-----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, QfCwDfNKc6BZt81HE2P+l6EiXzraL/dPi9gZdKcpwVo1vddKzB0G4MnGZr+RUAbw cEd5FQsTUdzUaOPo3/WqDw== 0000931763-98-002876.txt : 19981116 0000931763-98-002876.hdr.sgml : 19981116 ACCESSION NUMBER: 0000931763-98-002876 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981112 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: 98746077 BUSINESS ADDRESS: STREET 1: 3150 HOLCOMB BRIDGE ROAD SUITE 200 CITY: NORTCROSS STATE: GA ZIP: 30071 BUSINESS PHONE: 7702489600 MAIL ADDRESS: STREET 1: 3150 HOLCOMB BRIDGE ROAD SUITE 200 CITY: NORTCROSS STATE: GA ZIP: 30071 10-Q 1 THE INTERCEPT GROUP 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 SEPTEMBER 30, 1998. Or [ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______________ TO ____________, 19_____. Commission file number : 01-14213 ------------------------------ THE INTERCEPT GROUP, INC. (Exact name of registrant as specified in its charter) Georgia 58 - 2237359 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 3150 Holcomb Bridge Road, Suite 200, Norcross, Georgia 30071 (Address of principal executive offices) (770) 248-9600 (Registrant's telephone number including area code) N/A (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. (1) Yes X No ; ----- ----- (2) Yes X No ---- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at November 10, 1998 Common Stock, no par value 9,248,539 (No. of Shares) ================================================================================ THE INTERCEPT GROUP, INC. INDEX TO FORM 10-Q PAGE --------- PART I FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets as of September 30, 1998 and December 31, 1997 Condensed Consolidated Statements of Operations for the Three Months and Nine Months ended September 30, 1998 and 1997 Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 1998 and 1997 Notes to Condensed Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II OTHER INFORMATION Item 1. Legal Proceedings Item 2. Changes in Securities Item 3. Defaults upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K SIGNATURES EXHIBIT INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements The InterCept Group, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (in thousands except share amounts)
September 30 December 31, 1998 1997 ------------ ------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 5,646 $ 2,010 Accounts receivable, less allowance for doubtful accounts of $167 and $157 at September 30, 1998 and December 31, 1997, respectively 2,777 2,776 Inventory, prepaid expenses and other 674 230 -------------------------- Total current assets 9,097 5,016 Property and equipment, net 5,993 2,516 Deferred tax assets 699 668 Intangible assets, net 3,751 1,683 Notes receivable 37 45 Other noncurrent assets 465 228 -------------------------- Total assets $20,042 $10,156 ========================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of notes payable $ 93 $ 581 Line of credit - 200 Accounts payable and accrued liabilities 2,974 2,103 Deferred revenue 1,246 1,140 -------------------------- Total current liabilities 4,313 4,024 Notes payable, less current portion 230 4,716 Deferred compensation - 1,800 -------------------------- Total liabilities 4,543 10,540 Minority interest 48 - Commitments and contingencies: Series A redeemable preferred stock 8% cumulative, no par value; 30,000 shares authorized; 0 and 4,000 shares issued and outstanding at September 30, 1998 and December 31, 1997, respectively. - 400 Shareholders' equity (deficit): Preferred stock, no par value; 1,000,000 shares authorized; Series A reported above - - Common stock, no par value; 50,000,000 shares authorized; 9,248,539 and 6,750,114 shares issued and outstanding at September 30, 1998 and December 31, 1997, respectively 17,176 2,764 Accumulated deficit (1,950) (3,548) Accumulated other comprehensive income 225 - -------------------------- Total shareholders' equity (deficit) 15,451 (784) -------------------------- Total liabilities and shareholders' equity (deficit) $20,042 $10,156 ========================== The accompanying notes are an integral part of these condensed consolidated balance sheets.
