-----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, Hsvbjb2FddbAEJ87H5DqaLoLNKmYrRuewAtrTzwJ7JI1/iFJ4d1cvKXxW8SbKu91 90Yd4tLZWOA37FJhg+FNWg== 0000931763-99-003056.txt : 19991109 0000931763-99-003056.hdr.sgml : 19991109 ACCESSION NUMBER: 0000931763-99-003056 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990903 ITEM INFORMATION: FILED AS OF DATE: 19991108 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERCEPT GROUP INC CENTRAL INDEX KEY: 0001054930 STANDARD INDUSTRIAL CLASSIFICATION: FUNCTIONS RELATED TO DEPOSITORY BANKING, NEC [6099] IRS NUMBER: 582237359 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 001-14213 FILM NUMBER: 99743632 BUSINESS ADDRESS: STREET 1: 3150 HOLCOMB BRIDGE ROAD SUITE 200 CITY: NORCROSS STATE: GA ZIP: 30071 BUSINESS PHONE: 7702489600 MAIL ADDRESS: STREET 1: 3150 HOLCOMB BRIDGE ROAD SUITE 200 CITY: NORCROSS STATE: GA ZIP: 30071 8-K/A 1 AMENDMENT #2 TO FORM 8-K/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------- FORM 8-K/A AMENDMENT NO. 2 CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): September 3, 1999 --------------------- THE INTERCEPT GROUP, INC. ------------------------- (Exact Name of Registrant as Specified in its Charter)
Georgia 01-14213 58-2237359 - -------------------------------------------------------------------------------- (State or Other (Commission (I.R.S. Employer Jurisdiction of File Number) Identification No.) Incorporation)
3150 Holcomb Bridge Road, Suite 200, Norcross, Georgia 30071 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (770) 248-9600 -------------- N/A ------------------------------------ (Former Name or Former Address, if Changed Since Last Report) Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. The registrant hereby amends its report on Form 8-K filed on September 17, 1999, as amended on September 30, 1999, by deleting Exhibits 99.3 and 99.4 in their entirety and replacing them with Exhibits 99.3 and 99.4 attached hereto. (a) Financial Statements of Business Acquired. (c) Exhibits. Item No. Exhibit List 2.1* Agreement and Plan of Merger dated September 3, 1999 by and between Netzee, Inc. and Direct Access Interactive, Inc. 2.2* Agreement and Plan of Merger dated September 3, 1999 by and between Netzee, Inc., Dyad Corporation and certain of the shareholders of Dyad Corporation. 2.3* Asset Contribution Agreement dated September 3, 1999 by and among The InterCept Group, Inc., Netzee, Inc. and The Bankers bank. 2.4* Asset Contribution Agreement dated September 3, 1999 by and among The InterCept Group, Inc., and TIB The Independent Banker's Bank. 99.1* The following financial statements of Dyad Corporation together with the report by Arthur Andersen LLP for the periods stated therein: Consolidated Balance Sheets as of December 31, 1997 and 1998 and June 30, 1999 (Unaudited) Consolidated Statements of Operations for the years ended December 31, 1997 and 1998 and the six months ended June 30, 1998 and 1999 (Unaudited) Consolidated Statements of Changes in Shareholders' Deficit for the years ended December 31, 1997 and 1998 and the six months ended June 30, 1999 (Unaudited) Consolidated Statements of Cash Flows for the years ended December 31, 1997 and 1998 and for the six months ended June 30, 1998 and 1999 (Unaudited) Notes to Consolidated Financial Statements 99.2 The following financial statements of The Bankers Bank together with the report by Arthur Andersen LLP for the periods stated therein: Balance Sheets as of December 31, 1998 and June 30, 1999 (Unaudited) Statements of Operations for the period from Inception (March 1, 1998) to December 31, 1998 and for the period from Inception (March 1, 1998) to June 30, 1998 and for the six month period ended June 30, 1999 (Unaudited) Statements of Changes in Accumulated Deficit for the period from Inception (March 1, 1998) to December 31, 1998 and for the six month period ended June 30, 1999 (Unaudited) Statements of Cash Flows for the period from Inception (March 1, 1998) to December 31, 1998 and for the period from Inception (March 1, 1998) to June 30, 1998 and for the six month period ended June 30, 1999 (Unaudited) Notes to Financial Statements 2 99.3* The following financial statements of The Independent BankersBank together with the report by Arthur Andersen LLP for the periods stated therein: Balance Sheets as of December 31, 1997 and 1998 and June 30, 1999 (Unaudited) Statements of Operations for the period from inception (February 1, 1997) to December 31, 1997 and for the year ended December 31, 1998 and for the six months ended June 30, 1998 and 1999 (Unaudited) Statements of Changes in Accumulated Deficit for the period from inception (February 1, 1997) to December 31, 1997 and for the year ended December 31, 1998 and for the six months ended June 30, 1999 (Unaudited) Statements of Cash Flows for the period from inception (February 1, 1997) to December 31, 1997 and for the year ended December 31, 1998 and for the six months ended June 30, 1998 and 1999 (Unaudited) Notes to Financial Statements 99.4 The following unaudited pro forma condensed consolidated financial statements of The InterCept Group, Inc., the Company's recent acquisitions including Dyad, The Bankers Bank and The Independent BankersBank. Pro Forma Condensed Consolidated Balance Sheet as of June 30, 1999. Pro Forma Condensed Consolidated Statement of Operations for the six months ended June 30, 1999. Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 1998. Notes to Pro Forma Condensed Consolidated Financial Statements. * Previously filled. 3 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. THE INTERCEPT GROUP, INC. By: /s/ Scott R. Meyerhoff ----------------------------------------- Scott R. Meyerhoff Chief Financial Officer Dated: November 8, 1999 4 EXHIBIT LIST Exhibit No. Description - ----------- ----------- 2.1* Agreement and Plan of Merger dated September 3, 1999 by and between Netzee, Inc. and Direct Access Interactive, Inc. 2.2* Agreement and Plan of Merger dated September 3, 1999 by and between Netzee, Inc., Dyad Corporation and certain of the shareholders of Dyad Corporation. 2.3* Asset Contribution Agreement dated September 3, 1999 by and among The InterCept Group, Inc., Netzee, Inc. and The Bankers bank. 2.4* Asset Contribution Agreement dated September 3, 1999 by and among The InterCept Group, Inc., and TIB The Independent Banker's Bank. 99.1* The following financial statements of Dyad Corporation together with the report by Arthur Andersen LLP for the periods stated therein: Consolidated Balance Sheets as of December 31, 1997 and 1998 and June 30, 1999 (Unaudited) Consolidated Statements of Operations for the years ended December 31, 1997 and 1998 and the six months ended June 30, 1998 and 1999 (Unaudited) Consolidated Statements of Changes in Shareholders' Deficit for the years ended December 31, 1997 and 1998 and the six months ended June 30, 1999 (Unaudited) Consolidated Statements of Cash Flows for the years ended December 31, 1997 and 1998 and for the six months ended June 30, 1998 and 1999 (Unaudited) Notes to Consolidated Financial Statements 99.2 The following financial statements of The Bankers Bank together with the report by Arthur Andersen LLP for the periods stated therein: Balance Sheets as of December 31, 1998 and June 30, 1999 (Unaudited) Statements of Operations for the period from Inception (March 1, 1998) to December 31, 1998 and for the period from Inception (March 1, 1998) to June 30, 1998 and for the six month period ended June 30, 1999 (Unaudited) Statements of Changes in Accumulated Deficit for the period from Inception (March 1, 1998) to December 31, 1998 and for the six month period ended June 30, 1999 (Unaudited) Statements of Cash Flows for the period from Inception (March 1, 1998) to December 31, 1998 and for the period from Inception (March 1, 1998) to June 30, 