-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C4oMv65fihLobm7ztQK4upA+51dOO3U7pFRiM+hzn+BETG4rYnM+bRB0nlA+Rkh4 c8QBZQ1a20sQYTA1FKKM0g== 0000931763-99-002746.txt : 20000211 0000931763-99-002746.hdr.sgml : 20000211 ACCESSION NUMBER: 0000931763-99-002746 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990806 ITEM INFORMATION: FILED AS OF DATE: 19990930 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERCEPT GROUP INC CENTRAL INDEX KEY: 0001054930 STANDARD INDUSTRIAL CLASSIFICATION: FUNCTIONS RELATED TO DEPOSITORY BANKING, NEC [6099] IRS NUMBER: 582237359 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 001-14213 FILM NUMBER: 99720782 BUSINESS ADDRESS: STREET 1: 3150 HOLCOMB BRIDGE ROAD SUITE 200 CITY: NORCROSS STATE: GA ZIP: 30071 BUSINESS PHONE: 7702489600 MAIL ADDRESS: STREET 1: 3150 HOLCOMB BRIDGE ROAD SUITE 200 CITY: NORCROSS STATE: GA ZIP: 30071 8-K/A 1 AMENDMENT #1 TO FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------- FORM 8-K/A AMENDMENT NO. 1 CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): August 6, 1999 ------------------ THE INTERCEPT GROUP, INC. ------------------------- (Exact Name of Registrant as Specified in its Charter)
Georgia 01-14213 58-2237359 - -------------------------------------------------------------------------------- (State or Other (Commission (I.R.S. Employer Jurisdiction of File Number) Identification No.) Incorporation)
3150 Holcomb Bridge Road, Suite 200, Norcross, Georgia 30071 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (770) 248-9600 -------------- N/A ------------------------------------ (Former Name or Former Address, if Changed Since Last Report) Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. The registrant hereby amends its report on Form 8-K filed on August 20, 1999 by deleting the text under Item 7 and replacing it with the following text. (a) Financial Statements of Business Acquired. Included as Exhibit 99.1 and 99.2 hereto and incorporated herein by reference. (b) Pro Forma Financial Information. Included as Exhibit 99.3 hereto and incorporated herein by reference. (c) Exhibits. Item No. Exhibit List 2.1 Agreement and Plan of Merger dated August 6, 1999 by and among The InterCept Group, Inc., Zeenet Corporation, SBS Data Services, Inc. and the shareholders of SBS Data Services Inc.* 2.2 Agreement and Plan of Merger dated August 6, 1999 by and between Direct Access Interactive, Inc., SBS Corporation and the shareholders of SBS Corporation.* 99.1 The following financial statements of SBS Data together with the report by Hardman, Guess, Frost and Cummings, P.C. for the periods stated therein: Balance Sheets as of December 31, 1997 and 1998 and June 30, 1999 (unaudited). Statements of Income for the years ended December 31, 1997 and 1998 and the six months ended June 30, 1998 and 1999 (unaudited). Statements of Stockholders' Equity for the years ended December 31, 1997 and 1998 and the six months ended June 30, 1999 (unaudited). Statements of Cash Flows for the years ended December 31, 1997 and 1998 and the six months ended June 30, 1998 and 1999 (unaudited). Notes to Financial Statements. 99.2 The following financial statements of SBS Corp. together with the report by Arthur Andersen LLP for the periods stated therein: Balance Sheets as of December 31, 1997 and 1998 and June 30, 1999 (unaudited). Statements of Operations for the years ended December 31, 1997 and 1998 and the six months ended June 30, 1998 and 1999 (unaudited). Statements of Shareholders' (Deficit) Equity for the years ended December 31, 1997 and 2 1998 and the six months ended June 30, 1999 (unaudited). Statements of Cash Flows for the years ended December 31, 1997 and 1998 and the six months ended June 30, 1998 and 1999 (unaudited). Notes to Financial Statements. 99.3 The following unaudited pro forma condensed consolidated financial statements: Pro Forma Condensed Consolidated Balance Sheet as of June 30, 1999. Pro Forma Condensed Consolidated Statement of Operations for the six months ended June 30, 1999. Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 1998. Notes to Pro Forma Condensed Consolidated Financial Statements. * Previously filed with the registrant's Current Report on Form 8-K filed August 20, 1999. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. THE INTERCEPT GROUP, INC. By: /s/ Scott R. Meyerhoff ----------------------------------------- Scott R. Meyerhoff Chief Financial Officer Dated: September 30, 1999 3 EXHIBIT LIST Exhibit No. Description - ----------- ----------- 2.1 Agreement and Plan of Merger dated August 6, 1999 by and among The InterCept Group, Inc., Zeenet Corporation, SBS Data Services, Inc. and the shareholders of SBS Data Services Inc* 2.2 Agreement and Plan of Merger dated August 6, 1999 by and between Direct Access Interactive, Inc., SBS Corporation and the shareholders of SBS Corporation.* 99.1 The following financial statements of SBS Data together with the report by Hardman, Guess, Frost and Cummings, P.C. for the periods stated therein: Balance Sheets as of December 31, 1997 and 1998 and June 30, 1999 (unaudited). Statements of Income for the years ended December 31, 1997 and 1998 and the six months ended June 30, 1998 and 1999 (unaudited). Statements of Stockholders' Equity for the years ended December 31, 1997 and 1998 and the six months ended June 30, 1999 (unaudited). Statements of Cash Flows for the years ended December 31, 1997 and 1998 and the six months ended June 30, 1998 and 1999 (unaudited). Notes to Financial Statements. 99.2 The following financial statements of SBS Corp. together with the report by Arthur Andersen LLP for the periods stated therein: Balance Sheets as of December 31, 1997 and 1998 and June 30, 1999 (unaudited). Statements of Operations for the years ended December 31, 1997 and 1998 and the six months ended June 30, 1998 and 1999 (unaudited). Statements of Shareholders' (Deficit) Equity for the years ended December 31, 1997 and 1998 and the six months ended June 30, 1999 (unaudited). Statements of Cash Flows for the years ended December 31, 1997 and 1998 and the six months ended June 30, 1999 (unaudited). Notes to Financial Statements. 99.3 The following unaudited pro forma condensed consolidated financial statements: Pro Forma Condensed Consolidated Balance Sheet as of June 30, 1999. 4 Pro Forma Condensed Consolidated Statement of Operations for the six months ended June 30, 1999. Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 1998. Notes to Pro Forma Condensed Consolidated Financial Statements. * Previously filed with the registrant's Current Report on Form 8-K filed August 20, 1999. 5 EX-99.1 2 FINANCIAL STATEMENTS OF SBS DATA EXHIBIT 99.1 SBS DATA SERVICES, INC. FINANCIAL STATEMENTS SBS DATA SERVICES, INC. CONTENTS =============================================================================== Page ---- Independent Auditors' Report 1 Balance Sheets 2 Statements of Income 3 Statements of Stockholders' Equity 4 Statements of Cash Flows 5 Notes to Financial Statements 7 INDEPENDENT AUDITORS' REPORT To SBS Data Services, Inc. We have audited the accompanying balance sheets of SBS Data Services, Inc. as of December 31, 1997 and 1998, and the related statements of income, stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of SBS Data Services, Inc. as of December 31, 1997 and 1998, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Hardman, Guess, Frost & Cummings, P.C. - ------------------------------------------ Birmingham, Alabama January 27, 1999 SBS DATA SERVICES, INC. BALANCE SHEETS
- ---------------------------------------------------------------------------- -------------- December 31 June 30 - ---------------------------------------------------------------------------- -------------- 1997 1998 1999 - ---------------------------------------------------------------------------- -------------- (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 524,383 $ 935,441 $ 691,341 Accounts receivable: Trade 45,728 430,845 611,798 Affiliate 115,399 50,140 120,924 Officers 0 0 1,013,900 Employees 28,697 14,463 12,773 - ---------------------------------------------------------------------------- -------------- 189,824 495,448 1,759,395 Prepaid expenses 36,855 32,531 17,457 Deferred costs--current portion 124,006 132,203 170,873 - ---------------------------------------------------------------------------- -------------- TOTAL CURRENT ASSETS 875,068 1,595,623 2,639,066 OTHER ASSETS Equipment and leasehold improvements, net 229,400 433,151 446,857 Deferred costs--net of current portion 228,366 275,097 324,080 Due from affiliate 0 574,143 921,493 Other assets 81,062 104,098 116,148 - ---------------------------------------------------------------------------- -------------- TOTAL OTHER ASSETS 538,828 1,386,489 1,808,578 - ---------------------------------------------------------------------------- -------------- TOTAL ASSETS $1,413,896 $2,982,112 $4,447,644 ============================================================================ ============== - ---------------------------------------------------------------------------- -------------- December 31 June 30 - ---------------------------------------------------------------------------- -------------- 1997 1998 1999 - ---------------------------------------------------------------------------- -------------- (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 62,144 $ 54,838 $ 65,741 Accrued liabilities 44,331 74,192 50,059 Unearned income 75,000 236,105 113,000 Deferred revenue--current portion 1,089,066 1,546,596 2,371,646 Long-term debt--current portion 39,974 13,768 14,243 Capital lease obligation--current portion 0 48,649 51,570 - ---------------------------------------------------------------------------- -------------- TOTAL CURRENT LIABILITIES 1,310,515 1,974,148 2,666,259 Deferred revenue--net of current portion 43,096 136,126 505,387 Long-term debt--net of current portion 41,057 27,265 20,028 Capital lease obligation--net of current portion 0 100,030 73,493 - ---------------------------------------------------------------------------- -------------- TOTAL LIABILITIES 1,394,668 2,237,569 3,265,167 STOCKHOLDERS' EQUITY Capital stock, par value $1.00 per share; 10,000 shares authorized, 1,000 shares issued and outstanding 1,000 1,000 1,000 Additional paid-in capital 200,000 200,000 200,000 Retained earnings (deficit) (181,772) 543,543 981,477 - ---------------------------------------------------------------------------- -------------- TOTAL STOCKHOLDERS' EQUITY 19,228 744,543 1,182,477 - ---------------------------------------------------------------------------- -------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,413,896 $2,982,112 $4,447,644 ============================================================================ ==============
