NATIONAL RESEARCH CORP, S-1/A, 1997-10-02

NATIONAL RESEARCH CORP
S-1/A, 1997-10-02
TESTING LABORATORIES

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 2, 1997

REGISTRATION NO. 333-33273
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 2

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

NATIONAL RESEARCH CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

WISCONSIN
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)

8732
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)

47-0634000
(I.R.S. EMPLOYER IDENTIFICATION NO.)

1033 "O" STREET
LINCOLN, NEBRASKA 68508
(402) 475-2525
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------

MICHAEL D. HAYS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
NATIONAL RESEARCH CORPORATION
1033 "O" STREET
LINCOLN, NEBRASKA 68508
(402) 475-2525
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------

Copies to:

BENJAMIN F. GARMER, III
FOLEY & LARDNER
777 EAST WISCONSIN AVENUE
MILWAUKEE, WISCONSIN 53202
(414) 271-2400
WILLIAM N. WEAVER, JR.
SACHNOFF & WEAVER, LTD.
30 SOUTH WACKER DRIVE
CHICAGO, ILLINOIS 60606
(312) 207-1000

------------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2

PROSPECTUS

2,100,000 SHARES

NATIONAL RESEARCH CORPORATION LOGO
COMMON STOCK

Of the 2,100,000 shares of Common Stock offered hereby, 1,250,000 are being
sold by National Research Corporation ("NRC" or the "Company") and 850,000 are
being sold by the Selling Shareholder. See "Principal and Selling Shareholders."
The Company will not receive any of the proceeds from the sale of shares by the
Selling Shareholder.

Prior to this offering, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price for the
Common Stock will be between $11.00 and $13.00 per share. See "Underwriting" for
information relating to the determination of the initial public offering price.
The Common Stock has been approved for quotation on the Nasdaq National Market
under the symbol NRCI.

SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OF COMMON
STOCK OFFERED HEREBY.

-------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
=====================================================================================================================
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) SHAREHOLDER
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
Per Share............ $ $ $ $
Total(3)............. $ $ $ $
- ---------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) The Company and the Selling Shareholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."

(2) Before deducting expenses of the offering payable by the Company estimated
at $500,000.

(3) The Selling Shareholder has granted the Underwriters a 30-day option to
purchase up to an additional 315,000 shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting." If all such shares are
purchased, the total Price to Public, Underwriting Discount and Proceeds to
Selling Shareholder will be $ , $ and $ , respectively.

The Common Stock is offered by the several Underwriters when, as and if
delivered to and accepted by them and subject to their right to reject orders in
whole or in part. It is expected that delivery of the certificates for the
Common Stock will be made on or about October , 1997.

WILLIAM BLAIR & COMPANY ROBERT W. BAIRD & CO.
INCORPORATED

THE DATE OF THIS PROSPECTUS IS OCTOBER , 1997

<PAGE> 3

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement on Form S-1 (of which this Prospectus is
a part) under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Common Stock offered hereby. This Prospectus does not
contain all the information set forth in the Registration Statement and the
exhibits and schedules thereto, certain parts of which have been omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and to the exhibits and
schedules filed as part of the Registration Statement. Statements contained in
this Prospectus as to the contents of any contract or any other document
referred to are not necessarily complete, and in each instance reference is made
to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. Copies of the Registration Statement and the exhibits and
schedules thereto may be inspected without charge at the public reference
facilities maintained by the Securities and Exchange Commission in Room 1024,
450 Fifth Street, N.W., Washington D.C. 20549, and at the regional offices of
the Commission located at 7 World Trade Center, Suite 1300, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and copies of all or any part thereto may be obtained from such
office upon payment of prescribed fees. The Registration Statement, including
the exhibits and schedules thereto, is also available on the Commission's Web
site at http://www.sec.gov.
------------------------

The Company intends to furnish its shareholders with annual reports
containing audited financial statements certified by its independent auditors
and quarterly reports containing interim unaudited financial information for the
first three quarters of each year.
------------------------

The NRC logo, the NRC Healthcare Market Guide and map design, the NRC
Listening System and The Report Card are trademarks or registered trademarks of
the Company.
------------------------

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY. SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF COMMON
STOCK FOLLOWING THE OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE COMMON
STOCK OR MAINTAIN THE PRICE OF THE COMMON STOCK, AND THE IMPOSITION OF PENALTY
BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE "UNDERWRITING."

2
<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and the financial statements and related notes thereto appearing
elsewhere in this Prospectus. Unless otherwise indicated, all information
contained in this Prospectus: (i) assumes that the Underwriters' over-allotment
option is not exercised and (ii) gives retroactive effect to an approximately
239.5-for-1 stock dividend paid on September 15, 1997. This Prospectus contains
certain forward-looking statements that involve substantial risks and
uncertainties. These forward-looking statements can generally be identified as
such because the context of the statement includes words such as the Company
"believes," "anticipates," "expects," "estimates," "intends" or other words of
similar import. Similarly, statements that describe the Company's future plans,
objectives and goals are also forward-looking statements. The Company's actual
results, performance or achievements could differ materially from those
expressed or implied in these forward-looking statements as a result of certain
factors, including those set forth under "Risk Factors" and elsewhere in this
Prospectus.

THE COMPANY

The Company believes it is a leading provider of ongoing survey-based
performance measurement, analysis and tracking services to the healthcare
industry. The Company believes it has achieved this leadership position based on
its over 16 years of industry experience and its relationships with many of the
industry's largest payers and providers. The Company addresses the growing need
of healthcare providers and payers to measure the care outcomes, specifically
satisfaction and health status, of their patients and/or members. NRC has been
at the forefront of the industry in developing tools that enable healthcare
organizations to obtain service quality information necessary to comply with
industry and regulatory standards and to improve their business practices so
that they can maximize new member and/or patient attraction, member retention
and profitability.

Since its founding 16 years ago, NRC has focused on the information needs
of the healthcare industry. While performance data has always been of interest
to healthcare providers and payers, such information has become increasingly
important to these entities as a result of regulatory, industry and competitive
requirements. In recent years, the healthcare industry has been under
significant pressure from consumers, employers and the government to reduce
costs. Through the implementation of managed care, which currently covers
approximately 61% of all Americans, the rate of growth in healthcare costs has
been substantially reduced. However, the same parties that demanded cost
reductions are now concerned that healthcare service quality is being
compromised under managed care. This concern has created a demand for
consistent, objective performance information by which healthcare providers and
payers can be measured and compared and on which physicians' compensation can,
in part, be based.

NRC offers three primary types of information services. The NRC Listening
System (the "Listening System"), which represented 75.9% of the Company's total
revenues in 1996, is a renewable performance tracking tool for gathering and
analyzing data from survey respondents, which can include patients, health plan
members, physicians and/or employers. The surveys are customized according to
the client's needs and the level at which the client would like performance to
be measured (from enterprise-wide to physician/caregiver specific), and, in some
cases, are personalized to the services provided to each respondent. Survey
results are used by the Company's clients to (i) identify improvements that can
be made to business practices, (ii) establish physician and other employee
compensation, (iii) identify strengths that can be highlighted in marketing and
(iv) comply with industry and regulatory requirements. The syndicated NRC
Healthcare Market Guide (the "Market Guide"), which represented 10.1% of the
Company's total revenues in 1996, is a stand-alone market information and
competitive intelligence source as well as a comparative performance database.
The Market Guide allows the Company's clients to assess their performance
relative to the industry, access best practice examples and utilize competitive
information for marketing purposes. Finally, NRC performs custom research for
its clients, assisting them in the identification of areas for improvement and
the measurement of market issues and opportunities. Custom research represented
14.0% of the Company's total revenues in 1996. The Company expects that revenues
from the Listening System and the Market Guide will grow faster than revenues
from custom research.

3
<PAGE> 5

During 1996, NRC provided services to more than 200 healthcare
organizations, including health maintenance organizations ("HMOs"), integrated
healthcare systems, medical groups and industry regulatory bodies. The Company
gathered and analyzed over 1,000,000 completed surveys for these clients in
1996. The Company's current clients include Kaiser Permanente-Northern
California Region ("Kaiser"), the United States Department of Defense (the
Company is a named subcontractor to the primary contract with this new 1997
client), HealthSouth Corporation, BJC Health System and Mayo Clinic. NRC has
benefited from a high rate of renewable revenues. Specifically, over 80% of the
Company's total billings in each of the last two years was generated from
clients billed in the prior year.

NRC increased its revenues from $6.8 million in 1994 to $12.6 million in
1996, a compound annual growth rate of 36.6%. Over this same period, the Company
increased its operating income from $1.7 million to $3.7 million, a compound
annual growth rate of 49.0%. The Company believes that it can continue to grow
rapidly through: (i) expanding the depth and breadth of its current clients'
performance tracking programs, since healthcare organizations are increasingly
interested in gathering performance information at deeper levels of their
organizations and from more of their constituencies, (ii) increasing the
cross-selling of its complementary services, (iii) adding new clients through
penetrating the sizeable portion of the healthcare industry that is not yet
conducting performance assessments beyond the enterprise-wide level or is not
yet outsourcing this function and (iv) pursuing acquisitions of, or investments
in, firms providing products, services or technologies that complement those of
the Company.

THE OFFERING

<TABLE>
<S> <C>
Shares Offered by the Company........................ 1,250,000
Shares Offered by the Selling Shareholder............ 850,000
Shares Outstanding Immediately After the Offering.... 7,305,000(1)
Use of Proceeds...................................... For general corporate purposes,
including working capital and possible
acquisitions of, or investments in,
complementary businesses, products,
services or technologies.
Nasdaq National Market Symbol........................ NRCI
</TABLE>

- -------------------------
(1) Excludes (i) 225,000 shares of Common Stock issuable upon exercise of
employee stock options to be granted under the National Research Corporation
1997 Equity Incentive Plan (the "Equity Incentive Plan") simultaneously with
this offering at an exercise price per share equal to the initial public
offering price, (ii) 505,000 additional shares of Common Stock reserved for
future issuance under the Equity Incentive Plan and (iii) 30,000 shares of
Common Stock reserved for future issuance under the National Research
Corporation Director Stock Plan (the "Director Plan"). See "Management --
Employee Benefit Plans -- Equity Incentive Plan" and "-- Director
Compensation."
4
<PAGE> 6

SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------ ------ ------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues:
Renewable performance tracking
services...................... $ 454 $ 507 $4,420 $6,839 $ 9,569 $4,313 $5,954
Renewable syndicated service..... 415 435 652 493 1,276 101 444
Custom and other research........ 1,737 1,869 1,683 1,585 1,755 899 552
------ ------ ------ ------ ------- ------ ------
Total revenues................ 2,606 2,811 6,755 8,917 12,600 5,313 6,950
Operating income..................... 157 511 1,658 2,939 3,682 1,595 2,023
Pro forma net income(1).............. 166 514 1,007 1,828 2,300 1,002 1,272
Pro forma net income per share(1).... $ 0.37 $ 0.16 $ 0.20
Weighted average shares
outstanding(2)..................... 6,217 6,217 6,217
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------
PRO FORMA
ACTUAL AS ADJUSTED(3)
------ --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $2,830 $11,987
Total assets................................................ 7,883 17,189
Total debt.................................................. -- --
Total shareholders' equity.................................. 2,948 12,254
</TABLE>

- -------------------------
(1) From 1984 through July 31, 1994, the Company was a C Corporation. Since
August 1, 1994, the Company has been an S Corporation and, accordingly, was
not subject to Federal and state income taxes for the five months ended
December 31, 1994, for the years ended December 31, 1995 and 1996 or for the
six months ended June 30, 1996 and 1997. Pro forma net income reflects a pro
forma tax provision at a combined Federal and state rate of 40% for the
periods the Company was an S Corporation as if it had been a C Corporation.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations," "S Corporation Termination" and Note 3 to the Company's
Financial Statements.

(2) Includes 162,265 shares of Common Stock which, had they been issued (at an
assumed initial public offering price of $12.00 per share less the
underwriting discount), would have generated cash sufficient to fund the
portion of the estimated S Corporation distributions and special cash
bonuses that are in excess of the Company's 1996 net income. See Note 1 to
the Company's Financial Statements.

(3) Pro forma as adjusted to (i) give effect to special cash bonuses aggregating
$1,740,000 to be paid to the named executive officers (as hereinafter
defined) of the Company other than the Selling Shareholder and to be
recognized by the Company as a compensation charge in the fourth quarter of
1997, (ii) reflect S Corporation distributions subsequent to June 30, 1997
estimated to be $2,654,000, (iii) reflect deferred tax benefits that will
arise upon adoption of Financial Accounting Standards No. 109, and (iv) give
effect to the sale of 1,250,000 shares of Common Stock offered by the
Company hereby at an assumed initial public offering price of $12.00 per
share and the application of the estimated net proceeds therefrom. The
special cash bonuses will reduce the amount otherwise available for
distribution to the Company's shareholders prior to the termination of its S
Corporation status upon completion of this offering. Substantially all of
the after-tax proceeds of these bonuses will be used by the recipients to
purchase shares of the Company's Common Stock. The deferred tax benefits are
estimated to be approximately $250,000 and will be reflected as a deferred
tax asset and as a reduction to income tax expense in the statement of
income upon termination of the Company's S Corporation status, which will
occur upon the completion of this offering. See "Use of Proceeds," "S
Corporation Termination," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Notes 1 and 3 to the Company's
Financial Statements.

***

The Company was founded in 1981 as a Nebraska corporation and
reincorporated in Wisconsin in September 1997. The principal office of the
Company is located at 1033 "O" Street, Lincoln, Nebraska 68508, and its
telephone number is (402) 475-2525.
5
<PAGE> 7

RISK FACTORS

In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the shares
of Common Stock offered hereby. This Prospectus contains certain forward-looking
statements which involve substantial risks and uncertainties. These
forward-looking statements can generally be identified as such because the
context of the statement includes words such as the Company "believes,"
"anticipates," "expects," "estimates," "intends" or other words of similar
import. Similarly, statements that describe the Company's future plans,
objectives and goals are also forward-looking statements. The Company's actual
results, performance or achievements could differ materially from those
expressed or implied in these forward-looking statements as a result of certain
factors, including those set forth below and elsewhere in this Prospectus.

RELIANCE ON KEY CLIENTS

The Company has relied on a limited number of key clients for the majority
of its revenues. In 1996 and the six months ended June 30, 1997, the Company's
largest client, Kaiser, accounted for 40.4% and 34.7%, respectively, of the
Company's total revenues. The Company expects that this client will account for
approximately 30% of total revenues for all of 1997. The Company also expects
that another client, United Healthcare Corporation, which is a primary
contractor (while the Company is a named subcontractor) with the United States
Department of Defense (hereinafter referred to collectively as the "Department
of Defense"), will account for approximately 15% of the Company's total revenues
in 1997. The Company's ten largest clients in 1995, 1996 and the six months
ended June 30, 1997 generated 71.1%, 63.9% and 67.9%, respectively, of the
Company's revenues in each of those periods. No assurances can be given that the
Company will maintain its existing client base, maintain or increase the level
of revenue or profits generated by its existing clients or be able to attract
new clients. Furthermore, the healthcare industry is undergoing significant
consolidation and no assurances can be given that such consolidation will not
cause the Company to lose clients. The loss of one or more of the Company's
large clients or a significant reduction in business from such clients,
regardless of the reason, would have a material adverse effect on the Company.
See "Business -- Clients" and "Risk Factors -- Healthcare Industry
Concentration."

DEPENDENCE ON PERFORMANCE TRACKING CONTRACT RENEWALS

In 1996, 75.9% of the Company's total revenues was generated from written
and oral contracts for the NRC Listening System, a renewable performance
tracking service. The Company expects that a substantial portion of its revenues
for the foreseeable future will continue to be derived from such contracts.
Substantially all such written contracts are renewable annually at the option of
the Company's clients, although a client generally has no minimum purchase
commitments thereunder and the contracts are generally cancelable on short or no
notice without penalty. The Company also has been operating under an oral
contract with its largest client, Kaiser, since April 1, 1996. To the extent
that clients fail to renew or defer their renewals from the quarter anticipated
by the Company, the Company's quarterly results may be materially adversely
affected. The Company's ability to secure renewals is dependent upon, among
other things, its ability to gather and analyze performance data in a
consistent, high-quality and timely fashion. In addition, the performance
tracking and market research activities of the Company's clients are affected by
accreditation requirements, enrollment in managed care plans, the level of use
of satisfaction measures in healthcare organizations' overall management and
compensation programs, the size of operating budgets, clients' operating
performance, industry and economic conditions and changes in management or
ownership. As these factors are beyond the Company's control, there can be no
assurance that the Company will be able to maintain its renewal rates. Any
material decline in renewal rates from existing levels would have a material
adverse effect on the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

FLUCTUATIONS IN OPERATING RESULTS

6
<PAGE> 8

which accounted for 10.1% of the Company's total revenues in 1996. The Company
recognizes revenue when the Market Guides are delivered to the customers
pursuant to their contracts, typically in the third quarter of the year.
Substantially all of the related costs are deferred and subsequently charged to
direct expenses contemporaneously with the recognition of the revenue. A delay
in completing and delivering the Market Guide in a given year, the timing of
which is dependent upon the ability of the Company to access a third-party's
respondent panel on a timely basis, could delay recognition of such revenues and
expenses, which could materially affect operating results for the interim
periods. The Company generally has some incidental sales of the Market Guide
subsequent to the completion of each edition. Revenues and marginal expenses
related to such incidental sales are recognized upon delivery. The profit margin
earned on such revenues is generally higher than that earned on revenues
realized from customers under contract at the time of delivery. In addition, the
Company's operating results may fluctuate as a result of a variety of other
factors, including the size and timing of orders from clients, client demand for
the Company's services (which, in turn, is affected by factors such as
accreditation requirements, enrollment in managed care plans, operating budgets
and clients' operating performance), the hiring and training of additional
staff, postal rate changes and industry and general economic conditions. Because
a significant portion of the Company's overhead, particularly rent and full-time
personnel expenses, is fixed in the short-term, the Company's results of
operations may be materially adversely affected in any particular quarter if
revenues fall below the Company's expectations. These factors, among others,
make it possible that in some future quarter the Company's operating results may
be below the expectations of securities analysts and investors, which would have
a material adverse effect on the market price of the Company's Common Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

COMPETITION

The healthcare information and market research industry is highly
competitive. The Company has traditionally competed both with healthcare
organizations' internal marketing, market research and/or quality improvement
departments which create their own performance measurement tools and with
relatively small specialty research firms which provide survey-based healthcare
market research and/or performance assessment. The Company anticipates that in
the future it may increasingly compete with (i) traditional market research
firms which are significant providers of survey-based, general market research
and (ii) firms which provide services or products that complement healthcare
performance assessments, such as healthcare software or information systems.
Although only a few of these competitors have to date offered survey-based,
healthcare performance measurement and/or market research that competes directly
with the Company's services, many of these competitors have substantially
greater financial, information gathering and marketing resources than the
Company and could decide to increase their resource commitments to the Company's
market. There are relatively few barriers to entry into the Company's market,
and the Company expects increased competition in its market, which could
adversely affect the Company's operating results through pricing pressure,
increased client service and marketing expenditures and market share losses,
among other factors. There can be no assurance that the Company will continue to
compete successfully against existing or new competitors. See "Business --
Competition."

