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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 OF THE
SECURITIES EXCHANGE ACT OF 1934 |
[ ] |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE ACT OF 1934 |
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.) |
Registrants 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 |
TABLE OF CONTENTS
NIC INC.
FORM 10-K ANNUAL REPORT
Page |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|
PART
I |
||||||||||
Item
1 |
Business |
1 | ||||||||
Item
2 |
Properties |
22 | ||||||||
Item
3 |
Legal Proceedings |
22 | ||||||||
Item
4 |
Submission of Matters to a Vote of Security Holders |
22 | ||||||||
PART
II |
||||||||||
Item
5 |
Market for Registrants Common Equity and Related Shareholder Matters |
23 | ||||||||
Item
6 |
Selected Consolidated Financial Data |
23 | ||||||||
Item
7 |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
24 | ||||||||
Item
7A. |
Quantitative and Qualitative Disclosures About Market Risk |
41 | ||||||||
Item
8 |
Consolidated Financial Statements and Supplementary Data |
42 | ||||||||
Item
9 |
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
75 | ||||||||
Item
9A. |
Controls and Procedures |
75 | ||||||||
Item
9B. |
Other Information |
75 | ||||||||
PART
III |
||||||||||
Item
10 |
Directors and Executive Officers of the Registrant |
76 | ||||||||
Item
11 |
Executive Compensation |
76 | ||||||||
Item
12 |
Security Ownership of Certain Beneficial Owners and Management |
76 | ||||||||
Item
13 |
Certain Relationships and Related Transactions |
76 | ||||||||
Item
14 |
Principal Accountant Fees and Services |
76 | ||||||||
PART
IV |
||||||||||
Item
15 |
Exhibits, Financial Statement Schedules, and Reports on Form 8-K |
77 |
PART I
CAUTIONS ABOUT FORWARD LOOKING STATEMENTS
AVAILABLE INFORMATION
FREQUENTLY USED TERMS
ITEM 1. BUSINESS
Business Overview
1
The Company
Segment Information
2
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
3
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. |
4
What We Provide to Governments
Customer-focused, one-stop government portal
Compelling and flexible financial models for governments
Focused relationship with governments
5
Government Contracts
Our portal outsourcing businesses
Government Entity |
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 |
||||||||
Des Moines,
Iowa |
2002 | www.DMgov.com | ||||||||
Iowa State
County Treasurers Association |
2002 | www.IowaTreasurers.org | ||||||||
Rhode
Island |
2001 | www.RI.gov | ||||||||
City of
Tampa |
2001 | www.TampaGov.net | ||||||||
Kent County,
Michigan |
2001 | www.accessKent.com | ||||||||
Oklahoma |
2001 | www.OK.gov | ||||||||
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.Iowa.gov | ||||||||
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. |
6
|
develop, manage, market, maintain and expand that governments portal and information and electronic commerce applications; |
|
assume the investment risk of building and operating that governments 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 governments request. |
Our software & services businesses
Corporate filings
Ethics & elections
7
Our Portal Service Offerings
Product or Service |
Description |
Primary Users |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
Drivers
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 |
||||||||
Professional
License Renewal |
Permits professionals to renew their licenses on line using a credit card. |
Attorneys, doctors, nurses, architects and other licensed professionals |
8
Product or Service |
Description |
Primary Users | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
Drivers
License Renewal |
Permits citizens to renew their drivers license on line using a credit card. |
Citizens |
||||||||
Limited Criminal
History Searches |
For
those legally authorized, provides users with the ability to 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 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. |
9
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. |
10
Strategic Acquisitions and Alliances
Technology and Operations
Competition
|
the unique understanding of government needs; |
|
the quality and fit of eGovernment services; |
11
|
the speed and responsiveness to the needs of businesses and citizens; and |
|
cost-effectiveness. |
|
large systems integrators, including CGI AMS and SAIC; |
|
traditional software applications developers, including Microsoft and Oracle; |
|
traditional consulting firms, including IBM Global Services, BearingPoint, and Accenture; and |
|
consumer-oriented application service providers for government, such as EzGov.com. |
Government Regulation
Intellectual Property and Proprietary Rights
12
Employees
Other Risk Factors Affecting Our Business
We have incurred significant net losses in the past
We may need more working capital to fund operations and expand our business
13
|
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 2005 if unforeseen opportunities arise; |
|
expand our product and service offerings beyond what is contemplated in 2005 if unforeseen opportunities arise; |
|
respond to unforeseen competitive pressures; and |
|
acquire complementary technologies beyond what is contemplated in 2005 if unforeseen opportunities arise. |
Our corporate filings business has incurred losses under its fixed-fee contracts in the past, and our results of operations could be harmed if the costs that this business incurs to meet contractual commitments exceed our current estimates
Our acquisitions and strategic alliances entail numerous risks and uncertainties
14
|
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 managements 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. |
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
15
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
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
16
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
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
17
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 and often without charge; |
|
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 governments
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 may be volatile and difficult to predict. If our quarterly results of operations 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; |
18
|
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
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. |
19
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
|
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
20
or perform reliably. The Internet has experienced a variety of outages and other delays as a result of damage to portions of its infrastructure, and could face such outages and delays in the future. These outages and delays could reduce the level of Internet usage and traffic on our government portals. Such outages and delays would also hinder our customers ability to complete eGovernment transactions. In addition, the Internet could lose its viability due to delays in the development or adoption of new standards and protocols to handle increased levels of activity or due to increased governmental regulation. If the Internet infrastructure is not adequately developed or maintained, use of our government portals and our government-to-citizen and government-to-business services may be reduced. |
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
21
22
