Exhibit 99.2
NATIONAL INFORMATION CONSORTIUM, INC.
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
OVERVIEW
On September 15, 1999, National Information Consortium, Inc. ("NIC" or the
"Company") acquired the net assets of the business of eFed, a provider of
Internet-based procurement software and services for the government. eFed
has been subsequently renamed NIC Commerce. eFed was a division of
privately held Reston, Virginia-based Electric Press, Inc. The acquisition
was accounted for as a purchase and the results of eFed's operations are
included in the Company's consolidated results of operations from the date
of acquisition. The total purchase price for the business was approximately
$29.5 million. Total consideration included $15 million in cash from the
proceeds of NIC's initial public offering and the issuance of 606,000
shares of unregistered common stock with a fair value of approximately
$14.5 million.
On May 11, 2000, NIC acquired SDR Technologies, Inc., a California
corporation and provider of Internet-based applications for governments
("SDR"). Each outstanding share of SDR common stock and each outstanding
share of SDR Series A Preferred Stock were converted into 0.59977 share of
NIC common stock. Each outstanding option to purchase one share of SDR
common stock was converted into an option to purchase 0.59977 share of NIC
common stock at the SDR exercise price adjusted for the exchange ratio. Ten
percent of the shares of NIC common stock to be issued to former
shareholders of SDR will be held in escrow on their behalf to secure
certain indemnification obligations. A total of 1,912,097 shares of NIC
common stock and options to purchase 229,965 shares of NIC common stock
were issued as consideration. The acquisition was accounted for as a
purchase, and the purchase price was approximately $39.6 million.
The unaudited pro forma consolidated statement of operations for the year
ended December 31, 1999 combines NIC's historical results of operations
with eFed's historical results of operations for the period from January 1,
1999 to September 15, 1999, and SDR's historical results of operations for
the year ended December 31, 1999, as if the eFed and SDR acquisitions
occurred on January 1, 1999. NIC's historical results of operations already
include eFed's results of operations for the period from the date of
acquisition to December 31, 1999. The unaudited pro forma consolidated
statement of operations for the three months ended March 31, 2000 combines
NIC's historical results of operations with SDR's historical results of
operations for the three months ended March 31, 2000, as if the SDR
acquisition occurred on January 1, 1999. The unaudited pro forma condensed
consolidated balance sheet gives effect to the SDR acquisition as if it had
taken place on March 31, 2000.
The unaudited pro forma consolidated financial information is not
necessarily indicative of the operating results that would have been
achieved had the transactions taken place on January 1, 1999 or March 31,
2000 and should not be construed as being representative of future
operating results. The pro forma financial information should be read in
conjunction with the historical financial statements and notes thereto of
NIC (included in the Company's Form 10-K, which was filed on March 10,
2000, and the Company's most recent Form 10-Q, which was filed on May 15,
2000), of eFed (included in the Company's Form 8-K, which was filed on
November 15, 1999) and of SDR (included elsewhere in this Form 8-K).
NATIONAL INFORMATION CONSORTIUM, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1999
(a) (b)
NIC eFed SDR Adjustments Pro Forma
--- ---- --- ----------- ---------
Revenues $ 56,966,128 $ 2,340,178 $ 2,634,567 $ - $61,940,873
Cost of revenues 42,190,835 540,630 866,486 - 43,597,951
---------- ---------- --------- ------------- ----------
Gross profit 14,775,293 1,799,548 1,768,081 - 18,342,922
---------- ---------- --------- ------------- ----------
Operating expenses:
Service development
and operations 5,876,294 - - - 5,876,294
Selling, general and
administrative 9,212,837 1,462,365 2,230,592 - 12,905,794
Stock compensation 3,188,051 - 318,000 - 3,506,051
Depreciation and
amortization 10,968,482 131,236 77,515 6,783,119(c) 33,352,452
15,392,100(d)
---------- ---------- --------- ------------- ----------
Total operating
expenses 29,245,664 1,593,601 2,626,107 22,175,219 55,640,591
---------- --------- --------- ----------- -----------
Operating income (loss) (14,470,371) 205,947 (858,026) (22,175,219) (37,297,669)
------------ --------- --------- ----------- -----------
Other income (expense):
Interest expense (168,872) (10,688) (126,871) - (306,431)
Other income, net 2,492,460 - 3,157 - 2,495,617
----------- --------- --------- ---------- -----------
Total other income
(expense) 2,323,588 (10,688) (123,714) - 2,189,186
----------- --------- --------- ---------- -----------
Income (loss) before
income taxes (12,146,783) 195,259 (981,740) (22,175,219) (35,108,483)
Income tax expense
(benefit) (1,416,223) - 800 (2,565,313)(e) (6,404,779)
(2,424,043)(f)
------------- -------- ---------- ------------ ------------
Net income (loss) $(10,730,560) $195,259 $(982,540) $(17,185,863 $(28,703,704)
============ ========= ========== ============= ============
Net loss per share:
Basic and diluted $ (0.23) $ (0.57)
========== ===========
Weighed average shares 1,156,869 (g)
outstanding 47,278,461 1,906,099 (h) 50,341,429
========== ===========
See accompanying Notes to Pro Forma Consolidated Financial Information.