HEALTHCARE INDUSTRY CONCENTRATION

Substantially all of the Company's revenues are derived from clients in the
healthcare industry. As a result, the Company's business, financial condition
and results of operations are influenced by conditions affecting this industry,
including changing political, economic, competitive and regulatory influences
that may affect the procurement practices and operation of healthcare providers
and payers. Many Federal and state legislators have announced that they intend
to propose programs to reform the United States healthcare system. These
programs could result in lower reimbursement rates and otherwise change the
environment in which providers and payers operate. In addition, large private
purchasers of healthcare services are placing increasing cost pressure on
providers. Healthcare providers may react to these cost pressures and other
uncertainties by curtailing or deferring purchases, including purchases of the
Company's services. Moreover, there has been significant consolidation of
companies in the healthcare industry, a trend which the Company believes will
continue. Consolidation in this industry, including the potential acquisition of
certain of the

7
<PAGE> 9

Company's clients, could adversely affect aggregate client budgets for the
Company's services or could result in the termination of a client's relationship
with the Company. The impact of these developments on the healthcare industry is
difficult to predict and could have a material adverse effect on the Company.

MANAGEMENT OF GROWTH; POSSIBLE ACQUISITIONS

Since inception, the Company's growth has placed significant demands on the
Company's management, administrative, operational and financial resources. In
order to manage its growth, the Company will need to continue to implement and
improve its operational, financial and management information systems and
continue to expand, motivate and effectively manage an evolving workforce. If
the Company's management is unable to effectively manage under such
circumstances, the quality of the Company's services, its ability to retain key
personnel and its results of operations could be materially adversely affected.
Furthermore, there can be no assurance that the Company's business will continue
to expand. The Company's growth could be adversely affected by reductions in
clients' spending on performance tracking and market research, increased
competition, pricing pressures and other general economic and industry trends.

The Company may achieve a portion of its future revenue growth, if any,
through acquisitions of complementary businesses, products, services or
technologies, although the Company currently has no commitments or agreements
with respect to any such acquisition. The Company's management has no experience
dealing with the issues of product and service, systems, personnel and business
strategy integration posed by acquisitions, and no assurance can be given that
the integration of any possible future acquisitions will be managed without a
material adverse effect on the Company. In addition, there can be no assurance
that any possible future acquisition will not dilute the Company's earnings per
share. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Growth Strategy."

CONTROL BY PRINCIPAL SHAREHOLDER

Prior to this offering, the Company's President and Chief Executive
Officer, Michael D. Hays, beneficially owned 99.3% of the outstanding Common
Stock and upon the closing of this offering he will beneficially own
approximately 70.7% (66.4% if the Underwriters' over-allotment option is
exercised in full) of the outstanding Common Stock. As a result, he will be able
to control matters requiring shareholder approval, including the election of
directors and the approval of significant corporate matters such as change of
control transactions. The effects of such influence could be to delay or prevent
a change of control of the Company unless the terms are approved by such
shareholder. See "Management" and "Principal and Selling Shareholders."

DEPENDENCE ON KEY PERSONNEL

The Company's future performance will depend to a significant extent upon
the efforts and ability of its key personnel who have expertise in gathering,
interpreting and marketing survey-based performance information for healthcare
markets. Although client relationships are managed at many levels in the
Company, the loss of the services of Michael D. Hays, President and Chief
Executive Officer, or one or more of the Company's other senior managers could
have a material adverse effect on the Company. As of the date of this
Prospectus, the Company maintains $500,000 of key man life insurance on Mr.
Hays. The Company's success will also depend on its ability to hire, train and
retain skilled personnel in all areas of its business. Competition for qualified
personnel in the Company's industry is intense, and many of the companies with
which the Company competes for qualified personnel have substantially greater
financial and other resources than the Company. Furthermore, competition for
qualified personnel can be expected to become more intense as competition in the
Company's industry increases. There can be no assurance that the Company will be
able to recruit, retain and motivate a sufficient number of qualified personnel
to compete successfully.

8
<PAGE> 10

EXPANSION OF DIRECT SALES FORCE

As of June 30, 1997, the Company had four sales associates, however, one of
these sales associates was added at the end of the second quarter of 1997. The
Company recently hired another new sales associate and is in the process of
searching for additional sales associates. The Company's plans for future growth
depend in part on its unproven ability to hire, train, deploy, manage and retain
an increasingly large direct sales force. There can be no assurance that the
Company will be able to develop or manage such a sales force. See "Business --
Sales and Marketing."

DATA COLLECTION RISKS

The Company's ability to provide timely and accurate performance tracking
and market research to its clients depends on its ability to collect large
quantities of high quality data through surveys and interviews. If receptivity
to the Company's survey and interview methods by respondents declines, or for
some other reason their willingness to complete and return surveys declines, or
if the Company for any reason cannot rely on the integrity of the data it
receives, the Company could be adversely affected. In addition, in the operation
of its business the Company has access to or gathers certain confidential
information such as medical histories on its respondents. As a result, the
Company could be subject to future regulation or potential liability for any
inappropriate disclosure or use of such information. The Company also relies on
a third-party panel of pre-recruited consumer households to produce in a timely
manner annual editions of its Market Guide. If the Company was not able to
continue to use this panel, or the time period in which the Company uses this
panel was altered, and the Company could not find an alternative panel on a
timely, cost competitive basis it could have a material adverse effect on the
Company. See "Business -- Services."

LIMITED PROTECTION OF THE COMPANY'S SYSTEMS AND PROCEDURES

The Company's success is in part dependent upon its data collection
process, research methods, data analysis techniques and internal systems and
procedures that it has developed specifically to serve clients in the healthcare
industry. The Company has no patents; consequently, it relies on a combination
of copyright, trademark and trade secret laws and employee nondisclosure
agreements to protect its systems and procedures. There can be no assurance that
the steps taken by the Company to protect its rights will be adequate to prevent
misappropriation of such rights or that third parties will not independently
develop functionally equivalent or superior systems or procedures. The Company
believes that its systems and procedures and other proprietary rights do not
infringe upon the proprietary rights of third parties. There can be no
assurance, however, that third parties will not assert infringement claims
against the Company in the future or that any such claims will not result in
protracted and costly litigation, regardless of the merits of such claims. See
"Business -- Intellectual Property and Other Proprietary Rights."

RISKS RELATING TO PERFORMANCE TRACKING AND OTHER SURVEYS

Many healthcare providers, payers and other entities or individuals use the
Company's renewable performance tracking and other healthcare surveys in
promoting and/or operating their businesses and as a factor in determining
physician or employee compensation. Consequently, any errors in the data
received or in the final surveys, as well as the actual results of such surveys,
can have a significant impact on such providers', payers' or other entities'
businesses and on any such individual's compensation. In addition, parties who
have not performed well in the Company's surveys may be dissatisfied with the
results of the surveys or the manner in which the results may be used by
competitors or others. Although any such errors or dissatisfaction with the
results of the surveys or the manner in which the surveys have been used has not
resulted in litigation against the Company, there can be no assurance that the
Company will not face future litigation as a result of a healthcare provider's,
payer's or other entity's or individual's allegation of errors in NRC's surveys
or dissatisfaction with the results thereof.

9
<PAGE> 11

UNSPECIFIED USE OF PROCEEDS

The principal purposes of the offering of shares by the Company are to
obtain additional capital, facilitate the Company's access to public equity
markets and enhance the Company's ability to use its Common Stock as
consideration for possible acquisitions and as a means of attracting and
retaining key employees. The Company will not receive any proceeds from the sale
of shares by the Selling Shareholder. A significant portion of the net proceeds
that the Company will receive from this offering has not been designated for any
specific purpose. As a consequence, the Company's management will have broad
discretion with respect to the use of such proceeds. See "Use of Proceeds."

EFFECT OF ANTI-TAKEOVER PROVISIONS

The Company's Articles of Incorporation and By-Laws contain provisions
that, among other things, establish staggered terms for members of the Company's
Board of Directors, place certain restrictions on the removal of directors,
authorize the Board of Directors to issue preferred stock in one or more series
without shareholder approval and require advance notice for director nominations
and certain other matters to be considered at meetings of shareholders. In
addition, the Wisconsin Business Corporation Law (the "WBCL") and the Company's
Articles of Incorporation, among other things, prohibit certain business
combinations with "interested stockholders" and may limit the voting power of
shares of the Company held by any person in excess of 20% of the voting power in
the election of directors. These provisions could have the effect of delaying,
deferring or preventing a change of control or the removal of existing
management of the Company, which could adversely affect the market price of the
Company's Common Stock. See "Description of Capital Stock."

SHARES ELIGIBLE FOR FUTURE SALES

Sales of a substantial number of shares of Common Stock in the public
market following this offering could adversely affect the market price for the
Company's Common Stock. The number of shares of Common Stock available for sale
in the public market is limited by restrictions under the Securities Act and
lock-up agreements entered into by the Company and its executive officers and
directors, including all current shareholders. Under those restrictions, subject
to certain specified exceptions, the Company and the holders of such shares have
agreed not to sell or otherwise dispose of any of their shares for a period of
180 days after the date of this Prospectus without the prior written consent of
William Blair & Company, L.L.C. However, William Blair & Company, L.L.C. may, in
its sole discretion and at any time without notice, release all or any portion
of the securities subject to such lock-up agreements. As a result of these
restrictions, only the 2,100,000 shares of Common Stock offered hereby will be
freely tradeable on the date of this Prospectus, unless purchased by affiliates
of the Company; an additional 5,205,000 shares will be eligible for sale 180
days after the date of this Prospectus, in accordance with Rule 144 under the
Securities Act. The Company also intends, not earlier than 180 days after the
effective date of this offering, to file a registration statement on Form S-8
covering 730,000 shares of Common Stock reserved for issuance under the Equity
Incentive Plan and the Company also intends to file a registration statement on
Form S-8 covering 30,000 shares of Common Stock reserved for issuance under the
Director Plan. See "Shares Eligible for Future Sale."

NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE; IMMEDIATE AND
SUBSTANTIAL DILUTION

Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial offering price for the Common Stock will be
determined by agreement among the Company, the Selling Shareholder, William
Blair & Company, L.L.C. and Robert W. Baird & Co. Incorporated, and may not be
indicative of future market prices. See "Underwriting" for factors to be
considered in determining such offering price. The Common Stock has been
approved for quotation on the Nasdaq National Market, but there can be no
assurance that there will be an active market following this offering. In
addition, broad market trading and valuation fluctuations have adversely
affected the valuation of healthcare information and market research focused
companies (often unrelated to the operating performance of such companies) and
may adversely affect the market price of the Company's Common Stock. The Common
Stock may be subject to wide fluctuations in price in response to variations in
quarterly operating results and other factors, including the evolving business
prospects of the Company, its clients and competitors, changes in the financial
estimates by securities analysts, possible acquisitions, general economic or
market conditions and other events or factors. There can be no assurance that
the market price of the Common Stock will not decline below the initial public
offering price. Investors participating in this offering will incur immediate
and substantial dilution of book value. See "Dilution."

10
<PAGE> 12

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 1,250,000 shares of
Common Stock being offered by the Company hereby are estimated to be
approximately $13,450,000 based upon an assumed initial public offering price of
$12.00 per share after deducting the underwriting discount and estimated
offering expenses. The principal purposes of the offering of shares by the
Company are to obtain additional capital, facilitate the Company's access to
public equity markets and enhance the Company's ability to use its Common Stock
as consideration for possible acquisitions and as a means of attracting and
retaining key employees. Net proceeds from this offering will be available for
general corporate purposes, including the replenishment of working capital used
to distribute S Corporation income to the Company's existing shareholders in
connection with the termination of the Company's S Corporation status and to pay
special cash bonuses to the named executive officers of the Company other than
the Selling Shareholder. See "S Corporation Termination" and Note 8 to the
Company's Financial Statements. A portion of the proceeds may also be used to
acquire or invest in complementary businesses, products, services or
technologies; however, there are no commitments or agreements with respect to
any such transactions at the present time. Pending use of the net proceeds for
the above purposes, the Company intends to invest such funds in short-term,
interest-bearing, investment-grade obligations.

The Company will not receive any proceeds from the sale of Common Stock by
the Selling Shareholder.

S CORPORATION TERMINATION

From 1984 through July 31, 1994, the Company was a C Corporation. Since
August 1, 1994, the Company has been treated as an S Corporation for Federal and
state income tax purposes under Subchapter S of the Internal Revenue Code of
1986, as amended (the "Code"). As a result, the income of the Company has been
taxed directly to its shareholders rather than to the Company. Concurrent with
the completion of this offering, the Company's S Corporation election will be
terminated and the Company will be subject to corporate income taxation as a C
Corporation.

In connection with the termination of the Company's S Corporation status,
the Company will record a deferred income tax benefit of approximately $250,000
in accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." This amount will be reflected as a deferred tax
asset and a reduction to income tax expense otherwise incurred in such quarter
and will be recorded upon termination of the Company's S Corporation status,
which will occur upon the completion of this offering. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Notes 1 and 3 to the Financial Statements.

Subsequent to June 30, 1997, the Company made S Corporation distributions
of $536,000 to its shareholders. In connection with the termination of the
Company's S Corporation status, the Company will also distribute to its
shareholders approximately $2,118,000, which represents all previously taxed but
undistributed S Corporation income of the Company through December 31, 1996 and
an estimate as to the additional taxable and undistributed income of the Company
generated from January 1, 1997 until completion of this offering. Prior to the
termination of its S Corporation status and the distribution of approximately
$2,118,000 to its shareholders, the Company will pay special cash bonuses
aggregating $1,740,000 to the named executive officers of the Company other than
the Selling Shareholder. Substantially all of the after-tax proceeds of these
bonuses will be used to purchase shares of the Company's Common Stock. See
"Principal and Selling Shareholders."

11
<PAGE> 13

DIVIDEND POLICY

The Company does not intend to pay any cash dividends on its Common Stock
in the foreseeable future. The Company intends to retain all of its future
earnings for use in the expansion and operation of its business. Any future
determination to pay cash dividends will be at the discretion of the Company's
Board of Directors and will depend upon, among other things, the Company's
results of operations, financial condition, contractual restrictions and such
other factors deemed relevant by the Board of Directors.

Since its S Corporation election in 1994, the Company has made cash
distributions to its shareholders in amounts necessary to allow the shareholders
to at least pay the Federal and state income taxes on their proportionate shares
of the Company's net income. In connection with the termination of the Company's
S Corporation status, the Company expects to make distributions estimated to be
$2,118,000 to its existing shareholders. Investors purchasing Common Stock in
this offering will not receive any portion of such distribution and the Company
will not make any additional distributions of this kind in the future. See "S
Corporation Termination."

12
<PAGE> 14

CAPITALIZATION

The following table sets forth as of June 30, 1997: (i) the actual cash and
cash equivalents, total short-term debt and total capitalization of the Company
and (ii) such cash and cash equivalents, short-term debt and capitalization on a
pro forma basis as adjusted to give effect to (a) S Corporation distributions
estimated to be $2,654,000, (b) special cash bonuses aggregating $1,740,000 to
be paid prior to the termination of the Company's S Corporation status to the
named executive officers of the Company other than the Selling Shareholder, (c)
recognition of a $250,000 deferred tax asset in connection with the termination
of the Company's S Corporation status and (d) the sale of 1,250,000 shares of
Common Stock offered by the Company hereby (assuming an initial public offering
price of $12.00 per share and after deducting the underwriting discount and
estimated offering expenses) and the application of the estimated net proceeds
therefrom. See "Use of Proceeds," "S Corporation Termination," "Dividend Policy"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."

<TABLE>
<CAPTION>
JUNE 30, 1997
------------------------
PRO FORMA
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents............................... $3,622 $12,770
====== =======
Total short-term debt................................... $ -- $ --
====== =======
Total long-term debt.................................... $ -- $ --
------ -------
Shareholders' equity:
Preferred Stock, par value $.01 per share; 2,000,000
shares authorized; no shares issued and outstanding
actual and pro forma as adjusted................... -- --
Common Stock, par value $.001 per share; 20,000,000
shares authorized; 6,055,000 shares issued and
outstanding actual; 7,305,000 shares issued and
outstanding pro forma as adjusted(1)............... 6 7
Additional paid-in capital............................ -- 13,449
Retained earnings (accumulated deficit)............... 2,942 (1,202)
------ -------
Total shareholders' equity....................... 2,948 12,254
------ -------
Total capitalization.......................... $2,948 $12,254
====== =======
</TABLE>

- -------------------------
(1) Excludes (i) 225,000 shares of Common Stock issuable upon exercise of
employee stock options to be outstanding immediately after the offering at
an exercise price equal to the initial public offering price, (ii) 505,000
additional shares of Common Stock reserved for future issuance under the
Equity Incentive Plan and (iii) 30,000 shares of Common Stock reserved for
future issuance under the Director Plan.

13
<PAGE> 15

DILUTION

The pro forma net tangible book deficit of the Company as of June 30, 1997
was $1.2 million, or $.20 per share of Common Stock (after giving effect to the
S Corporation distributions estimated to be $2,654,000, the special cash bonuses
aggregating $1,740,000 to be paid to the named executive officers other than the
Selling Shareholder and the estimated $250,000 of deferred income tax benefits
arising upon termination of the Company's S Corporation status). See "S
Corporation Termination" and Note 8 to the Company's Financial Statements. Pro
forma net tangible book deficit per share represents the amount of the Company's
pro forma tangible net deficit (total liabilities less total tangible assets)
divided by the total number of shares of Common Stock outstanding. After giving
effect to the sale of 1,250,000 shares of Common Stock by the Company in this
offering at an assumed initial public offering price of $12.00 per share and the
application of the net proceeds therefrom (after deducting the underwriting
discount and estimated offering expenses), the pro forma net tangible book value
as of June 30, 1997 would have been $12.3 million or $1.68 per share. This
represents an immediate increase in net tangible book value of $1.88 per share
to existing shareholders of the Company and an immediate dilution of $10.32 per
share to new investors purchasing shares in this offering.

Since July 1992, the Company has issued only 18,520 shares of Common Stock
to one officer of the Company, at a weighted average price per share of
approximately $0.08.

The following table illustrates the per share dilution:

<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share............. $12.00
Pro forma net tangible book deficit per share before the
offering............................................... $(.20)
Increase attributable to new investors.................... 1.88
-----
Pro forma net tangible book value per share after the
offering.................................................. 1.68
------
Dilution per share to new investors(1)...................... $10.32
======
</TABLE>

- -------------------------
(1) Dilution is determined by subtracting pro forma net tangible book value per
share of Common Stock after this offering from the assumed initial public
offering price per share.

14
<PAGE> 16

SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and with the Financial Statements and the Notes thereto and other
financial information included elsewhere in this Prospectus. The selected
statement of income data for the years ended December 31, 1994, 1995, and 1996
and the balance sheet data at December 31, 1995 and 1996 are derived from, and
are qualified by reference to, the audited financial statements of the Company
included elsewhere in this Prospectus. The selected statement of income data for
the years ended December 31, 1992 and 1993 and the balance sheet data at
December 31, 1992, 1993 and 1994 are derived from unaudited financial statements
not included herein. The selected statement of income data for the six month
periods ended June 30, 1996 and 1997 and the balance sheet data at June 30, 1996
and 1997 are derived from the Company's unaudited financial statements, which
have been prepared on the same basis as the Company's audited financial
statements and, in the opinion of management, contain all adjustments,
consisting of only normal recurring adjustments, necessary for a fair
presentation of the financial position and results of operations of the Company.
The results of operations for the period ended June 30, 1997 are not necessarily
indicative of results for the full fiscal year.

