<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 MARCH 31, 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
of incorporation or organization) Identification No.)
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. (1) Yes X No ; (2) 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 May 5, 1999
Common Stock, no par value 9,406,907
(No. of Shares)
================================================================================
<PAGE>
THE INTERCEPT GROUP, INC.
INDEX TO FORM 10-Q
PAGE
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
March 31, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Operations for
the Three Months ended March 31, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows for
the Three Months ended March 31, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES
EXHIBIT INDEX
<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>
March 31, December 31,
1999 1998
--------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,750 $ 3,251
Accounts receivable, less allowance for doubtful accounts of $190
and $190 at March 31, 1999 and December 31, 1998, respectively 3,472 3,534
Deferred tax assets 80 80
Inventory, prepaid expenses and other 2,011 1,267
------- -------
Total current assets 8,313 8,132
Property and equipment, net 7,306 7,108
Intangible assets, net 5,532 4,703
Other noncurrent assets 565 327
------- -------
Total assets $21,716 $20,270
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of notes payable 95 173
Line of credit 761 200
Accounts payable and accrued liabilities 2,085 2,338
Deferred revenue 1,379 1,226
------- -------
Total current liabilities 4,320 3,937
Notes payable, less current portion 185 211
Deferred tax liability 223 182
------- -------
Total liabilities 4,728 4,330
Minority interest in consolidated subsidiary 78 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;
9,406,907 and 9,399,768 shares issued and outstanding
at March 31, 1999 and December 31, 1998, respectively 17,381 17,365
Accumulated deficit (738) (1,668)
Accumulated other comprehensive income 267 186
------- -------
Total shareholders' equity 16,910 15,883
------- -------
Total liabilities and shareholders' equity $21,716 $20,270
======= =======
The accompanying notes are an integral part of these condensed consolidated balance sheets.
</TABLE>
<PAGE>
The InterCept Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1999 1998
--------------------
(unaudited)
<S> <C> <C>
Revenues:
Service fee income $6,815 $4,665
Data communications management income 1,139 849
Equipment and product sales, services and other 737 835
------ ------
Total revenues 8,691 6,349
Costs of services:
Cost of service fee income 1,912 1,414
Cost of data communications management income 775 629
Cost of equipment and product sales 639 713
Selling, general and administrative expenses 3,404 2,611
Depreciation and amortization 469 289
------ ------
Total operating expenses 7,199 5,656
Operating income 1,492 693
Other income (expense), net 26 (160)
------ ------
Income before provision for income taxes and minority interest 1,518 533
Provision for income taxes 568 258
Minority interest in (income) loss of consolidated subsidiary (20) (4)
------ ------
Net income before preferred dividends 930 271
Preferred dividends 0 (8)
------ ------
Net income attributable to common shareholders $ 930 $ 263
====== ======
Net income per common share:
Basic $ 0.10 $ 0.04
====== ======
Diluted $ 0.10 $ 0.04
====== ======
Weighted average shares outstanding:
Basic 9,405 6,901
Diluted 9,679 6,901
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated statements of operations.
<PAGE>
The InterCept Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
1999 1998
---- ----
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 930 $ 271
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 469 289
Minority interest in income of consolidated subsidiary 20 4
Deferred income tax provision 40 5
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable, net 13 352
Inventory, prepaid expenses, and other (612) (869)
Other assets (249) 5
Accounts payable and accrued expenses (301) (490)
Deferred revenue 48 577
------- ------
Net cash provided by operating activities 358 144
------- ------
Cash flows from investing activities:
Acquisitions, net of cash acquired (708) 0
Decrease in note receivable 3 8
Purchases of property and equipment, net (534) (505)
Increases in capitalized software (91) (83)
------- ------
Net cash used in investing activities (1,330) (580)
------- ------
Cash flows from financing activities:
Proceeds from line of credit 761 0
Payments on notes payable and line of credit (305) (621)
Payment of preferred dividends 0 (8)
Proceeds from exercise of stock options 15 0
------- ------
Net cash provided by (used in) financing activities 471 (629)
Net decrease in cash and cash equivalents (501) (1,065)
Cash and cash equivalents at beginning of the period 3,251 2,038
------- -------
Cash and cash equivalents at end of the period $ 2,750 $ 973
======= =======
Supplemental disclosures of cash flow information:
Cash paid for interest $ 24 $ 177
======= =======
Cash paid for income taxes $ 65 $ 227
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated statements of cash flows.
