<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1
Form 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): December 15, 1999
Netzee, Inc.
(Exact name of registrant as specified in its charter)
Georgia 0-27925 58-2488883
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation or organization) File Number) Identification No.)
6190 Powers Ferry Road, Suite 400, Atlanta, Georgia 30339
(Address of principal executive offices)
(770) 850-4000
(Registrant's telephone number including area code)
2490 Paces Ferry Road, 150 Paces Summit, Atlanta, Georgia 30339
(Former name, former address and former fiscal year,
if changed since last report)
<PAGE> 2
This Current Report on Form 8-K/A amends the Current Report on Form 8-K filed on
December 30, 1999.
Item 2. Acquisition or Disposition of Assets.
Pursuant to the terms of the Asset Purchase Agreement dated December 15, 1999 by
and among Netzee, Inc. ("Netzee"), Netcal, Inc., a wholly-owned subsidiary of
Netzee ("Netcal"), DPSC Software, Inc., a California corporation ("DPSC"), and
certain shareholders of DPSC, effective as of December 15, 1999, Netcal acquired
certain operating assets and assumed certain operating liabilities of DPSC for a
total purchase price (the "Purchase Price") of approximately $33,547,000,
including $18,500,000 in cash, 500,000 shares of Netzee Series A 8% Convertible
Preferred Stock having a value as of December 15, 1999 of approximately
$6,500,000, 525,000 shares of Netzee common stock having a value as of December
15, 1999 of approximately $7,547,000 and the payment of other acquisition costs
of approximately $1,000,000. Netzee paid the cash portion of the purchase price
using proceeds from the initial public offering of its common stock. A portion
of the shares of common stock and preferred stock issued in this transaction was
placed in escrow for indemnification and other purposes. The amount of the
consideration was determined based upon arm's length negotiations.
DPSC is located in Calabasas Hills, California and was engaged principally in
the business of developing, marketing and distributing software and providing
related products and services to financial institutions, including marketing and
distributing Internet banking software and other products of third parties.
Netzee intends to continue to use the acquired assets to engage in these
activities.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
The registrant hereby amends its report on Form 8-K filed on December 30, 1999
by deleting the response to Item 7 and replacing it with the following:
(a) Financial Statements of Business Acquired.
Included as Exhibit 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.
<TABLE>
<CAPTION>
Item No. Exhibit List
<S> <C>
2.1* Asset Purchase Agreement dated December 15, 1999 by and among
Netzee, Netcal and DPSC.***
4.1 * Form of Netzee, Inc. Series A 8% Convertible Preferred Stock
certificate.
4.2 * Registration Rights Agreement, dated December 15, 1999, by
and between Netzee, Inc. and each of the former shareholders
of DPSC Software, Inc.
99.1** Press Release dated December 15, 1999
99.2 The following financial statements of DPSC Software, Inc.
together with the report by Arthur Andersen LLP for the
periods stated therein:
Balance Sheets as of December 31, 1998 and November 30, 1999
Statements of Operations for the year ended December 31, 1998
and the eleven months ended November 30, 1999
Statements of Changes in Shareholders' Deficit for the year
ended December 31, 1998 and the eleven months ended
November 30, 1999
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Statements of Cash Flows for the year ended December 31, 1998
and the eleven months ended November 30, 1999
Notes to Financial Statements
99.3 The following unaudited pro forma consolidated financial
statements of Netzee, Inc. for the periods stated therein:
Pro Forma Consolidated Balance Sheet for the nine months ended
September 30, 1999
Pro Forma Consolidated Statement of Operations for the nine
months ended September 30, 1999
Pro Forma Consolidated Statement of Operations for the year
ended December 31, 1998
Notes to Pro Forma Consolidated Financial Information
</TABLE>
*Incorporated by reference from Netzee's Form 10-Q for the quarter ended
September 30, 1999, as filed with the Securities and Exchange Commission on
December 22, 1999.
** Previously filed with the registrant's Current Report on Form 8-K filed
December 30, 1999.
***Pursuant to Item 601(b)(2) of Regulation S-K, Netzee agrees to furnish
supplementally a copy of any omitted schedule or exhibit to this Exhibit to the
Securities and Exchange Commission upon request.
<PAGE> 4
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.
NETZEE, INC.