PART II
ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED SHAREHOLDER MATTERS |
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 |
Fiscal
Year Ended December 31, 2004 |
High |
Low |
||||||||
First
Quarter |
$ | 8.85 | $ | 5.25 | ||||||
Second
Quarter |
$ | 7.15 | $ | 5.10 | ||||||
Third
Quarter |
$ | 7.15 | $ | 5.17 | ||||||
Fourth
Quarter |
$ | 5.50 | $ | 4.15 |
Dividend policy
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
23
Year Ended December 31, |
|||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2000 |
2001 |
2002 |
2003 |
2004 |
|||||||||||||||||||
(in thousands, except per share data) |
|||||||||||||||||||||||
Consolidated
Statement of Operations Data: |
|||||||||||||||||||||||
Total
revenues |
$ | 23,341 | $ | 37,020 | $ | 47,545 | $ | 50,831 | $ | 55,762 | |||||||||||||
Operating
income (loss) |
(45,280 | ) | (87,502 | ) | (7,930 | ) | 7,338 | 11,800 | |||||||||||||||
Income (loss)
from continuing operations |
(35,957 | ) | (70,919 | ) | (5,575 | ) | 6,328 | 7,105 | |||||||||||||||
Net income
(loss) |
(40,278 | ) | (77,444 | ) | (7,610 | ) | 6,328 | 7,105 | |||||||||||||||
Income (loss)
per share from continuing operations basic and diluted |
(0.66 | ) | (1.26 | ) | (0.10 | ) | 0.11 | 0.12 | |||||||||||||||
Net income
(loss) per sharebasic and diluted |
(0.74 | ) | (1.38 | ) | (0.13 | ) | 0.11 | 0.12 |
December 31, |
|||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2000 |
2001 |
2002 |
2003 |
2004 |
|||||||||||||||||||
(in thousands) |
|||||||||||||||||||||||
Consolidated
Balance Sheet Data: |
|||||||||||||||||||||||
Total
assets |
$ | 143,792 | $ | 81,814 | $ | 74,456 | $ | 85,740 | $ | 93,071 | |||||||||||||
Long-term debt
(includes current portion of notes payable/capital lease obligations) |
217 | 888 | 533 | 363 | | ||||||||||||||||||
Total
shareholders equity |
135,160 | 59,559 | 55,056 | 63,164 | 72,260 |
ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Caution about Forward-Looking Statements
24
What We Do An Executive Summary
|
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 reference-able 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. In 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 |
25
information technology policy, and developing contacts with organizations that act as forums for discussions between these executives. In 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 existing government portals We intend to increase transactional revenues from our existing 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 1520% per year. Same state portal revenues grew 20% in 2004, 7% in 2003 and 15% in 2002. As more fully described below, our same state revenue growth in 2003 was lower than normal 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 state DMV revenues in 2002 due in part to more robust U.S. automobile sales than in 2003. In 2004, same state DMV revenues grew by 14% primarily due to modest online record DMV price increases in two of our portal states in late 2003 and one portal state in late 2004. Historically, such price increases have been infrequent, and our ability to grow same state DMV revenues has been limited, as such revenues have been 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 generated by other means than from the sale of DMV records, for transactions conducted primarily by business users and, to a lesser extent, consumer users through our portals. In 2004, same state non-DMV revenues grew at 39%, up from 35% in 2003, but less than the 55% we achieved in 2002. We are able to grow non-DMV revenues by continually deploying new revenue generating applications and by driving adoption of existing applications within our existing portal businesses. We believe the key factor in organically growing our revenues is to continually focus on driving adoption, and on 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 4550% range. Our portal gross profit rate increased to 49% in 2004, |
26
from 46% in 2003 and 43% in 2002. The increase in 2004 was primarily attributable to a full year of operations from our Kentucky portal, and to a modest increase in our same state gross profit rate. New portal contract wins can have a short-term negative impact on our gross profit percentage during the start-up phase of a portal, as we incur costs to develop and implement the portal infrastructure prior to the time we begin to generate transaction revenues. Our portal gross profit could be similarly impacted in the future if we are successful in winning new portal contracts. We carefully monitor our portal gross profit percentage to strike the balance between generating a solid return for our shareholders and delivering value to our government partners through reinvestment in our portal operations. |
On a same state basis, our 2004 portal gross profit rate was 50%, an increase of less than 1% from 2003. While same state portal revenues grew by 20% in 2004, same state cost of portal revenues increased by approximately 18%, primarily as a result of the addition of personnel in several of our portals due to our continued growth and reinvestment in our core business. In addition, a growing percentage of our non-DMV revenues are generated from online applications whereby users pay for information or transactions via credit cards. We typically earn a percentage of the credit card transaction amount, but also must pay an associated fee to the merchant bank that processes the credit card transaction. We earn a lower gross profit percentage on these transactions as compared to our other non-DMV applications. However, we anticipate these revenues and the associated merchant card fees to continue to increase in the future, as these transactions contribute favorably to our operating income growth. Our same state gross profit rate was slightly less than 50% in 2003 and slightly less than 48% in 2002. As discussed above, our long-term goal is to grow same state revenues at 1520% per year, while keeping same state cost of portal revenue growth in the 710% range. As a result, we expect our same state gross profit rate to increase modestly on an annual basis. |
We also view selling & administrative costs, expressed 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 22% in 2004, from 23% in 2003 and 28% in 2002. 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 21% in 2004 from 14% in 2003 and (17%) in 2002. 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 broad 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 been profitable since that time. We 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 |
|
fees for application development. |
27
Our portal outsourcing businesses
|
DMV transaction-based: these are transaction fees from the sale of electronic access to driver history records, referred to as DMV records, from our state portals to data resellers, insurance companies and other pre-authorized customers on behalf of our state partners, and are generally recurring. |
|
Non-DMV transaction-based: these are transaction fees from other sources than the sale of DMV records, for transactions conducted by business users and consumer users 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. |
28
the option of any party upon a material breach of the contract by the other party. Furthermore, these contracts are immediately terminable if the state statute allowing for the public release of these records is repealed.