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------- ----------------
1992 1993 1994 1995 1996 1996 1997
------ ------ ------ ------ ------- ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues:
Renewable performance tracking services... $ 454 $ 507 $4,420 $6,839 $ 9,569 $4,313 $5,954
Renewable syndicated service.............. 415 435 652 493 1,276 101 444
Custom and other research................. 1,737 1,869 1,683 1,585 1,755 899 552
------ ------ ------ ------ ------- ------ ------
Total revenues........................ 2,606 2,811 6,755 8,917 12,600 5,313 6,950
Operating expenses:
Direct expenses........................... 1,264 1,083 2,967 3,495 5,685 2,327 3,011
Selling, general and administrative....... 1,149 1,167 2,044 2,364 3,060 1,319 1,837
Depreciation and amortization............. 36 50 86 119 173 72 79
------ ------ ------ ------ ------- ------ ------
Total operating expenses.............. 2,449 2,300 5,097 5,978 8,918 3,718 4,927
------ ------ ------ ------ ------- ------ ------
Operating income............................ 157 511 1,658 2,939 3,682 1,595 2,023
Other income and expenses, net.............. 9 12 46 108 152 75 97
------ ------ ------ ------ ------- ------ ------
Income before income taxes.................. 166 523 1,704 3,047 3,834 1,670 2,120
Provision for income taxes.................. -- 9 114 -- -- -- --
Pro forma income taxes(1)................... -- -- 583 1,219 1,534 668 848
------ ------ ------ ------ ------- ------ ------
Pro forma net income(1)..................... $ 166 $ 514 $1,007 $1,828 $ 2,300 $1,002 $1,272
====== ====== ====== ====== ======= ====== ======
Pro forma net income per share(1)........... $ 0.37 $ 0.16 $ 0.20
======= ====== ======
Weighted average shares outstanding(2)...... 6,217 6,217 6,217
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1997
DECEMBER 31, JUNE 30, --------------------------------------
----------------------------------------- -------- PRO PRO FORMA
1992 1993 1994 1995 1996 1996 ACTUAL FORMA(3) AS ADJUSTED(4)
----- ------ ------ ------ ------ -------- ------ ----------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........ $(361) $ 54 $1,358 $1,534 $2,018 $ 764 $2,830 $(1,463) $11,987
Total assets........... 912 1,368 3,539 4,996 6,153 3,880 7,883 4,511 17,189
Total debt............. 117 54 9 -- -- -- -- -- --
Total shareholders'
equity (deficit)..... (223) 290 1,623 1,830 2,079 1,022 2,948 (1,196) 12,254
</TABLE>

(footnotes on following page)

15
<PAGE> 17

(3) As adjusted to reflect (i) special cash bonuses aggregating $1,740,000 to be
paid to the named executive officers of the Company other than the Selling
Shareholder and to be recognized by the Company as a compensation charge in
the fourth quarter of 1997, (ii) S Corporation distributions subsequent to
June 30, 1997 estimated to be $2,654,000 and (iii) deferred tax benefits
that will arise upon adoption of Financial Accounting Standards No. 109. The
special cash bonuses will reduce the amount otherwise available for
distribution to the Company's shareholders prior to the termination of its S
Corporation status upon completion of this offering. Substantially all of
the after-tax proceeds of these bonuses will be used by the recipients to
purchase shares of the Company's Common Stock. The deferred tax benefits are
estimated to be approximately $250,000 and will be reflected as a deferred
tax asset and as a reduction to income tax expense in the statement of
income upon termination of the Company's S Corporation status, which will
occur upon completion of this offering. See "S Corporation Termination,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Notes 1 and 3 to the Company's Financial Statements.

(4) As adjusted to give effect to the pro forma adjustments described in (3)
above and to give effect to the sale of 1,250,000 shares of Common Stock
offered by the Company hereby at an assumed initial offering price of $12.00
per share and the application of the estimated net proceeds therefrom. See
"Use of Proceeds," "S Corporation Termination," "Capitalization,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Notes 1 and 3 to the Company's Financial Statements.

16
<PAGE> 18

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains trend analysis and other forward-looking
statements that involve substantial risks and uncertainties. The Company's
actual results could differ materially from those expressed or implied in the
forward-looking statements as a result of certain factors, including those set
forth under "Risk Factors" and elsewhere in this Prospectus.

OVERVIEW

The Company's historical revenue growth has been primarily the result of
increasing the scope of existing performance tracking projects, undertaking new
projects for existing clients and adding new clients. In each of the last two
years, the Company's billings to clients served in the prior year were at least
80% of total billings. The number of clients billed per year has increased to
210 in 1996 from 154 in 1995. The Company believes substantial opportunities
exist to increase revenues by expanding the depth and breadth of existing
clients' performance tracking programs, increasing the cross selling of the
Company's services and adding new clients and pursuing acquisitions of, or
investments in, firms providing products, services or technologies that
complement those of the Company.

The Company offers three primary types of information services: renewable
performance tracking services, a renewable syndicated service and custom
research. In 1996, these categories accounted for 75.9%, 10.1% and 14.0%,
respectively, of the Company's total revenues. The Company expects that revenues
from its custom research activities will increase on an annual basis, but at a
lower rate than revenues from its renewable services (i.e., revenues generated
pursuant to a service whose nature contemplates continued renewals) because of
the Company's increasing focus on its renewable services.

The Company's most significant expense is direct expenses, which are
primarily composed of data collection costs such as postage and printing, direct
labor costs (of which the majority are associated with part-time personnel) and
other costs directly attributable to projects.

The Company's renewable performance tracking service, the NRC Listening
System, is a performance tracking tool for gathering and analyzing data from
survey respondents. Such services are provided pursuant to contracts which are
generally renewable annually and that provide for a customer specific study
which is conducted via a series of surveys and delivered via a series of updates
or reports, the timing and frequency of which vary by contract (such as monthly
or weekly). These contracts are generally cancelable on short or no notice
without penalty and, since progress on these contracts can be tracked and
regular updates and reports are made, clients are entitled to any
work-in-process but are obligated to pay for all services performed through
cancellation. Typically, these contracts are fixed fee arrangements and a
portion of the project fee is billed in advance and the remainder is billed
periodically over the duration of the project. Revenues and direct expenses are
recognized on a percentage of completion basis.

The Company's renewable nationally syndicated service, the NRC Healthcare
Market Guide, serves as a stand-alone market information and competitive
intelligence source as well as a comparative performance database. Published by
NRC bi-annually from 1988 to 1996 and annually since 1996, this survey is a
comprehensive consumer-based healthcare assessment. Market Guide services are
generally provided

17
<PAGE> 19

pursuant to contracts which have durations of four to six months and that
provide for the receipt of survey results that are customized to meet an
individual client's specific information needs. Typically, these contracts are
not cancelable by clients, clients receive no rights in the comprehensive
healthcare database which results from this survey, other than the right to use
the customized reports purchased pursuant thereto, and amounts due for the
Market Guide are billed prior to or at delivery. The Company recognizes revenue
when the Market Guides are delivered to the customers pursuant to their
contracts, typically in the third quarter of the year. Substantially all of the
related costs are deferred and subsequently charged to direct expenses
contemporaneously with the recognition of the revenue. The Company generally has
some incidental sales of the Market Guide subsequent to completion of each
edition. Revenues and marginal expenses related to such incidental sales are
recognized upon delivery. The profit margin earned on such revenues is generally
higher than that earned on revenues realized from customers under contract at
the time of delivery. As a result, the Company's margins vary throughout the
year.

The Company conducts custom research which measures and monitors market
issues specific to individual healthcare organizations. The majority of the
Company's custom research is performed under contracts which provide for advance
billing of 65% of the total project fee with the remainder due upon delivery.
Revenues and direct expenses are recognized on a percentage of completion basis.

Prior to termination of its S Corporation status, the Company intends to
pay special cash bonuses aggregating $1,740,000 to its named executive officers
other than the Selling Shareholder. Substantially all of the after-tax proceeds
of these bonuses will be used to purchase shares of the Company's Common Stock.
The related compensation charge will be recognized by the Company in the fourth
quarter of 1997. These special cash bonuses will reduce the amount otherwise
available for distribution to the Company's shareholders prior to the
termination of its S Corporation status.

Selling, general and administrative expenses consist primarily of personnel
and other costs associated with sales, marketing, administration, finance,
information systems, human resources and general management. Selling, general
and administrative expenses as a percentage of total revenues have decreased as
the Company has spread its infrastructure expenses across its expanding revenue
base. The Company recently hired two new sales associates and is in the process
of searching for additional sales associates. The Company anticipates that its
selling, general and administrative expenses as a percentage of total revenues
might increase slightly in the periods immediately following the hiring of such
new sales associates as their productivity increases. The Company plans to move
to a new leased facility by the end of the first quarter of 1998 to accommodate
its growth. The Company anticipates increased rent and certain one-time costs
associated with such move but does not expect this to significantly increase the
annual selling, general and administrative expenses as a percentage of total
revenues. Depreciation and amortization expenses currently consist of expenses
related to equipment and furniture.

From 1984 through July 31, 1994, the Company was a C Corporation. Since
August 1, 1994, the Company has been treated as an S Corporation for Federal and
state income tax purposes. As a result, the Company's income has been taxed
directly to its shareholders rather than to the Company. Concurrent with the
completion of this offering, the Company's S Corporation election will be
terminated and the Company will be subject to corporate income taxation as a C
Corporation. For each of the periods in which the Company was an S Corporation,
the statement of income data reflects a provision for income taxes on a pro
forma basis at a combined Federal and state rate of 40% as if the Company had
been operating as a C Corporation during such periods.

In connection with the termination of the Company's S Corporation status,
the Company will record a deferred income tax benefit of approximately $250,000
in accordance with Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes." This amount will be reflected as a deferred tax
asset and a reduction to income tax expense otherwise incurred in such quarter
and will be recorded upon termination of the Company's S Corporation status,
which will occur upon completion of this offering. See "S Corporation
Termination."

18
<PAGE> 20

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, selected
statement of operations data expressed as a percentage of total revenues and the
percentage change in such items versus the prior comparable period. The trends
illustrated in the following table may not necessarily be indicative of future
results.

<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES PERCENTAGE INCREASE
------------------------------------- (DECREASE)
SIX MONTHS --------------------------
YEAR ENDED ENDED SIX MONTHS
DECEMBER 31, JUNE 30, 1995 1996 1997 OVER
--------------------- ------------- OVER OVER SIX MONTHS
1994 1995 1996 1996 1997 1994 1995 1996
----- ----- ----- ----- ----- ----- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Renewable performance tracking
services............................ 65.4% 76.7% 75.9% 81.2% 85.7% 54.8% 39.9% 38.1%
Renewable syndicated service.......... 9.7 5.5 10.1 1.9 6.4 (24.3) 158.7 337.0
Custom and other research............. 24.9 17.8 14.0 16.9 7.9 (5.9) 10.8 (38.6)
----- ----- ----- ----- -----
Total revenues.................... 100.0 100.0 100.0 100.0 100.0 32.0 41.3 30.8
===== ===== ===== ===== =====
Operating expenses:
Direct expenses....................... 43.9 39.2 45.1 43.8 43.3 17.8 62.7 29.4
Selling, general and administrative... 30.3 26.5 24.3 24.8 26.4 15.7 29.4 39.3
Depreciation and amortization......... 1.3 1.3 1.4 1.4 1.1 39.1 45.4 10.5
----- ----- ----- ----- -----
Total operating expenses.......... 75.5 67.0 70.8 70.0 70.8 17.3 49.2 32.5
----- ----- ----- ----- -----
Operating income........................ 24.5% 33.0% 29.2% 30.0% 29.2% 77.3% 25.3% 26.8%
===== ===== ===== ===== =====
</TABLE>

SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996

Total revenues. Total revenues increased 30.8% in the first six months of
1997 to $7.0 million from $5.3 million in the first six months of 1996. Revenues
from the Company's renewable performance tracking services increased 38.1% to
$6.0 million in the first six months of 1997 from $4.3 million in the first six
months of 1996 primarily due to the addition of new clients and an increase in
the scope of existing tracking projects. Revenues from the Company's renewable
syndicated service increased 337.0% to $444,000 in the first six months of 1997
from $101,000 in the first six months of 1996. Such increase reflects the timing
of releases of new editions of the Market Guide. In the first six months of 1997
the Company was selling its 1996 edition of the Market Guide whereas in the
first six months of 1996 the Company was selling its 1994 edition of the Market
Guide. The Company's custom research revenue decreased 38.6% to $552,000 in the
first six months of 1997 from $899,000 in the first six months of 1996 primarily
due to the start and completion of one large project during the first quarter of
1996.

Direct expenses. Direct expenses increased 29.4% to $3.0 million in the
first six months of 1997 from $2.3 million in the first six months of 1996.
Direct expenses decreased as a percentage of total revenues to 43.3% in the
first six months of 1997 from 43.8% in the first six months of 1996. The
decrease in direct expenses as a percentage of total revenues was due primarily
to incidental sales of the 1996 edition of the Market Guide in the first six
months of 1997 while the majority of the direct expenses related to this edition
of the Market Guide were expensed upon its completion in the third quarter of
1996.

Selling, general and administrative expenses. Selling, general and
administrative expenses increased 39.3% to $1.8 million for the first six months
of 1997 from $1.3 million for the first six months of 1996. This increase was
primarily due to an increase of $83,000 associated with the expansion of the
Company's sales and marketing infrastructure, an increase of $149,000 in
expenses related to enhancements to the Company's dynamic questionnaire
production software and an increase of $130,000 in profit sharing expense.
Selling, general and administrative expenses increased as a percentage of total
revenues to 26.4% for the first six months of 1997 from 24.8% for the first six
months of 1996.

Depreciation and amortization. Depreciation and amortization expense
increased 10.5% to $79,000 in the first six months of 1997 from $72,000 in the
first six months of 1996. Depreciation and amortization expenses decreased as a
percentage of total revenues to 1.1% in the first six months of 1997 from 1.4%
in the first six months of 1996.

19
<PAGE> 21

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

Total revenues. Total revenues increased 41.3% in 1996 to $12.6 million
from $8.9 million in 1995. Revenues from the Company's renewable performance
tracking services increased 39.9% in 1996 to $9.6 million from $6.8 million in
1995 due primarily to an increase in the scope of existing tracking projects,
the addition of new clients and an increase in the number of new projects for
existing clients. Revenues from the Company's renewable syndicated service
increased 158.7% to $1.3 million in 1996 from $493,000 in 1995 due to the timing
of releases of new editions of the Market Guide. A new edition of the Market
Guide was published in 1996 but not in 1995 since the Market Guide was published
on a bi-annual basis prior to 1996. Revenues from the Company's custom research
increased 10.8% to $1.8 million in 1996 from $1.6 million in 1995.

Direct expenses. Direct expenses increased 62.7% to $5.7 million in 1996
from $3.5 million in 1995. Direct expenses increased as a percentage of total
revenues to 45.1% in 1996 from 39.2% in 1995. The increase in direct expenses as
a percentage of total revenues was due to higher staffing levels in 1996 which
increased labor and payroll expenses by $845,000, increased postage and printing
expenses of $515,000, one-time costs of $122,000 associated with converting the
internal processing of certain surveys to a new image scanning and editing
system, and sales of the Market Guide in 1996 at lower gross margins than sales
in 1995 since a new edition of the Market Guide (with associated costs) was
published in 1996 but not in 1995.

Selling, general and administrative expenses. Selling, general and
administrative expenses increased 29.4% to $3.1 million in 1996 from $2.4
million in 1995. Selling, general and administrative expenses decreased as a
percentage of total revenues to 24.3% in 1996 from 26.5% in 1995. The decrease
in these expenses as a percentage of total revenues reflects the Company's
efforts to spread its general and administrative costs over a higher revenue
base, which were partially offset by an increase in selling and marketing
expenses of $222,000.

Depreciation and amortization. Depreciation and amortization expense
increased 45.4% to $173,000 in 1996 from $119,000 in 1995 but remained
relatively constant as a percentage of total revenues at 1.4% and 1.3% in 1996
and 1995, respectively. The aggregate increase was principally due to computer
equipment purchases to improve internal systems to support business growth.

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

Total revenues. Total revenues increased 32.0% in 1995 to $8.9 million from
$6.8 million in 1994. Revenues from the Company's renewable performance tracking
services increased 54.8% in 1995 to $6.8 million from $4.4 million in 1994 due
primarily to an increase in the scope of existing tracking projects and the
addition of new clients. Revenues from the Company's renewable syndicated
service decreased 24.3% to $493,000 in 1995 from $652,000 in 1994 due to the
timing of releases of new editions of the Market Guide. A new edition of the
Market Guide was produced in 1994 but not in 1995. Revenues from the Company's
custom research decreased 5.9% to $1.6 million in 1995 from $1.7 million in
1994.

Direct expenses. Direct expenses increased 17.8% to $3.5 million in 1995
from $3.0 million in 1994. Direct expenses decreased as a percentage of total
revenues to 39.2% in 1995 from 43.9% in 1994. The decrease in direct expenses as
a percentage of total revenues was primarily due to sales of the Market Guide in
1995 at higher gross margins than sales in 1994 since a new edition of the
Market Guide was not published in 1995 but was in 1994.

Selling, general and administrative expenses. Selling, general and
administrative expenses increased 15.7% to $2.4 million in 1995 from $2.0
million in 1994. Selling, general and administrative expenses decreased as a
percentage of total revenues to 26.5% in 1995 from 30.3% in 1994. The decrease
in these expenses as a percentage of total revenues reflects the Company's
efforts to leverage its general and administrative costs over a higher revenue
base. Selling, general and administrative expenses were unusually high in 1994
due to certain one-time compensation and lease-related charges of $601,000.

Depreciation and amortization. Depreciation and amortization expense
increased 39.1% to $119,000 in 1995 from $86,000 in 1994 but remained relatively
constant as a percentage of total revenues at 1.3% in both

20
<PAGE> 22

1995 and 1994. The aggregate increase was principally due to computer, printer
and mail room production equipment purchases to improve internal systems to
support business growth.

SELECTED QUARTERLY RESULTS

The following tables set forth unaudited statement of income data for each
of the last eight quarters, as well as the percentage of the Company's total
revenues represented by each item. In management's opinion, this unaudited
information has been prepared on the same basis as the annual financial
statements and includes all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the information for the
quarters presented, when read in conjunction with the Company's Financial
Statements and Notes thereto included elsewhere in this Prospectus. The
operating results for any quarter are not necessarily indicative of results for
the full year or for any future quarter.

<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------------------------
SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1995 1995 1996 1996 1996 1996 1997 1997
--------- -------- --------- -------- --------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Renewable performance
tracking services........ $1,753 $2,409 $2,122 $2,191 $2,320 $2,936 $2,871 $3,083
Renewable syndicated
service.................. 80 18 82 19 923 252 341 103
Custom and other
research................. 407 392 447 452 397 459 228 324
------ ------ ------ ------ ------ ------ ------ ------
Total revenues......... 2,240 2,819 2,651 2,662 3,640 3,647 3,440 3,510
Direct expenses.............. 899 1,226 1,132 1,195 1,926 1,432 1,393 1,618
Selling, general and
administrative............. 539 704 660 659 677 1,064 951 886
Depreciation and
amortization............... 24 45 36 36 41 60 42 37
------ ------ ------ ------ ------ ------ ------ ------
Operating income............. 778 844 823 772 996 1,091 1,054 969
Other income and expenses,
net........................ 25 20 37 38 32 45 45 52
Pro forma income taxes(1).... 321 346 344 324 411 455 440 408
------ ------ ------ ------ ------ ------ ------ ------
Pro forma net income(1)...... $ 482 $ 518 $ 516 $ 486 $ 617 $ 681 $ 659 $ 613
====== ====== ====== ====== ====== ====== ====== ======
Pro forma net income per
share(1)................... $ .08 $ .08 $ .10 $ .11 $ .11 $ .10
====== ====== ====== ====== ====== ======
Weighted average shares
outstanding(2)............. 6,217 6,217 6,217 6,217 6,217 6,217
</TABLE>

- -------------------------
(1) Since August 1, 1994, the Company has been an S Corporation and,
accordingly, was not subject to Federal and state income taxes for any of
the quarterly periods presented above. Pro forma net income reflects a pro
forma tax provision at a combined Federal and state rate of 40% for the
periods the Company was an S Corporation as if it had been a C Corporation.
See "S Corporation Termination."

