UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
FORM 10-K
(Mark One)
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year endedDecember 31, 2003
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transaction period from to
Commission file number 000-26621
_________________
NIC INC.
(Exact name of registrant as specified in its charter)
Colorado (State or other jurisdiction of incorporation or organization) | 52-2077581 (I.R.S. Employer Identification No.) |
10540 South Ridgeview Road, Olathe, Kansas 66061
(Address of principal executive office, including Zip Code)
Registrant’s telephone number, including area code:(877) 234-3468
Securities registered pursuant to Section 12(b) of the Act: None
Title of Each Class | Name of Each Exchange on Which Registered | ||
None | None |
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value per share
(Title of Class)
_________________
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
NIC INC.
FORM 10-K ANNUAL REPORT
Page | ||||
PART I | ||||
Item 1 | Business | 1 | ||
Item 2 | Properties | 23 | ||
Item 3 | Legal Proceedings | 23 | ||
Item 4 | Submission of Matters to a Vote of Security Holders | 23 | ||
PART II | ||||
Item 5 | Market for Registrant’s Common Equity and Related Shareholder Matters | 24 | ||
Item 6 | Selected Consolidated Financial Data | 24 | ||
Item 7 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 25 | ||
Item 7A | Quantitative and Qualitative Disclosures About Market Risk | 42 | ||
Item 8 | Consolidated Financial Statements and Supplementary Data | 43 | ||
Item 9 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 79 | ||
Item 9A | Controls and Procedures | 79 | ||
PART III | ||||
Item 10 | Directors and Executive Officers of the Registrant | 80 | ||
Item 11 | Executive Compensation | 80 | ||
Item 12 | Security Ownership of Certain Beneficial Owners and Management | 80 | ||
Item 13 | Certain Transactions and Relationships | 80 | ||
Item 14 | Principal Accountant Fees and Services | 80 | ||
PART IV | ||||
Item 15 | Exhibits, Financial Statement Schedules, and Reports on Form 8-K | 81 |
PART I
CAUTIONS ABOUT FORWARD LOOKING STATEMENTS
AVAILABLE INFORMATION
FREQUENTLY USED TERMS
ITEM 1. BUSINESS
Business Overview
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The Company
Segment Information
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reported in the eProcurement segment. For additional information relating to our reportable segments, refer to Note 17 in the Notes to Consolidated Financial Statements included in this Form 10-K.
Industry Background
The market for government-to-business and government-to-citizen transactions
The limits of traditional government transaction methods
Growth of the Internet, electronic commerce and eGovernment
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In a November 2002 survey, the Pew Internet and American Life Project found that 66 million people, or 65% of all Internet users in the Unites States, had sought information directly from a local, state or federal government Web site during the last three months, a 65% increase in the same period in 2000. In the same survey, 80% of all Americans said they found the information they needed while visiting a local, state or federal government Web site.
Emergence of the Internet as a medium for eGovernment
Challenges to the implementation of eGovernment services
• | the high cost of implementing and maintaining Internet technology in a budget-constrained environment; |
• | the financial, operational and technology risks of moving from older, established technologies to rapidly evolving Internet technologies; |
• | the need to quickly assess the requirements of potential customers and cost-effectively design and implement eGovernment services that are tailored to meet these requirements; and |
• | the intense competition for qualified technical personnel. |
• | lengthy and potentially politically charged appropriations processes that make it difficult for governments to acquire resources and to develop Internet services quickly; |
• | a diverse and substantially autonomous group of government agencies that have adopted varying and fragmented approaches to providing information and transactions over the Internet; |
• | a lack of a marketing function to ensure that services are designed to meet the needs of businesses and citizens and that they are aware of their availability; and |
• | security and privacy concerns that are amplified by the confidential nature of the information and transactions available from and conducted with governments and the view that government information is part of the public trust. |
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What We Provide to Governments
Customer-focused, one-stop government portal
Compelling and flexible financial models for governments
Focused relationship with governments
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Government Contracts
Our portal outsourcing businesses
Portal Name | Year Services Commenced | Web Address | ||
---|---|---|---|---|
Kentucky | 2003 | www.Kentucky.gov | ||
Alabama | 2002 | www.Alabama.gov | ||
Vermont | 2002 | www.Vermont.gov | ||
New Hampshire | 2002 | www.NHlicenses.com www.NHfishandgame.com | ||
Washtenaw County, Michigan | 2002 | www.eWashtenaw.com | ||
Des Moines, Iowa | 2002 | www.DMgov.com | ||
Iowa County Treasurers | 2002 | www.IowaTreasurers.org | ||
Corpus Christi, Texas | 2002 | www.ccTexas.com | ||
Rhode Island | 2001 | www.RI.gov | ||
City of Tampa | 2001 | www.TampaGov.net | ||
Kent County, Michigan | 2001 | www.accessKent.com | ||
Dallas County, Texas | 2001 | www.DallasCounty.org | ||
Oklahoma | 2001 | www.YourOklahoma.com | ||
Montana | 2001 | www.DiscoveringMontana.com | ||
Tennessee | 2000 | www.Tennessee.gov | ||
Hawaii | 2000 | www.Hawaii.gov | ||
Idaho | 2000 | www.accessIdaho.org | ||
Utah | 1999 | www.Utah.gov | ||
Maine | 1999 | www.Maine.gov | ||
Arkansas | 1997 | www.Arkansas.gov | ||
Indianapolis and Marion County, Indiana | 1997 | www.CivicNet.net | ||
Iowa | 1997 | www.IOWAccess.org | ||
Virginia | 1997 | www.Virginia.gov | ||
Indiana | 1995 | www.IN.gov | ||
Nebraska | 1995 | www.Nebraska.gov | ||
Kansas | 1992 | www.accessKansas.org |
• | we have the right to develop a comprehensive Internet portal owned by that government to deliver eGovernment services; |
• | the portal we establish is the primary electronic and Internet interface between the government and its citizens; |
• | it advocates the use of the portal for all commercially valuable applications in order to support the operation and expansion of the portal; |
• | it sponsors access to agencies for the purpose of entering into agreements with these agencies to develop applications for their data and transactions and to link their Web pages to the portal; and |
• | it establishes a policy-making and fee approval board, which typically includes agency members, business customers and others, to establish prices for services and to set other policies. |
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• | develop, manage, market, maintain and expand that government’s portal and information and electronic commerce applications; |
• | assume the investment risk of building and operating that government’s portal and applications without the direct use of tax dollars; |
• | bear the risk of collecting transaction fees; and |
• | have an independent audit conducted upon that government’s request. |
Our software & services businesses
Corporate filings
Ethics & elections
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several other governments including Arkansas, California, Hawaii, Illinois, Louisiana, Oklahoma, Texas and British Columbia.
Our Portal Service Offerings
Product or Service | Description | Primary Users | ||||||
Driver’s License Records Retrieval | For those legally authorized businesses, this service offers controlled instant look-up of driving records. Includes commercial licenses. | Insurance companies | ||||||
Vehicle Title, Lien & Registration | Provides controlled interactive title, registration and lien database access. Permits citizens to renew their vehicle registrations online. | Insurance companies, lenders, citizens | ||||||
BillWatch (Lobbyist in a Box) | Allows the user to monitor state legislative activity. Users can tag bills by key word or bill number, and BillWatch will send an e-mail when a change occurs in the status of the bill. Legislative activity can be monitored via wireless access. | Attorneys, lobbyists | ||||||
Health Professional License Services | Allows users to search databases on several health professions to verify license status. | Hospitals, clinics, health insurers, citizens | ||||||
Secretary of State Searches | Allows users to access filings of corporations, partnerships and other entities, including charter documents. | Attorneys, lenders | ||||||
Uniform Commercial Code (UCC) Searches and Filings | Permits searches of the UCC database to verify financial liens, and permits filings of secured financial documents. | Attorneys, lenders |
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Product or Service | Description | Primary Users | ||
Professional License Renewal | Permits professionals to renew their licenses on line using a credit card. | Attorneys, doctors, nurses, architects and other licensed professionals | ||
Driver’s License Renewal | Permits citizens to renew their driver’s license on line using a credit card. | Citizens | ||
Limited Criminal History Searches | For those legally authorized, provides users with the ability to request and obtain a limited criminal history report on a specified individual. | Schools, governments, human resource professionals, nonprofits working with children or handicapped adults | ||
Income and Property Tax Payments | Allows users to electronically file and pay for a variety of state and local income and property taxes. | Businesses and citizens | ||
Hunting and Fishing Licenses | Permits citizens to obtain and pay for outdoor recreation licenses over the Internet. | Citizens | ||
Business Registrations and Renewals | Allows business owners to search for and reserve a business name, submit and pay for the business registration, and renew the business registration on an annual basis. | Businesses |
Revenues
• | transaction-based fees; |
• | fees for managing eGovernment operations; and |
• | fees for application development. |
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Sales and Marketing
• | to develop new sources of revenue through new government relationships; and |
• | to retain and grow our revenue streams from existing government relationships. |
Developing new sources of revenue
Growing existing markets
• | expanding the number of government agencies that provide services or information on the government portal; |
• | identifying new information and transactions that can be usefully and cost-effectively delivered over the Internet; |
• | working with the governance authorities in our existing markets to ensure that online services are priced in a manner to encourage usage; and |
• | increasing the number of potential users who do business with governments over the Internet. |
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Strategic Acquisitions and Alliances
Technology and Operations
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available technology whenever possible and focus on the integration and customization of these off-the-shelf hardware and software components when necessary. We expect that commercially licensed technology will continue to be available at reasonable costs.
Competition
• | the unique understanding of government needs; |
• | the quality and fit of eGovernment services; |
• | the speed and responsiveness to the needs of businesses and citizens; and |
• | cost-effectiveness. |
• | large systems integrators, including American Management Systems and SAIC; |
• | traditional software applications developers, including Microsoft and Oracle; |
• | traditional consulting firms, including IBM, BearingPoint, and Accenture; and |
• | consumer-oriented application service providers for government, such as EzGov.com. |
Government Regulation
Intellectual Property and Proprietary Rights
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Employees
Other Risk Factors Affecting Our Business
We have incurred significant net losses in the past
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costs and operating expenses if we are to achieve growing profitability. We cannot be certain that our revenues will continue to grow or that we will ever achieve sufficient revenues to become profitable on a long-term, sustained basis.
We may need more working capital to fund operations and expand our business
• | fund operations, including the costs to fund our contract with the California Secretary of State and subcontractors on that project; |
• | collateralize letters of credit, which the Company is required to post as collateral for performance on certain of its outsourced government portal contracts and as collateral for certain performance bonds; |
• | support our expansion into other states and government agencies beyond what is contemplated in 2004 if unforeseen opportunities arise; |
• | expand our product and service offerings beyond what is contemplated in 2004 if unforeseen opportunities arise; |
• | respond to unforeseen competitive pressures; and |
• | acquire complementary technologies beyond what is contemplated in 2004 if unforeseen opportunities arise. |
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will be available in amounts or on terms acceptable to the Company, if at all. If adequate funds were not available on acceptable terms, our ability to develop or enhance our applications and services, take advantage of future opportunities or respond to competitive pressures would be significantly limited. This limitation could harm our business, results of operations and financial condition.
Our acquisitions and strategic alliances entail numerous risks and uncertainties
• | difficulties in the assimilation of operations, personnel, technologies and information systems of the acquired companies; |
• | the inability to successfully market, distribute, deploy and manage new products and services that we have limited or no experience in managing; |
• | the diversion of management’s attention from our core business; |
• | the risk that an acquired business will not perform as expected; |
• | risks associated with entering markets in which we have limited or no experience; |
• | potential loss of key employees, particularly those of our acquired businesses; |
• | adverse effects on existing business relationships with existing suppliers and customers; |
• | potentially dilutive issuances of equity securities, which may be freely tradable in the public market; |
• | erosion of our brand equity in the eGovernment or financial markets; |
• | impairment, restructuring and other charges; and |
• | the incurrence of debt or other expenses related to goodwill and other intangible assets. |
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Because we have portal outsourcing contracts with a limited number of governments, the termination of certain of these contracts may harm our business
We may face damage to our professional reputation if our partners are not satisfied with our services
We may be unable to obtain future contracts through the request for proposal process
We may be unable to sustain the usage levels of current services that provide a significant percentage of our revenues
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expected to continue to account for a significant portion of our revenues in the near future. Regulatory changes or the development of alternative information sources could materially reduce our revenues from this service. A reduction in revenues from currently popular services would harm our business, results of operations and financial condition.