NATIONAL INFORMATION CONSORTIUM, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2000
(b)
NIC SDR Adjustments Pro Forma
--- --- ----------- ---------
Revenues $ 18,913,587 $ 548,413 $ - $ 19,462,000
Cost of revenues 13,420,147 675,823 - 14,095,970
----------- ---------- ------------- -----------
Gross profit 5,493,440 (127,410) - 5,366,030
----------- ---------- ------------- -----------
Operating expenses:
Service development
and operations 3,396,409 - - 3,396,409
Selling, general
and administrative 4,992,422 1,090,635 - 6,083,057
Stock compensation 516,664 65,334 - 581,998
Depreciation
and amortization 4,586,105 27,821 3,848,025(d) 8,461,951
----------- ---------- ------------- -----------
Total operating
expenses 13,491,600 1,183,790 3,848,025 18,523,415
----------- ---------- ------------- -----------
Operating loss (7,998,160) (1,311,200) (3,848,025) (13,157,385)
------------ ----------- ------------- ------------
Other income (expense):
Interest expense (10,636) (63,078) - (73,714)
Other income, net 1,202,206 3,112 - 1,205,318
----------- ---------- ------------ -----------
Total other
income (expense) 1,191,570 (59,966) - 1,131,604
----------- ---------- ------------ ------------
Loss before income taxes
and minority interest (6,806,590) (1,371,166) (3,848,025) (12,025,781)
Income tax benefit (2,007,782) 800 (1,044,370)(f) (3,051,352)
----------- ----------- ------------- -------------
Loss before
minority interest (4,798,808) (1,371,966) (2,803,655) (8,974,429)
Minority interest (92,758) - - (92,758)
------------- ------------- -------------- -------------
Net loss $ (4,706,050) $ (1,371,966) $ (2,803,655) $ (8,881,671)
============ ============= ============ =============
Net loss per share:
Basic and diluted $ (0.09) $ (0.16)
========== ===========
Weighed average
shares outstanding 53,259,706 1,906,099(h) 55,165,805
========== ===========
See accompanying Notes to Pro Forma Consolidated Financial Information.
NATIONAL INFORMATION CONSORTIUM, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
MARCH 31, 2000
(i)
NIC SDR Adjustments Pro Forma
--- --- ----------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 4,582,228 $ 859,013 $(2,066,692)(j) $ 3,374,549
Marketable securities 67,489,925 - - 67,489,925
Accounts receivable and other current assets 8,659,480 320,401 1,000,000 (k) 9,979,881
Deferred income taxes 528,053 - - 528,053
Short-term notes receivable 2,000,000 - (2,000,000)(k) -
------------ ----------- -------------- ------------
Total current assets 83,259,686 1,179,414 (3,066,692) 81,372,408
Property and equipment, net 3,896,458 598,175 - 4,494,633
Deferred income taxes 1,357,328 - (1,357,328)(l) -
Other assets 476,710 29,862 (51,754)(j) 454,818
Investments in affiliates 10,527,082 - - 10,527,082
Intangible assets, net 32,968,345 - 48,342,311 (m) 81,310,656
------------- ----------- ------------ -------------
Total assets $ 132,485,609 $ 1,807,451 $ 43,866,537 $ 178,159,597
============== =========== ============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and other current liabilities $ 7,160,290 $ 627,610 $ (19,967)(k) $ 7,767,933
Convertible promissory notes payable - 2,000,000 (2,000,000)(k) -
Bank line of credit - 2,050,000 - 2,050,000
Other short-term debt 186,973 487,664 (273,968)(n) 200,669
(200,000)(k)
----------- ---------- -------------- ----------
Total current liabilities 7,347,263 5,165,274 (2,493,935) 10,018,602
Deferred income taxes - - 6,227,672 (l) 6,227,672
Capital lease obligations and other long-term debt 179,363 2,010 - 181,373
----------- --------- ------------- ----------
Total liabilities 7,526,626 5,167,284 3,733,737 16,427,647
Minority interest 798,805 - - 798,805
Shareholders' equity (deficit) 124,160,178 (3,359,833) 273,968 (n) 160,933,145
2,219,967 (k)
1,139,866 (o)
36,498,999 (p)
------------- ----------- ---------------- -------------
Total liabilities and shareholders' equity $ 132,485,609 $ 1,807,451 $ 43,866,537 $ 178,159,597
============= =========== ================ =============
See accompanying Notes to Pro Forma Consolidated Financial Information.