<PAGE>
THE INTERCEPT GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Basis of Presentation
Organization
The InterCept Group, Inc. ("InterCept" or the "Company") designs, develops,
markets and implements a suite of fully integrated electronic commerce
products and services primarily for community financial institutions in the
United States. The Company's products and services include electronic
funds transfer ("EFT"), data communications management, client/server
enterprise software, internet banking applications and other processing
solutions.
The Company is a single source provider of a broad range of flexible
electronic commerce solutions supporting value-added products and services.
The Company 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. The Company
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. The Company also provides internet banking
software, banking related equipment, provides related maintenance and
technical support and offers numerous ancillary products and services to
its financial institution customers.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
include the accounts of the Company, its wholly owned subsidiaries, and
ProImage, Inc. ("ProImage"), a corporation in which the Company has a
controlling 66.6% ownership interest. All significant intercompany accounts
and transactions have been eliminated in consolidation.
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 the Company'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 the Company's Annual Report on Form 10-K for the year
ended December 31, 1998.
<PAGE>
2. 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
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
March 31, 1999 March 31, 1998
------------------------ ------------------------
Income Shares EPS Income Shares EPS
------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $930 9,405 $0.10 $263 6,901 $0.04
Dilutives:
Stock options - 274 - - - -
====================== =====================
Diluted EPS $930 9,679 $0.10 $263 6,901 $0.04
==== ===== ===== ==== ===== =====
</TABLE>
<PAGE>
3. Comprehensive Income
As of December 31, 1997, the Company 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 the Company's net income.
The following table sets forth the calculation of the Company's
comprehensive income for the periods indicated below (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1999 1998
------ -----
<S> <C> <C>
Net income, as reported $ 930 $263
------ ----
Unrealized gain on
securities, net of tax: 81 0
------ ----
Comprehensive income $1,011 $263
====== ====
</TABLE>
4. Acquisitions
On January 11, 1999, the Company 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 the Company's consolidated financial statements from the date
of acquisition.
On March 9, 1999, the Company acquired Direct Access Interactive, Inc., a
provider of telephone banking and Internet banking services to financial
institutions, in a transaction accounted for as a pooling-of-interests. In
connection with the merger, the Company issued approximately 150,000 shares
of its common stock in exchange for all of the issued and outstanding
common shares of Direct Access. Accordingly the Company's financial
statements have been restated for all periods presented to include the
results of operations of Direct Access.
6. In conjunction with the acquisition of Nova Financial Corporation in August
1998, the Company established a reserve of approximately $160,000 for
estimated costs to close the existing Nova facility. The costs mainly
consisted of the remaining noncancelable obligation under the lease on the
facility. During 1998, approximately $51,000 of lease costs
<PAGE>
were charged against the reserve and during the first quarter of 1999
approximately $31,000 of lease costs were charged against the reserve.
7. Long-Term Debt and Capital Lease Obligations
Long-term debt and capital lease obligations at March 31, 1999 and December
31, 1998 consisted of the following (in thousands):
<TABLE>
<CAPTION>
March 31, 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. 220 242
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. 60 64
Note payable to shareholder; paid in full on March 9, 1999 0 78
Line of Credit with First Union National Bank, interest payable at the
option of the Company at (i) prime less 0.25% or (ii) LIBOR less
applicable margin as defined, payable in full on November 1, 2001,
guaranteed by substantially all assets of the Company. 761 0
Line of Credit with First Citizens National Bank; paid in full on March 9, 1999 0 200
----- ---
1,041 584
Less current maturities (95) (95)
----- ---
946 489
===== ===
</TABLE>
<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 beyong 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;
and the other risk factors discussed in the Company's Annual Report on Form 10-K
for the year ended December 31, 1998.
