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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000.
Or
[_] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______________ TO
____________, 19_____.
Commission file number : 01-14213
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The InterCept Group, Inc.
(Exact name of registrant as specified in its charter)
Georgia 58 - 2237359
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer 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. 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 July 31, 2000
12,828,768
Common Stock, no par value
(No. of Shares)
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THE INTERCEPT GROUP, INC.
INDEX TO FORM 10-Q
PAGE
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements 3
Condensed Consolidated Balance Sheets as of
June 30, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Operations for
the Three and Six Months ended June 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows for
the Six Months ended June 30, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosure About
Market Risk 15
PART II OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 18
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)
June 30, December 31,
2000 1999
----------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 2,958 $ 2,003
Short term investments 42,503 200
Accounts receivable, less allowance for doubtful accounts of $346
and $386 at June 30, 2000 and December 31, 1999, respectively 8,651 8,708
Deferred tax assets 2,185 1,956
Inventory, prepaid expenses and other 4,479 2,538
-------- -------
Total current assets 60,776 15,405
Property and equipment, net 12,669 10,628
Intangible assets, net 25,966 20,600
Advances to affiliate 14,951 10,957
Investment in affiliate 35,800 40,446
Other noncurrent assets 2,435 1,220
-------- -------
Total assets $152,597 $99,256
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of notes payable $ 3,563 $ 154
Accounts payable and accrued liabilities 3,377 6,345
Deferred revenue 6,491 5,772
-------- -------
Total current liabilities 13,431 12,271
Notes payable, less current portion 15 12,669
Deferred revenue 430 440
Deferred tax liability 25,199 22,570
-------- -------
Total liabilities 39,075 47,950
Minority interest in consolidated subsidiary 207 175
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value; 1,000,000 shares authorized; no shares
issued or outstanding - -
Common stock, no par value; 50,000,000 shares authorized;
12,828,101 and 10,117,972 shares issued and outstanding
at June 30, 2000 and December 31, 1999, respectively 108,218 42,285
Retained earnings 5,131 8,754
Accumulated other comprehensive income (34) 92
-------- -------
Total shareholders' equity 113,315 51,131
-------- -------
Total liabilities and shareholders' equity $152,597 $99,256
======== =======
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 Six Months Ended
June 30, June 30,
------------------- -----------------
2000 1999 2000 1999
---- ---- ---- ----
(unaudited) (unaudited)
Revenues:
Service fee income $12,595 $ 7,650 $ 23,516 $14,351
Data communications management income 1,517 1,255 2,918 2,394
Equipment and product sales, services and other 1,843 1,182 4,075 1,919
------- ------- -------- -------
Total revenues 15,955 10,087 30,509 18,664
Costs of services:
Cost of service fee income 3,859 2,140 6,918 4,020
Cost of data communications management income 1,051 886 2,028 1,661
Cost of equipment and product sales, services and other 1,489 882 3,209 1,521
Selling, general and administrative expenses 5,958 3,798 11,447 7,083
Depreciation and amortization 1,011 616 1,904 1,109
------- ------- -------- -------
Total operating expenses 13,368 8,322 25,506 15,394
Operating income 2,587 1,765 5,003 3,270
Other income, net 1,441 37 8,721 63
------- ------- -------- -------
Income before provision for income taxes and minority interest 4,028 1,802 13,724 3,333
Provision for income taxes 1,657 704 5,448 1,272
Equity in loss of affiliate (6,181) - (11,867) -
Minority interest in income of consolidated subsidiary (16) (38) (32) (58)
------- ------- -------- -------
Net (loss) income attributable to common shareholders (3,826) 1,060 (3,623) 2,003
======= ======= ======== =======
Net (loss) income per common share:
Basic $ (0.30) $ 0.11 $ (0.30) $ 0.21
======= ======= ======== =======
Diluted $ (0.30) $ 0.11 $ (0.30) $ 0.20
======= ======= ======== =======
Weighted average shares outstanding:
Basic 12,827 9,594 12,124 9,444
Diluted 12,827 10,035 12,124 9,802
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)
Six Months Ended
June 30,
-----------------
2000 1999
------ ------
(unaudited)
Cash flows from operating activities:
Net (loss) income before preferred dividends $ (3,623) $ 2,003
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,904 1,109
Minority interest in income of consolidated subsidiary 32 58
Deferred income tax provision 2,400 77
Gain on sale of property and equipment (4) -
Gain due to stock issuances of subsidiary (7,197) -
Equity in net loss of affiliate 11,867 -
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable, net (1,376) (67)
Inventory, prepaid expenses, and other (614) (1,112)
Other assets (110) (409)
Accounts payable and accrued expenses (3,207) 363
Deferred revenue 603 (241)