Dated: February 28, 2000 /s/ Richard S. Eiswirth
-----------------------------------------------
Executive Vice President, Chief Financial Officer
and Secretary
(Principal Financial and Accounting Officer and
Duly Authorized Officer)
<PAGE> 5
EXHIBIT LIST
<TABLE>
<CAPTION>
Exhibit No. Description
-----------
<S> <C>
2.1* Asset Purchase Agreement dated December 15, 1999 by
and among Netzee, Netcal and DPSC.***
4.1 * Form of Netzee, Inc. Series A 8% Convertible
Preferred Stock certificate.
4.2 * Registration Rights Agreement, dated December 15,
1999, by and between Netzee, Inc. and each of the
former shareholders of DPSC Software, Inc.
99.1** Press Release dated December 15, 1999.
99.2 The following financial statements of DPSC Software,
Inc. together with the report by Arthur Andersen
LLP for the periods stated therein:
Balance Sheets as of December 31, 1998 and
November 30, 1999
Statements of Operations for the year ended December
31, 1998 and the eleven months ended November 30,
1999
Statements of Changes in Shareholders' Deficit for the
year ended December 31, 1998 and the eleven months
ended November 30, 1999
Statements of Cash Flows for the year ended December
31, 1998 and the eleven months ended November 30,
1999
Notes to Financial Statements
99.3 The following unaudited pro forma consolidated
financial statements of Netzee, Inc. for the periods
stated therein:
Pro Forma Consolidated Balance Sheet for the nine
months ended September 30, 1999
Pro Forma Consolidated Statement of Operations for
the nine months ended September 30, 1999
Pro Forma Consolidated Statement of Operations for
the year ended December 31, 1998
Notes to Pro Forma Consolidated Financial Information
</TABLE>
*Incorporated by reference from Netzee's Form 10-Q for the quarter ended
September 30, 1999, as filed with the Securities and Exchange Commission on
December 22, 1999.
** Previously filed with the registrant's Current Report on Form 8-K filed
December 30, 1999.
***Pursuant to Item 601(b)(2) of Regulation S-K, Netzee agrees to furnish
supplementally a copy of any omitted schedule or exhibit to this Exhibit to the
Securities and Exchange Commission upon request.
<PAGE> 1
Exhibit 99.2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To DPSC Software, Inc.:
We have audited the accompanying balance sheets of DPSC SOFTWARE, INC. (a
California corporation) as of November 30, 1999 and December 31, 1998 and the
related statements of operations, changes in shareholders' deficit, and cash
flows for the 11 months ended November 30, 1999 and the year ended December 31,
1998. 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 DPSC Software, Inc. as of
November 30, 1999 and December 31, 1998 and the results of its operations and
its cash flows for the 11 months ended November 30, 1999 and the year ended
December 31, 1998 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 15, 2000
<PAGE> 2
DPSC SOFTWARE, INC.
BALANCE SHEETS
NOVEMBER 30, 1999 AND DECEMBER 31, 1998
ASSETS
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 11,403 $ 3,746
Accounts receivable, net of allowance for doubtful accounts 21,767 874,516
of $10,000 in 1999 and 1998
Prepaid expenses 118,211 179,862
----------- -----------
Total current assets 151,381 1,058,124
PROPERTY AND EQUIPMENT, NET 749,291 789,273
OTHER ASSETS 18,022 18,022
----------- -----------
Total assets $ 918,694 $ 1,865,419
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 374,488 $ 359,587
Line of credit 100,000 200,000
Deferred revenues 2,226,659 2,345,450
Mortgage on building, current 31,652 28,951
----------- -----------
Total current liabilities 2,732,799 2,933,988
----------- -----------
MORTGAGE ON BUILDING, LONG-TERM 194,668 224,079
----------- -----------
LOAN PAYABLE TO SHAREHOLDER 12,561 12,561
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIT:
Common stock, no par value; 1,000 shares authorized, issued,
and outstanding in 1999 and 1998 10,000 10,000
Accumulated deficit (2,031,334) (1,315,209)
----------- -----------
Total shareholders' deficit (2,021,334) (1,305,209)
----------- -----------
Total liabilities and shareholders' deficit $ 918,694 $ 1,865,419
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE> 3
DPSC SOFTWARE, INC.