1998 and for the six month period ended June 30, 1999 (Unaudited) Notes to Financial Statements 99.3* The following financial statements of The Independent BankersBank together with the report by Arthur Andersen LLP for the periods stated therein: Balance Sheets as of December 31, 1997 and 1998 and June 30, 1999 (Unaudited) Statements of Operations for the period from inception (February 1, 1997) to December 31, 1997 and for the year ended December 31, 1998 and for the six months ended June 30, 1998 and 1999 (Unaudited) Statements of Changes in Accumulated Deficit for the period from inception (February 1, 1997) to December 31, 1997 and for the year ended December 31, 1998 and for the six months ended June 30, 1999 (Unaudited) Statements of Cash Flows for the period from inception (February 1, 1997) to December 31, 1997 and for the year ended December 31, 1998 and for the six months ended June 30, 1998 and 1999 (Unaudited) Notes to Financial Statements 99.4 The following unaudited pro forma condensed consolidated financial statements of The InterCept Group, Inc., the Company's recent acquisitions including Dyad, The Bankers Bank and The Independent BankersBank. Pro Forma Condensed Consolidated Balance Sheet as of June 30, 1999. Pro Forma Condensed Consolidated Statement of Operations for the six months ended June 30, 1999. Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 1998. Notes to Pro Forma Condensed Consolidated Financial Statements. * Previously filed. EX-99.2 2 FINANCIAL STATEMENTS OF THE BANKERS BANK EXHIBIT 99.2 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To The Internet Banking Division of The Bankers Bank: We have audited the accompanying balance sheet of THE INTERNET BANKING DIVISION OF THE BANKERS BANK (an unincorporated division of a Georgia chartered Federal Reserve member bank) as of December 31, 1998 and the related statements of operations, changes in accumulated deficit, and cash flows for the period from inception (March 1, 1998) to December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Internet Banking Division of The Bankers Bank as of December 31, 1998 and the results of its operations and its cash flows for the period from inception (March 1, 1998) to December 31, 1998 in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Atlanta, Georgia September 3, 1999 THE INTERNET BANKING DIVISION OF THE BANKERS BANK BALANCE SHEETS
December 31, June 30, 1998 1999 ------------ ----------- (Unaudited) ASSETS CURRENT ASSETS: Accounts receivable, net of allowance for doubtful accounts of $0 and $36,000 at December 31, 1998 and June 30, 1999, respectively........................ $ 205,750 $ 156,346 Other receivables................................... 214,224 705,095 Deferred expenses................................... 286,500 181,500 ---------- ---------- Total current assets.............................. 706,474 1,042,941 PROPERTY AND EQUIPMENT, net........................... 113,563 284,498 CAPITALIZED SOFTWARE DEVELOPMENT COSTS................ 214,145 644,717 ---------- ---------- Total assets...................................... $1,034,182 $1,972,156 ========== ========== LIABILITIES AND ACCUMULATED DEFICIT CURRENT LIABILITIES: Accounts payable and accrued expenses............... $ 314,826 $ 75,778 Deferred revenue.................................... 326,500 251,000 Due to Parent....................................... 849,531 2,494,118 ---------- ---------- Total current liabilities......................... 1,490,857 2,820,896 ---------- ---------- COMMITMENTS AND CONTINGENCIES (Notes 4 and 7) ACCUMULATED DEFICIT: Accumulated deficit................................. (456,675) (848,740) ---------- ---------- Total liabilities and accumulated deficit......... $1,034,182 $1,972,156 ========== ==========
The accompanying notes are an integral part of these balance sheets. THE INTERNET BANKING DIVISION OF THE BANKERS BANK STATEMENTS OF OPERATIONS
For the Period For the Period from Inception from Inception For the Six (March 1, 1998) to (March 1, 1998) to Months Ended December 31, 1998 June 30, 1998 June 30, 1999 ------------------ ------------------ ------------- (Unaudited) (Unaudited) REVENUES: Installation fees........ $ 67,500 $ 10,000 $ 189,000 Monthly license and support fees............ 9,536 354 46,721 --------- --------- --------- Total revenues......... 77,036 10,354 235,721 --------- --------- --------- OPERATING EXPENSES: Cost of installation, license, and support.... (112,583) (12,000) (231,934) Selling, general, and administrative expenses................ (416,455) (120,214) (381,756) Depreciation and amortization............ (4,673) (1,369) (14,096) --------- --------- --------- Total operating expenses.............. (533,711) (133,583) (627,786) --------- --------- --------- NET OPERATING LOSS......... $(456,675) $(123,229) $(392,065) ========= ========= =========
The accompanying notes are an integral part of these statements. THE INTERNET BANKING DIVISION OF THE BANKERS BANK STATEMENTS OF CHANGES IN ACCUMULATED DEFICIT
Accumulated Deficit ----------- BALANCE at inception, March 1, 1998................................ $ 0 Net loss......................................................... (456,675) --------- BALANCE, December 31, 1998......................................... (456,675) Net loss (unaudited)............................................. (392,065) --------- BALANCE, June 30, 1999 (unaudited)................................. $(848,740) =========
The accompanying notes are an integral part of these statements. THE INTERNET BANKING DIVISION OF THE BANKERS BANK STATEMENTS OF CASH FLOWS
For the Period From Inception For the Period (March 1, 1998) From Inception For the to (March 1, 1998) Six Months Ended December 31, 1998 to June 30, 1998 June 30, 1999 ----------------- ---------------- ----------------- (Unaudited) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss................. $(456,675) $(123,229) $ (392,065) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization........... 4,673 1,369 14,096 Changes in assets and liabilities: Accounts receivable..... (205,750) (45,250) 49,404 Other receivables....... (214,224) 0 (490,871) Deferred expenses....... (286,500) (108,000) 105,000 Accounts payable and accrued expenses....... 314,826 138,955 (239,048) Deferred revenue........ 326,500 101,000 (75,500) --------- --------- ----------- Net cash used in operating activities........... (517,150) (35,155) (1,028,984) --------- --------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to capitalized software development costs................... (214,145) 0 (430,572) Purchase of property and equipment............... (118,236) (15,899) (185,031) --------- --------- ----------- Net cash used in investing activities........... (332,381) (15,899) (615,603) --------- --------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from Parent............... 849,531 51,054 1,644,587 --------- --------- ----------- NET CHANGE IN CASH........ 0 0 0 CASH, beginning of period................... 0 0 0 --------- --------- ----------- CASH, end of period....... $ 0 $ 0 $ 0 ========= ========= ===========
