<PAGE>
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): August 6, 1999
------------------
THE INTERCEPT GROUP, INC.
-------------------------
(Exact Name of Registrant
as Specified in its Charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Georgia 01-14213 58-2237359
- --------------------------------------------------------------------------------
(State or Other (Commission (I.R.S. Employer
Jurisdiction of File Number) Identification No.)
Incorporation)
</TABLE>
3150 Holcomb Bridge Road, Suite 200, Norcross, Georgia 30071
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (770) 248-9600
--------------
N/A
------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
The registrant hereby amends its report on Form 8-K filed on August 20,
1999 by deleting the text under Item 7 and replacing it with the following text.
(a) Financial Statements of Business Acquired.
Included as Exhibit 99.1 and 99.2 hereto and incorporated herein by
reference.
(b) Pro Forma Financial Information.
Included as Exhibit 99.3 hereto and incorporated herein by
reference.
(c) Exhibits.
Item No. Exhibit List
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 Inc.*
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.*
99.1 The following financial statements of SBS Data together with the
report by Hardman, Guess, Frost and Cummings, P.C. for the
periods stated therein:
Balance Sheets as of December 31, 1997 and 1998 and June 30,
1999 (unaudited).
Statements of Income for the years ended December 31, 1997 and
1998 and the six months ended June 30, 1998 and 1999 (unaudited).
Statements of Stockholders' Equity for the years ended December
31, 1997 and 1998 and the six months ended June 30, 1999
(unaudited).
Statements of Cash Flows for the years ended December 31, 1997
and 1998 and the six months ended June 30, 1998 and 1999
(unaudited).
Notes to Financial Statements.
99.2 The following financial statements of SBS Corp. together with the
report by Arthur Andersen LLP for the periods stated therein:
Balance Sheets as of December 31, 1997 and 1998 and June 30,
1999 (unaudited).
Statements of Operations for the years ended December 31, 1997
and 1998 and the six months ended June 30, 1998 and 1999
(unaudited).
Statements of Shareholders' (Deficit) Equity for the years ended
December 31, 1997 and
2
<PAGE>
1998 and the six months ended June 30, 1999 (unaudited).
Statements of Cash Flows for the years ended December 31, 1997
and 1998 and the six months ended June 30, 1998 and 1999
(unaudited).
Notes to Financial Statements.
99.3 The following unaudited pro forma condensed consolidated
financial statements:
Pro Forma Condensed Consolidated Balance Sheet as of June 30,
1999.
Pro Forma Condensed Consolidated Statement of Operations for the
six months ended June 30, 1999.
Pro Forma Condensed Consolidated Statement of Operations for the
year ended December 31, 1998.
Notes to Pro Forma Condensed Consolidated Financial Statements.
* Previously filed with the registrant's Current Report on Form 8-K filed
August 20, 1999.
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.
THE INTERCEPT GROUP, INC.
By: /s/ Scott R. Meyerhoff
-----------------------------------------
Scott R. Meyerhoff
Chief Financial Officer
Dated: September 30, 1999
3
<PAGE>
EXHIBIT LIST
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 Inc*
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.*
99.1 The following financial statements of SBS Data together with the
report by Hardman, Guess, Frost and Cummings, P.C. for the
periods stated therein:
Balance Sheets as of December 31, 1997 and 1998 and June 30,
1999 (unaudited).
Statements of Income for the years ended December 31, 1997 and
1998 and the six months ended June 30, 1998 and 1999 (unaudited).
Statements of Stockholders' Equity for the years ended December
31, 1997 and 1998 and the six months ended June 30, 1999
(unaudited).
Statements of Cash Flows for the years ended December 31, 1997
and 1998 and the six months ended June 30, 1998 and 1999
(unaudited).
Notes to Financial Statements.
99.2 The following financial statements of SBS Corp. together with the
report by Arthur Andersen LLP for the periods stated therein:
Balance Sheets as of December 31, 1997 and 1998 and June 30,
1999 (unaudited).
Statements of Operations for the years ended December 31, 1997
and 1998 and the six months ended June 30, 1998 and 1999
(unaudited).
Statements of Shareholders' (Deficit) Equity for the years ended
December 31, 1997 and 1998 and the six months ended June 30, 1999
(unaudited).
Statements of Cash Flows for the years ended December 31, 1997
and 1998 and the six months ended June 30, 1999 (unaudited).
Notes to Financial Statements.
99.3 The following unaudited pro forma condensed consolidated
financial statements:
Pro Forma Condensed Consolidated Balance Sheet as of June 30,
1999.
4
<PAGE>
Pro Forma Condensed Consolidated Statement of Operations for the
six months ended June 30, 1999.
Pro Forma Condensed Consolidated Statement of Operations for the
year ended December 31, 1998.
Notes to Pro Forma Condensed Consolidated Financial Statements.
* Previously filed with the registrant's Current Report on Form 8-K filed
August 20, 1999.
5
<PAGE>
EXHIBIT 99.1
SBS DATA SERVICES, INC.
FINANCIAL STATEMENTS
<PAGE>
SBS DATA SERVICES, INC.
CONTENTS
===============================================================================
Page
----
Independent Auditors' Report 1
Balance Sheets 2
Statements of Income 3
Statements of Stockholders' Equity 4
Statements of Cash Flows 5
Notes to Financial Statements 7
<PAGE>
INDEPENDENT AUDITORS' REPORT
To SBS Data Services, Inc.
We have audited the accompanying balance sheets of SBS Data Services, Inc. as of
December 31, 1997 and 1998, and the related statements of income, stockholders'
equity, and cash flows for the years 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 audits.
We conducted our audits 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 that our audits 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 SBS Data Services, Inc. as of
December 31, 1997 and 1998, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ Hardman, Guess, Frost & Cummings, P.C.
- ------------------------------------------
Birmingham, Alabama
January 27, 1999
<PAGE>
SBS DATA SERVICES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------- --------------
December 31 June 30
- ---------------------------------------------------------------------------- --------------
1997 1998 1999
- ---------------------------------------------------------------------------- --------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 524,383 $ 935,441 $ 691,341
Accounts receivable:
Trade 45,728 430,845 611,798
Affiliate 115,399 50,140 120,924
Officers 0 0 1,013,900
Employees 28,697 14,463 12,773
- ---------------------------------------------------------------------------- --------------
189,824 495,448 1,759,395
Prepaid expenses 36,855 32,531 17,457
Deferred costs--current portion 124,006 132,203 170,873
- ---------------------------------------------------------------------------- --------------
TOTAL CURRENT ASSETS 875,068 1,595,623 2,639,066
OTHER ASSETS
Equipment and leasehold improvements, net 229,400 433,151 446,857
Deferred costs--net of current portion 228,366 275,097 324,080
Due from affiliate 0 574,143 921,493
Other assets 81,062 104,098 116,148
- ---------------------------------------------------------------------------- --------------
TOTAL OTHER ASSETS 538,828 1,386,489 1,808,578
- ---------------------------------------------------------------------------- --------------
TOTAL ASSETS $1,413,896 $2,982,112 $4,447,644
============================================================================ ==============
<CAPTION>
- ---------------------------------------------------------------------------- --------------
December 31 June 30
- ---------------------------------------------------------------------------- --------------
1997 1998 1999
- ---------------------------------------------------------------------------- --------------
(Unaudited)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 62,144 $ 54,838 $ 65,741
Accrued liabilities 44,331 74,192 50,059
Unearned income 75,000 236,105 113,000
Deferred revenue--current portion 1,089,066 1,546,596 2,371,646
Long-term debt--current portion 39,974 13,768 14,243
Capital lease obligation--current portion 0 48,649 51,570
- ---------------------------------------------------------------------------- --------------
TOTAL CURRENT LIABILITIES 1,310,515 1,974,148 2,666,259
Deferred revenue--net of current portion 43,096 136,126 505,387
Long-term debt--net of current portion 41,057 27,265 20,028
Capital lease obligation--net of current portion 0 100,030 73,493
- ---------------------------------------------------------------------------- --------------
TOTAL LIABILITIES 1,394,668 2,237,569 3,265,167
STOCKHOLDERS' EQUITY
Capital stock, par value $1.00 per share;
10,000 shares authorized, 1,000 shares
issued and outstanding 1,000 1,000 1,000
Additional paid-in capital 200,000 200,000 200,000
Retained earnings (deficit) (181,772) 543,543 981,477
- ---------------------------------------------------------------------------- --------------
TOTAL STOCKHOLDERS' EQUITY 19,228 744,543 1,182,477
- ---------------------------------------------------------------------------- --------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,413,896 $2,982,112 $4,447,644
============================================================================ ==============
</TABLE>
See notes to financial statements
<PAGE>
SBS DATA SERVICES, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------- ---------------------------
Year Ended Six Months
- -------------------------------------------------------------------------------------------------- ---------------------------
December 31 Ended June 30
- -------------------------------------------------------------------------------------------------- ---------------------------
1997 1998 1998 1999
- -------------------------------------------------------------------------------------------------- ---------------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUE
Data services $2,282,562 $3,410,872 $1,638,633 $2,396,536
Cancellation fees 0 817,680 0 193,968
- -------------------------------------------------------------------------------------------------- ---------------------------
2,282,562 4,228,552 1,638,633 2,590,504
COSTS AND EXPENSES
Salaries and benefits 906,668 1,329,746 591,662 809,591
Service costs 620,264 959,627 437,665 635,803
Selling and marketing expenses 13,788 42,879 17,265 20,191
Management fees 180,000 189,500 90,000 145,200
Operating and administrative expenses 556,968 837,813 323,478 410,038
- -------------------------------------------------------------------------------------------------- ---------------------------
TOTAL COSTS AND EXPENSES 2,277,688 3,359,565 1,460,070 2,020,823
- -------------------------------------------------------------------------------------------------- ---------------------------
INCOME FROM OPERATIONS 4,874 868,987 178,563 569,681
OTHER INCOME (EXPENSE)
Interest income 22,949 31,097 13,388 27,887
Interest expense (10,181) (11,769) (2,265) (9,634)
- -------------------------------------------------------------------------------------------------- ---------------------------
12,768 19,328 11,123 18,253
- -------------------------------------------------------------------------------------------------- ---------------------------
NET INCOME $ 17,642 $ 888,315 $ 189,686 $ 587,934
================================================================================================== ===========================
TAX ADJUSTED PROFORMA DATA:
Income before income taxes $ 17,642 $ 888,315 $ 189,686 $ 587,934
Income taxes - See Note A 6,477 328,739 72,693 221,006
- -------------------------------------------------------------------------------------------------- ---------------------------
NET INCOME (As Adjusted) $ 11,165 $ 559,576 $ 116,993 $ 366,928
================================================================================================== ===========================
</TABLE>
See notes to financial statements.
