-----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, VrZ8uhO9h7q1O3LFI1tpuJBEEKiVdK4zBSyB9ZYbot0abyuROTZCRCamdBarSK4c 9eGzu5Ns4hZi2AVQCEBrjA== 0000931763-00-001262.txt : 20000515 0000931763-00-001262.hdr.sgml : 20000515 ACCESSION NUMBER: 0000931763-00-001262 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000512 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: 10-Q SEC ACT: SEC FILE NUMBER: 001-14213 FILM NUMBER: 626947 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 10-Q 1 FORM 10-Q ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000. Or [ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______________ TO____________, 19_____. Commission file number : 01-14213 ---------------------- The InterCept Group, Inc. (Exact name of registrant as specified in its charter) Georgia 58 - 2237359 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 3150 Holcomb Bridge Road, Suite 200, Norcross, Georgia 30071 (Address of principal executive offices) (770) 248-9600 (Registrant's telephone number including area code) N/A (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at May 5, 2000 Common Stock, no par value 12,821,601 (No. of Shares) ================================================================================ THE INTERCEPT GROUP, INC. INDEX TO FORM 10-Q
PAGE --------- PART I FINANCIAL INFORMATION 3 Item 1. Financial Statements 3 Condensed Consolidated Balance Sheets as of 3 March 31, 2000 and December 31, 1999 Condensed Consolidated Statements of Operations for 4 the Three Months ended March 31, 2000 and 1999 Condensed Consolidated Statements of Cash Flows for 5 the Three Months ended March 31, 2000 and 1999 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial 9 Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosure About 13 Market Risk PART II OTHER INFORMATION 15 Item 1. Legal Proceedings 15 Item 2. Changes in Securities and Use of Proceeds 15 Item 3. Defaults upon Senior Securities 15 Item 4. Submission of Matters to a Vote of Security Holders 15 Item 5. Other Information 15 Item 6. Exhibits and Reports on Form 8-K 15 SIGNATURES 17 EXHIBIT INDEX 17
2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements
The InterCept Group, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (in thousands, except share amounts) March 31, December 31, 2000 1999 ----------- ------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 11,672 $ 2,003 Short term investments 45,450 200 Accounts receivable, less allowance for doubtful accounts of $336 and $386 at March 31, 2000 and December 31, 1999, respectively 8,623 8,708 Deferred tax assets 2,077 1,956 Inventory, prepaid expenses and other 2,885 2,538 -------- ------- Total current assets 70,707 15,405 Property and equipment, net 11,320 10,628 Intangible assets, net 21,566 20,600 Advances to affiliate 7,733 10,957 Investment in affiliate 41,638 40,446 Other noncurrent assets 1,391 1,220 -------- ------- Total assets $154,355 $99,256 ======== ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of notes payable $ 150 $ 154 Accounts payable and accrued liabilities 3,801 6,345 Deferred revenue 6,038 5,772 -------- ------- Total current liabilities 9,989 12,271 Notes payable, less current portion 1,367 12,669 Deferred revenue 406 440 Deferred tax liability 25,201 22,570 -------- ------- Total liabilities 36,963 47,950 Minority interest in consolidated subsidiary 190 175 Commitments and contingencies Shareholders' equity: Preferred stock, no par value; 1,000,000 shares authorized; no shares issued or outstanding 0 0 Common stock, no par value; 50,000,000 shares authorized; 12,821,501 and 10,117,972 shares issued and outstanding at March 31, 2000 and December 31, 1999, respectively 108,236 42,285 Retained earnings 8,959 8,754 Accumulated other comprehensive income 7 92 -------- ------- Total shareholders' equity 117,202 51,131 -------- ------- Total liabilities and shareholders' equity $154,355 $99,256 ======== ======= The accompanying notes are an integral part of these condensed consolidated balance sheets.