See notes to financial statements SBS DATA SERVICES, INC. STATEMENTS OF INCOME
- -------------------------------------------------------------------------------------------------- --------------------------- Year Ended Six Months - -------------------------------------------------------------------------------------------------- --------------------------- December 31 Ended June 30 - -------------------------------------------------------------------------------------------------- --------------------------- 1997 1998 1998 1999 - -------------------------------------------------------------------------------------------------- --------------------------- (UNAUDITED) REVENUE Data services $2,282,562 $3,410,872 $1,638,633 $2,396,536 Cancellation fees 0 817,680 0 193,968 - -------------------------------------------------------------------------------------------------- --------------------------- 2,282,562 4,228,552 1,638,633 2,590,504 COSTS AND EXPENSES Salaries and benefits 906,668 1,329,746 591,662 809,591 Service costs 620,264 959,627 437,665 635,803 Selling and marketing expenses 13,788 42,879 17,265 20,191 Management fees 180,000 189,500 90,000 145,200 Operating and administrative expenses 556,968 837,813 323,478 410,038 - -------------------------------------------------------------------------------------------------- --------------------------- TOTAL COSTS AND EXPENSES 2,277,688 3,359,565 1,460,070 2,020,823 - -------------------------------------------------------------------------------------------------- --------------------------- INCOME FROM OPERATIONS 4,874 868,987 178,563 569,681 OTHER INCOME (EXPENSE) Interest income 22,949 31,097 13,388 27,887 Interest expense (10,181) (11,769) (2,265) (9,634) - -------------------------------------------------------------------------------------------------- --------------------------- 12,768 19,328 11,123 18,253 - -------------------------------------------------------------------------------------------------- --------------------------- NET INCOME $ 17,642 $ 888,315 $ 189,686 $ 587,934 ================================================================================================== =========================== TAX ADJUSTED PROFORMA DATA: Income before income taxes $ 17,642 $ 888,315 $ 189,686 $ 587,934 Income taxes - See Note A 6,477 328,739 72,693 221,006 - -------------------------------------------------------------------------------------------------- --------------------------- NET INCOME (As Adjusted) $ 11,165 $ 559,576 $ 116,993 $ 366,928 ================================================================================================== ===========================
See notes to financial statements. SBS DATA SERVICES, INC. STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1998 AND 1997 AND SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------- Additional Retained Capital Paid-in Earnings Stock Capital (Deficit) Total - ---------------------------------------------------------------------------------------------------------------- Balance (deficit) at January 1, 1997 $1,000 $200,000 $(199,414) $ 1,586 Net income 0 0 17,642 17,642 - ---------------------------------------------------------------------------------------------------------------- Balance (deficit) at December 31, 1997 1,000 200,000 (181,772) 19,228 Net income 0 0 888,315 888,315 Dividends paid 0 0 (163,000) (163,000) - ---------------------------------------------------------------------------------------------------------------- Balance at December 31, 1998 1,000 200,000 543,543 744,543 - ---------------------------------------------------------------------------------------------------------------- Net income (unaudited) 0 0 587,934 587,934 Dividends paid (unaudited) 0 0 (150,000) (150,000) - ---------------------------------------------------------------------------------------------------------------- BALANCE AT JUNE 30, 1999 (UNAUDITED) $1,000 $200,000 $ 981,477 $1,182,477 ================================================================================================================
See notes to financial statements. SBS DATA SERVICES, INC. STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------------- -------------------------- Year Ended Six Months - --------------------------------------------------------------------------------------- -------------------------- December 31 Ended June 30 - --------------------------------------------------------------------------------------- -------------------------- 1997 1998 1998 1999 - --------------------------------------------------------------------------------------- -------------------------- (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 17,642 $ 888,315 $ 189,686 $ 587,934 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 87,267 151,948 45,276 51,712 Loss on sale of equipment 1,486 8,048 0 910 Changes in: Accounts receivable: Trade (33,956) (385,117) (521,879) (180,954) Affiliate (2,687) 65,259 115,399 (70,784) Employees (23,874) 14,234 23,594 1,689 Prepaid expenses (2,006) 4,324 (15,353) 15,074 Deferred costs 22,506 (54,928) 33,857 (87,653) Due from affiliate 0 (574,143) (202,940) (347,350) Other assets (23,366) (23,785) (57,635) (12,050) Accounts payable 31,169 (7,306) (13,665) 10,903 Accrued liabilities 23,300 29,861 (8,246) (24,133) Unearned income (6,000) 161,105 327,500 (123,105) Deferred revenue 57,585 550,560 781,583 1,194,311 - --------------------------------------------------------------------------------------- -------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 149,066 828,375 697,177 1,016,504 CASH FLOWS FROM INVESTING ACTIVITIES Loans to officers 0 0 0 (1,013,900) Purchases of equipment and leasehold improvements (128,663) (362,998) (65,147) (66,327) - --------------------------------------------------------------------------------------- -------------------------- NET CASH USED BY INVESTING ACTIVITIES (128,663) (362,998) (65,147) (1,080,227) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of long-term debt 46,211 0 0 0 Proceeds from capital lease obligation 0 169,891 0 0 Repayments of capital lease obligation 0 (21,212) 0 (23,615) Repayments of long-term debt (99,031) (39,998) (32,038) (6,762) Payment of dividends 0 (163,000) (148,000) (150,000) - --------------------------------------------------------------------------------------- -------------------------- NET CASH USED BY FINANCING ACTIVITIES (52,820) (54,319) (180,038) (180,377) - --------------------------------------------------------------------------------------- -------------------------- NET CHANGE IN CASH AND CASH EQUIVALENTS (32,417) 411,058 451,992 (244,100)
SBS DATA SERVICES, INC. STATEMENTS OF CASH FLOWS-CONTINUED
- --------------------------------------------------------------------------------------- -------------------------- Year Ended Six months - --------------------------------------------------------------------------------------- -------------------------- December 31 Ended June 30 - --------------------------------------------------------------------------------------- -------------------------- 1997 1998 1998 1999 - --------------------------------------------------------------------------------------- -------------------------- (Unaudited) Cash and cash equivalents at beginning of period 556,800 524,383 524,383 935,441 - --------------------------------------------------------------------------------------- -------------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 524,383 $ 935,441 $ 976,375 $ 691,341 ======================================================================================= ========================== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest paid $ 10,181 $ 11,769 $ 2,265 $ 9,634 ======================================================================================= ==========================
SBS DATA SERVICES, INC. NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1997 AND 1998 AND SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED) _______________________________________________________________________________ NOTE A--SIGNIFICANT ACCOUNTING POLICIES Company's Activities: The Company is engaged in the processing of data for the financial services industry on a contract basis. Each engagement consists of the conversion of the customer's existing financial data to a format that can be processed by the Company's software. The Company's customer base is comprised of banks and other financial institutions located primarily in the southeastern region of the United States. The Company has acquired a software license to provide data processing services for their customers. Revenue and Cost Recognition: Conversion fee deposits received on contracts are recorded as unearned income until the conversion is complete. Conversion fee revenue is recognized ratably over the life of the contract. Estimated direct costs associated with each conversion project are capitalized and amortized to expense on a straight-line basis over the life of the underlying contract. Costs capitalized for each contract are based upon the calculated average unreimbursed cost of initially setting up a new account plus the actual fees paid for software usage. These costs are reported as deferred costs in the accompanying financial statements. The Company records maintenance and service fees billed in advance as deferred revenues, and recognizes revenue ratably over the life of the underlying contract as the services are rendered. Cash Equivalents: Cash equivalents consist of interest-bearing checking accounts and certificates of deposit with maturities of three months or less. Certain cash equivalents are pledged as collateral for an affiliated company's bank loan - See Note H. Allowance for Doubtful Accounts: Management reviewed accounts receivable and determined that there is no requirement for an allowance for doubtful accounts for the periods presented. Equipment and Leasehold Improvements: Equipment and leasehold improvements are recorded at cost and are depreciated over their estimated useful lives, or the lease term if shorter, principally on an accelerated method. Repairs that do not extend the useful life of an asset are charged to expense as incurred. Income Taxes: The Company elected S Corporation status for federal and state income tax purposes at inception, whereby profits, losses and credits are taxed to the shareholders. A charge in lieu of income taxes has been included for pro forma purposes only. The pro forma income taxes approximates an amount based on applicable rates adjusted for permanent differences which are not taxable or deductible for income tax purposes, except that no recognition is given for a net operating loss. Interim Period Presentation: The unaudited financial statements for the six months ended June 30, 1998 and 1999 have been prepared on a basis substantially consistent with that of audited financial statements included herein. In the opinion of management, such unaudited financial statements include all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results of operations and cash flows. The results of operations for the six months ended June 30, 1999 are not necessarily indicative of results that may be expected for the year ending December 31, 1999. Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications: Certain amounts in the 1997 financial statements have been reclassified to conform to the 1998 presentation. Such presentation had no material effect on the previously reported financial results. SBS DATA SERVICES, INC. NOTES TO FINANCIAL STATEMENTS--CONTINUED YEARS ENDED DECEMBER 31, 1997 AND 1998 AND SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED) ______________________________________________________________________________ NOTE A--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED Comprehensive Income: Comprehensive income for the years ended December 31, 1997 and 1998 and the six-month periods ended June 30, 1998 and 1999 is the same as the net income presented in the accompanying statements of operations. New Accounting Pronouncements: In June of 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Statement is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. The statement is not expected to have a significant impact on the Company's financial statements. NOTE B--EQUIPMENT AND LEASEHOLD IMPROVEMENTS Equipment and leasehold improvements consist of the following:
December 31 June 30 - -------------------------------------------------------------------------- --------------- 1997 1998 1999 - -------------------------------------------------------------------------- --------------- (Unaudited) Furniture and fixtures $ 6,334 $ 15,810 $ 15,810 Equipment: Office 37,588 122,063 130,015 Communications 63,120 64,941 64,941 Data processing 126,508 326,628 360,888 Loaner 14,977 18,842 18,842 Automotive 96,701 86,623 86,623 - -------------------------------------------------------------------------- --------------- Total Equipment 338,894 619,097 661,309 Software licenses 79,700 79,700 97,498 Leasehold improvements 15,452 69,548 74,956 - -------------------------------------------------------------------------- --------------- 440,380 784,155 849,573 Less accumulated depreciation and amortization 210,980 351,004 402,716 - -------------------------------------------------------------------------- --------------- TOTALS $229,400 $433,151 $446,857 ========================================================================== ===============
NOTE C--NOTE PAYABLE The Company has a revolving credit agreement with First Commercial Bank (FCB) with a maximum borrowing of $50,000 and interest payable monthly at FCB's prime rate plus one percent. The note is secured by all equipment of the Company, and is personally guaranteed by the Company's shareholders. There was no outstanding balance at December 31, 1997 or 1998 or June 30, 1999 (unaudited). 8 SBS DATA SERVICES, INC. NOTES TO FINANCIAL STATEMENTS--CONTINUED YEARS ENDED DECEMBER 31, 1997 AND 1998 AND SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED) _______________________________________________________________________________ NOTE D--LONG-TERM DEBT Long-term debt consists of the following:
December 31 June 30 - --------------------------------------------------------------------------------- ----------- 1997 1998 1999 - --------------------------------------------------------------------------------- ----------- (Unaudited) Note payable to bank due in monthly installments of $7,309 including interest at 8.75% through May 1998. The note was secured by processing and communications equipment, software, and personal guarantees of the stockholders. $21,936 $ 0 $ 0 Note payable to bank due in monthly installments of $340 including interest at 8.5% through June 1998. The note was secured by a vehicle. 1,732 0 0 Note payable to bank due in monthly installments of $362 including interest at 9.75% through October 1998. The note was secured by a vehicle. 3,436 0 0 Note payable to credit company due in monthly installments of $416 including interest at 2.9% through August 2000. The note is secured by a vehicle. 12,787 8,105 5,715 Note payable to credit company due in monthly installments of $960 including interest at 8.90% through April 2002. The note is secured by a vehicle. 41,140 32,928 28,556 - --------------------------------------------------------------------------------- ----------- 81,031 41,033 34,271 Less current portion 39,974 13,768 14,243 - --------------------------------------------------------------------------------- ----------- TOTAL LONG-TERM DEBT $41,057 $27,265 $20,028 ================================================================================= ===========
The anticipated principal maturities of long-term debt for the years subsequent to December 31, 1998 are as follows:
- -------------------------------------------------------------------------------- Year Ending In Amount - -------------------------------------------------------------------------------- 1999 $13,768 2000 13,071 2001 10,689 2002 3,505 - -------------------------------------------------------------------------------- TOTAL $41,033 ================================================================================
9 SBS DATA SERVICES, INC. NOTES TO FINANCIAL STATEMENTS--CONTINUED YEARS ENDED DECEMBER 31, 1997 AND 1998 AND SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED) - -------------------------------------------------------------------------------- NOTE E--CAPITAL LEASE The Company is the lessee of computer equipment under a capital lease expiring in July 2001. The economic substance of the lease is that the Company is financing the acquisition of the asset through the lease, and accordingly, it is recorded as a capital lease in the accompanying financial statements. The property under capital lease as of December 31, 1998 and June 30, 1999 (unaudited) had a cost of $169,891, accumulated amortization of $30,869 and $44,771 and a net book value of $139,022 and $125,120, respectively. The lease is personally guaranteed by the shareholders of the Company. Amortization is included in depreciation expense in the accompanying financial statements. Future minimum payments, by year and in the aggregate, under the capital lease are as follows at December 31, 1998:
- -------------------------------------------------------------------------------- Fiscal Year Ending In Amount - -------------------------------------------------------------------------------- 1999 $ 67,957 2000 67,957 2001 49,524 - -------------------------------------------------------------------------------- TOTAL MINIMUM LEASE PAYMENTS 185,438 Executory costs (11,114) Imputed interest (25,645) - -------------------------------------------------------------------------------- PRESENT VALUE OF NET MINIMUM LEASE PAYMENTS 148,679 Less current portion (48,649) - -------------------------------------------------------------------------------- CAPITAL LEASE OBLIGATION $100,030 ================================================================================
NOTE F--EMPLOYEE BENEFIT PLAN The Company maintains a qualified cash or deferred compensation plan under section 401(k) of the Internal Revenue Code. Under the plan, employees may generally elect to defer up to ten percent (10%) of their salary, subject to Internal Revenue Code limits. The Company contributes a matching one hundred percent (100%) of the first six percent (6%) of employee contributions. In addition, the plan allows for the Company to make discretionary contributions that are based on the participants' salary. Company contributions to the plan totaled $38,004 and $48,308 for the years ended December 31, 1997 and 1998 and $12,530 and $22,297 for the six months ended June 30, 1998 and 1999 (unaudited), respectively. NOTE G--OPERATING LEASES The Company leased various data processing equipment under a noncancelable operating lease, which terminated in July 1998. The lease agreement required an affiliated company to maintain equity at a percentage of adjusted assets as prescribed in the agreement. The affiliate did not meet the equity requirements, but the Company obtained a written waiver of the requirement. 10 SBS DATA SERVICES, INC. NOTES TO FINANCIAL STATEMENTS--CONTINUED YEARS ENDED DECEMBER 31, 1997 AND 1998 AND SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED) - -------------------------------------------------------------------------------- NOTE G--OPERATING LEASES--CONTINUED The Company leases the office space it occupies in Alabama from an Alabama Limited Liability Company controlled by the shareholders of the Company. The original lease agreement was for a period of one year, at a monthly rental of $1,000. This lease was replaced in 1998 by a lease with similar terms with additional space at a monthly rate of $8,500. During 1995, the Company entered into an operating lease for office space located in Norcross, Georgia for a monthly rental of $2,775 over a sixty-month term. Monthly rentals increase annually by an escalation factor based upon increases in the Consumer Price Index, and were $2,919 and $2,973 per month for the years ended December 31, 1997 and 1998, respectively. The Company terminated the lease during 1998, incurring a termination fee of $9,620. During 1997, the Company began leasing space in northwest Florida from an Alabama Limited Liability Company controlled by the shareholders of the Company. The lease agreement is for a period of five years and automatically renews unless canceled 30 days before expiration of the term, at a monthly rental of $2,500. The accompanying financial statements include rental expense related to these operating leases for the years ended December 31, 1997 and 1998 of $106,356 and $180,681 and the six months ended June 30, 1998 and 1999 (unaudited) of $99,145 and $66,000, respectively. Future minimum payments, by year and in the aggregate, under noncancelable operating leases consist of the following at December 31, 1998:
- ------------------------------------------------------------------------------- Year Ending In Amount - ------------------------------------------------------------------------------- 1999 $132,000 2000 132,000 2001 132,000 2002 119,500 2003 8,500 - -------------------------------------------------------------------------------- TOTAL FUTURE MINIMUM LEASE PAYMENTS $524,000 ================================================================================
NOTE H--RELATED PARTY MATTERS AND CONTINGENCY Certain properties are leased from related parties. See note G. The Company purchases computer equipment from an affiliated company. These purchases totaled approximately $97,000 and $142,000 for the years ended December 31, 1997 and 1998 and $52,000 and $110,000 for the six months ended June 30, 1998 and 1999 (unaudited), respectively. Management fees were paid to an affiliated company based on an estimated allocation of shared overhead expenses. Beginning in 1998 an affiliated company transferred servicing of a certain product to the Company, which generated revenue of approximately $87,000 in 1998. 11 SBS DATA SERVICES, INC. NOTES TO FINANCIAL STATEMENTS--CONTINUED YEARS ENDED DECEMBER 31, 1997 AND 1998 AND SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED) - -------------------------------------------------------------------------------- NOTE H--RELATED PARTY MATTERS AND CONTINGENCY--CONTINUED The Company has pledged $205,000 of cash equivalents (certificates of deposit) as collateral for an affiliated company's bank loan. The Company loaned an affiliated company approximately $574,000 during 1998 for working capital purposes. NOTE I--CONCENTRATIONS OF CREDIT RISK Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents. The Company's cash and cash equivalents are on deposit with financial institutions in Alabama. The Federal Deposit Insurance Corporation insures amounts at each institution up to $100,000. At December 31, 1997 and 1998, the Company's uninsured cash and cash equivalent balances total $262,468 and $609,598, respectively. NOTE J--SUBSEQUENT EVENT (Unaudited) The Company was acquired pursuant to an Agreement and Plan of Merger dated August 6, 1999 by and between The InterCept Group, Inc. ("InterCept"), Zeenet Corporation, a wholly-owned subsidiary of InterCept ("Zeenet"), the Company and the shareholders of the Company. Under this agreement, Zeenet merged with and into the Company, and the Company became a wholly-owned subsidiary of InterCept. In exchange for all of the outstanding shares of stock of the Company, InterCept issued an aggregate of 192,307 shares of InterCept common stock to the Company's shareholders. In connection with the merger, the Company's 401(k) Plan was terminated. As a result, all participants became 100% vested in the Plan. 12 EX-99.2 3 FINANCIAL STATEMENTS OF SBS CORP. EXHIBIT 99.2 SBS Corporation Financial Statements as of December 31, 1997 and 1998 and June 30, 1998 and 1999 Together With Auditors' Report REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To SBS Corporation: We have audited the accompanying balance sheets of SBS CORPORATION (an Alabama Corporation) as of December 31, 1997 and 1998 and the related statements of operations, shareholders (deficit) equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of SBS Corporation as of December 31, 1997 and 1998 and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP - ----------------------- Atlanta, Georgia September 6, 1999 SBS CORPORATION BALANCE SHEETS
ASSETS December 31 --------------------- June 30, 1997 1998 1999 --------- --------- -------- (Unaudited) CURRENT ASSETS: Cash $ 27,278 $ 273,962 $ 311,533 Accounts receivable, net of allowance for doubtful accounts of $75,000 and $150,000 as of 1998 and 1999, respectively 926,387 1,955,611 2,404,759 Lease receivable, current 51,341 207,162 291,680 Inventory 466,766 660,706 542,398 Prepaid and other current assets 131,120 218,378 48,605 ---------- ---------- ---------- Total current assets 1,602,892 3,315,819 3,598,975 PROPERTY AND EQUIPMENT, NET 526,464 834,158 883,303 OTHER ASSETS: Loans to officers 605,063 804,079 1,307,409 Lease receivable, net of current portion 81,857 576,402 853,355 Deposits and other long-term assets 30,374 49,780 58,179 ---------- ---------- ---------- Total assets $2,846,650 $5,580,238 $6,701,221 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY CURRENT LIABILITIES: Accounts payable $1,056,007 $ 851,485 $ 875,469 Accrued expenses 226,544 488,595 363,536 Due to affiliate 115,399 50,140 120,924 Notes payable 200,150 432,000 412,000 Customer deposits 204,447 509,527 778,818 Deferred revenue, current 893,289 1,728,692 1,896,794 Long-term debt, current 165,733 84,291 78,931 ---------- ---------- ---------- Total current liabilities 2,861,569 4,144,730 4,526,472 ---------- ---------- ---------- LONG-TERM LIABILITIES: Deferred revenue, net of current portion 92,726 615,962 735,302 Long-term debt, net of current portion 226,158 268,910 221,769 Due to affiliate 0 574,143 921,493 SHAREHOLDERS (DEFICIT) EQUITY Common stock 1,500 1,500 1,500 Additional paid-in capital 174,500 174,500 174,500 Retained earnings (deficit) (509,803) (199,507) 120,185 ---------- ---------- ---------- Total shareholders (deficit) equity (333,803) (23,507) 296,185 ---------- ---------- ---------- Total liabilities and shareholders (deficit) equity $2,846,650 $5,580,238 $6,701,221 ========== ========== ==========
The accompanying notes are an integral part of these balance sheets. SBS CORPORATION STATEMENTS OF OPERATIONS
Years Ended December 31 Six Months Ended June 30 ----------------------- ------------------------ 1997 1998 1998 1999 ---------- ---------- ---------- ---------- (Unaudited) REVENUES: Hardware, license and implementation $7,406,509 $11,876,095 $4,879,773 $6,672,477 Maintenance and service 512,466 676,558 432,284 476,895 ---------- ----------- ---------- ---------- Total revenues 7,918,975 12,552,653 5,312,057 7,149,372 ---------- ----------- ---------- ---------- OPERATING EXPENSES: Costs of hardware, license, implementation, and maintenance 3,936,589 6,377,157 2,429,025 3,242,497 Selling, general and administrative 3,659,667 5,538,981 2,560,176 3,453,183 Depreciation 131,181 166,306 66,674 120,142 ---------- ----------- ---------- ---------- Total operating expenses 7,727,437 12,082,444 5,055,875 6,815,822 ---------- ----------- ---------- ---------- OPERATING INCOME 191,538 470,209 256,182 333,550 INTEREST INCOME (EXPENSE), NET 9,965 (13,879) (2,808) 11,110 OTHER INCOME (EXPENSE), NET 18 166,208 (2,509) (24,968) ---------- ----------- ---------- ---------- NET INCOME BEFORE PROFORMA INCOME TAX PROVISION 201,521 622,538 250,865 319,692 ---------- ----------- ---------- ---------- PRO FORMA INCOME TAX PROVISION 76,577 236,564 95,329 121,483 ---------- ----------- ---------- ---------- PRO FORMA NET INCOME $ 124,944 $ 385,974 $ 155,536 $ 198,209 ========== =========== ========== ==========
The accompanying notes are an integral part of these statements. SBS CORPORATION STATEMENTS OF SHAREHOLDERS (DEFICIT) EQUITY
Additional Shareholders Capital Paid-In Equity Stock Capital (Deficit) Total --------- ---------- ------------ ------- BALANCE, December 31, 1996 $1,500 $174,500 $(431,324) $(255,324) Net income 0 0 201,521 201,521 Distributions to shareholders 0 0 (280,000) (280,000) ------ -------- --------- --------- BALANCE, December 31, 1997 1,500 174,500 (509,803) (333,803) ------ -------- --------- --------- Net income 0 0 622,538 622,538 Distributions to shareholders 0 0 (312,242) (312,242) ------ -------- --------- --------- BALANCE, December 31, 1998 1,500 174,500 (199,507) (23,507) ------ -------- --------- --------- Net income (unaudited) 0 0 319,692 319,692 ------ -------- --------- --------- BALANCE, June 30, 1999 (unaudited) $1,500 $174,500 $ 120,185 $ 296,185 ====== ======== ========= =========
The accompanying notes are an integral part of these statements. SBS CORPORATION STATEMENTS OF CASH FLOWS
Years Ended December 31 Six Months Ended June 30 ------------------------- -------------------------- 1997 1998 1998 1999 -------- -------- -------- -------- (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 201,521 $ 622,538 $ 250,865 $ 319,692 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 131,181 166,306 66,674 120,142 Loss on disposal of equipment 82,251 0 0 0 Changes in assets and liabilities: Accounts receivable (625,492) (1,029,224) (258,169) (449,148) Leases receivable 70,963 (650,366) (278,429) (361,471) Inventory (328,577) (193,940) 209,197 118,308 Deferred revenue 111,037 1,358,639 495,196 287,442 Other assets (57,623) (106,664) (68,856) 161,374 Accounts payable and accrued expenses 904,957 57,529 (317,690) (101,075) Customer deposits 27,482 305,080 677,828 269,291 --------- ----------- --------- --------- Net cash provided by operating activities 517,700 529,898 776,616 364,555 --------- ----------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (247,670) (521,153) (329,560) (169,287) Proceeds from sale of equipment 19,350 47,153 0 0 --------- ----------- --------- --------- Net cash used in investing activities (228,320) (474,000) (329,560) (169,287) --------- ----------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Advances from affiliated company, net 2,687 508,884 (87,541) 418,134 Distributions to shareholders (280,000) (312,242) (201,485) 0 Loans to officers (326,250) (199,016) 176,553 (503,330) Proceeds from debt 250,079 531,850 0 0 Repayments of debt (118,593) (338,690) (239,277) (72,501) --------- ----------- --------- --------- Net cash (used in) provided by financing activities (472,077) 190,786 (351,750) (157,697) --------- ----------- --------- --------- NET INCREASE (DECREASE) IN CASH (182,697) 246,684 95,306 37,571 CASH, beginning of period 209,975 27,278 27,278 273,962 --------- ----------- --------- --------- CASH, end of period $ 27,278 $ 273,962 $ 122,584 $ 311,533 ========= =========== ========= =========