The InterCept Group, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (in thousands, except per share data)
Three Months Ended Nine Months Ended September 30, September 30, -------- --------- -------- -------- 1998 1997 1998 1997 -------- --------- -------- -------- (unaudited) (unaudited) Revenues: Service fee income $5,518 $4,266 $14,876 $12,069 Data communications management income 977 839 2,735 2,282 Equipment and product sales, services and other 1,082 1,096 2,872 2,388 ------ ------ ------- ------- Total revenues 7,577 6,201 20,483 16,739 Costs of services: Cost of service fee income 1,654 1,282 4,375 3,759 Cost of data communications management income 648 628 1,868 1,773 Cost of equipment and product sales 958 752 2,391 1,783 Selling, general and administrative expenses 2,790 2,591 7,897 7,477 Depreciation and amortization 363 342 962 981 ------ ------ ------- ------- Total operating expenses 6,413 5,595 17,493 15,773 Operating income 1,164 606 2,990 966 Other income (expense), net 81 (156) (211) (484) ------ ------ ------- ------- Income before provision for income taxes and minority interest 1,245 450 2,779 482 Provision for income taxes 469 235 1,076 356 Minority interest in (income) loss of consolidated subsidiary (30) 0 (80) 39 ------ ------ ------- ------- Net income before preferred dividends 746 215 1,623 165 Preferred dividends 0 (8) (16) (24) ------ ------ ------- ------- Net income attributable to common shareholders $ 746 $ 207 $ 1,607 $ 141 ====== ====== ======= ======= Net income per common share: Basic $ 0.08 $ 0.03 $ 0.21 $ 0.02 ====== ====== ======= ======= Diluted $ 0.08 $ 0.03 $ 0.20 $ 0.02 ====== ====== ======= ======= Weighted average shares outstanding: Basic 9,221 6,750 7,749 6,750 Diluted 9,337 6,869 7,867 6,863 The accompanying notes are an integral part of these condensed consolidated statements of operations.
The InterCept Group, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (in thousands)
Nine Months Ended September 30, ------------------- 1998 1997 ------------------- (unaudited) Cash flows from operating activities: Net income $ 1,623 $ 165 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 962 981 Minority interest in income (loss) of consolidated subsidiary 80 (39) Deferred income tax (benefit) (31) (17) Pro forma tax expense - 100 Changes in operating assets and liabilities: Accounts receivable 488 351 Inventory, prepaid expenses, and other (667) (218) Other assets 6 (113) Accounts payable and accrued expenses 130 329 Deferred revenue 106 (138) ------- ------- Net cash provided by operating activities 2,697 1,401 ------- ------- Cash flows from investing activities: Acquisitions, net of cash acquired (1,851) - Increase (decrease) in note receivable 17 (875) Purchases of property and equipment, net (3,639) (718) Increases in capitalized software (513) - ------- ------- Net cash used in investing activities (5,986) (1,593) ------- ------- Cash flows from financing activities: Payments on notes payable and line of credit (6,974) (179) Debt issuance costs (88) - Retirement of preferred stock (440) - Distributions for taxes to shareholders of pass through entities (8) (152) Payment of preferred dividends (16) (18) Proceeds from issuance of common stock, net of issuance costs 14,451 - ------- ------- Net cash provided by (used in) financing activities 6,925 (349) Net increase (decrease) in cash and cash equivalents 3,636 (541) Cash and cash equivalents at beginning of the period 2,010 1,398 ------- ------- Cash and cash equivalents at end of the period $ 5,646 $ 857 ======= ======= Supplemental disclosures of cash flow information: Cash paid for interest $ 344 $ 579 ======= ======= Cash paid for income taxes $ 445 $ 238 ======= ======= The accompanying notes are an integral part of these condensed consolidated statements of cash flows.