(2) Includes 162,265 shares of Common Stock which, had they been issued (at an
assumed initial public offering price of $12.00 per share less the
underwriting discount), would have generated cash sufficient to fund the
portion of the estimated S Corporation distributions in excess of the
Company's 1996 net income. See Note 1 to the Company's Financial Statements.

<TABLE>
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUES
------------------------------------------------------------------------------------------------
SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1995 1995 1996 1996 1996 1996 1997 1997
--------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Renewable performance
tracking services........ 78.3% 85.5% 80.0% 82.3% 63.7% 80.5% 83.5% 87.9%
Renewable syndicated
service.................. 3.6 0.6 3.1 0.7 25.4 6.9 9.9 2.9
Custom and other
research................. 18.1 13.9 16.9 17.0 10.9 12.6 6.6 9.2
----- ----- ----- ----- ----- ----- ----- -----
Total revenues......... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Direct expenses.............. 40.1 43.5 42.7 44.9 52.9 39.3 40.5 46.1
Selling, general and
administrative............. 24.1 25.0 24.9 24.8 18.6 29.2 27.6 25.2
Depreciation and
amortization............... 1.1 1.6 1.4 1.4 1.1 1.6 1.2 1.1
----- ----- ----- ----- ----- ----- ----- -----
Operating income............. 34.7% 29.9% 31.0% 28.9% 27.4% 29.9% 30.7% 27.6%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>

21
<PAGE> 23

The Company's operating results have fluctuated from period to period in
the past and will likely fluctuate significantly in the future due to various
factors. There has historically been, and the Company expects that there will
continue to be, fluctuation in the financial results related to the Market
Guide, a service which accounted for 10.1% of the Company's total revenues in
1996. See "-- Overview." In addition, the Company's operating results may
fluctuate as a result of a variety of other factors, including the size and
timing of orders from clients, client demand for the Company's services (which,
in turn, is affected by factors such as accreditation requirements, enrollment
in managed care plans, operating budgets and clients' operating performance),
the hiring and training of additional staff, postal rate changes and industry
and general economic conditions. Because a significant portion of the Company's
overhead, particularly rent and full-time personnel expenses, is fixed in the
short-term, the Company's results of operations may be materially adversely
affected in any particular quarter if revenues fall below the Company's
expectations. These factors, among others, make it possible that in some future
quarter the Company's operating results may be below the expectations of
securities analysts and investors, which would have a material adverse effect on
the market price of the Company's Common Stock. See "Risk Factors --
Fluctuations in Operating Results."

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal source of funds has been cash flow from its
operations. The Company's cash flow has been sufficient to provide funds for
working capital and capital expenditures.

As of June 30, 1997, the Company had cash and cash equivalents of $3.6
million and working capital of $2.8 million. Subsequent to June 30, 1997, the
Company made S Corporation distributions of $536,000 to its shareholders and, in
connection with the termination of the Company's S Corporation status, the
Company will also distribute approximately $2.1 million to its existing
shareholders. In addition, the Company intends to pay special cash bonuses
aggregating $1.7 million to its named executive officers other than the Selling
Shareholder in the fourth quarter of 1997 and prior to the termination of the
Company's S Corporation status. See "Use of Proceeds," "S Corporation
Termination" and Note 8 to the Company's Financial Statements.

During the six months ended June 30, 1997, the Company generated $1.5
million of net cash from operating activities as compared to $2.9 million of net
cash generated during the same period in the prior year. The decrease in cash
flow was mainly due to the timing of the collection of a $1.3 million account
receivable in January 1996 and the timing of costs incurred in advance of
billings on certain projects, combined with growth in accounts receivable,
unbilled revenues and deferred revenues.

The Company generated $6.3 million of net cash from operating activities
for the year ended December 31, 1996 as compared to $1.8 million from operating
activities for the year ended December 31, 1995. This increase in cash generated
was a result of an increase in the Company's business and, in part, the
collection in January 1996 of a $1.3 million receivable.

For the six months ended June 30, 1997 and 1996, net cash provided by
investing activities was $938,000 and $490,000, respectively. The increase in
cash provided was primarily due to the maturing of investments available for
sale, which was partially offset by an investment of $232,000 in furniture,
computer equipment and production equipment to meet the expansion of the
Company's business. The Company's investments available-for-sale consist
principally of United States government securities with maturities of twelve
months or less.

Net cash used in investing activities increased to $1.2 million from
$15,000 for the years ended December 31, 1996 and December 31, 1995,
respectively, primarily as a result of an increase in investments available for
sale. Furniture, computer equipment and production equipment purchases in these
years were $272,000 and $161,000, respectively. The Company expects to make
additional purchases of equipment as necessary to accommodate any future growth.

Net cash used in financing activities was $1.6 million and $2.8 million for
the six months ended June 30, 1997 and 1996, respectively, and was $3.3 million
and $2.8 million for the years ended December 31, 1996 and December 31, 1995,
respectively. Net cash used in financing activities for these periods was
primarily the

22
<PAGE> 24

result of S Corporation distributions to shareholders. Through June 30, 1997,
the Company paid S Corporation distributions of $1.6 million to its
shareholders. Subsequent to June 30, 1997, the Company paid S Corporation
distributions of $536,000 to its shareholders. In connection with the
termination of the Company's S Corporation status, the Company will also
distribute approximately $2.1 million to its shareholders. See "S Corporation
Termination."

The Company has budgeted approximately $850,000 for capital expenditures in
1997, to be funded through cash generated from operations. Through June 30,
1997, the Company's capital expenditures were $232,000. The Company expects that
capital expenditures during the remainder of 1997 will be primarily for
leasehold improvements, telecommunications equipment, computer hardware,
production equipment and furniture.

The Company typically bills clients for projects before they have been
completed. Billed amounts are recorded as billings in excess of costs or
deferred revenue on the Company's financial statements and are recognized as
income when earned. As of June 30, 1997 and December 31, 1996, the Company had
$3.3 million and $2.2 million of deferred revenues, respectively. In addition,
when work is performed in advance of billing, the Company records this work as a
cost in excess of billings or unbilled revenue. At June 30, 1997 and December
31, 1996, the Company had $654,000 and $282,000 of unbilled revenues,
respectively. Substantially all deferred and unbilled revenues will be earned
and billed, respectively, within 12 months of the respective period ends.

The Company believes that the net proceeds from the sale of the Common
Stock by the Company in this offering, together with cash flows from operations
and existing cash balances will be sufficient to meet its working capital and
capital expenditure requirements for at least the next 12 months. Beyond that
time, if the net proceeds from this offering, together with cash flows from
operations and existing cash balances are not sufficient to satisfy its capital
needs, the Company may seek debt or additional equity financing. There can be no
assurance that such financing can be obtained on favorable terms, if at all.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 123, Accounting for Stock-Based Compensation. Statement No. 123
establishes a fair value based method of recognizing compensation expense for
stock-based compensation. As permitted by Statement No. 123, the Company expects
to continue to use the intrinsic value based method of recognizing compensation
expense for stock-based compensation to employees. Therefore, for those options
granted with exercise prices equal to fair market value, no compensation charge
will be recognized by the Company in its financial statements. However, the
Company will be required to disclose the pro forma effects of the fair value
based method of measuring compensation expenses on the Company's net income and
net income per share as if that method were adopted in the 1997 annual financial
statements. The Company has not determined the effects its recent stock option
grants will have on the annual disclosures required under Statement No. 123.

In February 1997, the FASB issued Statement No. 128, Earnings per Share,
which revises the calculation and presentation provisions of Accounting
Principles Board Opinion No. 15 and related interpretations. Statement No. 128
is effective for the Company's fiscal year ending December 31, 1997. Retroactive
application will be required. The Company believes the adoption of Statement No.
128 will not have a significant effect on its reported earnings per share.

23
<PAGE> 25

BUSINESS

The following Business section contains forward-looking statements that
involve substantial risks and uncertainties. The Company's actual results could
differ materially from those expressed or implied in the forward-looking
statements as a result of certain factors, including those set forth under "Risk
Factors" and elsewhere in this Prospectus.

Since its founding 16 years ago, NRC has focused on the information needs
of the healthcare industry. The Company offers three primary types of
information services: renewable performance tracking services, a renewable
syndicated service and custom research. During 1996, NRC provided services to
more than 200 healthcare organizations, including HMOs, integrated healthcare
systems, medical groups and industry regulatory bodies. The Company gathered and
analyzed over 1,000,000 completed surveys for these clients in 1996. The
Company's clients include Kaiser, the Department of Defense, HealthSouth
Corporation, BJC Health System and Mayo Clinic. NRC has benefited from a high
rate of renewable revenues. Specifically, over 80% of the Company's total
billings in each of the last two years was generated from clients billed in the
prior year.

INDUSTRY BACKGROUND

Managed Care

The United States healthcare industry continues to undergo significant
change. During the past decade, escalating costs and the rise in the number of
uninsured Americans brought healthcare reform to the forefront of public debate,
culminating in the Federal government's failed attempt to legislate broad change
in 1994. As a result of consumer, employer and governmental scrutiny, however,
the healthcare industry continues to shift towards a managed care model.

Managed care redefines payment structures and relationships between
healthcare payers and providers. In recent years, governmental and market-driven
reform initiatives have produced significant pressures on healthcare providers
to control costs. In the past, the financial risk of healthcare delivery was
principally absorbed by third-party payers, and providers were not focused on
cost containment. Through managed care and provider capitation arrangements, the
economic risk of healthcare delivery is shifting from payers to providers. In
order to manage this risk, providers are being forced to change the way that
they operate and are increasingly focused on measuring and controlling the cost
of delivering care. As managed care's tight rein on costs has kept premium
increases to a minimum, employee benefit managers are gravitating from
traditional fee-for-service plans to managed care plans.

Managed care enrollment has been increasing rapidly and, according to the
American Association of Health Plans (the "AAHP"), as of December 31, 1995
represented approximately 61% of Americans. This was comprised of approximately
47.5 million members of HMOs, approximately 91.8 million people who are being
serviced by preferred provider organizations ("PPOs") and approximately 13.9
million people who are being serviced by point-of-service ("POS") plans. In
total, there are approximately 700 HMOs, 1,000 PPOs and 500 POS plans in the
United States. According to the AAHP and Sanford C. Bernstein Co., Inc., HMO and
POS plan enrollment grew at a compound annual rate of 10.9% from 1990 to 1995
and enrollment is projected to be 112.5 million by 2000, representing a compound
annual growth rate of 12.9% from 1996 to

24
<PAGE> 26

2000. Part of the reason for the expected growth in HMO enrollment is the
increasing enrollment of Medicare and Medicaid beneficiaries in HMOs.

These changes in healthcare payment arrangements have caused modifications
in the organizational structures of healthcare providers. Specifically,
physicians, many of whom are financially challenged under a managed care
environment to sustain solo or small group practices, are banding together and
forming medical groups in order to provide more cost-effective service.
According to the American Medical Association, more than 850 medical groups with
at least 25 physicians have been formed to date nationwide. Similarly, in order
to compete for patients while reducing cost structures, many hospitals have
formed integrated healthcare systems that provide services across the care
continuum (inpatient, outpatient, emergency care, home health, rehabilitation,
long-term care, hospice, pharmacy, etc.). Totaling more than 630 in 1996,
according to the St. Anthony's Integrated Health Care 100 Directory, integrated
healthcare systems drive market consolidation to more efficiently manage care
and services. In addition, this source indicates that the number of
organizations affiliated with these integrated healthcare systems has increased
from 5,000 in 1996 to more than 7,300 in 1997.

Due to intensified media coverage of and lawmaker attention to possible
managed care abuses, the public has come to recognize that managed care's
reduction in healthcare costs often comes at the "expense" of less patient
choice and potentially lowered healthcare quality. In response, an increasing
amount of healthcare legislation has been proposed and healthcare "watch dog"
organizations have been formed to establish performance standards. Sharing
similar concerns, employers increasingly demand that the health plans with which
they contract deliver high quality medical care, evidenced by contractual
performance guarantees. Facing this quality-minded environment, a growing number
of health plans, health systems and medical groups are soliciting their
customers for feedback on the care and service provided. As a result, healthcare
organizations are increasingly retaining independent performance tracking firms
which serve as credible "scorekeepers."

Performance Tracking

Industry accrediting bodies, employers and the government are increasingly
demanding ongoing enterprise-wide performance tracking. In order to implement
performance standards, however, healthcare quality must first be defined and
quantified in a consistent and objective manner. The two primary constituencies
in a position to opine on healthcare quality are healthcare practitioners, who
have a clinical orientation, and patients, who have a service orientation.
Because of difficulty in obtaining consistent, comparable clinical data across
physician and patient bases, the healthcare industry has not been able to
develop a uniform approach to measuring clinical outcomes. The industry has,
however, recognized that patient satisfaction can be quantified and therefore
currently represents the most effective means of measuring and comparing
healthcare service quality.

The National Committee for Quality Assurance ("NCQA") began accrediting
managed care organizations in 1991 in response to the need for standardized,
objective information about the healthcare quality these organizations provided.
The NCQA, which has accredited more managed care organizations than any other
accrediting body, requires health plans to contract with an independent third
party to conduct a standardized member satisfaction survey on an annual basis.
Data collected from the surveys is then reported as part of the Health Plan
Employer Data and Information Set ("HEDIS"), a collection of performance
indicators created to support employers' review of health plan options. One of
the nation's longest-standing healthcare organization accrediting bodies, The
Joint Commission on Accreditation of Healthcare Organizations (the "Joint
Commission"), also broadened the performance measurement requirements in its
accreditation process in 1997 with its ORYX initiative. In addition, the Health
Care Financing Administration ("HCFA"), the government administrator of Medicare
benefits, mandates that all HMOs providing Medicare benefits evaluate their
senior population's health plan satisfaction and health/functional status on an
annual basis. Finally, during 1997 state legislators across the country have
introduced several hundred managed care bills and 16 states have passed
comprehensive consumer-rights bills covering a number of managed-care issues.

25
<PAGE> 27

Influenced by consumers, employers, accrediting bodies, competitive factors
and the government, approximately 99% of HMOs, 96% of hospitals and 80% of PPOs
currently measure satisfaction according to the AAHP and the American Hospital
Association. The Company believes that most of these organizations are measuring
satisfaction only at the enterprise-wide level. Due to competitive pressures,
however, healthcare organizations are increasingly seeking ways to affect
positive change in their organizations by "drilling down" their performance
tracking from enterprise-wide levels to more discreet levels. To identify where
change and quality improvements are needed, healthcare organizations must go
beyond enterprise-wide level performance tracking to narrower performance
tracking at the departmental level and ultimately at the individual
physician/caregiver level. Departmental level measurement reflects the
historical practice of hospitals, in particular, using static, mass produced
questionnaires for each service point (inpatient, emergency room, outpatient,
etc.). This approach shows how each department is doing and may support quality
improvement but, given the merging of services within integrated healthcare
systems, most industry departmental measurement does not provide a uniform means
to gather data and then apply information to effect system-wide improvements.

In contrast, physician/caregiver level performance tracking is critical to
learning where improvements are needed and what service issues, when addressed,
will effect the greatest positive change. Since patients' or members'
relationships with their primary care physicians strongly influence satisfaction
and retention, healthcare organizations are increasingly using performance
tracking in physicians' compensation packages to provide incentives for
physicians to maintain and/or improve patient relationships. According to a 1995
survey in the New England Journal of Medicine, 36% of managed care plans use
patient satisfaction as a component in their physician compensation packages.
Finally, other healthcare information providers are measuring outcomes of care
measures such as cost, utilization and appropriateness of care at the
physician/caregiver level, perpetuating the trend toward more
physician/caregiver level measurement. While the Company believes that less than
one-half of healthcare organizations are currently tracking patient satisfaction
at the physician/caregiver level, the Company believes that the healthcare
organizations that are not tracking satisfaction at this level are currently
considering the potential benefits of doing so.

THE NRC SOLUTION

The Company addresses healthcare organizations' growing need to track their
performance at the enterprise-wide, departmental and physician/caregiver levels.
The Company has been at the forefront of the industry in developing tools that
enable its clients to collect, in an unobtrusive manner, a substantial amount of
comparative service quality information in order to analyze and improve their
practices to maximize new member and/or patient attraction, member retention and
profitability. NRC's performance assessments offer the tangible measurement of
health service quality currently demanded by consumers, employers, industry
accreditation organizations and lawmakers.

The Company's innovative solutions respond to managed care's redefined
relationships among consumers, employers, payers and providers. While many
vendors exclusively use static, mass produced questionnaires, NRC also utilizes
its dynamic data collection process to create a personalized questionnaire that
evaluates service issues specific to each respondent's specific healthcare
experience. The flexibility of the Company's data collection process allows
healthcare organizations to add timely, market driven questions relevant to
matters such as industry performance mandates, employer performance guarantees
and internal quality improvement initiatives. In addition, the Company's dynamic
data collection process is used to assess core service factors relevant to all
healthcare respondent groups (patients, members, employers, employees,
physicians, etc.) and to all service points of a healthcare system (inpatient,
emergency room, outpatient, home health, rehabilitation, long-term care,
hospice, pharmacy, etc.). As differentiated from others in the marketplace, the
Company can gather data through fewer, more efficient questionnaires as opposed
to other firms' multiple questionnaires that often bombard the same respondents.

NRC offers three primary types of information services. The NRC Listening
System is a renewable performance tracking tool for gathering and analyzing data
from survey respondents. The Company has the capacity to measure performance
beyond the enterprise-wide level and has the ability and experience to determine
key performance indicators at the department and individual physician/caregiver
measurement

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<PAGE> 28

levels, where the Company's services can best guide the efforts of its clients
to improve quality and enhance their market position. The syndicated Market
Guide, a stand-alone market information and competitive intelligence source as
well as a comparative performance database, allows the Company's clients to
assess their performance relative to the industry, to access best practice
examples and to utilize competitive information for marketing purposes. The
Company's custom research enables NRC's clients to conduct specific studies in
order to identify areas of improvement and measure market issues and
opportunities. Recognizing the increasing applications for self-reported
healthcare assessments, NRC works with its clients to integrate satisfaction
measurement into various areas of their businesses, including physician
compensation. As the Company partners with its clients, it seeks to enhance
relationships throughout the healthcare organization and thereby both broaden
and deepen the scope of its projects.

BUSINESS STRENGTHS

The Company believes the following factors have been of principal
importance in achieving its current position as a leading provider of ongoing
survey-based performance measurement, analysis and tracking services to the
healthcare industry.