<PAGE>
SBS DATA SERVICES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997 AND
SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Additional Retained
Capital Paid-in Earnings
Stock Capital (Deficit) Total
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance (deficit) at January 1, 1997 $1,000 $200,000 $(199,414) $ 1,586
Net income 0 0 17,642 17,642
- ----------------------------------------------------------------------------------------------------------------
Balance (deficit) at December 31, 1997 1,000 200,000 (181,772) 19,228
Net income 0 0 888,315 888,315
Dividends paid 0 0 (163,000) (163,000)
- ----------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 1,000 200,000 543,543 744,543
- ----------------------------------------------------------------------------------------------------------------
Net income (unaudited) 0 0 587,934 587,934
Dividends paid (unaudited) 0 0 (150,000) (150,000)
- ----------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1999
(UNAUDITED) $1,000 $200,000 $ 981,477 $1,182,477
================================================================================================================
</TABLE>
See notes to financial statements.
<PAGE>
SBS DATA SERVICES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------- --------------------------
Year Ended Six Months
- --------------------------------------------------------------------------------------- --------------------------
December 31 Ended June 30
- --------------------------------------------------------------------------------------- --------------------------
1997 1998 1998 1999
- --------------------------------------------------------------------------------------- --------------------------
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income $ 17,642 $ 888,315 $ 189,686 $ 587,934
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 87,267 151,948 45,276 51,712
Loss on sale of equipment 1,486 8,048 0 910
Changes in:
Accounts receivable:
Trade (33,956) (385,117) (521,879) (180,954)
Affiliate (2,687) 65,259 115,399 (70,784)
Employees (23,874) 14,234 23,594 1,689
Prepaid expenses (2,006) 4,324 (15,353) 15,074
Deferred costs 22,506 (54,928) 33,857 (87,653)
Due from affiliate 0 (574,143) (202,940) (347,350)
Other assets (23,366) (23,785) (57,635) (12,050)
Accounts payable 31,169 (7,306) (13,665) 10,903
Accrued liabilities 23,300 29,861 (8,246) (24,133)
Unearned income (6,000) 161,105 327,500 (123,105)
Deferred revenue 57,585 550,560 781,583 1,194,311
- --------------------------------------------------------------------------------------- --------------------------
NET CASH PROVIDED
BY OPERATING ACTIVITIES 149,066 828,375 697,177 1,016,504
CASH FLOWS FROM
INVESTING ACTIVITIES
Loans to officers 0 0 0 (1,013,900)
Purchases of equipment
and leasehold improvements (128,663) (362,998) (65,147) (66,327)
- --------------------------------------------------------------------------------------- --------------------------
NET CASH USED BY
INVESTING ACTIVITIES (128,663) (362,998) (65,147) (1,080,227)
CASH FLOWS FROM
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 46,211 0 0 0
Proceeds from capital lease obligation 0 169,891 0 0
Repayments of capital lease obligation 0 (21,212) 0 (23,615)
Repayments of long-term debt (99,031) (39,998) (32,038) (6,762)
Payment of dividends 0 (163,000) (148,000) (150,000)
- --------------------------------------------------------------------------------------- --------------------------
NET CASH USED BY
FINANCING ACTIVITIES (52,820) (54,319) (180,038) (180,377)
- --------------------------------------------------------------------------------------- --------------------------
NET CHANGE IN CASH
AND CASH EQUIVALENTS (32,417) 411,058 451,992 (244,100)
</TABLE>
<PAGE>
SBS DATA SERVICES, INC.
STATEMENTS OF CASH FLOWS-CONTINUED
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------- --------------------------
Year Ended Six months
- --------------------------------------------------------------------------------------- --------------------------
December 31 Ended June 30
- --------------------------------------------------------------------------------------- --------------------------
1997 1998 1998 1999
- --------------------------------------------------------------------------------------- --------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Cash and cash equivalents at beginning of period 556,800 524,383 524,383 935,441
- --------------------------------------------------------------------------------------- --------------------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 524,383 $ 935,441 $ 976,375 $ 691,341
======================================================================================= ==========================
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Interest paid $ 10,181 $ 11,769 $ 2,265 $ 9,634
======================================================================================= ==========================
</TABLE>
<PAGE>
SBS DATA SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1998 AND
SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
_______________________________________________________________________________
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
Company's Activities: The Company is engaged in the processing of data for the
financial services industry on a contract basis. Each engagement consists of the
conversion of the customer's existing financial data to a format that can be
processed by the Company's software. The Company's customer base is comprised of
banks and other financial institutions located primarily in the southeastern
region of the United States. The Company has acquired a software license to
provide data processing services for their customers.
Revenue and Cost Recognition: Conversion fee deposits received on contracts are
recorded as unearned income until the conversion is complete. Conversion fee
revenue is recognized ratably over the life of the contract. Estimated direct
costs associated with each conversion project are capitalized and amortized to
expense on a straight-line basis over the life of the underlying contract. Costs
capitalized for each contract are based upon the calculated average unreimbursed
cost of initially setting up a new account plus the actual fees paid for
software usage. These costs are reported as deferred costs in the accompanying
financial statements. The Company records maintenance and service fees billed in
advance as deferred revenues, and recognizes revenue ratably over the life of
the underlying contract as the services are rendered.
Cash Equivalents: Cash equivalents consist of interest-bearing checking accounts
and certificates of deposit with maturities of three months or less. Certain
cash equivalents are pledged as collateral for an affiliated company's bank
loan - See Note H.
Allowance for Doubtful Accounts: Management reviewed accounts receivable and
determined that there is no requirement for an allowance for doubtful accounts
for the periods presented.
Equipment and Leasehold Improvements: Equipment and leasehold improvements are
recorded at cost and are depreciated over their estimated useful lives, or the
lease term if shorter, principally on an accelerated method. Repairs that do not
extend the useful life of an asset are charged to expense as incurred.
Income Taxes: The Company elected S Corporation status for federal and state
income tax purposes at inception, whereby profits, losses and credits are taxed
to the shareholders. A charge in lieu of income taxes has been included for pro
forma purposes only. The pro forma income taxes approximates an amount based on
applicable rates adjusted for permanent differences which are not taxable or
deductible for income tax purposes, except that no recognition is given for a
net operating loss.
Interim Period Presentation: The unaudited financial statements for the six
months ended June 30, 1998 and 1999 have been prepared on a basis substantially
consistent with that of audited financial statements included herein. In the
opinion of management, such unaudited financial statements include all
adjustments (consisting of only normal recurring accruals) necessary for a fair
presentation of the results of operations and cash flows. The results of
operations for the six months ended June 30, 1999 are not necessarily indicative
of results that may be expected for the year ending December 31, 1999.
Estimates: The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications: Certain amounts in the 1997 financial statements have been
reclassified to conform to the 1998 presentation. Such presentation had no
material effect on the previously reported financial results.
<PAGE>
SBS DATA SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
YEARS ENDED DECEMBER 31, 1997 AND 1998 AND
SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
______________________________________________________________________________
NOTE A--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
Comprehensive Income: Comprehensive income for the years ended December 31, 1997
and 1998 and the six-month periods ended June 30, 1998 and 1999 is the same as
the net income presented in the accompanying statements of operations.
New Accounting Pronouncements: In June of 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards ("SFAS") No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The Statement is effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000. The statement is not expected to have a
significant impact on the Company's financial statements.