THE INTERCEPT GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND BASIS OF PRESENTATION Organization The InterCept Group, Inc. ("InterCept" or the "Company") designs, develops, markets and implements a suite of fully integrated electronic commerce products and services primarily for community financial institutions in the United States. The Company's products and services include electronic funds transfer ("EFT"), data communications management, client/server enterprise software and other processing solutions. The Company is a single source provider of a broad range of flexible electronic commerce solutions supporting value-added products and services. The Company provides numerous EFT products and services, including automated teller machine ("ATM"), point-of-sale ("POS") and scrip debit services, debit card transactions, funds transfer services and remote banking services. The Company licenses client/server enterprise software, which operates in a Windows NT(R) environment, to community financial institutions on both a service bureau and an in-house basis. The Company also supplies banking related equipment, provides related maintenance and technical support and offers numerous ancillary products and services to its financial institution customers. Basis of Presentation The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, ProVesa, Inc. ("ProVesa") and InterCept Switch, Inc., and ProImage, Inc.("ProImage"), a corporation in which ProVesa has a 66.6% ownership interest. All significant intercompany accounts and transactions have been eliminated in consolidation. The accompanying statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, to present fairly the Company's financial position, results of operations, and cash flows at the dates and for the periods presented. Interim results of operations are not necessarily indicative of results to be expected for a 12-month period. The interim financial statements should be read in conjunction with the Company's Registration Statement on Form S-1 (Registration Number 333-47197) as declared effective by the Securities and Exchange Commission on June 9, 1998. 2. NET INCOME PER SHARE Net income per share is calculated and presented in accordance with Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). Basic earnings per share is computed based on the weighted average number of common shares outstanding. Diluted earnings per share is computed on the basis of the weighted average number of common shares outstanding plus the effect of outstanding stock options using the "treasury stock" method based on average stock price for the period. All prior periods are presented under SFAS 128. 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 September 30, 1998 September 30, 1997 ---------------------- ---------------------- Income Shares EPS Income Shares EPS ---------------------- ---------------------- Basic EPS $ 746 9,221 $ 0.08 $ 207 6,750 $ 0.03 Dilutives: Stock options - 116 - - 119 - ---------------------- ---------------------- Diluted EPS $ 746 9,337 $ 0.08 $ 207 6,869 $ 0.03 ====================== ====================== Nine Months Ended Nine Months Ended September 30, 1998 September 30, 1997 ---------------------- ---------------------- Income Shares EPS Income Shares EPS ---------------------- ---------------------- Basic EPS $1,607 7,749 $ 0.21 $ 141 6,750 $ 0.02 Dilutives: Stock options - 118 (0.01) - 113 - ---------------------- ---------------------- Diluted EPS $1,607 7,867 $ 0.20 $ 141 6,863 $ 0.02 ====================== ======================
3. COMPREHENSIVE INCOME As of December 31, 1997, the Company adopted SFAS No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS No. 130 establishes new rules for the reporting of "comprehensive income", which is the total of net income and all other non-owner changes in shareholders' equity. The adoption of SFAS No. 130 had no effect on the Company's net income. The following table sets forth the calculation of the Company's comprehensive income for the periods indicated below (in thousands): Three Months Ended Nine Months Ended September 30, September 30, ------------------- ------------------- 1998 1997 1998 1997 ------------------- ------------------- Net income, as reported 746 207 1,607 141 Unrealized gain on securities, net of tax: 225 - 225 - -------- -------- -------- ------- Accumulated other comprehensive income 971 207 1,832 141 ======== ======== ======== ======= 4. INITIAL PUBLIC OFFERING OF 2,387,500 SHARES OF COMMON STOCK On June 9, 1998, the Company completed its initial public offering of 2,387,500 shares (including 137,500 shares sold by a selling shareholder) of common stock at an offering price of $7.00 per share. Net proceeds from the offering were approximately $13.1 million after deducting underwriters discounts and commissions and expenses of the offering. The Company used a portion of the proceeds to (i) pay down significantly all of its long-term debt; (ii) pay amounts owed to an officer of the Company for prior service; (iii) enhance and expand the InterCept Frame Relay Network; and (iv) redeem its outstanding preferred stock. The balance of the proceeds will be used for working capital and general corporate purposes, including possible acquisitions. On July 10, 1998 the underwriters exercised their over- allotment option to purchase an additional 248,425 shares at $7.00 per share. The Company received additional net proceeds of approximately $1.6 million from such sale of shares. 