STATEMENTS OF OPERATIONS
FOR THE 11 MONTHS ENDED NOVEMBER 30, 1999
AND THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
NET REVENUES $4,192,130 $4,111,541
---------- ----------
OPERATING EXPENSES:
Royalty expense 233,555 268,570
Selling, general, and administrative expenses 2,532,186 2,219,764
Depreciation and amortization 70,104 40,165
---------- ----------
Total operating expenses 2,835,845 2,528,499
---------- ----------
Operating income 1,356,285 1,583,042
INTEREST EXPENSE, NET 12,410 12,039
---------- ----------
NET INCOME BEFORE PRO FORMA INCOME
TAX PROVISION 1,343,875 1,571,003
PRO FORMA INCOME TAX PROVISION 512,249 598,659
---------- ----------
PRO FORMA NET INCOME $ 831,626 $ 972,344
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 4
DPSC SOFTWARE, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
FOR THE 11 MONTHS ENDED NOVEMBER 30, 1999
AND THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------------- ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT DEFICIT DEFICIT
------ ------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997
(UNAUDITED) 1,000 $10,000 $(1,286,212) $(1,276,212)
Net income before pro forma
income tax provision 0 1,571,003 1,571,003
Cash distributions 0 0 (1,600,000) (1,600,000)
----- ------- ----------- -----------
BALANCE, DECEMBER 31, 1998 1,000 10,000 (1,315,209) (1,305,209)
Net income before pro forma
income tax provision 0 0 1,343,875 1,343,875
Cash distributions 0 0 (2,060,000) (2,060,000)
----- ------- ----------- -----------
BALANCE, NOVEMBER 30, 1999 1,000 $10,000 $(2,031,334) $(2,021,334)
===== ======= =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 5
DPSC SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
FOR THE 11 MONTHS ENDED NOVEMBER 30, 1999
AND THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,343,875 $ 1,571,003
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization 70,104 40,165
Changes in assets and liabilities:
Accounts receivable 852,749 (244,145)
Other assets 61,651 (41,557)
Accounts payable and accrued expenses 14,901 55,949
Deferred revenues (118,791) 435,884
----------- -----------
Net cash provided by operating activities 2,224,489 1,817,299
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (30,122) (404,378)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in line of credit (100,000) 200,000
Debt repayments (26,710) (26,852)
Borrowings from shareholder 0 12,561
Payment of cash distributions (2,060,000) (1,600,000)
----------- -----------
Net cash used in financing activities (2,186,710) (1,414,291)
----------- -----------
Net increase in cash and cash equivalents 7,657 (1,370)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,746 5,116
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 11,403 $ 3,746
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 24,903 $ 23,331
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 6
DPSC SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND DECEMBER 31, 1998
1. ORGANIZATION, NATURE OF BUSINESS, AND BASIS OF PRESENTATION
DPSC Software, Inc. (the "Company") was incorporated under the laws of
the state of California. The Company was organized primarily for
developing and supporting computer software for the banking industry in
the United States. The Company has developed a number of computer
software products to prepare banking regulatory reports.
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 amounts 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.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Major property additions,
replacements, and betterments are capitalized, while maintenance and
repairs that do not extend the useful lives of these assets are
expensed as incurred. Depreciation is provided using the straight-line
method for financial reporting purposes. Property and equipment at
November 30, 1999 and December 31, 1998 consisted of the following:
<TABLE>
<CAPTION>
USEFUL LIFE 1999 1998
----------- ----------- ----------
<S> <C> <C> <C>
Land $ 117,898 $ 117,898
Building 30 YEARS 353,695 353,695
Machinery and equipment 3 YEARS 174,227 144,106
Airplane 10 YEARS 386,500 386,500
----------- ----------
1,032,320 1,002,199
Less accumulated depreciation (283,029) (212,926)
----------- ----------
$ 749,291 $ 789,273
=========== ==========
</TABLE>
REVENUE RECOGNITION
The Company's revenue consists of revenues from software sales,
maintenance and support services for banking software for financial
institutions. Annual license fees are recorded initially as deferred
revenue and are recognized ratably over the annual period as support
services are provided. Customers are also
<PAGE> 7
-2-
billed an annual shipping charge which is also deferred and recognized
as shipments are made.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash or cash equivalents.
FAIR VALUE FINANCIAL INSTRUMENTS
The fair value of instruments classified as current assets or
liabilities, including accounts receivable and accounts payable,
approximates carrying value due to the short-term maturity of the
instruments.
