<PAGE>
===========================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999.
Or
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____ TO ____, 19__.
Commission file number : 01-14213
------------------------------
The InterCept Group, Inc.
(Exact name of registrant as specified in its charter)
Georgia 58 - 2237359
(State or other jurisdiction (I.R.S.Employer Identification No.)
of incorporation or organization)
3150 Holcomb Bridge Road, Suite 200, Norcross,Georgia 30071
(Address of principal executive offices)
(770) 248-9600
(Registrant's telephone number including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
----- ----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at November 10, 1999
Common Stock, no par value 10,115,972
(No. of Shares)
===========================================================================
<PAGE>
THE INTERCEPT GROUP, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
PART I FINANCIAL INFORMATION 1
Item 1. Financial Statements 1
Condensed Consolidated Balance Sheets as of
September 30, 1999 and December 31, 1998 1
Condensed Consolidated Statements of Operations for
the Three Months and Nine Months ended September 30,
1999 and 1998 2
Condensed Consolidated Statements of Cash Flows for
the Nine Months ended September 30, 1999 and 1998 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosure About
Market Risk 16
PART II OTHER INFORMATION 17
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 20
EXHIBIT INDEX
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The InterCept Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------------ -----------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,163 $ 3,224
Accounts receivable, less allowance for doubtful accounts of $360
and $170 at September 30, 1999 and December 31, 1998, respectively 8,518 3,503
Deferred tax assets 1,589 80
Inventory, prepaid expenses and other 2,631 1,267
-------- --------
Total current assets 13,901 8,074
Property and equipment, net 10,206 7,093
Intangible assets, net 19,970 4,661
Accounts receivable - affiliate (Note 6) 31,525 0
Other noncurrent assets 8,447 327
-------- --------
Total assets $ 84,049 $ 20,155
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of notes payable $ 151 $ 95
Line of credit 30,330 0
Accounts payable and accrued liabilities 7,629 2,205
Deferred revenue 4,629 1,147
-------- --------
Total current liabilities 42,739 3,447
Notes payable, less current portion 200 211
Deferred revenue 455 0
Deferred tax liability 8,403 182
-------- --------
Total liabilities 51,797 3,840
Minority interest in consolidated subsidiary 143 57
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value; 1,000,000 shares authorized; no shares
issued or outstanding 0 0
Common stock, no par value; 50,000,000 shares authorized;
10,115,972 and 9,248,539 shares issued and outstanding
at September 30, 1999 and December 31, 1998, respectively 29,228 17,170
Retained earnings (accumulated deficit) 2,814 (1,098)
Accumulated other comprehensive income 67 186
-------- --------
Total shareholders' equity 32,109 16,258
-------- --------
Total liabilities and shareholders' equity $ 84,049 $ 20,155
======== ========
The accompanying notes are an integral part of these condensed consolidated balance sheets.
</TABLE>
1
<PAGE>
The InterCept Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ ---------------------------
1999 1998 1999 1998
------------------------------ ---------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Service fee income $ 10,285 $ 5,518 $ 24,636 $ 14,876
Data communications management income 1,349 977 3,743 2,735
Equipment and product sales, services and other 2,276 1,082 4,195 2,872
------------- ------------- ------------ ------------
Total revenues 13,910 7,577 32,574 20,483
Costs of services:
Cost of service fee income 2,776 1,654 6,796 4,375
Cost of data communications management income 912 648 2,573 1,868
Cost of equipment and product sales, services and other 1,908 958 3,429 2,391
Selling, general and administrative expenses 5,698 2,790 12,781 7,897
Depreciation and amortization 2,102 363 3,211 962
------------- ------------- ------------ ------------
Total operating expenses 13,396 6,413 28,790 17,493
Operating income 514 1,164 3,784 2,990
Other income (expense), net 16,056 81 16,119 (211)
------------- ------------- ------------ ------------
Income before provision for income taxes
and minority interest 16,570 1,245 19,903 2,779
Provision for income taxes 9,092 469 10,364 1,076
Minority interest in loss of unconsolidated subsidiary 5,541 0 5,541 0
Minority interest in income of consolidated subsidiary 28 30 86 80
------------- ------------- ------------ ------------
Net income before preferred dividends 1,909 746 $ 3,912 $ 1,623
Preferred dividends 0 0 0 (16)
------------- ------------- ------------ ------------
Net income attributable to common shareholders $ 1,909 $ 746 $ 3,912 $ 1,607
============= ============= ============ ============
Net income per common share:
Basic $ 0.19 $ 0.08 $ 0.41 $ 0.21
============= ============= ============ ============
Diluted $ 0.18 $ 0.08 $ 0.39 $ 0.20
============= ============= ============ ============
Weighted average shares outstanding:
Basic 10,035 9,221 9,643 7,749
Diluted 10,610 9,337 10,059 7,867
The accompanying notes are an integral part of these condensed consolidated statements of operations.
</TABLE>
2
<PAGE>
The InterCept Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------------------
1999 1998
------------------------------------
(Unaudited)
Cash flows from operating activities:
<S> <C> <C>
Net income before preferred dividends $ 3,912 $ 1,623
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 3,210 962
Minority interest in income of consolidated subsidiary 86 80
Deferred income tax provision 8,315 (31)
Gain due to stock issuances of subsidiary (Note 5) (16,044) 0
Equity in net loss of affiliate 5,541 0
Stock compensation charge (Note 7) 480 0
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable, net (1,343) 488
Inventory, prepaid expenses, and other 152 (667)
Other assets (355) 6
Accounts payable and accrued expenses 456 130
Deferred revenue (545) 106
--------------- ----------------
Net cash provided by operating activities 3,865 2,697
--------------- ----------------
Cash flows from investing activities:
Acquisitions, net of cash acquired (488) (1,851)
Increase in note receivable 14 17
Advances to affiliate (Notes 5 and 6) (31,525) 0
Purchases of property and equipment, net (3,731) (3,639)
Increases in capitalized software (433) (513)
--------------- ----------------
Net cash used in investing activities (36,163) (5,986)
--------------- ----------------
Cash flows from financing activities:
Proceeds from line of credit 30,331 0
Debt issuance costs 0 (88)
Retirement of preferred stock 0 (440)
Distributions for taxes to shareholders of pass through entities 0 (8)
Payments on notes payable and line of credit (154) (6,974)
Payment of preferred dividends 0 (16)
Proceeds from issuance of common stock, net of related issuance costs 0 14,451
Proceeds from exercise of stock options 60 0
--------------- ---------------
Net cash provided by financing activities 30,237 6,925
Net (decrease) increase in cash and cash equivalents (2,061) 3,636
Cash and cash equivalents at beginning of the period 3,224 2,010
--------------- ----------------
Cash and cash equivalents at end of the period $ 1,163 $ 5,646
=============== ================
Supplemental disclosures of cash flow information:
Cash paid for interest $ 163 $ 444
=============== ================
Cash paid for income taxes $ 752 $ 445
=============== ================
Non-cash investing activities:
InterCept common stock issued for acquisitions, 844,017 shares (Note 5) $ 11,998 $ 0
Netzee common stock issued for acquisitions, 6,016,137 shares (Note 5) $ 69,086 $ 0
The accompanying notes are an integral part of these condensed consolidated statements of cash flows.
