SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) April 27, 1999
ELECTRONIC CLEARING HOUSE, INC.
(Exact name of registrant as specified in its charter)
NEVADA 0-15245 93-0946274
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
28001 Dorothy Drive, Agoura Hills, California 91301
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (818) 706-8999
- ------------------------------------------------------------------------------
The undersigned registrant, in order to provide the financial statements
required to be included in the Current Report on Form 8-K dated May 11, 1999
in connection with the acquisition of Magic Software Development, Inc., hereby
amends the following item or other portions of such Current Report on form 8-K
set forth in the pages attached hereto.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
The financial statements and information in the following table of
contents and attached hereto are hereby filed with the Commission in
accordance with the above-referenced item.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
The following financial statements of the Magic Software Development,
Inc. ("Magic") are submitted herewith on the indicated pages:
PAGE NO.
Independent Auditor's Report . . . . . . . . . . . . . . . . . . . . . . . . .5
Balance Sheet -
December 31, 1998 and March 31, 1999 (unaudited) . . . . . . . . . . . . . .6
Statements of Operations -
For the year ended December 31, 1998 and for the three months
ended March 31, 1998 and 1999 (unaudited). . . . . . . . . . . . . . . . . .8
Statement of Changes in Stockholders' Equity -
For the year ended December 31, 1998 . . . . . . . . . . . . . . . . . . . .9
Statement of Cash Flows -
For the year ended December 31, 1998 and for the three months
ended March 31, 1998 and 1999 (unaudited). . . . . . . . . . . . . . . . . 10
Notes to Financial Statements -
For the year ended December 31, 1998 . . . . . . . . . . . . . . . . . . . 11
(b) PRO FORMA FINANCIAL INFORMATION.
The following unaudited pro forma combined financial information of
Electronic Clearing House, Inc. ("ECHO" and/or the "Registrant") and
Magic are submitted herewith on the indicated pages.
PAGE NO.
Pro Forma Combined Balance Sheet at March 31, 1999 (unaudited) . . . . . . . 19
Pro Forma Combined Statements of Operations:
For the year ended September 30, 1998 (unaudited). . . . . . . . . . . . . 21
For the six months ended March 31, 1999 (unaudited). . . . . . . . . . . . 22
Notes to Pro Forma Combined Financial Data (unaudited) . . . . . . . . . . . 23
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
The unaudited pro forma combined balance sheet of the Registrant as of March
31, 1999 reflects the financial position of the Registrant after giving effect
to the acquisition of Magic discussed in Item 2 and assumes the acquisition
took place on March 31, 1999 and was accounted for as a purchase. The
unaudited pro forma combined statements of operations for the fiscal year
ended September 30, 1998 assume that the acquisition occurred on October 1,
1997, and are based on the operations of Registrant for the year ended
September 30, 1998 and for the year ended December 31, 1998 of Magic. The
unaudited pro forma combined statements of operations for the six months ended
March 31, 1999 are based on the operations of Registrant for the six month
period ended March 31, 1999 and based on the operations of Magic for the three
month period ended March 31, 1999.
The unaudited pro forma combined financial statements have been prepared by
Registrant based on historical information, preliminary estimates and
assumptions management deems appropriate. The unaudited pro forma combined
financial statements presented herein are shown for illustrative purposes only
and are not necessarily indicative of the future financial position or future
results of operations of Registrant, or of the financial position or results
of operations of Registrant that would have actually occurred had the
transaction been in effect as of the date or for the periods presented.
The unaudited pro forma combined financial statements should be read in
conuunction with the Registrant's 1998 Annual Report on Form 10-K and the
historical Magic financial statements included in Item 7(a) in this Current
Report on Form 8-K/A.
The acquisition of Magic was facilitated by the issuance (or potential
issuance) of shares of ECHO common stock as follows:
<TABLE>
<CAPTION>
SHARES $ VALUES
<S> <C> <C>
Total ECHO shares/purchase value exchange
for all of the outstanding capital stock
of Magic 1,000,000 $2,000,000
Reserved for contingent issuance against
satisfaction of future Company performance 1,000,000
Direct cost of acquisition 63,000
$2,063,000
</TABLE>
(c) EXHIBITS.
