<PAGE>
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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, 2000.
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
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The InterCept Group, Inc.
(Exact name of registrant as specified in its charter)
Georgia 58 - 2237359
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3150 Holcomb Bridge Road, Suite 200, Norcross, Georgia 30071
(Address of principal executive offices)
(770) 248-9600
(Registrant's telephone number including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 5, 2000
Common Stock, no par value 12,821,601
(No. of Shares)
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THE INTERCEPT GROUP, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
PART I FINANCIAL INFORMATION 3
Item 1. Financial Statements 3
Condensed Consolidated Balance Sheets as of 3
March 31, 2000 and December 31, 1999
Condensed Consolidated Statements of Operations for 4
the Three Months ended March 31, 2000 and 1999
Condensed Consolidated Statements of Cash Flows for 5
the Three Months ended March 31, 2000 and 1999
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 9
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosure About 13
Market Risk
PART II OTHER INFORMATION 15
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 17
EXHIBIT INDEX 17
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2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
The InterCept Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except share amounts)
March 31, December 31,
2000 1999
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,672 $ 2,003
Short term investments 45,450 200
Accounts receivable, less allowance for doubtful accounts of $336
and $386 at March 31, 2000 and December 31, 1999, respectively 8,623 8,708
Deferred tax assets 2,077 1,956
Inventory, prepaid expenses and other 2,885 2,538
-------- -------
Total current assets 70,707 15,405
Property and equipment, net 11,320 10,628
Intangible assets, net 21,566 20,600
Advances to affiliate 7,733 10,957
Investment in affiliate 41,638 40,446
Other noncurrent assets 1,391 1,220
-------- -------
Total assets $154,355 $99,256
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of notes payable $ 150 $ 154
Accounts payable and accrued liabilities 3,801 6,345
Deferred revenue 6,038 5,772
-------- -------
Total current liabilities 9,989 12,271
Notes payable, less current portion 1,367 12,669
Deferred revenue 406 440
Deferred tax liability 25,201 22,570
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Total liabilities 36,963 47,950
Minority interest in consolidated subsidiary 190 175
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;
12,821,501 and 10,117,972 shares issued and outstanding
at March 31, 2000 and December 31, 1999, respectively 108,236 42,285
Retained earnings 8,959 8,754
Accumulated other comprehensive income 7 92
-------- -------
Total shareholders' equity 117,202 51,131
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Total liabilities and shareholders' equity $154,355 $99,256
======== =======
The accompanying notes are an integral part of these condensed consolidated balance sheets.
</TABLE>
3
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The InterCept Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
2000 1999 *
---------------------
(Unaudited)
<S> <C> <C>
Revenues:
Service fee income $10,921 $6,701
Data communications management income 1,401 1,139
Equipment and product sales, services and other 2,232 737
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Total revenues 14,554 8,577
Costs of services:
Cost of service fee income 3,059 1,880
Cost of data communications management income 977 775
Cost of equipment and product sales, services and other 1,720 639
Selling, general and administrative expenses 5,489 3,285
Depreciation and amortization 893 493
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Total operating expenses 12,138 7,072
Operating income 2,416 1,505
Other income, net 7,280 26
------- ------
Income before provision for income taxes
and minority interest 9,696 1,531
Provision for income taxes 3,791 568
Equity in loss of affiliate 5,686 0
Minority interest in income of consolidated subsidiary 16 20
------- ------
Net income attributable to common shareholders $ 203 $ 943
======= ======
Net income per common share:
Basic $ 0.02 $ 0.10
======= ======
Diluted $ 0.02 $ 0.10
======= ======
Weighted average shares outstanding:
Basic 11,422 9,292
Diluted 12,070 9,566
* Consistent with March 31, 2000, results of operations reflect the acquisition
of Direct Access, Inc. during March of 1999 as a purchase rather than as
a pooling of interests.
The accompanying notes are an integral part of these condensed consolidated statements of operations.
