customer's account information is captured. The amount of the check is then
hand-entered on a terminal keypad.
The checking account information is then automatically verified against a
check database. If no negative information is found, an authorization slip is
printed for the check writer to sign. This slip allows the paper check item
to be converted into an electronic item through the ACH system. The paper
check is stamped VOID and either returned to the consumer or retained by the
merchant. Settlement is made to the merchant with an ACH credit transaction
that deposits the purchase amount into the merchant's account.
The benefits of this emerging process are enormous. Due to the compressed
processing time, check fraud can be detected days before conventional paper-
based methods. Merchants are informed of Non Sufficient Funds (NSF)
transactions as many as 10 days earlier, allowing the collection process to be
expedited and check databases to be updated sooner. This reduces merchant
loss from these accounts.
In addition to the above benefits, fewer individuals have visibility to the
customer's account information. Approximately ten different people normally
handle a paper check before it gets to the Receiving Depository Financial
Institution (RDFI). With electronic check conversion, only the check writer
and the cashier will view the customer's account information.
Electronic Check Re-presentment
A complementary process to check conversion is electronic check re-
presentment. This is the process of converting a non-sufficient funds (NSF)
or uncollected funds check into an electronic item. These items are then sent
through the ACH network for collection instead of being manually processed by
a collection agency.
Check Verification
Electronic check verification is the process of using an electronic device to
verify information about a check being presented for payment. The information
is verified against data, which have previously been collected and stored in a
database. A verification compares information to a negative database, a
positive database, or combination of both.
New Internet Payment Solution
ECHO was one of the first and still few processors to accept credit card
payment transactions over the Internet. The addition of Magic check-related
services will allow ECHO to enhance its Internet payment options to include
checks as well as credit cards. Having both credit card and check payment
solutions under ECHO's management and control makes ECHO one of a select few
processors in the nation who can offer such services to merchants. "The Magic
acquisition significantly contributes to ECHO's strategy of being a one-stop
shop for merchants", stated Mr. Barry.
Certain of the above statements may be forward-looking statements that involve
risks and uncertainties. In such instances, actual results could differ
materially as a result of a variety of factors, including competitive
developments and risk factors listed from time to time in the Company's SEC
reports.
Electronic Clearing House, Inc. provides credit card processing, check
guarantee, inventory tracking services and various Internet services to over
17,000 retail merchants and U-Haul dealers across the nation. Through its
subsidiary, Computer Based Controls, ECHO designs, develops and manufactures
software and point-of-sale hardware that is utilized as credit card processing
terminals, automated money order dispensers, utility bill payment systems, and
inventory tracking devices.
# # #
Media Contact:
Donna Camras, Corporate Secretary URL: http://www.echo-inc.com
818-706-8999, ext. 3033 E-MAIL: [email protected]
Electronic Clearing House, Inc.
Agoura Hills, Calif.