EXHIBIT
NO. DESCRIPTION
*2.1 Merger Agreement and Plan of Reorganization, dated April 20, 1999,
by and among Electronic Clearing House, Inc., Electronic Acquisition
Corporation and Magic Software Development, Inc.
23.1 Consent of Atkinson & Co., Ltd.
*99.1 Press Release dated April 29, 1999.
- ---------------------------------------
* Incorporated by reference to the same numbered exhibit to the Company's
Current Report on Form 8-K dated April 27, 1999, filed with the Securities and
Exchange Commission on May 11, 1999.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Magic Software Development, Inc.
We have audited the accompanying balance sheet of Magic Software Development,
Inc. (a New Mexico "S" Corporation) as of December 31, 1998, and the related
statements of operations, changes in stockholders' equity and cash flows for
the year 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe our audit 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 Magic Software Development,
Inc. as of December 31, 1998 and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
Atkinson & Co., Ltd.
Albuquerque, New Mexico
May 28, 1999
<PAGE>
Magic Software Development, Inc.
<TABLE>
BALANCE SHEET
ASSETS
<CAPTION>
UNAUDITED
December 31, (note B)
1998 March 31, 1999
<S> <C> <C>
CURRENT ASSETS
Cash (note A4) $57,663 $11,163
Trade receivables (notes A5,
A6 and G1) 77,539 47,871
Total current assets 135,202 59,034
PROPERTY AND EQUIPMENT (note A7)
Computers and equipment 90,477 91,317
Computer software 14,531 14,531
Furniture and fixtures 5,854 9,208
110,862 115,056
Less accumulated depreciation (52,595) (58,703)
58,267 56,353
INVESTMENT (notes A3, A8 and G1) 40,000 40,000
OTHER ASSETS
Deposits 5,548 5,548
Computer software (note A9) - -
5,548 5,548
$ 239,017 $ 160,935
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
UNAUDITED
December 31, (note B)
1998 March 31, 1999
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 43,654 $ 2,603
Accrued expenses and liabilities 20,871 18,346
Accrued interest expense (note G2) 4,364 5,561
Current maturities of long-term
note payable to bank (note D) 7,564 7,769
Deferred revenue (note C) 50,000 50,000
Due to related party (note G1) 1,100 1,100
Total current liabilities 127,553 85,379
LONG-TERM DEBT (note D)
Note payable to bank, less current
maturities 17,709 15,616
Notes payable to related parties
(note G2) 50,410 50,410
68,119 66,026
Total liabilities 195,672 151,405
COMMITMENTS AND CONTINGENCIES
(notes C and E)
STOCKHOLDERS' EQUITY
Common stock, par value $1 per share,
10,000 shares authorized, 136 shares
issued, 100 shares outstanding 136 136
Additional paid-in capital 69,964 69,964
Retained earnings (deficit) 11,754 (22,061)
81,854 48,039
Less treasury stock at cost,
36 common shares (38,509) (38,509)
Total stockholders' equity 43,345 9,530
$ 239,017 $ 160,935
The accompanying notes are an integral part of this financial statement.
</TABLE>
<PAGE>
Magic Software Development, Inc.
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
UNAUDITED
Year ended (note B)
December 31, For The Three Months Ended
1998 March 31, 1998 March 31, 1999
<S> <C> <C> <C>
Revenue (notes A5, A12,
F and G1) $570,645 $114,572 $132,831
Cost of sales (note F) 264,434 35,513 68,934
Gross profit 306,211 79,059 63,897
Selling, general and
administrative expenses
(note A14) 313,661 89,472 100,747
Loss from operations (7,450) (10,413) (36,850)
Other income (expense)
Interest income 2,387 647 595
Interest expense (5,672) (1,563) (1,830)
Other 3,941 - 4,270
656 (916) 3,035
NET LOSS (note A14) $(6,794) $(11,329) $(33,815)
NET LOSS PER COMMON
SHARE (note A15) $(67.94) $(113.29) $(338.15)
The accompanying notes are an integral part of this financial statement.
</TABLE>
<PAGE>
Magic Software Development, Inc.