The accompanying notes are an integral part of these statements. SBS CORPORATION NOTES TO FINANCIAL STATEMENTS (Information as of June 30, 1999 and for the Six Months Ended June 30, 1998 and 1999 Are Unaudited) 1. ORGANIZATION AND NATURE OF BUSINESS SBS Corporation (an Alabama Corporation) ("SBS" or the "Company") designs, develops, markets, and supports hardware and the related software primarily to community financial institutions located predominantly in the Southeastern region of the United States. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Interim Unaudited Financial Information The financial statements as of June 30, 1999 and for the six months ended June 30, 1998 and 1999 are unaudited; however, in the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the unaudited financial statements for these interim periods have been included. The results of interim periods are not necessarily indicative of the results to be obtained for a full year. Property and Equipment Property and equipment are stated at cost. Major property additions, replacements, and betterments are capitalized, while maintenance and repairs which do not extend the useful lives of these assets are expensed as incurred. The Company provides for depreciation using the straight-line method over the estimated useful lives of the assets. Property, plant, and equipment consisted of the following at December 31, 1997 and 1998 and June 30, 1999: -2-
December 31 ----------------------------- June 30, Useful 1997 1998 1999 Lives ----------- ---------- ---------- --------- Furniture and fixtures $149,720 $ 277,430 $ 294,046 7 years Machinery and equipment 433,257 716,433 867,220 5 years Vehicles 151,050 171,533 132,335 5 years Leasehold improvements 48,492 92,581 95,686 Lease term -------- ---------- ---------- 782,519 1,257,977 1,389,287 Less accumulated depreciation 256,055 423,819 505,984 -------- ---------- ---------- $526,464 $ 834,158 $ 883,303 ======== ========== ==========
Depreciation expense totaled $131,181, $166,306, $66,674, and $120,142 for the years ended December 31, 1997 and 1998 and for the six-month periods (unaudited) ended June 30, 1998 and 1999, respectively. Product Development Costs Software research and development costs and maintenance costs related to software development are expensed as incurred. Revenue Recognition The Company's revenue is generated from the installation and licensing of its products. Customers are billed license and ongoing maintenance fees in advance for the following twelve months. The Company sells certain of its products under five year, sales-type lease agreements through which the customers pay five equal advance payments. These leases incorporate the initial installation and ongoing license for five years. Those customers that do not enter into sale-type lease agreements are billed according to the approach discussed above. Revenue from software license fees in 1997 was recognized in accordance with the provisions of the American Institute of Certified Public Accountants ("AICPA") Statement of Position ("SOP") No. 91-1, "Software Revenue Recognition." Effective from the beginning of 1998, the revenue from software license fees was recognized in accordance with AICPA SOP No. 97-2, "Software Revenue Recognition." Revenue recognition under SOP No. 91-1 and SOP No. 97-2 was not significantly different. Revenue is recognized on billings to customers who are charged a hardware and installation fee upon installation of the system with license and maintenance fees recognized over the term of the license and maintenance period, typically one year. Revenue for all lease agreements, with the exception of revenue attributable to equipment, which is recognized upon installation, has been deferred and recognized ratably over the period of the lease. Deferred Revenues Deferred revenues represent the liability for amounts billed prior to complete performance on maintenance contracts, for advanced billings related to software license fees and for hardware, software, installation and continuing license fees financed through sales-type leases (Note 3). -3- Returns and Product Warranty The Company provides for the costs of returns and product warranty claims when specific problems are identified. The Company has not experienced significant returns or warranty claims to date. Fair Value Financial Instruments The fair value of instruments classified as current assets or liabilities, including accounts receivable approximate carrying value due to the short- term maturity of the instruments. Long-Lived Assets The Company periodically reviews the values assigned to long-lived assets to determine if any impairments have occurred. Management believes that the long-lived assets on the accompanying balance sheets are appropriately valued. Inventory Inventory consists of finished goods comprised of hardware purchased for customer product installations which were in progress at year end. Inventory is carried at the lower of market or cost as determined by the first-in, first-out method. Income Taxes The Company elected S corporation status for federal and state income tax purposes as of February 1, 1992, whereby profits, losses and credits are taxed to the shareholders. Accordingly, no provision for income taxes is reflected in the accompanying financial statements. The statements of operations reflect pro forma income taxes of $76,577, $263,564, $95,329, and $121,483 for the years ended December 31, 1997 and 1998 and the six-month periods ended June 30, 1998 and 1999, respectively, as if the Company were subject to income tax. The difference between the pro forma income tax provision and the amount computed by applying the statutory federal income tax rate to the net income for the period is due to nondeductible expenses incurred during each period. Comprehensive Income Comprehensive income for the years ended December 31, 1997 and 1998 and the six-month periods ended June 30, 1998 and 1999 is the same as the net income presented in the accompanying statements of operations. New Accounting Pronouncements In June of 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities. -4- It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Statement is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. The statement is not expected to have a significant impact on the Company's financial statements. 3. MINIMUM LEASE PAYMENTS RECEIVABLE All of the leases are classified as sales-type leases. At December 31, 1998, future of minimum lease payments receivable under non- cancelable leases, are as follows: Year ending December 31: 1999 $ 271,056 2000 242,556 2001 214,196 2002 208,256 2003 3,540 Thereafter 3,160 --------- Total minimum lease payments receivable 942,764 Less amount representing interest (159,200) --------- Present value of net minimum lease payments receivable 783,564 Less current maturities of lease payments receivable (207,162) --------- Capital lease payments receivable $ 576,402 ========= 4. LONG-TERM DEBT Long-term debt consists of the following obligations:
December 31 June 30, ------------------------ --------- 1997 1998 1999 -------- -------- --------- Note payable to a bank fully paid in 1998 $ 18,043 $ 0 $ 0 Note payable to a bank fully paid in 1999 57,255 8,530 0 Note payable to a bank due in monthly installments of $1,024, including interest at 7.75%, through July 2001; secured by a vehicle 38,348 28,665 23,580 Note payable to a bank due in monthly installments of $6,173, including interest at the bank's index rate (7.75% at December 31, 1998) through September 2003; secured by equipment and certificates of deposit 0 287,581 255,071
-5-
December 31 June 30, ------------------------ --------- 1997 1998 1999 -------- -------- --------- Note payable to a bank due in monthly installments of $1,245, including interest at 8.5% through December 2000. The note is secured by a vehicle $ 40,394 $ 28,425 $ 22,049 Note payable to a bank due in monthly installments of $7,967, including interest at 9%; secured by accounts receivable, inventory, and real estate owned by related parties 237,851 0 0 -------- -------- -------- 391,891 353,201 300,700 Less current portion 165,733 84,291 78,931 -------- -------- -------- Total long-term debt $226,158 $268,910 $221,769 ======== ======== ========
Notes payable at December 31, 1997 consisted of a demand note payable to a bank, with an outstanding balance of $200,150 that matured and was paid on October 31, 1998. The note was collateralized by guarantees of the stockholders of the Company and the pledge of certain assets of an affiliated company. The Company also has an unsecured revolving credit agreement with a bank with a maximum borrowing of $500,000 and interest payable quarterly at the bank's index rate, which was 8.5% at December 31, 1998. The outstanding balance at December 31, 1997 and 1998 and June 30, 1999 were $0, $432,000 and $412,000, respectively. The anticipated principal maturities of long-term debt for the years subsequent to December 31, 1998 are as follows: Year ending: 1999 $ 84,291 2000 83,452 2001 68,618 2002 66,935 2003 49,905 -------- Total $353,201 ======== -6- 5. OPERATING LEASES Future minimum payments, by year and in the aggregate, under noncancelable operating leases consist of the following at December 31, 1998. Year ending: 1999 $ 286,082 2000 280,753 2001 270,000 2002 257,500 2003 20,000 ---------- Total $1,114,335 ========== 6. LAWSUIT SETTLEMENT During 1998, the Company, as plaintiff, settled a lawsuit and received $250,000. This settlement is included in other income in the statement of operations. The Company incurred approximately $113,000 in legal expenses in relation to this settlement. These legal fees are included in selling, general and administrative in the statement of operations 7. RELATED-PARTY TRANSACTIONS SBS rents certain office space in Birmingham, Alabama, from a related party. The Company incurred expense of approximately $97,000, $142,000, $48,500, and $72,000 for the years ended December 31, 1997 and 1998 and the six months ended June 30, 1998 and 1999, respectively. The Company provides administrative services to an affiliated company under common ownership. The affiliated company paid management fees totaling $180,000, $189,500, $90,000 and $145,200 for the years ending December 31, 1997 and 1998 and for the six-month periods ended June 30, 1998 and 1999, respectively. These management fees are the estimated allocation of shared overhead expenses. The affiliated company loaned SBS approximately $574,000 during 1998 for working capital purposes. Loans to officers consist of revolving notes signed by each shareholder that bear interest at 7%. The affiliated company pledged $205,000 of cash equivalents, consisting of two certificates of deposit as collateral for a bank loan. 8. EMPLOYEE BENEFITS The Company maintains a defined contribution 401(k) benefit plan which covers substantially all employees, subject to certain minimum age and service requirements. Under the plan, employees may elect to defer up to ten percent of their salary, subject to -7- Internal Revenue Code limits. The Company matches one hundred percent of the first six percent of the employees contributions. In addition, the plan allows for the Company to make discretionary contributions based on the participants' salary. The Company made contributions to the plan of $162,210, $117,325, $50,402, and $71,321 for the years ended December 31, 1998 and 1997 and the six months ended June 30, 1998 and 1999, respectively. 