1 EXHIBIT 99.1 Financial Statements eFed, a Division of Electric Press, Inc. Years ended December 31, 1998 and 1997 with Report of Independent Auditors 2 Report of Independent Auditors Board of Directors Electric Press, Inc. We have audited the accompanying balance sheets of eFed, a Division of Electric Press, Inc. as of December 31, 1998 and 1997, and the related statements of operations, divisional equity (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the Division's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of eFed, a Division of Electric Press, Inc. at December 31, 1998 and 1997, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP September 2, 1999 1 3 eFed, a Division of Electric Press, Inc. Balance Sheets DECEMBER 31, 1998 1997 -------- -------- ASSETS Current assets: Accounts receivable, net of allowance for doubtful accounts of $22,235 and $0 at December 31, 1998 and 1997, respectively $305,657 $ 65,000 Prepaid expenses 23,017 - -------- -------- Total current assets 328,674 65,000 Furniture, fixtures and equipment, at cost: Computer equipment 77,593 77,593 Leasehold improvements 46,246 - Office furniture 1,163 - Computer software 6,359 6,359 -------- -------- 131,361 83,592 Less: Accumulated depreciation 48,169 19,501 -------- -------- Net furniture, fixtures and equipment 83,192 64,451 Capitalized software, net of accumulated amortization of $65,562 and $0 at December 31, 1998 and 1997, respectively 202,151 187,144 Other assets 10,813 - -------- -------- Total assets $624,830 $316,595 ======== ======== 2 4 DECEMBER 31, 1998 1997 --------- --------- LIABILITIES AND DIVISIONAL EQUITY (DEFICIT) Current liabilities: Accounts payable $ 63,975 $ 5,131 Accrued expenses 45,000 - Line of credit 36,288 12,036 Current portion of long-term debt 10,040 10,040 Deferred revenue 33,075 - Due to affiliate 268,885 399,065 --------- --------- Total current liabilities 457,263 426,272 Long-term debt, net of current portion 3,078 13,105 Commitments (Note 4) Divisional equity (deficit): Retained earnings (deficit) 164,489 (122,782) --------- --------- Total divisional equity (deficit) 164,489 (122,782) --------- --------- Total liabilities and divisional equity (deficit) $ 624,830 $ 316,595 ========= ========= See accompanying notes. 3 5 eFed, a Division of Electric Press, Inc. Statements of Operations YEARS ENDED DECEMBER 31, 1998 1997 ----------- ----------- Revenue $ 1,644,796 $ 92,975 Costs of revenue (389,730) (18,276) Amortization of capitalized software (65,562) - ----------- ----------- Gross profit 1,189,504 74,699 Operating expenses: Selling and marketing 353,017 97,801 General and administrative 508,443 16,891 Research and development 6,857 59,992 Depreciation 28,668 19,501 ----------- ----------- Total operating expenses 896,985 194,185 ----------- ----------- Operating income (loss) 292,519 (119,486) Interest expense 5,248 3,296 ----------- ----------- Net income (loss) $ 287,271 $ (122,782) =========== =========== See accompanying notes. 4 6 eFed, a Division of Electric Press, Inc. Statements of Divisional Equity (Deficit) Retained Earnings (Deficit) Total ------------------------- Balance at December 31, 1996 $ - $ - Net loss for the period (122,782) (122,782) --------- --------- Balance at December 31, 1997 (122,782) (122,782) Net income for the period 287,271 287,271 --------- --------- Balance at December 31, 1998 $ 164,489 $ 164,489 ========= ========= See accompanying notes. 5 7 eFed, a Division of Electric Press, Inc. Statements of Cash Flows YEARS ENDED DECEMBER 31, 1998 1997 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 287,271 $(122,782) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 28,668 19,501 Amortization of capitalized software 65,562 - Provision for doubtful accounts 22,235 - Changes in operating assets and liabilities: Accounts receivable (262,892) (65,000) Prepaid expenses (23,017) - Other assets (10,813) - Accounts payable 58,844 5,131 Accrued expenses 45,000 - Deferred revenue 33,075 - Due to affiliate (130,180) 398,705 --------- --------- Net cash provided by operating activities 113,753 235,555 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of furniture, fixtures and equipment (47,409) (83,592) Capitalized software (80,569) (187,144) --------- --------- Net cash used in investing activities (127,978) (270,736) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from line of credit, net 24,252 12,036 Proceeds on long-term debt - 40,162 Payments on long-term debt (10,027) (17,017) --------- --------- Net cash provided by financing activities 14,225 35,181 --------- --------- Net change in cash - - Cash at beginning of year - - --------- --------- Cash at end of year $ - $ - ========= ========= See accompanying notes. 