The Company derives revenues primarily from the following sources: (i) EFT
processing services; (ii) data communications management; (iii) client/server
enterprise software, support, maintenance and related services; and (iv)
maintenance and technical support services, sales of banking related equipment
and complementary products and customer services.
The Company derives EFT revenues principally from processing ATM, POS and
debit card transactions. The Company receives a base fee for providing its ATM
processing services and an additional fee for each ATM serviced. Once the
number of transactions exceeds established levels, the Company charges
additional fees for the extra transactions processed. For its POS services, the
Company generally receives a portion of the interchange fees charged by its
community financial institution customers that issue debit cards and charges a
monthly fee if its customers do not meet a certain minimum dollar amount of
transactions for a particular month. Most charges due under the Company's EFT
service agreements are paid monthly.
The Company's data communications management service revenues are
principally derived from network management services, data packet transportation
services across The InterCept Frame Relay Network, consulting and equipment
configuration, installation and sales. The Company charges a flat monthly fee
for providing telecommunications connectivity and network management as well as
an installation charge.
<PAGE>
The Company licenses PC BancPAC, its proprietary Windows NT(R) based
client/server software system, on both an in-house and service bureau basis.
The Company recognizes service revenues as the services are provided. It is the
Company's policy to 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. Software license fees are
recognized when a noncancellable license agreement has been signed, the product
has been shipped, and all significant obligations to the customer have been
satisfied.
The Company's maintenance, support and equipment revenues consist primarily of
revenues from the Company's maintenance and technical support services as well
as sales of equipment. Equipment revenues are recognized at the time of shipment
while maintenance and technical support service revenues are recognized as the
service period elapses.
Year 2000
The Company's business and relationships with its customers depend
significantly on a number of computer software programs, internal operating
systems and connections to other regional and national networks. If any of
these software programs, systems or networks are not programmed to recognize and
properly process dates after December 31, 1999 (the "Year 2000" issue),
significant system failures or errors may result which could have a material
adverse effect on the business, financial condition, or results of operations of
both the affected customers and the Company. The Company has conducted a
preliminary review of its internal accounting and operating programs and systems
and currently believes that these programs and systems and the network
connections it maintains 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 the
Company's financial condition.
The Company has successfully converted all of its customers that are currently
provided service bureau processing services to its PC BancPac software, which
the Company believes is Year 2000 compliant. The Company has incurred costs of
approximately $175,000 related to the conversions.
The Company currently provides service bureau processing services through six
centers located in Georgia, Florida and Colorado. The Company has completed a
detailed review of the equipment at each of these locations. The Company
estimates the total costs required to make the equipment Year 2000 compliant
will total approximately $75,000. The Company believes the upgrades to existing
equipment will be completed no later than June 30, 1999. In the event the
equipment cannot be upgraded, the Company believes it can purchase equipment
that will allow processing to continue. It is impossible to estimate the
potential expenses involved or delays which may result from a failure or delay
in upgrading the equipment at the Company's service bureau processing centers.
In regard to the Company's EFT operations, the Company believes the majority
of internal coding required for its products to be Year 2000 compliant has been
completed. However, EFT processing is dependent upon coordinated testing
between the ATM networks and the Company's systems. The Company has purchased
software to coordinate the testing of its operations with that of the networks.
The Company believes this testing will be complete and certified by September
30, 1999. If the networks do not successfully address Year 2000 issues in their
operation and if the Company is unable to route the transaction volume over
<PAGE>
another network or another provider that has Year 2000 compliant systems, the
Company's processing operations may be interrupted, hindered, or delayed which
would have a material adverse effect on its business, financial condition and
results of operations.