</TABLE>
4
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<TABLE>
<CAPTION>
The InterCept Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
Three Months Ended
March 31,
------------------------------
2000 1999 *
------------------------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income attributable to common shareholders $ 203 $ 943
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 893 493
Minority interest in income of consolidated subsidiary 16 20
Deferred income tax provision 2,509 48
Gain due to stock issuances of subsidiary (6,862) 0
Equity in net loss of affiliate 5,686 0
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable, net 68 (379)
Inventory, prepaid expenses, and other (348) (227)
Other assets (165) (249)
Accounts payable and accrued expenses (2,807) (294)
Deferred revenue 233 27
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Net cash provided by operating activities (574) 382
-------- -------
Cash flows from investing activities:
Acquisitions, net of cash acquired (1,175) (704)
Decrease in note receivable 4 3
Increase in investments (45,387) 0
Advances to affiliate 3,224 0
Purchases of property and equipment, net (937) (542)
Increases in capitalized software (131) (91)
-------- -------
Net cash used in investing activities (44,402) (1,334)
-------- -------
Cash flows from financing activities:
Proceeds from line of credit 4,300 761
Income tax benefit related to exercise of stock options 37 0
Retirement of common stock (32) 0
Payments on notes payable and line of credit (15,607) (305)
Proceeds from issuance of common stock, net of related issuance costs 65,747 15
Proceeds from exercise of stock options 200 0
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Net cash provided by financing activities 54,645 471
Net (decrease) increase in cash and cash equivalents 9,669 (481)
Cash and cash equivalents at beginning of the period 2,003 3,224
-------- -------
Cash and cash equivalents at end of the period $ 11,672 $ 2,743
======== =======
Supplemental disclosures of cash flow information:
Cash paid for interest $ 82 $ 24
======== =======
Cash paid for income taxes $ 2,539 $ 65
======== =======
* Consistent with March 31, 2000, results of operations reflect the acquisition
of Direct Access, Inc. during March of 1999 as a purchase rather than as
a pooling of interests.
The accompanying notes are an integral part of these condensed consolidated statements of cash flows.
</TABLE>
5
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THE INTERCEPT GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Basis of Presentation
We are a single-source provider of a broad range of technologies, products
and services that work together to meet the electronic commerce and
operating needs of community financial institutions. We focus on serving
community financial institutions in the United States with assets of less
than $500 million. Over 1,400 of these community financial institutions
have contracted with us for electronic funds transfer transactions, core
bank processing systems, check imaging systems or data communications
management networks, as well as services related to each of these products
and systems.
In February 2000, we completed a public offering of our common stock. Our
proceeds after deducting offering expenses were approximately $66.0
million. We used a portion of the proceeds to pay certain debt. We intend
to use the remainder of the proceeds to fund future acquisitions and
investments, and for working capital and other general corporate purposes.
Basis of Presentation
The consolidated financial statements include, as of March 31, 2000, our
accounts and the accounts our following wholly-owned subsidiaries:
ProVesa Services, Inc.,
InterCept Switch, Inc.,
LEV Acquisition Corp.
InterCept Communications Technologies, Inc.
In addition, ProImage, Inc., a corporation in which ProVesa has a 67%
ownership interest as of March 31, 2000, has been consolidated in our
consolidated financial statements since our inception, due to our control
of ProImage. We retain responsibility for all day-to-day operations of
ProImage and have and intend to continue to provide complete financial
support for ProImage due to legal limitations on the other shareholder's
ability to fund losses. All significant intercompany accounts and
transactions have been eliminated in consolidation. Minority interest in
income represents the minority shareholder's proportionate share of the
equity and earnings of ProImage.