</TABLE>
3
<PAGE>
THE INTERCEPT GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Basis of Presentation
Organization
The InterCept Group, Inc. designs, develops, markets and implements a suite
of fully integrated electronic commerce products and services primarily for
community financial institutions in the United States. InterCept's products
and services include electronic funds transfer ("EFT"), data communications
management, client/server enterprise software, check imaging products and
services and other processing solutions.
InterCept is a single source provider of a broad range of flexible
electronic commerce solutions and supporting value-added products and
services. InterCept provides numerous EFT products and services, including
automated teller machine ("ATM"), point-of-sale ("POS") and scrip debit
services, debit card transactions and funds transfer services. InterCept
licenses client/server enterprise software, which operates in a Windows
NT(R) environment, to community financial institutions on both a service
bureau and an in-house basis. InterCept also provides optical storage,
banking related equipment, related maintenance and technical support and
numerous ancillary products and services to its financial institution
customers.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
represent the accounts of InterCept, its wholly-owned subsidiaries, and
ProImage, Inc. ("ProImage"), a corporation in which InterCept has a
controlling 66.6% ownership interest. In the third quarter of 1999, Direct
Access Interactive, Inc. (one of InterCept's wholly owned subsidiaries)
issued common stock in connection with several transactions discussed in
Note 5. As a result of these transactions, InterCept's ownership interest
in Direct Access decreased to approximately 64%. Direct Access was then
merged with a new subsidiary, Netzee, Inc. ("Netzee"), which issued
additional shares of common stock on September 3, 1999 as discussed in
Note 5. As a result of these transactions, InterCept's ownership percentage
in Netzee decreased to approximately 49% as of September 3, 1999. After
this date, InterCept has accounted for its investment in Netzee under the
equity method, under which the operations of Netzee are recorded on a
single line item in the statements of operations titled "minority interest
in unconsolidated subsidiary." Because InterCept is currently funding the
operations of Netzee, none of the losses of Netzee through September 3,
1999 were allocated to the minority owners, and the full amount of Netzee's
losses incurred after September 3, 1999 have been included in minority
interest in unconsolidated subsidiary, rather than InterCept's relative
percentage of those losses. When InterCept's funding of the operations of
Netzee is complete, only the relative percentage of the net losses of
Netzee will be recorded.
4
<PAGE>
The accompanying statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and the
instructions to Form 10-Q. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, the accompanying unaudited condensed consolidated financial
statements reflect all adjustments, which are of a normal recurring nature,
to present fairly InterCept's financial position, results of operations,
and cash flows at the dates and for the periods presented. Interim results
of operations are not necessarily indicative of results to be expected for
a 12-month period. The interim financial statements should be read in
conjunction with InterCept's Annual Report on Form 10-K for the year ended
December 31, 1998.
2. Accounting Changes
In July 1999, InterCept announced a letter of intent to merge its internet
banking business with the internet banking businesses of two other
companies. See Note 5 to the Condensed Consolidated Financial Statements.
This announcement resulted in the restatement of InterCept's financial
statements. The acquisition of Direct Access was originally accounted for
as a pooling-of-interests and our financial statements have been restated
to account for the acquisition as a purchase. Accordingly, InterCept has
restated its unaudited interim financial statements for 1998 and 1999.
3. Net Income Per Share
Basic earnings per share is computed based on the weighted average number
of common shares outstanding. Diluted earnings per share is computed based
on the weighted average number of common shares outstanding plus the effect
of outstanding stock options using the "treasury stock" method based on the
average stock price for the period. The effects of anti-dilutive options
have been excluded.
The following tables set forth a reconciliation of basic earnings per share
to diluted earnings per share (in thousands, except earnings per share
("EPS") amounts):
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 1999 September 30, 1998
-------------------------------------- -------------------------------------
-------------------------------------- -------------------------------------
Income Shares EPS Income Shares EPS
-------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $ 1,909 10,035 $ 0.19 $ 746 9,221 $ 0.08
Dilutives:
Stock options 575 $ 0 116 $ 0
-------------------------------------- -------------------------------------
Diluted EPS $ 1,909 10,610 $ 0.18 $ 746 9,337 $ 0.08
====================================== =====================================
Nine Months Ended Nine Months Ended
September 30, 1999 September 30, 1998
-------------------------------------- -------------------------------------
-------------------------------------- -------------------------------------
Income Shares EPS Income Shares EPS
-------------------------------------- -------------------------------------
Basic EPS $ 3,912 9,643 $ 0.41 $ 1,607 7,749 $ 0.21
Dilutives:
Stock options 416 $ (0.02) 118 $ (0.01)
-------------------------------------- -------------------------------------
Diluted EPS $ 3,912 10,059 $ 0.39 $ 1,607 7,867 $ 0.20
====================================== =====================================
</TABLE>
4. Comprehensive Income
As of December 31, 1997, InterCept adopted SFAS No. 130, "Reporting
Comprehensive Income" ("SFAS 130"). SFAS No. 130 establishes new rules for
the reporting of "comprehensive income," which is the total of net income
and all other non-owner changes in shareholders' equity. The adoption of
SFAS No. 130 had no effect on InterCept's net income.