6 8 eFed, a Division of Electric Press, Inc. Notes to Financial Statements December 31, 1998 and 1997 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND BASIS OF PRESENTATION eFed, a Division of Electric Press, Inc. (the "Division") provides Internet eCommerce business solutions for government procurement. The accompanying financial statements have been prepared on a divisional basis, and accordingly, certain allocations have been made regarding overhead expenses. In the opinion of management, these allocations are reasonable and represent the overhead expenses attributable to the Division for the periods presented. For the year ended December 31, 1998, these allocations were made based on the amount of direct labor costs incurred by the Division in relation to direct labor costs incurred by Electric Press, Inc. For the year ended December 31, 1997, these allocations were based on direct and indirect costs incurred by the Division in relation to total direct and indirect costs incurred by Electric Press, Inc. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. FURNITURE, FIXTURES AND EQUIPMENT Furniture, fixtures and equipment are stated at cost and are depreciated using the straight-line method over three to ten years. Leasehold improvements are recorded at cost and amortized using the straight-line method over the life of the lease. CAPITALIZED SOFTWARE Capitalized software is stated at cost. Amortization of capitalized software is computed on the straight-line basis over three years. 7 9 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) REVENUE RECOGNITION The Division recognizes revenue from sales of its products upon delivery and passage of title to the customer. Revenue is recognized provided that no significant obligations remain and that collection of the resulting receivable is probable. Where agreements provide for evaluation or customer acceptance, the Company recognizes revenue upon the completion of the evaluation process and acceptance of the product by the customer. DEFERRED REVENUE Deferred revenue consists of amounts received from customers in advance of the date services are rendered. INCOME TAXES The stockholders of Electric Press, Inc. have elected to be treated as an S corporation under the Internal Revenue Code, whereby income and losses are reported on the stockholders' individual tax returns. Accordingly, no provision for income taxes is included in the accompanying financial statements of the Division. FINANCIAL INSTRUMENTS The Division considers the recorded value of its financial assets and liabilities to approximate the fair value of the respective assets and liabilities at December 31, 1998 and 1997. For accounts receivable, the Division performs ongoing credit evaluations of its customers' financial condition and generally does not require collateral. The Division maintains reserves for credit losses which, historically, have been within management's expectations. 2. LINE OF CREDIT Electric Press, Inc. has a line of credit agreement with a bank. The total amount available under the agreement was $750,000 in 1998 and $200,000 in 1997. The line of credit is secured by a blanket lien on all of the Division's assets and by deeds of trust on the personal residences of the majority stockholders of Electric Press, Inc.The line of credit 10 2. LINE OF CREDIT (CONTINUED) is also guaranteed by the majority stockholders and their spouses of Electric Press, Inc. Interest is payable monthly at prime plus 1.5% on the outstanding balance. A commitment fee of 1% is due on any unused portion of the line of credit. The entire balance is due upon demand. The outstanding balance related to the Division at December 31, 1998 and 1997 was $36,288 and $12,036, respectively. 3. LONG-TERM DEBT Long-term debt consists on the following: YEARS ENDED DECEMBER 31, 1998 1997 --------------------------- Note payable to a bank, secured by a blanket lien on the Division's assets and deeds of trust on the Electric Press, Inc. majority stockholders' personal residences, and personally guaranteed by the Electric Press, Inc. majority stockholders and their spouses. The note is payable in monthly installments of $1,201, plus interest at prime plus 1.5%, final payment due March 2000. $ 8,288 $ 14,918 Note payable to a bank, secured by a blanket lien on all the Division's assets and deeds of trust on the Electric Press, Inc. majority stockholders' personal residences, and personally guaranteed by the Electric Press, Inc. majority stockholders and their spouses. The note is payable in monthly installments of $917, plus interest at prime plus 1.5%, final payment due May 2000. 