In the third quarter of 1999, Direct Access Interactive, Inc., one of our
wholly owned subsidiaries, issued shares of its common stock in connection
with several transactions. Direct Access was then merged into a new
subsidiary, Netzee, Inc., which issued additional shares of common stock on
September 3, 1999. As a result of these transactions, our ownership
percentage in Netzee decreased to approximately 49%. We have accounted for
our investment in Netzee after September 3, 1999 under the equity method,
under which the operations of Netzee are recorded on a single line item in
the statements of operations, "equity in loss of affiliate." Because we
provided unlimited funding to Netzee until completion of its initial public
offering in November 1999, all of
6
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Netzee's losses prior to the completion of the offering are included in
that line item rather than our relative percentage of those losses.
Following the completion of the initial public offering, we have recorded
only our relative percentage of Netzee's net losses. As of March 31, 2000
we owned approximately 35% of Netzee's common stock.
During the first quarter of 2000, Netzee issued common stock at a price in
excess of its book value which resulted in an increase in InterCept's
investment in Netzee. InterCept has recognized gains in accordance with
Staff Accounting Bulletin No. 51 related to the increases in InterCept's
investment value totaling approximately $6.9 million which is included in
other income, net in the accompanying statement of operations.
2. New Accounting Pronouncements
In December 1999, the Securities and Exchange Commission (the "SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition." The SAB
does not change existing accounting literature on revenue recognition, but
rather explains the SEC staff's general framework for revenue recognition.
SAB No. 101 states that changes in accounting to apply the guidance in SAB
No. 101 may be accounted for as a change in accounting principle and must
be recorded in the second quarter of 2000. The Company is currently
reviewing its revenue recognition policy and does not expect the adoption
of SAB No. 101 to have a material impact on the Company's results of
operations.
3. Accounting Changes
In July 1999, we announced a letter of intent to merge its internet banking
business with the internet banking business of two other companies. As a
result of these transactions, InterCept has changed the accounting for the
Direct Access acquisition in March of 1999 from a pooling of interest to a
purchase. The accompanying unaudited interim financial statements for 1999
reflect that change.
4. 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 which is
based on the average stock price for the period. The effects of anti-
dilutive options have been excluded.
The following tables set forth a reconciliation of basic earnings per share
to diluted earnings per share (in thousands, except earnings per share
("EPS") amounts):
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 2000 March 31, 1999
-------------------------------- ----------------------------------
-------------------------------- ----------------------------------
Income Shares EPS Income Shares EPS
-------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $203 11,422 $0.02 $943 9,292 $0.10
Dilutives:
Stock options - 648 - - 274 -
-------------------------------- ----------------------------------
Diluted EPS $203 12,070 $0.02 $943 9,566 $0.10
================================ ==================================
</TABLE>
5. Comprehensive Income
Comprehensive Income is the total of net income and all other non-owner
changes in shareholders' equity.
The following table sets forth the calculation of our comprehensive income
for the periods indicated below (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
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2000 1999
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<S> <C> <C>
Net income, as reported $ 203 $ 943
Unrealized gain (loss) on available
for sale securities, net of tax: (86) 81
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Comprehensive income $ 117 $1,024
===== ======
</TABLE>
7
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6. Acquisitions
During the first quarter of 2000 we completed several acquisitions of item
processing centers. The consideration exchanged in connection with these
acquisitions was $1.1 million and a $275,000 note payable on December 31,
2000 which is included in accounts payable and accrued liabilities in the
accompanying balance sheet. This acquisitions were accounted for as
purchases 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 businesses have been included in our consolidated financial
statements from each date of acquisition.
7. Facility Closing Reserve
In conjunction with the acquisition of Nova Financial Corporation in August
1998, we established a reserve of approximately $160,000 for estimated
costs to close the existing Nova facility. However, our costs were higher
than we originally anticipated. During the third quarter of 1999, we
accrued an additional $100,000 to cover these costs. The costs primarily
consist of the remaining non-cancelable obligation under the lease on the
facility. For the three months ended March 31, 2000, we charged
approximately $30,000 of lease costs related to the non-cancelable
obligation against the reserve. There was $20,000 remaining in the reserve
as of March 31, 2000.