The following table sets forth the calculation of InterCept's comprehensive
income for the periods indicated below (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------- ------------------------------
1999 1998 1999 1998
-------------------------------- ------------------------------
<S> <C> <C> <C> <C>
Net income, as reported $ 1,909 $ 746 $ 3,912 $ 1,607
Unrealized (loss) gain on securities,
net of tax: (145) 225 (119) 225
-------------- ------------ ------------- ------------
Comprehensive income $ 1,764 $ 971 $ 3,793 $ 1,832
============== ============ ============= ============
</TABLE>
5
<PAGE>
5. Acquisitions
On January 11, 1999, InterCept acquired certain assets and assumed certain
liabilities of Eastern Software, Inc., a provider of loan portfolio
management software. The consideration exchanged was approximately
$450,000. This acquisition was accounted for as a purchase in accordance
with Accounting Principles Board ("APB") Opinion No. 16, and, accordingly,
the purchase price has been allocated to the net tangible and intangible
assets acquired based on their estimated fair values as of the acquisition
date. The results of operations of the acquired business have been
included in InterCept's consolidated financial statements from the date of
acquisition.
On March 9, 1999, InterCept acquired Direct Access Interactive, Inc., a
provider of telephone and Internet banking services to financial
institutions. The consideration exchanged was approximately 150,000 shares
of common stock of InterCept with a fair market value of approximately $1.4
million and assumption of long-term debt of approximately $300,000. This
acquisition has been accounted for as a purchase in the accompanying
financial statements in accordance with APB Opinion No. 16, as discussed in
Note 2, and accordingly, the purchase price has been allocated to the net
tangible and intangible assets acquired based on their estimated fair
values as of the acquisition date. The results of operations of the
acquired business have been included in InterCept's consolidated financial
statements from the date of acquisition.
On May 28, 1999, InterCept acquired L.E. Vickers & Associates, Inc. and
Data Equipment Services, Inc. L.E. Vickers & Associates is a provider of
core data processing and check imaging services and Data Equipment Services
is an equipment and maintenance provider. The consideration exchanged was
approximately 500,000 shares of common stock of InterCept with a fair
market value of approximately $6.5 million. This acquisition has been
accounted for as a purchase in the accompanying financial statements in
accordance with APB Opinion No. 16, and accordingly, the purchase price has
been allocated to the net tangible and intangible assets acquired based on
their estimated fair values as of the acquisition date. The results of
operations of the acquired businesses have been included in InterCept's
consolidated financial statements from the date of acquisition.
On August 6, 1999, InterCept acquired SBS Data Services, Inc., an Alabama
corporation that provides core data processing services for community
financial institutions in exchange for approximately 192,000 shares of
InterCept's common stock with a fair market value of approximately $4.1
million. At the same time, Direct Access merged with SBS Corporation, an
Alabama corporation which provided Internet and telephone banking, check
imaging and optical storage products and services to community financial
institutions. Total consideration paid by Direct Access was approximately
$16.6 million in cash, 2.6 million shares of Direct Access common stock
valued at $11.50 per share and repayment of approximately $4.9 million in
debt owed by SBS Corp. The former shareholders of SBS Corp. have the right
to put the shares back to Direct Access at $11.50 per share if Direct
Access does not complete an initial public offering by August 6, 2001. To
enable Direct Access to complete this transaction, InterCept borrowed $21.6
million under its line of credit and loaned these funds to Direct Access
(Notes 6 and 9). After the merger, Direct Access sold
6
<PAGE>
all of the assets of SBS Corp, other than its Internet and telephone
banking assets, to InterCept in exchange for 450,000 shares of Direct
Access common stock owned by InterCept.
In August 1999, InterCept formed Netzee, Inc. a wholly-owned subsidiary for
the purpose of combining Direct Access and several other businesses, as
discussed below:
1. Pursuant to an Agreement and Plan of Merger between Netzee and
Direct Access, Direct Access merged with and into Netzee. The shareholders
of Direct Access received one share of Netzee common stock for each share
of Direct Access common stock they owned.
2. Pursuant to an Asset Contribution Agreement between InterCept,
Netzee and The Bankers Bank, a Georgia banking corporation ("TBB"), Netzee
acquired various assets and assumed certain liabilities related to the
Internet banking division of TBB. As consideration, Netzee issued 1,361,000
shares of its common stock to TBB valued at $11.50 per share. Pursuant to
an Asset Contribution Agreement between InterCept, Netzee and TIB The
Independent Banker's Bank, a Texas banking association ("TIB"), Netzee
acquired various assets and assumed certain liabilities related to the
Internet banking division of TIB. As consideration, Netzee issued 1,361,000
shares of its common stock to TIB valued at $11.50 per share. Additional
consideration of 76,000 shares of common stock was issued to a third party
for $100,000 in connection with these acquisitions.
3. Pursuant to an Agreement and Plan of Merger by and among Netzee,
Dyad Corporation, a Georgia corporation ("Dyad"), and certain shareholders
of Dyad, Dyad merged with and into Netzee. As consideration, Netzee paid to
Dyad's shareholders approximately $900,000 in cash and approximately
618,000 shares of Netzee common stock valued at $11.50 per share. Netzee
also repaid approximately $3.5 million in debt of Dyad at the closing.
Based in Norcross, Georgia, Dyad develops proprietary loan application and
approval and fulfillment software.
Netzee also acquired Call Me Bill, LLC, a provider of 24-hour electronic
bill payment services to financial institutions' customers, for $3.3
million in cash. To enable Netzee to complete these transactions, InterCept
loaned to Netzee approximately $7.3 million. This loan was in addition to
the $21.6 million loaned to Netzee, as the successor to Direct Access, in
connection with the merger of Direct Access and SBS Corp. in August 1999
(Note 6).
As a result of the issuance of shares of Netzee in connection with these
transactions, InterCept's ownership in Netzee decreased to approximately
49% on September 3, 1999. Because of this reduction in InterCept's
percentage ownership of Netzee, InterCept has recognized gains in
accordance with Staff Accounting Bulletin No. 51 related to the increases
in InterCept's percentage ownership of the equity of Netzee. This gain
totaled approximately $36.8 million. However, $20.8 million of this amount
represented the gain created by the issuance of stock to shareholders of
SBS Corp. which is puttable to InterCept as discussed above. As such, this
amount has not been and will not be recognized until the put option has
expired. The remaining gain of $16.0 million has been included in other
income in the accompanying 1999 statements of operations.
7
<PAGE>
6. Advances to Affiliate
As discussed in Note 5, in order to enable Netzee to complete its
acquisitions in August and September of 1999, InterCept borrowed funds
under its line of credit and loaned these funds to Netzee. InterCept also
made advances to Netzee to fund operations. All of InterCept's loans to
Netzee accrue interest at a fluctuating annual rate equal to the prime rate
plus 2.0% and are payable upon the earlier of the completion of an initial
public offering by Netzee or the expiration of two years following the date
of the loan. As of September 30, 1999, the total amount due from Netzee
was approximately $31.5 million and is included in accounts receivable -
affiliate in the accompanying consolidated balance sheet.