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Net cash provided by operating activities 675 1,781
-------- -------
Cash flows from investing activities:
Acquisitions, net of cash acquired (4,747) (375)
Decrease in note receivable 7 6
Purchase of investments (43,504) -
Advances to affiliate (3,994) -
Purchases of property and equipment, net (3,761) (2,440)
Increases in capitalized software (409) (202)
-------- -------
Net cash used in investing activities (56,408) (3,011)
-------- -------
Cash flows from financing activities:
Proceeds from line of credit 12,250 761
Income tax benefit related to exercise of stock options 40 -
Retirement of common stock (32) -
Payments on notes payable and line of credit (21,495) (327)
Proceeds from issuance of common stock, net of related issuance costs 65,680 -
Proceeds from exercise of stock options 245 15
-------- -------
Net cash provided by financing activities 56,688 449
Net (decrease) increase in cash and cash equivalents 955 (781)
Cash and cash equivalents at beginning of the period 2,003 3,224
-------- -------
Cash and cash equivalents at end of the period $ 2,958 $ 2,443
======== =======
Supplemental disclosures of cash flow information:
Cash paid for interest $ 100 $ 28
======== =======
Cash paid for income taxes $ 4,285 $ 739
======== =======
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
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 1,500 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 follow on 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 June 30, 2000, our
accounts and the accounts of our following wholly-owned subsidiaries:
ProVesa Services, Inc.,
InterCept Switch, Inc.,
LEV Acquisition Corp.
InterCept Communications Technologies, Inc.
SBS Data Services, Inc.
In addition, ProImage, Inc., a corporation in which ProVesa has a 67%
ownership interest as of June 30, 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.("Netzee"), 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 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 Netzee's initial public
offering, we have recorded only our relative percentage of Netzee's net
losses. As of June 30, 2000 we owned approximately 35% of Netzee's common
stock.
During 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 $7.2 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." SAB No.
101 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 by the fourth quarter of 2000. We have
reviewed our revenue recognition policy and do not expect the adoption of
SAB No. 101 to have a material impact on our results of operations.
3. Accounting Changes
In July 1999, we announced a letter of intent to merge our 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. All options were anti-dilutive for
the periods ending June 30, 2000 and have been excluded from the
computation of net loss per share.
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
June 30, 2000 June 30, 1999
----------------------------- ---------------------------
Income Shares EPS Income Shares EPS
-------- ------ ------- ------ ------ -----
Basic EPS $(3,826) 12,827 $(0.30) $1,060 9,594 $0.11
Dilutives:
Stock options - - - - 441 -
------- ------ ------ ------ ------ -----
Diluted EPS $(3,826) 12,827 $(0.30) $1,060 10,035 $0.11
======= ====== ====== ====== ====== =====
Six Months Ended Six Months Ended
June 30, 2000 June 30, 1999
------------------------------ ---------------------------
Income Shares EPS Income Shares EPS
-------- ------ ------- ------ ------ -----
Basic EPS $(3,623) 12,124 $(0.30) $2,003 9,444 $0.21
Dilutives:
Stock options - - - - 358 -
------- ------ ------ ------ ----- -----
Diluted EPS $(3,623) 12,124 $(0.30) $2,003 9,802 $0.20
======= ====== ====== ====== ===== =====
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 Six Months Ended
June 30, June 30,
-------------------- ------------------
2000 1999 2000 1999
------ ------ ------ ------
Net income, as reported $(3,826) $1,060 (3,623) 2,003
Unrealized gain on securities,
net of tax: (40) (55) (126) 26
------- ------ ------ -----
Comprehensive income $(3,866) $1,005 (3,749) 2,029
======= ====== ====== =====
6. Acquisitions
During the second quarter of 2000 we completed several acquisitions. The
consideration exchanged for these acquisitions was approximately $3.5
million. The acquisitions were accounted for as purchases in accordance
with Accounting Principles Board ("APB") Opinion No. 16, and, accordingly
the purchase prices of each acquisition have 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 June 30, 2000, we charged
approximately $20,000 of lease costs related to the non-cancelable
obligation against the reserve. There was no remaining reserve as of June
30, 2000.
8. Long-Term Debt and Capital Lease Obligations
Long-term debt and capital lease obligations at June 30, 2000 and December
31, 1999 consisted of the following (in thousands):
June 30, 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. $ - $ 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. - 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. 3,511 12,511
Equipment under capital lease expiring July 2001. 67 103
------- -------
3,578 12,823
Less current maturities (3,563) (154)
------- -------
$ 15 $12,669
======= =======
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.