If our potential customers are not willing to switch to or adopt our online governmental portals and other electronic services, our growth and revenues will be limited
The fees we collect for many of our services are subject to regulation that could limit growth of our revenues and profitability
Our portal revenues could be harmed as a result of severe government budget deficits
Because a major portion of our current revenues is generated from a small number of users, the loss of any of these users may harm our business and financial condition
We may lose the right to the content distributed through our outsourced portals, which is provided to us entirely by government entities
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to be available in the future. Government entities could terminate their contracts to provide data. Changes in regulations could mean that governments no longer collect some types of data or that the data is protected by more stringent privacy rules preventing uses now made of it. Moreover, our data sources are not always subject to exclusive agreements, so that data included in our services also may be included in those of our potential competitors. In addition, we are dependent upon the accuracy and reliability of government computer systems and data collection for the content of our portals. The loss or the unavailability of our data sources in the future, or the loss of our exclusive right to distribute some of the data sources, could harm our business, results of operations and financial condition.
The growth in our revenues may be limited by the number of governments that choose to provide eGovernment services and to adopt our business model and by the finite number of governments with which we may contract for our eGovernment services
Our business with various government entities often requires specific government legislation to be passed for us to initiate and maintain our government contracts
Because a large portion of our business relies on a contractual bidding process whose parameters are established by governments, the length of our sales cycles is uncertain and can lead to shortfalls in revenues
• | political acceptance of the concept of government agencies contracting with third parties to distribute public information, which has been offered traditionally only by the government agencies often without charge; |
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• | the internal review process by the government agencies for bid acceptance; |
• | the need to reach a political accommodation among various interest groups; |
• | changes to the bidding procedure by the government agencies; |
• | changes to state legislation authorizing government’s contracting with third parties to distribute public information; |
• | changes in government administrations; |
• | the budgetary restrictions of government entities; |
• | the competition generated by the bidding process; and |
• | the possibility of cancellation or delay by the government entities. |
The seasonality of use for some of our eGovernment services may harm our fourth quarter results of each calendar year
Our quarterly results of operations are volatile and difficult to predict. If we fail to meet the expectations of public market analysts or investors, the market price of our common stock may decrease significantly
• | the commencement, completion or termination of contracts during any particular quarter; |
• | the introduction of new eGovernment services by us or our competitors; |
• | technical difficulties or system downtime affecting the Internet generally or the operation of our eGovernment services; |
• | the amount and timing of operating costs and capital expenditures relating to the expansion of our business operations and infrastructure; |
• | the result of negative cash flows due to capital investments; and |
• | the incurrence of significant charges related to acquisitions. |
If we fail to coordinate or expand our operational procedures and controls, we may not effectively manage our growth
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acceptance of new bids by a number of governmental entities so that we may be ready to begin operations as soon as possible after acceptance of a bid. Additionally, we plan to continue our expansion of eGovernment services into new government markets. As part of this plan of growth, we must implement new operational procedures and controls to expand, train and manage our employees and to coordinate the operations of our various subsidiaries. If we cannot manage the growth of our government portals, staff, software installation and maintenance teams, offices and operations, our business may be harmed.
We may be unable to hire, integrate or retain qualified personnel
To be successful, we must develop and market comprehensive, efficient, cost-effective and secure electronic access to public information and new services
• | the comprehensiveness of public records available through our government portals; |
• | the perceived efficiency and cost-effectiveness of accessing public records electronically; |
• | the effectiveness of security measures; |
• | the increased usage and continued reliability of the Internet; and |
• | the user acceptance of our online applications and services. |
Deficiencies in our performance under a government contract could result in contract termination, reputational damage or financial penalties
We may be unable to integrate new technologies and industry standards effectively
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• | enhance and improve the responsiveness, functionality and other features of the government portals we offer; |
• | continue to develop our technical expertise; |
• | develop and introduce new services, applications and technology to meet changing customer needs and preferences; and |
• | influence and respond to emerging industry standards and other technological changes in a timely and cost-effective manner. |
We depend on the increasing use of the Internet and on the growth of online government information systems. If the use of the Internet and eGovernment information systems does not grow as anticipated, our business will be seriously harmed
• | use of the Internet and other online services does not continue to increase or increases more slowly than expected; or |
• | the technology underlying the Internet and other online services does not effectively support any expansion that may occur. |
If the Internet infrastructure fails to develop or be adequately maintained, our business would be harmed because users may not be able to access our government portals
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We may be held liable for content that we obtain from government agencies
Concerns over transactional security may hinder the growth of our business
Our systems may fail or limit user traffic, which could harm our business, results of operations and financial condition
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government-to-business services. Many of these providers and operators have experienced significant outages in the past due to system failures unrelated to our systems, holidays and heavy user traffic, and could experience the same outages, delays and other difficulties in the future. Any of these system failures could harm our business, results of operations and financial condition.
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Fiscal Year Ended December 31, 2002 | High | Low | ||||||||
First Quarter | $ | 4.50 | $ | 3.21 | ||||||
Second Quarter | $ | 4.45 | $ | 1.48 | ||||||
Third Quarter | $ | 1.79 | $ | 1.33 | ||||||
Fourth Quarter | $ | 2.24 | $ | 1.39 | ||||||
Fiscal Year Ended December 31, 2003 | High | Low | ||||||||
First Quarter | $ | 1.95 | $ | 1.46 | ||||||
Second Quarter | $ | 3.09 | $ | 1.71 | ||||||
Third Quarter | $ | 5.03 | $ | 2.92 | ||||||
Fourth Quarter | $ | 8.47 | $ | 4.62 |
Dividend policy
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Year Ended December 31, | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
1999 | 2000 | 2001 | 2002 | 2003 | |||||||||||||||||||
(in thousands, except per share data) | |||||||||||||||||||||||
Consolidated Statement of Operations Data: | |||||||||||||||||||||||
Total revenues | $ | 14,576 | $ | 23,341 | $ | 37,020 | $ | 47,545 | $ | 50,831 | |||||||||||||
Operating income (loss) | (14,153 | ) | (45,280 | ) | (87,502 | ) | (7,930 | ) | 7,338 | ||||||||||||||
Income (loss) from continuing operations | (10,534 | ) | (35,957 | ) | (70,919 | ) | (5,575 | ) | 6,328 | ||||||||||||||
Net income (loss) | (10,731 | ) | (40,278 | ) | (77,444 | ) | (7,610 | ) | 6,328 | ||||||||||||||
Income (loss) per share from continuing operations — basic and diluted | (0.22 | ) | (0.66 | ) | (1.26 | ) | (0.10 | ) | 0.11 | ||||||||||||||
Net income (loss) per share — basic and diluted | (0.23 | ) | (0.74 | ) | (1.38 | ) | (0.13 | ) | 0.11 |
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December 31, | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
1999 | 2000 | 2001 | 2002 | 2003 | |||||||||||||||||||
(in thousands) | |||||||||||||||||||||||
Consolidated Balance Sheet Data: | |||||||||||||||||||||||
Cash and cash equivalents | $ | 9,527 | $ | 13,878 | $ | 17,236 | $ | 9,559 | $ | 13,540 | |||||||||||||
Cash and cash equivalents — restricted | — | — | — | 6,300 | 5,363 | ||||||||||||||||||
Marketable securities | 82,481 | 24,914 | 4,066 | 249 | 249 | ||||||||||||||||||
Total assets | 133,661 | 143,792 | 81,814 | 74,456 | 85,740 | ||||||||||||||||||
Long-term debt (includes current portion of notes payable/capital lease obligations) | 458 | 217 | 888 | 533 | 363 | ||||||||||||||||||
Total shareholders’ equity | 128,089 | 135,160 | 59,559 | 55,056 | 63,164 |
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Caution about Forward-Looking Statements
What We Do — An Executive Summary
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the government agency typically receives a perpetual, royalty-free license to the applications for use only. If our contract were not renewed after a defined term, the government agency would be entitled to take over the portal in place with no future obligation of the Company. In some cases, we enter into contracts to provide consulting, development and management services to government portals in exchange for an agreed-upon fee.
• | Renew all current outsourced government portal contracts — We will strive to obtain renewal of all currently profitable outsourced government portal contracts. In the history of our company, we have not lost a contract renewal opportunity or re-bid process and are very proud of our highly referencable list of government partners. In December 2002, we won a re-bid competition and signed a new contract for up to seven years with Kansas, which became our first state partner in 1991. As recently as January 2004, we won a re-bid competition and signed a new contract for up to six years with Nebraska, which became our partner in 1995. |
• | Win new portal contracts — We intend to increase our number of government partners by leveraging our strong relationships with current government partners and our reputation for providing proven eGovernment services. We intend to continue marketing our services to new governments. Our expansion efforts include developing relationships and sponsors throughout an individual government entity, pursuing strategic technology alliances, making presentations at conferences of government executives with responsibility for information technology policy, and developing contacts with organizations that act as forums for discussions between these executives. On January 30, 2003, we entered into a two-year portal outsourcing contract with the Commonwealth of Kentucky, that includes renewal options for up to eight additional years. |
• | Increase transactional revenues from our government portals — We intend to increase transactional revenues from our government portals by building new applications and services and increasing the adoption of existing portal applications and services. We will accomplish this with new services offerings and expanded marketing initiatives. In addition, we will work closely with the governance entities in our partner portals to evaluate the pricing of new and existing services to encourage higher usage and increased revenue streams. We plan to continue our development of new online transactional services that enable government agencies to interact more effectively and efficiently with businesses, citizens and other government agencies. We will continue to work with government agencies, professional associations and other organizations to better understand the current and future needs of our customers. We will continue to work with our government partners to create awareness of the online alternatives to traditional government interaction through initiatives such as informational brochures, government voicemail recordings and inclusion of Web site information on government communication materials. In addition, we will continue to update our portals to highlight new government service information provided on the portals. We plan to work with professional associations to directly and indirectly communicate to their members the potential convenience, ease of use and other benefits of the services our portals offer. In addition to overall portal revenue growth, which includes both organic revenue growth and growth from new portal contract wins, an important financial metric that we use to gauge our success in increasing transactional revenues in our existing portal businesses is same state revenue growth. We define same state revenue growth as the growth in revenues from states in operation and generating DMV revenues for at least two full years. DMV revenues are transaction fees that we earn from the sale of driver history records through the portals we operate. Our long-term goal is to grow same state revenues at 15-20% per year. Same state portal revenues grew 7% in 2003, 15% in 2002 and 20% in 2001. As more fully described below, our same state revenue growth in the current year was lower than the growth we have achieved in recent years due primarily to a 1% year-over-year decrease in same state DMV revenues. While we generally expect same state DMV revenues to grow only 1% to 3% per year, we experienced an unusually large increase in same |
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state DMV revenues in 2002 due in part to more robust U.S. automobile sales than in 2003. Our ability to grow same state DMV revenues is generally limited, as such revenues are driven by broader economic factors outside of our control. An important component of same state revenue growth is the growth in non-DMV transaction revenues, which are transaction fees other than from the sale of DMV records for transactions conducted primarily by businesses and, to a lesser extent, citizens through our portals. In 2003, same state non-DMV revenues grew at 35%, which approximated historical levels. We are able to grow non-DMV revenues by continually deploying new revenue generating applications and driving adoption of existing applications within our existing portal businesses. We believe the key factor to us organically growing our revenues is to continually focus on driving adoption and implementation of new non-DMV revenue generating applications. |
• | Continue to aggressively grow operating margins and profitability - In addition to driving same state revenue growth, we will continue to increase profitability by driving cost containment efforts throughout the Company and maintaining a lean organizational structure that fosters entrepreneurial decision-making and innovation and accentuates the strong financial leverage of our business model. An important financial metric that we use to gauge our success in improving portal profitability is portal gross profit percentage, or gross profit rate, which is calculated by dividing portal gross profit (portal revenues minus cost of portal revenues, excluding depreciation) by portal revenues. Our long-term outlook is for our portal gross profit rate to be in the 45-50% range. Our portal gross profit rate increased to 46% in 2003, from 43% in 2002 and 26% in 2001. On a same state basis, our portal gross profit rate was 48%, an increase of less than 1% from 2002. This was less than the growth we have achieved in recent years due primarily to lower same state revenue growth in the current year as further discussed above. Our same state gross profit rate was slightly less than 48% in 2002 and 40% in 2001. We also view selling & administrative costs as a percentage of revenue to be an important indicator of our success in keeping corporate level expenses flat year over year. Selling & administrative costs as a percentage of revenue decreased to 23% in 2003, from 28% in 2002 and 47% in 2001. Going forward, we expect selling & administrative costs as a percentage of revenues to continue to decline as our revenues grow and our corporate expenses remain relatively flat year over year. Finally, our consolidated operating margin (operating income or loss divided by consolidated revenues) is an important measure of our overall profitability. This metric improved to 14% in 2003 from (17%) in 2002 and (236%) in 2001. We expanded rapidly following our initial public offering in July 1999 and incurred substantial operating losses through mid-2002 primarily as a result of our acquired software & services businesses, which are further discussed below. Throughout this time period, our core outsourced portal operations have grown and have been profitable. As part of a broader strategic refocusing on our profitable core outsourced portal business during 2002, we exited our eProcurement and transportation businesses and restructured the other software & services businesses in an effort to accelerate our path to profitability. We became profitable in the second half of 2002 and have focused the business on operations we believe have demonstrable ability to produce positive net income and sustainable cash flow in the future. However, any projections of future results of operations and cash flows are subject to substantial uncertainty. |
Overview of Business Models and Revenue Recognition
• | transaction-based fees; |
• | fees for managing portal operations; and |
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• | fees for application development. |
Our portal outsourcing businesses
• | DMV transaction-based: these are transaction fees from the sale of driver history records, referred to as DMV records, from our state portals to data resellers, insurance companies and other pre-authorized customers, and are generally recurring. |
• | Non-DMV transaction-based: these are transaction fees other than from the sale of DMV records for transactions conducted by businesses and citizens through our portals, and are generally recurring. For a representative listing of non-DMV services we currently offer through our portals, refer to Part I, Item 1 in this Form 10-K. |
• | Portal management: these are recurring fees paid to us by our government partners for the operation of portals, which typically supplement transaction-based fees. |
• | Software development: these are fees from the performance of software development projects and other time and materials services for our government partners. While we actively market these services, they may not have the same degree of predictability as our transaction-based or portal management revenues. |
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Our software & services businesses
Corporate filings
Ethics & elections
Transportation
AOL
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revenues when notified of the amount due from AOL, which is approximately one month after the advertisement is provided. We experienced a significant decrease in revenues from our AOL business in 2003 as compared to prior periods due to continued weakness in AOL’s online advertising operations. Our contract with AOL ends in December 2004, or earlier if quarterly advertising revenues do not reach specified levels. The AOL business is no longer considered to be of continuing significance to the Company as further discussed below.