Our software & services businesses
Corporate filings
29
Ethics & elections
Transportation
AOL
Critical Accounting Policies
Application development contracts
30
Deferred income taxes
Goodwill, intangible assets and long-lived assets
31
Software & Services Businesses Discontinued Operations and Impairment Losses
NIC Commerce
IDT
AOL
32
Financial Analysis of Years Ended December 31, 2004, 2003 and 2002
Key Financial Metrics |
2004 |
2003 |
2002 |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenue
growth outsourced portals |
21 | % | 16 | % | 32 | % | ||||||||
Same state
revenue growth outsourced portals |
20 | % | 7 | % | 15 | % | ||||||||
Revenue
growth software & services |
(32 | %) | (17 | %) | 20 | % | ||||||||
Gross profit
% outsourced portals |
49 | % | 46 | % | 43 | % | ||||||||
Gross profit
% software & services |
23 | % | 21 | % | (7 | %) | ||||||||
Selling &
administrative as % of revenue |
22 | % | 23 | % | 28 | % | ||||||||
Operating
income margin % |
21 | % | 14 | % | (17 | %) |
Portal Revenue Analysis |
2004 |
Increase/(Decrease) from 2003 |
2003 |
Increase/(Decrease) from 2002 |
2002 |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
DMV
transaction-based |
$ | 30,498 | 22 | % | $ | 25,088 | 13 | % | $ | 22,253 | ||||||||||||
Non-DMV
transaction-based |
14,656 | 35 | % | 10,846 | 34 | % | 8,065 | |||||||||||||||
Portal
management |
360 | (70 | %) | 1,200 | (6 | %) | 1,274 | |||||||||||||||
Software
development |
3,030 | (1 | %) | 3,075 | (4 | %) | 3,187 | |||||||||||||||
Total |
$ | 48,544 | 21 | % | $ | 40,209 | 16 | % | $ | 34,779 |
33
34
Software & Services Revenue Analysis |
2004 |
Increase/(Decrease) from 2003 |
2003 |
Increase/(Decrease) from 2002 |
2002 |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Corporate
Filings California Secretary of State |
$ | 4,074 | (44%) | $ | 7,225 | 2% | $ | 7,079 | ||||||||||||||
Corporate
Filings Legacy contracts |
190 | (20%) | 238 | (73%) | 883 | |||||||||||||||||
Ethics &
Elections |
2,247 | (5%) | 2,361 | 15% | 2,058 | |||||||||||||||||
Transportation |
427 | (12%) | 485 | (60%) | 1,216 | |||||||||||||||||
AOL |
160 | 14% | 140 | (91%) | 1,482 | |||||||||||||||||
Other |
120 | (31%) | 173 | 260% | 48 | |||||||||||||||||
Total |
$ | 7,218 | (32%) | $ | 10,622 | (17%) | $ | 12,766 |
35
36
Liquidity and Capital Resources
37
38
|
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 we are required to post as collateral for performance on certain of our 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 2005 if unforeseen opportunities arise; |
|
expand our product and service offerings beyond what is contemplated in 2005 if unforeseen opportunities arise; |
|
respond to unforeseen competitive pressures; and |
|
acquire complementary technologies beyond what is contemplated in 2005 if unforeseen opportunities arise. |
Contractual Obligations |
Total |
Less than 1 year |
13 years |
35 years |
More than 5 years |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Operating
lease obligations |
$ | 2,761 | $ | 1,305 | $ | 1,302 | $ | 154 | $ | | ||||||||||||
Long-term
debt obligations |
| | | | | |||||||||||||||||
Capital lease
obligations |
| | | | | |||||||||||||||||
Purchase
obligations |
| | | | | |||||||||||||||||
Other
long-term liabilities |
| | | | | |||||||||||||||||
Total
contractual cash obligations |
$ | 2,761 | $ | 1,305 | $ | 1,302 | $ | 154 | $ | |
39
Deferred Tax Assets
Year ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 |
2003 |
2002 |
|||||||||||||
Income (loss)
from continuing operations before income taxes |
$ | 11,810 | $ | 7,513 | $ | (9,107 | ) | ||||||||
Loss before
income taxes discontinued operations |
| | (3,342 | ) | |||||||||||
Amortization
of purchase accounting intangibles |
(2,245 | ) | (2,245 | ) | (1,899 | ) | |||||||||
Net operating
loss relating to NIC Conquest |
| | 1,820 | ||||||||||||
Impairment of
intangible assets |
| (2,083 | ) | 4,316 | |||||||||||
Equity in net
loss of affiliates |
106 | 195 | 1,235 | ||||||||||||
Accrued
expenses |
1,100 | 2,775 | | ||||||||||||
Deductions
relating to stock options |
(1,741 | ) | (1,382 | ) | (535 | ) | |||||||||
Stock
compensation expense |
| | 1,307 | ||||||||||||
Provision for
loss on application development contracts |
| (1,230 | ) | (2,403 | ) | ||||||||||
Depreciation
and capitalized software amortization |
(243 | ) | (277 | ) | (139 | ) | |||||||||
Gain/(loss)
on disposition of assets and equity investments |
589 | (715 | ) | | |||||||||||
Other |
235 | 77 | 326 | ||||||||||||
Taxable
income (loss) 2004 is an estimate |
$ | 9,611 | $ | 2,628 | $ | (8,421 | ) |
Recent Accounting Pronouncements
40
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
41
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
NIC INC.
CONSOLIDATED BALANCE SHEETS
December 31, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2003 |
2004 |
||||||||||
ASSETS |
|||||||||||
Current
assets: |
|||||||||||
Cash and cash
equivalents |
$ | 13,540,400 | $ | 30,768,668 | |||||||
Cash and cash
equivalents restricted |
5,363,033 | 3,000,000 | |||||||||
Marketable
securities |
249,139 | | |||||||||
Trade
accounts receivable |
17,871,454 | 17,610,106 | |||||||||
Unbilled
revenues |
8,402,690 | 3,400,231 | |||||||||
Deferred
income taxes |
427,168 | 433,502 | |||||||||
Prepaid
expenses & other current assets |
1,140,527 | 1,311,880 | |||||||||
Total current
assets |
46,994,411 | 56,524,387 | |||||||||
Property and
equipment, net |
2,991,596 | 2,602,704 | |||||||||
Unbilled
revenues |
| 2,403,791 | |||||||||
Deferred
income taxes |
34,922,355 | 31,273,740 | |||||||||
Other
assets |
187,013 | 266,701 | |||||||||
Investments
in affiliates and joint ventures |
644,497 | | |||||||||
Total
assets |
$ | 85,739,872 | $ | 93,071,323 | |||||||
LIABILITIES AND SHAREHOLDERS EQUITY |
|||||||||||
Current
liabilities: |
|||||||||||
Accounts
payable |
$ | 16,345,249 | $ | 14,393,767 | |||||||
Accrued
expenses |
5,244,979 | 6,265,777 | |||||||||
Notes payable
current portion |
155,724 | | |||||||||
Application
development contracts |
464,654 | | |||||||||
Other current
liabilities |
158,364 | 151,304 | |||||||||
Total current
liabilities |
22,368,970 | 20,810,848 | |||||||||
Notes payable
long-term portion |
207,309 | | |||||||||
Total
liabilities |
22,576,279 | 20,810,848 | |||||||||
Commitments
and contingencies (Notes 2, 4, 7, 8 and 10) |
| | |||||||||
Shareholders equity: |
|||||||||||
Common stock,
no par, 200,000,000 shares authorized 58,715,672 and 59,301,375 shares issued and outstanding |
| | |||||||||
Additional
paid-in capital |
198,929,405 | 200,921,146 | |||||||||
Accumulated
deficit |
(135,560,835 | ) | (128,456,174 | ) | |||||||
Accumulated
other comprehensive income (loss) |
(480 | ) | | ||||||||
63,368,090 | 72,464,972 | ||||||||||
Less treasury
stock |
(204,497 | ) | (204,497 | ) | |||||||
Total
shareholders equity |
63,163,593 | 72,260,475 | |||||||||
Total
liabilities and shareholders equity |
$ | 85,739,872 | $ | 93,071,323 |
The accompanying notes are an integral part of these consolidated financial statements.