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 additional ATM. 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 consolidated
Netzee's results of operations with our results of operations. We 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 November
1999,
all of Netzee's losses prior to the completion of the offering were included in
that line item rather than our relative percentage of those losses. Following
the completion of the initial public offering we recorded only our relative
percentage of Netzee's net losses. As of June 30, 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.
In February 2000, we completed a follow on public offering of its common
stock. Proceeds from this offering (after deducting expenses related to the
offering) were approximately $66.0 million. Proceeds of this offering were used
to pay certain debt and will be used to fund future acquisitions and investments
and for working capital and other general corporate purposes.
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 Six Months Ended
June 30, June 30,
-------------------- ------------------
2000 1999 2000 1999
---- ---- ---- ----
Revenues 100.0 % 100.0 % 100.0 % 100.0 %
Costs of services 40.1 38.7 39.9 38.6
Selling, general, and
administrative expenses 37.4 37.7 37.5 38.0
Depreciation and
amortization 6.3 6.1 6.2 5.9
----- ----- ----- -----
Total operating expenses 83.8 82.5 83.6 82.5
----- ----- ----- -----
Operating income 16.2 17.5 16.4 17.5
Other income (expense), net 9.0 0.4 28.6 0.3
----- ----- ----- -----
Income before minority
interest and provision for income taxes 25.2 17.9 45.0 17.8
Provision for income taxes 10.4 7.0 17.9 6.8
Equity in loss of affiliate (38.7) - (38.9) -
Minority interest in
income of consolidated
subsidiary (0.1) (0.4) (0.1) (0.3)
----- ----- ----- -----
Net income (24.0)% 10.5 % (11.9)% 10.7 %
===== ===== ===== =====
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999
Revenues. Revenues increased 58.2% to $16.0 million for the three months
ended June 30, 2000 from $10.1 million for the three months ended June 30, 1999.
The $5.9 million increase was primarily attributable to (i) $4.9 million
generated by an increase in service fee income, (ii) $660,000 generated by
additional hardware sales, and (iii) $260,000 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 63.7% to $6.4 million for
the three months ended June 30, 2000 from $3.9 million for the three months
ended June 30, 1999. The $2.5 million increase was primarily attributable to (i)
$1.7 million related to service fee income, (ii) $630,000 generated by
additional hardware sales, and (iii) $170,000 related to data communications
management.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 56.9% to $6.0 million for the three months
ended June 30, 2000 from $3.8 million for the three months ended June 30, 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
64.1% to $1.0 million for the three months ended June 30, 2000 from $620,000 for
the three months ended June 30, 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 $1.4 million
for the three months ended June 30, 2000 from $40,000 for the three months ended
June 30, 1999. The $1.4 million increase was primarily due to an increase of
$1.0 million in interest income generated from the investment of the
approximately $66.0 million proceeds from the follow on public offering in
February, 2000 and a $340,000 gain associated with the issuance of common stock
of Netzee, Inc.
Provision for Income Taxes. Provision for income taxes increased to $1.7
million for the three months ended June 30, 2000 from $700,000 for the three
months ended June 30, 1999. The $1.0 million increase was attributable to
$870,000 associated with increased pre-tax profits and the remaining increase of
$130,000 is due to the issuance of common stock of Netzee.
Equity in Loss of Affiliate. Equity in loss of affiliate was $6.1 million
for the three months ended June 30, 2000. This amount is our share of Netzee's
net loss. There was no equity in loss of affiliate for the three months ended
June 30, 1999.
Minority Interest in Income of Consolidated Subsidiary. Minority interest
in income of consolidated subsidiary decreased to $20,000 for the three months
ended June 30, 2000 from $40,000 for the three months ended June 30, 1999.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
Revenues. Revenues increased 63.5% to $30.5 million for the six months
ended June 30, 2000 from $18.7 million for the six months ended June 30, 1999.
The $11.8 million increase was primarily attributable to (i) $9.1 million
generated by an increase in service fee income, (ii) $2.2 million generated by
additional hardware sales, and (iii) $520,000 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 68.8% to $12.2 million for
the six months ended June 30, 2000 from $7.2 million for the six months ended
June 30, 1999. The $5.0 million increase was primarily attributable to (i) $2.9
million related to service fee income, (ii) $1.7 million generated by additional
hardware sales, and (iii) $370,000 related to data communications management.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 61.6% to $11.4 million for the six months
ended June 30, 2000 from $7.1 million for the six months ended June 30, 1999.