<TABLE>
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<CAPTION>
Common Stock Treasury Stock Additional
Paid-In Retained
Shares Amount Shares Amount Capital Earnings Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31,
1997 100 $136 36 $(38,509) $69,964 $18,548 $50,139
Net loss - - - - - (6,794) (6,794)
Balance,
December 31,
1998 100 $136 36 $(38,509) $69,964 $11,754 $43,345
The accompanying notes are an integral part of this financial statement.
</TABLE>
<PAGE>
Magic Software Development, Inc.
<TABLE>
STATEMENT OF CASH FLOWS
Increase (decrease) in cash
(CAPTION>
UNAUDITED
Year ended (note B)
Dec 31, For The Three Months Ended
1998 Mar 31, 1998 Mar 31, 1999
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $(6,794) $(11,329) $(33,815)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation 12,912 2,288 6,108
Net changes in operating assets
and liabilities:
(Increase) decrease in trade
receivables (28,667) 10,059 29,668
Increase in other noncurrent
assets (1,848) - -
Increase (decrease) in accounts
payable 35,999 4,149 (41,051)
Decrease in accrued expenses and
liabilities (2,135) (7,809) (2,525)
Increase (decrease) in accrued
interest expense (3,748) (1,438) 1,197
Increase in deferred revenue 30,000 - -
Increase in other current
liabilities 1,100 - -
Net cash provided by (used
in) operating activities 36,819 (4,080) (40,418)
Cash flows from investing activities:
Purchases of property and equipment (46,377) (1,989) (4,194)
Net cash used in investing
activities (46,377) (1,989) (4,194)
Cash flows from financing activities:
Proceeds from issuance of note
payable 25,273 - -
Principal payments on notes payable (2,580) - (1,888)
Net cash provided by (used in)
financing activities 22,693 - (1,888)
NET INCREASE (DECREASE) IN CASH 13,135 (6,069) (46,500)
Cash, beginning of period 44,528 44,528 57,663
Cash, end of period $ 57,663 $ 38,549 $ 11,163
Cash paid for interest $ 9,420 $ 3,000 $ 633
The accompanying notes are an integral part of this financial statement.
</TABLE>
<PAGE>
Magic Software Development, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE A - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
1. Nature of Operations
Magic Software Development, Inc. (the Company) was incorporated under the
laws of the State of New Mexico in April, 1992. The Company's primary
operations consist of providing transaction processing services such as
check verification, check re-presentment, and private-label credit card
processing. From time to time, the Company also sells vendor computer
hardware and software, on a direct-shipment basis. Transaction processing
services utilize the Company's internally developed software programs, which
operate on a network to provide processing services to customers throughout
the United States.
2. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect certain reported amounts and disclosures.
Significant estimates include depreciable lives assigned to fixed assets for
purposes of depreciation, and allocation of personnel costs to costs of
sales and research and development expense. Actual results could differ
from those estimates. Management believes that all recorded estimates are
reasonable.
3. Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value:
Current Assets and Current Liabilities
Carrying amounts of cash, trade receivables, accounts payable,
accrued expenses and liabilities, deferred revenue and current
maturities of long-term debt approximate fair value due to the short
maturities of these instruments.
Long-Term Investment
As there is no quoted market price for the Company's investment in a
closely-held corporation, a reasonable estimate of fair value could
not be made without incurring excessive costs. This investment is
carried at its original estimated cost of $40,000.
Long-Term Debt
The fair value of the Company's long-term debt amounted to $68,119 as
of December 31, 1998, based on the current rates offered to the
Corporation for debt of the same remaining maturities.
4. Cash
The Company's cash depository accounts are insured by the Federal Deposit
Insurance Corporation up to $100,000. The balance of these accounts may at
times exceed the federally insured amount. The Company has not experienced,
and believes it is not exposed to, significant credit risk from these
depository accounts.
5. Concentrations of Credit Risk
Trade receivables subject the Company to a concentration of credit risk with
one customer. Revenues totaling $500,149 (88% of total revenue) were earned
on transactions with one customer and as of December 31, 1998, $41,661 (54%
of total accounts receivable) was due from this customer. Generally,
collateral is not required on receivables and credit losses have been within
management's expectations. (See also note G1).