7. Stock Compensation Charge
In August 1999, Direct Access issued stock options to management at
exercise prices below the fair market value of its common stock on the date
of grant. Because InterCept owned the majority of the common stock of
Direct Access at the time these options were granted, InterCept has
recognized compensation expense of approximately $480,000 which is included
in selling, general, and administrative expenses in the accompanying
statement of operations. Netzee will recognize the remaining compensation
expense over the vesting period of the options.
8. Facility Closing Reserve
In conjunction with the acquisition of Nova Financial Corporation in August
1998, InterCept established a reserve of approximately $160,000 for
estimated costs to close the existing Nova facility. However, InterCept's
costs have been higher than anticipated. During the third quarter of 1999,
InterCept accrued an additional $100,000 to cover these costs. The costs
primarily consist of the remaining noncancelable obligation under the lease
on the facility. For the year ended December 31, 1998 and the nine months
ended September 30, 1999, approximately $51,000 and $130,000 of lease costs
related to the noncancellable obligation were charged against the reserve.
9. Long-Term Debt and Capital Lease Obligations
Long-term debt and capital lease obligations at September 30, 1999 and
December 31, 1998 consisted of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
----------------------------------------
<S> <C> <C>
Note payable to First Macon Bank & Trust, interest payable at prime; monthly
principal and interest payments, payable in full on September 15, 2001; the note
is collaterized by assets of ProImage and a corporate guarantee by ProVesa of
two-thirds of the balance of the debt. 179 242
Note payable to First Macon Bank & Trust, interest payable at prime, monthly
principal and interest payments,payable in full on October 25, 2002; the note is
collaterized by assets of ProImage and a corporate guarantee by ProVesa of
two-thirds of the balance of the debt. 54 64
$ 35.0 million line of credit with First Union National Bank, as amended,
interest payable at the option of the Company at (i) prime less 0.25% or (ii)
LIBOR plus applicable margin as defined, payable in full on June 30, 2002,
guaranteed by substantially all assets of the Company. 30,330 0
Equipment under capital lease expiring July 2001. 113 0
Other 5 0
----------------------------------------
30,681 306
Less current maturities (30,481) (95)
----------------------------------------
200 211
========================================
</TABLE>
10. Subsequent Event
On November 9, 1999, the Securities Exchange Commission declared effective
the Registration Statement for Netzee's initial public offering of
4,448,155 shares of common stock (including 448,155 shares sold by selling
shareholders) at an offering price of $14.00 per share. We anticipate that
the offering will close on November 15, 1999. Upon such closing, the put
option held by the former shareholders of SBS Corporation discussed in
Note 5 will expire. InterCept will recognize gains on its shares of Netzee
common stock in accordance with Staff Accounting Bulletin No. 51 associated
with each of these events in the fourth quarter.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
The following discussion contains statements which constitute 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. These statements appear in a number of places in this Quarterly Report
and include all statements that are not statements of historical fact regarding
the intent, belief or expectations of InterCept and its management. These
statements are based upon a number of assumptions and estimates which are
subject to significant uncertainties, many of which are beyond InterCept's
control. Words such as "may," "would," could," "will," "expect," "anticipate,"
"believe," "intend," "plan," and "estimate" are meant to identify such forward-
looking statements. Such forward-looking statements are not guarantees and
actual results may differ materially from those expressed or implied by such
forward-looking statements. Factors that could cause actual results to differ
materially include, but are not limited to: InterCept's brief combined operating
history and whether it will be able to maintain profitability; whether it can
obtain and manage growth or execute agreements with new customers; whether it
can successfully locate, acquire and integrate new businesses and products;
customer attrition; whether the market will accept InterCept's new products and
services; increased competition; possible system failures and rapid changes in
technology; whether Netzee will be successful in completing its IPO or its
business strategies and the other risk factors discussed in InterCept's
Registration Statement on Form S-3 (Registration No. 333-88321), as declared
effective on November 10, 1999.
We derive revenues primarily from the following sources:
. electronic funds transfer, or EFT, processing services;
. core data processing systems, support, maintenance and related services;
. check imaging systems, support and related services;
. data communications management; and
. ancillary products and services, including maintenance and technical
support services, sales of banking related equipment and complementary
products.
We derive EFT revenues principally from processing ATM and debit card
transactions. We receive a base fee for providing our ATM processing services
and an additional fee for each ATM serviced. Once the number of transactions by
a financial institution exceeds established levels, typically between 2,000 and
3,000 transactions per month, we charge additional fees for the extra
transactions processed. For debit card transactions, we generally receive a
portion of the interchange fees charged by our financial institution customers,
and we charge a monthly fee if our customers do not meet a certain minimum
dollar amount of transactions for a particular month. Most charges due under our
EFT service agreements are paid monthly.
On a service bureau basis, we generate core data processing revenues from
service and processing fees based on the volume of transactions processed. These
revenues are recognized as the services are performed. We also generate core
data processing revenues by licensing PC BancPAC, our proprietary Windows(R) NT
based client/server software system, on an in-house
9
<PAGE>
basis. We recognize revenues for licensing of PC BancPAC in accordance with
Statement of Position 97-2 on "Software Revenue Recognition" issued by the
American Institute of Certified Public Accountants. We recognize software
license fees when we have signed a non-cancelable license agreement, shipped the
product and satisfied all significant obligations to the customer.
We license on an in-house basis Renaissance software, our proprietary check
imaging software that we acquired through SBS Corp. in August 1999. We generate
revenues from upfront license fees and recurring annual maintenance fees charged
for this system. Revenues from licensing of Renaissance are recognized in
accordance with Statement of Position 97-2, as discussed above. We also provide
check imaging in a service bureau environment. On a service bureau basis, we
generate revenues based on the volume of items processed. This revenue is
recognized as we provide the service.
We generate our data communications management service revenues principally
from network management and data traffic across our frame relay network and from
equipment configuration, installation and sales. We charge a flat monthly fee
for providing telecommunications connectivity and network management as well as
an initial installation charge.
Our ancillary products and services generate revenues primarily from our
maintenance and technical support services as well as sales of equipment. We
recognize maintenance and technical support service revenues as the service
period elapses. We recognize equipment sales revenues at the time of shipment.
In June 1998, we completed an initial public offering of our common stock.