NATIONAL INFORMATION CONSORTIUM, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The pro forma consolidated financial information has been prepared on the
basis of assumptions described in these notes and gives effect to the
following pro forma adjustments:
(a) This column represents eFed's unaudited results of operations for
the period from January 1, 1999 to September 15, 1999. The
Company's consolidated results of operations already include
eFed's results of operations for the period from the date of
acquisition to December 31, 1999.
(b) This column represents SDR's consolidated results of operations
for the period presented.
(c) This adjustment represents amortization expense for the period
from January 1, 1999 to September 15, 1999, resulting from the
application of purchase accounting to the eFed acquisition. The
Company's consolidated results of operations already reflect
amortization for the period from the date of acquisition to
December 31, 1999.
The total purchase price for the eFed business was approximately
$29.5 million. Total consideration included $15 million in cash
from the proceeds of NIC's initial public offering and the
issuance of 606,000 shares of unregistered common stock with a
fair value of approximately $14.5 million. The fair value of the
common shares was determined based on the average closing market
price of NIC's common stock three days before, the day of, and
three days after the September 13, 1999 announcement date of the
acquisition. Additional consideration is also payable through the
end of calendar year 2003 if eFed's financial results exceed
certain targeted levels, which have been set substantially above
the historical experience of eFed at the time of acquisition.
The total purchase price of approximately $29.5 million was
allocated to the tangible and identifiable intangible assets
acquired and liabilities assumed on the basis of their fair values
on the closing date. The fair value of net tangible assets
acquired, consisting primarily of accounts receivable, property
and equipment, accounts payable and other accrued expenses,
totaled $816,000 and approximated historical carrying amounts. The
sole identifiable intangible asset related to eFed's Internet
procurement software. This asset was valued at approximately $21.8
million based on the net present value of projected future net
cash flows from licensing the software over its estimated
three-year life discounted by 15%. The remainder of the cost was
allocated to goodwill. The goodwill is being amortized on a
straight-line basis over three years.
(d) This adjustment represents amortization expense for the period
presented resulting from the application of purchase accounting to
the SDR acquisition.
The SDR merger was accounted for using the purchase method of
accounting. Pursuant to the Amended and Restated Agreement and
Plan of Reorganization and Merger, dated May 5, 2000, as amended
(the "Merger Agreement"), each outstanding share of common stock
of SDR and each outstanding share of preferred stock of SDR was
converted into 0.59977 share of NIC common stock, and each
outstanding option to purchase one share of SDR common stock was
converted into an option to purchase 0.59977 share of NIC common
stock. Based on the exchange ratio, NIC issued to SDR shareholders
1,912,097 shares of common stock and options to purchase 229,965
shares of NIC common stock as consideration. The purchase price
per share was determined to be $17.21, which was based on the
average closing market price of NIC's common stock three days
before, the day of, and three days after April 24, 2000, the date
on which the parties to the Merger Agreement agreed to the 0.59977
exchange ratio. The fair value of the options issued was accounted
for as a component of the total purchase price.
Prior to the acquisition date, SDR issued two $1 million
convertible promissory notes to NIC, dated January 28, 2000 and
March 27, 2000, in exchange for $2 million in cash. On April 21,
2000 NIC elected to convert the promissory notes into 67,476
shares of SDR common stock, which were automatically cancelled and
retired upon the closing of the acquisition. The principal amount
of the January 28, 2000 promissory note, plus interest thereon,
will be deducted from the NIC shares held in escrow. The number of
shares to be deducted from escrow relating to the January 28, 2000
note will be based on the market price of NIC common stock when
the escrow shares are released to NIC. The principal amount of the
January 28, 2000 promissory note will be accounted for as a
current receivable until NIC receives the escrow shares. The
principal amount of the March 27, 2000 promissory note was
accounted for as additional purchase price and will not be
deducted from the escrow shares. Additionally, 10,000 SDR common
shares (representing 5,998 NIC common shares) issued on May 11,
2000 upon conversion of an SDR convertible promissory note will
also be deducted from the NIC shares in escrow. The total
acquisition cost was reduced by $103,225, the fair value of the
5,998 NIC common shares to be deducted from escrow. Accordingly,
the number of NIC issued and outstanding shares as of the closing
date of the acquisition was reduced by 5,998 shares. The
transaction is structured to be tax free to SDR shareholders. The
historical tax basis in the assets and liabilities will carry over
to NIC, and the amortization of the purchase accounting
intangibles will not be deductible for income tax purposes.