6. Trade Receivables
The Company considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts has been provided.
7. Property and Equipment
Property and equipment are carried at historical cost. Depreciation on
fixed assets is provided using the straight-line method in amounts
sufficient to relate the cost of assets over their estimated useful lives.
Estimated useful lives are as follows:
Computers and equipment 3-5 years
Computer software 3 years
Furniture and fixtures 5 years
8. Investment
The Company holds an investment in a closely-held corporation, which is
carried at cost. (See also note G1).Magic Software Development, Inc.
9. Computer Software
The Company accounts for the costs of developing computer software to be
marketed in accordance with Statement of Financial Accounting Standard No.
86, "Accounting for the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed" (SFAS 86). SFAS 86 calls for capitalization of all
costs incurred after establishment of a software product's technological
feasibility and before the product is available for general release to
customers. As these events were coincident for all software products
developed and sold by the Company through December 31, 1998, no amount has
been capitalized as an intangible software asset. The Company's check
verification software technology that is integral to a significant portion
of current processing revenue was contributed to the Company at inception.
No value was recorded for this software due to the inability to estimate a
value and to the business uncertainty of the new venture.
10. Income Taxes
The Company is organized as a Sub Chapter "S" Corporation; therefore income
tax obligations of the Company are passed on to the shareholders of the
Company. Accordingly, no provision for income taxes has been recorded in
the accompanying financial statements.
11. Additional Paid-In Capital
Upon the Company's inception (April 1992) and as subsequently resolved by
the Board of Directors, four shareholders (representing 93% of the total
ownership as of December 31, 1998) received no compensation for services
rendered to the Company. Beginning in April 1995, at various dates through
June 1996 and continuously thereafter, these shareholders began receiving
salaries for services rendered. No imputed value has been recorded for
services contributed by these shareholders during the noted time periods.
12. Revenue Recognition
Service fee revenues are recognized as services are rendered, based on
established transaction fee rates. Revenue from sales of computer hardware
and software are recognized at the time the goods are shipped. Magic
Software Development, Inc.
13. Research and Development Costs
SFAS 86 defines all costs incurred to establish the technological
feasibility of a computer product to be sold, leased or otherwise marketed
as research and development costs. The Company expenses research and
development costs as incurred. Research and development expense for 1998
totaled $140,226, and is included in selling, general and administrative
expenses in the accompanying statement of operations.
14. Other Comprehensive Income
For the year ended December 31, 1998, the Company had no changes in equity
which constitute components of other comprehensive income.
15. Earnings Per Common Share
Basic earning per common share for the year ended December 31, 1998 is
calculated as follows:
Net Loss Shares Per-Share
(Numerator) (Denominator) Amount
$6,794 100 $67.94
------- -------- -----------
NOTE B - UNAUDITED INTERIM STATEMENTS
The accompanying unaudited financial statements of Magic Software
Development, Inc. have been prepared in accordance with generally accepted
accounting principles and applicable Securities and Exchange Commission
regulations for interim financial information. These financial statements
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. It is
presumed that users of this interim financial information have read or have
access to the audited financial statements for the preceding fiscal year
contained in Item 7(a) in this Current Report on Form 8-K/A report. In the
opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for fair presentation have been included.
Operating results for the interim periods presented are not necessarily
indicative of the results that may be expected for the full year.
NOTE C - DEFERRED REVENUE
During 1997, the Company entered into an exclusive Processing and Marketing
Joint Venture Agreement (the Agreement) with another party. Pursuant to the
Agreement, the Company received $50,000 in prepaid processing fees, which
are to be applied to revenues subsequently generated under the Agreement
terms. The other party to the Agreement defaulted on its prepayment
obligations in July, 1998, and this breach of contract was not cured as of
the date of this report. Due to the ambiguity of the Agreement with regard
to events of default, the resolution of the default has not yet been
determined by the parties, and the ultimate realization of the related
deferred revenue is uncertain.
NOTE D - NOTES PAYABLE
The Company had the following notes payable as of December 31, 1998:
9.50% note payable to an individual,
due April 1, 2000. Unsecured.