3 The InterCept Group, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (in thousands, except per share data)
Three Months Ended March 31, --------------------- 2000 1999 * --------------------- (Unaudited) Revenues: Service fee income $10,921 $6,701 Data communications management income 1,401 1,139 Equipment and product sales, services and other 2,232 737 ------- ------ Total revenues 14,554 8,577 Costs of services: Cost of service fee income 3,059 1,880 Cost of data communications management income 977 775 Cost of equipment and product sales, services and other 1,720 639 Selling, general and administrative expenses 5,489 3,285 Depreciation and amortization 893 493 ------- ------ Total operating expenses 12,138 7,072 Operating income 2,416 1,505 Other income, net 7,280 26 ------- ------ Income before provision for income taxes and minority interest 9,696 1,531 Provision for income taxes 3,791 568 Equity in loss of affiliate 5,686 0 Minority interest in income of consolidated subsidiary 16 20 ------- ------ Net income attributable to common shareholders $ 203 $ 943 ======= ====== Net income per common share: Basic $ 0.02 $ 0.10 ======= ====== Diluted $ 0.02 $ 0.10 ======= ====== Weighted average shares outstanding: Basic 11,422 9,292 Diluted 12,070 9,566 * Consistent with March 31, 2000, results of operations reflect the acquisition of Direct Access, Inc. during March of 1999 as a purchase rather than as a pooling of interests. The accompanying notes are an integral part of these condensed consolidated statements of operations.
4
The InterCept Group, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (in thousands) Three Months Ended March 31, ------------------------------ 2000 1999 * ------------------------------ (Unaudited) Cash flows from operating activities: Net income attributable to common shareholders $ 203 $ 943 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 893 493 Minority interest in income of consolidated subsidiary 16 20 Deferred income tax provision 2,509 48 Gain due to stock issuances of subsidiary (6,862) 0 Equity in net loss of affiliate 5,686 0 Changes in operating assets and liabilities, net of effects of acquisitions: Accounts receivable, net 68 (379) Inventory, prepaid expenses, and other (348) (227) Other assets (165) (249) Accounts payable and accrued expenses (2,807) (294) Deferred revenue 233 27 -------- ------- Net cash provided by operating activities (574) 382 -------- ------- Cash flows from investing activities: Acquisitions, net of cash acquired (1,175) (704) Decrease in note receivable 4 3 Increase in investments (45,387) 0 Advances to affiliate 3,224 0 Purchases of property and equipment, net (937) (542) Increases in capitalized software (131) (91) -------- ------- Net cash used in investing activities (44,402) (1,334) -------- ------- Cash flows from financing activities: Proceeds from line of credit 4,300 761 Income tax benefit related to exercise of stock options 37 0 Retirement of common stock (32) 0 Payments on notes payable and line of credit (15,607) (305) Proceeds from issuance of common stock, net of related issuance costs 65,747 15 Proceeds from exercise of stock options 200 0 -------- ------- Net cash provided by financing activities 54,645 471 Net (decrease) increase in cash and cash equivalents 9,669 (481) Cash and cash equivalents at beginning of the period 2,003 3,224 -------- ------- Cash and cash equivalents at end of the period $ 11,672 $ 2,743 ======== ======= Supplemental disclosures of cash flow information: Cash paid for interest $ 82 $ 24 ======== ======= Cash paid for income taxes $ 2,539 $ 65 ======== ======= * Consistent with March 31, 2000, results of operations reflect the acquisition of Direct Access, Inc. during March of 1999 as a purchase rather than as a pooling of interests. The accompanying notes are an integral part of these condensed consolidated statements of cash flows.