8. Long-Term Debt and Capital Lease Obligations
Long-term debt and capital lease obligations at March 31, 2000 and December
31, 1999 consisted of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------------------------------
<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. 137 $ 158
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. 37 51
$35.0 million line of credit with First Union National Bank, as amended,
interest payable at the option of the Company at (i) prime less 0.25% or
(ii) LIBOR plus applicable margin as defined, payable in full on
June 30, 2002, guaranteed by substantially all assets of the Company. 1,261 12,511
Equipment under capital lease expiring July 2001. 82 103
------------------------------
1,517 12,823
Less current maturities (150) (154)
------------------------------
1,367 12,669
==============================
</TABLE>
9. Subsequent Events
On May 1, 2000 we announced that an agreement has been signed to acquire
the debit card program of The Bankers Bank.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
The following discussion contains statements which constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. These statements appear in
a number of places in this Quarterly Report and include all statements that are
not statements of historical fact regarding our intent, belief or expectations.
These statements are based upon a number of assumptions and estimates which are
subject to significant uncertainties, many of which are beyond our 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:
our brief combined operating history and whether we will be able to
maintain profitability;
whether we can obtain and manage growth or execute agreements with new
customers;
whether we can successfully locate, acquire and integrate new businesses
and products;
customer attrition;
whether the market will accept our new products and services;
increased competition;
possible system failures and rapid changes in technology; and
whether Netzee will be successful in its business strategies
Our results could also differ materially from those expressed or implied by
forward-looking statements due to the reasons detailed in our filings with the
Securities and Exchange Commission including the "Risk Factors" section in our
Registration Statement on Form S-3 (Registration No. 333-94511), as declared
effective by the Securities and Exchange Commission on February 15, 2000.
We derive revenues primarily from the following sources:
. electronic funds transfer, or EFT, processing services;
. core data processing systems, support, maintenance and related services;
. check imaging systems, support and related services;
. data communications management; and
. ancillary products and services, including maintenance and technical
support services, sales of banking related equipment and complementary
products.
9
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We derive EFT revenues principally from processing ATM and debit card
transactions. We receive a base fee for providing our ATM processing services
and an additional fee for each ATM serviced. Once the number of transactions by
a financial institution exceeds established levels, typically between 2,000 and
3,000 transactions per month, we charge additional fees for these transactions.
For debit card transactions, we generally receive a portion of the interchange
fees charged by our financial institution customers, and we charge a monthly fee
if our customers do not meet a certain minimum dollar amount of transactions for
a particular month. Most charges due under our EFT service agreements are paid
monthly.
On a service bureau basis, we generate core data processing revenues from
service and processing fees based on the volume of transactions processed.
These revenues are recognized as the services are performed. We also generate
core data processing revenues by licensing PC BancPAC, our proprietary
Windows(R) NT based client/server software system, on an in-house basis. We
recognize revenues for licensing PC BancPAC in accordance with Statement of
Position 97-2 on "Software Revenue Recognition," issued by the American
Institute of Certified Public Accountants. We recognize software license fees
when we have signed a non-cancelable license agreement, shipped the product and
satisfied significant obligations to the customer.
We license on an in-house basis Renaissance/TM/ software, our proprietary
check imaging software that we acquired in August 1999 as a result of our
acquisition of SBS Corp. We generate revenues from license fees and recurring
annual maintenance fees charged for this system. Revenues from the licensing of
Renaissance are recognized in accordance with Statement of Position 97-2, as
discussed above. We also provide check imaging in a service bureau environment.
On a service bureau basis, we generate revenues based on the volume of items
processed. We recognize this revenue as we provide the service.
We generate our data communications management service revenues
principally from network management and data traffic across our frame relay
network and from equipment configuration, installation and sales. We charge a
flat monthly fee for providing telecommunications connectivity and network
management as well as an installation charge.