Personally guaranteed by certain
shareholders. (See also note G2). $ 35,490
Variable annual rate (10.75% @ December 31,
1998) note payable to bank in monthly
installments of $826, including interest,
through December 18, 2001. Secured by computer
equipment. Personally guaranteed by certain
shareholders. 25,273
9.50% note payable to an individual, due
April 1, 2000. Unsecured. (See also note G2). 14,920
75,683
Less current maturities of note
payable to bank (7,564)
$ 68,119
Future principal maturities of notes payable are as follows:
1999 $ 7,564
2000 58,828
2001 9,291
$ 75,683
NOTE E - COMMITMENTS AND CONTINGENCIES
For the year ended December 31, 1998, the Company leased its office
facilities under certain long-term operating leases, which were consolidated
into one long-term operating lease on October 1, 1998. The consolidated
lease, which expires September 30, 2000, includes scheduled rent escalations
and a renewal option. The lease is personally guaranteed by certain
shareholders. Rent expense under long-term operating leases totaled $49,848
for 1998. Future minimum lease payments under the October 1, 1998 lease are
as follows:
1999 $ 66,802
2000 51,102
$ 117,904
NOTE F - REVENUES AND COST OF SALES
Revenues and related cost of sales for the year ended December 31, 1998 are
comprised of the following:
Cost
Revenue of Sales
Check verification services $ 468,308 $ 160,215
Sales of computer hardware
and software 61,544 54,706
Check re-presentment services 22,388 44,896
Private label credit card
processing 9,408 4,617
Other 8,997 -
$ 570,645 $ 264,434
NOTE G - RELATED PARTY AND INVESTEE TRANSACTIONS
1. Transactions with Investee
The Company owns a 10% interest in National Check Network, Inc. (NCN), a
closely-held corporation. Additionally, during 1998 and through May 1999,
the President of the Company served on the Board of Directors of NCN.
Balances and transactions related to NCN as of and for the year ended
December 31, 1998 are as follows:
Sales
Sales of check verification services and computer hardware and software
to NCN totaled $500,149 for the year ended December 31, 1998.
Purchases
Purchases of goods and services from NCN for the year ended December 31,
1998 amounted to $3,302.
Trade Receivables
The Company's trade receivable balance from NCN as of December 31, 1998
was $41,661.
Operating Assets
The Company provided check verification services to NCN under an
exclusive licensing agreement through April 1998. The agreement was
not renewed by the Company through notification to NCN under certain
provisions of the agreement. The Company continued to provide check
verification services to NCN for the remainder of 1998 on a month-to-
month basis. The parties are negotiating a new agreement as of the
date of these financial statements. The company uses NCN's network
hardware equipment to perform check verification and card processing
transactions. The equipment is located in the Company's offices. No
usage fees are charged to the Company by NCN for use of the computer
equipment, and no storage fees are charged to NCN by the Company for
the use of the Company's office space.
Sublease
During 1998, the Company entered into a cancelable month-to-month lease
agreement with NCN whereby NCN subleases certain office space from the
Company. The sublease calls for monthly rental payments of $1,100 from
NCN and a refundable rent deposit of $1,100. In 1998, the Company
recorded rental income of $3,300 pursuant to this arrangement.
2. Notes Payable to Members of Certain Shareholders' Immediate Family
The Company has two notes payable to members of certain shareholders'
immediate family (see note D) which bear interest at an annual rate of 9.5%.
No payments were made on these notes through December 31, 1996. Beginning
in January 1997, and continuing through December 1998, the Company made
monthly payments of $500 on each note, which payments were applied first to
the outstanding accrued interest.
Total interest expense incurred on these notes payable during 1998 was
$5,672, and related accrued interest payable as of December 31, 1998,
amounted to $4,364. Pursuant to the terms of the acquisition of the Company
in April, 1999 (see note H), the remaining principal and accrued interest on
these notes is due in full on April 20, 2000.