9. SUBSEQUENT EVENTS On August 6, 1999, SBS was acquired by NetZee, Inc. ("NetZee") a subsidiary of The Intercept Group, Inc. for approximately 2,600,000 shares of common stock of NetZee, $16,600,000 in cash and the assumption of approximately $4,900,000 in bank debt of SBS incurred in August of 1999. NetZee immediately transferred the non internet and telephone banking business to The InterCept Group, Inc. for 450,000 shares of NetZee. These acquisitions have been accounted for as a purchase in accordance with Accounting Principles Board ("APB") Opinion No. 16 "Business Combinations." EX-99.3 4 UNAUDITED PRO FORMA EXHIBIT 99.3 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS In this section, we have provided you with our unaudited pro forma condensed consolidated financial statements as of and for the six months ended June 30, 1999 and for the year ended December 31, 1998. This financial information gives effect to the following events as if they occurred (a) on June 30, 1999 for the balance sheet and (b) at the beginning of the period presented for each of the statements of operations: . Our acquisitions of Item Processing of America, the operations of Advance Data, and the data processing business of Nova Financial Corporation in 1998; . Our acquisition of Direct Access in March 1999; . Our acquisition of L.E. Vickers & Associates and Data Equipment Services in May 1999; . Our acquisition of SBS Data and, through Direct Access, SBS Corp. in August 1999; . Our transfer of 450,000 shares of Direct Access common stock in exchange for the non-remote banking operations of SBS Corp. in August 1999; . Our creation of Netzee in August 1999; . Our recording of compensation expense related to equity securities issued by Direct Access below fair market value in August 1999; . Netzee's merger with Direct Access in September 1999; . Netzee's acquisition of the Internet banking operations of TIB The Independent BankersBank and The Bankers Bank in September 1999; . Netzee's acquisition of Call Me Bill in September 1999; . Netzee's acquisition of Dyad in September 1999; and . The deconsolidation of the operations of Netzee from our operations effective September 3, 1999. We acquired Direct Access in a transaction that was initially accounted for as a pooling of interest. Due to the subsequent transactions involving Netzee listed above, we restated our financial statements to account for this transaction as a purchase. Our historical financial statements therefore include the operations of Direct Access only from the date of purchase. Because Direct Access merged with Netzee, all references to Netzee in the accompanying notes include actions taken by Direct Access prior to the merger. Due to Netzee's issuance of common stock in connection with several of the above transactions, our ownership percentage in Netzee decreased to approximately 49% as of September 3, 1999. As a result, we no longer include the results of operations of Netzee in our consolidated financial statements. After September 3, 1999, we account for our investment in Netzee under the equity method, which requires us to record the operations of Netzee in a single line item in our statement of operations titled "net loss in unconsolidated subsidiary." Because we are currently funding the operations of Netzee, all of the losses of Netzee will be included in our statement of operations, rather than our relative percentage of those losses. When our funding of the operations of Netzee is complete, we will record only our relative percentage of the net losses of Netzee. In August 1999, Netzee issued stock options to management at exercise prices below the fair market value of its common stock on the date of grant. Total deferred compensation recorded for the issuance of these options was approximately $1.5 million. Because we owned the majority of the common stock of Netzee at the time these options were granted, we have recognized compensation expense of approximately $608,000. Netzee will recognize as compensation expense the remaining $892,000 in deferred compensation over the remaining vesting period of the options. We based our unaudited pro forma condensed consolidated financial statements on our audited consolidated financial statements and the audited financial statements of the acquired entities for the year ended December 31, 1998 and on our unaudited financial statements and those of the acquired entities as of and for the six months ended June 30, 1999. The pro forma adjustments for the events described above are described in the accompanying notes. Our unaudited pro forma condensed consolidated statements of operations do not include any adjustments for potential savings or other improvements and do not purport to represent what our combined results of operations or financial position would actually have been if any of the above events had occurred as described above. You should not rely on the pro forma statements of operations as being representative of our future results of operations. The InterCept Group, Inc. Unaudited Pro Forma Condensed Consolidated Balance Sheet As of June 30, 1999 (In thousands)
TIB The The SBS SBS Independent Bankers Call Me Acquisition Deconsolidation InterCept Corp. Data BankersBank Bank Bill Dyad Adjustments Total Adjustments Pro Forma Assets --------- ------ ------ ----------- ------- ------- ------ ----------- -------- --------------- --------- Cash and cash equivalents..... $ 2,443 $ 312 $ 691 $ -- $ -- $ 23 $ 19 $ 100 (a) $ 3,588 $ (454)(f) $ 3,134 Accounts receivable, net............. 4,214 2,404 1,759 116 156 114 22 (1,134)(b) 7,651 (607)(f) 7,044 Investment in unconsolidated subsidiary...... -- -- -- -- -- -- -- -- -- 35,364 (f) 35,364 Inventories, prepaid expenses and other........... 2,595 883 17 32 705 5 -- -- 4,237 (1,090)(f) 3,147 Deferred income tax asset....... 103 -- -- -- -- -- -- -- 103 -- 103 Property and equipment, net............. 9,257 883 447 30 284 148 19 -- 11,068 (1,394)(f) 9,674 Deferred expenses........ -- -- 172 -- 182 -- -- -- 354 (182)(f) 172 Deferred financing costs........... -- -- -- -- -- -- 6,076 (6,076)(c) -- -- Intangible assets, net..... 12,731 -- -- -- -- -- 90 30,953 (a) 91,534 (71,219)(f) 20,315 13,613 (c) 3,325 (d) (90)(c) 9,378 (b) Note receivable from unconsolidated subsidiary...... -- -- -- -- -- -- -- 21,534 -- 29,566 (h) 29,566 Other noncurrent assets.......... 612 2,218 1,361 645 645 -- 8 (2,228)(b) 3,261 (2,042)(f) 1,219 ------- ------ ------ ----- ------ ----- ------ ------- -------- -------- -------- Total assets.... $31,955 $6,700 $4,447 $ 823 $1,972 $ 290 $6,234 $69,375 $121,796 $(12,058) $109,738 ======= ====== ====== ===== ====== ===== ====== ======= ======== ======== ======== Liabilities and shareholders' equity Notes payable, current......... $ 860 $ 491 $ 66 $ -- $ -- $ -- $ 424 $ (424)(c) $ 860 $ -- $ 860 (491)(b) (66)(b) Accounts payable and accrued liabilities..... 3,223 2,138 229 713 76 49 116 -- 6,544 (1,114)(f) 5,430 Deferred revenue......... 1,151 1,896 2,372 57 251 278 -- -- 6,005 (2,076)(f) 3,929 Due to parent.... -- -- -- 816 2,494 -- -- (816)(a) -- -- -- (2,494)(a) Notes payable, long-term....... 157 222 93 -- -- -- 1,632 (1,632)(c) 28,973 -- 28,973 21,534 (b) 2,882 (d) 4,400 (c) (222)(b) (93)(b) Other long-term liabilities..... -- 1,657 505 -- -- -- -- (921)(b) 1,241 -- 1,241 Deferred tax liability....... 259 -- -- -- -- -- -- 259 12,712 (f) 12,971 Minority interest........ 115 -- -- -- -- -- -- 115 -- 115 Warrants with redemption feature......... -- -- -- -- -- -- 10,731 (10,731)(c) -- -- -- Redeemable common stock.... -- -- -- -- -- -- -- 29,900 (b) -- -- -- (29,900) Deferred compensation.... -- -- -- -- -- -- -- (11,398)(e) (11,398) 11,398 (g) -- Subscription receivable...... -- -- -- -- -- -- (5) 5 (c) -- -- -- Common stock..... 25,071 176 201 -- -- 650 1,937 (1,937)(c) 88,078 (53,720)(f) 55,708 (650)(d) 18,997 (f) (176)(b) (7,219)(f) 32,752 (a) 608 (g) 9,165 (c) 11,398 (e) 406 (d) 9,286 (b) (201)(b) Preferred stock........... -- -- -- -- -- -- -- -- -- -- -- Accumulated other comprehensive income.......... 212 -- -- -- -- -- -- -- 212 -- 212 Accumulated deficit......... 907 120 981 (763) (849) (687) (8,601) (120)(b) 907 (608)(g) 299 849 (a) 14,457 (f) 763 (a) (5,493)(f) 8,601 (c) 687 (d) (981)(b) ------- ------ ------ ----- ------ ----- ------ ------- -------- -------- -------- Total liabilities and shareholder's equity......... $31,955 $6,700 $4,447 $ 823 $1,972 $ 290 $6,234 $69,375 $121,796 $(12,058) $109,738 ======= ====== ====== ===== ====== ===== ====== ======= ======== ======== ========
The InterCept Group, Inc. Unaudited Pro Forma Condensed Consolidated Statement of Operations For the six months ended June 30, 1999 (In thousands, except per share data)