NOTE B--EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
December 31 June 30
- -------------------------------------------------------------------------- ---------------
1997 1998 1999
- -------------------------------------------------------------------------- ---------------
(Unaudited)
<S> <C> <C> <C>
Furniture and fixtures $ 6,334 $ 15,810 $ 15,810
Equipment:
Office 37,588 122,063 130,015
Communications 63,120 64,941 64,941
Data processing 126,508 326,628 360,888
Loaner 14,977 18,842 18,842
Automotive 96,701 86,623 86,623
- -------------------------------------------------------------------------- ---------------
Total Equipment 338,894 619,097 661,309
Software licenses 79,700 79,700 97,498
Leasehold improvements 15,452 69,548 74,956
- -------------------------------------------------------------------------- ---------------
440,380 784,155 849,573
Less accumulated depreciation and amortization 210,980 351,004 402,716
- -------------------------------------------------------------------------- ---------------
TOTALS $229,400 $433,151 $446,857
========================================================================== ===============
</TABLE>
NOTE C--NOTE PAYABLE
The Company has a revolving credit agreement with First Commercial Bank (FCB)
with a maximum borrowing of $50,000 and interest payable monthly at FCB's prime
rate plus one percent. The note is secured by all equipment of the Company, and
is personally guaranteed by the Company's shareholders. There was no
outstanding balance at December 31, 1997 or 1998 or June 30, 1999 (unaudited).
8
<PAGE>
SBS DATA SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
YEARS ENDED DECEMBER 31, 1997 AND 1998 AND
SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
_______________________________________________________________________________
NOTE D--LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31 June 30
- --------------------------------------------------------------------------------- -----------
1997 1998 1999
- --------------------------------------------------------------------------------- -----------
(Unaudited)
<S> <C> <C> <C>
Note payable to bank due in monthly installments
of $7,309 including interest at 8.75% through May
1998. The note was secured by processing and
communications equipment, software, and personal
guarantees of the stockholders. $21,936 $ 0 $ 0
Note payable to bank due in monthly installments
of $340 including interest at 8.5% through June
1998. The note was secured by a vehicle. 1,732 0 0
Note payable to bank due in monthly
installments of $362 including interest
at 9.75% through October 1998. The note
was secured by a vehicle. 3,436 0 0
Note payable to credit company due in
monthly installments of $416 including
interest at 2.9% through August 2000. The
note is secured by a vehicle. 12,787 8,105 5,715
Note payable to credit company due in
monthly installments of $960 including
interest at 8.90% through April 2002. The
note is secured by a vehicle. 41,140 32,928 28,556
- --------------------------------------------------------------------------------- -----------
81,031 41,033 34,271
Less current portion 39,974 13,768 14,243
- --------------------------------------------------------------------------------- -----------
TOTAL LONG-TERM DEBT $41,057 $27,265 $20,028
================================================================================= ===========
</TABLE>
The anticipated principal maturities of long-term debt for the years subsequent
to December 31, 1998 are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year Ending In Amount
- --------------------------------------------------------------------------------
<S> <C>
1999 $13,768
2000 13,071
2001 10,689
2002 3,505
- --------------------------------------------------------------------------------
TOTAL $41,033
================================================================================
</TABLE>
9
<PAGE>
SBS DATA SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
YEARS ENDED DECEMBER 31, 1997 AND 1998 AND
SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE E--CAPITAL LEASE
The Company is the lessee of computer equipment under a capital lease expiring
in July 2001. The economic substance of the lease is that the Company is
financing the acquisition of the asset through the lease, and accordingly, it is
recorded as a capital lease in the accompanying financial statements. The
property under capital lease as of December 31, 1998 and June 30, 1999
(unaudited) had a cost of $169,891, accumulated amortization of $30,869 and
$44,771 and a net book value of $139,022 and $125,120, respectively. The lease
is personally guaranteed by the shareholders of the Company. Amortization is
included in depreciation expense in the accompanying financial statements.
Future minimum payments, by year and in the aggregate, under the capital lease
are as follows at December 31, 1998:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Fiscal Year Ending In Amount
- --------------------------------------------------------------------------------
<S> <C>
1999 $ 67,957
2000 67,957
2001 49,524
- --------------------------------------------------------------------------------
TOTAL MINIMUM LEASE PAYMENTS 185,438
Executory costs (11,114)
Imputed interest (25,645)
- --------------------------------------------------------------------------------
PRESENT VALUE OF NET MINIMUM LEASE PAYMENTS 148,679
Less current portion (48,649)
- --------------------------------------------------------------------------------
CAPITAL LEASE OBLIGATION $100,030
================================================================================
</TABLE>
NOTE F--EMPLOYEE BENEFIT PLAN
The Company maintains a qualified cash or deferred compensation plan under
section 401(k) of the Internal Revenue Code. Under the plan, employees may
generally elect to defer up to ten percent (10%) of their salary, subject to
Internal Revenue Code limits. The Company contributes a matching one hundred
percent (100%) of the first six percent (6%) of employee contributions. In
addition, the plan allows for the Company to make discretionary contributions
that are based on the participants' salary. Company contributions to the plan
totaled $38,004 and $48,308 for the years ended December 31, 1997 and 1998 and
$12,530 and $22,297 for the six months ended June 30, 1998 and 1999 (unaudited),
respectively.
NOTE G--OPERATING LEASES
The Company leased various data processing equipment under a noncancelable
operating lease, which terminated in July 1998. The lease agreement required an
affiliated company to maintain equity at a percentage of adjusted assets as
prescribed in the agreement. The affiliate did not meet the equity requirements,
but the Company obtained a written waiver of the requirement.
10
<PAGE>
SBS DATA SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
YEARS ENDED DECEMBER 31, 1997 AND 1998 AND
SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE G--OPERATING LEASES--CONTINUED
The Company leases the office space it occupies in Alabama from an Alabama
Limited Liability Company controlled by the shareholders of the Company. The
original lease agreement was for a period of one year, at a monthly rental of
$1,000. This lease was replaced in 1998 by a lease with similar terms with
additional space at a monthly rate of $8,500.
During 1995, the Company entered into an operating lease for office space
located in Norcross, Georgia for a monthly rental of $2,775 over a sixty-month
term. Monthly rentals increase annually by an escalation factor based upon
increases in the Consumer Price Index, and were $2,919 and $2,973 per month for
the years ended December 31, 1997 and 1998, respectively. The Company
terminated the lease during 1998, incurring a termination fee of $9,620.
During 1997, the Company began leasing space in northwest Florida from an
Alabama Limited Liability Company controlled by the shareholders of the Company.
The lease agreement is for a period of five years and automatically renews
unless canceled 30 days before expiration of the term, at a monthly rental of
$2,500.
The accompanying financial statements include rental expense related to these
operating leases for the years ended December 31, 1997 and 1998 of $106,356 and
$180,681 and the six months ended June 30, 1998 and 1999 (unaudited) of $99,145
and $66,000, respectively.
Future minimum payments, by year and in the aggregate, under noncancelable
operating leases consist of the following at December 31, 1998:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Year Ending In Amount
- -------------------------------------------------------------------------------
<S> <C>
1999 $132,000
2000 132,000
2001 132,000
2002 119,500
2003 8,500
- --------------------------------------------------------------------------------
TOTAL FUTURE MINIMUM LEASE PAYMENTS $524,000
================================================================================
</TABLE>
NOTE H--RELATED PARTY MATTERS AND CONTINGENCY
Certain properties are leased from related parties. See note G.
The Company purchases computer equipment from an affiliated company. These
purchases totaled approximately $97,000 and $142,000 for the years ended
December 31, 1997 and 1998 and $52,000 and $110,000 for the six months ended
June 30, 1998 and 1999 (unaudited), respectively.
Management fees were paid to an affiliated company based on an estimated
allocation of shared overhead expenses.
Beginning in 1998 an affiliated company transferred servicing of a certain
product to the Company, which generated revenue of approximately $87,000 in
1998.
11
<PAGE>
SBS DATA SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
YEARS ENDED DECEMBER 31, 1997 AND 1998 AND
SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE H--RELATED PARTY MATTERS AND CONTINGENCY--CONTINUED
The Company has pledged $205,000 of cash equivalents (certificates of deposit)
as collateral for an affiliated company's bank loan.
The Company loaned an affiliated company approximately $574,000 during 1998 for
working capital purposes.
NOTE I--CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to credit risk
consist of cash and cash equivalents.
The Company's cash and cash equivalents are on deposit with financial
institutions in Alabama. The Federal Deposit Insurance Corporation insures
amounts at each institution up to $100,000. At December 31, 1997 and 1998, the
Company's uninsured cash and cash equivalent balances total $262,468 and
$609,598, respectively.
NOTE J--SUBSEQUENT EVENT (Unaudited)
The Company was acquired pursuant to an Agreement and Plan of Merger dated
August 6, 1999 by and between The InterCept Group, Inc. ("InterCept"), Zeenet
Corporation, a wholly-owned subsidiary of InterCept ("Zeenet"), the Company and
the shareholders of the Company. Under this agreement, Zeenet merged with and
into the Company, and the Company became a wholly-owned subsidiary of InterCept.
In exchange for all of the outstanding shares of stock of the Company, InterCept
issued an aggregate of 192,307 shares of InterCept common stock to the Company's
shareholders.
In connection with the merger, the Company's 401(k) Plan was terminated. As a
result, all participants became 100% vested in the Plan.
12
<PAGE>
EXHIBIT 99.2
SBS Corporation
Financial Statements as of December 31,
1997 and 1998
and June 30, 1998 and 1999
Together With
Auditors' Report
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To SBS Corporation:
We have audited the accompanying balance sheets of SBS CORPORATION (an Alabama
Corporation) as of December 31, 1997 and 1998 and the related statements of
operations, shareholders (deficit) equity, and cash flows for the years 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 audits.