Below is a table of the purchase price, preliminary purchase price
allocation and annual amortization of the intangible assets acquired:
PURCHASE PRICE:
Fair value of common stock issued.......................... $32,898,312
Fair value of common stock options issued.................. 3,703,912
Direct acquisition costs................................... 2,118,446
Fair value of March 28, 2000 promissory note............... 1,000,000
Fair value of common stock to be deducted from escrow...... (103,225)
-----------
$39,617,445
===========
PRELIMINARY PURCHASE PRICE ALLOCATION: AMORTIZATION ANNUAL AMORTIZATION
PERIOD 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................................................... 30,446,302 3 years 10,148,767
------------ ------------
$39,617,445 $15,392,100
============ ============
The total purchase price was allocated to the tangible and
identifiable intangible assets acquired and liabilities assumed on
the basis of their fair values on the closing date. The fair value
of net tangible assets acquired approximated historical carrying
amounts. Tangible assets acquired in the SDR acquisition primarily
consisted of accounts receivable and property and equipment.
Liabilities assumed consisted primarily of obligations under a
revolving line of credit, accounts payable and accrued
liabilities. The purchase price allocation is preliminary
but NIC does not expect any adjustments that would have a
material effect on NIC's consolidated financial position or
results of operations.
(e) For the period from January 1, 1999 to September 15, 1999,
Electric Press, Inc. was an S corporation. Accordingly, no
provision for income taxes was included in eFed's results of
operations for the corresponding period. This adjustment
represents eFed's pro forma tax provision (expense on its results
of operations) and the pro forma tax benefit related to the
amortization expense resulting from the application of purchase
accounting for the period from January 1, 1999 to September 15,
1999. The Company's consolidated results of operations already
include eFed's tax provision and the tax benefit relating to
amortization for the period from the date of acquisition to
December 31, 1999. The pro forma benefit for income taxes was
calculated based on enacted tax laws and statutory tax rates
applicable to the period presented.
(f) For the year ended December 31, 1999 and three months ended March
31, 2000, no provision for income taxes, other than a provision
for a minimum annual state franchise tax, was included in SDR's
consolidated results of operations. Net deferred tax assets
arising primarily from SDR's net operating losses, after
application of valuation allowances, were negligible. This
adjustment represents SDR's pro forma tax benefit on its results
of operations for the period presented and the pro forma tax
benefit on the amortization of the identifiable intangible assets
(excluding goodwill) arising from the application of purchase
accounting.
(g) This adjustment represents the incremental shares needed to
reflect the common shares outstanding for the period based on the
following assumed stock issuances as of January 1, 1999 related to
the eFed acquisition: (1) the actual issuance of 606,000
unregistered common shares as part of the acquisition price and
(2) the assumed issuance of 1,363,636 shares of common stock at
$11 per share, resulting in net proceeds of $15 million. The net
proceeds were used to pay the cash portion of the acquisition
price. The $11 share price was based on the net proceeds per share
received by the Company from its initial public offering of 10
million shares of common stock on July 15, 1999. The pro forma
weighted average shares outstanding reflect the 1,969,636 shares
as outstanding for the entire year ended December 31, 1999, and
also reflect the difference between the 10 million shares of
common stock issued on July 15, 1999 and 1,363,636 shares noted
above as outstanding from July 15, 1999 to December 31, 1999.
(h) This adjustment represents the incremental shares needed to
reflect the common shares outstanding for the period related to
the SDR acquisition. The number of incremental shares was
determined by subtracting the 5,998 shares to be deducted from the
NIC common shares held in escrow from the 1,912,097 shares of NIC
common stock issued as part of the acquisition.
(i) This column represents SDR's consolidated balance sheet as of
March 31, 2000.
(j) This adjustment represents direct costs of the SDR acquisition.
Total direct acquisition costs totaled $2,118,446, consisting
primarily of legal and investment banking fees. At March 31, 2000,
other long-term assets consisted of $51,754 in deferred
acquisition costs. Subsequent to March 31, 2000, NIC incurred
$2,066,692 of acquisition costs.
(k) This adjustment represents the conversion of certain SDR
convertible promissory notes, including accrued interest, on April
21, 2000 and May 11, 2000, as discussed in Note (d).
(l) This adjustment represents the reclassification of the net
long-term deferred tax asset to a net long-term deferred tax
liability as a result of the $7,585,000 deferred tax liability
arising from the SDR acquisition.
(m) This adjustment represents the intangible assets arising from the
SDR acquisition, adjusted for the difference in the fair value of
net tangible assets of SDR at March 31, 2000 compared to May 11,
2000.
(n) This adjustment represents the conversion of certain SDR
promissory notes into shares of SDR common stock prior to the
acquisition date pursuant to the Merger Agreement.
(o) This adjustment represents the elimination of SDR's shareholders'
deficit at March 31, 2000 adjusted for the conversion of certain
SDR convertible promissory notes on April 21, 2000 and May 11,
2000, as discussed in Note (d).
(p) This adjustment represents the issuance of NIC common stock and
common stock options in connection with the SDR acquisition net of
the fair value of NIC common stock to be deducted from escrow, as
discussed in Note (d).