5. ACQUISITIONS On August 4, 1998, the Company acquired certain assets and assumed certain liabilities of Nova Financial Corporation, a provider of core data processing, check imaging and item capture services throughout Georgia. On September 30, 1998, the Company acquired certain assets and assumed certain liabilities of Advance Data, a provider of core data processing, check imaging and item capture services throughout Arkansas. On August 25, 1998, the Company acquired 33% of ProImage, a check imaging center in which Intercept previously owned an interest. After the acquisition, InterCept owned 66% of ProImage. These acquisitions were accounted for as purchases in accordance with Accounting Principles Board ("APB") Opinion No. 16, and, accordingly, the purchase prices have been preliminarily allocated to the net tangible and intangible assets acquired based on their estimated fair values as of the acquisition dates. The results of operations of Nova and Advance Data have been included in the Company's results of operation since the date of acquisition. 6. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS Long-term debt and capital lease obligations at September 30, 1998 and December 31, 1997 consisted of the following (in thousands):
September 30, December 31, 1998 1997 ------------------------------ Note payable to Georgia State Bank, all outstanding amounts repaid in June, 1998. $ - $ 2,733 Note payable to FNB Commerce, all outstanding amounts repaid in June, 1998. - 1,378 Note payable to Community Bank of Georgia, all outstanding amounts repaid in January, 1998. - 403 Mortgage note payable to Allied Bank, all outstanding amounts repaid in June, 1998. - 389 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. 255 316 Note payable to First Macon Bank & Trust, interest payable at prime, monthly principal and interest payments, the note is collaterized by assets of ProImage and a corporate guarantee by ProVesa of two-thirds of the balance of the debt. 68 78 ------------------------------ 323 5,297 Less current maturities (93) (581) ------------------------------ $ 230 $ 4,716 ==============================
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The following discussion contains statements which constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements appear in a number of places in this Quarterly Report and include all statements that are not historical statements of fact regarding the intent, anticipation, belief or current expectations of the Company, its directors or its officers with respect to, among other things: (i) the Company's financing plans; (ii) trends affecting the Company's financial condition or results of operations; (iii) the Company's growth strategy and operating strategy and (iv) the declaration and payment of dividends. The words "may," "would," "could," "will," "expect," "estimate," "anticipate," "believe," "intends," "plans," "allows," "strategy," and similar expressions and variations thereof are intended to identify forward-looking statements. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, many of which are beyond the Company's ability to control. Actual results may differ materially from these forward-looking statements as a result of many factors, including: the inability to achieve and maintain profitability; the inability to obtain, continue and manage growth or execute agreements with new customers; the risks related to acquisitions and the integration of acquired assets and businesses, customer attrition, the inability to attract and retain qualified sales and marketing personnel and enter strategic marketing relationships; market acceptance of new products and enhancements; growth in the Company's customers; rapid changes in technology; increased competition; dependence on new products; and the other factors discussed in the Company's registration statement on Form S-1 as declared effective on June 9, 1998, including the "Risk Factors" section contained therein. The Company derives revenues primarily from the following sources: (i) EFT processing services; (ii) data communications management; (iii) client/server enterprise software support, maintenance and related services; and (iv) maintenance and technical support services, sales of banking related equipment and complementary products and customer services. The Company derives EFT revenues principally from processing ATM, POS and debit card transactions. The Company receives a base fee for providing its ATM processing services and an additional fee for each ATM serviced. Once the number of transactions exceeds established levels, the Company charges additional fees for the extra transactions processed. For its POS services, the Company generally receives a portion of the interchange fees charged by its community financial institution customers that issue debit cards and charges a monthly fee if its customers do not meet a certain minimum dollar amount of transactions for a particular month. Most charges due under the Company's EFT service agreements are paid monthly. The Company's data communications management service revenues are principally derived from network management services, data packet transportation services across The InterCept Frame Relay Network, consulting and equipment configuration, installation and sales. The Company charges a flat monthly fee for providing telecommunications connectivity and network management as well as an installation charge. The Company licenses PC BancPAC, its proprietary Windows NT(R) based client/server software system, on both an in-house and service bureau basis. The Company recognizes service revenues as the services are provided. It is the Company's policy to recognize revenues for licensing