In regard to the Company's ATM network and services, InterCept is in the
process of certifying its connections to other ATM networks as well as examining
some of its customer's ATMs and other equipment. InterCept believes this testing
will be substantially completed by September 30, 1999. It is difficult to
estimate the cost of the effort as the majority of expenditures relate to
existing programmers and support staff required to review the financial
institutions networks and equipment. It is impossible 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 the Company's data communications operations, the Company has
completed a review of its internal equipment as well as third party products and
systems used in its operations. It is the Company's belief that its data
communications equipment and services, which are primarily provided by companies
such as Motorola, BellSouth, MCI WorldCom and Qwest Communications are
compliant. If these companies do not successfully address Year 2000 issues in
their operations and if the Company is unable to successfully transfer its
business operations to another provider that has Year 2000 compliant systems,
the Company's processing operations may be interrupted, hindered or delayed,
which would have a material adverse effect on its business, financial condition
and results of operations.
The Company has completed a preliminary assessment of third party products and
systems used in its business. Other companies interact electronically with the
Company and its customers, and the Company must coordinate its EFT, data
communications and enterprise software processing with such other companies and
its customers. If these other companies or the Company's customers do not
successfully address Year 2000 issues in their operations and if the Company is
unable to successfully transfer its business operations to another provider that
has Year 2000 compliant systems, the Company's processing operations may be
interrupted, hindered or delayed, which would have a material adverse effect on
its business, financial condition and results of operations. Furthermore, the
Company believes that many financial institutions and third party vendors and
network processors (including customers, vendors and processors of the Company)
are still in the preliminary stages of analyzing their software and network
applications to address Year 2000 issues. It is impossible 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 and there can be no assurance that such expenses, failures or delays will
not have a material adverse effect on the Company's business, financial
condition or results of operations.
The Company's quarterly operating results have varied in the past and will
likely vary in the future. Factors that may cause the Company's future
operating results to vary include, without limitation: the timing of new product
and service announcements; changes in pricing policies by the Company and its
competitors; market acceptance of new and enhanced versions of the Company's
products and services; the lengthening of sales cycles for new or existing
products or services; customer attrition; changes in operating expenses; changes
in Company strategy; personnel changes; the introduction of alternative
technologies; the Company's products becoming obsolete; failure, delay and
expenses in making software, systems and networks utilized in the Company's
business Year 2000 compliant; the effect of acquisitions; and general economic
factors. Product and service revenues are difficult to forecast because the
market for electronic commerce products and services is rapidly evolving, and
the
<PAGE>
Company's sales cycle generally covers an extended period but varies
substantially from customer to customer. Intercept believes that quarter to
quarter comparisons of its results of operations should not be relied upon as
indications of future performance.
Results of Operations
The Company's financial statements for all periods presented have been
restated to include the operating results of Direct Access Interactive which was
acquired in a transaction that was accounted for as a pooling-of-interests. The
following discussion and analysis is prepared on that basis.
The following table sets forth the percentage of revenues represented by
certain line items in the Company's consolidated statements of operations for
the periods indicated:
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Ended
March 31,
-------------------
1999 1998
--------- --------
Revenues 100.0% 100.0%
Costs of services 38.3 43.4
Selling, general, and administrative expense 39.2 41.1
Depreciation and amortization 5.4 4.6
----- -----
Total operating expenses 82.9 89.1
----- -----
Operating income 17.1 10.9
Other income (expense), net 0.3 (2.5)
----- -----
Income before minority interest and
provision for income taxes 17.4 8.4
Minority interest in (income) loss (0.2) 0.0
Provision for income taxes 6.5 4.1
----- -----
Net income 10.7% 4.3%
----- -----
</TABLE>
<PAGE>
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
Revenues. Revenues increased 36.9%, or $2.3 million, to $8.7 million for the
three months ended March 31, 1999 from $6.3 million for the three months ended
March 31, 1998. The $2.3 million increase was primarily attributable to (i) $1.2
million generated by an increase in core data processing services, of which
$930,000 was related to the Company's acquisitions during 1998, (ii) $680,000
generated by an increase in EFT processing services, (iii) $290,000 generated by
an increase in data communication services, (iv) increases of $180,000 generated
by software and other product sales from the Company's acquisitions and (v)other
decreases of $50,000.