The accompanying notes are an integral part of these statements. THE INTERNET BANKING DIVISION OF THE BANKERS BANK NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 (Information as of June 30, 1999 and for the Six Months Ended June 30, 1998 and 1999 is Unaudited) 1. ORGANIZATION, NATURE OF BUSINESS, AND BASIS OF PRESENTATION The Internet Banking Division of The Bankers Bank (the "Company") was established as an unincorporated division on March 1, 1998 by The Bankers Bank (the "Parent"), a Georgia chartered Federal Reserve member bank. The Company was organized to provide business solutions utilizing Internet-enabled technology to financial institutions and their customers and business customers in the United States. The Company provides a blend of marketing and technical expertise to deliver, support, and promote Internet-enabled technology to financial institutions. The Company has developed a number of Internet banking services that enable financial institutions to utilize a system of hardware and software, developed, implemented, and maintained by the Company, through which customers of the financial institution can use commonly available personal computer software to communicate electronically with the financial institution and perform certain electronic home banking, bill paying, and other on-line banking transactions. The accompanying financial statements present the financial position, results of operations, and cash flows of the Company as if it were a separate entity for all periods presented. Accordingly, the accompanying financial statements for the period from inception (March 1, 1998) to December 31, 1998, the period from inception (March 1, 1998) to June 30, 1998, and the six month period ended June 30, 1999 include certain administrative costs and expenses which have been allocated to the Company by the Parent. The costs have been allocated on a pro rata basis based primarily on employee headcount or incurred time and services and represent management's best estimates of what support costs would have been had the Company been operated as a separate entity. The Parent performs services and incurs certain costs for the Company. Services provided include tax, treasury, risk management, employee benefits, legal, data processing, application of cash receipts, and other general corporate services. Corporate costs of Parent services totaling $145,670, $60,006, and $236,596 have been allocated to the Company during the period from inception (March 1, 1998) to December 31, 1998, the period from inception (March 1, 1998) to June 30, 1998, and the six month period ended June 30, 1999, respectively, and are included in selling, general, and administrative expenses in the accompanying statements of operations. In the opinion of management, the method of allocating these costs is reasonable. However, the costs of services charged to the Company are not necessarily indicative of the costs that would have been incurred if the Company had performed these functions. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Interim Unaudited Financial Information The financial statements as of June 30, 1999 and for the period from inception (March 1, 1998) to June 30, 1998, and for the six months ended June 30, 1999 are unaudited; however, in the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the unaudited financial statements for these interim periods have been included. The results of the interim periods are not necessarily indicative of the results to be obtained for a full year. THE INTERNET BANKING DIVISION OF THE BANKERS BANK NOTES TO FINANCIAL STATEMENTS--(Continued) Property and Equipment The Parent holds legal title to all property and equipment. These assets are stated at cost. Major property additions, replacements, and betterments are capitalized, while maintenance and repairs which do not extend the useful lives of these assets are expensed as incurred. Depreciation is provided using the straight-line method for financial reporting purposes. The property and equipment primarily consist of leasehold improvements and are depreciated over the remaining term of the lease. Capitalized Software Development Costs Research and development costs are expensed as incurred. Computer software development costs are charged to research and development expense until technological feasibility of the software is established; after which, remaining software production costs are capitalized in accordance with Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting For Computer Software to be Sold, Leased, or Otherwise Marketed." Amortization of capitalized software-development costs begins as products are made available for sale or as the related product is put into use with annual amortization equal to the greater of the amount computed using the ratio that current gross revenues bear to the total of current and anticipated future gross revenues for the product or the straight-line method over the remaining economic life of the product, not to exceed five years. Currently, none of the developed software is available for general release and, as such, is not being amortized. Revenue Recognition The Company's revenue consists of revenues from the licensing of software and fees from consulting, implementation, training, and maintenance services. The Company recognizes revenue in accordance with the provisions of the American Institute of Certified Public Accountants Statement of Position No. 97-2, "Software Revenue Recognition." The Company recognizes the one-time nonrefundable implementation fee upon completion of the installation of the software. License revenues and maintenance fees related to customer maintenance and support are billed together and recognized ratably over the term of the software license and support agreement, which is typically three years. Amounts that have been prepaid or invoiced but that do not yet qualify for recognition under the Company's revenue recognition policy are reflected as deferred revenues. Deferred Revenue and Deferred Expenses Deferred revenue represents the liability for advanced billings to customers primarily related to Internet banking software and hardware implementation and training. Such amounts are recognized upon completion. Deferred expenses represent services provided to the Company's customers by third parties. These third parties provide service related to Internet banking software and hardware implementation, training and conversion of the financial institution's customer data. Such amounts are recognized in expense when the related revenue is recognized. Returns and Product Warranty The Company provides for the costs of returns and product warranty claims when specific problems are identified. The Company has not experienced significant returns or warranty claims to date. THE INTERNET BANKING DIVISION OF THE BANKERS BANK NOTES TO FINANCIAL STATEMENTS--(Continued) Fair Value Financial Instruments The fair value of instruments classified as current assets or liabilities, including accounts receivable and accounts payable, approximate carrying value due to the short-term maturity of the instruments. Long-Lived Assets The Company periodically reviews the values assigned to long-lived assets to determine if any impairments have occurred. Management believes that the long- lived assets on the accompanying balance sheets are appropriately valued. Accounts Payable and Accrued Expenses Accounts payable and accrued expenses include the following as of December 31, 1998 and June 30, 1999:
1998 1999 -------- ------- Accounts payable............................................ $294,826 $75,778 Accrued license fee......................................... 20,000 0 -------- ------- $314,826 $75,778 ======== =======