5 THE INTERCEPT GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Basis of Presentation We are a single-source provider of a broad range of technologies, products and services that work together to meet the electronic commerce and operating needs of community financial institutions. We focus on serving community financial institutions in the United States with assets of less than $500 million. Over 1,400 of these community financial institutions have contracted with us for electronic funds transfer transactions, core bank processing systems, check imaging systems or data communications management networks, as well as services related to each of these products and systems. In February 2000, we completed a public offering of our common stock. Our proceeds after deducting offering expenses were approximately $66.0 million. We used a portion of the proceeds to pay certain debt. We intend to use the remainder of the proceeds to fund future acquisitions and investments, and for working capital and other general corporate purposes. Basis of Presentation The consolidated financial statements include, as of March 31, 2000, our accounts and the accounts our following wholly-owned subsidiaries: ProVesa Services, Inc., InterCept Switch, Inc., LEV Acquisition Corp. InterCept Communications Technologies, Inc. In addition, ProImage, Inc., a corporation in which ProVesa has a 67% ownership interest as of March 31, 2000, has been consolidated in our consolidated financial statements since our inception, due to our control of ProImage. We retain responsibility for all day-to-day operations of ProImage and have and intend to continue to provide complete financial support for ProImage due to legal limitations on the other shareholder's ability to fund losses. All significant intercompany accounts and transactions have been eliminated in consolidation. Minority interest in income represents the minority shareholder's proportionate share of the equity and earnings of ProImage. In the third quarter of 1999, Direct Access Interactive, Inc., one of our wholly owned subsidiaries, issued shares of its common stock in connection with several transactions. Direct Access was then merged into a new subsidiary, Netzee, Inc., which issued additional shares of common stock on September 3, 1999. As a result of these transactions, our ownership percentage in Netzee decreased to approximately 49%. We have accounted for our investment in Netzee after September 3, 1999 under the equity method, under which the operations of Netzee are recorded on a single line item in the statements of operations, "equity in loss of affiliate." Because we provided unlimited funding to Netzee until completion of its initial public offering in November 1999, all of 6 Netzee's losses prior to the completion of the offering are included in that line item rather than our relative percentage of those losses. Following the completion of the initial public offering, we have recorded only our relative percentage of Netzee's net losses. As of March 31, 2000 we owned approximately 35% of Netzee's common stock. During the first quarter of 2000, Netzee issued common stock at a price in excess of its book value which resulted in an increase in InterCept's investment in Netzee. InterCept has recognized gains in accordance with Staff Accounting Bulletin No. 51 related to the increases in InterCept's investment value totaling approximately $6.9 million which is included in other income, net in the accompanying statement of operations. 2. New Accounting Pronouncements In December 1999, the Securities and Exchange Commission (the "SEC") issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition." The SAB does not change existing accounting literature on revenue recognition, but rather explains the SEC staff's general framework for revenue recognition. SAB No. 101 states that changes in accounting to apply the guidance in SAB No. 101 may be accounted for as a change in accounting principle and must be recorded in the second quarter of 2000. The Company is currently reviewing its revenue recognition policy and does not expect the adoption of SAB No. 101 to have a material impact on the Company's results of operations. 3. Accounting Changes In July 1999, we announced a letter of intent to merge its internet banking business with the internet banking business of two other companies. As a result of these transactions, InterCept has changed the accounting for the Direct Access acquisition in March of 1999 from a pooling of interest to a purchase. The accompanying unaudited interim financial statements for 1999 reflect that change. 4. Net Income Per Share Basic earnings per share is computed based on the weighted average number of common shares outstanding. Diluted earnings per share is computed based on the weighted average number of common shares outstanding plus the effect of outstanding stock options using the "treasury stock" method which is based on the average stock price for the period. The effects of anti- dilutive options have been excluded. The following tables set forth a reconciliation of basic earnings per share to diluted earnings per share (in thousands, except earnings per share ("EPS") amounts):
Three Months Ended Three Months Ended March 31, 2000 March 31, 1999 -------------------------------- ---------------------------------- -------------------------------- ---------------------------------- Income Shares EPS Income Shares EPS -------------------------------- ---------------------------------- Basic EPS $203 11,422 $0.02 $943 9,292 $0.10 Dilutives: Stock options - 648 - - 274 - -------------------------------- ---------------------------------- Diluted EPS $203 12,070 $0.02 $943 9,566 $0.10 ================================ ==================================