Costs of Services. Costs of services increased 20.7%, or $570,000, to $3.3
million for the three months ended March 31, 1999 from $2.8 million for the
three months ended March 31, 1998. The $570,000 increase was primarily
attributable to (i) $400,000 generated by the Company's acquisitions related to
core data processing services, (ii) $60,000 generated by additional equipment
sales and (iii) other increases of $110,000. Cost of services as a percentage
of sales decreased from 43.4% for the three months ended March 31, 1998 to 38.3%
for the three months ended March 31, 1999, primarily due to additional higher
margin EFT revenues and synergies from the Company's acquisitions.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 30.4%, or $790,000, to $3.4 million for the
three months ended March 31, 1999 from $2.6 million for the three months ended
March 31, 1998. The increase was primarily attributable to $640,000 related to
the Company's acquisitions during the third quarter of 1998, $100,000 to support
the continued growth of the Company's business and $50,000 in costs associated
with the acquisition of Direct Access. Selling, general and administrative
expenses as a percentage of sales decreased from 41.1% for the three months
ended March 31, 1998 to 39.2% for the three months ended March 31, 1999.
Depreciation and Amortization. Depreciation and amortization increased 62.3%,
or $180,000, to $470,000 for the three months ended March 31, 1999 from $290,000
for the three months ended March 31, 1998. The increase was primarily
attributable to additional property, plant and equipment obtained through
acquisitions as well as internal growth, amortization of intangible assets
related to the Company's acquisitions, partially offset by a decrease in
amortization of intangibles.
Other Income (Expense). Other income (expense) increased 116.3%, or $190,000,
to income of $30,000 for the three months ended March 31, 1999 from expense of
$(160,000) for the three months ended March 31, 1998. The increase was
primarily due to the reduction of long-term debt with proceeds from the
Company's initial public offering in June 1998 which in turn reduced interest
expense.
Minority Interest in Income. Minority interest in income increased to
$(20,000) for the three months ended March 31, 1999 from $(4,000) for the three
months ended March 31, 1998. The increase was attributable to profits in
ProImage's operations.
Provision for Income Taxes. Provision for income taxes increased $310,000 to
$570,000 for the three months ended March 31, 1999 from $260,000 for the three
months ended March 31, 1998. The increase was attributable to increased profits
partially offset by a reduction in nondeductible amortization.
<PAGE>
Liquidity and Capital Resources
Cash and cash equivalents were $2.8 million at March 31, 1999. Net cash
provided by operating activities was $360,000 and $140,000 for the three months
ended March 31, 1999 and 1998, respectively. 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 $1.3 million and $580,000 for the
three months ended March 31, 1999 and 1998, respectively. The increase in net
cash used in investing activities was primarily due to the Company's
acquisitions and an increase in capital expenditures.
Net cash provided by (used in) financing activities was $470,000 and
($630,000) for the three months ended March 31, 1999 and 1998, respectively. The
increase in cash provided by financing activities was primarily due to
borrowings under the Company's credit facility with First Union National Bank
(the "First Union Credit Facility").
During 1998, the Company entered into the First Union Credit Facility, under
which the Company may borrow up to $20.0 million to fund acquisitions and pay
expenses related to acquisitions. In addition, at the Company's election, $2.0
million of the First Union Credit facility may become available for working
capital purposes. The First Union Credit Facility contains provisions which
require the Company to maintain certain financial ratios and minimum net worth
amounts which restrict the Company's 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 November 1, 2001. As of March 31, 1999, there was $760,000
outstanding under this facility. Interest is payable monthly and outstanding
principal amounts accrue interest, at the Company's option, at an annual rate
equal to either (i) a floating rate equal to the lender's prime rate minus one
quarter of one percent or (ii) a fixed rate based upon the 30-day LIBOR rate
plus applicable margins. The Company is negotiating to amend the First Union
Credit Facility to allow for use of a greater portion of the proceeds for
working capital needs. No assurances can be made that any such amendments will
occur.