of PC BancPAC in accordance with Statement of Position 97-2 on "Software Revenue Recognition" issued by the American Institute of Certified Public Accountants. Software license fees are recognized when a noncancellable license agreement has been signed, the product has been shipped, and all significant obligations to the customer have been satisfied. The Company's maintenance, support and equipment revenues consist primarily of revenues from the Company's maintenance and technical support services as well as sales of equipment. Equipment revenues are recognized at the time of shipment while maintenance and technical support service revenues are recognized as the service period elapses. The Company's business and relationships with its customers depend significantly on a number of computer software programs, internal operating systems and connections to other networks. If any of these software programs, systems or networks are not programmed to recognize and properly process dates after December 31, 1999 (the "Year 2000" issue), significant system failures or errors may result which could have a material adverse effect on the business, financial condition, or results of operations of both the affected customers and the Company. The Company has conducted a preliminary review of its internal accounting and operating programs and systems and currently believes that these programs and systems and the network connections it maintains are adequately programmed to address the Year 2000 issue or can be modified or replaced to address the Year 2000 issue without incurring costs or delays which would have a material adverse effect on the Company's financial condition. The Company currently provides service bureau processing services to certain customers using a processing solution that is not Year 2000 compliant, and the Company is in the process of converting those customers to its PC BancPAC software, which the Company believes is Year 2000 compliant, before the end of September 1999. The Company currently estimates that the cost of such conversion will total approximately $200,000; however, it is difficult to predict such costs with certainty, and there can be no assurance that the costs necessary to convert its customers to PC BancPAC will not have a material adverse effect on the Company's business, financial condition, or results of operations. Further, any failure by the Company to complete the conversion of any of its service bureau customers in a timely manner could significantly interrupt the business operations of such customers, which could have a material adverse effect on the business, financial condition, or results of operations of both the affected customers and the Company. The Company has not completed an assessment of third party products or systems used in its business. Other companies interact electronically with the Company and its customers, and the Company must coordinate its EFT, data communications and enterprise software processing with such other companies and its customers. If these other companies or the Company's customers do not successfully address Year 2000 issues in their operations and if the Company is unable to successfully transfer its business operations to another provider that has Year 2000 compliant systems, the Company's processing operations may be interrupted, hindered or delayed, which would have a material adverse effect on its business, financial condition and results of operations. Furthermore, the Company believes that many financial institutions and third party vendors and network processors (including customers, vendors and processors of the Company) are still in the preliminary stages of analyzing their software and network applications to address Year 2000 issues. It is impossible to estimate the potential expenses involved or delays which may result from the failure of these institutions and third parties to resolve their Year 2000 issues in a timely manner, and there can be no assurance that such expenses, failures or delays will not have a material adverse effect on the Company's business, financial condition or results of operations. The Company's quarterly operating results have varied in the past and will likely vary significantly in the future. Factors that may cause the Company's future operating results to vary include, without limitation: the timing of new product and service announcements; changes in pricing policies by the Company and its competitors; market acceptance of new and enhanced versions of the Company's products and services; the lengthening of sales cycles for new or existing products or services; customer attrition; changes in operating expenses; changes in Company strategy; personnel changes; the introduction of alternative technologies; the Company's products becoming obsolete; failure, delay and expenses in making software, systems and networks utilized in the Company's business Year 2000 compliant; the effect of acquisitions; and general economic factors. Product and service revenues are difficult to forecast because the market for electronic commerce products and services is rapidly evolving, and the Company's sales cycle generally covers an extended period but varies substantially from customer to customer. Intercept believes that quarter to quarter comparisons of its results of operations should not be relied upon as indications of future performance. RESULTS OF OPERATIONS The following table sets forth the percentage of revenues represented by certain line items in the Company's condensed consolidated statements of operations for the periods indicated.