5. Comprehensive Income Comprehensive Income is the total of net income and all other non-owner changes in shareholders' equity. The following table sets forth the calculation of our comprehensive income for the periods indicated below (in thousands):
Three Months Ended March 31, -------------------- 2000 1999 -------------------- Net income, as reported $ 203 $ 943 Unrealized gain (loss) on available for sale securities, net of tax: (86) 81 ----- ------ Comprehensive income $ 117 $1,024 ===== ======
7 6. Acquisitions During the first quarter of 2000 we completed several acquisitions of item processing centers. The consideration exchanged in connection with these acquisitions was $1.1 million and a $275,000 note payable on December 31, 2000 which is included in accounts payable and accrued liabilities in the accompanying balance sheet. This acquisitions were accounted for as purchases in accordance with Accounting Principles Board ("APB") Opinion No. 16, and, accordingly, the purchase price has been allocated to the net tangible and intangible assets acquired based on their estimated fair values as of the acquisition date. The results of operations of the acquired businesses have been included in our consolidated financial statements from each date of acquisition. 7. Facility Closing Reserve In conjunction with the acquisition of Nova Financial Corporation in August 1998, we established a reserve of approximately $160,000 for estimated costs to close the existing Nova facility. However, our costs were higher than we originally anticipated. During the third quarter of 1999, we accrued an additional $100,000 to cover these costs. The costs primarily consist of the remaining non-cancelable obligation under the lease on the facility. For the three months ended March 31, 2000, we charged approximately $30,000 of lease costs related to the non-cancelable obligation against the reserve. There was $20,000 remaining in the reserve as of March 31, 2000. 8. Long-Term Debt and Capital Lease Obligations Long-term debt and capital lease obligations at March 31, 2000 and December 31, 1999 consisted of the following (in thousands):
March 31, December 31, 2000 1999 ---------------------------------- Note payable to First Macon Bank & Trust, interest payable at prime; monthly principal and interest payments, payable in full on September 15, 2001; the note is collaterized by assets of ProImage and a corporate guarantee by ProVesa of two-thirds of the balance of the debt. 137 $ 158 Note payable to First Macon Bank & Trust, interest payable at prime, monthly principal and interest payments,payable in full on October 25, 2002; the note is collaterized by assets of ProImage and a corporate guarantee by ProVesa of two-thirds of the balance of the debt. 37 51 $35.0 million line of credit with First Union National Bank, as amended, interest payable at the option of the Company at (i) prime less 0.25% or (ii) LIBOR plus applicable margin as defined, payable in full on June 30, 2002, guaranteed by substantially all assets of the Company. 1,261 12,511 Equipment under capital lease expiring July 2001. 82 103 ------------------------------ 1,517 12,823 Less current maturities (150) (154) ------------------------------ 1,367 12,669 ==============================
9. Subsequent Events On May 1, 2000 we announced that an agreement has been signed to acquire the debit card program of The Bankers Bank. 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview The following discussion contains statements which constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements appear in a number of places in this Quarterly Report and include all statements that are not statements of historical fact regarding our intent, belief or expectations. These statements are based upon a number of assumptions and estimates which are subject to significant uncertainties, many of which are beyond our control. Words such as "may," "would," could," "will," "expect," "anticipate," "believe," "intend," "plan," and "estimate" are meant to identify such forward-looking statements. Such forward-looking statements are not guarantees and actual results may differ materially from those expressed or implied by such forward- looking statements. Factors that could cause actual results to differ materially include, but are not limited to: our brief combined operating history and whether we will be able to maintain profitability; whether we can obtain and manage growth or execute agreements with new customers; whether we can successfully locate, acquire and integrate new businesses and products; customer attrition; whether the market will accept our new products and services; increased competition; possible system failures and rapid changes in technology; and whether Netzee will be successful in its business strategies Our results could also differ materially from those expressed or implied by forward-looking statements due to the reasons detailed in our filings with the Securities and Exchange Commission including the "Risk Factors" section in our Registration Statement on Form S-3 (Registration No. 333-94511), as declared effective by the Securities and Exchange Commission on February 15, 2000. We derive revenues primarily from the following sources: . electronic funds transfer, or EFT, processing services; . core data processing systems, support, maintenance and related services; . check imaging systems, support and related services; . data communications management; and . ancillary products and services, including maintenance and technical support services, sales of banking related equipment and complementary products. 