While there can be no assurances, the Company believes that the cash on hand,
funds to be provided by operations, and funds which may be available for working
capital purposes under the First Union Credit Facility will be sufficient to
meet the Company's anticipated capital expenditure and liquidity requirements
for its operations through at least March 2000. The Company intends to grow, in
part, through strategic acquisitions and will make additional expenditures to
negotiate and consummate acquisition transactions and integrate the acquired
companies. While there can be no assurance, management currently believes that
cash on hand and funds from the First Union Credit Facility, together with the
issuance of Common Stock and other securities, will be sufficient to fund its
acquisition needs for the next 12 months. No assurance can be made with respect
to the actual timing and the amount of the expenditures or acquisition. The
Company's estimates are forward-looking statements that are subject to risks and
uncertainties discussed above.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not a party to, nor is any of its property subject to, any
material legal proceedings, other than routine litigation incidental to its
business.
Item 2. Changes in Securities
None.
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 the Company's security holders during the
first quarter ended March 31, 1999.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Description
------ -----------
<C> <S>
3.1 Amended and Restated Articles of Incorporation, as filed with the
Secretary of the State of Georgia on April 29, 1998, (incorporated by
reference to Exhibit 3.1 of the Company's Registration Statement on
Form S-1 (No. 333-47197) as declared effective by the SEC on June 9,
1998 (the "Registration Statement")).
3.2 Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2
of the Registration Statement).
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 the Company.
27.1 Financial Data Schedule for the three months ended March 31, 1999 and
1998.
</TABLE>
<PAGE>
b) Reports on Form 8-K
Form 8-K filed March 26, 1999
Reporting under Item 5 that the Company now trades its common stock
on the Nasdaq National Market.
Form 8-K filed March 26, 1999
Reporting under Item 5 that the Company entered into a purchase
agreement to acquire Direct Access Interactive, Inc.
<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.
May 13, 1999 /s/ John W. Collins
- ------------ -------------------
Date John W. Collins
Chairman of the Board and Chief Executive Officer
(principal executive officer)
May 13, 1998 /s/ Scott R. Meyerhoff
- ------------ ----------------------
Date Scott R. Meyerhoff
Chief Financial Officer, Vice President - Finance
and Secretary
(principal financial and accounting officer)
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
3.1 Amended and Restated Articles of Incorporation, as filed with the
Secretary of the State of Georgia on April 29, 1998 (incorporated by
reference to Exhibit 3.1 of the Company's Registration Statement on
Form S-1 (No. 333-47197) as declared effective by the SEC on June 9,
1998 (the "Registration Statement")).
3.2 Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2
of the Registration Statement)
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 the Company.
27.1 Financial Data Schedule for the three months ended March 31, 1999 and
1998.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> MAR-31-1999 MAR-01-1998
<CASH> 2,750 973
<SECURITIES> 0 0
<RECEIVABLES> 3,662 2,613
<ALLOWANCES> 190 175
<INVENTORY> 318 96
<CURRENT-ASSETS> 8,313 5,211
<PP&E> 10,475 5,393
<DEPRECIATION> 3,169 2,511
<TOTAL-ASSETS> 21,716 9,968
<CURRENT-LIABILITIES> 4,320 4,125
<BONDS> 0 0
0 0
0 400
<COMMON> 17,381 2,946
<OTHER-SE> (470) (3,528)
<TOTAL-LIABILITY-AND-EQUITY> 21,716 9,968
<SALES> 8,691 6,349
<TOTAL-REVENUES> 8,691 6,349
<CGS> 3,326 2,756
<TOTAL-COSTS> 7,199 5,656
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 8 176
<INCOME-PRETAX> 1,498 529
<INCOME-TAX> 568 258
<INCOME-CONTINUING> 930 263
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 930 263
<EPS-PRIMARY> 9,405 6,901
<EPS-DILUTED> 9,679 6,901
</TABLE>