Since that time, we have completed a number of acquisitions. We originally
accounted for our acquisition of Direct Access in March 1999 as a pooling of
interest. As a result of the Netzee transactions described in Note 5 of the
Notes to the accompanying Condensed Consolidated Financial Statements of
Operations we have changed the accounting for this transaction to a purchase.
Therefore, all of our acquisitions since our initial public offering have been
accounted for as purchase transactions and are reflected as such in the
accompanying condensed consolidated financial statements.
We base our expenses to a significant extent on our expectations of future
revenues. Most of our expenses are fixed in the short term, and we may not be
able to quickly reduce spending if our revenues are lower than we expect. In an
attempt to enhance our long term competitive position, we may also make
decisions regarding pricing, marketing, services and technology that could have
an adverse near-term effect on our financial condition and operating results.
Due to the foregoing factors and other risks discussed in our SEC filings, we
believe that quarter to quarter comparisons of our operating results are not a
good indication of our future performance. It is likely that our operating
results will fall below the expectations of securities analysts or investors in
some future quarter. In such event, the trading price of our common stock would
likely decline, perhaps significantly.
Results of Operations
The following table sets forth the percentage of revenues represented by
certain line items in InterCept's condensed consolidated statements of
operations for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ ---------------------------
1999 1998 1999 1998
------------------------------ ---------------------------
<S> <C> <C> <C> <C>
Revenues 100.0 % 100.0 % 100.0 % 100.0 %
Costs of services 40.2 43.0 39.3 42.2
Selling, general, and administrative expenses 41.0 36.8 39.2 38.6
Depreciation and amortization 15.1 4.8 9.9 4.7
-------------- ----------- ----------- -----------
Total operating expenses 96.3 84.6 88.4 85.4
-------------- ----------- ----------- -----------
Operating income 3.7 15.4 11.6 14.6
Other income (expense), net 115.4 1.1 49.5 (1.0)
-------------- ----------- ----------- -----------
Income before provision for income taxes and
minority interest 119.1 16.4 61.1 13.6
Provision for income taxes 65.4 6.2 31.8 5.3
Minority interest in loss of unconsolidated subsidiary 39.8 0.0 17.0 0.0
Minority interest in income of consolidated subsidiary 0.2 0.4 0.3 0.4
-------------- ----------- ----------- -----------
Net income 13.7 % 9.8 % 12.0 % 7.8 %
============== =========== =========== ===========
</TABLE>
10
<PAGE>
Three Months Ended September 30, 1999 Compared to Three Months Ended September
30, 1998
Revenues. Revenues increased 83.6% to $13.9 million for the three months
ended September 30, 1999 from $7.6 million for the three months ended September
30, 1998. The $6.3 million increase was primarily attributable to (i) $2.8
million generated by an increase in core data processing and check imaging
services, (ii) $1.3 million generated by an increase in EFT processing services,
(iii) $1.2 million generated from an increase in equipment sales, (iv) $370,000
generated by an increase in data communication services, (v) $430,000 generated
from ancillary software products ($140,000 of which was generated by SBS Corp.
which was consolidated with InterCept from August 6, 1999 until September 3,
1999 when Netzee was deconsolidated) and (vi) other increases of $200,000.
Costs of Services. Costs of services increased 71.7% to $5.6 million for
the three months ended September 30, 1999 from $3.3 million for the three months
ended September 30, 1998. The $2.3 million increase was primarily attributable
to (i) $950,000 generated by additional equipment sales, (ii) $600,000 generated
by additional core data processing sales, (iii) $270,000 generated by additional
EFT sales, (iv) $260,000 generated by additional data communication services and
(v) other increases of $220,000.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 104.2% to $5.7 million for the three months
ended September 30, 1999 from $2.8 million for the three months ended September
30, 1998. The $2.9 million increase was primarily attributable to (i) $2.2
million related to InterCept's internal growth and acquisitions, (ii) $480,000
of compensation expense related to stock options issued by Netzee and (iii)
$180,000 of expenses generated by SBS Corp. which was consolidated with
InterCept from August 6, 1999 until September 3, 1999 when Netzee was
deconsolidated.
Depreciation and Amortization. Depreciation and amortization increased
479.1% to $2.1 million for the three months ended September 30, 1999 from
$360,000 for the three months ended September 30, 1998. The $1.8 million
increase was primarily attributable to additional property, plant and equipment
and additional amortization from acquisitions, including goodwill amortization
of $1.3 million from the SBS Corp. acquisition which was consolidated with
InterCept from August 6, 1999 until September 3, 1999 when Netzee was
deconsolidated.
Other Income (Expense). Other income (expense) increased to $16.1 million
for the three months ended September 30, 1999 from $80,000 for the three months
ended September 30, 1998. The increase was primarily due to a $16.0 million gain
associated with the deconsolidation of Netzee.
Provision for Income Taxes. Provision for income taxes increased to $9.1
million for the three months ended September 30, 1999 from $470,000 for the
three months ended September 30, 1998. The increase was attributable to $8.1
million associated with the gain from the deconsolidation of Netzee. The
remaining increase of $500,000 is due to increased pre-tax profits.
Minority Interest in Loss of Unconsolidated Subsidiary. Minority interest
in loss of unconsolidated subsidiary was $5.5 million for the three months ended
September 30, 1999. This amount is related to Netzee's net loss. There was no
minority interest in loss of unconsolidated subsidiary for the three months
ended September 30, 1998.
11
<PAGE>
Minority Interest in Income of Consolidated Subsidiary. Minority interest
in income of consolidated subsidiary remained constant at $30,000 for the three
months ended September 30, 1999 and for the three months ended September 30,
1998.
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30,
1998
Revenues. Revenues increased 59.0% to $32.6 million for the nine months
ended September 30, 1999 from $20.5 million for the nine months ended September
30, 1998. The $12.1 million increase was primarily attributable to (i) $5.2
million generated by an increase in core data processing and check imaging
processing services, (ii) $3.3 million generated by an increase in EFT
processing services, (iii) $1.3 million generated by an increase in equipment
sales, (iv) $1.0 million generated by an increase in data communications
management services, (v) $430,000 generated from ancillary software products
($140,000 of which was generated by SBS Corp. which was consolidated with
InterCept from August 6, 1999 until September 3, 1999), (vi) $420,000 generated
from merchant portfolio management services and (vii) other net increases of
$450,000.
