-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, INPb/kf7McBznLUeSp8nWbsPfWgCF0tyIk3irdmQVKlTcdI156VnUBLChNT2A/Kt 4g+4M2sZcdbwELdm3rn6cg== 0000721773-99-000017.txt : 19990712 0000721773-99-000017.hdr.sgml : 19990712 ACCESSION NUMBER: 0000721773-99-000017 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990427 ITEM INFORMATION: FILED AS OF DATE: 19990709 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELECTRONIC CLEARING HOUSE INC CENTRAL INDEX KEY: 0000721773 STANDARD INDUSTRIAL CLASSIFICATION: FUNCTIONS RELATED TO DEPOSITORY BANKING, NEC [6099] IRS NUMBER: 930946274 STATE OF INCORPORATION: NV FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-15245 FILM NUMBER: 99661953 BUSINESS ADDRESS: STREET 1: 28001 DOROTHY DR CITY: AGOURA HILLS STATE: CA ZIP: 91301-2697 BUSINESS PHONE: 8187068999 MAIL ADDRESS: STREET 1: 28001 DOROTHY DRIVE CITY: AGOURA HILLS STATE: CA ZIP: 91301 FORMER COMPANY: FORMER CONFORMED NAME: BIO RECOVERY TECHNOLOGY INC DATE OF NAME CHANGE: 19860122 8-K/A 1 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:
SHARES $ VALUES 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
(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 Magic Software Development, Inc. BALANCE SHEET ASSETS
UNAUDITED December 31, (note B) 1998 March 31, 1999 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 UNAUDITED December 31, (note B) 1998 March 31, 1999 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.
Magic Software Development, Inc. STATEMENT OF OPERATIONS
UNAUDITED Year ended (note B) December 31, For The Three Months Ended 1998 March 31, 1998 March 31, 1999 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.
Magic Software Development, Inc. STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Common Stock Treasury Stock Additional Paid-In Retained Shares Amount Shares Amount Capital Earnings Total 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.
Magic Software Development, Inc. 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 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.
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. PRO FORMA COMBINED BALANCE SHEET March 31, 1999 (Unaudited)
HISTORICAL PRO FORMA ECHO MAGIC ADJUSTMENT COMBINED (NOTE 1) 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.
ELECTRONIC CLEARING HOUSE, INC. PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 1998 (Unaudited)
HISTORICAL PRO FORMA ECHO MAGIC ADJUSTMENT COMBINED (NOTE 2) (NOTE 2) 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.
ELECTRONIC CLEARING HOUSE, INC. PRO FORMA COMBINED STATEMENT OF OEPRATIONS FOR THE SIX MONTHS ENDED MARCH 31, 1999 (Unaudited)
HISTORICAL PRO FORMA ECHO MAGIC ADJUSTMENT COMBINED (NOTE 2) (NOTE 2) 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.
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 -----END PRIVACY-ENHANCED MESSAGE-----