Funding of Operations by Parent The Parent funds the Company's operations as necessary. Transfers of operating funds between the Parent and the Company occur on a noninterest- bearing basis, with the net amounts of these transfers reflected in due to the Parent in the accompanying balance sheets. The net balance in due to Parent of $849,531 and $2,494,118 at December 31, 1998 and June 30, 1999, respectively, is classified as a component of current liabilities in the accompanying balance sheets. Income Taxes The Company uses the liability method of accounting for income taxes, as set forth in SFAS No. 109, "Accounting for Income Taxes." Under the liability method, deferred tax assets or liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to be settled or realized. Comprehensive Loss Comprehensive loss for the period from inception (March 1, 1998) to December 31, 1998, the period from inception (March 1, 1998) to June 30, 1998, and the six month period ended June 30, 1999 is the same as the net loss as presented in the accompanying statements of operations. Advertising and Sales Promotion Costs Advertising and sales promotion costs are expensed as incurred and totaled $23,037, $54,692, and $50 from the period from inception (March 1) to June 30, 1998, the period from inception (March 1) to December 31, 1998, and the six month period ended June 30, 1999, respectively. New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards THE INTERNET BANKING DIVISION OF THE BANKERS BANK NOTES TO FINANCIAL STATEMENTS--(Continued) for derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The statement is effective for all fiscal quarters for all fiscal years beginning after June 15, 2000. The statement is not expected to have a significant impact on the Company's financial statements. 3. PROPERTY AND EQUIPMENT Property and equipment at December 31, 1998 and June 30, 1999 consist of the following:
1998 1999 -------- -------- Furniture, fixtures, and leasehold improvements.......... $ 93,771 $150,391 Computer equipment....................................... 20,482 129,292 Computer software........................................ 3,983 23,584 -------- -------- 118,236 303,267 Less accumulated depreciation............................ (4,673) (18,769) -------- -------- Property and equipment, net.............................. $113,563 $284,498 ======== ========
Depreciation expense for the period from inception (March 1, 1998) to December 31, 1998, the period from inception (March 1, 1998) to June 30, 1998, and the six month period ended June 30, 1999 was $4,673, $1,369, and $14,096, respectively. 4. RELATED-PARTY TRANSACTIONS On September 3, 1999, the Company was acquired by Netzee, Inc. ("Netzee"), as discussed in Note 8. The Internet Banking Division of The Independent Bankers Bank ("TIB") was also acquired by Netzee on this date. The Company and TIB have conducted business together since the Company's inception (March 1, 1998). The Company paid TIB $40,000 for the period from inception (March 1, 1998) to December 31, 1998 for the right to share outsourced financial institution customer data conversion services, for which TIB has an agreement with a third party. This fee is included in cost of implementation, maintenance, and usage on the accompanying statements of operations for the period from inception (March 1, 1998) to December 31, 1998. Actual fees for conversion services are billed and paid through TIB. The Company incurred $54,000, $12,000, and $109,000 in conversion services expense during the period from inception (March 1, 1998) to December 31, 1998, the period from inception (March 1, 1998) to June 30, 1998, and the six month period ended June 30, 1999, respectively. At December 31, 1998 and June 30, 1999, the Company owed TIB $25,710 and $74,386, respectively, for conversion services performed by the third party. On January 1, 1999, the Company entered into a product development agreement with TIB and an independent developer (the "Developer"), in which the Developer is developing two commercial cash management systems for the Company and TIB, who will share ownership and development costs of such systems equally. The actual development began in 1998. The Company pays the Developer for all costs incurred and TIB reimburses the Company for half of the amounts. The Company accounts for the computer development costs in accordance with SFAS No. 86, as discussed in Note 1. At December 31, 1998 and June 30, 1999, TIB owed the Company $214,224 and $704,893, respectively, for development costs incurred to date. This receivable is included in other receivables on the accompanying balance sheets. 5. INCOME TAXES The Company was included in the consolidated federal income tax return of the Parent for the fiscal year ended December 31, 1998. The Company's provision for income tax benefit in the accompanying THE INTERNET BANKING DIVISION OF THE BANKERS BANK NOTES TO FINANCIAL STATEMENTS--(Continued) statements of operations reflect the federal and state income taxes calculated as if the Company was a stand-alone entity. The Company has incurred a net operating loss ("NOL") since inception. As of December 31, 1998, the Company has NOL carryforwards of approximately $416,000 available to offset its future income tax liability. The NOL carryforwards begin to expire in 2018. Due to the uncertainty of the realizability of the net operating losses, the Company has not reflected these carryforwards in the accompanying statements of operations on a stand-alone basis an income tax benefit for any period presented and recorded a valuation allowance equal to the net deferred tax assets of the Company at December 31, 1998. The components of the income tax benefit for the period from inception (March 1, 1998) to December 31, 1998 are as follows: Current: Federal...................................................... $ 0 State........................................................ 0 --------- 0 Deferred: Federal...................................................... (155,087) State........................................................ (18,246) --------- (173,333) Change in valuation allowance.................................. 173,333 --------- Total...................................................... $ 0 =========
The following is a summary of the items which caused recorded income taxes to differ from taxes computed using the statutory federal income tax rate for the period from inception (March 1, 1998) to December 31, 1998: Tax benefit at statutory rate....................................... (34)% Effect of: State income tax, net............................................. (4) Valuation allowance............................................... 38 --- Income tax benefit.................................................. 0 % ===
Deferred tax assets and liabilities are determined based on the difference between the financial accounting and tax basis of assets and liabilities. Significant components of the Company's deferred tax assets and liabilities as of December 31, 1998 are as follows: Deferred tax assets: Net operating loss carryforwards............................. $ 158,133 Deferred revenue............................................. 124,070 --------- 282,203 --------- Deferred tax liabilities: Deferred expenses............................................ (108,870) --------- Net deferred tax assets before valuation allowance............. 173,333 Valuation allowance............................................ (173,333) --------- Net deferred tax assets........................................ $ 0 =========
THE INTERNET BANKING DIVISION OF THE BANKERS BANK NOTES TO FINANCIAL STATEMENTS--(Continued) 6. EMPLOYEE BENEFIT PLANS The Parent sponsors a 401(k) profit sharing plan (the "Plan"), a defined contribution plan covering substantially all employees of the Company. Under the Plan's deferred compensation arrangement, eligible employees who elect to participate in the Plan may contribute between 1% and 15% of eligible compensation, as defined, to the Plan. The Parent is required to match employee contributions up to 3%. During the period from inception (March 1, 1998) to December 31, 1998, matching contributions to company employees totaled $2,066 and are included as a component of selling, general, and administrative expenses in the accompanying statements of operations. 7. COMMITMENTS AND CONTINGENCIES Operating Lease The Company leases certain office space under an operating lease agreement. Future minimum annual obligations under this lease as of December 31, 1998 are as follows: 1999................................. $51,380 2000................................. 22,890 ------- Total.............................. $74,270 =======