4,830 8,227 --------------------------- Total 13,118 23,145 Less current portion 10,040 10,040 --------------------------- $ 3,078 $ 13,105 =========================== 11 3. LONG-TERM DEBT (CONTINUED) At December 31, 1998, the scheduled future principal maturities of long-term debt is as follows: Year Ending December 31, Amount ------------ --------------- 1999 $10,040 2000 3,078 --------------- Total $13,118 =============== 4. LEASES Electric Press, Inc. is obligated, as lessee and sublessee, under noncancellable operating leases for office space, which expire on various dates through May 2002. In addition, Electric Press, Inc. is obligated, on a pro rata basis, for annual increases in operating expenses and real estate taxes incurred by the landlord. Electric Press, Inc. has entered into operating leases as lessee for office furniture and equipment. The leases expire between March 1999 and May 2002. The Division's share of rental expense under all operating leases for the years ended December 31, 1998 and 1997 was $89,294 and $2,283, respectively. At December 31, 1998, the future minimum lease payment required under operating leases related to the Division are as follows: Year Ending Office Furniture and December 31, space equipment Total ------------ -------------------------------------------------- 1999 $131,174 $124,816 $255,990 2000 134,580 68,034 202,614 2001 138,618 19,080 157,698 2002 58,610 15,900 74,510 -------------------------------------------------- Total $462,982 $227,830 $690,812 ================================================== 12 5. RETIREMENT PLAN Effective January 1, 1997, Electric Press, Inc. adopted a 401(k) retirement plan (the Plan) that is available to substantially all employees of the Company. The Plan permits employee contributions based upon percentages of compensation that may not exceed certain amounts as provided by the Internal Revenue Code. The Plan permits the employer to make matching contributions (which are discretionary) that are equal to a percentage of the amount each employee contributes. The percentage is determined each year by the Company. Additional discretionary contributions may be made annually. For the years ended December 31, 1998 and 1997, the matching contribution attributable to the Division was $13,133 and $5,406, respectively, and was charged to expense. 6. RELATED PARTY TRANSACTIONS As of December 31, 1998 and 1997, the Division had recorded a due to affiliate of $268,885 and $399,065, respectively. This due to affiliate is payable to Electric Press, Inc. and represents costs incurred by the Division and paid for by Electric Press, Inc. 7. SUBSEQUENT EVENT In August 1999, Electric Press, Inc. signed a letter of intent with National Information Consortium (NIC), whereby NIC would acquire all assets of the Division. As consideration, NIC shall deliver to Electric Press, Inc. $15 million in cash and 606,000 shares of NIC common stock. In addition, NIC will be required to either issue additional shares of common stock or pay additional equivalent cash during an earn-out period through March 31, 2004. The sale of the Division is expected to close in September 1999. 8. YEAR 2000 (UNAUDITED) The Division is aware of the implications associated with the "Year 2000" as it relates to software information systems and other outside implications on the Division's operations. The "Year 2000" is not expected to have a material impact on the Division's current information systems because current software is either already "Year 2000" compliant or required changes will be insignificant. Any required changes and expenses are to be completed by September 30, 1999. As a result, the Division does not anticipate that 13 8. YEAR 2000 (UNAUDITED) (CONTINUED) incremental expenditures to ensure that its information systems are "Year 2000" compliant will be material to the Division's liquidity, financial position or results of operations. Total costs incurred to date relative to the "Year 2000" have aggregated $15,600 and have been expensed as incurred by Electric Press, Inc. Future costs expected to be incurred are less than $10,500. 