Our ancillary products and services generate revenues primarily from our
maintenance and technical support services as well as sales of equipment. We
recognize maintenance and technical support service revenues as the service
period elapses. We recognize equipment sales revenues at the time of shipment.
In June 1998, we completed an initial public offering of our common
stock. Since that time, we have completed a number of acquisitions. We
originally accounted for our acquisition of Direct Access in March 1999 as a
pooling of interest. As a result of subsequent transactions with Netzee, we
have changed the accounting for the Direct Access acquisition to a purchase.
Therefore, all of our acquisitions since our initial public offering have been
accounted for as purchase transactions in our financial statements.
Due to Netzee's issuance of common stock in connection with transactions
that occurred on September 3, 1999, our ownership percentage in Netzee decreased
to approximately 49% as of that date. As a result, we no longer consolidate
Netzee's results of operations with our results of operations. We now account
for our investment in Netzee under the equity method, which requires us to
record the results of operations of Netzee in a single line item in our
statement of operations titled "Equity in Loss of Affiliate." Because we
provided unlimited funding to Netzee until completion of its initial public
offering in
10
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November 1999, all of Netzee's losses prior to the completion of the offering
are included in that line item rather than our relative percentage of those
losses. Following the completion of the initial public offering we have recorded
only our relative percentage of Netzee's net losses. As of March 31, 2000, we
owned approximately 35% of Netzee's common stock.
We base our expenses to a significant extent on our expectations of
future revenues. Most of our expenses are fixed in the short term, and we may
not be able to quickly reduce spending if our revenues are lower than we expect.
In an attempt to enhance our long term competitive position, we may also make
decisions regarding pricing, marketing, services and technology that could have
an adverse near-term effect on our financial condition and operating results.
In addition, our EFT revenues are based in large part on various interchange and
transaction fees set by Visa and MasterCard. Any changes in these fees, whether
as a result of a pending dispute or otherwise, could negatively impact our
revenues.
Due to the foregoing factors and other risks discussed in our SEC filings,
we believe that quarter to quarter comparisons of our operating results are not
a good indication of our future performance. It is likely that our operating
results will fall below the expectations of securities analysts or investors in
some future quarter. In such event, the trading price of our common stock would
likely decline, perhaps significantly.
Results of Operations
The following table sets forth the percentage of revenues represented by
certain line items in our condensed consolidated statements of operations for
the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
2000 1999
----------------------
<S> <C> <C>
Revenues 100.0% 100.0%
Costs of services 39.6 38.4
Selling, general, and administrative expenses 37.7 38.3
Depreciation and amortization 6.1 5.7
------- --------
Total operating expenses 83.4 82.4
------- --------
Operating income 16.6 17.5
Other income (expense), net 50.0 0.3
------- --------
Income before provision for income taxes and
minority 66.6 17.8
interest
Provision for income taxes 26.0 6.6
Equity in loss of affiliate 39.1 0.0
Minority interest in income of consolidated subsidiary 0.1 0.2
------- --------
Net income 1.4% 11.0%
======= ========
</TABLE>
11
<PAGE>
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Revenues. Revenues increased 69.7% to $14.6 million for the three months
ended March 31, 2000 from $8.6 million for the three months ended March 31,
1999. The $6.0 million increase was primarily attributable to (i) $4.2 million
generated by an increase in service fee income, (ii) $1.5 million generated by
additional hardware sales, and (iii) $300,000 generated by an increase in data
communications management income. These increases are attributable to both
internal growth and acquisitions.
Costs of Services. Costs of services increased 74.7% to $5.8 million for the
three months ended March 31, 2000 from $3.3 million for the three months ended
March 31, 1999. The $2.5 million increase was primarily attributable to (i)
$1.2 million related to service fee income, (ii) $1.1 million generated by
additional hardware sales, and (iii) $200,000 related to data communications
management.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 67.1% to $5.5 million for the three months
ended March 31, 2000 from $3.3 million for the three months ended March 31,
1999. The $2.2 million increase was primarily due to additional personnel to
support our growth and acquisitions and other miscellaneous expenses.