42
NIC INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2002 |
2003 |
2004 |
|||||||||||||
Revenues: |
|||||||||||||||
Portal
revenues |
$ | 34,778,978 | $ | 40,209,000 | $ | 48,543,779 | |||||||||
Software
& services revenues |
12,766,432 | 10,622,209 | 7,217,975 | ||||||||||||
Total
revenues |
47,545,410 | 50,831,209 | 55,761,754 | ||||||||||||
Operating
expenses: |
|||||||||||||||
Cost of
portal revenues, exclusive of depreciation & amortization |
19,855,320 | 21,585,990 | 24,866,146 | ||||||||||||
Cost of
software & services revenues, exclusive of depreciation & amortization |
13,687,296 | 8,442,771 | 5,583,248 | ||||||||||||
Selling &
administrative |
13,322,099 | 11,681,386 | 12,017,576 | ||||||||||||
Impairment
loss |
4,316,230 | | | ||||||||||||
Stock
compensation |
1,306,569 | | | ||||||||||||
Depreciation
& amortization |
2,988,389 | 1,783,164 | 1,495,252 | ||||||||||||
Total
operating expenses |
55,475,903 | 43,493,311 | 43,962,222 | ||||||||||||
Operating
income (loss) |
(7,930,493 | ) | 7,337,898 | 11,799,532 | |||||||||||
Other income
(expense): |
|||||||||||||||
Interest
income |
179,829 | 100,215 | 116,037 | ||||||||||||
Interest
expense |
(49,193 | ) | (20,927 | ) | (10,852 | ) | |||||||||
Equity in net
loss of affiliates |
(1,234,938 | ) | 106,716 | (109,061 | ) | ||||||||||
Other income
(expense), net |
(71,775 | ) | (10,842 | ) | 13,906 | ||||||||||
Total other
income (expense) |
(1,176,077 | ) | 175,162 | 10,030 | |||||||||||
Income (loss)
from continuing operations before income taxes |
(9,106,570 | ) | 7,513,060 | 11,809,562 | |||||||||||
Income tax
expense (benefit) |
(3,532,040 | ) | 1,185,153 | 4,704,901 | |||||||||||
Income (loss)
from continuing operations |
(5,574,530 | ) | 6,327,907 | 7,104,661 | |||||||||||
Discontinued
operations (Note 4): |
|||||||||||||||
Loss from
discontinued operations (less applicable income tax benefit of $1,306,398, $ and $) |
(2,035,463 | ) | | | |||||||||||
Net income
(loss) |
$ | (7,609,993 | ) | $ | 6,327,907 | $ | 7,104,661 | ||||||||
Basic and
diluted earnings (loss) per share: |
|||||||||||||||
Earnings
(loss) per share continuing operations |
$ | (0.10 | ) | $ | 0.11 | $ | 0.12 | ||||||||
Loss per
share discontinued operations |
$ | (0.03 | ) | $ | | $ | | ||||||||
Net earnings
(loss) per share |
$ | (0.13 | ) | $ | 0.11 | $ | 0.12 | ||||||||
Weighted
average shares outstanding |
|||||||||||||||
Basic |
56,875,327 | 58,330,793 | 58,988,456 | ||||||||||||
Diluted |
56,875,327 | 59,269,291 | 60,877,294 |
The accompanying notes are an integral part of these consolidated financial statements.
43
NIC INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS
EQUITY
Common Stock |
||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Shares |
Amount |
Additional Paid-in Capital |
Accumulated Deficit |
Accumulated Other Comprehensive Income (Loss) |
Notes and Stock Subscriptions Receivable |
Deferred Compensation Expense |
Treasury Stock |
Total |
||||||||||||||||||||||||||||||
Balance,
January 1, 2002 |
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 | ||||||||||||||||||||||||||
Net
income |
| | | 7,104,661 | | | | | 7,104,661 | |||||||||||||||||||||||||||||
Stock options
exercised |
505,378 | | 1,186,391 | | | | | | 1,186,391 | |||||||||||||||||||||||||||||
Issuance of
common stock under employee stock purchase plan |
80,325 | | 116,746 | | | | | | 116,746 | |||||||||||||||||||||||||||||
Tax deductions
relating to stock options |
| | 688,604 | | | | | | 688,604 | |||||||||||||||||||||||||||||
Unrealized
holding gain on marketable securities |
| | | | 480 | | | | 480 | |||||||||||||||||||||||||||||
Balance,
December 31, 2004 |
59,301,375 | $ | | $ | 200,921,146 | $ | (128,456,174 | ) | $ | | $ | | $ | | $ | (204,497 | ) | $ | 72,260,475 |
44
NIC INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2002 |
2003 |
2004 |
|||||||||||||
Cash flows
from operating activities: |
|||||||||||||||
Net income
(loss) |
$ | (7,609,993 | ) | $ | 6,327,907 | $ | 7,104,661 | ||||||||
Adjustments
to reconcile net income (loss) to net cash provided by (used in) operating activities: |
|||||||||||||||
Depreciation
& amortization |
3,379,270 | 1,783,164 | 1,495,252 | ||||||||||||
Compensation
expense recognized related to stock options |
1,306,569 | | | ||||||||||||
Loss on
disposals of property and equipment |
1,769,412 | 11,551 | | ||||||||||||
Accretion of
discount on marketable securities |
(4,048 | ) | (2,295 | ) | | ||||||||||
Application
development contracts |
(2,403,221 | ) | (1,094,104 | ) | (464,654 | ) | |||||||||
Impairment
loss |
4,316,230 | | | ||||||||||||
Deferred
income taxes |
(6,190,548 | ) | 1,399,041 | 5,019,489 | |||||||||||
Deferred
income tax benefit relating to stock options |
1,145,950 | (546,623 | ) | (688,604 | ) | ||||||||||
Equity in net
loss of affiliates |
1,234,938 | (106,716 | ) | 109,061 | |||||||||||
Changes in
operating assets and liabilities, net of effects of acquisitions: |
|||||||||||||||
(Increase)
decrease in trade accounts receivable |
(2,634,198 | ) | (3,406,392 | ) | 261,348 | ||||||||||
(Increase)
decrease in unbilled revenues |
(463,890 | ) | (5,660,799 | ) | 2,598,668 | ||||||||||
(Increase)
decrease in prepaid expenses & other current assets |
(80,161 | ) | 103,991 | 43,672 | |||||||||||
Decrease in
other assets |
109,829 | 29,442 | 23,313 | ||||||||||||
Increase
(decrease) in accounts payable |
1,469,370 | 3,594,759 | (1,951,482 | ) | |||||||||||
Increase
(decrease) in accrued expenses |
(1,701,553 | ) | 1,419,608 | 1,020,798 | |||||||||||
(Decrease) in
other current liabilities |
(95,562 | ) | (355,144 | ) | (7,060 | ) | |||||||||
Net cash
provided by (used in) operating activities |