Software & Services Businesses — Impairment Losses, Restructuring Charges and Discontinued Operations
NIC Commerce
NIC Technologies
30
underperformance of this business. NIC Technologies had been integrated as the application development organization for our portal businesses. However, a series of organizational restructurings completed in the third quarter of 2001 led to significant layoffs at NIC Technologies and a shift in application development from what were previously centralized development operations in Westlake Village, California and Pune, India to regionalized operations in selected state portals. In total, less than 25 employees who were employees of the original SDR Technologies were employed with NIC at September 30, 2001, down from a previous high of approximately 85 employees at the date of acquisition in May 2000. Additionally, we determined that the value of the technology intangible relating to the SDR acquisition was impaired. We significantly curtailed funding of all research and development-stage technology projects that did not have demonstrable and immediate positive financial returns for the Company. Specifically, future funding to actively develop and market the Company’s Web iVR technology was significantly scaled back. This Web iVR technology was the primary value driver of the product technology intangible resulting from the SDR acquisition. Goodwill related to the SDR acquisition primarily represented the benefits we expected to receive from a centralized application development organization. Since we abandoned that strategy and eliminated most of the development resources acquired with SDR, management concluded the goodwill no longer had value. We recognized a $27.6 million impairment loss in the third quarter of 2001 representing the unamortized balances of goodwill and other intangible assets related to the SDR acquisition. Additionally, during the fourth quarter of 2001 we continued to evaluate the recoverability of capitalized software at NIC Technologies. We determined that the expected future cash flows of NIC Technologies would not be sufficient to recover the capitalized software assets and $1.0 million was expensed as an impairment loss in the fourth quarter of 2001.
NIC Conquest
IDT
31
AOL
Restructurings
Critical Accounting Policies
32
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. There can be no assurance that actual results will not differ from those estimates.
Application development contracts
Deferred income taxes
33
years ended December 31, 2002 and 2003, total net deferred tax assets, including NOL carryforwards, were the largest asset included in our consolidated balance sheets and comprised approximately 48% and 41%, respectively, of our total assets.
Goodwill, intangible assets and long-lived assets
Financial Analysis of Years Ended December 31, 2003, 2002 and 2001
Key Financial Metrics | 2003 | 2002 | 2001 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenue growth — outsourced portals | 16 | % | 32 | % | 48 | % | ||||||||
Same state revenue growth — outsourced portals | 7 | % | 15 | % | 20 | % | ||||||||
Revenue growth — software & services | (17 | %) | 20 | % | 92 | % | ||||||||
Gross profit % — outsourced portals | 46 | % | 43 | % | 26 | % | ||||||||
Gross profit % — software & services | 21 | % | (7 | %) | (36 | %) | ||||||||
Selling & administrative as % of revenue | 23 | % | 28 | % | 47 | % | ||||||||
Operating margin % | 14 | % | (17 | %) | (236 | %) |
Portal Revenue Analysis | 2003 | Increase/(Decrease) from 2002 | 2002 | Increase/(Decrease) from 2001 | 2001 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
DMV transaction-based | $ | 25,088 | 13 | % | $ | 22,253 | 32 | % | $ | 16,899 | |||||||
Non-DMV transaction-based | 10,846 | 34 | % | 8,065 | 55 | % | 5,208 | ||||||||||
Portal management | 1,200 | (6 | %) | 1,274 | (21 | %) | 1,603 | ||||||||||
Software development | 3,075 | (4 | %) | 3,187 | 20 | % | 2,661 | ||||||||||
Total | $ | 40,209 | 16 | % | $ | 34,779 | 32 | % | $ | 26,371 |
34
to generate DMV revenues in mid-September 2003, and 6%, or approximately $2.2 million, was attributable to an increase in same state portal revenues (states in operation and generating DMV revenues for two full years). Same state portal revenues in the current year increased 7% over the prior year primarily as a result of increased transaction volumes from our Iowa, Indiana, Utah and Maine portals. Our Iowa portal began to generate DMV revenues beginning in January 2003 as a result of a new contract with the state of Iowa, which was previously a time and materials portal management contract. The increase in revenues from our Indiana, Maine and Utah portals was the result of the addition of several new non-DMV applications during the year. Our same state revenue growth in the current year was less than the growth we have achieved in recent years due primarily to a 1% year-over-year decrease in same state DMV revenues. While we generally expect same state DMV revenues to grow only 1% to 3% per year, we experienced a large increase in same state DMV revenues in 2002 due in part to more robust U.S. automobile sales than in the current period. Same state non-DMV transaction-based revenues increased 35%, or approximately $2.5 million, in the current year due to the addition of new revenue generating applications throughout our existing portal businesses.
35
new revenue generating applications and services within existing portals and a decrease in same state cost of portal revenues as further discussed above.
Software & Services Revenue Analysis | 2003 | Increase/(Decrease) from 2002 | 2002 | Increase/(Decrease) from 2001 | 2001 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Corporate Filings — California Secretary of State | $ | 7,225 | 2 | % | $ | 7,079 | 498 | % | $ | 1,183 | |||||||
Corporate Filings — Legacy contracts | 238 | (73 | %) | 883 | (80 | %) | 4,398 | ||||||||||
Ethics & Elections | 2,361 | 15 | % | 2,058 | 64 | % | 1,257 | ||||||||||
Transportation | 485 | (60 | %) | 1,216 | (56 | %) | 2,740 | ||||||||||
AOL | 140 | (91 | %) | 1,482 | 43 | % | 1,034 | ||||||||||
Other | 173 | 260 | % | 48 | 26 | % | 38 | ||||||||||
Total | $ | 10,622 | (17 | %) | $ | 12,766 | 20 | % | $ | 10,650 |
36
expense in cost of software & services revenues, which approximated $0.3 million in the prior year period. In addition, we have significantly reduced the number of dedicated employees related to AOL and, as a result, have reduced employee payroll costs by approximately $0.2 million in 2003.
37
depreciated. We expect depreciation expense for 2004 to range from $1.9 to $2.1 million. We expect amortization expense for 2004 to be less than $0.1 million, the majority of which will consist of the amortization of internal use capitalized software development costs.
Liquidity and Capital Resources
38
subcontractors that are not directly tied to payments to us by the California Secretary of State. The increase in accrued expenses in the current year was partially due to accrued subcontractor costs on this project, as we are not required to pay certain subcontractors until we receive major milestone payments under the contract. For additional information on the major milestone payments we expect to receive under this contract, refer to the discussion below. The increases in accounts receivable and accounts payable in the current year were mainly attributable to an increase in revenues from our portal businesses in Alabama and Kentucky, which began to generate DMV revenues in the current year (a $1.6 million increase in accounts receivable), and to an increase in fourth quarter tax receipts from tax filing applications in Hawaii, Indiana and Dallas County (a $2 million increase in accounts receivable). The majority of these tax receipts were remitted to our government partners in January 2004.
39
40
on a long-term, sustained basis. If we are not able to sustain profitability, our cash collateral requirements may increase. Had the Company been required to post 100% cash collateral at December 31, 2003 for the face value of all performance bonds (which are supported by letters of credit), our line of credit in conjunction with a corporate credit card agreement and our bank note payable, unrestricted cash would have decreased and restricted cash would have increased by approximately $2.0 million.
• | fund operations, including the costs to fund our contract with the California Secretary of State and subcontractors on that project; |
• | collateralize letters of credit, which the Company is required to post as collateral for performance on certain of its outsourced government portal contracts and as collateral for certain performance bonds; |
• | support our expansion into other states and government agencies beyond what is contemplated in 2004 if unforeseen opportunities arise; |
• | expand our product and service offerings beyond what is contemplated in 2004 if unforeseen opportunities arise; |
• | respond to unforeseen competitive pressures; and |
• | acquire complementary technologies beyond what is contemplated in 2004 if unforeseen opportunities arise. |
Contractual Obligations | Total | Less than 1 year | 1–3 years | 3–5 years | More than 5 years | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Operating lease obligations | $ | 3,534 | $ | 1,404 | $ | 1,999 | $ | 131 | $ | — | |||||||
Long-term debt obligations | 363 | 156 | 207 | — | — | ||||||||||||
Capital lease obligations | — | — | — | — | — | ||||||||||||
Purchase obligations | — | — | — | — | — | ||||||||||||
Other long-term liabilities | — | — | — | — | — | ||||||||||||
Total contractual cash obligations | $ | 3,897 | $ | 1,560 | $ | 2,206 | $ | 131 | $ | — |
Deferred Tax Assets
41
profitable in the second half of 2002 and expect the Company to be profitable and generate taxable income in 2004 and beyond. We have focused the business on operations we believe have demonstrable ability to produce positive taxable income and cash flow in the future. To achieve a sufficient level of future taxable income, we intend to pursue our current strategy of adding new government partners, broadening our service offerings, and increasing transactional revenues from our existing government portals. Based on information currently known to management, we believe it is more likely than not that the Company will realize the deferred tax assets. The table below reconciles income (loss) from continuing operations before income taxes for financial statement purposes with taxable income (loss) for federal income tax purposes (in thousands):
Year ended December 31, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
2001 | 2002 | 2003 | ||||||||||
Income (loss) from continuing operations before income taxes | $ | (90,079 | ) | $ | (9,107 | ) | $ | 7,513 | ||||
Loss before income taxes — discontinued operations | (10,465 | ) | (3,342 | ) | — | |||||||
Amortization of purchase accounting intangibles | 20,273 | (1,899 | ) | (2,245 | ) | |||||||
Net operating loss relating to NIC Conquest | 6,224 | 1,820 | — | |||||||||
Impairment of intangible assets | 49,494 | 4,316 | (2,111 | ) | ||||||||
Equity in net loss of affiliates | 3,272 | 1,235 | 465 | |||||||||
Capitalized software development costs | (6,635 | — | — | |||||||||
Deductions relating to stock options | (20 | (535 | ) | (1,382 | ) | |||||||
Stock compensation expense | 1,525 | 1,307 | — | |||||||||
Provision for loss on application development contracts | 3,605 | (2,403 | ) | (1,106 | ) | |||||||
Depreciation and capitalized software amortization | 2,135 | (139 | ) | (651 | ) | |||||||
Other | (469 | ) | 326 | 284 | ||||||||
Taxable income (loss) — 2003 is an estimate | $ | (21,140 | ) | $ | (8,421 | ) | $ | 767 |
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
42
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
NIC INC.