NOTE H - SUBSEQUENT EVENTS
On April 20, 1999, Electronic Clearing House, Inc. (ECHO) acquired the
Company. Through merger and subsequent reorganization with ECHO Acquisition
Corporation, (EAC) (a 100% owned subsidiary of ECHO), all of the Company's
assets were exchanged for 1,000,000 shares of ECHO common stock and up to
1,000,000 additional shares may be issued contingent on future Company
performance. The Company is the surviving member of the merger with EAC,
and its succeeds to EAC's rights, assets, liabilities and obligations as a
100%-owned subsidiary of ECHO.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(b) PRO FORMA FINANCIAL DATA
ELECTRONIC CLEARING HOUSE, INC.
<TABLE>
PRO FORMA COMBINED BALANCE SHEET
March 31, 1999
(Unaudited)
<CAPTION>
HISTORICAL PRO FORMA
ECHO MAGIC ADJUSTMENT COMBINED
(NOTE 1)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $2,370,000 $ 11,000 $ $2,381,000
Restricted cash 554,000 554,000
Accounts receivable less
allowance 1,869,000 48,000 1,917,000
Inventory less allowance 578,000 578,000
Prepaid expenses and
other assets 47,000 47,000
Notes receivable from
stockholders and related
parties less allowance 27,000 27,000
Total current assets 5,445,000 59,000 - 5,504,000
Noncurrent assets:
Long term receivables 329,000 329,000
Property and
equipment, net 1,707,000 56,000 1,763,000
Investment 40,000 40,000
Real estate held for
investment, net 252,000 252,000
Goodwill -
Magic acquisition (d) 1,990,000 1,990,000
Other assets, net 939,000 6,000 (c) 48,000 993,000
Total assets $8,672,000 $ 161,000 $2,038,000 $10,871,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current
portion of long-term debt $ 91,000 $ 8,000 $ 99,000
Accounts payable 146,000 2,000 148,000
Accrued expenses 763,000 24,000 (c) 48,000 835,000
Deferred income 21,000 50,000 71,000
Due to related party 1,000 1,000
Total current liabilities 1,021,000 85,000 48,000 1,154,000
Long-term debt 627,000 66,000 693,000
Total liabilities 1,648,000 151,000 48,000 1,847,000
Stockholders' equity:
Convertible preferred stock 2,000 2,000
Common stock 180,000 (a) 10,000 190,000
Additional paid-in capital 14,593,000 70,000 (a) 1,990,000 16,583,000
(b) (70,000)
Accumulated deficit (7,751,000) (22,000)(b) 22,000 (7,751,000)
7,024,000 48,000 1,952,000 9,024,000
Less treasury stock (38,000)(b) 38,000
Total stockholders'
equity 7,024,000 10,000 1,990,000 9,024,000
Total liabilities and
stockholders' equity $ 8,672,000 $ 161,000 $ 2,038,000 $ 10,871,000
See accompanying notes to unaudited pro forma combined financial statements.
</TABLE>
ELECTRONIC CLEARING HOUSE, INC.
<TABLE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1998
(Unaudited)
<CAPTION>
HISTORICAL PRO FORMA
ECHO MAGIC ADJUSTMENT COMBINED
(NOTE 2) (NOTE 2)
<S> <C> <C> <C> <C>
Revenues:
Bankcard processing
revenue $12,189,000 $12,189,000
Bankcard transaction fees 6,584,000 6,584,000
Terminal sales and lease
revenue 2,055,000 2,055,000
Other revenue 235,000 571,000 806,000
21,063,000 571,000 21,634,000
Costs and expenses:
Bankcard processing and
transaction expense 13,730,000 13,730,000
Cost of terminals sold
and leased 1,519,000 1,519,000
Other operating costs 837,000 264,000 1,101,000
Selling, general and
administrative 3,766,000 314,000 4,080,000
19,852,000 578,000 20,430,000
Income (loss) from
operations 1,211,000 (7,000) 1,204,000
Interest income 118,000 2,000 120,000
Interest expense (104,000) (6,000) (110,000)
Other (35,000) 4,000 (31,000)
Amortization of goodwill (a) (199,000) (199,000)
Income (loss) before
provision for income tax 1,190,000 (7,000) 984,000
Provision for income taxes (36,000) (36,000)
Net income (loss) $ 1,154,000$ (7,000) $ (199,000)$ 948,000
Earnings per share -
basic $ 0.077 $ 0.059
Shares used in computing
earnings per share -
basic 14,974,000 1,000,000 15,974,000
Earnings per share -
diluted $ 0.053 $ 0.042
Shares used in computing
earnings per share -
diluted 21,834,000 1,000,000 22,834,000
See accompanying notes to pro forma combined financial statements.