(6,451,606 | ) | 3,497,390 | 14,564,462 | |||||||||||
Cash flows
from investing activities: |
|||||||||||||||
Purchases of
property and equipment |
(967,627 | ) | (1,518,798 | ) | (1,189,336 | ) | |||||||||
Purchases of
marketable securities |
(23,745,011 | ) | (497,705 | ) | | ||||||||||
Maturities of
marketable securities |
27,566,194 | 500,000 | 250,000 | ||||||||||||
Proceeds from
sale of affiliate |
| | 300,005 | ||||||||||||
Investments
in affiliates and joint ventures |
(191,000 | ) | | | |||||||||||
Net cash
provided by (used in) investing activities |
2,662,556 | (1,516,503 | ) | (639,331 | ) |
45
Year Ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2002 |
2003 |
2004 | |||||||||||||
Cash flows
from financing activities: |
|||||||||||||||
Cash and cash
equivalents restricted |
$ | (6,300,054 | ) | $ | 937,021 | $ | 2,363,033 | ||||||||
Payments on
notes and debentures payable |
(339,833 | ) | (169,877 | ) | (363,033 | ) | |||||||||
Payments on
capital lease obligations |
(13,762 | ) | | | |||||||||||
Payments to
repurchase common stock |
(215,260 | ) | | | |||||||||||
Proceeds from
employee common stock purchases |
84,611 | 72,487 | 116,746 | ||||||||||||
Proceeds from
exercise of employee stock options |
2,881,682 | 1,160,796 | 1,186,391 | ||||||||||||
Proceeds from
stock subscriptions receivable |
15,000 | | | ||||||||||||
Net cash
provided by (used in) financing activities |
(3,887,616 | ) | 2,000,427 | 3,303,137 | |||||||||||
Net increase
(decrease) in cash and cash equivalents |
(7,676,666 | ) | 3,981,314 | 17,228,268 | |||||||||||
Cash and cash
equivalents, beginning of year |
17,235,752 | 9,559,086 | 13,540,400 | ||||||||||||
Cash and cash
equivalents, end of year |
$ | 9,559,086 | $ | 13,540,400 | $ | 30,768,668 | |||||||||
Other cash
flow information: |
|||||||||||||||
Interest
paid |
$ | 49,193 | $ | 20,927 | $ | 10,852 | |||||||||
Income taxes
paid |
$ | 94,200 | $ | 382,358 | $ | 465,172 |
The accompanying notes are an integral part of these consolidated financial statements.
46
NIC INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. | THE COMPANY AND BASIS OF PRESENTATION |
The Company
47
Basis of presentation
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of consolidation
Cash and cash equivalents
Cash and cash equivalents restricted
Marketable securities
Unbilled revenues
48
Property and equipment
Investments in affiliates and joint ventures
49
Goodwill
Software development costs and intangible assets
Revenue recognition
Portal revenues
50
Software & services revenues
51
Stock-based compensation
Year Ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2002 |
2003 |
2004 |
|||||||||||||
Net income
(loss), as reported |
$ | (7,609,993 | ) | $ | 6,327,907 | $ | 7,104,661 | ||||||||
Add:
Stock-based employee compensation included in reported net income (loss), net of related tax effects |
876,166 | | | ||||||||||||
Deduct: Total
stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects |
(6,229,689 | ) | (2,938,705 | ) | (1,813,608 | ) | |||||||||
Pro forma net
income (loss) |
$ | (12,963,516 | ) | $ | 3,389,202 | $ | 5,291,053 | ||||||||
Basic and
diluted net earnings (loss) per share, as reported |
$ | (0.13 | ) | $ | 0.11 | $ | 0.12 | ||||||||
Basic and
diluted net earnings (loss) per share, pro forma |
$ | (0.23 | ) | $ | 0.06 | $ | 0.09 |
52
2002 |
2003 |
2004 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Risk-free interest
rate |
2.95 | % | 2.64 | % | 3.16 | % | ||||||||
Expected dividend
yield |
0.00 | 0.00 | 0.00 | |||||||||||
Expected option
life |
3.0 | years | 4.0 | years | 4.0 | years | ||||||||
Expected stock price
volatility |
102 | % | 89 | % | 68 | % | ||||||||
Fair value of options
granted |
$ | 1.18 | $ | 2.24 | $ | 2.95 |
Income taxes
Comprehensive income (loss)
Earnings (loss) per share
53
Year ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2002 |
2003 |
2004 |
|||||||||||||
Numerator: |
|||||||||||||||
Income (loss) from
continuing operations |
$ | (5,574,530 | ) | $ | 6,327,907 | $ | 7,104,661 | ||||||||
Loss from discontinued
operations |
(2,035,463 | ) | | | |||||||||||
Net income
(loss) |
$ | (7,609,993 | ) | $ | 6,327,907 | $ | 7,104,661 | ||||||||
Denominator: |
|||||||||||||||
Weighted average shares
basic |
56,875,327 | 58,330,793 | 58,988,456 | ||||||||||||
Employee common stock
options and warrants |
| 938,498 | 1,888,838 | ||||||||||||
Weighted average shares
diluted |
56,875,327 | 59,269,291 | 60,877,294 | ||||||||||||
Basic earnings (loss)
per share: |
|||||||||||||||
Income (loss) from
continuing operations |
$ | (0.10 | ) | $ | 0.11 | $ | 0.12 | ||||||||
Loss from discontinued
operations |
$ | (0.03 | ) | $ | | $ | | ||||||||
Net income
(loss) |
$ | (0.13 | ) | $ | 0.11 | $ | 0.12 | ||||||||
Diluted earnings (loss)
per share: |
|||||||||||||||
Income (loss) from
continuing operations |
$ | (0.10 | ) | $ | 0.11 | $ | 0.12 | ||||||||
Loss from discontinued
operations |
$ | (0.03 | ) | $ | | $ | | ||||||||
Net income
(loss) |
$ | (0.13 | ) | $ | 0.11 | $ | 0.12 |
Concentration of credit risk
Segment reporting
54
Use of estimates
Reclassifications
Recent accounting pronouncements
3. | OUTSOURCED GOVERNMENT PORTAL CONTRACTS |
55
NIC Subsidiary |
Portal Name (Government Entity) |
Year Services Commenced |
Contract Expiration Date (Renewal Option Through) |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Kentucky
Interactive |
www.Kentucky.gov (Kentucky) |
2003 | 4/30/2005
(1/30/2013) |
|||||||||||
Alabama
Interactive |
www.Alabama.gov (Alabama) |
2002 | 1/7/2005
(Contract has been indefinitely extended to allow the state time to provision future portal services) |
|||||||||||
New England
Interactive |
www.RI.gov (Rhode Island) |
2001 | 6/19/2006