The $4.4 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
71.7% to $1.9 million for the six months ended June 30, 2000 from $1.1 million
for the six months ended June 30, 1999. The $800,000 increase was primarily
attributable to additional property, plant and equipment and additional
amortization from acquisitions.
Other Income (Expense). Other income (expense) increased to $8.7 million
for the six months ended June 30, 2000 from $60,000 for the six months ended
June 30, 1999. The increase was primarily due a $7.2 million gain associated
with the issuance of common stock of Netzee. and to an increase of $1.5 million
in interest income, due to the investment of the approximately $66.0 million
proceeds from the follow on public offering, offset by $100,000 in interest
expense.
Provision for Income Taxes. Provision for income taxes increased to $5.4
million for the six months ended June 30, 2000 from $1.3 million for the six
months ended June 30, 1999. The increase was attributable to $2.8 million due to
the issuance of common stock of Netzee and the remaining increase of $1.3
million was associated with increased pre-tax profits.
Equity in Loss of Affiliate. Equity in loss of affiliate was $11.9 million
for the six months ended June 30, 2000. This amount is our share of Netzee's
net loss. There was no equity in loss of affiliate for the six months ended
June 30, 1999.
Minority Interest in Income of Consolidated Subsidiary. Minority interest
in income of consolidated subsidiary decreased to $30,000 for the six months
ended June 30, 2000 from $60,000 for the six months ended June 30, 1999.
Liquidity and Capital Resources
Cash and cash equivalents were $3.0 million at June 30, 2000. Short term
investments with a maturity of one year or less were $42.5 million. Net cash
provided by operating activities was $680,000 for the six months ended June 30,
2000 and was $1.8 million for the six months ended June 30, 1999. The decrease
in the net cash provided by operating activities was primarily attributable to
an increase in net income before the impact of the investment in
Netzee, Inc. offset by the impact of the loss incurred by Netzee, Inc.
Net cash used in investing activities was $56.4 million for the six months
ended June 30, 2000 as compared to net cash used in investing activities of $3.0
million for the six months ended June 30, 1999. The increase in net cash used
in investing activities was primarily due to an increase in our investments
resulting from our follow on public offering of common stock in February 2000.
Net cash provided by financing activities was $56.7 million for the six
months ended June 30, 2000 compared to net cash provided by financing activities
$450,000 for the six months ended June 30, 1999, respectively. The increase in
net cash provided by financing activities was primarily due to the completion of
our follow on public offering of common stock in February, 2000, offset by
payments of debt obligations.
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 June 30, 2000, the interest
rate under this facility was approximately 6.64%.
As of May 31, 2000, we have committed, subject to some conditions, to
provide to Netzee a $15.0 million line of credit for its working capital needs.
As of June 30, 2000, a total of $14.9 million was due from Netzee under this
promissory note.
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 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 risks from interest rate fluctuations. As of June 30, 2000, we had
$3.5 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.
Proceeds from our follow on public offering during February, 2000 were
approximately $66.0 million. We have invested certain of these funds in various
short term interest bearing facilities. Changes in interest rates which
dramatically decrease the interest rate on these facilities would reduce our
interest income from these facilities.
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
On May 15, 2000, we held our Annual Meeting of Shareholders. The results of
the proposals submitted for vote at such meeting were as follows:
1. Election of two Directors (there were no abstentions or broker non-votes in
connection with the election of directors).
For Withhold
Boone A. Knox 8,988,658 97,308
John D. Schneider, Jr. 8,989,658 96,308
2. Ratification of Arthur Andersen LLP as our independent public accountants
for the year ended December 31, 2000 (there were no broker non-votes in
connection with the ratification of Arthur Andersen LLP).
Number of Shares
For 8,991,458
Against 90,998
Abstain 3,510
3. Amendment of our 1996 Stock Option Plan to increase the shares reserved for
issuance thereunder.
Number of Shares
For 6,138,105
Against 1,576,723
Abstain 8,770
Broker Non Vote 1,362,368
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.
10.1 Credit Agreement, dated May 31, 2000, by and between Netzee, Inc. and
The InterCept Group, Inc.
27.1 Financial Data Schedule for the three and six months ended June 30,
2000.
b) Reports on Form 8-K
None.
__________________
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.
August 11, 2000 /s/ John W. Collins
- --------------- ------------------------------------
Date John W. Collins
Chairman of the Board and Chief
Executive Officer
(principal executive officer)
August 11, 2000 /s/ Scott R. Meyerhoff
- --------------- ------------------------------------
Date Scott R. Meyerhoff
Chief Financial Officer
(principal financial and accounting officer)