CONSOLIDATED BALANCE SHEETS
December 31, | ||||||||
---|---|---|---|---|---|---|---|---|
2002 | 2003 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 9,559,086 | $ | 13,540,400 | ||||
Cash and cash equivalents — restricted | 6,300,054 | 5,363,033 | ||||||
Marketable securities | 248,816 | 249,139 | ||||||
Trade accounts receivable | 14,465,062 | 17,871,454 | ||||||
Deferred income taxes | 606,357 | 180,750 | ||||||
Prepaid expenses | 761,016 | 698,320 | ||||||
Other current assets | 3,214,893 | 8,844,897 | ||||||
Total current assets | 35,155,284 | 46,747,993 | ||||||
Property and equipment, net | 3,053,850 | 2,991,596 | ||||||
Deferred income taxes | 35,048,961 | 35,168,773 | ||||||
Other assets | 139,004 | 109,562 | ||||||
Investments in affiliates and joint ventures | 839,192 | 644,497 | ||||||
Intangible assets, net | 219,978 | 77,451 | ||||||
Total assets | $ | 74,456,269 | $ | 85,739,872 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 12,701,458 | $ | 16,345,249 | ||||
Accrued expenses | 3,792,426 | 5,244,979 | ||||||
Notes payable — current portion | 331,655 | 155,724 | ||||||
Application development contracts | 1,558,758 | 464,654 | ||||||
Other current liabilities | 814,919 | 158,364 | ||||||
Total current liabilities | 19,199,216 | 22,368,970 | ||||||
Notes payable — long-term portion | 201,255 | 207,309 | ||||||
Total liabilities | 19,400,471 | 22,576,279 | ||||||
Commitments and contingencies (Notes 5, 10, 11, 12 and 14) | — | — | ||||||
Shareholders’ equity: | ||||||||
Common stock, no par, 200,000,000 shares authorized 58,092,346 and 58,715,672 shares issued and outstanding | — | — | ||||||
Additional paid-in capital | 197,160,262 | 198,929,405 | ||||||
Accumulated deficit | (141,888,742 | ) | (135,560,835 | ) | ||||
Accumulated other comprehensive income (loss) | (462 | ) | (480 | ) | ||||
55,271,058 | 63,368,090 | |||||||
Less treasury stock | (215,260 | ) | (204,497 | ) | ||||
Total shareholders’ equity | 55,055,798 | 63,163,593 | ||||||
Total liabilities and shareholders’ equity | $ | 74,456,269 | $ | 85,739,872 |
The accompanying notes are an integral part of these consolidated financial statements.
43
NIC INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
2001 | 2002 | 2003 | ||||||||||
Revenues: | ||||||||||||
Portal revenues | $ | 26,370,764 | $ | 34,778,978 | $ | 40,209,000 | ||||||
Software & services revenues | 10,649,616 | 12,766,432 | 10,622,209 | |||||||||
Total revenues | 37,020,380 | 47,545,410 | 50,831,209 | |||||||||
Operating expenses: | ||||||||||||
Cost of portal revenues, exclusive of depreciation & amortization | 19,472,803 | 19,855,320 | 21,585,990 | |||||||||
Cost of software & services revenues, exclusive of depreciation & amortization | 14,495,097 | 13,687,296 | 8,442,771 | |||||||||
Selling & administrative | 17,566,929 | 13,322,099 | 11,681,386 | |||||||||
Impairment loss | 44,834,490 | 4,316,230 | — | |||||||||
Stock compensation | 1,525,022 | 1,306,569 | — | |||||||||
Depreciation & amortization | 26,627,561 | 2,988,389 | 1,783,164 | |||||||||
Total operating expenses | 124,521,902 | 55,475,903 | 43,493,311 | |||||||||
Operating income (loss) | (87,501,522 | ) | (7,930,493 | ) | 7,337,898 | |||||||
Other income (expense): | ||||||||||||
Interest income | 966,423 | 179,829 | 100,215 | |||||||||
Interest expense | (38,789 | ) | (49,193 | ) | (20,927 | ) | ||||||
Equity in net loss of affiliates | (3,271,876 | ) | (1,234,938 | ) | 106,716 | |||||||
Other income (expense), net | (233,189 | ) | (71,775 | ) | (10,842 | ) | ||||||
Total other income (expense) | (2,577,431 | ) | (1,176,077 | ) | 175,162 | |||||||
Income (loss) from continuing operations before income taxes and minority interest | (90,078,953 | ) | (9,106,570 | ) | 7,513,060 | |||||||
Income tax expense (benefit) | (18,684,739 | ) | (3,532,040 | ) | 1,185,153 | |||||||
Income (loss) from continuing operations before minority interest | (71,394,214 | ) | (5,574,530 | ) | 6,327,907 | |||||||
Minority interest | (475,302 | ) | — | — | ||||||||
Income (loss) from continuing operations | (70,918,912 | ) | (5,574,530 | ) | 6,327,907 | |||||||
Discontinued operations (Note 5): | ||||||||||||
Loss from discontinued operations (less applicable income tax benefit of $3,940,110, $1,306,398 and $—) | (6,525,361 | ) | (2,035,463 | ) | — | |||||||
Net income (loss) | $ | (77,444,273 | ) | $ | (7,609,993 | ) | $ | 6,327,907 | ||||
Basic and diluted earnings (loss) per share: | ||||||||||||
Earnings (loss) per share — continuing operations | $ | (1.26 | ) | $ | (0.10 | ) | $ | 0.11 | ||||
Loss per share — discontinued operations | $ | (0.12 | ) | $ | (0.03 | ) | $ | — | ||||
Net earnings (loss) per share | $ | (1.38 | ) | $ | (0.13 | ) | $ | 0.11 | ||||
Weighted average shares outstanding | ||||||||||||
Basic | 56,109,730 | 56,875,327 | 58,330,793 | |||||||||
Diluted | 56,109,730 | 56,875,327 | 59,269,291 |
The accompanying notes are an integral part of these consolidated financial statements.
44
NIC INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Notes and Stock Subscriptions Receivable | Deferred Compensation Expense | Treasury Stock | Total | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Shares | Amount | ||||||||||||||||||||||||||||||||
Balance, January 1, 2001 | 56,038,571 | $ | — | $ | 194,822,925 | $ | (56,834,476 | ) | $ | 967 | $ | (15,000 | ) | $ | (2,814,349 | ) | $ | — | $ | 135,160,067 | |||||||||||||
Net loss | — | — | — | (77,444,273 | ) | — | — | — | — | (77,444,273 | ) | ||||||||||||||||||||||
Stock options exercised | 216,626 | — | 318,739 | — | — | — | — | — | 318,739 | ||||||||||||||||||||||||
Deferred compensation expense recognized | — | — | — | — | — | — | 1,507,780 | — | 1,507,780 | ||||||||||||||||||||||||
Issuance of common stock to employees | 5,000 | — | 17,242 | — | — | — | — | — | 17,242 | ||||||||||||||||||||||||
Unrealized holding loss on marketable securities | — | — | — | — | (847 | ) | — | — | — | (847 | ) | ||||||||||||||||||||||
Balance, December 31, 2001 | 56,260,197 | — | 195,158,906 | (134,278,749 | ) | 120 | (15,000 | ) | (1,306,569 | ) | — | 59,558,708 | |||||||||||||||||||||
Net loss | — | — | — | (7,609,993 | ) | — | — | — | — | (7,609,993 | ) | ||||||||||||||||||||||
Stock options exercised | 1,915,094 | — | 2,865,295 | — | — | — | — | — | 2,865,295 | ||||||||||||||||||||||||
Deferred compensation expense recognized | — | — | — | — | — | — | 1,306,569 | — | 1,306,569 | ||||||||||||||||||||||||
Stock subscriptions received | — | — | — | — | — | 15,000 | — | 15,000 | |||||||||||||||||||||||||
Issuance of common stock under employee stock purchase plan | 32,504 | — | 84,611 | — | — | — | — | — | 84,611 | ||||||||||||||||||||||||
Issuance of common stock under earnout settlement agreement | 140,000 | — | 197,400 | — | — | — | — | — | 197,400 | ||||||||||||||||||||||||
Forfeiture of common stock issued to acquire business | (105,961 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Repurchase of common stock | (149,488 | — | — | — | — | — | — | (215,260 | ) | (215,260 | ) | ||||||||||||||||||||||
Tax deductions relating to stock options | — | — | 196,042 | — | — | — | — | — | 196,042 | ||||||||||||||||||||||||
Adjustment of deferred tax asset related to stock options | — | — | (1,341,992 | ) | — | — | — | — | — | (1,341,992 | ) | ||||||||||||||||||||||
Unrealized holding loss on marketable securities | — | — | — | — | (582 | ) | — | — | — | (582 | ) | ||||||||||||||||||||||
Balance, December 31, 2002 | 58,092,346 | — | 197,160,262 | (141,888,742 | ) | (462 | ) | — | — | (215,260 | ) | 55,055,798 | |||||||||||||||||||||
Net income | — | — | — | 6,327,907 | — | — | — | — | 6,327,907 | ||||||||||||||||||||||||
Stock options exercised | 574,595 | — | 1,160,796 | — | — | — | — | — | 1,160,796 | ||||||||||||||||||||||||
Issuance of common stock under employee stock purchase plan | 48,731 | — | 72,487 | — | — | — | — | — | 72,487 | ||||||||||||||||||||||||
Tax deductions relating to stock options | — | — | 546,623 | — | — | — | — | — | 546,623 | ||||||||||||||||||||||||
Retirement of treasury stock | — | — | (10,763 | ) | — | — | — | — | 10,763 | — | |||||||||||||||||||||||
Unrealized holding loss on marketable securities | — | — | — | — | (18 | ) | — | — | — | (18 | ) | ||||||||||||||||||||||
Balance, December 31, 2003 | 58,715,672 | $ | — | $ | 198,929,405 | $ | (135,560,835 | ) | $ | (480 | ) | $ | — | $ | — | $ | (204,497 | ) | $ | 63,163,593 |
The accompanying notes are an integral part of these consolidated financial statements.
45
NIC INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2001 | 2002 | 2003 | |||||||||||
Cash flows from operating activities: | |||||||||||||
Net income (loss) | $ | (77,444,273 | ) | $ | (7,609,993 | ) | $ | 6,327,907 | |||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |||||||||||||
Depreciation & amortization | 27,953,007 | 3,379,270 | 1,783,164 | ||||||||||
Compensation expense recognized related to sale of common stock | 17,242 | — | — | ||||||||||
Compensation expense recognized related to stock options | 1,507,780 | 1,306,569 | — | ||||||||||
Loss on disposals of property and equipment | 174,601 | 1,769,412 | 11,551 | ||||||||||
Accretion of discount on marketable securities | (568,594 | ) | (4,048 | ) | (2,295 | ) | |||||||
Application development contracts | 3,605,471 | (2,403,221 | ) | (1,094,104 | ) | ||||||||
Impairment loss | 49,494,090 | 4,316,230 | — | ||||||||||
Deferred income taxes | (22,596,670 | ) | (6,190,548 | ) | 1,399,041 | ||||||||
Deferred income tax benefit relating to stock options | — | 1,145,950 | (546,623 | ) | |||||||||
Minority interest | (475,302 | ) | — | — | |||||||||
Equity in net loss of affiliates | 3,271,876 | 1,234,938 | (106,716 | ) | |||||||||
Changes in operating assets and liabilities, net of effects of acquisitions: | |||||||||||||
(Increase) in trade accounts receivable | (4,598,165 | ) | (2,634,198 | ) | (3,406,392 | ) | |||||||
(Increase) decrease in prepaid expenses | 894,737 | (137,687 | ) | 62,696 | |||||||||
(Increase) in other current assets | (854,439 | ) | (406,364 | ) | (5,619,504 | ) | |||||||
(Increase) decrease in other assets | (69,788 | ) | 109,829 | 29,442 | |||||||||
Increase in accounts payable | 6,902,345 | 1,469,370 | 3,594,759 | ||||||||||
Increase (decrease) in accrued expenses | 2,168,884 | (1,616,942 | ) | 1,492,095 | |||||||||
(Decrease) in other current liabilities | (221,893 | ) | (95,562 | ) | (355,144 | ) | |||||||
Net cash provided by (used in) operating activities | (10,839,091 | ) | (6,366,995 | ) | 3,569,877 | ||||||||
Cash flows from investing activities: | |||||||||||||
Purchases of property and equipment | (2,419,718 | ) | (967,627 | ) | (1,518,798 | ) | |||||||
Proceeds from disposals of property and equipment | 487,251 | — | — | ||||||||||
Capitalized software development costs | (6,576,855 | ) | — | — | |||||||||
Purchases of marketable securities | (40,303,984 | ) | (23,745,011 | ) | (497,705 | ) | |||||||
Maturities of marketable securities | 61,721,032 | 27,566,194 | 500,000 | ||||||||||
Proceeds from sale of affiliate | 662,356 | — | — | ||||||||||
Investments in affiliates and joint ventures | (347,594 | ) | (191,000 | ) | — | ||||||||
Net cash provided by (used in) investing activities | 13,222,488 | 2,662,556 | (1,516,503 | ) |
46
Year Ended December 31, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
2001 | 2002 | 2003 | ||||||||||
Cash flows from financing activities: | ||||||||||||
Cash and cash equivalents — restricted | $ | — | $ | (6,300,054 | ) | $ | 937,021 | |||||
Proceeds from notes payable | 1,000,000 | — | — | |||||||||
Payments on notes and debentures payable | (127,257 | ) | (339,833 | ) | (169,877 | ) | ||||||
Payments on capital lease obligations | (201,518 | ) | (13,762 | ) | — | |||||||
Payments to repurchase common stock | — | (215,260 | ) | — | ||||||||
Proceeds from exercise of employee stock options | 302,647 | 2,881,682 | 1,160,796 | |||||||||
Proceeds from stock subscriptions receivable | — | 15,000 | — | |||||||||
Net cash provided by (used in) financing activities | 973,872 | (3,972,227 | ) | 1,927,940 | ||||||||
Net increase (decrease) in cash and cash equivalents | 3,357,269 | (7,676,666 | ) | 3,981,314 | ||||||||
Cash and cash equivalents, beginning of year | 13,878,483 | 17,235,752 | 9,559,086 | |||||||||
Cash and cash equivalents, end of year | $ | 17,235,752 | $ | 9,559,086 | $ | 13,540,400 | ||||||
Other cash flow information: | ||||||||||||
Interest paid | $ | 39,504 | $ | 49,193 | $ | 20,927 | ||||||
Income taxes paid | $ | 87,707 | $ | 94,200 | $ | 382,358 |
The accompanying notes are an integral part of these consolidated financial statements.