(6/19/2010) |
|||||||||||
NICUSA |
www.OK.gov (Oklahoma) |
2001 | 6/30/2005
(6/30/2009) |
|||||||||||
Montana
Interactive |
www.DiscoveringMontana.com (Montana) |
2001 | 1/1/2006
(1/1/2011) |
|||||||||||
NICUSA |
www.Tennessee.gov (Tennessee) |
2000 | 8/27/2005 |
|||||||||||
Hawaii
Information Consortium |
www.Hawaii.gov (Hawaii) |
2000 | 1/3/2007 |
|||||||||||
Idaho Information
Consortium |
www.accessIdaho.org (Idaho) |
2000 | 12/6/2006 |
|||||||||||
Utah
Interactive |
www.Utah.gov (Utah) |
1999 | 5/6/2007
(5/6/2009) |
|||||||||||
New England
Interactive |
www.Maine.gov (Maine) |
1999 | 7/14/2006 |
|||||||||||
Arkansas
Information Consortium |
www.Arkansas.gov (Arkansas) |
1997 | 6/30/2005 |
|||||||||||
Iowa
Interactive |
www.Iowa.gov (Iowa) |
1997 | 9/30/2005 |
|||||||||||
Virginia
Interactive |
www.Virginia.gov (Virginia) |
1997 | 8/31/2007
(8/31/2012) |
|||||||||||
Indiana
Interactive |
www.IN.gov (Indiana) |
1995 | 8/31/2005 |
|||||||||||
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) |
4. | SOFTWARE & SERVICES BUSINESSES ACQUISITIONS, ALLIANCES, IMPAIRMENT LOSSES AND DISCONTINUED OPERATIONS |
NIC Commerce
56
Year ended December 31, 2002 |
||||||
---|---|---|---|---|---|---|
Statement of
operations data: |
||||||
Revenues |
$ | 221,863 | ||||
Costs and
expenses |
1,747,690 | |||||
Loss on disposal
of property and equipment |
1,425,153 | |||||
Depreciation and
amortization |
390,881 | |||||
Operating
loss |
(3,341,861 | ) | ||||
Income tax
benefit |
(1,306,398 | ) | ||||
Loss from
discontinued operations |
$ | (2,035,463 | ) |
Intelligent Decision Technologies IDT
57
AOL
58
NIC Conquest
59
5. | PROPERTY AND EQUIPMENT |
2003 |
2004 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Furniture and
fixtures |
$ | 1,580,789 | $ | 1,278,091 | ||||||
Equipment |
7,232,505 | 8,186,499 | ||||||||
Purchased
software |
1,688,843 | 1,887,284 | ||||||||
Leasehold
improvements |
208,069 | 218,971 | ||||||||
10,710,206 | 11,570,845 | |||||||||
Less
accumulated depreciation |
7,718,610 | 8,968,141 | ||||||||
$ | 2,991,596 | $ | 2,602,704 |
6. | INVESTMENTS IN AFFILIATES AND JOINT VENTURES |
60
7. | DEBT OBLIGATIONS AND COLLATERAL REQUIREMENTS |
61
8. | COMMITMENTS AND CONTINGENCIES |
Operating leases
Fiscal Year |
||||||
---|---|---|---|---|---|---|
2005 |
$ | 1,304,993 | ||||
2006 |
827,952 | |||||
2007 |
474,091 | |||||
2008 |
153,275 | |||||
2009 |
1,055 | |||||
Thereafter |
|
Litigation
9. | SHAREHOLDERS EQUITY |
Common stock
Common stock transactions
62
Additional paid-in capital
Business acquisitions and other transactions
63
10. | INCOME TAXES |
Year Ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2002 |
2003 |
2004 |
|||||||||||||
Current
income taxes: |
|||||||||||||||
Federal |
$ | | $ | | $ | 238,731 | |||||||||
State |
206,160 | 332,735 | 135,285 | ||||||||||||
Total |
206,160 | 332,735 | 374,016 | ||||||||||||
Deferred
income taxes: |
|||||||||||||||
Federal |
(3,210,702 | ) | 596,104 | 3,650,706 | |||||||||||
State |
(527,498 | ) | 256,314 | 680,179 | |||||||||||
Total |
(3,738,200 | ) | 852,418 | 4,330,885 | |||||||||||
Total income
tax provision (benefit) from continuing operations |
$ | (3,532,040 | ) | $ | 1,185,153 | $ | 4,704,901 |
2003 |
2004 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Deferred tax
assets: |
||||||||||
Net operating
loss carryforward |
$ | 25,647,102 | $ | 21,538,469 | ||||||
Amortization
and impairment of purchase accounting goodwill and software intangibles |
9,526,987 | 8,641,536 | ||||||||
Capital loss
on sale of affiliate |
1,927,748 | 3,792,358 | ||||||||
Investments
in affiliates |
2,364,802 | 548,780 | ||||||||
Accrued
contract expenses under percentage of completion accounting |
| 1,462,734 | ||||||||
Application
development contract losses |
180,748 | | ||||||||
Other |
159,448 | 335,574 | ||||||||
39,806,835 | 36,319,451 | |||||||||
Less:
Valuation allowance |
(4,292,550 | ) | (4,341,138 | ) | ||||||
Total |
35,514,285 | 31,978,313 | ||||||||
Deferred tax
liabilities: |
||||||||||
Depreciation |
(144,799 | ) | (271,071 | ) | ||||||
Capitalized
software development costs |
(19,963 | ) | | |||||||
Total |
(164,762 | ) | (271,071 | ) | ||||||
Net deferred
tax asset |
$ | 35,349,523 | $ | 31,707,242 |
64
65
Year Ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2002 |
2003 |
2004 |
|||||||||||||
Effective
federal and state income tax rate |
38.8 | % | 15.8 | % | 39.8 | % | |||||||||
Adjustment
related to NIC Conquest |
| 22.1 | | ||||||||||||
Reduction of
state NOL carryforwards |
| (5.8 | ) | | |||||||||||
Impairment of
intangible assets |
4.8 | | | ||||||||||||
Non-deductible stock compensation expense |
1.1 | | | ||||||||||||
State income
taxes |
(1.4 | ) | (5.1 | ) | (4.5 | ) | |||||||||
Valuation
allowance |
(9.1 | ) | 9.4 | (0.4 | ) | ||||||||||
Other |
0.8 | (1.4 | ) | 0.1 | |||||||||||
Statutory
federal income tax rate |
35.0 | % | 35.0 | % | 35.0 | % |
11. | EMPLOYEE BENEFIT AND STOCK OPTION PLANS |
Defined Contribution 401(k) Profit Sharing Plan
Employee Stock Purchase Plan
66
Stock Option Plans
2002 |
2003 |
2004 |
|||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Shares |
Weighted Average Exercise Price |
Shares |
Weighted Average Exercise Price |
Shares |
Weighted Average Exercise Price |
||||||||||||||||||||||
Outstanding
at January 1 |
7,663,866 | $ | 5.36 | 4,758,470 | $ | 5.95 | 4,566,539 | $ | 3.98 | ||||||||||||||||||
Granted |
1,345,450 | $ | 1.81 | 1,880,243 | $ | 3.45 | 540,750 | $ | 5.07 | ||||||||||||||||||
Exercised |
(1,915,094 | ) | $ | 1.51 | (574,595 | ) | $ | 2.02 | (505,378 | ) | $ | 2.35 | |||||||||||||||
Expired |
(1,221,181 | ) | $ | 6.32 | (973,210 | ) | $ | 14.44 | (159,806 | ) | $ | 18.52 | |||||||||||||||
Canceled |