Three Months Ended Nine Months Ended September 30, September 30, ------------------ ----------------- 1998 1997 1998 1997 ------------------ ----------------- Revenues 100.0% 100.0% 100.0 % 100.0 % Costs of services 43.0 42.9 42.2 43.7 Selling, general, and administrative expenses 36.8 41.8 38.6 44.7 Depreciation and amortization 4.8 5.5 4.7 5.9 ----- ---- ----- ---- Total operating expenses 84.6 90.2 85.5 94.3 ----- ---- ----- ---- Operating income (loss) 15.4 9.8 14.5 5.7 Other income (expense), net 1.1 (2.5) (1.0) (2.8) ----- ---- ----- ---- Income before minority interest and provision for income taxes 16.5 7.3 13.5 2.9 Minority interest in (income) loss 0.4 0.0 (0.0) 0.0 Provision for income taxes 6.2 3.8 5.3 2.1 ----- ---- ----- ---- Net income 9.9% 3.5% 8.2% 0.8% ===== ==== ===== ====
Three Months Ended September 30, 1998 Compared to Three Months Ended September 30, 1997 Revenues. Revenues increased 22.2%, or $1.4 million, to $7.6 million for the three months ended September 30, 1998 from $6.2 million for the three months ended September 30, 1997. The $1.4 million increase was primarily attributable to (i) $700,000 generated by an increase in core data processing services, of which $410,000 was related to the Company's acquisitions during the third quarter, (ii) $420,000 generated by an increase in EFT processing services, (iii) $140,000 generated by an increase in data communication services and (iv) other increases of $140,000. Costs of Services. Costs of services increased 22.5%, or $600,000, to $3.3 million for the three months ended September 30, 1998 from $2.7 million for the three months ended September 30, 1997. The $600,000 increase was primarily attributable to (ii) $350,000 generated by additional core data processing sales, of which $190,000 was related to the Company's acquisitions during the third quarter, (ii) $210,000 generated by additional equipment sales and (iii) other increases of $40,000. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased 7.7% or $200,000 to $2.8 million for the three months ended September 30, 1998 from $2.6 million for the three months ended September 30, 1997. The increase was primarily attributable to $170,000 related to the Company's acquisitions during the third quarter and $30,000 to support the continued growth of the Company's business. Depreciation and Amortization. Depreciation and amortization increased 6.1%, or $20,000, to $360,000 for the three months ended September 30, 1998 from $340,000 for the three months ended September 30, 1997. The increase was primarily attributable to additional property, plant and equipment, partially offset by a decrease in amortization. Other Income (Expense). Other income (expense) increased 151.9%, or $240,000, to income of $80,000 for the three months ended September 30, 1998 from expense of $(160,000) for the three months ended September 30, 1997. The increase was primarily due to the reduction of long-term debt with proceeds from the Company's initial public offering in June 1998. Minority Interest in Income. Minority interest in income increased to $30,000 for the three months ended September 30, 1998 from no minority interest for the three months ended September 30, 1997. The increase was attributable to profits in ProImage's operations. Provision for Income Taxes. Provision for income taxes increased $230,000 to $470,000 for the three months ended September 30, 1998 from $240,000 for the three months ended September 30, 1997. The increase was attributable to increased profits partially offset by a reduction in nondeductible amortization. Nine Months Ended September 30, 1998 Compared to Nine Months Ended September 30, 1997 Revenues. Revenues increased 22.4%, or $3.7 million, to $20.5 million for the nine months ended September 30, 1998 from $16.7 million for the nine months ended September 30, 1997. The increase was primarily attributable to (i) $1.6 million generated by an increase in EFT processing services, (ii) $960,000 generated by an increase in core data processing services, of which $410,000 was related to the Company's acquisitions during the third quarter, (iii) $550,000 generated by an increase in data communications management services, (iv) $390,000 generated by an increase in equipment sales and (v) other net increases of $200,000. Costs of Services. Costs of services increased 18.0%, or $1.3 million, to $8.6 million for the nine months ended September 30, 1998 from $7.3 million for the nine months ended September 30, 1997. The $1.3 million increase was primarily attributable to (i) $610,000 generated by additional equipment sales, (ii) $450,000 generated by an increase in core data processing services of which $190,000 was related to the Company's acquisitions during the third quarter and (iii) other net increases of $260,000. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased 5.6%, or $420,000, to $7.9 million for the nine months ended September 30, 1998 from $7.5 million for the nine months ended September 30, 1997. The increase was primarily attributable to $250,000 for additional personnel and facilities to support the Company's growth and $170,000 related to the Company's acquisitions during 1998. Depreciation and Amortization. Depreciation and amortization decreased 1.9%, or $20,000, to $960,000 for the nine months ended September 30, 1998 from $980,000 for the nine months ended September 30, 1997. The decrease was primarily attributable to a decrease in amortization of $370,000, partially offset by increases related to additional property, plant and equipment. Other Expense. Other expense decreased 56.4%, or $270,000, to $210,000 for the nine months ended September 30, 1998 from $480,000 for the nine months ended September 30, 1997. The decrease was primarily due to the reduction of long term debt with proceeds from the Company's initial public offering in June 1998. Minority Interest in Income. Minority interest in income increased $120,000, to $80,000 for the nine months ended September 30, 1998 from a minority interest in loss of $40,000 for the nine months ended September 30, 1997. The increase was attributable to profits in ProImage's operations. Provision for Income Taxes. Provision for income taxes increased $720,000, to $1.1 million for the nine months ended September 30, 1998 from $360,000 for the nine months ended September 30, 1997. The increase was attributable to increased profits partially offset by a reduction in nondeductible amortization. Liquidity and Capital Resources Cash and cash equivalents were $5.6 million at September 30, 1998. Net cash provided by operating activities was $2.7 million and $1.4 million for the nine months ended September 30, 1998 and 1997, respectively. The increase in the net cash provided by operating activities was primarily attributable to an increase in earnings. Net cash used in investing activities was $6.0 million and $1.6 million for the nine months ended September 30, 1998 and 1997, respectively. The increase in net cash used in investing activities was primarily due to an increase in capital expenditures and the acquisitions of Nova Financial Corporation and Advance Data. Net cash provided by (used in) financing activities was $6.9 million and ($350,000) for the nine months ended September 30, 1998 and 1997, respectively. The increase in net cash provided by financing activities was primarily due to net proceeds from the completion of the Company's initial public offering. On April 28, 1998, the Company entered into a loan agreement with First Union National Bank (the "First Union Credit Facility"), under which the Company may borrow up to $20.0 million to fund acquisitions and pay expenses related to acquisitions. In addition, at the Company's election, $2.0 million of the First Union Credit Facility may become available for working capital purposes. Before making any borrowings under the loan, the Company shall have satisfied certain conditions set forth in the loan agreement. The First Union Credit Facility contains provisions which require the Company to maintain certain financial ratios and minimum net worth amounts and which restrict the Company's ability to incur additional debt, make certain capital expenditures, enter into agreements for mergers, acquisitions or the sale of substantial assets and pay dividends. The First Union Credit Facility matures on April 28, 2001. Interest is payable monthly and outstanding principal amounts accrue interest, at the Company's option, at an annual rate equal to either (i) a floating rate equal to the lender's prime rate minus one quarter of one percent or (ii) a fixed rate based upon the 30-day LIBOR rate plus applicable margins. No amounts were outstanding under the First Union Credit Facility during the three or nine months ended September 30, 1998. While there can be no assurances, the Company believes that the cash on hand, funds to be provided by operations, and funds which may be available for working capital purposes under the First Union Credit Facility will be sufficient to meet the Company's anticipated capital expenditure and liquidity requirements for its operations through at least September 1999. The Company intends to grow, in part, through strategic acquisitions and will make additional expenditures to negotiate and consummate acquisition transactions and integrate the acquired companies. While there can be no assurance, management currently believes that cash on hand and funds from the First Union Credit Facility, together with the issuance of Common Stock and other securities, will be sufficient to fund its acquisition needs for the next 12 months. No assurance can be made with respect to the actual timing and the amount of the expenditures or acquisitions. The Company's estimates are forward-looking statements that are subject to risks and uncertainties discussed above. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is not a party to, nor is any of its property subject to, any material legal proceedings, other than routine litigation incidental to its business. ITEM 2. CHANGES IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote by the Company's security holders during the third quarter ended September 30, 1998. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits Exhibit No. Description ------ ----------- 2.1 Asset Purchase Agreement dated August 4, 1998 by and between The Intercept Group, Inc., Nova Financial Corporation and Broadnet, Inc. (incorporated by reference to Exhibit 2.1 of the Company's Current Report on Form 8-K filed on August 19, 1998). 2.2 Asset Purchase Agreement dated September 30, 1998 by and between ProVesa, Inc., Mercantile Corporation and Dale May (incorporated by reference to Exhibit 2.1 of the Company's Current Report on Form 8-K filed on October 14, 1998). 3.1 Amended and Restated Articles of Incorporation, as filed with the Secretary of the State of Georgia on April 29, 1998, (incorporated by reference to Exhibit 3.1 of the Company's Registration Statement on Form S-1 (No. 333-47197) as declared effective by the Securities and Exchange Commission on June 9, 1998 (the "Registration Statement")). 3.2 Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 of the Registration Statement). 4.1 See Exhibits 3.1 and 3.2 for provisions of the Amended and Restated Articles of Incorporation and Amended and Restated Bylaws defining the rights of the holders of Common Stock of the Company. 27.1 Financial Data Schedule for the three and nine months ended September 30, 1998. 27.2 Financial Data Schedule for the three and nine months ended September 30, 1997. b) Reports on Form 8-K Form 8-K filed August 19, 1998 Reporting under Item 2 that the Company entered into a definitive Asset Purchase Agreement to purchase certain assets and assume certain liabilities of Nova Financial Corporation, the Nova Agreement. Form 8-K filed October 14, 1998 Reporting under Item 2 that ProVesa, Inc., a wholly owned subsidiary of the Company, entered into a definitive Asset Purchase Agreement to purchase certain assets and assume certain liabilities of Advance Data. Form 8-K/A filed October 17, 1998 Reporting under Item 7 the Financial Statements, Pro Forma Financial Information and Exhibits with respect to the Nova Agreement. __________________ 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. November 12, 1998 /s/ John W. Collins - ------------------ --------------------------- Date John W. Collins Chairman of the Board and Chief Executive Officer (principal executive officer) November 12, 1998 /s/ Scott R. Meyerhoff - ------------------ --------------------------- Date Scott R. Meyerhoff Chief Financial Officer (principal financial and accounting officer) EXHIBIT INDEX Exhibit No. Description ------ ----------- 2.1 Asset Purchase Agreement dated August 4, 1998 by and between The Intercept Group, Inc., Nova Financial Corporation and Broadnet, Inc. (incorporated by reference to Exhibit 2.1 of the Company's Current Report on Form 8-K filed on August 19, 1998). 2.2 Asset Purchase Agreement dated September 30, 1998 by and between ProVesa, Inc., Mercantile Corporation and Dale May (incorporated by reference to Exhibit 2.1 of the Company's Current Report on Form 8-K filed on October 14, 1998). 3.1 Amended and Restated Articles of Incorporation, as filed with the Secretary of the State of Georgia on April 29, 1998, (incorporated by reference to Exhibit 3.1 of the Company's Registration Statement on Form S-1 (No. 333-47197) as declared effective by the Securities and Exchange Commission on June 9, 1998 (the "Registration Statement")). 3.2 Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 of the Registration Statement). 4.1 See Exhibits 3.1 and 3.2 for provisions of the Amended and Restated Articles of Incorporation and Amended and Restated Bylaws defining the rights of the holders of Common Stock of the Company. 27.1 Financial Data Schedule for the three and nine months ended September 30, 1998. 27.2 Financial Data Schedule for the three and nine months ended September 30, 1997. EX-27.1 2 F.D.S. FOR THREE & NINE MONTHS ENDED 9/30/98.
5 1,000 3-MOS 9-MOS DEC-31-1998 DEC-31-1998 JUL-01-1998 JAN-01-1998 SEP-30-1998 SEP-30-1998 5,646 5,646 0 0 2,944 2,944 167 167 96 96 9,097 9,097 8,559 8,559 2,566 2,566 20,042 20,042 4,313 4,313 0 0 0 0 0 0 17,176 17,176 (1,725) (1,725) 20,042 20,042 7,577 20,483 7,577 20,483 3,260 8,634 6,413 17,493 14 28 0 0 8 329 1,215 2,683 469 1,076 0 0 0 0 0 0 0 0 746 1,607 .08 .21 .08 .20
EX-27.2 3 F.D.S. FOR THREE & NINE MONTHS ENDED 9/30/97.
5 1,000 3-MOS 9-MOS DEC-31-1997 DEC-31-1997 JUL-01-1997 JAN-01-1997 SEP-30-1997 SEP-30-1997 857 857 0 0 2,643 2,643 157 157 109 109 5,119 5,119 4,618 4,618 2,164 2,164 11,009 11,009 3,835 3,835 0 0 0 0 400 400 2,676 2,676 0 0 11,009 11,009 6,201 16,739 6,201 16,739 2,662 7,315 5,595 15,773 0 0 0 0 195 576 442 497 235 356 0 0 0 0 0 0 0 0 207 141 .03 .02 .03 .02
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