14 Financial Information eFed, a Division of Electric Press, Inc. Period from January 1, 1999 to September 15, 1999 and the nine months ended September 30, 1998 (Unaudited) 15 eFed, a Division of Electric Press, Inc. Statements of Income (Unaudited) PERIOD FROM JANUARY 1, NINE MONTHS 1999 TO ENDED SEPTEMBER 15, SEPTEMBER 30, 1999 1998 ------------- ------------- Revenue $ 2,340,178 $ 1,244,221 Costs of revenue (540,630) (262,884) Amortization of capitalized software (112,408) (44,348) ----------- ----------- Gross profit 1,687,140 936,989 Operating expenses: Selling and marketing 518,553 161,432 General and administrative 919,802 260,874 Research and development 24,010 6,856 Depreciation 18,828 21,503 ----------- ----------- Total operating expenses 1,481,193 450,665 ----------- ----------- Operating income 205,947 486,324 Interest expense 10,688 4,995 ----------- ----------- Net income $ 195,259 $ 481,329 =========== =========== See accompanying notes. 1 16 eFed, a division of Electric Press, Inc. Statements of Cash Flows (Unaudited) PERIOD FROM JANUARY 1, NINE MONTHS 1999 TO ENDED SEPTEMBER 15, SEPTEMBER 1999 30, 1998 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 195,259 $ 481,329 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 18,828 21,503 Amortization of capitalized software 112,408 44,348 Changes in operating assets and liabilities: Accounts receivable (473,599) (405,206) Unbilled receivables (125,295) - Prepaid expenses 23,017 - Accounts payable 209,919 1,765 Accrued expenses (5,000) 60,000 Due to affiliate 158,643 (107,332) Deferred revenue (33,075) 9,000 --------- --------- Net cash provided by operating activities 81,105 105,407 CASH FLOWS FROM INVESTING ACTIVITIES Capitalized software (280,476) (38,445) Purchase of equipment - (47,409) --------- --------- Net cash used in investing activities (280,476) (85,854) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds (payment) from (on) line of credit, net 212,489 (12,036) Payments on long-term debt (13,118) (7,517) --------- --------- Net cash provided (used in) by financing activities 199,371 (19,553) Net change in cash - - Cash at beginning of period - - --------- --------- Cash at end of period $ - $ - ========= ========= See accompanying notes. 2 17 eFed, a Division of Electric Press, Inc. Notes to Financial Statements Period from January 1, 1999 to September 15, 1999 and the nine months ended September 30,1998 1. ORGANIZATION AND BASIS OF PRESENTATION eFed, a division of Electric Press, Inc. (the Division) provides Internet eCommerce business solutions for government procurement. The accompanying financial statements have been prepared on a divisional basis, and accordingly, certain allocations have been made regarding overhead expenses. In the opinion of management, these allocations are reasonable and represent the overhead expenses attributable to the Division for the periods presented. These allocations were made based primarily on the amount of direct and indirect labor costs incurred by the Division in relation to direct and indirect costs incurred by Electric Press, Inc. 2. UNAUDITED INTERIM FINANCIAL INFORMATION The interim financial information of the Division for the period from January 1, 1999 to September 15, 1999 and the nine months ended September 30, 1998 has been prepared by the management of Electric Press, Inc., without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles for complete financial statements have been condensed or omitted pursuant to such rules and regulations relating to interim financial statements. In the opinion of management, the accompanying unaudited interim financial information reflects all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the results of its operations and its cash flows for the period from January 1, 1999 to September 15, 1999 and the nine months ended September 30, 1998. Results of operations for the interim period ended September 15, 1999 are not necessarily indicative of the results expected for the full year. 3. SALE OF eFED Effective September 15, 1999, National Information Consortium (NIC) acquired all assets of the Division. As consideration, NIC delivered to Electric Press, Inc. $15 million in cash and 606,000 shares of NIC common stock. In addition, NIC may be required to either issue additional shares of common stock or pay additional equivalent cash during an earn-out period through March 31, 2004.