(1,114,571 | ) | $ | 4.08 | (524,369 | ) | $ | 2.69 | (163,380 | ) | $ | 3.12 | |||||||||||||||
Outstanding
at December 31 |
4,758,470 | $ | 5.95 | 4,566,539 | $ | 3.98 | 4,278,725 | $ | 3.80 | ||||||||||||||||||
Exercisable
at December 31 |
1,626,629 | $ | 9.92 | 1,395,010 | $ | 5.52 | 2,163,798 | $ | 3.76 | ||||||||||||||||||
Weighted
average grant-date fair value of options granted during the year |
$ | 1.18 | $ | 2.24 | $ | 2.95 |
67
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 |
|||||||||||||||||||
$1.532.24 |
1,068,334 | 1.1 | $ | 1.85 | 941,338 | $ | 1.82 | |||||||||||||||||
$2.303.40 |
1,471,613 | 3.4 | $ | 3.03 | 351,681 | $ | 3.01 | |||||||||||||||||
$3.475.18 |
913,559 | 2.3 | $ | 3.91 | 457,084 | $ | 3.77 | |||||||||||||||||
$5.468.19 |
611,200 | 3.6 | $ | 6.56 | 199,676 | $ | 7.02 | |||||||||||||||||
$9.5012.57 |
213,719 | 0.4 | $ | 10.41 | 213,719 | $ | 10.41 | |||||||||||||||||
$19.32 |
300 | 5.4 | $ | 19.32 | 300 | $ | 19.32 | |||||||||||||||||
12. | RELATED PARTY TRANSACTIONS |
13. | REPORTABLE SEGMENTS AND RELATED INFORMATION |
68
Outsourced Portals |
Software & Services |
Other Reconciling Items |
Consolidated Total |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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 | |||||||||
2004 |
||||||||||||||||||
Revenues |
$ | 48,543,779 | $ | 7,217,975 | $ | | $ | 55,761,754 | ||||||||||
Costs &
expenses |
28,025,072 | 6,013,539 | 8,428,359 | 42,466,970 | ||||||||||||||
Depreciation
& amortization |
1,195,485 | 215,001 | 84,766 | 1,495,252 | ||||||||||||||
Operating
income (loss) |
$ | 19,323,222 | $ | 989,435 | $ | (8,513,125 | ) | $ | 11,799,532 |
2002 |
2003 |
2004 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Total
operating income (loss) for reportable segments |
$ | (7,930,493 | ) | $ | 7,337,898 | $ | 11,799,532 | |||||||
Interest
income |
179,829 | 100,215 | 116,037 | |||||||||||
Interest
expense |
(49,193 | ) | (20,927 | ) | (10,852 | ) | ||||||||
Equity in net
loss of affiliates |
(1,234,938 | ) | 106,716 | (109,061 | ) | |||||||||
Other income
(expense), net |
(71,775 | ) | (10,842 | ) | 13,906 | |||||||||
Income (loss)
from continuing operations before income taxes |
$ | (9,106,570 | ) | $ | 7,513,060 | $ | 11,809,562 |
69
14. | UNAUDITED QUARTERLY OPERATING RESULTS |
Three Months Ended |
||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
March 31, 2002 |
June 30, 2002 |
September 30, 2002 |
December 31, 2002 |
Year Ended 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
diluted 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 |
70
2003
Three Months Ended |
||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
March 31, 2003 |
June 30, 2003 |
September 30, 2003 |
December 31, 2003 |
Year Ended 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
diluted 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 10. |
71
2004
Three Months Ended |
Year Ended |
|||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
March 31, 2004 |
June 30, 2004 |
September 30, 2004 |
December 31, 2004 |
December 31, 2004 |
||||||||||||||||||||
Revenues: |
||||||||||||||||||||||||
Portal
revenues |
$ | 12,231,058 | $ | 12,254,642 | $ | 11,877,593 | $ | 12,180,486 | $ | 48,543,779 | ||||||||||||||
Software
& services revenues |
2,188,401 | 2,082,451 | 1,549,748 | 1,397,375 | 7,217,975 | |||||||||||||||||||
Total
revenues |
14,419,459 | 14,337,093 | 13,427,341 | 13,577,861 | 55,761,754 | |||||||||||||||||||
Operating
expenses: |
||||||||||||||||||||||||
Cost of
portal revenues, exclusive of depreciation & amortization |
5,852,605 | 6,189,219 | 6,266,511 | 6,557,811 | 24,866,146 | |||||||||||||||||||
Cost of
software & services revenues, exclusive of depreciation & amortization |
2,080,284 | 1,648,960 | 719,918 | 1,134,086 | 5,583,248 | |||||||||||||||||||
Selling &
administrative |
3,232,196 | 2,944,504 | 3,052,580 | 2,788,296 | 12,017,576 | |||||||||||||||||||
Depreciation
& amortization |
388,525 | 380,202 | 361,134 | 365,391 | 1,495,252 | |||||||||||||||||||
Total
operating expenses |
11,553,610 | 11,162,885 | 10,400,143 | 10,845,584 | 43,962,222 | |||||||||||||||||||
Operating
income |
2,865,849 | 3,174,208 | 3,027,198 | 2,732,277 | 11,799,532 | |||||||||||||||||||
Other income
(expense): |
||||||||||||||||||||||||
Interest
income |
21,394 | 22,893 | 30,903 | 40,847 | 116,037 | |||||||||||||||||||
Interest
expense |
(4,875 | ) | (4,386 | ) | (1,591 | ) | | (10,852 | ) | |||||||||||||||
Equity in net
loss of affiliates |
(69,497 | ) | (39,564 | ) | | | (109,061 | ) | ||||||||||||||||
Other income
(expense), net |
| | 13,906 | | 13,906 | |||||||||||||||||||
Total other
income (expense) |
(52,978 | ) | (21,057 | ) | 43,218 | 40,847 | 10,030 | |||||||||||||||||
Income before
taxes |
2,812,871 | 3,153,151 | 3,070,416 | 2,773,124 | 11,809,562 | |||||||||||||||||||
Income tax
expense |
1,210,998 | 1,327,223 | 1,121,557 | 1,045,123 | 4,704,901 | |||||||||||||||||||
Net
income |
$ | 1,601,873 | $ | 1,825,928 | $ | 1,948,859 | $ | 1,728,001 | $ | 7,104,661 | ||||||||||||||
Basic and
diluted net income per share |
$ | 0.03 | $ | 0.03 | $ | 0.03 | $ | 0.03 | $ | 0.12 | ||||||||||||||
Weighted
average shares outstanding: |
||||||||||||||||||||||||
Basic |
58,744,048 | 58,870,499 | 59,065,376 | 59,269,962 | 58,988,456 | |||||||||||||||||||
Diluted |
61,016,219 | 60,884,362 | 60,952,430 | 60,652,227 | 60,877,294 |
72
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of NIC Inc.:
We have completed an integrated audit of NIC Inc.s 2004 consolidated financial statements and of its internal control over financial reporting as of December 31, 2004 and audits of its 2003 and 2002 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.