We conducted our audits 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 that our audits 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 SBS Corporation as of December
31, 1997 and 1998 and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
- -----------------------
Atlanta, Georgia
September 6, 1999
<PAGE>
SBS CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
December 31
--------------------- June 30,
1997 1998 1999
--------- --------- --------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $ 27,278 $ 273,962 $ 311,533
Accounts receivable, net of allowance for doubtful accounts of $75,000 and $150,000 as
of 1998 and 1999, respectively 926,387 1,955,611 2,404,759
Lease receivable, current 51,341 207,162 291,680
Inventory 466,766 660,706 542,398
Prepaid and other current assets 131,120 218,378 48,605
---------- ---------- ----------
Total current assets 1,602,892 3,315,819 3,598,975
PROPERTY AND EQUIPMENT, NET 526,464 834,158 883,303
OTHER ASSETS:
Loans to officers 605,063 804,079 1,307,409
Lease receivable, net of current portion 81,857 576,402 853,355
Deposits and other long-term assets 30,374 49,780 58,179
---------- ---------- ----------
Total assets $2,846,650 $5,580,238 $6,701,221
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Accounts payable $1,056,007 $ 851,485 $ 875,469
Accrued expenses 226,544 488,595 363,536
Due to affiliate 115,399 50,140 120,924
Notes payable 200,150 432,000 412,000
Customer deposits 204,447 509,527 778,818
Deferred revenue, current 893,289 1,728,692 1,896,794
Long-term debt, current 165,733 84,291 78,931
---------- ---------- ----------
Total current liabilities 2,861,569 4,144,730 4,526,472
---------- ---------- ----------
LONG-TERM LIABILITIES:
Deferred revenue, net of current portion 92,726 615,962 735,302
Long-term debt, net of current portion 226,158 268,910 221,769
Due to affiliate 0 574,143 921,493
SHAREHOLDERS (DEFICIT) EQUITY
Common stock 1,500 1,500 1,500
Additional paid-in capital 174,500 174,500 174,500
Retained earnings (deficit) (509,803) (199,507) 120,185
---------- ---------- ----------
Total shareholders (deficit) equity (333,803) (23,507) 296,185
---------- ---------- ----------
Total liabilities and shareholders (deficit) equity $2,846,650 $5,580,238 $6,701,221
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE>
SBS CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31 Six Months Ended June 30
----------------------- ------------------------
1997 1998 1998 1999
---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Hardware, license and implementation $7,406,509 $11,876,095 $4,879,773 $6,672,477
Maintenance and service 512,466 676,558 432,284 476,895
---------- ----------- ---------- ----------
Total revenues 7,918,975 12,552,653 5,312,057 7,149,372
---------- ----------- ---------- ----------
OPERATING EXPENSES:
Costs of hardware, license, implementation, and maintenance 3,936,589 6,377,157 2,429,025 3,242,497
Selling, general and administrative 3,659,667 5,538,981 2,560,176 3,453,183
Depreciation 131,181 166,306 66,674 120,142
---------- ----------- ---------- ----------
Total operating expenses 7,727,437 12,082,444 5,055,875 6,815,822
---------- ----------- ---------- ----------
OPERATING INCOME 191,538 470,209 256,182 333,550
INTEREST INCOME (EXPENSE), NET 9,965 (13,879) (2,808) 11,110
OTHER INCOME (EXPENSE), NET 18 166,208 (2,509) (24,968)
---------- ----------- ---------- ----------
NET INCOME BEFORE PROFORMA INCOME TAX PROVISION 201,521 622,538 250,865 319,692
---------- ----------- ---------- ----------
PRO FORMA INCOME TAX PROVISION 76,577 236,564 95,329 121,483
---------- ----------- ---------- ----------
PRO FORMA NET INCOME $ 124,944 $ 385,974 $ 155,536 $ 198,209
========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
SBS CORPORATION
STATEMENTS OF SHAREHOLDERS (DEFICIT) EQUITY
<TABLE>
<CAPTION>
Additional Shareholders
Capital Paid-In Equity
Stock Capital (Deficit) Total
--------- ---------- ------------ -------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1996 $1,500 $174,500 $(431,324) $(255,324)
Net income 0 0 201,521 201,521
Distributions to shareholders 0 0 (280,000) (280,000)
------ -------- --------- ---------
BALANCE, December 31, 1997 1,500 174,500 (509,803) (333,803)
------ -------- --------- ---------
Net income 0 0 622,538 622,538
Distributions to shareholders 0 0 (312,242) (312,242)
------ -------- --------- ---------
BALANCE, December 31, 1998 1,500 174,500 (199,507) (23,507)
------ -------- --------- ---------
Net income (unaudited) 0 0 319,692 319,692
------ -------- --------- ---------
BALANCE, June 30, 1999 (unaudited) $1,500 $174,500 $ 120,185 $ 296,185
====== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
SBS CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31 Six Months Ended June 30
------------------------- --------------------------
1997 1998 1998 1999
-------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 201,521 $ 622,538 $ 250,865 $ 319,692
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 131,181 166,306 66,674 120,142
Loss on disposal of equipment 82,251 0 0 0
Changes in assets and liabilities:
Accounts receivable (625,492) (1,029,224) (258,169) (449,148)
Leases receivable 70,963 (650,366) (278,429) (361,471)
Inventory (328,577) (193,940) 209,197 118,308
Deferred revenue 111,037 1,358,639 495,196 287,442
Other assets (57,623) (106,664) (68,856) 161,374
Accounts payable and accrued expenses 904,957 57,529 (317,690) (101,075)
Customer deposits 27,482 305,080 677,828 269,291
--------- ----------- --------- ---------
Net cash provided by operating activities 517,700 529,898 776,616 364,555
--------- ----------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (247,670) (521,153) (329,560) (169,287)
Proceeds from sale of equipment 19,350 47,153 0 0
--------- ----------- --------- ---------
Net cash used in investing activities (228,320) (474,000) (329,560) (169,287)
--------- ----------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from affiliated company, net 2,687 508,884 (87,541) 418,134
Distributions to shareholders (280,000) (312,242) (201,485) 0
Loans to officers (326,250) (199,016) 176,553 (503,330)
Proceeds from debt 250,079 531,850 0 0
Repayments of debt (118,593) (338,690) (239,277) (72,501)
--------- ----------- --------- ---------
Net cash (used in) provided by financing activities (472,077) 190,786 (351,750) (157,697)
--------- ----------- --------- ---------
NET INCREASE (DECREASE) IN CASH (182,697) 246,684 95,306 37,571
CASH, beginning of period 209,975 27,278 27,278 273,962
--------- ----------- --------- ---------
CASH, end of period $ 27,278 $ 273,962 $ 122,584 $ 311,533
========= =========== ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
SBS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Information as of June 30, 1999 and for the
Six Months Ended June 30, 1998 and 1999 Are Unaudited)
1. ORGANIZATION AND NATURE OF BUSINESS
SBS Corporation (an Alabama Corporation) ("SBS" or the "Company") designs,
develops, markets, and supports hardware and the related software primarily
to community financial institutions located predominantly in the Southeastern
region of the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Interim Unaudited Financial Information
The financial statements as of June 30, 1999 and for the six months ended
June 30, 1998 and 1999 are unaudited; however, in the opinion of management,
all adjustments (consisting solely of normal recurring adjustments) necessary
for a fair presentation of the unaudited financial statements for these
interim periods have been included. The results of interim periods are not
necessarily indicative of the results to be obtained for a full year.
Property and Equipment
Property and equipment are stated at cost. Major property additions,
replacements, and betterments are capitalized, while maintenance and repairs
which do not extend the useful lives of these assets are expensed as
incurred. The Company provides for depreciation using the straight-line
method over the estimated useful lives of the assets. Property, plant, and
equipment consisted of the following at December 31, 1997 and 1998 and June
30, 1999:
<PAGE>
-2-
<TABLE>
<CAPTION>
December 31
----------------------------- June 30, Useful
1997 1998 1999 Lives
----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Furniture and fixtures $149,720 $ 277,430 $ 294,046 7 years
Machinery and equipment 433,257 716,433 867,220 5 years
Vehicles 151,050 171,533 132,335 5 years
Leasehold improvements 48,492 92,581 95,686 Lease term
-------- ---------- ----------
782,519 1,257,977 1,389,287
Less accumulated depreciation 256,055 423,819 505,984
-------- ---------- ----------
$526,464 $ 834,158 $ 883,303
======== ========== ==========
</TABLE>
Depreciation expense totaled $131,181, $166,306, $66,674, and $120,142 for
the years ended December 31, 1997 and 1998 and for the six-month periods
(unaudited) ended June 30, 1998 and 1999, respectively.
Product Development Costs
Software research and development costs and maintenance costs related to
software development are expensed as incurred.
Revenue Recognition
The Company's revenue is generated from the installation and licensing of its
products. Customers are billed license and ongoing maintenance fees in
advance for the following twelve months. The Company sells certain of its
products under five year, sales-type lease agreements through which the
customers pay five equal advance payments. These leases incorporate the
initial installation and ongoing license for five years. Those customers that
do not enter into sale-type lease agreements are billed according to the
approach discussed above.