LONG-LIVED ASSETS
The Company reviews the carrying values assigned to long-lived assets
based on expectations of undiscounted future cash flows and operating
income generated by the long-lived assets in determining whether the
carrying amount of such assets is recoverable.
INCOME TAXES
The Company has elected to be taxed as an S corporation as permitted by
the Internal Revenue Code. As an S corporation, the Company is not a
taxable entity, and separately stated items of income, loss, deduction,
and credit are passed through to and taken into account by the
individual stockholders in computing their federal and state individual
income tax liabilities. The Company has recorded a pro forma income tax
provision in the accompanying financial statements. This provision has
been recorded using an effective tax rate of 38%, adjusted for
permanent differences.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133
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 statements of operation and measure
those instruments at fair value. SFAS No. 133 is effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000.
Adoption of SFAS No. 133 is not expected to have a significant impact
on the Company's financial statements.
3. EMPLOYEE BENEFIT PLANS
The Company has a defined contribution 401(k) benefit plan which covers
substantially all employees, subject to certain minimum service
requirements. The plan provides for voluntary contributions by
employees as well as discretionary contributions by the Company. For
the 11 months ended November 30, 1999 and the year ended December 31,
1998, the Company contributed approximately $67,000 and $58,000,
respectively, to the plan.
<PAGE> 8
-3-
4. DEBT
Long-term debt at November 30, 1999 and December 31, 1998 consisted of
the following:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Mortgage note payable, annual interest rate of 8.67%,
monthly principal and interest payments amounting to
$4,170, secured by the building $ 226,320 $ 253,030
Less current maturities (31,652) (28,951)
--------- ---------
Long-term debt, net of current maturities $ 194,668 $ 224,079
========= =========
</TABLE>
The scheduled annual maturities of long-term debt at November 30, 1999
were as follows:
<TABLE>
<S> <C>
2000 $ 31,652
2001 34,508
2002 37,622
2003 41,017
2004 44,717
Thereafter 36,804
--------
$226,320
========
</TABLE>
LINE OF CREDIT
In 1998, the Company entered into a revolving line of credit agreement
with a bank. As of December 31, 1998, $200,000 was outstanding under
the line of credit. The line of credit was repaid and the agreement
expired in 1999.
On April 26, 1999, the Company entered into a revolving line of credit
with Marathon National Bank that provides for borrowings of up to
$500,000. Borrowings are payable on demand, and interest is payable
monthly at the prime rate plus 1%. As of November 30, 1999, $100,000
was outstanding under the line of credit. Borrowings are secured by
substantially all of the Company's assets. The line-of-credit agreement
expires on August 4, 2000.
5. COMMITMENTS AND CONTINGENCIES
OPERATING LEASE
The Company leases certain equipment and facilities under operating
leases. Rent expense for all operating leases was approximately
$116,000 and $11,000 for the 11 months ended November 30, 1999 and the
year ended December 31, 1998, respectively. Future minimum annual
payments on these leases at November 30, 1999 are as follows:
<PAGE> 9
-4-
<TABLE>
<S> <C>
2000 $151,116
2001 158,222
2002 158,868
2003 165,963
2004 173,725
Thereafter 188,890
--------
$996,784
========
</TABLE>
LITIGATION
The Company is party to various claims and legal proceedings that arise
in the normal course of business. Management, on the advice of legal
counsel, does not believe that a negative outcome of any known pending
litigation would have a material adverse effect on the Company or its
financial position and results of operations.
6. RELATED-PARTY TRANSACTIONS
As of November 30, 1999 and December 31, 1998, the Company owed $12,561
related to expenses of the Company incurred by the shareholder. This
amount was repaid in connection with the acquisition of the Company by
Netzee, Inc. ("Netzee") (Note 7).
7. SUBSEQUENT EVENT
On December 15, 1999, the Company was acquired by Netzee for cash of
approximately $18.5 million, 525,000 shares of Netzee's common stock,
and 500,000 shares of Netzee's Series A 8% convertible preferred stock.
The acquisition of the Company was accounted for as a purchase in
accordance with Accounting Principles Board Opinion No. 16.