</TABLE>
ELECTRONIC CLEARING HOUSE, INC.
<TABLE>
PRO FORMA COMBINED STATEMENT OF OEPRATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1999
(Unaudited)
<CAPTION>
HISTORICAL PRO FORMA
ECHO MAGIC ADJUSTMENT COMBINED
(NOTE 2) (NOTE 2)
<S> <C> <C> <C> <C>
Revenues:
Bankcard processing
revenue $ 6,449,000 $ 6,449,000
Bankcard transaction fees 3,539,000 3,539,000
Terminal sales and lease
revenue 1,569,000 1,569,000
Other revenue 268,000 133,000 401,000
11,825,000 133,000 11,958,000
Costs and expenses:
Bankcard processing and
transaction expense 7,197,000 7,197,000
Cost of terminals sold
and leased 879,000 879,000
Other operating costs 447,000 69,000 516,000
Selling, general and
administrative 2,610,000 101,000 2,711,000
11,133,000 170,000 11,303,000
Income (loss) from operations 692,000 (37,000) 655,000
Interest income 86,000 1,000 87,000
Interest expense (49,000) (2,000) (51,000)
Other 4,000 4,000
Amortization of goodwill (a) (100,000) (100,000)
Income (loss) before provision
for income tax 729,000 (34,000) (100,000) 595,000
Provision for income taxes (27,000) (27,000)
Net income (loss) $ 702,000 $ (34,000) $ (100,000) $ 568,000
Earnings per share -
basic $ 0.042 $ 0.032
Shares used in computing
earnings per share -
basic 16,727,000 1,000,000 17,727,000
Earnings per share -
diluted $ 0.031 $ 0.024
Shares used in computing
earnings per share -
diluted 22,925,000 1,000,000 23,925,000
See accompanying notes to pro forma combined financial statements.
</TABLE>
<PAGE>
ELECTRONIC CLEARING HOUSE, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL DATA
(Unaudited)
Note 1 - Pro Forma Combined Balance Sheet Adjustments
The unaudited pro forma combined balance sheet adjustments have been prepared
to reflect the acquisition by Electronic Clearing House, Inc. ("ECHO") of
Magic Software Development, Inc. ("Magic") for an aggregate purchase price of
approximately $2,000,000 in unregistered common stock and approximately
$63,000 of estimated direct transaction costs, as if it occurred on March 31,
1999.
(a) Represents purchase price consideration paid in the form of 1,000,000
shares of unregistered ECHO common stock valued at $2.00 per share,
representing a six-day average closing price for the period March 3 though
March 10, 1999.
(b) Represents the elimination of Magic's historical stockholders' equity.
(c) Represents estimated direct transaction costs for legal, accounting and
various acquisitions expenses.
(d) Represents estimated allocation of purchase price; assumes that the book
value of Magic's historical tangible assets and liabilities at March 31,
1999 reflect the fair market value of such tangible assets and
liabilities. The difference between the purchase price and the book value
of the net assets acquired is recorded as goodwill and to be amortized
over ten years.
Note 2 - Pro Forma Combined Statement of Operations Adjustments
The unaudited pro forma combined statements of operations for the fiscal year
ended September 30, 1998 assume that the acquisition occurred on October 1,
1997, and are based on the operations of Registrant for the year ended
September 30, 1998 and for the year ended December 31, 1998 of Magic. The
unaudited pro forma combined statements of operations for the six months ended
March 31, 1999 are based on the operations of Registrant for the six month
period ended March 31, 1999 and based on the operations of Magic for the three
month period ended March 31, 1999.
(e) Represents adjustment to reflect the amortization of goodwill as a result
of the Magic acquisition based on a ten-year life.
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: July 8, 1999