Revenue from software license fees in 1997 was recognized in accordance with
the provisions of the American Institute of Certified Public Accountants
("AICPA") Statement of Position ("SOP") No. 91-1, "Software Revenue
Recognition." Effective from the beginning of 1998, the revenue from
software license fees was recognized in accordance with AICPA SOP No. 97-2,
"Software Revenue Recognition." Revenue recognition under SOP No. 91-1 and
SOP No. 97-2 was not significantly different. Revenue is recognized on
billings to customers who are charged a hardware and installation fee upon
installation of the system with license and maintenance fees recognized over
the term of the license and maintenance period, typically one year. Revenue
for all lease agreements, with the exception of revenue attributable to
equipment, which is recognized upon installation, has been deferred and
recognized ratably over the period of the lease.
Deferred Revenues
Deferred revenues represent the liability for amounts billed prior to
complete performance on maintenance contracts, for advanced billings related
to software license fees and for hardware, software, installation and
continuing license fees financed through sales-type leases (Note 3).
<PAGE>
-3-
Returns and Product Warranty
The Company provides for the costs of returns and product warranty claims
when specific problems are identified. The Company has not experienced
significant returns or warranty claims to date.
Fair Value Financial Instruments
The fair value of instruments classified as current assets or liabilities,
including accounts receivable approximate carrying value due to the short-
term maturity of the instruments.
Long-Lived Assets
The Company periodically reviews the values assigned to long-lived assets to
determine if any impairments have occurred. Management believes that the
long-lived assets on the accompanying balance sheets are appropriately
valued.
Inventory
Inventory consists of finished goods comprised of hardware purchased for
customer product installations which were in progress at year end. Inventory
is carried at the lower of market or cost as determined by the first-in,
first-out method.
Income Taxes
The Company elected S corporation status for federal and state income tax
purposes as of February 1, 1992, whereby profits, losses and credits are
taxed to the shareholders. Accordingly, no provision for income taxes is
reflected in the accompanying financial statements. The statements of
operations reflect pro forma income taxes of $76,577, $263,564, $95,329, and
$121,483 for the years ended December 31, 1997 and 1998 and the six-month
periods ended June 30, 1998 and 1999, respectively, as if the Company were
subject to income tax. The difference between the pro forma income tax
provision and the amount computed by applying the statutory federal income
tax rate to the net income for the period is due to nondeductible expenses
incurred during each period.
Comprehensive Income
Comprehensive income for the years ended December 31, 1997 and 1998 and the
six-month periods ended June 30, 1998 and 1999 is the same as the net income
presented in the accompanying statements of operations.
New Accounting Pronouncements
In June of 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to
as derivatives) and for hedging activities.
<PAGE>
-4-
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. The Statement is effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000. The statement is
not expected to have a significant impact on the Company's financial
statements.
3. MINIMUM LEASE PAYMENTS RECEIVABLE
All of the leases are classified as sales-type leases.
At December 31, 1998, future of minimum lease payments receivable under non-
cancelable leases, are as follows:
Year ending December 31:
1999 $ 271,056
2000 242,556
2001 214,196
2002 208,256
2003 3,540
Thereafter 3,160
---------
Total minimum lease payments receivable 942,764
Less amount representing interest (159,200)
---------
Present value of net minimum lease payments receivable 783,564
Less current maturities of lease payments receivable (207,162)
---------
Capital lease payments receivable $ 576,402
=========
4. LONG-TERM DEBT
Long-term debt consists of the following obligations:
<TABLE>
<CAPTION>
December 31 June 30,
------------------------ ---------
1997 1998 1999
-------- -------- ---------
<S> <C> <C> <C>
Note payable to a bank fully paid in 1998 $ 18,043 $ 0 $ 0
Note payable to a bank fully paid in 1999 57,255 8,530 0
Note payable to a bank due in monthly installments of $1,024,
including interest at 7.75%, through July 2001; secured by a
vehicle 38,348 28,665 23,580
Note payable to a bank due in monthly installments of $6,173,
including interest at the bank's index rate (7.75% at December
31, 1998) through September 2003; secured by equipment and
certificates of deposit 0 287,581 255,071
</TABLE>
<PAGE>
-5-
<TABLE>
<CAPTION>
December 31 June 30,
------------------------ ---------
1997 1998 1999
-------- -------- ---------
<S> <C> <C> <C>
Note payable to a bank due in monthly installments of $1,245,
including interest at 8.5% through December 2000. The note is
secured by a vehicle $ 40,394 $ 28,425 $ 22,049
Note payable to a bank due in monthly installments of $7,967,
including interest at 9%; secured by accounts receivable,
inventory, and real estate owned by related parties 237,851 0 0
-------- -------- --------
391,891 353,201 300,700
Less current portion 165,733 84,291 78,931
-------- -------- --------
Total long-term debt $226,158 $268,910 $221,769
======== ======== ========
</TABLE>
Notes payable at December 31, 1997 consisted of a demand note payable to a
bank, with an outstanding balance of $200,150 that matured and was paid on
October 31, 1998. The note was collateralized by guarantees of the
stockholders of the Company and the pledge of certain assets of an affiliated
company.
The Company also has an unsecured revolving credit agreement with a bank with
a maximum borrowing of $500,000 and interest payable quarterly at the bank's
index rate, which was 8.5% at December 31, 1998. The outstanding balance at
December 31, 1997 and 1998 and June 30, 1999 were $0, $432,000 and $412,000,
respectively.
The anticipated principal maturities of long-term debt for the years
subsequent to December 31, 1998 are as follows:
Year ending:
1999 $ 84,291
2000 83,452
2001 68,618
2002 66,935
2003 49,905
--------
Total $353,201
========
<PAGE>
-6-
5. OPERATING LEASES
Future minimum payments, by year and in the aggregate, under noncancelable
operating leases consist of the following at December 31, 1998.
Year ending:
1999 $ 286,082
2000 280,753
2001 270,000
2002 257,500
2003 20,000
----------
Total $1,114,335
==========
6. LAWSUIT SETTLEMENT
During 1998, the Company, as plaintiff, settled a lawsuit and received
$250,000. This settlement is included in other income in the statement of
operations. The Company incurred approximately $113,000 in legal expenses in
relation to this settlement. These legal fees are included in selling,
general and administrative in the statement of operations
7. RELATED-PARTY TRANSACTIONS
SBS rents certain office space in Birmingham, Alabama, from a related party.
The Company incurred expense of approximately $97,000, $142,000, $48,500, and
$72,000 for the years ended December 31, 1997 and 1998 and the six months
ended June 30, 1998 and 1999, respectively.
The Company provides administrative services to an affiliated company under
common ownership. The affiliated company paid management fees totaling
$180,000, $189,500, $90,000 and $145,200 for the years ending December 31,
1997 and 1998 and for the six-month periods ended June 30, 1998 and 1999,
respectively. These management fees are the estimated allocation of shared
overhead expenses.
The affiliated company loaned SBS approximately $574,000 during 1998 for
working capital purposes.
Loans to officers consist of revolving notes signed by each shareholder that
bear interest at 7%.
The affiliated company pledged $205,000 of cash equivalents, consisting of
two certificates of deposit as collateral for a bank loan.
8. EMPLOYEE BENEFITS
The Company maintains a defined contribution 401(k) benefit plan which covers
substantially all employees, subject to certain minimum age and service
requirements. Under the plan, employees may elect to defer up to ten percent
of their salary, subject to
<PAGE>
-7-
Internal Revenue Code limits. The Company matches one hundred percent of the
first six percent of the employees contributions. In addition, the plan
allows for the Company to make discretionary contributions based on the
participants' salary. The Company made contributions to the plan of $162,210,
$117,325, $50,402, and $71,321 for the years ended December 31, 1998 and 1997
and the six months ended June 30, 1998 and 1999, respectively.
9. SUBSEQUENT EVENTS
On August 6, 1999, SBS was acquired by NetZee, Inc. ("NetZee") a subsidiary
of The Intercept Group, Inc. for approximately 2,600,000 shares of common
stock of NetZee, $16,600,000 in cash and the assumption of approximately
$4,900,000 in bank debt of SBS incurred in August of 1999. NetZee
immediately transferred the non internet and telephone banking business to
The InterCept Group, Inc. for 450,000 shares of NetZee. These acquisitions
have been accounted for as a purchase in accordance with Accounting
Principles Board ("APB") Opinion No. 16 "Business Combinations."
<PAGE>
EXHIBIT 99.3
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In this section, we have provided you with our unaudited pro forma condensed
consolidated financial statements as of and for the six months ended June 30,
1999 and for the year ended December 31, 1998. This financial information gives
effect to the following events as if they occurred (a) on June 30, 1999 for the
balance sheet and (b) at the beginning of the period presented for each of the
statements of operations:
. Our acquisitions of Item Processing of America, the operations of
Advance Data, and the data processing business of Nova Financial
Corporation in 1998;
. Our acquisition of Direct Access in March 1999;
. Our acquisition of L.E. Vickers & Associates and Data Equipment
Services in May 1999;
. Our acquisition of SBS Data and, through Direct Access, SBS Corp. in
August 1999;
. Our transfer of 450,000 shares of Direct Access common stock in
exchange for the non-remote banking operations of SBS Corp. in August
1999;
. Our creation of Netzee in August 1999;
. Our recording of compensation expense related to equity securities
issued by Direct Access below fair market value in August 1999;
. Netzee's merger with Direct Access in September 1999;
. Netzee's acquisition of the Internet banking operations of TIB The
Independent BankersBank and The Bankers Bank in September 1999;
. Netzee's acquisition of Call Me Bill in September 1999;
. Netzee's acquisition of Dyad in September 1999; and
. The deconsolidation of the operations of Netzee from our operations
effective September 3, 1999.