<PAGE> 1
EXHIBIT 99.3
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
September 30, 1999
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Historical
September 30, 1999
------------------------- Pro Forma Pro Forma
Netzee DPSC Combined Adjustments September 30, 1999
----------- ----------- ----------- ----------- ------------------
ASSETS
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 288,995 $ 14,005 $ 303,000 a $ 23,375,202 $ 5,178,202
b (18,500,000)
Accounts receivable, net 636,539 826,551 1,463,090 1,463,090
Leases receivable, current 323,571 323,571 323,571
Prepaids and other current assets 416,213 158,450 574,663 574,663
----------- ----------- ----------- ------------
Total current assets 1,665,318 999,006 2,664,324 7,539,526
----------- ----------- ----------- ------------
PROPERTY AND EQUIPMENT, NET 725,682 756,837 1,482,519 c (718,527) 763,992
LEASES RECEIVABLE, NET OF CURRENT 932,999 932,999 932,999
OTHER ASSETS:
Intangible assets, net 94,020,562 94,020,562 b 35,645,941 129,666,503
Due from shareholder - 200,000 200,000 c (200,000) -
Deposits and other long-term assets - 12,990 12,990 12,990
----------- ----------- ----------- ------------
Total other assets 94,020,562 212,990 94,233,552 129,643,125
----------- ----------- ----------- ------------
Total assets $97,344,561 $ 1,968,833 $99,313,394 $138,916,010
=========== =========== =========== ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Line of credit $ - $ 407,000 $ 407,000 c $ (407,000) $ -
Accounts payable, accrued expenses, and other 684,903 349,687 1,034,590 b 911,324 1,945,914
Deferred revenue 2,173,832 2,875,800 5,049,632 5,049,632
Current maturities of long-term debt - 28,951 28,951 c (28,951) -
----------- ----------- ---------- ------------
Total current liabilities 2,858,735 3,661,438 6,520,173 6,995,546
NON-CURRENT LIABILITIES:
Deferred revenue 738,104 738,104 738,104
Related-party loans 31,524,798 12,561 31,537,359 a (31,524,798) 12,561
Long-term debt, net of current maturities - 202,384 202,384 c (202,384) -
----------- ----------- ----------- ------------
Total liabilities 35,121,637 3,876,383 38,998,020 7,746,211
----------- ----------- ----------- ------------
SHAREHOLDERS' DEFICIT:
Preferred stock - - b 6,500,000 6,500,000
Common stock 83,630,906 10,000 83,640,906 a 54,900,000 146,077,781
b (10,000)
b 7,546,875
Notes receivable from shareholders (3,453,405) (3,453,405) (3,453,405)
Deferred stock-based compensation (9,899,533) (9,899,533) (9,899,533)
Accumulated deficit (8,055,044) (1,917,550) (9,972,594) b 2,197,742 (8,055,044)
c (280,192)
----------- ----------- ----------- ------------
Total shareholders' deficit 62,222,924 (1,907,550) 60,315,374 131,169,799
----------- ----------- ----------- ------------
Total liabilities and shareholders' deficit $97,344,561 $ 1,968,833 $99,313,394 $138,916,010
=========== =========== =========== ============
</TABLE>
<PAGE> 2
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
For the
Historical Period from
For the Nine Months January 1,
Ended 1999 to date Pro Forma
September 30, 1999 of acquisition For the Nine
------------------------ ------------------ Months Ended
(d) Pro Forma September 31,
Netzee DPSC Other Acquisitions Combined Adjustments 1999
----------- ----------- ------------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Monthly maintenance and service $ 639,595 $ 3,642,488 $ 368,000 $ 4,650,083 $ - $ 4,650,083
License, hardware and installation 290,949 1,943,167 2,234,116 l (109,000) 2,125,116
----------- ----------- ----------- ------------ ------------
Total revenues 930,544 3,642,488 2,311,167 6,884,199 6,775,199
----------- ----------- ----------- ------------ ------------
COSTS AND EXPENSES:
Costs of services, license, hardware,
installation and maintenance 661,340 404,993 904,334 1,970,667 l (109,000) 1,861,667
Selling general and administrative
expenses 1,381,942 2,015,941 3,182,833 6,580,716 6,580,716