Consolidated financial statements and financial statement schedules
In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a) present fairly, in all material respects, the financial position of NIC Inc. and its subsidiaries at December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in the index appearing under Item 15(a) present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedules are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 of financial statements 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.
Internal control over financial reporting
Also, in our opinion, managements assessment, included in Managements Report on Internal Control Over Financial Reporting appearing under Item 9A, that the Company maintained effective internal control over financial reporting as of December 31, 2004 based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control Integrated Framework issued by the COSO. The Companys management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on managements assessment and on the effectiveness of the Companys internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating managements assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
73
A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PRICEWATERHOUSECOOPERS LLP
Kansas City, Missouri
February 28,
2005
74
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
ITEM 9A. | CONTROLS AND PROCEDURES |
ITEM 9B. | OTHER INFORMATION |
75
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 |
4,249,048 | $ | 3.81 | 1,261,825 | ||||||||||
Equity
compensation plans not approved by security holders (1) |
29,677 | $ | 1.85 | 2,399 |
(1) |
In connection with the Companys 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 Companys Board of Directors. |
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS |
ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
76
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 |
42 | |||||
Consolidated
Statements of Operations |
43 | |||||
Consolidated
Statements of Changes in Shareholders Equity |
44 | |||||
Consolidated
Statements of Cash Flows |
45 | |||||
Notes to
Consolidated Financial Statements |
47 | |||||
Report of
PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm |
73 |
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 | Registrants 1998 Stock Option Plan, as amended and restated(1) |
|||||
10.3 | Registrants 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) |
77
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 registrants 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 | Registrants 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) |
78
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(9) |
|||||
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 |
(9) |
Incorporated by reference to Form 10-K filed with the SEC on March 12, 2004 |
(b) |
Reports on Form 8-K. |
79
SIGNATURES
Signature |
Title |
Date |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
/s/ Jeffery
S. Fraser |
Chairman and Chief Executive Officer (Principal Executive Officer) |
March 16, 2005 |
||||||||
/s/ Eric J.
Bur |
Chief
Financial Officer (Principal Financial Officer) |
March 16, 2005 |
||||||||
/s/ Stephen
M. Kovzan |
Vice
President, Financial Operations Chief Accounting Officer (Principal Accounting Officer) |
March 16, 2005 |
||||||||
/s/ John L.
Bunce, Jr. |
Director |
March 16, 2005 |
||||||||
/s/ Art N. Burtscher |
Director |
March 16, 2005 |
||||||||
/s/ Daniel J.
Evans |
Director |
March 16, 2005 |
||||||||
/s/ Ross C
Hartley |
Director |
March 16, 2005 |
||||||||
/s/ Pete Wilson |
Director |
March 16, 2005 |
80
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
Name of Subsidiary |
Jurisdiction of Incorporation |
|||||
---|---|---|---|---|---|---|
1. NICUSA, Inc.* |
Kansas, U.S. |
|||||
2. Kansas Information Consortium, Inc.** |
Kansas, U.S. |
|||||
3. Indiana Interactive, LLC** |
Indiana, U.S. |
|||||
4. Arkansas Information Consortium, LLC** |
Arkansas, U.S. |
|||||
5. Nebraska Interactive, LLC** |
Nebraska, U.S. |
|||||
6. Virginia Interactive, LLC** |
Virginia, U.S. |
|||||
7. Iowa Interactive, LLC** |
Iowa, U.S. |
|||||
8. Montana Interactive, LLC** |
Montana, U.S. |
|||||
9. New England Interactive, LLC** |
Maine, U.S. |
|||||
10. Utah Interactive, LLC** |
Utah, U.S. |
|||||
11. Hawaii Information Consortium, LLC** |
Hawaii, U.S. |
|||||
12. Idaho Information Consortium, LLC** |
Idaho, U.S. |
|||||
13. NIC Commerce, LLC** |
Colorado, U.S. |
|||||
14. NIC Conquest, LLC** |
Colorado, U.S. |
|||||
15. National Information Consortium Technologies, LLC** |
California, U.S. |
|||||
16. Intelligent Decision Technologies, LLC** |
Colorado, U.S. |
|||||
17. National Online Registries, LLC** |
Colorado, U.S. |
|||||
18. Bay Area Interactive, LLC** |
California, U.S. |
|||||
19. Florida Information Consortium, Inc.** |
Florida, U.S. |
|||||
20. Michigan Local Interactive, LLC** |
Michigan, U.S. |
|||||
21. Texas Local Interactive, LLC** |
Texas, U.S. |
|||||
22. Alabama Interactive, LLC** |
Alabama, U.S. |
|||||
23. NIC European Business Limited* |
London, England |
|||||
24. Kentucky Interactive, LLC** |
Kentucky, U.S. |
|||||
25. NIC Solutions, LLC** |
Colorado, U.S. |
|||||
26. National Retail Registries, LLC** |
Colorado, U.S. |
* |
Wholly-owned subsidiary of NIC Inc. |
** |
Wholly-owned subsidiary of NICUSA, Inc. |
81
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
/s/ PRICEWATERHOUSECOOPERS LLP
Kansas City, Missouri
March 16, 2005
82
Exhibit 31.1
CERTIFICATION
I, Jeffery S. Fraser, certify that:
1. | I have reviewed this Annual Report on Form 10-K of NIC Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) |
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) |
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions): |
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
83
Exhibit 31.2
CERTIFICATION
I, Eric J. Bur, certify that:
1. | I have reviewed this Annual Report on Form 10-K of NIC Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) |
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) |
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions): |
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
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Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT
TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-K, irrespective of any general incorporation language contained in such filing).
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