We acquired Direct Access in a transaction that was initially accounted for
as a pooling of interest. Due to the subsequent transactions involving Netzee
listed above, we restated our financial statements to account for this
transaction as a purchase. Our historical financial statements therefore include
the operations of Direct Access only from the date of purchase.
Because Direct Access merged with Netzee, all references to Netzee in the
accompanying notes include actions taken by Direct Access prior to the merger.
Due to Netzee's issuance of common stock in connection with several of the
above transactions, our ownership percentage in Netzee decreased to
approximately 49% as of September 3, 1999. As a result, we no longer include
the results of operations of Netzee in our consolidated financial statements.
After September 3, 1999, we account for our investment in Netzee under the
equity method, which requires us to record the operations of Netzee in a single
line item in our statement of operations titled "net loss in unconsolidated
subsidiary." Because we are currently funding the operations of Netzee, all of
the losses of Netzee will be included in our statement of operations, rather
than our relative percentage of those losses. When our funding of the
operations of Netzee is complete, we will record only our relative percentage
of the net losses of Netzee.
In August 1999, Netzee issued stock options to management at exercise prices
below the fair market value of its common stock on the date of grant. Total
deferred compensation recorded for the issuance of these options was
approximately $1.5 million. Because we owned the majority of the common stock
of Netzee at the time these options were granted, we have recognized
compensation expense of approximately $608,000. Netzee will recognize as
compensation expense the remaining $892,000 in deferred compensation over the
remaining vesting period of the options.
<PAGE>
We based our unaudited pro forma condensed consolidated financial statements
on our audited consolidated financial statements and the audited financial
statements of the acquired entities for the year ended December 31, 1998 and on
our unaudited financial statements and those of the acquired entities as of and
for the six months ended June 30, 1999. The pro forma adjustments for the
events described above are described in the accompanying notes.
Our unaudited pro forma condensed consolidated statements of operations do
not include any adjustments for potential savings or other improvements and do
not purport to represent what our combined results of operations or financial
position would actually have been if any of the above events had occurred as
described above. You should not rely on the pro forma statements of operations
as being representative of our future results of operations.
<PAGE>
The InterCept Group, Inc.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of June 30, 1999
(In thousands)
<TABLE>
<CAPTION>
TIB
The The
SBS SBS Independent Bankers Call Me Acquisition Deconsolidation
InterCept Corp. Data BankersBank Bank Bill Dyad Adjustments Total Adjustments Pro Forma
Assets --------- ------ ------ ----------- ------- ------- ------ ----------- -------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and cash
equivalents..... $ 2,443 $ 312 $ 691 $ -- $ -- $ 23 $ 19 $ 100 (a) $ 3,588 $ (454)(f) $ 3,134
Accounts
receivable,
net............. 4,214 2,404 1,759 116 156 114 22 (1,134)(b) 7,651 (607)(f) 7,044
Investment in
unconsolidated
subsidiary...... -- -- -- -- -- -- -- -- -- 35,364 (f) 35,364
Inventories,
prepaid
expenses and
other........... 2,595 883 17 32 705 5 -- -- 4,237 (1,090)(f) 3,147
Deferred income
tax asset....... 103 -- -- -- -- -- -- -- 103 -- 103
Property and
equipment,
net............. 9,257 883 447 30 284 148 19 -- 11,068 (1,394)(f) 9,674
Deferred
expenses........ -- -- 172 -- 182 -- -- -- 354 (182)(f) 172
Deferred
financing
costs........... -- -- -- -- -- -- 6,076 (6,076)(c) -- --
Intangible
assets, net..... 12,731 -- -- -- -- -- 90 30,953 (a) 91,534 (71,219)(f) 20,315
13,613 (c)
3,325 (d)
(90)(c)
9,378 (b)
Note receivable
from
unconsolidated
subsidiary...... -- -- -- -- -- -- -- 21,534 -- 29,566 (h) 29,566
Other noncurrent
assets.......... 612 2,218 1,361 645 645 -- 8 (2,228)(b) 3,261 (2,042)(f) 1,219
------- ------ ------ ----- ------ ----- ------ ------- -------- -------- --------
Total assets.... $31,955 $6,700 $4,447 $ 823 $1,972 $ 290 $6,234 $69,375 $121,796 $(12,058) $109,738
======= ====== ====== ===== ====== ===== ====== ======= ======== ======== ========
Liabilities and
shareholders'
equity
Notes payable,
current......... $ 860 $ 491 $ 66 $ -- $ -- $ -- $ 424 $ (424)(c) $ 860 $ -- $ 860
(491)(b)
(66)(b)
Accounts payable
and accrued
liabilities..... 3,223 2,138 229 713 76 49 116 -- 6,544 (1,114)(f) 5,430
Deferred
revenue......... 1,151 1,896 2,372 57 251 278 -- -- 6,005 (2,076)(f) 3,929
Due to parent.... -- -- -- 816 2,494 -- -- (816)(a) -- -- --
(2,494)(a)
Notes payable,
long-term....... 157 222 93 -- -- -- 1,632 (1,632)(c) 28,973 -- 28,973
21,534 (b)
2,882 (d)
4,400 (c)
(222)(b)
(93)(b)
Other long-term
liabilities..... -- 1,657 505 -- -- -- -- (921)(b) 1,241 -- 1,241
Deferred tax
liability....... 259 -- -- -- -- -- -- 259 12,712 (f) 12,971
Minority
interest........ 115 -- -- -- -- -- -- 115 -- 115
Warrants with
redemption
feature......... -- -- -- -- -- -- 10,731 (10,731)(c) -- -- --
Redeemable
common stock.... -- -- -- -- -- -- -- 29,900 (b) -- -- --
(29,900)
Deferred
compensation.... -- -- -- -- -- -- -- (11,398)(e) (11,398) 11,398 (g) --
Subscription
receivable...... -- -- -- -- -- -- (5) 5 (c) -- -- --
Common stock..... 25,071 176 201 -- -- 650 1,937 (1,937)(c) 88,078 (53,720)(f) 55,708
(650)(d) 18,997 (f)
(176)(b) (7,219)(f)
32,752 (a) 608 (g)
9,165 (c)
11,398 (e)
406 (d)
9,286 (b)
(201)(b)
Preferred
stock........... -- -- -- -- -- -- -- -- -- -- --
Accumulated
other
comprehensive
income.......... 212 -- -- -- -- -- -- -- 212 -- 212
Accumulated
deficit......... 907 120 981 (763) (849) (687) (8,601) (120)(b) 907 (608)(g) 299
849 (a) 14,457 (f)
763 (a) (5,493)(f)
8,601 (c)
687 (d)
(981)(b)
------- ------ ------ ----- ------ ----- ------ ------- -------- -------- --------
Total
liabilities and
shareholder's
equity......... $31,955 $6,700 $4,447 $ 823 $1,972 $ 290 $6,234 $69,375 $121,796 $(12,058) $109,738
======= ====== ====== ===== ====== ===== ====== ======= ======== ======== ========
</TABLE>
<PAGE>
The InterCept Group, Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the six months ended June 30, 1999
(In thousands, except per share data)
<TABLE>
<CAPTION>
L.E. Vickers
& Associates,
Inc. TIB
and Data The The
Equipment Direct SBS Independent Bankers Call Me Acquisition
InterCept Services, Inc. Access Corp. SBS Data BankersBank Bank Bill Dyad Adjustments Total
--------- -------------- ------ ------ -------- ----------- ------- ------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues......... $18,664 $1,599 $114 $7,149 $2,591 $ 336 $ 236 $ 165 $ 103 $ -- $ 30,957
------- ------ ---- ------ ------ ----- ----- ----- ------- --------
Costs of
services........ 7,202 571 44 3,242 636 250 232 24 55 -- 12,256
Selling, general
and
administrative
expenses........ 7,083 665 62 3,453 1,333 310 382 335 423 608 (t) 14,654
Depreciation and
amortization.... 1,109 123 2 120 52 7 14 13 49 113 (i) 17,962
57 (j)
7,600 (k)
302 (l)
147 (m)
5,400 (n)
2,300 (o)
554 (p)
------- ------ ---- ------ ------ ----- ----- ----- ------- -------- --------
Total operating
expenses....... 15,394 1,359 108 6,815 2,021 567 628 372 527 17,081 44,872
------- ------ ---- ------ ------ ----- ----- ----- ------- -------- --------
Operating income
(loss).......... 3,270 240 6 334 570 (231) (392) (207) (424) (17,081) (13,915)
Interest
expense......... (14) -- (3) -- (10) -- -- -- (906) 1,100 (q) 661
1,400 (r)
(906)(s)
Other income,
net............. 77 -- -- (14) 28 109 -- -- 4 -- 204
------- ------ ---- ------ ------ ----- ----- ----- ------- -------- --------
Income (loss)
before net loss
in
unconsolidated
subsidiary,
provision
(benefit) for
income taxes and
minority
interest........ 3,333 240 3 320 588 (122) (392) (207) (1,326) (15,487) (13,050)
Net loss in
unconsolidated
subsidiary...... -- -- -- -- -- -- -- -- -- -- --
Provision
(benefit) for
income taxes.... 1,272 91 -- 121 221 -- -- -- -- (2,731)(v) (1,026)
Minority interest
in (income) loss
of consolidated
subsidiary...... (58) -- -- -- -- -- -- -- -- -- (58)
------- ------ ---- ------ ------ ----- ----- ----- ------- -------- --------
Net income (loss)
................ $ 2,003 $ 149 $ 3 $ 199 $ 367 $(122) $(392) $(207) $(1,326) $(12,756) $(12,082)
======= ====== ==== ====== ====== ===== ===== ===== ======= ======== ========
Pro forma basic
and diluted loss
per common
share...........