Rent expense for the period from inception (March 1, 1998) to December 31, 1998, the period from inception (March 1, 1998) to June 30, 1998, and the six month period ended June 30, 1999 was $14,000, $5,600, and $19,845, respectively. Product Liability As a result of their complexity, software products may contain undetected errors or failures when first introduced or as new versions are released. There can be no assurance that, despite testing by the Company and testing and use by current and potential customers, errors will not be found in new Internet banking systems after commencement of commercial release or, if discovered, that the Company will be able to successfully correct such errors in a timely manner or at all. The occurrence of errors and failures in the Company's products could result in loss of or delay in the market acceptance of the Company's Internet banking systems, and alleviating such errors and failures could require significant expenditure of capital and other resources by the Company. The consequences of such errors and failures could have a material adverse effect on the Company's business, results of operations, and financial condition. Litigation The Company is subject to litigation related to matters arising in the normal course of business, including product liability. As of December 31, 1998, management is not aware of any unasserted, asserted, or pending material litigation or claims against the Company. 8. SUBSEQUENT EVENT On September 3, 1999, the Company was acquired by Netzee, Inc. ("Netzee") for 1,361,000 shares of Netzee's stock. The acquisition of the Company was accounted for as a purchase under Accounting Principles Board Opinion No. 16. EX-99.4 3 UNAUDITED PRO FORMA EXHIBIT 99.4 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS In this section, we have provided you with our unaudited pro forma condensed consolidated financial statements as of and for the six months ended June 30, 1999 and for the year ended December 31, 1998. This financial information gives effect to the following events as if they occurred (a) on June 30, 1999 for the balance sheet and (b) at the beginning of the period presented for each of the statements of operations: . Our acquisitions of Item Processing of America, the operations of Advance Data, and the data processing business of Nova Financial Corporation in 1998; . Our acquisition of Direct Access in March 1999; . Our acquisition of L.E. Vickers & Associates and Data Equipment Services in May 1999; . Our acquisition of SBS Data and, through Direct Access, SBS Corp. in August 1999; . Our transfer of 450,000 shares of Direct Access common stock in exchange for the non-remote banking operations of SBS Corp. in August 1999; . Our creation of Netzee in August 1999; . Our recording of compensation expense related to equity securities issued by Direct Access below fair market value in August 1999; . Netzee's merger with Direct Access in September 1999; . Netzee's acquisition of the Internet banking operations of TIB The Independent BankersBank and The Bankers Bank in September 1999; . Netzee's acquisition of Call Me Bill in September 1999; . Netzee's acquisition of Dyad in September 1999; and . The deconsolidation of the operations of Netzee from our operations effective September 3, 1999. We acquired Direct Access in a transaction that was initially accounted for as a pooling of interest. Due to the subsequent transactions involving Netzee listed above, we restated our financial statements to account for this transaction as a purchase. Our historical financial statements therefore include the operations of Direct Access only from the date of purchase. Because Direct Access merged with Netzee, all references to Netzee in the accompanying notes include actions taken by Direct Access prior to the merger. Due to Netzee's issuance of common stock in connection with several of the above transactions, our ownership percentage in Netzee decreased to approximately 49% as of September 3, 1999. As a result, we no longer include the results of operations of Netzee in our consolidated financial statements. After September 3, 1999, we account for our investment in Netzee under the equity method, which requires us to record the operations of Netzee in a single line item in our statement of operations titled "net loss in unconsolidated subsidiary." Because we are currently funding the operations of Netzee, all of the losses of Netzee will be included in our statement of operations, rather than our relative percentage of those losses. When our funding of the operations of Netzee is complete, we will record only our relative percentage of the net losses of Netzee. In August 1999, Netzee issued stock options to management at exercise prices below the fair market value of its common stock on the date of grant. Total deferred compensation recorded for the issuance of these options was approximately $1.5 million. Because we owned the majority of the common stock of Netzee at the time these options were granted, we have recognized compensation expense of approximately $608,000. Netzee will recognize as compensation expense the remaining $892,000 in deferred compensation over the remaining vesting period of the options. 1 We based our unaudited pro forma condensed consolidated financial statements on our audited consolidated financial statements and the audited financial statements of the acquired entities for the year ended December 31, 1998 and on our unaudited financial statements and those of the acquired entities as of and for the six months ended June 30, 1999. The pro forma adjustments for the events described above are described in the accompanying notes. Our unaudited pro forma condensed consolidated statements of operations do not include any adjustments for potential savings or other improvements and do not purport to represent what our combined results of operations or financial position would actually have been if any of the above events had occurred as described above. You should not rely on the pro forma statements of operations as being representative of our future results of operations. 2 The InterCept Group, Inc. Unaudited Pro Forma Condensed Consolidated Balance Sheet As of June 30, 1999 (In thousands)
TIB The The SBS SBS Independent Bankers Call Me Acquisition Deconsolidation InterCept Corp. Data BankersBank Bank Bill Dyad Adjustments Total Adjustments Pro Forma Assets --------- ------ ------ ----------- ------- ------- ------ ----------- -------- --------------- --------- Cash and cash equivalents..... $ 2,443 $ 312 $ 691 $ -- $ -- $ 23 $ 19 $ 100 (a) $ 3,588 $ (454)(f) $ 3,134 Accounts receivable, net............. 4,214 2,404 1,759 116 156 114 22 (1,134)(b) 7,651 (607)(f) 7,044 Investment in unconsolidated subsidiary...... -- -- -- -- -- -- -- -- -- 16,367 (f) 16,367 Inventories, prepaid expenses and other........... 2,595 883 17 32 705 5 -- -- 4,237 (1,090)(f) 3,147 Deferred income tax asset....... 103 -- -- -- -- -- -- -- 103 -- 103 Property and equipment, net............. 9,257 883 447 30 284 148 19 -- 11,068 (1,394)(f) 9,674 Deferred expenses........ -- -- 172 -- 182 -- -- -- 354 (182)(f) 172 Deferred financing costs........... -- -- -- -- -- -- 6,076 (6,076)(c) -- -- Intangible assets, net..... 12,731 -- -- -- -- -- 90 30,704 (a) 69,701 (49,583)(f) 20,118 13,613 (c) 3,275 (d) (90)(c) 9,378 (b) Note receivable from unconsolidated subsidiary...... -- -- -- -- -- -- -- 21,534 21,534 8,032 (h) 29,566 Other noncurrent assets.......... 