9 We derive EFT revenues principally from processing ATM and debit card transactions. We receive a base fee for providing our ATM processing services and an additional fee for each ATM serviced. Once the number of transactions by a financial institution exceeds established levels, typically between 2,000 and 3,000 transactions per month, we charge additional fees for these transactions. For debit card transactions, we generally receive a portion of the interchange fees charged by our financial institution customers, and we charge a monthly fee if our customers do not meet a certain minimum dollar amount of transactions for a particular month. Most charges due under our EFT service agreements are paid monthly. On a service bureau basis, we generate core data processing revenues from service and processing fees based on the volume of transactions processed. These revenues are recognized as the services are performed. We also generate core data processing revenues by licensing PC BancPAC, our proprietary Windows(R) NT based client/server software system, on an in-house basis. We recognize revenues for licensing PC BancPAC in accordance with Statement of Position 97-2 on "Software Revenue Recognition," issued by the American Institute of Certified Public Accountants. We recognize software license fees when we have signed a non-cancelable license agreement, shipped the product and satisfied significant obligations to the customer. We license on an in-house basis Renaissance/TM/ software, our proprietary check imaging software that we acquired in August 1999 as a result of our acquisition of SBS Corp. We generate revenues from license fees and recurring annual maintenance fees charged for this system. Revenues from the licensing of Renaissance are recognized in accordance with Statement of Position 97-2, as discussed above. We also provide check imaging in a service bureau environment. On a service bureau basis, we generate revenues based on the volume of items processed. We recognize this revenue as we provide the service. We generate our data communications management service revenues principally from network management and data traffic across our frame relay network and from equipment configuration, installation and sales. We charge a flat monthly fee for providing telecommunications connectivity and network management as well as an installation charge. Our ancillary products and services generate revenues primarily from our maintenance and technical support services as well as sales of equipment. We recognize maintenance and technical support service revenues as the service period elapses. We recognize equipment sales revenues at the time of shipment. In June 1998, we completed an initial public offering of our common stock. Since that time, we have completed a number of acquisitions. We originally accounted for our acquisition of Direct Access in March 1999 as a pooling of interest. As a result of subsequent transactions with Netzee, we have changed the accounting for the Direct Access acquisition to a purchase. Therefore, all of our acquisitions since our initial public offering have been accounted for as purchase transactions in our financial statements. Due to Netzee's issuance of common stock in connection with transactions that occurred on September 3, 1999, our ownership percentage in Netzee decreased to approximately 49% as of that date. As a result, we no longer consolidate Netzee's results of operations with our results of operations. We now account for our investment in Netzee under the equity method, which requires us to record the results of operations of Netzee in a single line item in our statement of operations titled "Equity in Loss of Affiliate." Because we provided unlimited funding to Netzee until completion of its initial public offering in 10 November 1999, all of Netzee's losses prior to the completion of the offering are included in that line item rather than our relative percentage of those losses. Following the completion of the initial public offering we have recorded only our relative percentage of Netzee's net losses. As of March 31, 2000, we owned approximately 35% of Netzee's common stock. We base our expenses to a significant extent on our expectations of future revenues. Most of our expenses are fixed in the short term, and we may not be able to quickly reduce spending if our revenues are lower than we expect. In an attempt to enhance our long term competitive position, we may also make decisions regarding pricing, marketing, services and technology that could have an adverse near-term effect on our financial condition and operating results. In addition, our EFT revenues are based in large part on various interchange and transaction fees set by Visa and MasterCard. Any changes in these fees, whether as a result of a pending dispute or otherwise, could negatively impact our revenues. Due to the foregoing factors and other risks discussed in our SEC filings, we believe that quarter to quarter comparisons of our operating results are not a good indication of our future performance. It is likely that our operating results will fall below the expectations of securities analysts or investors in some future quarter. In such event, the trading price of our common stock would likely decline, perhaps significantly. Results of Operations The following table sets forth the percentage of revenues represented by certain line items in our condensed consolidated statements of operations for the periods indicated.