Pro forma basic
and diluted
weighted average
common shares
outstanding.....
<PAGE>
<CAPTION>
Deconsolidation Pro
Adjustments Forma
---------------- ---------
<S> <C> <C>
Revenues......... $ (2,202)(w) $ 28,755
---------------- ---------
Costs of
services........ (866)(w) 11,390
Selling, general
and
administrative
expenses........ (2,847)(w) 11,807
Depreciation and
amortization.... (16,119)(w) 1,688
(155)(w)
---------------- ---------
Total operating
expenses....... (19,987) 24,885
---------------- ---------
Operating income
(loss).......... 17,785 (w) 3,870
Interest
expense......... -- 661
Other income,
net............. (165)(w) 39
---------------- ---------
Income (loss)
before net loss
in
unconsolidated
subsidiary,
provision
(benefit) for
income taxes and
minority
interest........ 17,620 4,570
Net loss in
unconsolidated
subsidiary...... (17,620)(w) (17,620)
Provision
(benefit) for
income taxes.... -- (1,026)
Minority interest
in (income) loss
of consolidated
subsidiary...... -- (58)
---------------- ---------
Net income (loss)
................ $ -- $(12,082)
================ =========
Pro forma basic
and diluted loss
per common
share........... $ (1.20)
=========
Pro forma basic
and diluted
weighted average
common shares
outstanding..... 10,104
=========
</TABLE>
<PAGE>
The InterCept Group, Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the year ended December 31, 1998
(in thousands, except per share data)
<TABLE>
<CAPTION>
L.E. Vickers
&
Associates,
Inc. TIB The
Item and Data Indepen-
Process- Advance Nova Equipment dent The
ing of Data Financial Services, Direct SBS SBS Bankers Bankers Call Me
InterCept America Partnership Corporation Inc. Access Corp. Data Bank Bank Bill Dyad
--------- ------- ----------- ----------- ----------- ------ ------- ------ -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues......... $28,902 $865 $893 $ 661 $3,853 $ 591 $12,553 $4,229 $ 432 $ 77 $ 62 $ 505
------- ---- ---- ----- ------ ----- ------- ------ ----- ----- ----- -------
Costs of
services........ 12,031 470 190 567 1,516 466 6,377 960 434 113 28 409
Selling, general
and
administrative
expenses........ 11,222 236 475 176 2,087 442 5,539 2,248 508 416 378 1,688
Depreciation and
amortization.... 1,337 12 75 98 278 15 166 152 7 5 23 137
Asset
impairment...... -- -- -- -- -- -- -- -- -- -- -- 143
------- ---- ---- ----- ------ ----- ------- ------ ----- ----- ----- -------
Total operating
expenses....... 24,590 718 740 841 3,881 923 12,082 3,360 949 534 429 2,377
------- ---- ---- ----- ------ ----- ------- ------ ----- ----- ----- -------
Operating
income.......... 4,312 147 153 (180) (28) (332) 471 869 (517) (457) (367) (1,872)
Interest
expense......... (345) (1) (2) (78) -- (20) (14) (12) -- -- 1 (1,679)
Other income,
net............. 161 -- -- -- -- -- 166 31 54 -- -- --
------- ---- ---- ----- ------ ----- ------- ------ ----- ----- ----- -------
Income (loss)
before net loss
in
unconsolidated
subsidiary,
provision
(benefit) for
income taxes and
minority
interest........ 4,128 146 151 (258) (28) (352) 623 888 (463) (457) (366) (3,551)
Net loss in
unconsolidated
subsidiary...... -- -- -- -- -- -- -- -- -- -- -- --
Provision
(benefit) for
income taxes.... 1,564 -- 58 -- (9) -- 237 329 -- -- -- --
Minority interest
in income (loss)
of consolidated
subsidiary...... (89) -- -- -- -- -- -- -- -- -- -- --
------- ---- ---- ----- ------ ----- ------- ------ ----- ----- ----- -------
Net income (loss)
before preferred
dividends....... 2,475 146 93 (258) (19) (352) 386 559 (463) (457) (366) (3,551)
Preferred
dividends....... (16) -- -- -- -- -- -- -- -- -- -- --
------- ---- ---- ----- ------ ----- ------- ------ ----- ----- ----- -------
Net income (loss)
attributable to
common
shareholders.... $ 2,459 $146 $ 93 $(258) $ (19) $(352) $ 386 $ 559 $(463) $(457) $(366) $(3,551)
======= ==== ==== ===== ====== ===== ======= ====== ===== ===== ===== =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Acquisition Deconsolidation Pro
Adjustments Total Adjustments Forma
----------- -------- --------------- --------
<S> <C> <C> <C> <C> <C>
Revenues................ $ -- $ 53,623 $ (3,115)(w) $ 50,508
-------- -------- -------- --------
Costs of services....... -- 23,561 (1,664)(w) 21,897
Selling, general and
administrative
expenses............... 608 (t) 26,023 (4,869)(w) 21,154
Depreciation and
amortization........... 340 (j) 35,701 (32,605)(w) 3,096
272 (i)
186 (u)
604 (l)
15,300 (k)
294 (m)
10,800 (n)
4,500 (o)
1,100 (p)
Asset impairment........ -- 143 -- 143
-------- -------- -------- --- --------
Total operating
expenses.............. 34,004 85,428 (39,138) 46,290
-------- -------- -------- --- --------
Operating income........ (34,004) (31,805) 36,023 (w) 4,218
Interest expense........ (2,200)(q) 210 -- 210
1,679 (s)
81 (u)
Other income, net....... 2,800 (r) 412 (302)(w) 110
-------- -------- -------- --- --------
Income (loss) before net
loss in unconsolidated
subsidiary, provision
(benefit) for income
taxes and minority
interest............... (31,644) (31,183) 35,721 4,538
Net loss in
unconsolidated
subsidiary............. -- -- (35,721) (35,721)
Provision (benefit) for
income taxes........... (6,163)(v) (3,984) -- (3,984)
Minority interest in
(income) loss of
consolidated
subsidiary............. -- (89) -- (89)
-------- -------- -------- --- --------
Net income (loss) before
preferred dividends.... (25,481) (27,288) -- (27,288)
Preferred dividends..... -- (16) -- (16)
-------- -------- -------- --- --------
Net income (loss)
attributable to common
shareholders........... $(25,481) $(27,304) $ -- $(27,304)
======== ======== ======== === ========
Pro forma basic and
diluted net loss per
common share........... $ (3.04)
=== ========
Pro forma basic and
diluted weighted
average common shares
outstanding............ 8,975
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Notes to Balance Sheet
The acquisitions adjustments column shows those adjustments necessary to
reflect the transactions as if they had occurred on June 30, 1999.
(a) Reflects the issuance of common stock and stock options of Netzee
and the recording of intangible assets associated with Netzee's acquisition
of the Internet banking divisions of TIB The Independent BankersBank and
The Bankers Bank. The purchase price included 2,722,000 shares of Netzee
common stock valued at $11.50 per share, options to purchase 50,000 shares
of common stock of Netzee granted to management of TIB The Independent
BankersBank and The Bankers Bank, and 76,000 shares of Netzee common stock
sold to a third party for $100,000. The options were issued to individuals
who were members of management at TIB The Independent BankersBank and The
Bankers Bank who would not be employees of Netzee after the acquisition.