L.E. Vickers & Associates, Inc. TIB and Data The The Equipment Direct SBS Independent Bankers Call Me Acquisition InterCept Services, Inc. Access Corp. SBS Data BankersBank Bank Bill Dyad Adjustments Total --------- -------------- ------ ------ -------- ----------- ------- ------- ------- ----------- -------- Revenues......... $18,664 $1,599 $114 $7,149 $2,591 $ 336 $ 236 $ 165 $ 103 $ -- $ 30,957 ------- ------ ---- ------ ------ ----- ----- ----- ------- -------- Costs of services........ 7,202 571 44 3,242 636 250 232 24 55 -- 12,256 Selling, general and administrative expenses........ 7,083 665 62 3,453 1,333 310 382 335 423 608 (t) 14,654 Depreciation and amortization.... 1,109 123 2 120 52 7 14 13 49 113 (i) 17,962 57 (j) 7,600 (k) 302 (l) 147 (m) 5,400 (n) 2,300 (o) 554 (p) ------- ------ ---- ------ ------ ----- ----- ----- ------- -------- -------- Total operating expenses....... 15,394 1,359 108 6,815 2,021 567 628 372 527 17,081 44,872 ------- ------ ---- ------ ------ ----- ----- ----- ------- -------- -------- Operating income (loss).......... 3,270 240 6 334 570 (231) (392) (207) (424) (17,081) (13,915) Interest expense......... (14) -- (3) -- (10) -- -- -- (906) 1,100 (q) 661 1,400 (r) (906)(s) Other income, net............. 77 -- -- (14) 28 109 -- -- 4 -- 204 ------- ------ ---- ------ ------ ----- ----- ----- ------- -------- -------- Income (loss) before net loss in unconsolidated subsidiary, provision (benefit) for income taxes and minority interest........ 3,333 240 3 320 588 (122) (392) (207) (1,326) (15,487) (13,050) Net loss in unconsolidated subsidiary...... -- -- -- -- -- -- -- -- -- -- -- Provision (benefit) for income taxes.... 1,272 91 -- 121 221 -- -- -- -- (2,731)(v) (1,026) Minority interest in (income) loss of consolidated subsidiary...... (58) -- -- -- -- -- -- -- -- -- (58) ------- ------ ---- ------ ------ ----- ----- ----- ------- -------- -------- Net income (loss) ................ $ 2,003 $ 149 $ 3 $ 199 $ 367 $(122) $(392) $(207) $(1,326) $(12,756) $(12,082) ======= ====== ==== ====== ====== ===== ===== ===== ======= ======== ======== Pro forma basic and diluted loss per common share........... Pro forma basic and diluted weighted average common shares outstanding..... Deconsolidation Pro Adjustments Forma ---------------- --------- Revenues......... $ (2,202)(w) $ 28,755 ---------------- --------- Costs of services........ (866)(w) 11,390 Selling, general and administrative expenses........ (2,847)(w) 11,807 Depreciation and amortization.... (16,119)(w) 1,688 (155)(w) ---------------- --------- Total operating expenses....... (19,987) 24,885 ---------------- --------- Operating income (loss).......... 17,785 (w) 3,870 Interest expense......... -- 661 Other income, net............. (165)(w) 39 ---------------- --------- Income (loss) before net loss in unconsolidated subsidiary, provision (benefit) for income taxes and minority interest........ 17,620 4,570 Net loss in unconsolidated subsidiary...... (17,620)(w) (17,620) Provision (benefit) for income taxes.... -- (1,026) Minority interest in (income) loss of consolidated subsidiary...... -- (58) ---------------- --------- Net income (loss) ................ $ -- $(12,082) ================ ========= Pro forma basic and diluted loss per common share........... $ (1.20) ========= Pro forma basic and diluted weighted average common shares outstanding..... 10,104 =========
The InterCept Group, Inc. Unaudited Pro Forma Condensed Consolidated Statement of Operations For the year ended December 31, 1998 (in thousands, except per share data)
L.E. Vickers & Associates, Inc. TIB The Item and Data Indepen- Process- Advance Nova Equipment dent The ing of Data Financial Services, Direct SBS SBS Bankers Bankers Call Me InterCept America Partnership Corporation Inc. Access Corp. Data Bank Bank Bill Dyad --------- ------- ----------- ----------- ----------- ------ ------- ------ -------- ------- ------- ------- Revenues......... $28,902 $865 $893 $ 661 $3,853 $ 591 $12,553 $4,229 $ 432 $ 77 $ 62 $ 505 ------- ---- ---- ----- ------ ----- ------- ------ ----- ----- ----- ------- Costs of services........ 12,031 470 190 567 1,516 466 6,377 960 434 113 28 409 Selling, general and administrative expenses........ 11,222 236 475 176 2,087 442 5,539 2,248 508 416 378 1,688 Depreciation and amortization.... 1,337 12 75 98 278 15 166 152 7 5 23 137 Asset impairment...... -- -- -- -- -- -- -- -- -- -- -- 143 ------- ---- ---- ----- ------ ----- ------- ------ ----- ----- ----- ------- Total operating expenses....... 24,590 718 740 841 3,881 923 12,082 3,360 949 534 429 2,377 ------- ---- ---- ----- ------ ----- ------- ------ ----- ----- ----- ------- Operating income.......... 4,312 147 153 (180) (28) (332) 471 869 (517) (457) (367) (1,872) Interest expense......... (345) (1) (2) (78) -- (20) (14) (12) -- -- 1 (1,679) Other income, net............. 161 -- -- -- -- -- 166 31 54 -- -- -- ------- ---- ---- ----- ------ ----- ------- ------ ----- ----- ----- ------- Income (loss) before net loss in unconsolidated subsidiary, provision (benefit) for income taxes and minority interest........ 4,128 146 151 (258) (28) (352) 623 888 (463) (457) (366) (3,551) Net loss in unconsolidated subsidiary...... -- -- -- -- -- -- -- -- -- -- -- -- Provision (benefit) for income taxes.... 1,564 -- 58 -- (9) -- 237 329 -- -- -- -- Minority interest in income (loss) of consolidated subsidiary...... (89) -- -- -- -- -- -- -- -- -- -- -- ------- ---- ---- ----- ------ ----- ------- ------ ----- ----- ----- ------- Net income (loss) before preferred dividends....... 2,475 146 93 (258) (19) (352) 386 559 (463) (457) (366) (3,551) Preferred dividends....... (16) -- -- -- -- -- -- -- -- -- -- -- ------- ---- ---- ----- ------ ----- ------- ------ ----- ----- ----- ------- Net income (loss) attributable to common shareholders.... $ 2,459 $146 $ 93 $(258) $ (19) $(352) $ 386 $ 559 $(463) $(457) $(366) $(3,551) ======= ==== ==== ===== ====== ===== ======= ====== ===== ===== ===== =======
Acquisition Deconsolidation Pro Adjustments Total Adjustments Forma ----------- -------- --------------- -------- Revenues................ $ -- $ 53,623 $ (3,115)(w) $ 50,508 -------- -------- -------- -------- Costs of services....... -- 23,561 (1,664)(w) 21,897 Selling, general and administrative expenses............... 608 (t) 26,023 (4,869)(w) 21,154 Depreciation and amortization........... 340 (j) 35,701 (32,605)(w) 3,096 272 (i) 186 (u) 604 (l) 15,300 (k) 294 (m) 10,800 (n) 4,500 (o) 1,100 (p) Asset impairment........ -- 143 -- 143 -------- -------- -------- --- -------- Total operating expenses.............. 34,004 85,428 (39,138) 46,290 -------- -------- -------- --- -------- Operating income........ (34,004) (31,805) 36,023 (w) 4,218 Interest expense........ (2,200)(q) 210 -- 210 1,679 (s) 81 (u) Other income, net....... 2,800 (r) 412 (302)(w) 110 -------- -------- -------- --- -------- Income (loss) before net loss in unconsolidated subsidiary, provision (benefit) for income taxes and minority interest............... (31,644) (31,183) 35,721 4,538 Net loss in unconsolidated subsidiary............. -- -- (35,721) (35,721) Provision (benefit) for income taxes........... (6,163)(v) (3,984) -- (3,984) Minority interest in (income) loss of consolidated subsidiary............. -- (89) -- (89) -------- -------- -------- --- -------- Net income (loss) before preferred dividends.... (25,481) (27,288) -- (27,288) Preferred dividends..... -- (16) -- (16) -------- -------- -------- --- -------- Net income (loss) attributable to common shareholders........... $(25,481) $(27,304) $ -- $(27,304) ======== ======== ======== === ======== Pro forma basic and diluted net loss per common share........... $ (3.04) === ======== Pro forma basic and diluted weighted average common shares outstanding............ 8,975
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Notes to Balance Sheet The acquisitions adjustments column shows those adjustments necessary to reflect the transactions as if they had occurred on June 30, 1999. (a) Reflects the issuance of common stock and stock options of Netzee and the recording of intangible assets associated with Netzee's acquisition of the Internet banking divisions of TIB The Independent BankersBank and The Bankers Bank. The purchase price included 2,722,000 shares of Netzee common stock valued at $11.50 per share, options to purchase 50,000 shares of common stock of Netzee granted to management of TIB The Independent BankersBank and The Bankers Bank, and 76,000 shares of Netzee common stock sold to a third party for $100,000. The options were issued to individuals who were members of management at TIB The Independent BankersBank and The Bankers Bank who would not be employees of Netzee after the acquisition. The options were valued at approximately $575,000. The $774,000 difference between the fair value of the common stock sold to a third party and its purchase price has been included in the total purchase price for the acquisition, which was approximately $32.7 million. The excess of the purchase price over net tangible assets was allocated to the following:
Amortization Allocation Period ----------- ------------ Workforce........................................... $ 330,000 3 years Contracts in progress............................... $ 150,000 3 years Marketing agreement................................. $ 3,056,000 2 years Acquired technology................................. $27,417,000 3 years
(b) Reflects the issuance of our stock and the stock of Netzee, the payment of cash and the recording of intangible assets associated with the purchase of SBS Corp. and SBS Data. In exchange for all of the shares of SBS Corp., Netzee issued 2,600,000 shares of its common stock, valued at $11.50 per share, and paid cash of approximately $16.6 million to the shareholders of SBS Corp. Netzee also repaid approximately $4.9 million of SBS Corp. debt. The former shareholders of SBS Corp. have the right to put the shares back to Netzee at $11.50 per share if Netzee does not complete an initial public offering by August 6, 2001. To enable Netzee to complete this transaction, we borrowed $21.6 million under our line of credit and loaned those funds to Netzee. Netzee then transferred the non-Internet and telephone banking assets of SBS Corp. to us in exchange for 450,000 shares of Netzee common stock held by us. The purchase price of SBS Data included 192,307 shares of our common stock with a fair market value of $21.38 per share. The excess of the purchase price over the net tangible assets was allocated to the following:
Amortization Allocation Period ----------- ------------ Workforce........................................... $ 740,000 3 years Contracts in progress............................... $ 2,140,000 4-5 years Acquired technology................................. $44,402,000 3 years Goodwill............................................ $ 8,187,000 10-20 years
(c) Reflects the issuance of common stock of Netzee, the payment of cash and the recording of intangible assets associated with the acquisition of Dyad. The purchase price of Dyad included 618,137 shares of Netzee common stock valued at $11.50 per share and approximately $900,000 in cash. Netzee also repaid approximately $3.5 million in debt of Dyad. To enable Netzee to complete this transaction, we borrowed $4.4 million under our line of credit and loaned those funds to Netzee. Dyad had warrants outstanding which were exercised prior to the acquisition. Therefore, all historical balances related to the warrants were removed in the pro forma adjustments. The excess of the purchase price over the net tangible assets was allocated to the following:
Amortization Allocation Period ----------- ------------ Workforce........................................... $ 70,000 3 years Acquired technology and goodwill.................... $13,543,000 3 years
(d) Reflects the payment of cash and the recording of intangible assets associated with the acquisition of Call Me Bill. The purchase price of Call Me Bill was approximately $3.3 million in cash. To enable Netzee to complete this transaction, we borrowed $2.9 million under our line of credit and loaned those funds to Netzee. The excess of the purchase price over the net assets acquired was allocated to goodwill and acquired technology and will be amortized over three years. (e) Reflects the recording of deferred compensation of approximately $11.4 million for stock options issued to management in August and September 1999 by Netzee below fair market value. The deconsolidation adjustments column shows those adjustments necessary to reflect the transactions as if they had occurred on June 30, 1999. (f) Reflects the elimination of the assets and liabilities of Netzee and its acquired entities and the establishment of our investment in unconsolidated subsidiary as our ownership percentage in Netzee was reduced to approximately 49%. We will account for our investment in Netzee under the equity method and will record the operating income and losses of Netzee in a single line item in our statement of operations. Because we are currently funding the operations of Netzee, all of the losses of Netzee will be included in our statement of operations, rather than our relative percentage of those losses. When our funding of the operations of Netzee is complete, we will record only our relative percentage of the net losses of Netzee. As a result of the reduction in our percentage ownership of Netzee, we have recognized gains in accordance with Staff Accounting Bulletin No. 51 related to the increases in our percentage of the net equity of Netzee. This gain totaled approximately $33.4 million, or approximately $20.9 million after taxes, and has been recorded as an increase in additional paid-in capital. (g) As noted in (e) above, Netzee issued stock options to management in August and September 1999 at below fair market value. The total compensation expense recorded by InterCept and Netzee before our ownership percentage decreased to 49% was approximately $608,000, which is included as a reduction of retained earnings and an addition to additional paid-in capital in the accompanying pro forma balance sheet. (h) Reflects the establishment of the note payable to First Union for the borrowings under our line of credit for the acquisitions noted above and the related receivables from Netzee of approximately $28.8 million, and funding of Netzee from inception of approximately $750,000. Notes to Statements of Operations The acquisitions column shows those adjustments necessary to reflect the transactions as if they occurred on January 1, 1998. (i) Reflects the additional amortization of intangible assets recognized upon the acquisition of L.E. Vickers & Associates and Data Equipment Services of approximately $113,000 for the six months ended June 30, 1999 and approximately $272,000 for the year ended December 31, 1998. Amortization was calculated on a straight line basis over the estimated useful lives of the intangible assets of 5 to 20 years. (j) Reflects the additional amortization of intangible assets recognized upon the acquisition of Netzee of approximately $57,000 for the six months ended June 30, 1999 and approximately $340,000 for the year ended December 31, 1998. Amortization was calculated on a straight line basis over the estimated useful lives of the intangible assets of five years. (k) Reflects the additional amortization of intangible assets recognized upon Netzee's acquisition of the Internet and telephone banking operations of SBS Corp. of approximately $7.6 million for the six months ended June 30, 1999 and approximately $15.3 million for the year ended December 31, 1998. Amortization was calculated on a straight line basis using the estimated lives indicated in (b). (l) Reflects the additional amortization of intangible assets recognized upon our acquisition of the non-Internet and telephone banking operations of SBS Corp. of approximately $302,000 for the six months ended June 30, 1999 and approximately $604,000 for the year ended December 31, 1998. The Non-Internet and telephone banking operations of SBS Corp. were valued at approximately $5.2 million, which we paid for by transferring to Netzee 450,000 shares of Netzee common stock valued at $11.50 per share. Amortization expense will be recorded on a straight line basis over the estimated useful lives of the intangible assets of 3 to 10 years. (m) Reflects the additional amortization of intangible assets recognized upon our acquisition of SBS Data of approximately $147,000 for the six months ended June 30, 1999 and approximately $294,000 for the year ended December 31, 1998. Amortization expense will be recorded on a straight line basis over the estimated useful lives of the intangible assets of 3 to 20 years. (n) Reflects the additional amortization of the intangible assets recognized upon the acquisition by Netzee of TIB The Independent BankersBank and The Bankers Bank of approximately $5.4 million for the six months ended June 30, 1999 and approximately $10.8 million for the year ended December 31, 1998. Amortization was calculated on a straight line basis over the estimated useful lives indicated in (a). (o) Reflects the additional amortization of the intangible assets recognized upon the acquisition by Netzee of Dyad of approximately $2.3 million for the six months ended June 30, 1999 and approximately $4.5 million for the year ended December 31, 1998. Amortization was calculated on a straight line basis over the estimated useful lives indicated in (c). (p) Reflects the additional amortization of intangible assets recognized upon the acquisition by Netzee of Call Me Bill of approximately $554,000 for the six months ended June 30, 1999 and approximately $1.1 million for the year ended December 31, 1998. Amortization was calculated on a straight line basis over the estimated useful lives indicated in (d). (q) Reflects the additional interest expense on the additional amounts borrowed under the line of credit with First Union in connection with the acquisition of SBS Corp., Dyad and Call Me Bill of approximately $1.1 million for the six months ended June 30, 1999 and approximately $2.2 million for the year ended December 3, 1998. These amounts bear interest at approximately 7.5% per year. (r) Reflects the additional interest income from the notes receivable from Netzee of approximately $1.4 million for the six months ended June 30, 1999 and approximately $2.8 million for the year ended December 31, 1998. The interest rate on these notes is approximately 10.25% per year. (s) Reflects the elimination of the interest expense on the warrants and the debt at Dyad of approximately $906,000 for the six months ended June 30, 1999 and approximately $1.7 million for the year ended December 31, 1998. (t) Reflects the recording of approximately $608,000 of compensation expense for options issued to management of Netzee in August 1999 at exercise prices below the fair market value of the common stock of Netzee. (u) Reflects the additional amortization of intangible assets recognized upon the acquisition of Item Processing of America and the acquisition of the operations of Advance Data and Nova Financial Corporation's data processing business of approximately $186,000 for the year ended December 31, 1998, and the removal of interest expense for these transactions of approximately $81,000 for the year ended December 31, 1998. (v) Reflects the adjustment to the income tax provision benefit assuming a 38% tax rate for the six months ended June 30, 1999 and the year ended December 31, 1998. The amortization expenses associated with the acquisitions of SBS Corp., SBS Data, and Dyad are non-deductible for tax purposes. The deconsolidation column shows the adjustments necessary to reflect the transactions as if they occurred on January 1, 1998. (w) Reflects the elimination of the operations of Netzee and its acquired entities and the recording of the losses of Netzee in a single line item as our ownership percentage was reduced to approximately 49%. We will account for our investment in Netzee under the equity method and will record the operating income and losses of Netzee in a single line item in our statement of operations. Because we are currently funding the operations of Netzee, all of the losses of Netzee will be included in our statement of operations, rather than our relative percentage of those losses. When our funding of the operations of Netzee is complete, we will record our percentage of the net losses of Netzee. As a result of the reduction in our percentage of Netzee, we have recognized gains in accordance with Staff Accounting Bulletin No. 51 related to the increases in our percentage of the net equity of Netzee. This gain totaled approximately $33.4 million, or approximately $20.9 million after taxes, and has not been recorded in the statements of operations due to the non- recurring nature of these items. -----END PRIVACY-ENHANCED MESSAGE-----