612 2,218 1,361 645 645 -- 8 (2,228)(b) 3,261 (2,042)(f) 1,219 ------- ------ ------ ----- ------ ----- ------ ------- -------- -------- -------- Total assets.... $31,955 $6,700 $4,447 $ 823 $1,972 $ 290 $6,234 $69,076 $121,497 $(30,953) $ 90,544 ======= ====== ====== ===== ====== ===== ====== ======= ======== ======== ======== Liabilities and shareholders' equity Notes payable, current......... $ 860 $ 491 $ 66 $ -- $ -- $ -- $ 424 $ (424)(c) $ 860 $ -- $ 860 (491)(b) (66)(b) Accounts payable and accrued liabilities..... 3,223 2,138 229 713 76 49 116 -- 6,544 (1,114)(f) 5,430 Deferred revenue......... 1,151 1,896 2,372 57 251 278 -- -- 6,005 (2,076)(f) 3,929 Due to parent.... -- -- -- 816 2,494 -- -- (816)(a) -- -- -- (2,494)(a) Notes payable, long-term....... 157 222 93 -- -- -- 1,632 (1,632)(c) 28,973 -- 28,973 21,534 (b) 2,882 (d) 4,400 (c) (222)(b) (93)(b) Other long-term liabilities..... -- 1,657 505 -- -- -- -- (921)(b) 1,241 -- 1,241 Deferred tax liability....... 259 -- -- -- -- -- -- 259 5,493 (f) 5,752 Minority interest........ 115 -- -- -- -- -- -- 115 -- 115 Warrants with redemption feature......... -- -- -- -- -- -- 10,731 (10,731)(c) -- -- -- Redeemable common stock.... -- -- -- -- -- -- -- 29,900 (b) -- -- -- (29,900) Deferred compensation.... -- -- -- -- -- -- -- (11,500)(e) (11,500) 11,500 (g) -- Subscription receivable...... -- -- -- -- -- -- (5) 5 (c) -- -- -- Common stock..... 25,071 176 201 -- -- 650 1,937 (1,937)(c) 87,881 (53,720)(f) 34,769 (650)(d) 608 (g) (176)(b) 32,503 (a) 9,165 (c) 11,500 (e) 356 (d) 9,286 (b) (201)(b) Preferred stock........... -- -- -- -- -- -- -- -- -- -- -- Accumulated other comprehensive income.......... 212 -- -- -- -- -- -- -- 212 -- 212 Accumulated deficit......... 907 120 981 (763) (849) (687) (8,601) (120)(b) 907 (608)(g) 299 849 (a) 14,457 (f) 763 (a) (5,493)(f) 8,601 (c) 687 (d) (981)(b) ------- ------ ------ ----- ------ ----- ------ ------- -------- -------- -------- Total liabilities and shareholder's equity......... $31,955 $6,700 $4,447 $ 823 $1,972 $ 290 $6,234 $69,076 $121,497 $(30,953) $ 90,544 ======= ====== ====== ===== ====== ===== ====== ======= ======== ======== ========
3 The InterCept Group, Inc. Unaudited Pro Forma Condensed Consolidated Statement of Operations For the six months ended June 30, 1999 (In thousands, except per share data)
L.E. Vickers & Associates, Inc. TIB and Data The The Equipment Direct SBS Independent Bankers Call Me Acquisition InterCept Services, Inc. Access Corp. SBS Data BankersBank Bank Bill Dyad Adjustments Total --------- -------------- ------ ------ -------- ----------- ------- ------- ------- ----------- -------- Revenues......... $18,664 $1,599 $114 $7,149 $2,591 $ 336 $ 236 $ 165 $ 103 $ -- $ 30,957 ------- ------ ---- ------ ------ ----- ----- ----- ------- -------- Costs of services........ 7,202 571 44 3,242 636 250 232 24 55 -- 12,256 Selling, general and administrative expenses........ 7,083 665 62 3,453 1,333 310 382 335 423 608 (t) 14,654 Depreciation and amortization.... 1,109 123 2 120 52 7 14 13 49 113 (i) 17,962 57 (j) 7,600 (k) 302 (l) 147 (m) 5,400 (n) 2,300 (o) 554 (p) ------- ------ ---- ------ ------ ----- ----- ----- ------- -------- -------- Total operating expenses....... 15,394 1,359 108 6,815 2,021 567 628 372 527 17,081 44,872 ------- ------ ---- ------ ------ ----- ----- ----- ------- -------- -------- Operating income (loss).......... 3,270 240 6 334 570 (231) (392) (207) (424) (17,081) (13,915) Interest expense......... (14) -- (3) -- (10) -- -- -- (906) 1,100 (q) 661 1,400 (r) (906)(s) Other income, net............. 77 -- -- (14) 28 109 -- -- 4 -- 204 ------- ------ ---- ------ ------ ----- ----- ----- ------- -------- -------- Income (loss) before net loss in unconsolidated subsidiary, provision (benefit) for income taxes and minority interest........ 3,333 240 3 320 588 (122) (392) (207) (1,326) (15,487) (13,050) Net loss in unconsolidated subsidiary...... -- -- -- -- -- -- -- -- -- -- -- Provision (benefit) for income taxes.... 1,272 91 -- 121 221 -- -- -- -- (2,731)(v) (1,026) Minority interest in (income) loss of consolidated subsidiary...... (58) -- -- -- -- -- -- -- -- -- (58) ------- ------ ---- ------ ------ ----- ----- ----- ------- -------- -------- Net income (loss) ................ $ 2,003 $ 149 $ 3 $ 199 $ 367 $(122) $(392) $(207) $(1,326) $(12,756) $(12,082) ======= ====== ==== ====== ====== ===== ===== ===== ======= ======== ======== Pro forma basic and diluted loss per common share........... Pro forma basic and diluted weighted average common shares outstanding..... Deconsolidation Pro Adjustments Forma ---------------- --------- Revenues......... $ (2,202)(w) $ 28,755 ---------------- --------- Costs of services........ (866)(w) 11,390 Selling, general and administrative expenses........ (2,847)(w) 11,807 Depreciation and amortization.... (16,119)(w) 1,688 (155)(w) ---------------- --------- Total operating expenses....... (19,987) 24,885 ---------------- --------- Operating income (loss).......... 17,785 (w) 3,870 Interest expense......... -- 661 Other income, net............. (165)(w) 39 ---------------- --------- Income (loss) before net loss in unconsolidated subsidiary, provision (benefit) for income taxes and minority interest........ 17,620 4,570 Net loss in unconsolidated subsidiary...... (17,620)(w) (17,620) Provision (benefit) for income taxes.... -- (1,026) Minority interest in (income) loss of consolidated subsidiary...... -- (58) ---------------- --------- Net income (loss) ................ $ -- $(12,082) ================ ========= Pro forma basic and diluted loss per common share........... $ (1.20) ========= Pro forma basic and diluted weighted average common shares outstanding..... 10,104 =========
4 The InterCept Group, Inc. Unaudited Pro Forma Condensed Consolidated Statement of Operations For the year ended December 31, 1998 (in thousands, except per share data)
L.E. Vickers & Associates, Inc. TIB The Item and Data Indepen- Process- Advance Nova Equipment dent The ing of Data Financial Services, Direct SBS SBS Bankers Bankers Call Me InterCept America Partnership Corporation Inc. Access Corp. Data Bank Bank Bill Dyad --------- ------- ----------- ----------- ----------- ------ ------- ------ -------- ------- ------- -------- Revenues......... $28,902 $865 $893 $ 661 $3,853 $ 591 $12,553 $4,229 $ 432 $ 77 $ 62 $ 505 ------- ---- ---- ----- ------ ----- ------- ------ ----- ----- ----- -------- Costs of services........ 12,031 470 190 567 1,516 466 6,377 960 434 113 28 409 Selling, general and administrative expenses........ 11,222 236 475 176 2,087 442 5,539 2,248 508 416 378 1,688 Depreciation and amortization.... 1,337 12 75 98 278 15 166 152 7 5 23 137 Asset impairment...... -- -- -- -- -- -- -- -- -- -- -- 143 ------- ---- ---- ----- ------ ----- ------- ------ ----- ----- ----- -------- Total operating expenses....... 24,590 718 740 841 3,881 923 12,082 3,360 949 534 429 2,377 ------- ---- ---- ----- ------ ----- ------- ------ ----- ----- ----- -------- Operating income.......... 4,312 147 153 (180) (28) (332) 471 869 (517) (457) (367) (1,872) Interest expense......... (345) (1) (2) (78) -- (20) (14) (12) -- -- 1 (1,679) Other income, net............. 161 -- -- -- -- -- 166 31 54 -- -- -- ------- ---- ---- ----- ------ ----- ------- ------ ----- ----- ----- -------- Income (loss) before net loss in unconsolidated subsidiary, provision (benefit) for income taxes and minority interest........ 4,128 146 151 (258) (28) (352) 623 888 (463) (457) (366) (3,551) Net loss in unconsolidated subsidiary...... -- -- -- -- -- -- -- -- -- -- -- -- Provision (benefit) for income taxes.... 1,564 -- 58 -- (9) -- 237 329 -- -- -- -- Minority interest in income (loss) of consolidated subsidiary...... (89) -- -- -- -- -- -- -- -- -- -- -- ------- ---- ---- ----- ------ ----- ------- ------ ----- ----- ----- -------- Net income (loss) before preferred dividends....... 2,475 146 93 (258) (19) (352) 386 559 (463) (457) (366) (3,551) Preferred dividends....... (16) -- -- -- -- -- -- -- -- -- -- -- ------- ---- ---- ----- ------ ----- ------- ------ ----- ----- ----- -------- Net income (loss) attributable to common shareholders.... $ 2,459 $146 $ 93 $(258) $ (19) $(352) $ 386 $ 559 $(463) $(457) $(366) $(3,551) ======= ==== ==== ===== ====== ===== ======= ====== ===== ===== ===== =======