Leadership Position. The Company, over its 16-year history, believes it has
established its position as an innovative leader of survey-based, renewable
healthcare performance tracking. NRC's client partnerships with leading
healthcare payers and providers exemplify the Company's leadership position.
NRC's client base includes Kaiser, the Department of Defense, HealthSouth
Corporation, BJC Health System and Mayo Clinic. In addition, industry bodies
shaping the direction of healthcare performance tracking have sought NRC's
expertise. For example, the Company served as a technical advisor to the NCQA
during its development of a standardized satisfaction measurement process and
also tracks the Joint Commission's own service performance by measuring
satisfaction levels of those healthcare organizations undergoing the Joint
Commission's accreditation process.

Healthcare Focus. The Company devotes all of its resources to the
healthcare industry and that industry's evolving performance information needs.
This focus allows NRC to deliver high quality, survey-based performance
information through its staff of 63 full-time professionals who understand the
complex competitive and industry issues facing healthcare organizations. The
Company believes that its healthcare expertise and experience enhance its
competitive position relative to those market research firms that serve multiple
industries.

Service Renewability. The Company has benefited from high renewal rates.
Specifically, in each of the last two years over 80% of the Company's total
billings were generated from clients served in the prior year. The Company's
high renewal rates reflect, in part, competitive factors and industry mandates
which necessitate periodic performance tracking as well as the use of
performance information, which must be updated regularly and which must be
consistent, as a component of physician compensation. The Company believes its
dynamic data collection process, multi-level measurement (enterprise-wide,
departmental and physician/caregiver level) and multi-year comparative data
foster project renewability as healthcare organizations rely on these
capabilities to monitor and improve their performance.

NRC's Dynamic Data Collection Process. The Company believes that its
dynamic performance data collection process represents an important competitive
advantage over those performance tracking firms that only use static, mass
produced questionnaires focusing on one point of care (inpatient, outpatient,
emergency room, etc.) regardless of whether they are personalized to each
respondent and his or her unique experience. The Company's dynamic data
collection process offers questionnaire personalization such as patient name,
treating caregiver name, encounter date and, in some cases, exact services
received. This level of personalization enables the Company to realize increased
response rates and identify client service issues needing improvement. NRC's
dynamic data collection process also allows healthcare organizations to add
questions relevant to time, market or organization specific issues. This
approach allows NRC's dynamic data collection process to evolve with healthcare
organizations as they grow and as their performance objectives change as a
result of competitive conditions, industry mandates, employer performance
guarantees and quality improvement initiatives.

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<PAGE> 29

Healthcare Market Database and Complementary Services. Over the last 11
years, NRC has developed the healthcare industry's most comprehensive syndicated
database of performance tracking data. The Market Guide enables the Company's
clients to compare their performance results against national and local
benchmarks and thereby facilitate the identification of competitive strengths,
weaknesses and opportunities. Representing the views of one in every 650
households across the 48 continental states, the Market Guide provides name
specific performance data on 600 managed care plans and 2,500 hospitals
nationwide and addresses more than 100 industry issues relevant to healthcare
payers, providers and purchasers. The Company gives its clients "point and
click" access to NRC's syndicated assessments, comparative performance data and
industry mandated requirements via its proprietary NRC Report Card System.
Finally, in order to provide its clients with a full-service performance
tracking and market research capability, NRC also offers its clients custom
research services.

GROWTH STRATEGY

The Company's growth strategy includes the following key elements:

Leverage Existing Client Base. The Company believes substantial
opportunities exist to expand the depth and breadth of current clients'
performance tracking programs. During 1996, the Company provided services to
more than 200 healthcare organizations, for which the Company gathered and
analyzed over 1,000,000 completed surveys. The Company believes that since a
majority of its clients do not yet measure performance at either the department
or physician/caregiver level, the average number of surveys per client will
continue to grow as more healthcare organizations take performance tracking
deeper to these levels. This natural measurement progression is emerging as
healthcare organizations seek to effect change that will solidify or improve
their competitive market position and enhance member retention rates.
Furthermore, NRC believes its clients' programs can be broadened through the
addition of comprehensive satisfaction surveys of all the constituencies of a
healthcare plan or provider, including employers, employees, physicians,
patients and/or members. Finally, the Company believes it has the opportunity to
cross-sell complementary services to its existing clients because the Company's
comparative database, competitor intelligence and best practice information can
provide added value to its existing clients' current performance tracking
programs.

Expand Client Base. From 1995 to 1996, the number of clients billed has
increased from 155 to 210. The Company believes that its industry experience and
reputation as a high quality, cost effective performance tracking provider
serving the nation's leading healthcare organizations will enable it to continue
to attract new clients for its services. For example, the Company believes a
substantial opportunity exists to penetrate those healthcare organizations which
do not currently measure performance beyond the enterprise-wide level required
by industry mandates or which do not outsource performance tracking. NRC
believes there is also an opportunity to sell its renewable syndicated service
to healthcare providers and payers not previously served by the Company but
whose members' satisfaction is already tracked as part of the Company's
syndicated Market Guide. This database of performance information on prospective
clients and their competitors has historically been an important point of
initial contact for NRC's direct sales force. At the end of 1996, the Company
maintained a small direct sales force of only three people. However, NRC added a
new sales associate at the end of the second quarter of 1997 and another in the
third quarter of 1997 and plans to hire one or more additional sales associates
within the next 12 months. The Company believes this sales force growth will
allow each sales associate to develop more aggressively new clients in more
manageable geographic territories.

Pursue Strategic Acquisitions and Alliances. The Company believes the
fragmented nature of the healthcare performance tracking industry presents
strategic opportunities for the Company to acquire or align with other
performance information providers. The Company currently intends to explore the
acquisition of, or alliances with, firms providing complementary products,
services or technologies. The Company sees this strategy as a means to expand
its market position, increase its client base and geographic presence and obtain
additional personnel with industry experience. NRC may also pursue possible
industry partnerships or alliances with firms such as financial or clinical
healthcare information companies interested in integrating the Company's
syndicated performance information into their own product portfolios.

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<PAGE> 30

SERVICES

The Company believes it is a leading provider of ongoing survey-based
performance measurement, analysis and tracking services to the healthcare
industry, specializing in survey-based assessments designed to monitor care
outcomes including satisfaction and health status. NRC's three primary types of
information services are as follows:

Renewable Performance Tracking Services. The Listening System is NRC's
state-of-the-art data collection process which provides ongoing, renewable
performance tracking. The Listening System represented 75.9% and 85.7% of the
Company's total revenue in 1996 and the first six months of 1997, respectively.
This performance tracking program efficiently coordinates and centralizes an
organizations' satisfaction monitoring, thereby establishing a uniform
methodology and survey instrument needed to obtain valid performance information
and improve quality. Using the industry mandated method of mail-based data
collection, this assessment process monitors satisfaction across healthcare
respondent groups (patients, members, employers, employees, physicians, etc.)
and service settings (inpatient, emergency room, outpatient, etc.). Rather than
be limited to only static, mass produced questionnaires that provide limited
flexibility and performance insights, NRC's proprietary software generates
individualized questionnaires, which include personalization such as patient
name, treating caregiver name, encounter date and, in some cases, the services
received. This personalization enhances the response rates and the relevance of
performance data. Flexible and responsive to healthcare organizations changing
information needs, NRC creates personalized questionnaires that evaluate service
issues specific to each respondent's specific healthcare experience and include
questions that address core service factors throughout a healthcare
organization.

As differentiated from other competitors, the Company gathers data through
one efficient questionnaire, the contents of which are selected from the
Company's library of questions after a client's needs are determined, as opposed
to multiple questionnaires that often bombard the same respondents. As a result,
the Company's renewable performance tracking programs and data collection
process (i) realize higher response rates, obtain data more efficiently, and
thereby provide healthcare organizations with more feedback, (ii) eliminate
oversurveying (where one respondent receives multiple surveys) and (iii) allow
healthcare organizations to adapt questionnaire content to address management
objectives and to assess quality improvement programs or other timely
marketplace issues. Recognizing that performance programs must do more than just
measure satisfaction, NRC has developed a one-page reporting format called the
NRC Action Plan that provides a basis on which to make improvements. NRC Action
Plans show healthcare organizations which service factors their customer groups
value, which have the greatest impact on satisfaction levels and how their
performance in relationship to these key indicators changes over time.

Renewable Syndicated Service. The Company's renewable nationally syndicated
service, the NRC Healthcare Market Guide, serves as a stand-alone market
information and competitive intelligence source as well as a comparative
performance database. This service accounted for 10.1% and 6.4% of the Company's
revenue in 1996 and the first six months of 1997, respectively. Since the
Company currently sells this service to less than 5% of the nation's healthcare
providers, the Company believes there is substantial opportunity to further
penetrate this market. Published by NRC bi-annually from 1988 to 1996 and
annually since 1996, this survey, which is the largest of its kind, asks
consumers via a pre-recruited third-party panel, members of which are sent
Market Guide questionnaires to complete, to evaluate their health plans, health
systems, physicians/ caregivers and personal health status. Representing the
views of one in every 650 households across every county in the continental
United States, the Market Guide provides name specific performance data on 600
managed care plans and 2,500 hospitals nationwide and addresses more than 100
data items relevant to healthcare payers, providers and purchasers. Utilizing
this proprietary database, the Company is able to produce reports which are
customized to meet individual client's specific information needs. Among the
data featured are benchmarks specific to the NCQA standardized HEDIS Member
Satisfaction Survey that compare health plans on a local, state and/or national
level. Similarly, the service's national name search feature allows a healthcare
organization with a national or regional presence to simultaneously compare the
performance of all its sites and pinpoint where strengths and weaknesses exist.
The service's trending capacity details how the performance of a healthcare
organization changes over time. Other data collected in the Market Guide profile
health plan market share, consumers' health plan decision making factors,

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<PAGE> 31

physician/caregiver accessibility, hospital/healthcare system quality and
chronic patient populations. The Company gives clients easy access to the
customized version of the Market Guide they purchase via its CD-ROM-based
desktop delivery system -- the Report Card System. This delivery system allows
healthcare professionals to generate reports in numerous formats to support
their decision making.

Custom Research. In order to be a sole source provider to its clients, the
Company also conducts custom research that measures and monitors market
characteristics or issues specific to individual healthcare organizations. NRC's
custom research includes consumer recall of promotional and branding campaigns,
consumer response to new service offerings and provider perception of health
plans and healthcare organizations. The Company generally utilizes phone
interviews to collect relevant data for these custom studies. Custom research
accounted for 14.0% and 7.9% of the Company's total revenues in 1996 and the
first six months of 1997, respectively.

CLIENTS

The Company's ten largest clients in 1995, 1996 and the first six months of
1997 accounted for 71.1%, 63.9% and 67.9%, respectively, of the Company's total
revenues in each of those periods. The Company's largest client, Kaiser,
accounted for 43.7%, 40.4% and 34.7% of the Company's total revenues in 1995,
1996 and the first six months of 1997, respectively, and the Company expects
that this client will account for approximately 30% of its total revenues for
all of 1997. The Company, as a named subcontractor, also expects that the
Department of Defense, through a primary contractor, United Healthcare
Corporation, will account for more than 10% of total revenues in 1997. Overall,
the Company served more than 150 and 200 healthcare organizations in 1995 and
1996, respectively, and the Company believes substantial opportunities exist to
further penetrate its existing clients as well as to expand its client base. The
Company's clients include the following:

<TABLE>
<CAPTION>
HEALTH PLANS INTEGRATED HEALTHCARE SYSTEMS
------------ -----------------------------
<S> <C>
Aetna Dental BJC Health System
Empire Blue Cross and Blue Shield HealthSouth Corporation
Kaiser Jewish Hospital Healthcare Services
MEDICAL GROUPS OTHER
Healthcare Partners Medical Group American Hospital Association
Mayo Clinic Department of Defense
Ochsner Medical Institutions Joint Commission
</TABLE>

Examples of the Company's client relationships, which represent the nature
of the Company's services and performance measurement solutions, are set forth
below:

Health Plan Multi-Level Measurement. One of the nation's largest HMOs began
working with the Company four years ago to assess the satisfaction of its
members and patients. The project's first phase approached this measurement from
an enterprise-wide level -- how the HMO is performing in its West Coast
marketplace -- and at the department level -- examining the performance of each
of its owned medical centers and medical practices. From its original contract,
the Company has substantially expanded the scope of services provided to this
client by drilling down to the physician level. As a result, the number of
questionnaires processed by the Company on behalf of this client in 1996 was
150% greater than the number processed in 1994. This continuous measurement
allows the HMO to monitor the physician-patient relationship in terms of key
market issues such as access (including wait time, days to appointment and
doctor choice) and care dynamics (including familiarity with health history,
effective listening, understandable explanations of procedures, etc.) With the
aid of the Company, the HMO is able to internally disseminate detailed physician
"report cards" or performance reports that provide feedback to physicians and
management, allowing them to improve the physician-patient relationship. This
HMO uses the individual physician's scores in its physician compensation and
bonus structures.

Integrated Healthcare System Measurement. More than seven years ago, the
Company began a performance measurement program for a Midwestern hospital
covering inpatient, outpatient and emergency room services. The Company's
dynamic data collection process facilitated expanded client surveying as the

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<PAGE> 32

hospital led local market consolidation, culminating in its current status as a
16-hospital health system. The Company utilizes a survey instrument assessing
performance not only of acute care services historically measured for the system
but also of services added to the healthcare system such as long-term care, home
health, occupational medicine, mental health and hospice. The Company's ability
to measure simultaneously issues specific to each service point as well as core
service factors (also found on employee and physician surveys) pertinent
throughout the organization enables the health system to monitor performance and
identify improvement opportunities at the department and enterprise-wide levels.
The Company's long-term relationship with the health system has fostered a
highly valued measurement system championed by top management and used in
conjunction with continuous quality improvement processes. To create enterprise-
wide accountability, satisfaction results are used as a component within
executives' incentive programs and staff performance appraisals. The Company
collected data specific to the client's organizational objectives which the
client was able to utilize in establishing incentives to influence positive
behavior. The Company's tracking program can seamlessly respond to the client's
specific information needs for tracking management objectives and quality
initiatives by adding questions, service points assessed and reporting formats.

Medical Group Performance Measurement Leveraging Market Position. The
Company's physician/caregiver level performance measurement and database of
industry comparables provided the information solution a Southern-based medical
group needed to efficiently address performance improvement opportunities and
enhance its market position. The medical group, prior to its nine-year
relationship with the Company, used an internally created tool to analyze
physician and practice performance. However, because other local medical groups
used different satisfaction instruments, the medical group could not fulfill its
need to compare its scores with those of other local physicians. The Company's
solution involved questionnaires tailored to the unique information needs of the
group's practices and also included "core" questions represented in the
Company's comparative database. Implemented across the group's more than 450
physicians in 45 specialties and subspecialties, the Company's performance
system allowed physicians and clinics to determine whether their performance was
worse than, the same as or better than colleagues in similar specialities
locally, as well as nationwide. These benchmarks and best-practice examples have
allowed the group to capitalize on strengths and address weaknesses identified
by the Company's measurement system. The Company's data supported a marketing
campaign emphasizing the group's very high "overall quality of care" score
compared to other physicians in its market. In addition, the Company assisted
the group in leveraging its access scores by conducting a custom community study
that quantified patients' access expectations (how long was an acceptable office
wait time, days to appointment, etc.). Knowing what patients wanted and how the
group compared to other local practices, the Company helped the group identify
where resources should be allocated to improve patient experiences and service
ratings.

SALES AND MARKETING

The Company has generated the majority of its revenues from client
renewals, supplemented by its internal marketing efforts and a limited sales
force. In order to increase geographic penetration, NRC added one sales
associate to its existing three person sales force at the end of the second
quarter of 1997 and another in the third quarter of 1997. These new sales
associates will direct NRC's sales efforts from Nashville and Atlanta. The
Company is also in the process of searching for additional sales associates. As
compared to the typical industry practice of compensating salespeople with
relatively high base pay and a relatively small sales commission, NRC
compensates its sales associates with relatively low base pay and a relatively
high, per sale commission. The Company believes this compensation structure
provides incentives to its sales associates to surpass sales goals and increases
the Company's ability to attract top quality sales associates. The average
healthcare/market research industry experience of the Company's sales associates
is 8.75 years.

Numerous marketing efforts support the direct sales force's new business
generation and project renewal initiatives. NRC conducts an annual direct
marketing campaign around scheduled trade shows, including leading industry
conferences such as the National Managed Healthcare Congress and American
Association of Health Plans' Institute. NRC uses this lead generation mechanism
to track the effectiveness of marketing efforts and add generated leads to its
database of current and potential client contacts. In addition, NRC plans to
implement a telemarketing sales strategy to qualify the highest quality
potential leads. Finally, the Company's public relations program includes (i) an
ongoing presence in leading industry trade press and in

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<PAGE> 33

the mainstream press; (ii) public speaking at strategic industry conferences;
(iii) monthly "Perspectives on Performance" articles (which are in-depth
discussions of performance tracking applications, trends and policies) sent to
current clients and top prospects; (iv) fostering relationships with key
industry constituencies (HCFA, Joint Commission and NCQA); and (v) an annual
Quality Leaders award program recognizing top-ranking HMOs and health systems in
approximately 100 markets. The Company is also co-authoring an industry manual
with renowned researcher John E. Ware, Ph.D., of the New England Medical
Center's Health Institute.

The Company's integrated marketing activities facilitate its ongoing
receipt of project requests-for-proposals as well as direct sales force
initiated prospect contact. The sales process typically spans a 90-day period
encompassing the identification of a healthcare organization's information
needs, the education of prospects on NRC solutions (via proposals, in-person
sales presentations and on-line product demonstrations) and the closing of the
sale. The Company's sales cycle varies depending on the particular service being
marketed and the size of the potential project.

COMPETITION

The healthcare information and market research industry is highly
competitive. The Company has traditionally competed both with healthcare
organizations' internal marketing, market research and/or quality improvement
departments which create their own performance measurement tools and with
relatively small specialty research firms which provide survey-based healthcare
market research and/or performance assessment. The Company anticipates that in
the future it may increasingly compete with (i) traditional market research
firms which are significant providers of survey-based, general market research
and (ii) firms which provide services or products that complement healthcare
performance assessments, such as healthcare software or information systems.
Although only a few of these competitors have to date offered survey-based,
healthcare market research that competes directly with the Company's services,
many of these competitors have substantially greater financial, information
gathering and marketing resources than the Company and could decide to increase
their resource commitments to the Company's market. There are relatively few
barriers to entry into the Company's market, and the Company expects increased
competition in its market, which could adversely affect the Company's operating
results through pricing pressure, increased marketing expenditures and market
share losses, among other factors. There can be no assurance that the Company
will continue to compete successfully against existing or new competitors. See
"Risk Factors -- Competition."

The Company believes the primary competitive factors within its market
include quality of service, timeliness of delivery, service uniqueness,
credibility of provider, industry experience and price. NRC believes that its
industry leadership position, exclusive focus on the healthcare industry,
dynamic questionnaire, syndicated Market Guide and comparative performance
database, and its relationships with leading healthcare payers and providers
position the Company to compete in this market.

INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS

The Company's success is in part dependent upon its data collection
process, research methods, data analysis techniques and internal systems and
procedures that it has developed specifically to serve clients in the healthcare
industry. The Company has no patents; consequently, it relies on a combination
of copyright, trademark and trade secret laws and employee nondisclosure
agreements to protect its systems and procedures. There can be no assurance that
the steps taken by the Company to protect its rights will be adequate to prevent
misappropriation of such rights or that third parties will not independently
develop functionally equivalent or superior systems or procedures. The Company
believes that its systems and procedures and other proprietary rights do not
infringe upon the proprietary rights of third parties. There can be no
assurance, however, that third parties will not assert infringement claims
against the Company in the future or that any such claims will not result in
protracted and costly litigation, regardless of the merits of such claims. See
"Risk Factors -- Limited Protection of the Company's Systems and Procedures."