Depreciation and Amortization. Depreciation and amortization increased 81.1%
to $890,000 for the three months ended March 31, 2000 from $490,000 for the
three months ended March 31, 1999. The $400,000 increase was primarily
attributable to additional property, plant and equipment and additional
amortization from acquisitions.
Other Income (Expense). Other income (expense) increased to $7.3 million for
the three months ended March 31, 2000 from $30,000 for the three months ended
March 31, 1999. The increase was primarily due to a $6.9 million gain
associated with the issuance of common stock of Netzee, Inc. and an increase of
$480,000 in interest income.
Provision for Income Taxes. Provision for income taxes increased to $3.8
million for the three months ended March 31, 2000 from $570,000 for the three
months ended March 31, 1999. The increase was attributable to $2.6 million
associated with the issuance of common stock of Netzee. The remaining increase
of $630,000 is due to increased pre-tax profits.
Equity in Loss of Affiliate. Equity in loss of affiliate was $5.7 million for
the three months ended March 31, 2000. This amount is our share of Netzee's net
loss. There was no equity in loss of affiliate for the three months ended March
31, 1999.
Minority Interest in Income of Consolidated Subsidiary. Minority interest in
income of consolidated subsidiary remained constant at $20,000 for the three
months ended March 31, 2000 and for the three months ended March 31, 1999.
Liquidity and Capital Resources
Cash and cash equivalents were $11.7 million at March 31, 2000. Short term
investments with a maturity of one year or less were $45.5 million. Net cash
used in operating activities was $565,000 for the three months ended March 31,
2000 and provided by operating activities was $380,000 for the three months
ended March 31, 1999. The decrease in the net cash provided by operating
activities was primarily attributable to a decrease in net income.
12
<PAGE>
Net cash used in investing activities was $44.4 million for the three months
ended March 31, 2000 as compared to net cash used in investing activities of
$1.3 million for the three months ended March 31, 1999. The increase in net
cash used in investing activities was primarily due an increase in our
investments resulting from our public offering of common stock in February 2000.
Net cash provided by financing activities was $54.6 million for the three
months ended March 31, 2000 compared to net cash provided by financing
activities $470,000 for the three months ended March 31, 1999, respectively.
The increase in net cash provided by financing activities was primarily due to
the completion of our public offering of common stock in February, 2000.
During 1998, we entered into a credit facility with First Union National Bank.
Under this facility, as amended during the third quarter of 1999, we may borrow
up to $35.0 million for working capital and to fund acquisitions and related
expenses. The First Union credit facility contains provisions which require us
to maintain certain financial ratios and minimum net worth amounts and which
restrict our ability to incur additional debt, make certain capital
expenditures, enter into agreements for mergers, acquisitions or the sale of
substantial assets and pay dividends. The First Union credit facility matures on
June 30, 2002. Interest is payable monthly and outstanding principal amounts
accrue interest, at our option, at an annual rate equal to either (a) a floating
rate equal to the lender's prime rate minus .25%, or (b) a fixed rate based upon
the 30-day LIBOR rate plus applicable margins. On March 31, 2000, the interest
rate under this facility was approximately 7.38%.
We have committed, subject to some conditions, to provide to Netzee a $15.0
million line of credit for its working capital needs. Pending the completion of
the line of credit, we entered into a promissory note with Netzee on March 24,
2000. As of March 31, 2000, a total of $7.7 million was due from Netzee under
this promissory note. We plan to finance this line of credit with cash on hand
and additional borrowings under our credit facility with First Union.