Amortization of stock-based
compensation 2,114,567 - 2,114,567 2,114,567
Depreciation and amortization 4,501,540 54,782 127,000 4,683,322 f 103,000 33,890,715
e 8,902,393
g 8,915,000
h 7,163,000
i 3,025,000
j 739,000
o 360,000
----------- ----------- ----------- ------------ ------------
Total costs and expenses 8,659,389 2,475,716 4,214,167 15,349,272 44,447,665
----------- ----------- ----------- ------------ ------------
OPERATING LOSS (7,728,845) 1,166,772 (1,903,000) (8,465,073) (37,672,466)
OTHER INCOME, net - 2,501 210,333 212,834 212,834
INTEREST EXPENSE, net 348,089 11,614 1,209,333 1,569,036 k (1,209,000) 229,036
n (131,000)
----------- ----------- ----------- ------------ ------------
INCOME BEFORE TAXES (8,076,934) 1,157,659 (2,902,000) (9,821,275) (37,688,668)
PROVISION FOR INCOME TAXES 458,313 458,313 e (458,313) -
----------- ----------- ----------- ------------ ------------
NET LOSS $(8,076,934) $ 699,346 $(2,902,000) $(10,279,588) $(37,688,668)
=========== =========== =========== ============ ============
BASIC AND DILUTED NET LOSS PER SHARE $ (0.86) $ (1.85)
=========== ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 9,343,494 20,321,000
=========== ============
</TABLE>
<PAGE> 3
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Historical
For the Year
Ended Pro Forma
December 31, 1998 For the Year
--------------------------------------------- Ended
(d) Pro Forma December
Netzee DPSC Other Acquisitions Combined Adjustments 31, 1998
----------- ---------- ------------------ ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Monthly maintenance and service $ 136,000 $ 4,368,272 $ 274,000 $ 4,778,272 $ - $ 4,778,272
License, hardware and installation 455,000 2,250,000 2,705,000 l (54,000) 2,651,000
----------- ----------- ------------ ------------ ------------
Total revenues 591,000 4,368,272 2,524,000 7,483,272 7,429,272
----------- ----------- ------------ ------------ ------------
COSTS AND EXPENSES:
Costs of services, license, hardware,
installation and maintenance 466,000 525,301 1,238,000 2,229,301 m (40,000) 2,135,301
l (54,000)
Selling general and administrative
expenses 442,000 2,219,764 4,427,000 7,088,764 7,088,764
Amortization of stock-based
compensation - - - - p 4,592,000 5,485,000
q 893,000
Depreciation and amortization 15,000 40,165 214,000 269,165 f 620,000 44,971,023
e 11,869,858
g 15,282,000
h 10,744,000
i 4,538,000
j 1,108,000
o 540,000
Asset impairment - 143,000 143,000 143,000
----------- ----------- ------------ ------------ ------------
Total costs and expenses 923,000 2,785,230 6,022,000 9,730,230 59,823,088
----------- ----------- ------------ ------------ ------------
OPERATING LOSS (332,000) 1,583,042 (3,498,000) (2,246,958) (52,393,816)
OTHER INCOME, net - - 342,000 342,000 m (40,000) 302,000
INTEREST EXPENSE (INCOME), net 20,000 12,039 1,678,000 1,710,039 k (1,679,000) (192,961)
n (224,000)
----------- ----------- ------------ ------------ ------------
INCOME BEFORE TAXES (352,000) 1,571,003 (4,834,000) (3,614,997) (51,898,855)
PROVISION FOR INCOME TAXES 598,659 598,659 e (598,659) -
----------- ----------- ------------ ------------ ------------
NET (LOSS) INCOME $ (352,000) $ 972,344 $(4,834,000) $ (4,213,656) $(51,898,855)
=========== =========== ============ ============ ============
BASIC AND DILUTED NET LOSS PER SHARE $ (0.04) $ (2.55)
=========== ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 9,343,494 20,321,000
=========== ============
</TABLE>
<PAGE> 4
The unaudited pro forma balance sheet as of September 30, 1999 reflects the
following adjustments as if they occurred on September 30, 1999:
(a) The Company completed an initial public offering of it's
common stock during November 1999, whereby the Company received cash,
net of underwriting fees and other expenses of approximately $54.9
million. A portion of the proceeds was used to pay off the related
party notes payables as of the offering date.