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<PAGE> 34

EMPLOYEES

As of July 1, 1997, the Company employed a total of 64 persons on a
full-time basis. In addition, as of such date the Company had 160 part-time
associates primarily in its survey operations, representing approximately 101
full-time equivalent employees. None of the Company's employees are represented
by a collective bargaining agreement. The Company considers its relationship
with its employees to be excellent.

FACILITIES

The Company's headquarters is located in approximately 25,000 square feet
of leased office space in Lincoln, Nebraska. This facility houses all the
capabilities necessary for NRC's survey programming, printing and distribution;
telephone interviewing; data processing, analysis and report generation;
marketing; and corporate administration. The lease on this facility is on a
month to month basis. The Company plans to move to an approximately 35,000
square foot new leased facility by the end of the first quarter of 1998 to
accommodate its growth. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

LEGAL PROCEEDINGS

The Company is not subject to any material pending litigation.

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<PAGE> 35

MANAGEMENT

OFFICERS AND DIRECTORS

The following table sets forth information, as of the date of this
Prospectus, regarding the officers and directors of the Company.

<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
Michael D. Hays................ 42 President, Chief Executive Officer and Director
Jona S. Raasch................. 38 Vice President and Chief Operations Officer
Patrick E. Beans............... 40 Vice President, Treasurer, Chief Financial Officer, Secretary
and Director
Sharon Flaherty................ 50 Vice President-Sales, Marketing and Client Services
Daniel Bernard................. 47 Vice President-Information Systems
</TABLE>

Michael D. Hays has served as President and Chief Executive Officer and as
a director since he founded the Company in 1981. Prior thereto, Mr. Hays served
for seven years as a Vice President and a director of SRI Research Center, Inc.
(n/k/a the Gallup Organization). Mr. Hays has more than 23 years of experience
in the healthcare and survey-based research industries.

Jona S. Raasch has served as Vice President and Chief Operations Officer
since September 1988. Prior to joining the Company, Ms. Raasch held various
positions with A.C. Nielsen. Ms. Raasch has more than 17 years of experience in
the healthcare and survey-based research industries.

Patrick E. Beans has served as the principal financial officer since he
joined the Company in August 1994. Mr. Beans was elected Vice President,
Treasurer and Chief Financial Officer in August 1997 and Secretary in September
1997. Immediately prior to this offering, Mr. Beans will be elected as a
director. From June 1993 until joining the Company, Mr. Beans was the finance
director for the Central Interstate Low-Level Radioactive Waste Commission, a
five-state compact developing a low-level radioactive waste disposal plan. From
1979 to 1988 and from June 1992 to June 1993, he practiced as a certified public
accountant.

Sharon Flaherty joined the Company in December 1996 and serves as Vice
President-Sales, Marketing and Client Services. From 1972 until joining the
Company, Ms. Flaherty held various positions with Kaiser Foundation Health Plan,
Inc. and its affiliates, an HMO, including the last three years (from May 1993
to June 1996) as President of Kaiser Foundation Health Plan of Texas.

Daniel Bernard has served as Vice President-Information Systems since he
joined the Company in 1986. Prior thereto, Mr. Bernard was the manager of
Chilton Research Organization's syndicated service group, survey systems and
programming. Mr. Bernard has more than 24 years of experience in the healthcare
and survey-based research industries.

Executive officers of the Company are elected by, and serve at the
discretion of, the Board of Directors. The Board of Directors currently consists
of one director and Mr. Beans will be elected a director immediately prior to
this offering. The Company intends to name at least two additional directors,
who will be independent directors, within 60 days of the completion of this
offering to serve with Mr. Hays and Mr. Beans. Mr. Hays, as a director and the
Company's principal shareholder, and Mr. Beans, as a director, will determine
who the two additional directors will be. The Company's Articles of
Incorporation and By-Laws divide the Board of Directors into three classes. The
directors serve staggered terms of three years, with the members of one class
being elected in any year, as follows: (i) one director has been designated as a
Class I Director and will serve until the 1998 annual meeting; (ii) Patrick E.
Beans will be designated as a Class II Director and will serve until the 1999
annual meeting; (iii) Michael D. Hays and one other director have been
designated as Class III Directors and will serve until the 2000 annual meeting;
and in each case until their respective successors are duly elected and
qualified. There are no family relationships between any directors or executive
officers of the Company.

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<PAGE> 36

DIRECTOR COMPENSATION

Directors who are executive officers of the Company receive no compensation
for service as members of either the Board of Directors or committees thereof.
Directors who are not executive officers of the Company will be paid an annual
retainer and a fee for each committee meeting attended, the amounts of which
will be determined within 60 days of the completion of this offering.
Additionally, directors will be reimbursed for out-of-pocket expenses associated
with attending meetings of the Board of Directors and committees thereof.

Pursuant to the Director Plan, each director who is not an employee of the
Company will receive 40% of his or her annual retainer in cash and the remaining
60% in shares of Common Stock, and will receive an annual grant of an option to
purchase 1,000 shares of Common Stock. The options will have an exercise price
equal to the fair market value of the Common Stock on the date of grant and will
vest one year after the grant date.

BOARD COMMITTEES

The Board of Directors established standing Audit and Compensation
Committees in August 1997. The Audit Committee is responsible for recommending
to the Board of Directors the appointment of independent auditors, approving the
scope of the annual audit activities of the auditors, approving the audit fee
payable to the auditors and reviewing audit results. It is expected that within
60 days of the completion of this offering the Board of Directors will appoint
the members of the Audit Committee, which will consist of three directors,
including two independent directors. The Compensation Committee reviews and
recommends to the Board of Directors the compensation structure for the
Company's directors, officers and other managerial personnel, including salary
rates, participation in any incentive compensation and benefit plans, fringe
benefits, non-cash perquisites and other forms of compensation, and administers
the Equity Incentive Plan. It is expected that within 60 days of the completion
of this offering the Board of Directors will appoint the members of the
Compensation Committee, which will consist of two independent directors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Company will not have an active Compensation Committee of the Board of
Directors until the two independent directors are named. As a result, Michael D.
Hays was, and, until such directors are named, he and Patrick E. Beans will be,
responsible for fixing the compensation to be paid to the executive officers of
the Company.

EXECUTIVE COMPENSATION

The following table sets forth certain information concerning the
compensation paid to, earned by or awarded to the Company's Chief Executive
Officer and the Company's only other executive officers whose total cash
compensation exceeded $100,000 in the fiscal year ended December 31, 1996. The
persons named in the table are sometimes referred to herein as the "named
executive officers."

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
--------------------------- ---- ------ ----- ------------
<S> <C> <C> <C> <C>
Michael D. Hays................................... 1996 $140,000 $ 70,000(1) $1,523(2)
President and Chief Executive Officer
Jona S. Raasch.................................... 1996 72,472 117,290(3) 1,167(4)
Vice President and Chief Operations Officer
Patrick E. Beans.................................. 1996 72,472 117,290(3) 1,167(4)
Vice President, Treasurer and Chief Financial
Officer
</TABLE>

- -------------------------
(1) Discretionary bonus.

(2) Premiums for disability insurance paid by the Company for the benefit of Mr.
Hays.

35
<PAGE> 37

(3) Includes $77,036 awarded in 1996 under the Company's prior annual incentive
plan, $21,627 paid in 1996 under the Company's prior annual incentive plan
as a result of awards made in earlier years, $15,407 awarded in 1996 under
the Company's prior quarterly incentive plan and $3,220 paid in 1996 under
the Company's prior quarterly incentive plan as a result of an award made in
1995. Subject to potential forfeiture on termination of employment, awards
made under the Company's prior annual incentive plan vest and become payable
in 20% increments following the end of each fiscal year over a five-year
period. Effective June 30, 1997, the Company terminated its prior annual and
quarterly incentive plans and currently intends to replace them with a new
incentive plan, the terms of which have not been established.

(4) Additional wages paid by the Company when professional development programs
were attended.

EMPLOYMENT AGREEMENTS

On July 15, 1994, the Company set forth the terms and conditions of Patrick
E. Beans' employment with the Company in an employment memorandum. Pursuant to
this memorandum, Mr. Beans is entitled to an annual base salary of $70,000 and
is entitled to participate in the Company's incentive plan, the National
Research Corporation 401(k) Savings Plan and a stock option pool or similar
benefit plan (which will be the Equity Incentive Plan). Under this memorandum,
the Company agreed to employ Mr. Beans as its Chief Financial Officer.

EMPLOYEE BENEFIT PLANS

Equity Incentive Plan. In August 1997, the Board of Directors adopted, and
the Company's shareholders approved, the Equity Incentive Plan. The purpose of
the Equity Incentive Plan is to promote the best interests of the Company and
its shareholders by providing employees of the Company with an opportunity to
acquire an interest in the Company. The Equity Incentive Plan is intended to
promote continuity of management and to provide increased incentive and personal
interest in the welfare of the Company by employees upon whose judgment,
interest and special effort the successful conduct of the Company's business is
dependent.

The Equity Incentive Plan may be administered by a committee of the Board
of Directors consisting of two or more directors or by the entire Board of
Directors. Once the members of the Compensation Committee of the Board of
Directors (the "Committee") are appointed, the Committee will administer the
Equity Incentive Plan and will have the authority to establish rules for the
administration of the Equity Incentive Plan; to select the employees of the
Company to whom awards will be granted; to determine the types of awards to be
granted to employees and the number of shares covered by such awards; and to set
the terms and conditions of such awards. Prior to such time, the entire Board of
Directors shall perform the functions of the Committee with respect to the
Equity Incentive Plan.

Any employee of the Company or of any of its future affiliates, including
any officer or employee-director of the Company or of any of its future
affiliates, is eligible to be granted awards by the Committee under the Equity
Incentive Plan. The Equity Incentive Plan authorizes the granting to employees
of: (i) stock options, which may be either incentive stock options meeting the
requirements of Section 442 of the Code or non-qualified stock options, (ii)
stock appreciation rights, (iii) restricted stock, (iv) performance shares and
(v) other stock-based awards and benefits. No awards may be granted under the
Equity Incentive Plan after the date of the Company's annual meeting of
shareholders in the year 2001.

The maximum number of shares of Common Stock which may be issued and sold
under the Equity Incentive Plan is 730,000 shares. The Company expects to grant
options to purchase approximately 225,000 shares of Common Stock simultaneously
with this offering at an exercise price per share equal to the initial public
offering price, of which none are expected to be granted to the named executive
officers. The Company anticipates that options granted to other executive
officers will vest in equal increments over a three-year period and that each of
the other options granted will vest in equal increments over a two-year period.
Consequently, none of such options will be exercisable until one year after the
date of this Prospectus. If any dividend or other distribution,
recapitalization, stock split, reorganization, merger, consolidation,
combination, repurchase or exchange of shares of Common Stock, issuance of
warrants or other rights to purchase shares of

36
<PAGE> 38

Common Stock or other similar corporate transaction or event effects the shares
of Common Stock so that an adjustment is appropriate in order to prevent
dilution or enlargement of the benefits intended to be made available under the
Equity Incentive Plan, then the Committee will have the authority to adjust (i)
the number and type of shares subject to the Equity Incentive Plan and which
thereafter may be made the subject of awards, (ii) the number and type of shares
subject to outstanding awards, and (iii) the grant, purchase or exercise price
with respect to an award or may make provision for a cash payment to the holder
of an outstanding award.

Profit Sharing Plan. The Company maintains the National Research
Corporation Profit Sharing Plan (the "Profit Sharing Plan"). The Profit Sharing
Plan permits employee before-tax contributions, employee after-tax contributions
and provides for employer incentive matching contributions and employer
discretionary contributions. Substantially all of the Company's employees who
have completed one year of service and attained age 21 become participants in
the Profit Sharing Plan on the first day coinciding with or following the date
on which they satisfy the eligibility criteria. Employee contributions to the
Profit Sharing Plan are 100% vested at the time of contribution. Company
contributions to the Profit Sharing Plan may be, at the Company's option, partly
or fully vested at the time of contribution, with any portion thereof not vested
at the time of contribution vesting in equal increments over a five-year period
starting after two years of service. Vested accounts are distributable upon a
participant's retirement.

401(k) Savings Plan. The Company maintains the National Research
Corporation 401(k) Savings Plan, a defined contribution retirement plan with a
cash or deferred arrangement as described in Section 401(k) of the Code (the
"401(k) Savings Plan"). The 401(k) Savings Plan is intended to be qualified
under Section 401(a) of the Code. All employees of the Company who have
completed one year of service and attained age 21 are eligible to participate in
the 401(k) Savings Plan on the first day of the month coinciding with or
following the date on which they satisfy the eligibility criteria. The 401(k)
Savings Plan provides that each participant may make elective contributions from
1% to 15% of his or her compensation, subject to statutory limits. The 401(k)
Savings Plan also provides for matching contributions and discretionary
contributions, subject to statutory limits.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

Under the WBCL and the Company's By-Laws, directors and officers of the
Company are entitled to mandatory indemnification from the Company against
certain liabilities and expenses (a) to the extent such officers or directors
are successful in the defense of a proceeding and (b) in proceedings in which
the director or officer is not successful in the defense thereof, unless (in the
latter case only) it is determined that the director or officer breached or
failed to perform his or her duties to the Company and such breach or failure
constituted: (i) a willful failure to deal fairly with the Company or its
shareholders in connection with a matter in which the director or officer had a
material conflict of interest; (ii) a violation of the criminal law unless the
director or officer had reasonable cause to believe his or her conduct was
lawful or had no reasonable cause to believe his or her conduct was unlawful;
(iii) a transaction from which the director or officer derived an improper
personal profit; or (iv) willful misconduct.

Under the WBCL, directors of the Company are not personally liable to the
Company, its shareholders or any person asserting rights on behalf of the
Company or its shareholders for certain breaches or failures to perform any duty
resulting solely from their status as such directors, except in circumstances
paralleling those in subparagraphs (i) through (iv) outlined above. These
provisions pertain only to breaches of duty by directors as directors and not in
any other corporate capacity, such as officers. As a result of such provisions,
shareholders may be unable to recover monetary damages against directors for
actions taken by them which constitute negligence or gross negligence or which
are in violation of their fiduciary duties, although it may be possible to
obtain injunctive or other equitable relief with respect to such actions. If
equitable remedies are found not to be available to shareholders in any
particular case, shareholders may not have an effective remedy against the
challenged conduct. It is possible, although unlikely, that as a result of these
provisions, directors may not demonstrate the same level of diligence or care
since they are protected by these provisions. The Company believes the
limitations of liability provisions in the Company's By-Laws and under the WBCL
will facilitate the Company's ability to attract and retain qualified
individuals to serve as directors of the Company.

37
<PAGE> 39

PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of October 1, 1997, and as adjusted to reflect the
sale of the shares offered hereby, by: (i) each of the Company's directors; (ii)
each of the named executive officers; (iii) all directors and all executive
officers as a group; and (iv) each person or other entity known by the Company
to own beneficially more than 5% of the Common Stock. Except as otherwise
indicated in the footnotes, each of the holders has an address in care of the
Company's principal executive offices and has sole voting and investment power
over the shares beneficially owned, subject to any applicable community or
marital property laws.

<TABLE>
<CAPTION>
NUMBER OF SHARES SHARES SHARES BENEFICIALLY
BENEFICIALLY OWNED BEING OWNED AFTER
PRIOR TO OFFERING(1) OFFERED(2) OFFERING(1)(2)
---------------------- ---------- ----------------------
NAME NUMBER PERCENT NUMBER PERCENT
---- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Michael D. Hays............................ 6,012,910 99.3% 850,000 5,162,910 70.7%
Jona S. Raasch............................. 42,090 * -- 42,090(3) *
Patrick E. Beans........................... 0 -- -- 0(3) --
All directors and executive officers as a
group (4 persons)........................ 6,055,000 100.0% 850,000 5,205,000 71.3%
</TABLE>

- -------------------------
* Less than 1%

(1) Based on 6,055,000 shares of Common Stock outstanding as of October 1, 1997
and 7,305,000 shares of Common Stock outstanding immediately after this
offering. Beneficial ownership is determined in accordance with the rules of
the Securities and Exchange Commission.

(2) Assumes no exercise of the Underwriters' over-allotment option to purchase
315,000 shares of Common Stock from the Selling Shareholder. If the
Underwriters' over-allotment option is exercised in full, upon completion of
this offering Mr. Hays would beneficially own 4,847,910 shares (or 66.4%).

(3) In connection with this offering and prior to termination of the Company's S
Corporation status, the Company intends to pay special cash bonuses
aggregating $1,740,000 to Ms. Raasch and Mr. Beans in order to allow them to
purchase shares of Common Stock and align the interests of all the named
executive officers with the interests of the Company's shareholders.
Substantially all of the after-tax proceeds of these bonuses will be used by
Ms. Raasch and Mr. Beans to purchase shares of the Company's Common Stock.

38
<PAGE> 40

CERTAIN TRANSACTIONS

Prior to joining the Company in 1996, Sharon Flaherty, Vice
President-Sales, Marketing and Client Services, served as President of Kaiser
Foundation Health Plan of Texas and as a Vice President of Kaiser Foundation
Health Plan, Inc., the parent of Kaiser. Kaiser Permanente-Northern California
Region began its relationship with the Company in 1994 and accounted for 40.4%
of the Company's total revenues in 1996.

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 20,000,000 shares
of Common Stock, par value $.001, and 2,000,000 shares of Preferred Stock, par
value $.01.

The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and qualified
in its entirety by, the provisions of the Company's Articles of Incorporation,
which is included as an exhibit to the Registration Statement of which this
Prospectus is a part, and by the provisions of applicable law.

COMMON STOCK

There will be 7,305,000 shares of Common Stock outstanding after giving
effect to the sale of Common Stock offered by the Company hereby.

After all cumulative dividends have been paid or declared and set apart for
payment on any shares of Preferred Stock that are outstanding, the Common Stock
is entitled to such dividends as may be declared from time to time by the Board
of Directors in accordance with applicable law.

Except as provided under Wisconsin law and except as may be determined by
the Board of Directors of the Company with respect to any series of Preferred
Stock, only the holders of Common Stock shall be entitled to vote for the
election of directors of the Company and on all other matters. Holders of Common
Stock are entitled to one vote for each share of Common Stock held by them on
all matters properly submitted to a vote of shareholders, subject to Section
180.1150 of the WBCL (described below under "Certain Statutory, Articles of
Incorporation and By-Law Provisions"). Shareholders have no cumulative voting
rights, which means that the holders of shares entitled to exercise more than
50% of the voting power are able to elect all of the directors to be elected.

All shares of Common Stock are entitled to participate equally in
distributions in liquidation, subject to the prior rights of any Preferred Stock
which may be outstanding. Holders of Common Stock have no preemptive rights to
subscribe for or purchase shares of the Company. There are no conversion rights,
sinking fund or redemption provisions applicable to the Common Stock. The
outstanding shares of Common Stock are, and the Common Stock to be issued by the
Company in this offering will be, fully paid and nonassessable, except for
certain statutory liabilities which may be imposed by Section 180.0622(2)(b) of
the WBCL for unpaid employee wages.