47
NIC INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND BASIS OF PRESENTATION
The Company
48
Basis of presentation
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of consolidation
Cash and cash equivalents
Cash and cash equivalents — restricted
Marketable securities
Property and equipment
49
When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in results of operations for the period. The cost of maintenance and repairs is charged to expense as incurred; significant renewals and betterments are capitalized.
Investments in affiliates and joint ventures
Goodwill and intangible assets
50
was amortized using the straight-line method over its estimated period of benefit. Had the Company been accounting for its goodwill under SFAS No. 142 for the year ended December 31, 2001, the Company’s net loss and net loss per share would have been as follows:
Year ended December 31, 2001 | ||||||
---|---|---|---|---|---|---|
Net loss, as reported | $ | (77,444,273 | ) | |||
Add: Goodwill amortization, net of tax | 12,800,385 | |||||
Equity-method goodwill amortization, net of tax | 1,150,358 | |||||
Net loss, as adjusted | $ | (63,493,530 | ) | |||
Basic and diluted net loss per share, as reported | $ | (1.38 | ) | |||
Add: Goodwill amortization, net of tax | 0.23 | |||||
Equity-method goodwill amortization, net of tax | 0.02 | |||||
Basic and diluted net loss per share, as adjusted | $ | (1.13 | ) |
Software development costs
Revenue recognition
Portal revenues
51
accounts payable at the time services are provided. The Company must remit a certain amount or percentage of these fees to government agencies regardless of whether the Company ultimately collects the fees. Trade accounts receivable and accounts payable reflect the gross amounts outstanding at the balance sheet dates.
Software & services revenues
Stock-based compensation
52
Year Ended December 31, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
2001 | 2002 | 2003 | ||||||||||
Net income (loss), as reported | $ | (77,444,273 | ) | $ | (7,609,993 | ) | $ | 6,327,907 | ||||
Add: Stock-based employee compensation included in reported net income (loss), net of related tax effects | 1,158,736 | 876,166 | — | |||||||||
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects | (6,700,759 | ) | (6,229,689 | ) | (2,938,705 | ) | ||||||
Pro forma net income (loss) | $ | (82,986,296 | ) | $ | (12,963,516 | ) | $ | 3,389,202 | ||||
Basic and diluted net earnings (loss) per share, as reported | $ | (1.38 | ) | $ | (0.13 | ) | $ | 0.11 | ||||
Basic and diluted net earnings (loss) per share, pro forma | $ | (1.48 | ) | $ | (0.23 | ) | $ | 0.06 |
2001 | 2002 | 2003 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Risk-free interest rate | 4.65 | % | 2.95 | % | 2.64 | % | ||||||
Expected dividend yield | 0.00 | 0.00 | 0.00 | |||||||||
Expected option life | 4.0 years | 3.0 years | 4.0 years | |||||||||
Expected stock price volatility | 117 | % | 102 | % | 89 | % | ||||||
Fair value of options granted | $ | 2.45 | $ | 1.18 | $ | 2.24 |
Income taxes
Comprehensive income (loss)
Earnings (loss) per share
53
exercise of employee common stock options and common stock warrants using the treasury stock method. The following table sets forth the computation of basic and diluted earnings per share for the years ended December 31, 2001, 2002 and 2003:
Year ended December 31, | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2001 | 2002 | 2003 | |||||||||||
Numerator: | |||||||||||||
Income (loss) from continuing operations | $ | (70,918,912 | ) | $ | (5,574,530 | ) | $ | 6,327,907 | |||||
Loss from discontinued operations | (6,525,361 | ) | (2,035,463 | ) | — | ||||||||
Net income (loss) | $ | (77,444,273 | ) | $ | (7,609,993 | ) | $ | 6,327,907 | |||||
Denominator: | |||||||||||||
Weighted average shares — basic | 56,109,730 | 56,875,327 | 58,330,793 | ||||||||||
Employee common stock options and warrants | — | — | 938,498 | ||||||||||
Weighted average shares — diluted | 56,109,730 | 56,875,327 | 59,269,291 | ||||||||||
Basic earnings (loss) per share: | |||||||||||||
Income (loss) from continuing operations | $ | (1.26 | ) | $ | (0.10 | ) | $ | 0.11 | |||||
Loss from discontinued operations | $ | (0.12 | ) | $ | (0.03 | ) | $ | — | |||||
Net income (loss) | $ | (1.38 | ) | $ | (0.13 | ) | $ | 0.11 | |||||
Diluted earnings (loss) per share: | |||||||||||||
Income (loss) from continuing operations | $ | (1.26 | ) | $ | (0.10 | ) | $ | 0.11 | |||||
Loss from discontinued operations | $ | (0.12 | ) | $ | (0.03 | ) | $ | — | |||||
Net income (loss) | $ | (1.38 | ) | $ | (0.13 | ) | $ | 0.11 |
Concentration of credit risk
Segment reporting
54
Use of estimates
3. OUTSOURCED GOVERNMENT PORTAL CONTRACTS
NIC Subsidiary | Portal Name (Government Entity) | Year Services Commenced | Contract Expiration Date (Renewal Option Through) | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Kentucky Interactive | www.Kentucky.gov (Kentucky) | 2003 | 1/30/2005 (1/30/2013) | |||||||
Alabama Interactive | www.Alabama.gov (Alabama) | 2002 | 1/7/2005 | |||||||
New England Interactive | www.RI.gov (Rhode Island) | 2001 | 6/19/2006 (6/19/2010) | |||||||
NICUSA | www.YourOklahoma.com (Oklahoma) | 2001 | 5/31/2004 (5/31/2006) | |||||||
Montana Interactive | www.DiscoveringMontana.com (Montana) | 2001 | 1/1/2006 (1/1/2011) | |||||||
NICUSA | www.Tennessee.gov (Tennessee) | 2000 | 8/27/2004 (8/27/2005) | |||||||
Hawaii Information Consortium | www.Hawaii.gov (Hawaii) | 2000 | 1/3/2005 (1/3/2007) | |||||||
Idaho Information Consortium | www.accessIdaho.org (Idaho) | 2000 | 12/7/2004 (12/7/2006) | |||||||
Utah Interactive | www.Utah.gov (Utah) | 1999 | 5/6/2007 (5/6/2009) | |||||||
New England Interactive | www.Maine.gov (Maine) | 1999 | 7/14/2004 (7/14/2006) | |||||||
Arkansas Information Consortium | www.Arkansas.gov (Arkansas) | 1997 | 6/30/2004 | |||||||
Iowa Interactive | www.iowaccess.org (Iowa) | 1997 | 9/30/2005 | |||||||
Virginia Interactive | www.Virginia.gov (Virginia) | 1997 | 9/1/2007 (9/1/2012) | |||||||
Indiana Interactive | www.IN.gov (Indiana) | 1995 | 2/28/2005 | |||||||
Nebraska Interactive | www.Nebraska.gov (Nebraska) | 1995 | 1/31/2007 (1/31/2010) | |||||||
Kansas Information Consortium | www.accessKansas.org (Kansas) | 1992 | 12/31/2005 (12/31/2009) |
As of December 31, 2003, the Company has also entered into contracts with the States of New Hampshire and Vermont, the City of Indianapolis and Marion County (IN), Dallas County (TX), Kent County (MI), Washtenaw
55
County (MI), the City of Tampa (FL), the City of Corpus Christi (Texas), the City of Des Moines (IA) and the Iowa State Treasurers.
4. ACCOUNTING FOR THE 1998 EXCHANGE OFFER
5. | SOFTWARE & SERVICES BUSINESSES — ACQUISITIONS, ALLIANCES, RESTRUCTURINGS, IMPAIRMENT LOSSES AND DISCONTINUED OPERATIONS |
56
eFed — NIC Commerce
57
the eProcurment segment. Components of amounts reflected in the Company’s consolidated statements of operations and balance sheets relating to discontinued operations are presented in the following table:
Year Ended December 31, | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2001 | 2002 | 2003 | |||||||||||
Statement of operations data | |||||||||||||
Revenues | $ | 1,846,319 | $ | 221,863 | $ | — | |||||||
Costs and expenses | 6,326,744 | 1,747,690 | — | ||||||||||
Impairment loss — capitalized software development costs | 4,659,600 | — | — | ||||||||||
Loss on disposal of property and equipment | — | 1,425,153 | — | ||||||||||
Depreciation and amortization | 1,325,446 | 390,881 | — | ||||||||||
Operating loss | (10,465,471 | ) | (3,341,861 | ) | — | ||||||||
Income tax benefit | (3,940,110 | ) | (1,306,398 | ) | — | ||||||||
Loss from discontinued operations | $ | (6,525,361 | ) | $ | (2,035,463 | ) | $ | — |
December 31, | ||||||||
---|---|---|---|---|---|---|---|---|
2002 | 2003 | |||||||
Balance sheet data: | ||||||||
Current assets | $ | — | $ | — | ||||
Property and equipment, net | 41,875 | — | ||||||
Other assets | — | — | ||||||
Current liabilities | (7,574 | ) | — | |||||
Net assets of discontinued operations | $ | 34,301 | $ | — |
Conquest Softworks — NIC Conquest
58
SDR Technologies — NIC Technologies
59
held and released in accordance with the terms and conditions of an indemnification escrow agreement. Subject to NIC’s claims against escrow shares discussed below and to certain other limitations, one half of the escrow shares were to be delivered to SDR shareholders nine months after the date of closing and any remaining escrow shares were delivered to the SDR shareholders 18 months after the date of closing. The acquisition was accounted for as a purchase, and the purchase price was approximately $39.7 million.
Purchase Price: | ||||
Fair value of common stock issued | $ | 32,898,312 | ||
Fair value of common stock options issued | 3,703,912 | |||
Direct acquisition costs | 2,176,072 | |||
Fair value of March 27, 2000 promissory note | 1,000,000 | |||
Fair value of common stock to be deducted from escrow | (103,225 | ) | ||
$ | 39,675,071 |
60
Purchase Price Allocation: | Amortization Period | Annualized Amortization of Intangibles | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
Fair value of net tangible assets at May 11, 2000 | $ | (1,743,857 | ) | |||||||
Deferred tax liability | (7,585,000 | ) | ||||||||
Acquired intangible assets: | ||||||||||
Assembled domestic workforce | 1,100,000 | 2 years | $ | 550,000 | ||||||
Foreign workforce agreement | 8,800,000 | 5 years | 1,760,000 | |||||||
Product technology | 8,200,000 | 3 years | 2,733,333 | |||||||
Customer contracts | 400,000 | 2 years | 200,000 | |||||||
Goodwill | 30,503,928 | 3 years | 10,167,976 | |||||||
$ | 39,675,071 | $ | 15,411,309 |
Intelligent Decision Technologies — IDT
61
shares of unregistered NIC common stock. Pursuant to the Agreement and Plan of Merger dated September 8, 2000 (the “Merger Agreement”), fifty percent of the total number of shares of NIC common stock issued was held in escrow as collateral for the indemnification obligations of the selling shareholders under the Merger Agreement. The shares of NIC common stock placed in escrow were held and released subject to the terms and conditions of an escrow agreement, whereby 60 percent of the escrow shares were delivered to the IDT shareholders one year after the date of closing, and the remaining escrow shares were delivered to the IDT shareholders two years after the date of closing. As of December 31, 2002, no shares of NIC common stock remained in escrow.