Three Months Ended March 31, ---------------------- 2000 1999 ---------------------- Revenues 100.0% 100.0% Costs of services 39.6 38.4 Selling, general, and administrative expenses 37.7 38.3 Depreciation and amortization 6.1 5.7 ------- -------- Total operating expenses 83.4 82.4 ------- -------- Operating income 16.6 17.5 Other income (expense), net 50.0 0.3 ------- -------- Income before provision for income taxes and minority 66.6 17.8 interest Provision for income taxes 26.0 6.6 Equity in loss of affiliate 39.1 0.0 Minority interest in income of consolidated subsidiary 0.1 0.2 ------- -------- Net income 1.4% 11.0% ======= ========
11 Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999 Revenues. Revenues increased 69.7% to $14.6 million for the three months ended March 31, 2000 from $8.6 million for the three months ended March 31, 1999. The $6.0 million increase was primarily attributable to (i) $4.2 million generated by an increase in service fee income, (ii) $1.5 million generated by additional hardware sales, and (iii) $300,000 generated by an increase in data communications management income. These increases are attributable to both internal growth and acquisitions. Costs of Services. Costs of services increased 74.7% to $5.8 million for the three months ended March 31, 2000 from $3.3 million for the three months ended March 31, 1999. The $2.5 million increase was primarily attributable to (i) $1.2 million related to service fee income, (ii) $1.1 million generated by additional hardware sales, and (iii) $200,000 related to data communications management. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased 67.1% to $5.5 million for the three months ended March 31, 2000 from $3.3 million for the three months ended March 31, 1999. The $2.2 million increase was primarily due to additional personnel to support our growth and acquisitions and other miscellaneous expenses. Depreciation and Amortization. Depreciation and amortization increased 81.1% to $890,000 for the three months ended March 31, 2000 from $490,000 for the three months ended March 31, 1999. The $400,000 increase was primarily attributable to additional property, plant and equipment and additional amortization from acquisitions. Other Income (Expense). Other income (expense) increased to $7.3 million for the three months ended March 31, 2000 from $30,000 for the three months ended March 31, 1999. The increase was primarily due to a $6.9 million gain associated with the issuance of common stock of Netzee, Inc. and an increase of $480,000 in interest income. Provision for Income Taxes. Provision for income taxes increased to $3.8 million for the three months ended March 31, 2000 from $570,000 for the three months ended March 31, 1999. The increase was attributable to $2.6 million associated with the issuance of common stock of Netzee. The remaining increase of $630,000 is due to increased pre-tax profits. Equity in Loss of Affiliate. Equity in loss of affiliate was $5.7 million for the three months ended March 31, 2000. This amount is our share of Netzee's net loss. There was no equity in loss of affiliate for the three months ended March 31, 1999. Minority Interest in Income of Consolidated Subsidiary. Minority interest in income of consolidated subsidiary remained constant at $20,000 for the three months ended March 31, 2000 and for the three months ended March 31, 1999. Liquidity and Capital Resources Cash and cash equivalents were $11.7 million at March 31, 2000. Short term investments with a maturity of one year or less were $45.5 million. Net cash used in operating activities was $565,000 for the three months ended March 31, 2000 and provided by operating activities was $380,000 for the three months ended March 31, 1999. The decrease in the net cash provided by operating activities was primarily attributable to a decrease in net income. 12 Net cash used in investing activities was $44.4 million for the three months ended March 31, 2000 as compared to net cash used in investing activities of $1.3 million for the three months ended March 31, 1999. The increase in net cash used in investing activities was primarily due an increase in our investments resulting from our public offering of common stock in February 2000. Net cash provided by financing activities was $54.6 million for the three months ended March 31, 2000 compared to net cash provided by financing activities $470,000 for the three months ended March 31, 1999, respectively. The increase in net cash provided by financing activities was primarily due to the completion of our public offering of common stock in February, 2000. During 1998, we entered into a credit facility with First Union National Bank. Under this facility, as amended during the third quarter of 1999, we may borrow up to $35.0 million for working capital and to fund acquisitions and related expenses. The First Union credit facility contains provisions which require us to maintain certain financial ratios and minimum net worth amounts and which restrict our ability to incur additional debt, make certain capital expenditures, enter into agreements for mergers, acquisitions or the sale of substantial assets and pay dividends. The First Union credit facility matures on June 30, 2002. Interest is payable monthly and outstanding principal amounts accrue