Acquisition Deconsolidation Pro Adjustments Total Adjustments Forma ----------- -------- --------------- -------- Revenues................ $ -- $ 53,623 $ (3,115)(w) $ 50,508 -------- -------- -------- -------- Costs of services....... -- 23,561 (1,664)(w) 21,897 Selling, general and administrative expenses............... 608 (t) 26,023 (4,869)(w) 21,154 Depreciation and amortization........... 340 (j) 35,701 (32,605)(w) 3,096 272 (i) 186 (u) 604 (l) 15,300 (k) 294 (m) 10,800 (n) 4,500 (o) 1,100 (p) Asset impairment........ -- 143 -- 143 -------- -------- -------- -------- Total operating expenses.............. 34,004 85,428 (39,138) 46,290 -------- -------- -------- -------- Operating income........ (34,004) (31,805) 36,023 (w) 4,218 Interest expense........ (2,200)(q) 210 -- 210 1,679 (s) 81 (u) Other income, net....... 2,800 (r) 412 (302)(w) 110 -------- -------- -------- -------- Income (loss) before net loss in unconsolidated subsidiary, provision (benefit) for income taxes and minority interest............... (31,644) (31,183) 35,721 4,538 Net loss in unconsolidated subsidiary............. -- -- (35,721) (35,721) Provision (benefit) for income taxes........... (6,163)(v) (3,984) -- (3,984) Minority interest in (income) loss of consolidated subsidiary............. -- (89) -- (89) -------- -------- -------- -------- Net income (loss) before preferred dividends.... (25,481) (27,288) -- (27,288) Preferred dividends..... -- (16) -- (16) -------- -------- -------- -------- Net income (loss) attributable to common shareholders........... $(25,481) $(27,304) $ -- $(27,304) ======== ======== ======== ======== Pro forma basic and diluted net loss per common share........... $ (3.04) ======== Pro forma basic and diluted weighted average common shares outstanding............ 8,975
5 NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Notes to Balance Sheet The acquisitions adjustments column shows those adjustments necessary to reflect the transactions as if they had occurred on June 30, 1999. (a) Reflects the issuance of common stock and stock options of Netzee and the recording of intangible assets associated with Netzee's acquisition of the Internet banking divisions of TIB The Independent BankersBank and The Bankers Bank. The purchase price included 2,722,000 shares of Netzee common stock valued at $11.50 per share, options to purchase 50,000 shares of common stock of Netzee at an exercise price of $5.00 per share granted to management of TIB The Independent BankersBank and The Bankers Bank, and 76,000 shares of Netzee common stock sold to a third party for $100,000. The options were issued to individuals who were members of management at TIB The Independent BankersBank and The Bankers Bank who would not be employees of Netzee after the acquisition. The options were valued at approximately $357,500 and have been included as a component of the purchase price. The $774,000 difference between the fair value of the common stock sold to a third party and its purchase price has been included in the total purchase price for the acquisition, which was approximately $32.7 million. The excess of the purchase price over net tangible assets was allocated to the following:
Amortization Allocation Period ----------- ------------ Workforce........................................... $ 330,000 3 years Contracts in progress............................... $ 150,000 3 years Marketing agreement................................. $ 3,056,000 2 years Acquired technology................................. $27,417,000 3 years
(b) Reflects the issuance of our stock and the stock of Netzee, the payment of cash and the recording of intangible assets associated with the purchase of SBS Corp. and SBS Data. In exchange for all of the shares of SBS Corp., Netzee issued 2,600,000 shares of its common stock, valued at $11.50 per share, and paid cash of approximately $16.6 million to the shareholders of SBS Corp. Netzee also repaid approximately $4.9 million of SBS Corp. debt. The former shareholders of SBS Corp. have the right to put the shares back to Netzee at $11.50 per share if Netzee does not complete an initial public offering by August 6, 2001. To enable Netzee to complete this transaction, we borrowed $21.6 million under our line of credit and loaned those funds to Netzee. Netzee then transferred the non-Internet and telephone banking assets of SBS Corp. to us in exchange for 450,000 shares of Netzee common stock held by us. The purchase price of SBS Data included 192,307 shares of our common stock with a fair market value of $21.38 per share. The excess of the purchase price over the net tangible assets was allocated to the following:
Amortization Allocation Period ----------- ------------ Workforce........................................... $ 740,000 3 years Contracts in progress............................... $ 2,140,000 4-5 years Acquired technology................................. $44,402,000 3 years Goodwill............................................ $ 8,187,000 10-20 years
(c) Reflects the issuance of common stock of Netzee, the payment of cash and the recording of intangible assets associated with the acquisition of Dyad. The purchase price of Dyad included 618,137 shares of Netzee common stock valued at $11.50 per share and approximately $900,000 in cash. Netzee also repaid approximately $3.5 million in debt of Dyad. To enable Netzee to complete this transaction, we borrowed $4.4 million under our line of credit and loaned those funds to Netzee. Dyad had warrants 6 outstanding which were exercised prior to the acquisition. Therefore, all historical balances related to the warrants were removed in the pro forma adjustments. The excess of the purchase price over the net tangible assets was allocated to the following:
Amortization Allocation Period ----------- ------------ Workforce........................................... $ 70,000 3 years Acquired technology and goodwill.................... $13,543,000 3 years
(d) Reflects the payment of cash and the recording of intangible assets associated with the acquisition of Call Me Bill. The purchase price of Call Me Bill was approximately $3.3 million in cash and approximately 31,000 shares of Netzee stock sold to former members of Call Me Bill at a price of $10.50 per share. These shares were valued at $11.50 per share by Netzee. To enable Netzee to complete this transaction, we borrowed $2.9 million under our line of credit and loaned those funds to Netzee. The excess of the purchase price over the net assets acquired was allocated to goodwill and acquired technology and will be amortized over three years. (e) Reflects the recording of deferred compensation of approximately $11.5 million for stock options issued to management in August and September 1999 by Netzee below fair market value. The deconsolidation adjustments column shows those adjustments necessary to reflect the transactions as if they had occurred on June 30, 1999. (f) Reflects the elimination of the assets and liabilities of Netzee and its acquired entities and the establishment of our investment in unconsolidated subsidiary as our ownership percentage in Netzee was reduced to approximately 49%. We will account for our investment in Netzee under the equity method and will record the operating income and losses of Netzee in a single line item in our statement of operations. Because we are currently funding the operations of Netzee, all of the losses of Netzee will be included in our statement of operations, rather than our relative percentage of those losses. When our funding of the operations of Netzee is