The transfer agent for the Common Stock is Firstar Trust Company,
Milwaukee, Wisconsin.

PREFERRED STOCK

Pursuant to the Company's Articles of Incorporation, the Board of Directors
has the authority, without further action by the shareholders, to issue up to
2,000,000 shares of Preferred Stock in one or more series and to fix the
designations, powers, preferences, privileges and relative participating,
optional or special rights and the qualifications, limitations or restrictions
thereof, including dividend rights, conversion rights, voting rights, terms of
redemption and liquidation preferences, any or all of which may be greater than
the rights of the Common Stock. The Board of Directors, without shareholder
approval, can issue Preferred Stock with voting, conversion or other rights that
could adversely affect the voting power and other rights of the holders of
Common Stock. Preferred Stock could thus be issued quickly with terms calculated
to delay or prevent a change of control of the Company or make removal of
management more difficult. Additionally, the issuance of Preferred Stock may
have the effect of decreasing the market price of the Common Stock, and may

39
<PAGE> 41

adversely affect the voting and other rights of the holders of Common Stock. At
present, there are no shares of Preferred Stock outstanding and the Company has
no plans to issue any of the Preferred Stock.

CERTAIN STATUTORY, ARTICLES OF INCORPORATION AND BY-LAW PROVISIONS

Section 180.1150 of the WBCL provides that the voting power of shares of
public Wisconsin corporations such as the Company held by any person or persons
acting as a group in excess of 20% of the voting power in the election of
directors is limited to 10% of the full voting power of those shares. This
statutory voting restriction does not apply to shares acquired directly from the
Company or in certain specified transactions or shares for which full voting
power has been restored pursuant to a vote of shareholders.

Sections 180.1140 to 180.1144 of the WBCL and Article 9 of the Articles of
Incorporation of the Company (collectively, the "Wisconsin Business Combination
Restriction") regulate a broad range of "business combinations" between a
Wisconsin corporation and an "interested stockholder." The Wisconsin Business
Combination Restriction defines a "business combination" to include a merger or
share exchange, sale, lease, exchange, mortgage, pledge, transfer, or other
disposition of assets equal to at least 5% of the market value of the stock or
assets of a corporation or 10% of its earning power, issuance of stock or rights
to purchase stock with a market value equal to at least 5% of the outstanding
stock, adoption of a plan of liquidation, and certain other transactions
involving an "interested stockholder." An "interested stockholder" is defined as
a person who beneficially owns, directly or indirectly, 10% of the voting power
of the outstanding voting stock of a corporation or who is an affiliate or
associate of the corporation and beneficially owned 10% of the voting power of
the then outstanding voting stock within the last three years. The Wisconsin
Business Combination Restriction prohibits a corporation from engaging in a
business combination (other than a business combination of a type specifically
excluded from the coverage of the statute) with an interested stockholder for a
period of three years following the date such person becomes an interested
stockholder, unless the board of directors approved the business combination or
the acquisition of the stock that resulted in a person becoming an interested
stockholder before such acquisition. Business combinations after the three-year
period following the stock acquisition date are permitted only if (a) the board
of directors approved the acquisition of the stock prior to the acquisition
date, (b) the business combination is approved by a majority of the outstanding
voting stock not beneficially owned by the interested stockholder, or (c) the
consideration to be received by shareholders meets certain requirements of the
Wisconsin Business Combination Restriction with respect to form and amount. The
Wisconsin Business Combination Restriction does not currently apply to Michael
D. Hays since it does not apply to the shares of Common Stock currently held by
Mr. Hays and the Board of Directors of the Company approved for purposes of the
Wisconsin Business Combination Restriction any acquisitions (whether by
purchase, gift or otherwise) made by Mr. Hays after September 12, 1997. The
Board's approval of future acquisitions of Common Stock by Mr. Hays for purposes
of the Wisconsin Business Combination Restriction, which was adopted when Mr.
Hays was the sole director, can be rescinded at any time by further Board
action.

Sections 180.1130 to 180.1133 of the WBCL provide that certain "business
combinations" not meeting specified adequacy-of-price standards must be approved
by a vote of at least 80% of the votes entitled to be cast by shareholders and
by two-thirds of the votes entitled to be cast by shareholders other than a
"significant shareholder" who is a party to the transaction. The term "business
combination" is defined to include, subject to certain exceptions, a merger or
consolidation of the Company (or any subsidiary thereof) with, or the sale or
other disposition of substantially all of the assets of the Company to, any
significant shareholder or affiliate thereof. "Significant shareholder" is
defined generally to include a person that is the beneficial owner of 10% or
more of the voting power of the Common Stock.

Section 180.1134 (the "Wisconsin Defensive Action Restrictions") provides
that, in addition to the vote otherwise required by law or the articles of
incorporation of an issuing public corporation, the approval of the holders of a
majority of the shares entitled to vote is required before such corporation can
take certain action while a takeover offer is being made or after a takeover
offer has been publicly announced and before it is concluded. Under the
Wisconsin Defensive Action Restrictions, shareholder approval is required for
the corporation to (a) acquire more than 5% of the outstanding voting shares at
a price above the market price from any individual or organization that owns
more than 3% of the outstanding voting shares and has held

40
<PAGE> 42

such shares for less than two years, unless a similar offer is made to acquire
all voting shares or (b) sell or option assets of the corporation which amount
to at least 10% of the market value of the corporation, unless the corporation
has at least three independent directors and a majority of the independent
directors vote not to have this provision apply to the corporation. The
restrictions described in clause (a) above may have the effect of deterring a
shareholder from acquiring shares of the Company with the goal of seeking to
have the Company repurchase such shares at a premium over the market price.

Under the Company's Articles of Incorporation and By-Laws, the Board of
Directors of the Company is divided into three classes, with staggered terms of
three years each. Each year the term of one class expires. The Articles provide
that any vacancies on the Board of Directors shall be filled only by the
affirmative vote of a majority of the directors in office, even if less than
quorum. Any director so elected will serve until the next election of the class
for which such director is chosen and until his or her successor is duly elected
and qualified. See "Management -- Executive Officers and Directors."

The Articles of Incorporation of the Company provide that any director may
be removed from office, but only for cause by the affirmative vote of at least
66 2/3% of all outstanding shares entitled to vote in the election of directors.
However, if at least two-thirds of the Board of Directors plus one director vote
to remove a director, such director may be removed without cause by a majority
of the outstanding shares of the Company entitled to vote thereon.

In addition, the By-Laws of the Company establish a procedure which
shareholders seeking to call a special meeting of shareholders must satisfy.
This procedure involves notice to the Company, the receipt by the Company of
written demands for a special meeting from holders of 10% or more of the issued
and outstanding shares of Common Stock, a review of the validity of such demands
by an independent inspector appointed by the Company and the fixing of the
record and meeting dates by the Board of Directors. In addition, shareholders
demanding such a special meeting must deliver to the Company a written agreement
to pay the costs incurred by the Company in holding a special meeting, including
the costs of preparing and mailing the notice of meeting and the proxy materials
for the solicitation by the Company of proxies for use at such meeting, in the
event such shareholders are unsuccessful in their proxy solicitation.

The By-Laws of the Company also provide the Board of Directors of the
Company with discretion in postponing shareholder meetings, including, within
certain limits, special meetings of shareholders. Additionally, the President or
the Board of Directors (acting by resolution) may adjourn a shareholder meeting
at any time prior to the transaction of business at such meeting. The By-Laws of
the Company also contain strict time deadlines and procedures applicable to
shareholders seeking to nominate a person for election as a director or to
otherwise bring business before a meeting.

The foregoing provisions of the Company's Articles of Incorporation and
By-Laws and the WBCL could have the effect of delaying, deferring or preventing
a change of control of the Company. See "Risk Factors -- Effect of Anti-Takeover
Provisions."

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, the Company will have outstanding an
aggregate of 7,305,000 shares of Common Stock. Of these outstanding shares of
Common Stock, the 2,100,000 shares sold in this offering will be freely
tradeable without restriction or further registration under the Securities Act,
unless purchased by "affiliates" of the Company as that term is defined in Rule
144 under the Securities Act. The remaining 5,205,000 shares of Common Stock
held by existing shareholders are "restricted securities" as that term is
defined in Rule 144 under the Securities Act ("Restricted Shares") and will be
subject to the lock-up arrangements described below. Restricted Shares may be
sold in the public market only if registered or if they qualify for an exemption
from registration under Rules 144 or 144(k) promulgated under the Securities
Act, which are summarized below. All of such Restricted Shares have been held in
excess of one year. Sales of the Restricted Shares in the public market, or the
availability of such shares for sale, could adversely affect the market price of
the Common Stock.

41
<PAGE> 43

The Company and its directors and executive officers, including all current
shareholders, have entered into contractual "lock-up" agreements providing that,
except for the granting of options or the issuance of shares of Common Stock
under the Director Plan, they will not offer, sell, contract to sell or grant
any option to purchase or otherwise dispose of the shares of Common Stock owned
by them or that could be purchased by them through the exercise of options to
purchase Common Stock of the Company for a period of 180 days after the date of
this Prospectus without the prior written consent of William Blair & Company,
L.L.C. As a result of these contractual restrictions, notwithstanding possible
earlier eligibility for sale under the provisions of Rules 144 and 144(k), the
shares subject to lock-up agreements will not be saleable until 180 days after
the date of this Prospectus. William Blair & Company, L.L.C., in its discretion,
may waive the foregoing restrictions in whole or in part, with or without a
public announcement of such action.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for at
least one year (including the holding period of any prior owner except an
affiliate of the Company) would be entitled to sell within any three-month
period a number of shares that does not exceed the greater of: (i) one percent
of the number of shares of Common Stock then outstanding (which will equal
73,050 shares immediately after this offering); or (ii) the average weekly
trading volume of the Common Stock during the four calendar weeks preceding the
filing of a Form 144 with respect to such sale. Sales under Rule 144 are also
subject to certain manner of sale provisions and notice requirements and to the
availability of current public information about the Company. Under Rule 144(k),
a person who is not deemed to have been an affiliate of the Company at any time
during the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years (including the holding period of any
prior owner except an affiliate of the Company), is entitled to sell such shares
without complying with the manner of sale, public information, volume limitation
or notice provisions of Rule 144; therefore, unless otherwise restricted,
"144(k) shares" may be sold immediately upon the completion of this offering.

The preceding description does not give effect to the shares of Common
Stock which may be offered and sold pursuant to the Equity Incentive Plan or the
Director Plan. See "Management -- Director Compensation" and "-- Employee
Benefit Plans -- Equity Incentive Plan." The Company intends to file
registration statements under the Securities Act, in the case of the Equity
Incentive Plan not earlier than 180 days after the date of this Prospectus, to
register the shares of Common Stock issuable under the Equity Incentive Plan and
the Director Plan, which shares will be available for sale in the public market,
subject to the volume and other limitations of Rule 144 for shares held by
affiliates of the Company. In connection with this offering, options to purchase
225,000 shares of Common Stock will be granted under the Equity Incentive Plan
at an exercise price equal to the offering price.

Since there has been no public market for the Common Stock prior to this
offering, no predictions can be made as to the effect, if any, that market sales
of shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of the
Common Stock, or the perception that such sales could occur, could adversely
affect the prevailing market price of the Common Stock.

42
<PAGE> 44

UNDERWRITING

The several Underwriters named below (the "Underwriters"), for whom William
Blair & Company, L.L.C. and Robert W. Baird & Co. Incorporated are acting as
Representatives (the "Representatives"), have severally agreed, subject to the
terms and conditions set forth in the Underwriting Agreement by and among the
Company, the Selling Shareholder and the Underwriters (the "Underwriting
Agreement"), to purchase from the Company and the Selling Shareholder, and the
Company and the Selling Shareholder have agreed to sell to the Underwriters, the
respective number of shares of Common Stock set forth opposite each
Underwriter's name in the table below.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
William Blair & Company, L.L.C..............................
Robert W. Baird & Co. Incorporated..........................

---------
Total.................................................. 2,100,000
=========
</TABLE>

In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the Common Stock
offered hereby if any is purchased (excluding shares covered by the
over-allotment option granted therein). In the event of a default by any
Underwriter, the Underwriting Agreement provides that, in certain circumstances,
purchase commitments of the non-defaulting Underwriters shall be increased or
the Underwriting Agreement may be terminated.

The Representatives have advised the Company and the Selling Shareholder
that the Underwriters propose to offer the Common Stock to the public initially
at the public offering price set forth on the cover page of this Prospectus and
to selected dealers at such price less a concession of not more than $ per
share. The Underwriters may allow, and such dealers may re-allow, a concession
not in excess of $ per share to certain other dealers. After the public
offering, the public offering price and other selling terms may be changed by
the Underwriters.

The Selling Shareholder has granted to the Underwriters an option,
exercisable within 30 days after the date of this Prospectus, to purchase up to
an additional 315,000 shares of Common Stock at the same price per share to be
paid by the Underwriters for the other shares offered hereby. If the
Underwriters purchase any such additional shares pursuant to this option, the
Underwriters will be committed to purchase such additional shares in
approximately the same proportion as set forth in the table above. The
Underwriters may exercise the option only for the purpose of covering
over-allotments, if any, made in connection with the distribution of the Common
Stock offered hereby.

The Company and its directors and executive officers, including all current
shareholders, have agreed that they will not sell, contract to sell or otherwise
dispose of any Common Stock or any interest therein for a period of 180 days
after the date of this Prospectus without the prior written consent of William
Blair & Company, L.L.C., except for the Common Stock offered hereby. William
Blair & Company, L.L.C., in its discretion, may waive the foregoing restrictions
in whole or in part, with or without a public announcement of such action. See
"Shares Eligible for Future Sale."

The Company and the Selling Shareholder have agreed to indemnify the
Underwriters and their controlling persons against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments the
Underwriters may be required to make in respect thereof.

43
<PAGE> 45

Prior to this offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Common Stock will be determined by negotiations among the Company and the
Representatives. Among the factors which will be considered in such negotiations
will be the prevailing market conditions, the results of operations of the
Company in recent periods, the market capitalizations and stages of development
of other companies which the Company, the Selling Shareholder and the
Representatives believe to be comparable to the Company, estimates of the
business potential of the Company, the present state of the Company's
development and other factors which may be deemed relevant.

The Representatives have informed the Company that the Underwriters will
not confirm, without client authorization, sales to their client accounts as to
which they have discretionary authority.

Until the distribution of the shares is completed, the rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase shares of Common Stock. As an exception to these
rules, the Representatives are permitted to engage in certain transactions that
stabilize the price of the Common Stock. Such transactions may consist of bids
or purchases for the purpose of pegging, fixing or maintaining the price of the
Common Stock. In addition, if the Representatives over-allot (i.e., if they sell
more shares of Common Stock than are set forth on the cover page of this
Prospectus), and thereby create a short position in the Common Stock in
connection with this offering, the Representatives may reduce that short
position by purchasing Common Stock in the open market. The Representatives may
also elect to reduce any short position by exercising all or part of the
over-allotment option described herein.

The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of the Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group members
who sold those shares as part of this offering. In general, purchases of a
security for the purpose of stabilization or to reduce a syndicate short
position could cause the price of the security to be higher than it might
otherwise be in the absence of such purchases. The imposition of a penalty bid
might have an effect on the price of a security to the extent that it were to
discourage resales of the security by purchasers in the offering. Neither the
Company nor any of the Underwriters makes any representation or prediction as to
the direction or magnitude of any effect that the transactions described above
may have on the price of the Common Stock. In addition, neither the Company nor
any of the Underwriters makes any representation that the Representatives will
engage in such transactions or that such transactions, once commenced, will not
be discontinued without notice.

LEGAL MATTERS

The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company and the Selling Shareholder by Foley &
Lardner, Milwaukee, Wisconsin. Certain legal matters will be passed upon for the
Underwriters by Sachnoff & Weaver, Ltd., Chicago, Illinois.

EXPERTS

The financial statements of the Company at December 31, 1995 and 1996, and
for each of the three years in the period ended December 31, 1996, appearing in
this Prospectus and in the Registration Statement, have been audited by KPMG
Peat Marwick LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein and in the Registration Statement, and are included
herein in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.

44
<PAGE> 46

NATIONAL RESEARCH CORPORATION

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Balance Sheets as of December 31, 1995 and 1996 and June 30,
1997 and Pro Forma Balance Sheet as of June 30, 1997...... F-3
Statements of Income for the years ended December 31, 1994,
1995 and 1996 and for the six months ended June 30, 1996
and 1997.................................................. F-4
Statements of Shareholders' Equity for the years ended
December 31, 1994, 1995 and 1996 and for the six months
ended June 30, 1997....................................... F-5
Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996 and for the six months ended June 30,
1996 and 1997............................................. F-6
Notes to Financial Statements............................... F-7
</TABLE>

F-1
<PAGE> 47

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
National Research Corporation:

We have audited the accompanying balance sheets of National Research
Corporation as of December 31, 1995 and 1996, and the related statements of
income, shareholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of National Research
Corporation as of December 31, 1995 and 1996, and the results of its operations
and its cash flows for each of the years in the three-year period ended December
31, 1996 in conformity with generally accepted accounting principles.

KPMG Peat Marwick LLP

Lincoln, Nebraska
June 6, 1997, except as to
note 8 which is as
of August 8, 1997

F-2
<PAGE> 48

NATIONAL RESEARCH CORPORATION

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
----------------------- JUNE 30, JUNE 30,
1995 1996 1997 1997
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 934,800 $2,782,212 $3,621,662 $ --
Investments in marketable debt securities... 587,245 1,476,965 306,779 306,779
Trade accounts receivable, less allowance
for doubtful accounts of $25,000 in 1995,
$45,000 in 1996, and $55,000 in 1997..... 2,912,122 1,216,812 2,171,018 2,171,018
Unbilled revenues........................... 97,334 282,358 653,934 653,934
Prepaid expenses and other.................. 24,610 46,022 628,429 728,929
---------- ---------- ---------- ----------
Total current assets..................... 4,556,111 5,804,369 7,381,822 3,860,660
---------- ---------- ---------- ----------
Property and equipment:
Furniture and fixtures...................... 173,225 291,514 304,598 304,598
Computer equipment.......................... 409,008 481,055 700,423 700,423
---------- ---------- ---------- ----------
582,233 772,569 1,005,021 1,005,021
Less accumulated depreciation and
amortization............................. 310,851 434,937 514,505 514,505
---------- ---------- ---------- ----------
Net property and equipment............... 271,382 337,632 490,516 490,516
---------- ---------- ---------- ----------
Cash surrender value of life insurance........ 157,872 -- -- --
Other......................................... 10,657 10,657 10,657 160,157
---------- ---------- ---------- ----------
Total assets............................. $4,996,022 $6,152,658 $7,882,995 $4,511,333
========== ========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses....... $ 359,988 $ 494,614 $ 194,100 $ 194,100
Accrued wages, bonuses and profit sharing... 503,755 764,784 1,062,478 1,062,478
Dividends payable........................... 269,876 359,384 -- 772,338
Billings in excess of revenues earned....... 1,888,154 2,168,026 3,294,856 3,294,856
---------- ---------- ---------- ----------
Total current liabilities................ 3,021,773 3,786,808 4,551,434 5,323,772
Bonuses and profit sharing accruals........... 144,684 286,443 383,205 383,205
---------- ---------- ---------- ----------
Total liabilities........................ 3,166,457 4,073,251 4,934,639 5,706,977
---------- ---------- ---------- ----------
Shareholders' equity:
Common stock, $.001 par value; authorized
20,000,000 shares, issued and outstanding
6,055,000 shares......................... 6,055 6,055 6,055 6,055
Preferred stock, $.01 par value; authorized
2,000,000 shares, no shares issued and
outstanding.............................. -- -- -- --
Additional paid-in capital.................. -- -- -- --
Retained earnings (deficit)................. 1,823,510 2,073,352 2,942,301 (1,201,699)
---------- ---------- ---------- ----------
Total shareholders' equity (deficit)..... 1,829,565 2,079,407 2,948,356 (1,195,644)
---------- ---------- ---------- ----------
Commitments and contingencies
Total liabilities and shareholders'
equity................................. $4,996,022 $6,152,658 $7,882,995 $4,511,333
========== ========== ========== ==========
</TABLE>

See accompanying notes to financial statements.