AOL
62
eliminated AOL’s right to extend the Agreement beyond the 40-month term, reduced the cash carriage fee from $4.5 million to $2.7 million and eliminated AOL’s right to receive contingent warrants in NIC common stock if gross advertising revenues collected during the period the Agreement is in effect meet or exceed certain levels. As an additional component of the carriage fee in the initial Agreement, NIC issued to AOL fully vested common stock warrants representing the right to immediately purchase 624,653 shares of NIC common stock at an exercise price of $6.71875 per share. The warrants expire five years from the date of the Agreement. The exercise price per share was calculated based on the average closing price of NIC common stock for the four trading days prior to the August 28, 2000 announcement date of the Agreement. The fair value of the warrants issued to AOL was determined to be approximately $4.75 million on August 25, 2000, using the Black-Scholes option-pricing model.
63
Restructurings
6. MARKETABLE SECURITIES
7. PROPERTY AND EQUIPMENT
2002 | 2003 | |||||||
---|---|---|---|---|---|---|---|---|
Furniture and fixtures | $ | 1,409,076 | $ | 1,580,789 | ||||
Equipment | 6,292,736 | 7,232,505 | ||||||
Purchased software | 1,249,829 | 1,688,843 | ||||||
Leasehold improvements | 182,652 | 208,069 | ||||||
9,134,293 | 10,710,206 | |||||||
Less accumulated depreciation | 6,080,443 | 7,718,610 | ||||||
$ | 3,053,850 | $ | 2,991,596 |
8. INVESTMENTS IN AFFILIATES AND JOINT VENTURES
64
approximately 27% of Tidemark, a non-public company, through 4,530,396 shares of Series B voting Preferred Stock. The investment was accounted for under the equity method. In 2000, the Company determined that it would not be able to recover the entire carrying value of its investment and adjusted the carrying value of its investment, primarily relating to goodwill, to its estimated fair value. This adjustment resulted in a noncash impairment loss of approximately $2.1 million in the fourth quarter of 2000. In addition, NIC recorded a deferred tax asset valuation allowance of approximately $2.0 million to offset the deferred tax asset the Company had recognized relating to its investment in Tidemark. In May 2001, a private technology company acquired Tidemark for cash consideration of approximately $1.6 million. NIC received approximately $700,000 in cash from the transaction and had no investment balance remaining after the acquisition. NIC realized a gain of approximately $300,000 from the transaction, which the Company deferred until the end of the two-year indemnification period following the closing of the acquisition that covered the selling shareholders’ representations and warranties made in the acquisition agreement. The Company recognized this gain in May 2003, which is included in Equity in net loss of affiliates in the consolidated statement of operations for the year ended December 31, 2003.
9. INTANGIBLE ASSETS
10. APPLICATION DEVELOPMENT CONTRACTS
65
to project cost overruns on outstanding contracts in Arkansas, Minnesota and Oklahoma. In the fourth quarter of 2002, management reversed $800,000 of accruals recorded in the second quarter of 2002 related to its contracts in Arkansas and Oklahoma as these contracts are expected to cost less to complete than management estimated. At December 31, 2002, the Company had fulfilled all obligations under its contract with the state of Minnesota. At December 31, 2003, the Arkansas and Oklahoma systems had been accepted and are currently in the maintenance phase. At December 31, 2003, the accrual for remaining application development contracts in Arkansas and Oklahoma was approximately $0.5 million, which management believes is adequate. Because of the inherent uncertainties in estimating the costs of completion, it is at least reasonably possible that the estimate will change in the near term.
11. DEBT OBLIGATIONS AND COLLATERAL REQUIREMENTS
66
12. COMMITMENTS AND CONTINGENCIES
Operating leases
Fiscal Year | ||
---|---|---|
2004 | $ | 1,404,492 |
2005 | 966,006 | |
2006 | 599,354 | |
2007 | 433,311 | |
2008 | 130,511 | |
Thereafter | — |
Litigation
13. SHAREHOLDERS’ EQUITY
Common stock
Common stock transactions
67
Additional paid-in capital
Business acquisitions
68
14. INCOME TAXES
Year Ended December 31, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
2001 | 2002 | 2003 | ||||||||||
Current income taxes: | ||||||||||||
Federal | $ | — | $ | — | $ | — | ||||||
State | (28,180 | ) | 206,160 | 332,735 | ||||||||
Total | (28,180 | ) | 206,160 | 332,735 | ||||||||
Deferred income taxes: | ||||||||||||
Federal | (16,931,093 | ) | (3,210,702 | ) | 596,104 | |||||||
State | (1,725,466 | ) | (527,498 | ) | 256,314 | |||||||
Total | (18,656,559 | ) | (3,738,200 | ) | 852,418 | |||||||
Total income tax provision (benefit) from continuing operations | $ | (18,684,739 | ) | $ | (3,532,040 | ) | $ | 1,185,153 |
2002 | 2003 | |||||||
---|---|---|---|---|---|---|---|---|
Deferred tax assets: | ||||||||
Net operating loss carryforward | $ | 26,463,945 | $ | 25,647,102 | ||||
Amortization and impairment of purchase accounting goodwill and software intangibles | 8,794,412 | 9,526,987 | ||||||
Capital loss on sale of affiliate | 1,796,675 | 1,927,748 | ||||||
Investments in affiliates | 2,287,800 | 2,364,802 | ||||||
Application development contracts | 606,357 | 180,748 | ||||||
Warrants issued to AOL | 821,222 | — | ||||||
Depreciation | 170,835 | — | ||||||
Other | — | 159,448 | ||||||
40,941,246 | 39,806,835 | |||||||
Less: Valuation allowance | (5,010,701 | ) | (4,292,550 | ) | ||||
Total | 35,930,545 | 35,514,285 | ||||||
Deferred tax liabilities: | ||||||||
Depreciation | — | (144,799 | ) | |||||
Capitalized software development costs | (73,199 | ) | (19,963 | ) | ||||
Other | (202,028 | ) | — | |||||
Total | (275,227 | ) | (164,762 | ) | ||||
Net deferred tax asset | $ | 35,655,318 | $ | 35,349,523 |
69
to developments arising in the second half of 2001 relating to NIC Conquest’s migration to a common operating platform for its core UCC and corporations filing applications, the Company determined that the balance of revenues remaining to be recognized under existing application development contractual obligations was not expected to cover anticipated costs of developing and implementing the related applications and accrued losses of approximately $6.0 million in the third and fourth quarters of 2001. These losses coupled with the significant underperformance of this business and uncertainty regarding future performance of this business cast substantial doubt as to whether NIC Conquest’s NOL carryforwards and other deferred tax assets could be used in the future. Consequently, in the fourth quarter of 2001, the Company provided a deferred tax asset valuation allowance of $5,284,576 for the net deferred tax asset relating to NIC Conquest. The Company acquired 100% ownership of NIC Conquest on April 8, 2002. As a result of the change in ownership, the Company released the portion of the valuation allowance that was not related to NIC Conquest’s tax NOL carryforwards generated through the date of the change in ownership. The NIC Conquest deferred tax asset valuation allowance was $3,214,026 at December 31, 2002.
70
Year Ended December 31, | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|
2001 | 2002 | 2003 | ||||||||
Effective federal and state income tax rate | 20.7 | % | 38.8 | % | 15.8 | % | ||||
Adjustment related to NIC Conquest | — | — | 22.1 | |||||||
Reduction of state NOL carryforwards | — | — | (5.8 | ) | ||||||
Impairment of intangible assets | 7.0 | 4.8 | — | |||||||
Goodwill amortization relating to the Exchange Offer and other acquisitions | 4.0 | — | — | |||||||
Non-deductible stock compensation expense | 0.2 | 1.1 | — | |||||||
State income taxes | (2.1 | ) | (1.4 | ) | (5.1 | ) | ||||
Valuation allowance | 5.2 | (9.1 | ) | 9.4 | ||||||
Other | — | 0.8 | (1.4 | ) | ||||||
Statutory federal income tax rate | 35.0 | % | 35.0 | % | 35.0 | % |
15. EMPLOYEE BENEFIT AND STOCK OPTION PLANS
Defined Contribution 401(k) Profit Sharing Plan
Employee Stock Purchase Plan
Stock Option Plans
71
and to provide additional incentive for such employees and directors to promote the success of its business through sharing the future growth of such business. The NIC plan was adopted in May 1998 and amended in November 1998 and May 1999. Under the NIC plan, the Company is authorized to grant options for up to 9,286,754 common shares. Employee options are generally exercisable one year from date of grant in cumulative annual installments of 25% to 33% and expire four years after the grant date. At December 31, 2003, a total of 1,679,759 options were available for future grants under the NIC plan. The SDR plan was adopted in May 2000 in conjunction with NIC’s acquisition of SDR. Under the SDR plan, the Company is authorized to grant options for up to 229,965 common shares. No options that are in addition to those granted upon the close of the SDR acquisition will be granted under the SDR plan. There have been no option repricings under the plans.
2001 | 2002 | 2003 | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Shares | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | ||||||||||||||||||||
Outstanding at January 1 | 6,192,706 | $ | 7.80 | 7,663,866 | $ | 5.36 | 4,758,470 | $ | 5.95 | ||||||||||||||||
Granted | 3,161,361 | $ | 3.29 | 1,345,450 | $ | 1.81 | 1,880,243 | $ | 3.45 | ||||||||||||||||
Exercised | (216,626 | ) | $ | 1.47 | (1,915,094 | ) | $ | 1.51 | (574,595 | ) | $ | 2.02 | |||||||||||||
Expired | (370,141 | ) | $ | 18.06 | (1,221,181 | ) | $ | 6.32 | (973,210 | ) | $ | 14.44 | |||||||||||||
Canceled | (1,103,434 | ) | $ | 9.60 | (1,114,571 | ) | $ | 4.08 | (524,369 | ) | $ | 2.69 | |||||||||||||
Outstanding at December 31 | 7,663,866 | $ | 5.36 | 4,758,470 | $ | 5.95 | 4,566,539 | $ | 3.98 | ||||||||||||||||
Exercisable at December 31 | 2,831,632 | $ | 5.64 | 1,626,629 | $ | 9.92 | 1,395,010 | $ | 5.52 | ||||||||||||||||
Weighted average grant-date fair value of options granted during the year | $ | 2.45 | $ | 1.18 | $ | 2.24 |
Options Outstanding | Options Exercisable | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Range of Exercise Price | Shares Outstanding | Weighted Average Remaining Contractual Life | Weighted Average Exercise Price | Shares Outstanding | Weighted Average Exercise Price | ||||||||||
$1.53–2.24 | 1,448,529 | 2.0 | $ | 1.85 | 642,347 | $ | 1.87 | ||||||||
$2.30–3.40 | 1,681,543 | 4.4 | $ | 3.03 | 31,088 | $ | 3.07 | ||||||||
$3.47–5.06 | 714,561 | 2.2 | $ | 3.82 | 333,953 | $ | 3.78 | ||||||||
$6.94–10.38 | 602,106 | 2.7 | $ | 8.35 | 270,322 | $ | 9.29 | ||||||||
$11.13–13.75 | 63,000 | 0.5 | $ | 11.87 | 60,500 | $ | 11.85 | ||||||||
$19.32–43.88 | 56,800 | 0.0 | $ | 33.71 | 56,800 | $ | 33.71 | ||||||||
72
Company recognized this $1,306,569 of stock compensation expense during the year ended December 31, 2002 and had no deferred compensation expense remaining at December 31, 2002.