The options were valued at approximately $575,000. The $774,000 difference
between the fair value of the common stock sold to a third party and its
purchase price has been included in the total purchase price for the
acquisition, which was approximately $32.7 million. The excess of the
purchase price over net tangible assets was allocated to the following:
<TABLE>
<CAPTION>
Amortization
Allocation Period
----------- ------------
<S> <C> <C>
Workforce........................................... $ 330,000 3 years
Contracts in progress............................... $ 150,000 3 years
Marketing agreement................................. $ 3,056,000 2 years
Acquired technology................................. $27,417,000 3 years
</TABLE>
(b) Reflects the issuance of our stock and the stock of Netzee, the
payment of cash and the recording of intangible assets associated with the
purchase of SBS Corp. and SBS Data. In exchange for all of the shares of
SBS Corp., Netzee issued 2,600,000 shares of its common stock, valued at
$11.50 per share, and paid cash of approximately $16.6 million to the
shareholders of SBS Corp. Netzee also repaid approximately $4.9 million of
SBS Corp. debt. The former shareholders of SBS Corp. have the right to put
the shares back to Netzee at $11.50 per share if Netzee does not complete
an initial public offering by August 6, 2001. To enable Netzee to complete
this transaction, we borrowed $21.6 million under our line of credit and
loaned those funds to Netzee. Netzee then transferred the non-Internet and
telephone banking assets of SBS Corp. to us in exchange for 450,000 shares
of Netzee common stock held by us. The purchase price of SBS Data included
192,307 shares of our common stock with a fair market value of $21.38 per
share. The excess of the purchase price over the net tangible assets was
allocated to the following:
<TABLE>
<CAPTION>
Amortization
Allocation Period
----------- ------------
<S> <C> <C>
Workforce........................................... $ 740,000 3 years
Contracts in progress............................... $ 2,140,000 4-5 years
Acquired technology................................. $44,402,000 3 years
Goodwill............................................ $ 8,187,000 10-20 years
</TABLE>
(c) Reflects the issuance of common stock of Netzee, the payment of cash
and the recording of intangible assets associated with the acquisition of
Dyad. The purchase price of Dyad included 618,137 shares of Netzee common
stock valued at $11.50 per share and approximately $900,000 in cash. Netzee
also repaid approximately $3.5 million in debt of Dyad. To enable Netzee to
complete this transaction, we borrowed $4.4 million under our line of
credit and loaned those funds to Netzee. Dyad had warrants
<PAGE>
outstanding which were exercised prior to the acquisition. Therefore, all
historical balances related to the warrants were removed in the pro forma
adjustments. The excess of the purchase price over the net tangible assets
was allocated to the following:
<TABLE>
<CAPTION>
Amortization
Allocation Period
----------- ------------
<S> <C> <C>
Workforce........................................... $ 70,000 3 years
Acquired technology and goodwill.................... $13,543,000 3 years
</TABLE>
(d) Reflects the payment of cash and the recording of intangible assets
associated with the acquisition of Call Me Bill. The purchase price of Call
Me Bill was approximately $3.3 million in cash. To enable Netzee to
complete this transaction, we borrowed $2.9 million under our line of
credit and loaned those funds to Netzee. The excess of the purchase price
over the net assets acquired was allocated to goodwill and acquired
technology and will be amortized over three years.
(e) Reflects the recording of deferred compensation of approximately
$11.4 million for stock options issued to management in August and
September 1999 by Netzee below fair market value.
The deconsolidation adjustments column shows those adjustments necessary to
reflect the transactions as if they had occurred on June 30, 1999.
(f) Reflects the elimination of the assets and liabilities of Netzee and
its acquired entities and the establishment of our investment in
unconsolidated subsidiary as our ownership percentage in Netzee was reduced
to approximately 49%. We will account for our investment in Netzee under
the equity method and will record the operating income and losses of Netzee
in a single line item in our statement of operations. Because we are
currently funding the operations of Netzee, all of the losses of Netzee
will be included in our statement of operations, rather than our relative
percentage of those losses. When our funding of the operations of Netzee is
complete, we will record only our relative percentage of the net losses of
Netzee. As a result of the reduction in our percentage ownership of Netzee,
we have recognized gains in accordance with Staff Accounting Bulletin
No. 51 related to the increases in our percentage of the net equity of
Netzee. This gain totaled approximately $33.4 million, or approximately
$20.9 million after taxes, and has been recorded as an increase in
additional paid-in capital.
(g) As noted in (e) above, Netzee issued stock options to management in
August and September 1999 at below fair market value. The total
compensation expense recorded by InterCept and Netzee before our ownership
percentage decreased to 49% was approximately $608,000, which is included
as a reduction of retained earnings and an addition to additional paid-in
capital in the accompanying pro forma balance sheet.
(h) Reflects the establishment of the note payable to First Union for
the borrowings under our line of credit for the acquisitions noted above
and the related receivables from Netzee of approximately $28.8 million, and
funding of Netzee from inception of approximately $750,000.
Notes to Statements of Operations
The acquisitions column shows those adjustments necessary to reflect the
transactions as if they occurred on January 1, 1998.
(i) Reflects the additional amortization of intangible assets recognized
upon the acquisition of L.E. Vickers & Associates and Data Equipment
Services of approximately $113,000 for the six months ended June 30, 1999
and approximately $272,000 for the year ended December 31, 1998.
Amortization was calculated on a straight line basis over the estimated
useful lives of the intangible assets of 5 to 20 years.
<PAGE>
(j) Reflects the additional amortization of intangible assets recognized
upon the acquisition of Netzee of approximately $57,000 for the six months
ended June 30, 1999 and approximately $340,000 for the year ended December
31, 1998. Amortization was calculated on a straight line basis over the
estimated useful lives of the intangible assets of five years.
(k) Reflects the additional amortization of intangible assets recognized
upon Netzee's acquisition of the Internet and telephone banking operations
of SBS Corp. of approximately $7.6 million for the six months ended June
30, 1999 and approximately $15.3 million for the year ended December 31,
1998. Amortization was calculated on a straight line basis using the
estimated lives indicated in (b).
(l) Reflects the additional amortization of intangible assets recognized
upon our acquisition of the non-Internet and telephone banking operations
of SBS Corp. of approximately $302,000 for the six months ended June 30,
1999 and approximately $604,000 for the year ended December 31, 1998. The
Non-Internet and telephone banking operations of SBS Corp. were valued at
approximately $5.2 million, which we paid for by transferring to Netzee
450,000 shares of Netzee common stock valued at $11.50 per share.
Amortization expense will be recorded on a straight line basis over the
estimated useful lives of the intangible assets of 3 to 10 years.
(m) Reflects the additional amortization of intangible assets recognized
upon our acquisition of SBS Data of approximately $147,000 for the six
months ended June 30, 1999 and approximately $294,000 for the year ended
December 31, 1998. Amortization expense will be recorded on a straight line
basis over the estimated useful lives of the intangible assets of 3 to 20
years.
(n) Reflects the additional amortization of the intangible assets
recognized upon the acquisition by Netzee of TIB The Independent
BankersBank and The Bankers Bank of approximately $5.4 million for the six
months ended June 30, 1999 and approximately $10.8 million for the year
ended December 31, 1998. Amortization was calculated on a straight line
basis over the estimated useful lives indicated in (a).
(o) Reflects the additional amortization of the intangible assets
recognized upon the acquisition by Netzee of Dyad of approximately $2.3
million for the six months ended June 30, 1999 and approximately $4.5
million for the year ended December 31, 1998. Amortization was calculated
on a straight line basis over the estimated useful lives indicated in (c).
(p) Reflects the additional amortization of intangible assets recognized
upon the acquisition by Netzee of Call Me Bill of approximately $554,000
for the six months ended June 30, 1999 and approximately $1.1 million for
the year ended December 31, 1998. Amortization was calculated on a straight
line basis over the estimated useful lives indicated in (d).
(q) Reflects the additional interest expense on the additional amounts
borrowed under the line of credit with First Union in connection with the
acquisition of SBS Corp., Dyad and Call Me Bill of approximately $1.1
million for the six months ended June 30, 1999 and approximately $2.2
million for the year ended December 3, 1998. These amounts bear interest at
approximately 7.5% per year.
(r) Reflects the additional interest income from the notes receivable
from Netzee of approximately $1.4 million for the six months ended June 30,
1999 and approximately $2.8 million for the year ended December 31, 1998.
The interest rate on these notes is approximately 10.25% per year.
(s) Reflects the elimination of the interest expense on the warrants and
the debt at Dyad of approximately $906,000 for the six months ended June
30, 1999 and approximately $1.7 million for the year ended December 31,
1998.
(t) Reflects the recording of approximately $608,000 of compensation
expense for options issued to management of Netzee in August 1999 at
exercise prices below the fair market value of the common stock of Netzee.
(u) Reflects the additional amortization of intangible assets recognized
upon the acquisition of Item Processing of America and the acquisition of
the operations of Advance Data and Nova Financial Corporation's data
processing business of approximately $186,000 for the year ended December
31, 1998,
<PAGE>
and the removal of interest expense for these transactions of approximately
$81,000 for the year ended December 31, 1998.
(v) Reflects the adjustment to the income tax provision benefit assuming
a 38% tax rate for the six months ended June 30, 1999 and the year ended
December 31, 1998. The amortization expenses associated with the
acquisitions of SBS Corp., SBS Data, and Dyad are non-deductible for tax
purposes.
The deconsolidation column shows the adjustments necessary to reflect the
transactions as if they occurred on January 1, 1998.
(w) Reflects the elimination of the operations of Netzee and its
acquired entities and the recording of the losses of Netzee in a single
line item as our ownership percentage was reduced to approximately 49%. We
will account for our investment in Netzee under the equity method and will
record the operating income and losses of Netzee in a single line item in
our statement of operations. Because we are currently funding the
operations of Netzee, all of the losses of Netzee will be included in our
statement of operations, rather than our relative percentage of those
losses. When our funding of the operations of Netzee is complete, we will
record our percentage of the net losses of Netzee. As a result of the
reduction in our percentage of Netzee, we have recognized gains in
accordance with Staff Accounting Bulletin No. 51 related to the increases
in our percentage of the net equity of Netzee. This gain totaled
approximately $33.4 million, or approximately $20.9 million after taxes,
and has not been recorded in the statements of operations due to the non-
recurring nature of these items.