Costs of Services. Costs of services increased 48.2% to $12.8 million for
the nine months ended September 30, 1999 from $8.6 million for the nine months
ended September 30, 1998. The $4.2 million increase was primarily attributable
to (i) $1.8 million generated by an increase in core data processing services,
(ii) $1.0 million generated by additional equipment sales, (iii) $700,000
generated from additional data communication management services, (iv) $370,000
generated from EFT processing services and (v) other net increases of $330,000.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 61.8% to $12.8 million for the nine months
ended September 30, 1999 from $7.9 million for the nine months ended September
30, 1998. The $4.9 million increase was primarily attributable to (i) $4.2
million related to our internal growth and acquisitions, (ii) $480,000 of
compensation expense related to stock options issued by Netzee and (iii)
$180,000 of expenses generated by the acquisition of SBS Corp. which was
consolidated with InterCept from August 6, 1999 until September 3, 1999 when
Netzee was deconsolidated.
Depreciation and Amortization. Depreciation and amortization increased $2.2
million to $3.2 million for the nine months ended September 30, 1999 from
$960,000 for the nine months ended September 30, 1998. The $2.2 million increase
was primarily attributable to additional property, plant and equipment and
additional amortization from acquisitions, including goodwill amortization of
$1.3 million from the SBS Corp. acquisition which was consolidated with
InterCept from August 6, 1999 until September 3, 1999 when Netzee was
deconsolidated.
Other Income (Expense). Other income (expense) increased to income of $16.1
million for the nine months ended September 30, 1999 from expense of $210,000
for the nine months ended September 30, 1998. The increase was primarily due to
a $16.0 million gain associated with the deconsolidation of Netzee.
Provision for Income Taxes. Provision for income taxes increased to $10.4
million for the nine months ended September 30, 1999 from $1.1 million for the
nine months ended September 30, 1998. The increase was attributable to $8.1
million associated with the gain from the deconsolidation of Netzee and
increased pre-tax profits.
12
<PAGE>
Minority Interest in Loss of Unconsolidated Subsidiary. Minority interest
in loss of unconsolidated subsidiary was $5.5 million for the nine months ended
September 30, 1999. This amount is related to Netzee's net loss. There was no
minority interest in loss of unconsolidated subsidiary for the nine months ended
September 30, 1998.
Minority Interest in Income of Consolidated Subsidiary. Minority interest
in income of consolidated subsidiary increased $10,000, to $90,000 for the nine
months ended September 30, 1999 from $80,000 for the nine months ended September
30, 1998. The increase was attributable to profits in ProImage's operations.
Liquidity and Capital Resources
Cash and cash equivalents were $1.2 million at September 30, 1999. Net cash
provided by operating activities was $3.9 million for the nine months ended
September 30, 1999 and $2.7 million for the nine months ended September 30,
1998. The increase in the net cash provided by operating activities was
primarily attributable to an increase in earnings.
Net cash used in investing activities was $36.2 million for the nine months
ended September 30, 1999 and $6.0 million for the nine months ended September
30, 1998. The increase in net cash used in investing activities was primarily
due to a receivable created from the funding of Netzee operations and
acquisitions.
Net cash provided by financing activities was $30.2 million for the nine
months ended September 30, 1999 and $6.9 million for the nine months ended
September 30, 1998. The increase in net cash provided by financing activities
was primarily due to increased borrowings due to the funding of Netzee
operations and acquisitions.
During 1998, we entered into a credit facility with First Union National
Bank. Under this facility, as amended during the third quarter of 1999, we may
borrow up to $35.0 million for working capital and to fund acquisitions and pay
expenses related to acquisitions. We extended the term of the facility from
April 28, 2001 to June 30, 2002. The First Union credit facility contains
provisions which require us to maintain certain financial ratios and minimum net
worth amounts and which restrict our ability to incur additional debt, make
certain capital expenditures, enter into agreements for mergers, acquisitions or
the sale of substantial assets and pay dividends. The First Union credit
facility matures on June 30, 2002. Interest is payable monthly and outstanding
principal amounts accrue interest, at our option, at an annual rate equal to
either (a) a floating rate equal to the lender's prime rate minus .25% or (b) a
fixed rate based upon the 30-day LIBOR rate plus applicable margins. On
September 30, 1999, the interest rate under this facility was approximately
7.5%.
In connection with the acquisition of SBS Corp. and SBS Data, we borrowed
$21.6 million from First Union and loaned that amount to Direct Access to pay a
portion of the purchase price for SBS Corp. and to pay some outstanding
liabilities of SBS Corp. On September 1, 1999, we borrowed an additional $7.3
million in proceeds from the First Union credit facility and loaned that amount
to Netzee to pay a portion of the purchase price for acquisitions of other
companies. Netzee has executed and delivered promissory notes to us for these
loans, which accrue interest at a fluctuating annual rate equal to the prime
rate plus 2.0%, which as of September 30, 1999 equaled 10.25%. Additionally, we
have funded working capital requirements of Netzee. Amounts due related to
working capital funding and accrued interest were $2.7 million at September 30,
1999.
13
<PAGE>
While there can be no assurance, we believe that funds currently on hand,
funds to be provided by operations, and funds available for working capital
purposes under the First Union credit facility will be sufficient to meet our
anticipated capital expenditures and liquidity requirements for at least the
next 12 months. While there is no agreement in place, we may loan additional
monies to Netzee to fund its operations. We intend to grow, in part, through
strategic acquisitions and will make additional expenditures to negotiate and
consummate acquisition transactions and integrate the acquired companies. No
assurance can be made with respect to the actual timing and amount of the
expenditures and acquisitions. In addition, no assurance can be given that we
will complete any acquisitions on terms favorable to us, if at all, or that
additional sources of financing will not be required during these time periods
or thereafter.
Possible Effects of the Year 2000
Our business and relationships with our customers depend significantly on a
number of computer software programs, internal operating systems and connections
to other regional and national telecommunications and processing networks. If
any of these software programs, systems or networks are not programmed to
recognize and properly process dates after December 31, 1999, significant system
failures or errors may result. These matters are commonly referred to as the
year 2000 issue and they could have a material adverse effect on our operations
and those of our customers.
Our compliance program
We have conducted a review of our internal accounting and operating
programs and systems and currently believe that these programs and systems and
the network connections we maintain are adequately programmed to address the
year 2000 issue or can be modified or replaced to address the year 2000 issue
without incurring costs or delays which would have a material adverse effect on
our financial condition.
We have successfully converted all of our non-year 2000 compliant service
bureau processing customers to our PC BancPAC software, which we believe is year
2000 compliant. We have incurred costs of approximately $175,000 related to the
conversions.