16. RELATED PARTY TRANSACTIONS
17. REPORTABLE SEGMENTS AND RELATED INFORMATION
73
Outsourced Portals | Software & Services | Other Reconciling Items | Consolidated Total | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2001 | ||||||||||||||||||
Revenues | $ | 26,370,764 | $ | 10,649,616 | $ | — | $ | 37,020,380 | ||||||||||
Costs & expenses | 21,617,892 | 15,888,197 | 10,028,740 | 47,534,829 | ||||||||||||||
Impairment loss | — | 48,834,490 | — | 48,834,490 | ||||||||||||||
Stock compensation | — | — | 1,525,022 | 1,525,022 | ||||||||||||||
Depreciation & amortization | 2,072,147 | 24,274,399 | 281,015 | 26,627,561 | ||||||||||||||
Operating income (loss) | $ | 2,680,725 | $ | (78,347,470 | ) | $ | (11,834,777 | ) | $ | (87,501,522 | ) | |||||||
2002 | ||||||||||||||||||
Revenues | $ | 34,778,978 | $ | 12,766,432 | $ | — | $ | 47,545,410 | ||||||||||
Costs & expenses | 22,182,302 | 16,242,182 | 8,440,231 | 46,864,715 | ||||||||||||||
Impairment loss | — | 4,316,230 | — | 4,316,230 | ||||||||||||||
Stock compensation | — | — | 1,306,569 | 1,306,569 | ||||||||||||||
Depreciation & amortization | 1,661,876 | 1,146,755 | 179,758 | 2,988,389 | ||||||||||||||
Operating income (loss) | $ | 10,934,800 | $ | (8,938,735 | ) | $ | (9,926,558 | ) | $ | (7,930,493 | ) | |||||||
2003 | ||||||||||||||||||
Revenues | $ | 40,209,000 | $ | 10,622,209 | $ | — | $ | 50,831,209 | ||||||||||
Costs & expenses | 24,146,551 | 9,374,568 | 8,189,028 | 41,710,147 | ||||||||||||||
Depreciation & amortization | 1,407,626 | 229,819 | 145,719 | 1,783,164 | ||||||||||||||
Operating income (loss) | $ | 14,654,823 | $ | 1,017,822 | $ | (8,334,747 | ) | $ | 7,337,898 |
2001 | 2002 | 2003 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Total operating income (loss) for reportable segments | $ | (87,501,522 | ) | $ | (7,930,493 | ) | $ | 7,337,898 | ||||
Interest income | 966,423 | 179,829 | 100,215 | |||||||||
Interest expense | (38,789 | ) | (49,193 | ) | (20,927 | ) | ||||||
Equity in net loss of affiliates | (3,271,876 | ) | (1,234,938 | ) | 106,716 | |||||||
Other income (expense), net | (233,189 | ) | (71,775 | ) | (10,842 | ) | ||||||
Income (loss) from continuing operations before income taxes and minority interest | $ | (90,078,953 | ) | $ | (9,106,570 | ) | $ | 7,513,060 |
74
18. UNAUDITED QUARTERLY OPERATING RESULTS
2001
Three Months Ended | Year Ended December 31, 2001 | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
March 31, 2001 | June 30, 2001 | September 30, 2001 | December 31, 2001 | |||||||||||||||||
Revenues: | ||||||||||||||||||||
Portal revenues | $ | 5,431,930 | $ | 6,144,014 | $ | 7,747,011 | $ | 7,047,809 | $ | 26,370,764 | ||||||||||
Software & services revenues | 2,140,283 | 3,211,232 | 2,885,785 | 2,412,316 | 10,649,616 | |||||||||||||||
Total revenues | 7,572,213 | 9,355,246 | 10,632,796 | 9,460,125 | 37,020,380 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Cost of portal revenues, exclusive of depreciation & amortization | 4,341,083 | 4,719,613 | 5,403,791 | 5,008,316 | 19,472,803 | |||||||||||||||
Cost of software & services revenues, exclusive of depreciation & amortization | 1,823,128 | 2,700,836 | 5,842,880 | 4,128,253 | 14,495,097 | |||||||||||||||
Selling & administrative | 4,892,752 | 4,726,308 | 4,628,941 | 3,318,928 | 17,566,929 | |||||||||||||||
Impairment loss | — | — | 36,997,108 | 7,837,382 | 44,834,490 | |||||||||||||||
Stock compensation | 386,274 | 403,556 | 386,211 | 348,981 | 1,525,022 | |||||||||||||||
Depreciation & amortization | 8,115,985 | 8,156,062 | 8,160,350 | 2,195,164 | 26,627,561 | |||||||||||||||
Total operating expenses | 19,559,222 | 20,706,375 | 61,419,281 | 22,837,024 | 124,521,902 | |||||||||||||||
Operating loss | (11,987,009 | ) | (11,351,129 | ) | (50,786,485 | ) | (13,376,899 | ) | (87,501,522 | ) | ||||||||||
Other income (expense): | ||||||||||||||||||||
Interest income | 462,701 | 260,176 | 164,800 | 78,746 | 966,423 | |||||||||||||||
Interest expense | (6,636 | ) | (3,671 | ) | (12,089 | ) | (16,393 | ) | (38,789 | ) | ||||||||||
Equity in net loss of affiliates | (820,155 | ) | (676,148 | ) | (541,322 | ) | (1,234,251 | ) | (3,271,876 | ) | ||||||||||
Other income (expense), net | 7,458 | (124,168 | ) | 42,497 | (158,976 | ) | (233,189 | ) | ||||||||||||
Total other income (expense) | (356,632 | ) | (543,811 | ) | (346,114 | ) | (1,330,874 | ) | (2,577,431 | ) | ||||||||||
Loss from continuing operations before income taxes and minority interest | (12,343,641 | ) | (11,894,940 | ) | (51,132,599 | ) | (14,707,773 | ) | (90,078,953 | ) | ||||||||||
Income tax expense (benefit) | (3,164,216 | ) | (3,222,536 | ) | (12,543,764 | ) | 245,777 | (18,684,739 | ) | |||||||||||
Loss from continuing operations before minority interest | (9,179,425 | ) | (8,672,404 | ) | (38,588,835 | ) | (14,953,550 | ) | (71,394,214 | ) | ||||||||||
Minority interest | (21,859 | ) | 10,196 | (463,639 | ) | — | (475,302 | ) | ||||||||||||
Loss from continuing operations | (9,157,566 | ) | (8,682,600 | ) | (38,125,196 | ) | (14,953,550 | ) | (70,918,912 | ) | ||||||||||
Discontinued operations: | ||||||||||||||||||||
Loss from discontinued operations (less applicable income tax benefit of $773,729, $683,726, $382,718 and $2,099,937) | (976,007 | ) | (1,073,937 | ) | (577,058 | ) | (3,898,359 | ) | (6,525,361 | ) | ||||||||||
Net loss | $ | (10,133,573 | ) | $ | (9,756,537 | ) | $ | (38,702,254 | ) | $ | (18,851,909 | ) | $ | (77,444,273 | ) | |||||
Basic and dilued net loss per share: | ||||||||||||||||||||
Loss per share — continuing operations | $ | (0.16 | ) | $ | (0.15 | ) | $ | (0.68 | ) | $ | (0.27 | ) | $ | (1.26 | ) | |||||
Loss per share — discontinued operations | $ | (0.02 | ) | $ | (0.02 | ) | $ | (0.01 | ) | $ | (0.07 | ) | $ | (0.12 | ) | |||||
Net loss per share | $ | (0.18 | ) | $ | (0.17 | ) | $ | (0.69 | ) | $ | (0.34 | ) | $ | (1.38 | ) | |||||
Weighted average shares outstanding | 56,040,789 | 56,066,794 | 56,089,556 | 56,239,814 | 56,109,730 |
75
2002
Three Months Ended | Year Ended December 31, 2002 | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
March 31, 2002 | June 30, 2002 | September 30, 2002 | December 31, 2002 | |||||||||||||||||
Revenues: | ||||||||||||||||||||
Portal revenues | $ | 8,485,907 | $ | 9,002,070 | $ | 8,862,950 | $ | 8,428,051 | $ | 34,778,978 | ||||||||||
Software & services revenues | 3,610,751 | 3,931,627 | 2,805,338 | 2,418,716 | 12,766,432 | |||||||||||||||
Total revenues | 12,096,658 | 12,933,697 | 11,668,288 | 10,846,767 | 47,545,410 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Cost of portal revenues, exclusive of depreciation & amortization | 4,958,355 | 4,690,127 | 5,065,111 | 5,141,727 | 19,855,320 | |||||||||||||||
Cost of software & services revenues, exclusive of depreciation & amortization | 2,334,392 | 7,677,832 | 2,125,326 | 1,549,746 | 13,687,296 | |||||||||||||||
Selling & administrative | 3,794,712 | 3,781,136 | 3,254,586 | 2,491,665 | 13,322,099 | |||||||||||||||
Impairment loss | — | 4,316,230 | — | — | 4,316,230 | |||||||||||||||
Stock compensation | 311,146 | 995,423 | — | — | 1,306,569 | |||||||||||||||
Depreciation & amortization | 928,015 | 938,316 | 567,194 | 554,864 | 2,988,389 | |||||||||||||||
Total operating expenses | 12,326,620 | 22,399,064 | 11,012,217 | 9,738,002 | 55,475,903 | |||||||||||||||
Operating income (loss) | (229,962 | ) | (9,465,367 | ) | 656,071 | 1,108,765 | (7,930,493 | ) | ||||||||||||
Other income (expense): | ||||||||||||||||||||
Interest income | 41,008 | 55,269 | 37,516 | 46,036 | 179,829 | |||||||||||||||
Interest expense | (11,088 | ) | (21,564 | ) | (20,059 | ) | 3,518 | (49,193 | ) | |||||||||||
Equity in net loss of affiliates | (224,201 | ) | (457,773 | ) | (286,014 | ) | (266,950 | ) | (1,234,938 | ) | ||||||||||
Other income (expense), net | — | (36,275 | ) | (54 | ) | (35,446 | ) | (71,775 | ) | |||||||||||
Total other income (expense) | (194,281 | ) | (460,343 | ) | (268,611 | ) | (252,842 | ) | (1,176,077 | ) | ||||||||||
Income (loss) from continuing operations before income taxes | (424,243 | ) | (9,925,710 | ) | 387,460 | 855,923 | (9,106,570 | ) | ||||||||||||
Income tax expense (benefit) | (10,179 | ) | (4,090,811 | ) | 167,943 | 401,007 | (3,532,040 | ) | ||||||||||||
Income (loss) from continuing operations | (414,064 | ) | (5,834,899 | ) | 219,517 | 454,916 | (5,574,530 | ) | ||||||||||||
Discontinued operations: | ||||||||||||||||||||
Loss from discontinued operations (less applicable income tax benefit of $327,346, $974,227, $4,825 and $0) | (466,292 | ) | (1,561,590 | ) | (7,581 | ) | — | (2,035,463 | ) | |||||||||||
Net income (loss) | $ | (880,356 | ) | $ | (7,396,489 | ) | $ | 211,936 | $ | 454,916 | $ | (7,609,993 | ) | |||||||
Basic and dilued net income (loss) per share: | ||||||||||||||||||||
Income (loss) per share — continuing operations | $ | (0.01 | ) | $ | (0.10 | ) | $ | 0.00 | $ | 0.01 | $ | (0.10 | ) | |||||||
Loss per share — discontinued operations | $ | (0.01 | ) | $ | (0.03 | ) | $ | (0.00 | ) | $ | — | $ | (0.03 | ) | ||||||
Net income (loss) per share | $ | (0.02 | ) | $ | (0.13 | ) | $ | 0.00 | $ | 0.01 | $ | (0.13 | ) | |||||||
Weighted average shares outstanding: | ||||||||||||||||||||
Basic | 56,358,387 | 56,492,530 | 56,811,394 | 57,823,599 | 56,875,327 | |||||||||||||||
Diluted | 56,358,387 | 56,492,530 | 57,006,631 | 57,859,897 | 56,875,327 |
76
2003
Three Months Ended | Year Ended December 31, 2003 | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
March 31, 2003 | June 30, 2003 | September 30, 2003 | December 31, 2003 | |||||||||||||||||
Revenues: | ||||||||||||||||||||
Portal revenues | $ | 9,789,726 | $ | 10,149,381 | $ | 9,941,519 | $ | 10,328,374 | $ | 40,209,000 | ||||||||||
Software & services revenues | 2,729,696 | 2,756,739 | 2,930,874 | 2,204,900 | 10,622,209 | |||||||||||||||
Total revenues | 12,519,422 | 12,906,120 | 12,872,393 | 12,533,274 | 50,831,209 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Cost of portal revenues, exclusive of depreciation & amortization | 5,079,740 | 5,285,988 | 5,415,040 | 5,805,222 | 21,585,990 | |||||||||||||||
Cost of software & services revenues, exclusive of depreciation & amortization | 2,143,536 | 2,241,781 | 2,276,224 | 1,781,230 | 8,442,771 | |||||||||||||||
Selling & administrative | 3,120,430 | 2,936,847 | 2,852,553 | 2,771,556 | 11,681,386 | |||||||||||||||
Depreciation & amortization | 491,985 | 449,771 | 471,238 | 370,170 | 1,783,164 | |||||||||||||||
Total operating expenses | 10,835,691 | 10,914,387 | 11,015,055 | 10,728,178 | 43,493,311 | |||||||||||||||
Operating income | 1,683,731 | 1,991,733 | 1,857,338 | 1,805,096 | 7,337,898 | |||||||||||||||
Other income (expense): | ||||||||||||||||||||
Interest income | 28,782 | 29,979 | 21,198 | 20,256 | 100,215 | |||||||||||||||
Interest expense | (5,222 | ) | (4,257 | ) | (5,977 | ) | (5,471 | ) | (20,927 | ) | ||||||||||
Equity in net loss of affiliates | (60,000 | ) | 261,450 | (40,734 | ) | (54,000 | ) | 106,716 | ||||||||||||
Other income (expense), net | 1,002 | 424 | (12,437 | ) | 169 | (10,842 | ) | |||||||||||||
Total other income (expense) | (35,438 | ) | 287,596 | (37,950 | ) | (39,046 | ) | 175,162 | ||||||||||||
Income before taxes | 1,648,293 | 2,279,329 | 1,819,388 | 1,766,050 | 7,513,060 | |||||||||||||||
Income tax expense (benefit)* | 659,321 | 922,844 | 736,961 | (1,133,973 | ) | 1,185,153 | ||||||||||||||
Net income | $ | 988,972 | $ | 1,356,485 | $ | 1,082,427 | $ | 2,900,023 | $ | 6,327,907 | ||||||||||
Basic and dilued net income per share: | $ | 0.02 | $ | 0.02 | $ | 0.02 | $ | 0.05 | $ | 0.11 | ||||||||||
Weighted average shares outstanding: | ||||||||||||||||||||
Basic | 58,134,548 | 58,233,537 | 58,356,861 | 58,592,905 | 58,330,793 | |||||||||||||||
Diluted | 58,168,711 | 58,653,630 | 59,402,423 | 60,847,076 | 59,269,291 |
* | The income tax benefit in the fourth quarter of 2003 was the result of adjustments recorded to deferred taxes, which increased net income by $1,849,000 and basic and diluted net income per share by $0.03. See Note 14. |
77
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
NIC Inc.