interest, at our option, at an annual rate equal to either (a) a floating rate equal to the lender's prime rate minus .25%, or (b) a fixed rate based upon the 30-day LIBOR rate plus applicable margins. On March 31, 2000, the interest rate under this facility was approximately 7.38%. We have committed, subject to some conditions, to provide to Netzee a $15.0 million line of credit for its working capital needs. Pending the completion of the line of credit, we entered into a promissory note with Netzee on March 24, 2000. As of March 31, 2000, a total of $7.7 million was due from Netzee under this promissory note. We plan to finance this line of credit with cash on hand and additional borrowings under our credit facility with First Union. While there can be no assurance, we believe that funds currently on hand, funds to be provided by operations, and funds available for working capital purposes under the First Union credit facility will be sufficient to meet our anticipated capital expenditures and liquidity requirements for at least the next 12 months. While there is no agreement presently in place, we may loan additional monies to Netzee to fund its working capital needs or operations. We intend to grow, in part, through strategic acquisitions and will make additional expenditures to negotiate and consummate acquisition transactions and integrate the acquired companies. No assurance can be made with respect to the actual timing and amount of expenditures and acquisitions. In addition, no assurance can be given that we will complete any acquisitions on terms favorable to us, if at all, or that additional sources of financing will not be required during these time periods or thereafter. Item 3. Quantitative and Qualitative Disclosure About Market Risk We do not use derivative financial instruments in our operations or investments and do not have significant operations subject to fluctuations in foreign currency exchange rates. Borrowings under the First Union credit facility accrue interest at a fluctuating rate based either upon the lender's prime rate or LIBOR. Prior to August 6, 1999, we had less than $1.0 million outstanding under the First Union facility and, therefore, were not subject to significant 13 risks from interest rate fluctuations. As of March 31, 2000, we had $1.3 million outstanding under this facility, which increases our risks from interest rate fluctuations. Changes in interest rates which dramatically increase the interest rate on the credit facility would make it more costly to borrow under that facility and may impede our acquisition and growth strategies if we determine that the costs associated with borrowing funds are too high to implement these strategies. Additional loans to Netzee may increase the amount outstanding under this facility. 14 PART II. OTHER INFORMATION Item 1. Legal Proceedings We are not a party to, nor is any of our property subject to, any material legal proceedings, other than routine litigation incidental to our business. Item 2. Changes in Securities and Use of Proceeds None. Item 3. Defaults upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders No matter was submitted to a vote by our security holders during the first quarter ended March 31, 2000. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K a) Exhibits
Exhibit No. Description - --------- ----------- 3.1 Amended and Restated Articles of Incorporation, as deemed filed with the Secretary of the State of Georgia on April 29, 1998 (incorporated by reference to the exhibits to InterCept's Registration Statement on Form 8-A (as amended on October 1, 1999)). 3.2 Amended and Restated Bylaws (incorporated by reference to the exhibits to InterCept's Registration Statement on Form 8-A (as amended on October 1, 1999)). 3.3 Amendment to Amended and Restated Bylaws (incorporated by reference to the exhibits to InterCept's Registration Statement on Form 8-A (as amended on October 1, 1999)). 4.1 See Exhibits 3.1 and 3.2 for provisions of the Amended and Restated Articles of Incorporation and Amended and Restated Bylaws defining the rights of the holders of Common Stock of InterCept. 27.1 Financial Data Schedule for the three and nine months ended March 31, 2000.
15 b) Reports on Form 8-K Form 8-K filed February 2, 2000. Reporting under Item 5 that we entered into an agreement to acquire the Dallas, Texas item processing center of TIB-The Independent BankersBank. 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE INTERCEPT GROUP, INC. May 10, 1999 /s/ John W. Collins - ------------- ------------------- Date John W. Collins Chairman of the Board and Chief Executive Officer (principal executive officer) May 10, 1999 /s/ Scott R. Meyerhoff - ------------ ---------------------- Date Scott R. Meyerhoff Chief Financial Officer (principal financial and accounting officer) 17 EX-27.1 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS 3-MOS DEC-31-2000 DEC-31-1999 JAN-01-2000 JAN-01-1999 MAR-31-2000 MAR-31-1999 11,672 2,743 45,450 481 8,959 4,079 336 190 779 318 70,707 8,305 16,092 10,475 (4,772) (3,169) 154,355 23,544 9,989 4,380 0 0 0 0 0 0 108,236 18,565 8,966 113 154,355 23,544 14,554 8,577 14,554 8,577 5,756 3,294 0 0 6,382 3,778 0 0 (88) (8) 9,696 1,531 3,791 568 203 943 0 0 0 0 0 0 203 943 .02 .10 .02 .10
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