We currently provide core data processing and check imaging services
through eleven centers located in Georgia, Florida, Tennessee, Arkansas and
Colorado. We have completed the upgrade of the equipment at each of these
locations to be year 2000 compliant. The total cost to make the equipment year
2000 compliant was approximately $75,000. In the event that the upgraded
equipment does not function properly, we believe that we can purchase equipment
that will allow processing to continue. It is difficult to estimate the
potential expense involved or delays which may result from a failure of the
upgraded equipment at our service bureau processing centers.
EFT processing is dependent upon coordinating the operations of other ATM
networks and our systems. In regard to our EFT operations and ATM network, we
believe the internal coding required for our products to be year 2000 complaint
has been completed. We have completed the testing and certification of our
connections to other ATM networks, and we believe these connections are year
2000 compliant. If the other ATM networks do not successfully address year 2000
issues in their operations and if we are unable to route the transactions over
another network or another provider that has year 2000 compliant systems, our
operations may be affected. It is difficult to estimate the cost of our efforts
to certify these
14
<PAGE>
operations as the majority of expenditures relate to existing programmers and
support staff required to review the financial institutions networks and
equipment. It is difficult to estimate the potential expenses involved or delays
which may result from a failure or delay of these institutions and third parties
in resolving their year 2000 issues.
In regard to our data communications operations, we have completed a review
of our internal equipment as well as third party products and systems used in
our operations. It is our belief that our data communications equipment and
services, which are primarily provided by companies such as Motorola, BellSouth,
MCI WorldCom and Qwest Communications, are year 2000 compliant. If these
companies do not successfully address year 2000 issues in their operations and
if we are unable to successfully transfer our business operations to another
provider that has year 2000 compliant systems, our data communications
operations may be interrupted, hindered or delayed, which would have a material
adverse effect on our business, financial condition and results of operations.
Third party compliance
Other companies interact electronically with us and our customers, and we
must coordinate our EFT processing, ATM network data communications and
enterprise software processing with these other companies and our customers. We
have completed a preliminary assessment of third party products and systems used
in our business. We believe that many financial institutions and third party
vendors and network processors, including our customers, vendors and processors,
are still in the process of analyzing their software and network applications to
address year 2000 issues. These other companies may not be successful in
identifying or resolving year 2000 issues in their operations, and our business
could suffer greatly if our customers' and vendors' operations are halted or
diminished even temporarily to address or correct these issues. It is difficult
to estimate the potential expenses involved or delays which may result from the
failure of these institutions and third parties to resolve their year 2000
issues in a timely manner. We cannot assure you that such expenses, failures or
delays will not have a material adverse effect on our business, financial
condition or results of operations.
SBS acquisition
We recently acquired SBS Data Services and the non-Internet and non-
telephone banking assets of SBS Corporation, affiliated corporations which
provide core data processing, check imaging equipment sales and services and
optical storage products to community financial institutions. SBS Data and SBS
Corp. have completed a year 2000 compliance review of their products and systems
and have made all necessary upgrades to be year 2000 compliant. We are
incorporating the SBS products and systems into our continuing year 2000 testing
and compliance program.
Contingency plans
Although we have not found any material year 2000 issues with our products,
services or operating systems, or those of third parties with whom we do
business, we have developed contingency plans for handling any year 2000
problems that may occur. Our contingency plans include:
. accelerated replacement of affected equipment or software;
. the emergency allocation of personnel and resources to analyze, assess
and direct
15
<PAGE>
remediation efforts;
. the use of backup systems, including those that do not rely on
computers; and
. alternative sources of power and communications.
It is difficult to estimate the potential expenses involved or delays
which may result if we are required to implement our contingency plans to
address year 2000 issues.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
We do not use derivative financial instruments in our operations or
investments and do not have significant operations subject to fluctuations in
foreign currency exchange rates. Borrowings under the First Union credit
facility accrue interest at a fluctuating rate based either upon the lender's
prime rate or LIBOR. Prior to August 6, 1999, we had less than $1.0 million
outstanding under the First Union facility and, therefore, were not subject to
significant risks from interest rate fluctuations. As of September 30, 1999, we
had $31.5 million outstanding under this facility, which significantly increases
our risks from interest rate fluctuations. Changes in interest rates which
dramatically increase the interest rate on the credit facility would make it
more costly to borrow under that facility and may impede our acquisition and
growth strategies if we determine that the costs associated with borrowing funds
are too high to implement these strategies. Additional loans to Netzee may
increase the amount outstanding under this facility.
16
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are not a party to, nor is any of our property subject to, any material
legal proceedings, other than routine litigation incidental to its business.
Item 2. Changes in Securities and Use of Proceeds
On August 6, 1999, we issued approximately 190,000 shares of our common
stock to the three shareholders of SBS Data Services, Inc. in connection with
our acquisition of SBS Data. We issued the shares under Rule 506 of Regulation
D. All of the SBS shareholders were accredited investors.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote by InterCept's security holders during
the third quarter ended September 30, 1999.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit
No. Description
- --------- -----------
2.1 Agreement and Plan of Merger dated August 6, 1999 by and among The
InterCept Group, Inc., Zeenet Corporation, SBS Data Services, Inc. and
the shareholders of SBS Data Services (incorporated by reference to
Exhibit 2.1 of InterCept's Current Report on Form 8-K filed August 20,
1999).
2.2 Agreement and Plan of Merger dated August 6, 1999 by and between
Direct Access Interactive, Inc., SBS Corporation and the shareholders
of SBS Corporation (incorporated by reference to Exhibit 2.2 of
InterCept's Current Report on Form 8-K filed August 20, 1999).
2.3 Agreement and Plan of Merger dated September 3, 1999 by and between
Netzee, Inc. and Direct Access Interactive, Inc. (incorporated by
reference to Exhibit 2.1 of InterCept's Current Report on Form 8-K
filed September 17, 1999).
17
<PAGE>
2.4 Agreement and Plan of Merger dated September 3, 1999 by and between
Netzee, Inc., Dyad Corporation and certain of the shareholders of Dyad
Corporation (incorporated by reference to Exhibit 2.2 of InterCept's
Current Report on Form 8-K filed September 17, 1999).
2.5 Asset Contribution Agreement dated September 3, 1999 by and among The
InterCept Group, Inc., Netzee, Inc. and The Bankers Bank,
(incorporated by reference to Exhibit 2.3 of InterCept's Current
Report on Form 8-K filed September 17, 1999).