While there can be no assurance, we believe that funds currently on hand,
funds to be provided by operations, and funds available for working capital
purposes under the First Union credit facility will be sufficient to meet our
anticipated capital expenditures and liquidity requirements for at least the
next 12 months. While there is no agreement presently in place, we may loan
additional monies to Netzee to fund its working capital needs or operations. We
intend to grow, in part, through strategic acquisitions and will make additional
expenditures to negotiate and consummate acquisition transactions and integrate
the acquired companies. No assurance can be made with respect to the actual
timing and amount of expenditures and acquisitions. In addition, no assurance
can be given that we will complete any acquisitions on terms favorable to us, if
at all, or that additional sources of financing will not be required during
these time periods or thereafter.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
We do not use derivative financial instruments in our operations or
investments and do not have significant operations subject to fluctuations in
foreign currency exchange rates. Borrowings under the First Union credit
facility accrue interest at a fluctuating rate based either upon the lender's
prime rate or LIBOR. Prior to August 6, 1999, we had less than $1.0 million
outstanding under the First Union facility and, therefore, were not subject to
significant
13
<PAGE>
risks from interest rate fluctuations. As of March 31, 2000, we had $1.3 million
outstanding under this facility, which increases our risks from interest rate
fluctuations. Changes in interest rates which dramatically increase the interest
rate on the credit facility would make it more costly to borrow under that
facility and may impede our acquisition and growth strategies if we determine
that the costs associated with borrowing funds are too high to implement these
strategies. Additional loans to Netzee may increase the amount outstanding under
this facility.
14
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are not a party to, nor is any of our property subject to, any material
legal proceedings, other than routine litigation incidental to our business.
Item 2. Changes in Securities and Use of Proceeds
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 our security holders during the first
quarter ended March 31, 2000.
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 deemed filed with the
Secretary of the State of Georgia on April 29, 1998 (incorporated by
reference to the exhibits to InterCept's Registration Statement on Form 8-A
(as amended on October 1, 1999)).
3.2 Amended and Restated Bylaws (incorporated by reference to the exhibits to
InterCept's Registration Statement on Form 8-A (as amended on October 1,
1999)).
3.3 Amendment to Amended and Restated Bylaws (incorporated by reference to the
exhibits to InterCept's Registration Statement on Form 8-A (as amended on
October 1, 1999)).
4.1 See Exhibits 3.1 and 3.2 for provisions of the Amended and Restated Articles
of Incorporation and Amended and Restated Bylaws defining the rights of the
holders of Common Stock of InterCept.
27.1 Financial Data Schedule for the three and nine months ended March 31, 2000.
</TABLE>
15
<PAGE>
b) Reports on Form 8-K
Form 8-K filed February 2, 2000.
Reporting under Item 5 that we entered into an agreement to acquire
the Dallas, Texas item processing center of TIB-The Independent BankersBank.
16
<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 10, 1999 /s/ John W. Collins
- ------------- -------------------
Date John W. Collins
Chairman of the Board and Chief Executive Officer
(principal executive officer)
May 10, 1999 /s/ Scott R. Meyerhoff
- ------------ ----------------------
Date Scott R. Meyerhoff
Chief Financial Officer
(principal financial and accounting officer)
17
<TABLE> <S> <C>
<PAGE>
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<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-2000 DEC-31-1999
<PERIOD-START> JAN-01-2000 JAN-01-1999
<PERIOD-END> MAR-31-2000 MAR-31-1999
<CASH> 11,672 2,743
<SECURITIES> 45,450 481
<RECEIVABLES> 8,959 4,079
<ALLOWANCES> 336 190
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<CURRENT-ASSETS> 70,707 8,305
<PP&E> 16,092 10,475
<DEPRECIATION> (4,772) (3,169)
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0 0
0 0
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<OTHER-EXPENSES> 6,382 3,778
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<INTEREST-EXPENSE> (88) (8)
<INCOME-PRETAX> 9,696 1,531
<INCOME-TAX> 3,791 568
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