complete, we will record only our relative percentage of the net losses of Netzee. As a result of the reduction in our percentage ownership of Netzee, we have recognized gains in accordance with Staff Accounting Bulletin No. 51 related to the increases in our percentage of the net equity of Netzee. This gain totaled approximately $33.5 million, or approximately $20.8 million after taxes. Approximately $14.5 million of the pre-tax gain is reflected as a gain in the accumulated deficit. The remainder of the gain will be recorded when the put right on the Netzee Common Stock held by the Former shareholders of SBS Corp. is terminated. (g) As noted in (e) above, Netzee issued stock options to management in August and September 1999 at below fair market value. The total compensation expense recorded by InterCept and Netzee before our ownership percentage decreased to 49% was approximately $608,000, which is included as a reduction of retained earnings and an addition to additional paid-in capital in the accompanying pro forma balance sheet. (h) Reflects the establishment of the note payable to First Union for the borrowings under our line of credit for the acquisitions noted above and the related receivables from Netzee of approximately $28.8 million, and funding of Netzee from inception of approximately $750,000. Notes to Statements of Operations The acquisitions column shows those adjustments necessary to reflect the transactions as if they occurred on January 1, 1998. (i) Reflects the additional amortization of intangible assets recognized upon the acquisition of L.E. Vickers & Associates and Data Equipment Services of approximately $113,000 for the six months ended June 30, 1999 and approximately $272,000 for the year ended December 31, 1998. Amortization was calculated on a straight line basis over the estimated useful lives of the intangible assets of 5 to 20 years. 7 (j) Reflects the additional amortization of intangible assets recognized upon the acquisition of Netzee of approximately $57,000 for the six months ended June 30, 1999 and approximately $340,000 for the year ended December 31, 1998. Amortization was calculated on a straight line basis over the estimated useful lives of the intangible assets of five years. (k) Reflects the additional amortization of intangible assets recognized upon Netzee's acquisition of the Internet and telephone banking operations of SBS Corp. of approximately $7.6 million for the six months ended June 30, 1999 and approximately $15.3 million for the year ended December 31, 1998. Amortization was calculated on a straight line basis using the estimated lives indicated in (b). (l) Reflects the additional amortization of intangible assets recognized upon our acquisition of the non-Internet and telephone banking operations of SBS Corp. of approximately $302,000 for the six months ended June 30, 1999 and approximately $604,000 for the year ended December 31, 1998. The Non-Internet and telephone banking operations of SBS Corp. were valued at approximately $5.2 million, which we paid for by transferring to Netzee 450,000 shares of Netzee common stock valued at $11.50 per share. Amortization expense will be recorded on a straight line basis over the estimated useful lives of the intangible assets of 3 to 10 years. (m) Reflects the additional amortization of intangible assets recognized upon our acquisition of SBS Data of approximately $147,000 for the six months ended June 30, 1999 and approximately $294,000 for the year ended December 31, 1998. Amortization expense will be recorded on a straight line basis over the estimated useful lives of the intangible assets of 3 to 20 years. (n) Reflects the additional amortization of the intangible assets recognized upon the acquisition by Netzee of TIB The Independent BankersBank and The Bankers Bank of approximately $5.4 million for the six months ended June 30, 1999 and approximately $10.8 million for the year ended December 31, 1998. Amortization was calculated on a straight line basis over the estimated useful lives indicated in (a). (o) Reflects the additional amortization of the intangible assets recognized upon the acquisition by Netzee of Dyad of approximately $2.3 million for the six months ended June 30, 1999 and approximately $4.5 million for the year ended December 31, 1998. Amortization was calculated on a straight line basis over the estimated useful lives indicated in (c). (p) Reflects the additional amortization of intangible assets recognized upon the acquisition by Netzee of Call Me Bill of approximately $554,000 for the six months ended June 30, 1999 and approximately $1.1 million for the year ended December 31, 1998. Amortization was calculated on a straight line basis over the estimated useful lives indicated in (d). (q) Reflects the additional interest expense on the additional amounts borrowed under the line of credit with First Union in connection with the acquisition of SBS Corp., Dyad and Call Me Bill of approximately $1.1 million for the six months ended June 30, 1999 and approximately $2.2 million for the year ended December 3, 1998. These amounts bear interest at approximately 7.5% per year. (r) Reflects the additional interest income from the notes receivable from Netzee of approximately $1.4 million for the six months ended June 30, 1999 and approximately $2.8 million for the year ended December 31, 1998. The interest rate on these notes is approximately 10.25% per year. (s) Reflects the elimination of the interest expense on the warrants and the debt at Dyad of approximately $906,000 for the six months ended June 30, 1999 and approximately $1.7 million for the year ended December 31, 1998. (t) Reflects the recording of approximately $608,000 of compensation expense for options issued to management of Netzee in August 1999 at exercise prices below the fair market value of the common stock of Netzee. (u) Reflects the additional amortization of intangible assets recognized upon the acquisition of Item Processing of America and the acquisition of the operations of Advance Data and Nova Financial Corporation's data processing business of approximately $186,000 for the year ended December 31, 1998, 8 and the removal of interest expense for these transactions of approximately $81,000 for the year ended December 31, 1998. (v) Reflects the adjustment to the income tax provision benefit assuming a 38% tax rate for the six months ended June 30, 1999 and the year ended December 31, 1998. The amortization expenses associated with the acquisitions of SBS Corp., SBS Data, and Dyad are non-deductible for tax purposes. The deconsolidation column shows the adjustments necessary to reflect the transactions as if they occurred on January 1, 1998. (w) Reflects the elimination of the operations of Netzee and its acquired entities and the recording of the losses of Netzee in a single line item as our ownership percentage was reduced to approximately 49%. We will account for our investment in Netzee under the equity method and will record the operating income and losses of Netzee in a single line item in our statement of operations. Because we are currently funding the operations of Netzee, all of the losses of Netzee will be included in our statement of operations, rather than our relative percentage of those losses. When our funding of the operations of Netzee is complete, we will record our percentage of the net losses of Netzee. As a result of the reduction in our percentage of Netzee, we have recognized gains in accordance with Staff Accounting Bulletin No. 51 related to the increases in our percentage of the net equity of Netzee. This gain totaled approximately $33.4 million, or approximately $20.9 million after taxes, and has not been recorded in the statements of operations due to the non- recurring nature of these items. 9 -----END PRIVACY-ENHANCED MESSAGE-----