2.6 Asset Contribution Agreement dated September 3, 1999 by and among The
InterCept Group, Inc., Netzee, Inc. and TIB The Independent Banker's
Bank (incorporated by reference to Exhibit 2.4 of InterCept's Current
Report on Form 8-K filed September 17, 1999).
3.1 Amended and Restated Articles of Incorporation, as deemed filed with
the Secretary of the State of Georgia on April 29, 1998 (incorporated
by reference to the exhibits to InterCept's Registration Statement on
Form 8-A (as amended on October 1, 1999)).
3.2 Amended and Restated Bylaws (incorporated by reference to the exhibits
to InterCept's Registration Statement on Form 8-A (as amended on
October 1, 1999)).
3.3 Amendment to Amended and Restated Bylaws (incorporated by reference to
the exhibits to InterCept's Registration Statement on Form 8-A (as
amended on October 1, 1999)).
4.1 See Exhibits 3.1 and 3.2 for provisions of the Amended and Restated
Articles of Incorporation and Amended and Restated Bylaws defining the
rights of the holders of Common Stock of InterCept.
10.1 Third Amendment to Loan and Security Agreement and Joinder Agreement
dated August 6, 1999 by and among First Union National Bank and The
InterCept Group, Inc. and its subsidiaries, (incorporated by reference
to Exhibit 10.1 of InterCept's Current Report on Form 8-K filed August
20, 1999).
27.1 Financial Data Schedule for the three and nine months ended September
30, 1999.
b) Reports on Form 8-K
Form 8-K filed August 20, 1999 as amended on September 30, 1999
and November 8, 1999
Reporting under Item 2 that InterCept entered into a merger
agreement to acquire SBS Data Services, Inc. and SBS Corporation.
Financial statements of SBS Data and SBS Corp., as well as pro
forma financial statements of InterCept, were filed with this
report.
Form 8-K filed September 17, 1999
Reporting under Item 2 that InterCept established a new wholly-
owned
18
<PAGE>
subsidiary, Netzee, Inc. Direct Access Interactive, Inc. (a
subsidiary of InterCept) then merged with and into Netzee.
Pursuant to an Asset Contribution Agreement between InterCept,
Netzee and The Bankers Bank, a Georgia banking corporation
("TBB"), Netzee acquired various assets and assumed certain
liabilities related to the Internet banking division of TBB.
Pursuant to an Asset Contribution Agreement between InterCept,
Netzee and TIB The Independent BankersBank, a Texas banking
association ("TIB"), Netzee acquired various assets and assumed
certain liabilities related to the Internet banking division of
TIB. Pursuant to an Agreement and Plan of Merger by and among
Netzee, Dyad Corporation, a Georgia Corporation ("Dyad"), and
certain shareholders of Dyad, Dyad merged with and into Netzee.
Financial statements of The Bankers Bank, TIB The Independent
BankersBank and Dyad, as well as pro forma financial statements of
InterCept, were filed with this report.
19
<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 thereunto duly authorized.
THE INTERCEPT GROUP, INC.
November 12, 1999 /s/ John W. Collins
- ------------------ -------------------
Date John W. Collins
Chairman of the Board and Chief Executive Officer
(principal executive officer)
November 12, 1999 /s/ Scott R. Meyerhoff
- ------------------ ----------------------
Date Scott R. Meyerhoff
Chief Financial Officer
(principal financial and accounting officer)
20
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
- -------- -----------
2.1 Agreement and Plan of Merger dated August 6, 1999 by and among The
InterCept Group, Inc., Zeenet Corporation, SBS Data Services, Inc. and
the shareholders of SBS Data Services (incorporated by reference to
Exhibit 2.1 of InterCept's Current Report on Form 8-K filed August 20,
1999).
2.2 Agreement and Plan of Merger dated August 6, 1999 by and between
Direct Access Interactive, Inc., SBS Corporation and the shareholders
of SBS Corporation (incorporated by reference to Exhibit 2.2 of
InterCept's Current Report on Form 8-K filed August 20, 1999).
2.3 Agreement and Plan of Merger dated September 3, 1999 by and between
Netzee, Inc. and Direct Access Interactive, Inc. (incorporated by
reference to Exhibit 2.1 of InterCept's Current Report on Form 8-K
filed September 17, 1999).
2.4 Agreement and Plan of Merger dated September 3, 1999 by and between
Netzee, Inc., Dyad Corporation and certain of the shareholders of Dyad
Corporation (incorporated by reference to Exhibit 2.2 of InterCept's
Current Report on Form 8-K filed September 17, 1999).
2.5 Asset Contribution Agreement dated September 3, 1999 by and among The
InterCept Group, Inc., Netzee, Inc. and The Bankers Bank,
(incorporated by reference to Exhibit 2.3 of InterCept's Current
Report on Form 8-K filed September 17, 1999).
2.6 Asset Contribution Agreement dated September 3, 1999 by and among The
InterCept Group, Inc., Netzee, Inc. and TIB The Independent Banker's
Bank (incorporated by reference to Exhibit 2.4 of InterCept's Current
Report on Form 8-K filed September 17, 1999).
3.1 Amended and Restated Articles of Incorporation, as deemed filed with
the Secretary of the State of Georgia on April 29, 1998 (incorporated
by reference to the exhibits to InterCept's Registration Statement on
Form 8-A (as amended on October 1, 1999)).
3.2 Amended and Restated Bylaws (incorporated by reference to the exhibits
to InterCept's Registration Statement on Form 8-A (as amended on
October 1, 1999)).
3.3 Amendment to Amended and Restated Bylaws (incorporated by reference to
the exhibits to InterCept's Registration Statement on Form 8-A (as
amended on October 1, 1999)).
4.1 See Exhibits 3.1 and 3.2 for provisions of the Amended and Restated
Articles of Incorporation and Amended and Restated Bylaws defining the
rights of the holders of Common Stock of InterCept.
<PAGE>
10.1 Third Amendment to Loan and Security Agreement and Joinder Agreement
dated August 6, 1999 by and among First Union National Bank and The
InterCept Group, Inc. and its subsidiaries, (incorporated by reference
to Exhibit 10.1 of InterCept's Current Report on Form 8-K filed August
20, 1999).
27.1 Financial Data Schedule for the three and nine months ended September
30, 1999.
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<NET-INCOME> 1,909 3,912
<EPS-BASIC> .19 .41
<EPS-DILUTED> .18 .39
</TABLE>