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of changes in shareholders’ equity and of cash flows present fairly, in all material respects, the financial position of NIC Inc. and its subsidiaries at December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
Kansas City, Missouri
February 27, 2004
78
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
79
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted average exercise price of outstanding options, warrants and rights | Number of securities available for future issuance | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Equity compensation plans approved by security holders | 4,536,862 | $4.00 | 1,679,759 | |||||||
Equity compensation plans not approved by security holders (1) | 29,677 | $1.85 | 2,399 |
__________
(1) | In connection with the Company’s acquisition of SDR Technologies, Inc. in May 2000, the Company adopted the 1999 Stock Option Plan of SDR Technologies, Inc (the ”SDR Plan“). Options to purchase 229,965 shares were granted in connection with the acquisition of SDR. However, no options in addition to those granted at the close of the SDR transaction will be granted under this plan. The SDR Plan is administered by the Compensation Committee of the Company’ Board of Directors. |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
80
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) | The following documents are filed as part of this report: |
Index To Consolidated Financial Statements: | Page |
---|---|
Consolidated Balance Sheets | 43 |
Consolidated Statements of Operations | 44 |
Consolidated Statements of Changes in Shareholders’ Equity | 45 |
Consolidated Statements of Cash Flows | 46 |
Notes to Consolidated Financial Statements | 48 |
Report of PricewaterhouseCoopers LLP, Independent Auditors | 78 |
Exhibit Number | Description | |||
---|---|---|---|---|
3.1 | Articles of Incorporation of the registrant(1) | |||
3.2 | Bylaws of the registrant(1) | |||
3.3 | Articles of Amendment to Articles of Incorporation of the registrant(7) | |||
4.1 | Reference is made to Exhibits 3.1 and 3.2(1) | |||
4.2 | Investor Rights Agreement dated June 30, 1998(1) | |||
4.3 | Investors’ Rights Agreement, dated January 12, 2000(2) | |||
4.4 | Specimen Stock Certificate of the registrant(1) | |||
9.1 | Voting Trust Agreement between Jeffery S. Fraser and Ross C. Hartley and certain Holders of Shares of National Information Consortium, Inc. dated June 30, 1998 and form of the voting trust certificate(1) | |||
10.1 | Form of Indemnification Agreement between the registrant and each of its executive officers and directors(1) | |||
10.2 | Registrant’s 1998 Stock Option Plan, as amended and restated(1) | |||
10.3 | Registrant’s 1999 Employee Stock Purchase Plan(1) | |||
10.4 | Employment Agreement between the registrant and Jeffery S. Fraser dated July 1, 1998(1) | |||
10.5 | Employment Agreement between the registrant and William F. Bradley, Jr. dated July 24, 1998(1) | |||
10.6 | Employment Agreement between the registrant and Samuel R. Somerhalder dated July 24, 1998(1) | |||
10.7 | Employment Agreement between the registrant and Harry H. Herington dated July 24, 1998(1) | |||
10.8 | Employment Agreement between the registrant and Joseph Nemelka, dated July 24, 1998(2) | |||
10.9 | Employment Agreement between the registrant and James B. Dodd dated January 1, 1999(1) | |||
10.10 | Employment Agreement between the registrant and Ray G. Coutermarsh dated February 1, 2000(2) | |||
10.11 | Employment Agreement between the registrant and Terrence Parker dated November 9, 1999(2) | |||
10.12 | Contract for Network Manager Services between the Information Network of Kansas and Kansas Information Consortium, Inc. dated December 18, 1991 with addenda dated October 15, 1992, August 19, 1993, May 26, 1995 and June 13, 1996 and amendment on March 2, 1998(1) | |||
10.13 | Contract for Network Manager Services between the State of Indiana by and through the Intelenet Commission and Indian@ Interactive, Inc., dated July 18, 1995(1) | |||
10.14 | Services Contract by and between National Information Consortium, U.S.A. and the GeorgiaNet Authority, an agency of the State of Georgia, dated September 15, 1996(1) | |||
10.15 | Contract for Network Manager between Information Network of Arkansas by and through the Information Network of Arkansas Board and Arkansas Information Consortium, Inc. dated July 2, 1997(1) |
81
Exhibit Number | Description | |||
---|---|---|---|---|
10.16 | Contract for Network Manager Services between the Nebraska State Records Board on behalf of the State of Nebraska and Nebrask@ Interactive, Inc. dated December 3, 1997 with addendum No. 1 dated as of the same date(1) | |||
10.17 | Contract for Network Manager Services between the Commonwealth of Virginia by and through the Virginia Information Providers Network Authority and Virginia Interactive, LLC dated January 15, 1998(1) | |||
10.18 | Contract for Network Manager Services between Iowa Interactive, Inc. and the State of Iowa by and through Information Technology Services dated April 23, 1998 with letter addendum dated August 7, 1998(1) | |||
10.19 | Contract for Network Manager Services between the Consolidated City of Indianapolis and Marion County by and through the Enhanced Access Board of Marion County and City-County Interactive, LLC dated August 31, 1998 with addendum dated as of the same date(1) | |||
10.20 | State of Maine Contract for Special Services with New England Interactive, Inc. dated April 14, 1999(1) | |||
10.21 | State of Idaho Contract for Electronic Business and portal Services with the Idaho Department of Administration and other Public Agencies, dated December 7, 1999(2) | |||
10.22 | State of Hawaii Contract for Special Services with the State of Hawaii, dated December 29, 1999(2) | |||
10.23 | Employment Agreement between the registrant and Kevin C. Childress dated May 16, 1999(1) | |||
10.24 | Sublease for the registrant’s offices at 12 Corporate Woods, Overland Park dated May 14, 1999, and First Sublease Modification Agreement dated December 15, 1999, and Lease for the same address dated January 15, 1995 with First Lease Modification dated October 30, 1996(1) | |||
10.25 | Agreement between Equifax Services and Nebrask@ Online dated March 25, 1996(1) | |||
10.26 | Agreement between ChoicePoint and the Information Network of Kansas dated September 1, 1997(1) | |||
10.27 | Agreement between Equifax/ChoicePoint and the Information Network of Arkansas dated September 2, 1997(1) | |||
10.28 | Agreement between Equifax Systems, Inc. and Access Indian@ Information Network dated November 14, 1995(1) | |||
10.29 | Contract for Network Manager Services between the State of Utah and Utah Interactive, Inc. dated as of May 7, 1999(1) | |||
10.30 | Asset Purchase Agreement between the registrant and Electric Press, Inc, for the acquisition of eFed, a division of Electric Press, Inc., dated as of September 15, 1999(2) | |||
10.31 | Contribution Agreement between the registrant and Conquest Softworks, LLC, dated as of January 12, 2000 Agreement(2) | |||
10.32 | Agreement and Plan of Reorganization and Merger between the registrant and SDR Technologies, Inc., dated as of February 16, 2000(2) | |||
10.33 | Amended and Restated Agreement and Plan of Reorganization and Merger, dated as of May 5, 2000, as amended, by and among the registrant, SDR Acquisition Corp., a California corporation and a wholly owned subsidiary of the registrant, and SDR Technologies, Inc.(3) | |||
10.34 | Registrant’s 1999 Stock Option Plan of SDR Technologies, Inc.(4) | |||
10.35 | Agreement and Plan of Merger, dated as of September 8, 2000, by and among the registrant, Cherry Hills Acquisition Sub, Inc., a Colorado corporation and wholly owned subsidiary of the registrant, and Intelligent Decision Technologies, Ltd.(5) | |||
10.36 | Employment agreement between the Registrant and William F. Bradley, dated September 1, 2000(5) | |||
10.37 | Employment agreement between the Registrant and Samuel R. Somerhalder, dated September 1, 2000(5) | |||
10.38 | Employment agreement between the Registrant and Harry H. Herington, dated September 1, 2000(5) | |||
10.39 | Employment agreement between the Registrant and Joseph Nemelka, dated September 1, 2000(5) | |||
10.40 | Employment agreement between the Registrant and James B. Dodd, dated September 1, 2000(5) |
82
Exhibit Number | Description | |||
---|---|---|---|---|
10.41 | Employment agreement between the Registrant and Ray G. Coutermarsh, dated September 1, 2000(5) | |||
10.42 | Employment agreement between the Registrant and Pradeep K. Agarwal, dated September 1, 2000(5) | |||
10.43 | Employment agreement between the Registrant and Kevin C. Childress, dated September 1, 2000(5) | |||
10.44 | Employment agreement between the Registrant and Stephen M. Kovzan, dated September 1, 2000(5) | |||
10.45 | Contract Between the State of Tennessee, Department of Finance and Administration and National Information Consortium USA, Inc., dated August 28, 2000(5) | |||
10.46 | Self Funded Electronic Government Services Term Contract between the Department of Administration of the State of Montana and National Information Consortium USA, Inc., doing business in Montana through the subsidiary Montana Interactive, Inc., dated December 21, 2000(5) | |||
10.47 | Business Programs Automation Agreement, dated September 6, 2001, between National Information USA, Inc. and the State of California(6) | |||
10.48 | Employment agreement between the Registrant and Eric J. Bur dated April 1, 2001 (8) | |||
10.49 | Employment agreement between the Registrant and Richard L. Brown, dated March 1, 1999 | |||
21.1 | Subsidiaries of the registrant | |||
23.1 | Consent of PricewaterhouseCoopers LLP, Independent Accountants | |||
31.1 | Certification of Chairman of the Board and Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||
31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||
32.1 | Section 906 Certifications of Chairman of the Board and Chief Executive Officer and Chief Financial Officer furnished in accordance with Securities Act Release 33-8212 |
__________
(1) | Incorporated by reference to Registration Statement on Form S-1, File No. 333-77939 |
(2) | Incorporated by reference to Registration Statement on Form S-1, File No. 333-30872 |
(3) | Incorporated by reference to Form 8-K filed with the SEC on May 26, 2000 |
(4) | Incorporated by reference to Registration Statement on Form S-8, File No. 333-37000 |
(5) | Incorporated by reference to Form 10-K filed with the SEC on April 2, 2001 |
(6) | Incorporated by reference to Form 10-Q filed with the SEC on November 14, 2001 |
(7) | Incorporated by reference to Form 10-Q filed with the SEC on May 14, 2002 |
(8) | Incorporated by reference to Form 10-K filed with the SEC on March 25, 2002 |
83
SIGNATURES
By: /s/ Jeffery S. Fraser
Signature | Title | Date | ||||||
---|---|---|---|---|---|---|---|---|
/s/ Jeffery S. Fraser | Chairman and Chief Executive Officer (Principal Executive Officer) | March 12, 2004 | ||||||
/s/ Eric J. Bur | Chief Financial Officer (Principal Financial Officer) | March 12, 2004 | ||||||
/s/ Stephen M. Kovzan | Vice President, Financial Operations Chief Accounting Officer (Principal Accounting Officer) | March 12, 2004 | ||||||
/s/ John L. Bunce, Jr. | Director | March 12, 2004 | ||||||
/s/ Daniel J. Evans | Director | March 12, 2004 | ||||||
/s/ Ross C Hartley | Director | March 12, 2004 | ||||||
/s/ Pete Wilson | Director | March 12, 2004 |
84