(b) The payment of cash and the issuance of common stock and
preferred stock and the recording of intangible assets associated with
the purchase of certain assets and assumption of certain liabilities of
DPSC. The purchase price included cash of $18.5 million, 525,000 of
common shares valued at $14.38 per share and 500,000 shares of
preferred stock with a stated value of $13.00 per share. Transaction
costs of approximately $911,000 were incurred as a result of the
purchase. The excess of the purchase price over net tangible assets
acquired approximated $35.6 million and was allocated to the acquired
technology identifiable intangible asset and will be amortized over a 3
year period.
(c) Certain DPSC assets and liabilities were excluded in the
purchase agreement discussed in b. above.
The unaudited pro forma statements of operations for the nine months ended
September 30, 1999 and the year ended December 31, 1998 reflect the following
adjustments as if they occurred on January 1, 1998 and are based on the
historical statements of operations, adjusted to reflect the following:
(d) The historical information for the Company's acquisitions made
on August 6, 1999 (the remote Internet and telephone banking division
of SBS Corporation) and September 3, 1999 (the Internet banking
divisions of The Bankers Bank and The Independent BankersBank; Dyad
Corporation; Call Me Bill LLC) for the year ended December 31, 1998 and
the period from January 1, 1999 to the date of acquisition. The excess
of the aggregated purchase price over the net tangible assets acquired
approximated $94 million and was allocated to identifiable intangible
assets with amortization lives between 2 and 5 years.
(e) The additional amortization of the intangible assets
recognized upon the acquisition of DPSC of $8.9 million for the nine
months ended September 30, 1999 and $11.9 million for the year ended
December 31, 1998 and the elimination of the DPSC tax provision as
Netzee will file consolidated tax filings.
<PAGE> 5
(f) The additional amortization of the intangible assets
recognized upon the acquisition of Direct Access Interactive, Inc. of
$103,000 for the period from January 1, 1999 to March 8, 1999 and
$620,000 for the year ended December 31, 1998.
(g) The additional amortization of the intangible assets
recognized upon the acquisition of SBS of approximately $8.9 million
for the period from January 1, 1999 to August 5, 1999 and approximately
$15.3 million for the year ended December 31, 1998. Amortization
expense was calculated on a straight line basis over the estimated
useful lives of the intangible assets acquired.
(h) The additional amortization of the intangible assets
recognized upon the acquisition of TIB and The Bankers Bank, of
approximately $7.2 million for the period from January 1, 1999 to
September 2, 1999 and approximately $10.7 million for the year ended
December 31, 1998. Amortization expense was calculated on a straight
line basis over the estimated useful lives of the intangible assets
acquired.
(i) The additional amortization of the intangible assets
recognized upon the acquisition of Dyad of approximately $3.0 million
for the period from January 1, 1999 to September 2, 1999 and
approximately $4.5 million for the year ended December 31, 1998.
Amortization expense was calculated on a straight-line basis over the
estimated useful lives of the intangible assets acquired.
(j) The additional amortization of the intangible assets
recognized upon the acquisition of Call Me Bill of approximately
$739,000 for the period from January 1, 1999 to September 2, 1999 and
approximately $1.1 million for the year ended December 31, 1998.
Amortization expense was calculated on a straight-line basis over the
estimated useful lives of the intangible assets acquired.
(k) The elimination of the interest expense on the warrants and
the debt at Dyad of approximately $1.2 million for the period from
January 1, 1999 to September 2, 1999 and $1.7 million for the year
ended December 31, 1998.
(l) The elimination of revenue of TIB from The Bankers Bank and
the related expenses of The Bankers Bank for the conversion services
billed and paid through TIB for the period from January 1, 1999 to
September 2, 1999 and during the year ended December 31, 1998.
(m) The elimination of a $40,000 fee The Bankers Bank paid to TIB
during the year ended December 31, 1998 for the right to share
outsourced financial institution customer date conversion services.
(n) The interest income on the notes receivable from shareholders
of approximately $131,000 for the period from January 1, 1999 to August
5, 1999 and approximately $224,000 for the year ended December 31,
1998.
<PAGE> 6
(o) The additional amortization on the intangible asset for the
marketing agreement entered into with the three bankers' banks of
approximately $360,000 for the period from January 1, 1999 to September
9, 1999 and approximately $540,000 for the year ended December 31,
1998.
(p) The amortization of deferred compensation related to the
issuance of stock options of approximately $4.6 million for the year
ended December 31, 1998.
(q) The recording of stock compensation expense related to the
sale of common stock to an employee of approximately $893,000 for the
year ended December 31, 1998.