F-3
<PAGE> 49

NATIONAL RESEARCH CORPORATION

STATEMENTS OF INCOME

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------ -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Renewable performance tracking
services........................... $4,419,564 $6,839,410 $9,568,915 $4,312,747 $5,954,150
Renewable syndicated service.......... 652,192 493,416 1,276,423 101,676 444,312
Custom and other research............. 1,683,198 1,584,533 1,754,895 899,304 552,116
---------- ---------- ---------- ---------- ----------
Total revenues................... 6,754,954 8,917,359 12,600,233 5,313,727 6,950,578
---------- ---------- ---------- ---------- ----------
Operating expenses:
Direct expenses....................... 2,967,397 3,494,706 5,685,200 2,327,458 3,010,725
Selling, general and administrative... 2,043,878 2,364,269 3,060,189 1,319,317 1,837,420
Depreciation and amortization......... 85,620 119,093 173,148 71,996 79,568
---------- ---------- ---------- ---------- ----------
Total operating expenses......... 5,096,895 5,978,068 8,918,537 3,718,771 4,927,713
---------- ---------- ---------- ---------- ----------
Operating income................. 1,658,059 2,939,291 3,681,696 1,594,956 2,022,865
---------- ---------- ---------- ---------- ----------
Other income:
Interest income....................... 23,579 106,300 125,948 75,297 97,030
Other, net............................ 22,491 1,651 26,484 -- --
---------- ---------- ---------- ---------- ----------
Total other income............... 46,070 107,951 152,432 75,297 97,030
---------- ---------- ---------- ---------- ----------
Income before income taxes....... 1,704,129 3,047,242 3,834,128 1,670,253 2,119,895
Provision for income taxes.............. 114,500 -- -- -- --
---------- ---------- ---------- ---------- ----------
Net income....................... $1,589,629 $3,047,242 $3,834,128 $1,670,253 $2,119,895
========== ========== ========== ========== ==========
Pro forma information:
Net income............................ $1,589,629 $3,047,242 $3,834,128 $1,670,253 $2,119,895
Pro forma income taxes................ 582,796 1,218,897 1,533,651 668,101 847,958
---------- ---------- ---------- ---------- ----------
Pro forma net income............. $1,006,833 $1,828,345 $2,300,477 $1,002,152 $1,271,937
========== ========== ========== ========== ==========
Pro forma net income per share.......... $ 0.37 $ 0.16 $ 0.20
========== ========== ==========
Weighted average common shares and
common share equivalents
outstanding........................... 6,217,265 6,217,265 6,217,265
========== ========== ==========
</TABLE>

See accompanying notes to financial statements.

F-4
<PAGE> 50

NATIONAL RESEARCH CORPORATION

STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND
THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)

<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED COMMON PAID-IN TREASURY RETAINED
STOCK STOCK CAPITAL STOCK EARNINGS TOTAL
--------- ------- ---------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1993.... $100 $12,642 $ 13,812 $(7,543) $ 270,635 $ 289,646
Treasury stock canceled,
6,134,371 shares............... -- (6,134) (1,724) 7,543 315 --
Common stock retired,
456,019 shares................. -- (456) (12,560) -- (62,066) (75,082)
Preferred stock retired, 10
shares......................... (100) -- -- -- -- (100)
Common stock issued, 2,886
shares......................... -- 3 472 -- -- 475
Net income....................... -- -- -- -- 1,589,629 1,589,629
Dividends declared, $.01 per
share.......................... -- -- -- -- (42,797) (42,797)
---- ------- -------- ------- ----------- -----------
Balances at December 31, 1994.... -- 6,055 -- -- 1,755,716 1,761,771
Net income....................... -- -- -- -- 3,047,242 3,047,242
Dividends declared, $.49 per
share.......................... -- -- -- -- (2,979,448) (2,979,448)
---- ------- -------- ------- ----------- -----------
Balances at December 31, 1995.... -- 6,055 -- -- 1,823,510 1,829,565
Net income....................... -- -- -- -- 3,834,128 3,834,128
Dividends declared, $.59 per
share.......................... -- -- -- -- (3,584,286) (3,584,286)
---- ------- -------- ------- ----------- -----------
Balances at December 31, 1996.... -- 6,055 -- -- 2,073,352 2,079,407
Net income....................... -- -- -- -- 2,119,895 2,119,895
Dividends declared, $.21 per
share.......................... -- -- -- -- (1,250,946) (1,250,946)
---- ------- -------- ------- ----------- -----------
Balances at June 30, 1997
(unaudited).................... $ -- $ 6,055 $ -- $ -- $ 2,942,301 $ 2,948,356
==== ======= ======== ======= =========== ===========
</TABLE>

See accompanying notes to financial statements.

F-5
<PAGE> 51

NATIONAL RESEARCH CORPORATION

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------------------- -------------------------
1994 1995 1996 1996 1997
---------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................... $1,589,629 $ 3,047,242 $ 3,834,128 $ 1,670,253 $ 2,119,895
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization.......... 85,620 119,093 173,148 71,996 79,568
Loss on sale of property and
equipment............................ -- -- 32,837 -- --
Change in assets and liabilities:
Trade accounts receivable............ (94,234) (2,355,788) 1,695,310 1,355,034 (954,206)
Unbilled revenues.................... -- (97,334) (185,024) -- (371,576)
Prepaid expenses and other........... (23,388) 1,278 (21,412) (10,259) (582,407)
Other receivables.................... 246,556 -- -- -- --
Accounts payable and accrued
expenses.......................... 11,630 128,422 134,626 (113,907) (300,514)
Accrued wages, bonuses and profit
sharing........................... 91,801 449,724 402,788 168,024 394,456
Billings in excess of revenues
earned............................ 701,589 488,969 279,872 (221,698) 1,126,830
Increase in cash surrender value of
life insurance.................... (21,018) (27,211) -- -- --
---------- ----------- ----------- ----------- -----------
Net cash provided by operating
activities.................... 2,588,185 1,754,395 6,346,273 2,919,443 1,512,046
---------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment...... (194,330) (160,923) (272,235) (96,396) (232,452)
Purchases of securities
available-for-sale..................... (733,519) (1,503,726) (4,154,720) (13,961) (329,871)
Proceeds from the maturities of
securities available-for-sale.......... -- 1,650,000 3,265,000 600,000 1,500,057
---------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
investing activities.......... (927,849) (14,649) (1,161,955) 489,643 937,734
---------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Dividends paid........................... (42,797) (2,709,572) (3,336,906) (2,756,338) (1,610,330)
Payments on capital leases............... (41,294) (12,301) -- (1,941) --
Proceeds from issuance of common stock... 475 -- -- -- --
Payments to acquire preferred stock...... (100) -- -- -- --
Payments to acquire common stock......... (45,976) (29,106) -- -- --
---------- ----------- ----------- ----------- -----------
Net cash used in financing
activities.................... (129,692) (2,750,979) (3,336,906) (2,758,279) (1,610,330)
---------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash
and cash equivalents.......... 1,530,644 (1,011,233) 1,847,412 650,807 839,450
Cash and cash equivalents at beginning
of period................................ 415,389 1,946,033 934,800 934,800 2,782,212
---------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of
period................................... $1,946,033 $ 934,800 $ 2,782,212 $ 1,585,607 $ 3,621,662
========== =========== =========== =========== ===========
SUPPLEMENTARY INFORMATION
Cash paid for:
Interest............................... $ 3,947 $ 431 -- -- --
========== =========== =========== =========== ===========
Taxes.................................. $ 126,845 -- -- -- --
========== =========== =========== =========== ===========
Noncash investing and financing activities:
In 1996, the Company assigned a life insurance policy to its majority shareholder and recorded a dividend of
$178,236 for the cash surrender value of the life insurance policy.
</TABLE>

See accompanying notes to financial statements.

F-6
<PAGE> 52

NATIONAL RESEARCH CORPORATION
NOTES TO FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996 AND
THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

National Research Corporation (the "Company") is a provider of ongoing
survey-based performance measurement, analysis and tracking services to the
healthcare industry. The Company provides market research services to hospitals
and insurance companies on an unsecured credit basis. One client accounted for
28.9%, 43.7% and 40.4% of total revenues in 1994, 1995 and 1996, respectively,
and 48.7% and 34.7% of total revenues for the six months ended June 30, 1996 and
1997, respectively. Another client accounted for 23.1% and 13.6% of total
revenues in 1994 and 1995, respectively. A third client accounted for 14.1 % of
the revenues for the six months ended June 30, 1997. The Company operates in a
single industry segment.

BASIS OF PRESENTATION

Interim Financial Statements -- The financial information as of June 30,
1997 and for the six months ended June 30, 1996 and 1997 is unaudited and has
been prepared in conformity with generally accepted accounting principles and
includes all adjustments, in the opinion of management, necessary to a fair
presentation of the results of operations for the interim periods presented. All
such adjustments are, in the opinion of management, of a normal, recurring
nature.

Pro Forma Net Income Per Share -- Pro forma net income per share has been
computed assuming that the Company had been taxed as a C corporation for Federal
and state income tax purposes for all periods presented. The weighted average
shares outstanding for 1996 and the first six months of 1996 and 1997 include
the pro forma effect of shares that would have had to have been issued (at an
assumed initial public offering price of $12.00 less the underwriting discount
expense) to generate sufficient cash to fund the portion of the approximately
$5.6 million of estimated S corporation distributions and special cash bonuses
that are in excess of the net income for the year ended December 31, 1996. While
this assumption is being made to calculate the weighted average shares
outstanding for 1996 and the first six months of 1996 and 1997, the Company
plans to use operating cash flows, and not IPO proceeds, to fund the $2.7
million of distributions. The weighted average shares outstanding is calculated
as follows:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, ----------------------
1996 1996 1997
------------ --------- ---------
<S> <C> <C> <C>

Common stock............................................... 6,055,000 6,055,000 6,055,000
Dilutive effect of assumed IPO shares for distribution..... 162,265 162,265 162,265
--------- --------- ---------
Weighted average common shares and common share equivalents
outstanding.............................................. 6,217,265 6,217,265 6,217,265
========= ========= =========
</TABLE>

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

F-7
<PAGE> 53

NATIONAL RESEARCH CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
REVENUE RECOGNITION

The Company derives a substantial majority of its operating revenues from
its annually renewable services, which include the NRC Listening System
("Renewable Performance Tracking Services") and the NRC Healthcare Market Guide
("Renewable Syndicated Service"). Under the NRC Listening System, the Company
provides interim and annual performance tracking to its clients under annual
client service contracts, although such contracts are generally cancelable on
short or no notice without penalty. Through its syndicated NRC Healthcare Market
Guide, the Company publishes healthcare market information to its clients
generally on an annual or (prior to 1996) bi-annual basis. The Company also
derives revenues from custom and other research projects.

The Company recognizes revenues from its Renewable Performance Tracking
Services and its custom and other research projects using the percentage of
completion method of accounting. These services typically include a series of
surveys and deliverable reports in which the timing and frequency vary by
contract. Progress on a contract can be tracked reliably and customers are
obligated to pay as services are performed. The recognized revenue is the
percent of estimated total revenues that incurred costs to date bear to
estimated total costs after giving effect to estimates of costs to complete
based upon most recent information. Losses expected to be incurred on jobs in
progress are charged to income as soon as such losses are known. Revenues earned
on contracts in progress in excess of billings are classified as a current
asset. Amounts billed in excess of revenues earned are classified as a current
liability. Client projects are generally completed within a twelve-month period.

The Company recognizes revenue on a completed contract basis for its
Renewable Syndicated Service contracts with its principal customers.
Characteristics of these contracts include durations of 4 to 6 months, progress
to completion cannot be reasonably defined, and various intermediate steps in
the process overlap in stages of progress for different contracts. The Company
defers direct costs of preparing the survey data for the Renewable Syndicated
Service. The Company recognizes revenues and related direct costs for its
Renewable Syndicated Service upon delivery to its principal customers. Customers
have no obligation to pay for these services until the services are delivered.
The Company generates additional revenues from incidental customers subsequent
to the completion of each edition. Revenues and costs for these services are
recognized as the customization services are performed and completed.

PROPERTY AND EQUIPMENT

Property and equipment is stated at cost. Major expenditures to purchase
property or to substantially increase useful lives of property are capitalized.
Maintenance, repairs and minor renewals are expensed as incurred. When assets
are retired or otherwise disposed of, their costs and related accumulated
depreciation are removed from the accounts and resulting gains or losses are
included in income.

The Company provides for depreciation and amortization of property and
equipment using annual rates which are sufficient to amortize the cost of
depreciable assets over their estimated useful lives of 5 to 7 years. The
Company uses accelerated methods of depreciation and amortization over estimated
useful lives of 5 to 7 years for furniture and fixtures and 3 to 5 years for
computer equipment.

MARKETABLE SECURITIES

All marketable securities held by the Company at December 31, 1995 and 1996
were classified as available-for-sale and recorded at cost, which approximates
market value. Unrealized holding gains and losses, net of the related tax
effect, on available-for-sale securities are excluded from income and are
reported as a separate component of shareholders' equity until realized.
Realized gains and losses from the sale of available-for-sale securities are
determined on a specific-identification basis. Fair values are estimated based
on quoted market prices.

F-8
<PAGE> 54

NATIONAL RESEARCH CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
INCOME TAXES

Effective August 1, 1994, the Company, with consent of its shareholders,
elected under the Internal Revenue Code to be an S corporation. In lieu of
corporation income taxes, the shareholders of an S corporation are taxed on
their proportionate share of the Company's taxable income. Therefore, no
provision or liability for Federal income taxes has been included in these
financial statements for the five months ended December 31, 1994, for the years
ended December 31, 1995 and 1996, or for the six months ended June 30, 1996 and
1997.

The Company will adopt Statement of Financial Accounting Standards No. 109,
(SFAS No. 109) (see also note 4) in the quarter ending September 30, 1997, upon
successful completion of its initial public offering ("IPO"). Deferred income
taxes are provided for temporary differences between tax and financial reporting
bases of assets and liabilities using enacted tax rates under SFAS No. 109.

CASH AND CASH EQUIVALENTS

For purposes of the statements of cash flows, the Company considers all
highly liquid investments with original maturities of three months or less to be
cash equivalents.

(2) INVESTMENTS IN MARKETABLE DEBT SECURITIES

The carrying value for available-for-sale securities by major security type
is shown below. Amortized cost approximates fair value.

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1995 1996 1997
-------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Debt securities:
U.S. Treasury securities................................. $243,776 $ -- $305,576
Obligations of other U.S. agencies....................... 342,361 1,475,752 --
-------- ---------- --------
586,137 1,475,752 305,576
Other...................................................... 1,108 1,213 1,203
-------- ---------- --------
Total............................................ $587,245 $1,476,965 $306,779
======== ========== ========
</TABLE>

There were no sales of marketable securities in advance of scheduled
maturities available-for-sale during 1994, 1995, 1996 or for the six months
ended June 30, 1996 and 1997. All marketable debt securities have stated
maturities of one year or less.

(3) INCOME TAXES AND PRO FORMA INCOME TAXES

Income tax expense for the seven months ended July 31, 1994 consisted of
the following components:

<TABLE>
<S> <C>
Federal..................................................... $ 99,000
State....................................................... 15,500
--------
$114,500
========
</TABLE>

For the seven months ended July 31, 1994, there were no deferred income
taxes.

F-9
<PAGE> 55

NATIONAL RESEARCH CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(3) INCOME TAXES AND PRO FORMA INCOME TAXES, CONTINUED
Income tax expense for the seven months ended July 31, 1994 differed from
that computed by applying U.S. Federal income tax statutory rates to income
before income taxes of $247,139. The reasons for this difference are shown
below:

<TABLE>
<S> <C>
Computed "expected" income tax expense...................... $ 84,000
State income taxes, net of Federal tax benefit.............. 10,200
Nondeductible portion of meals and entertainment expense.... 2,700
Officer life insurance...................................... 3,800
Other, net.................................................. 13,800
--------
$114,500
========
</TABLE>

The accompanying financial statements of income reflect a provision for
income taxes on a pro forma basis, at a combined rate of 40 percent (Federal
statutory rate of 34 percent plus estimated state rate, net of Federal benefit,
of 6 percent) as if the Company was liable for Federal and state income taxes as
a taxable corporate entity throughout the periods presented.

The components of the provision for pro forma income taxes are as follows:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------- -------------------
1994 1995 1996 1996 1997
-------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Federal................................ $466,237 $ 975,118 $1,226,921 $534,481 $678,366
State.................................. 116,559 243,779 306,730 133,620 169,592
-------- ---------- ---------- -------- --------
Pro forma income taxes............ $582,796 $1,218,897 $1,533,651 $668,101 $847,958
======== ========== ========== ======== ========
</TABLE>

The primary temporary differences giving rise to deferred tax assets are
accrued liabilities not currently deductible for income tax purposes. Pro forma
deferred tax assets of approximately $250,000 will be recorded upon completion
of the Company's IPO (see also note 4). Based upon the historical earnings of
the Company, management believes it is more likely than not that the assets will
be realized. The effects of this deferred tax benefit have been given effect as
if the S Corporation status were terminated in the unaudited June 30, 1997 pro
forma balance sheet.

In connection with the termination of its S Corporation status, the Company
expects to distribute approximately $2,654,000 of retained earnings subsequent
to June 30, 1997, and as a final distribution to S Corporation shareholders. The
effects of this distribution have been given effect as if the distribution had
already occurred in the unaudited pro forma balance sheet as of June 30, 1997.

(4) COMMON STOCK

The Company is planning to file a registration statement on Form S-1 for an
IPO of the Company's common stock. In connection with its IPO, the Company plans
to reincorporate in Wisconsin and pay a stock dividend of approximately
239.5-to-1, which has been given retroactive effect in the accompanying
financial statements. In connection with the reincorporation, the Company plans
to increase its authorized common stock from 100,000 shares to 20,000,000 shares
and authorize up to 2,000,000 shares of undesignated preferred stock.

F-10
<PAGE> 56

NATIONAL RESEARCH CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(5) LEASES

The Company leases office space for a monthly base rental payment plus
maintenance and utilities. The lease expired on April 30, 1997. Rental expense
during 1994, 1995 and 1996 was $176,448, $168,417 and $183,118, respectively,
and $88,117 and $113,833 for the six months ended June 30, 1996 and 1997,
respectively, and is included in selling, general and administrative expense on
the statements of income.

(6) EMPLOYEE BENEFITS

During 1995, the Company established a qualified defined contribution
profit-sharing plan covering substantially all employees with a minimum service
of 1,000 hours and one year of service except for highly compensated employees
covered by nonqualified profit sharing plans. Employer contributions, which are
discretionary, vest to participants at a rate of 20% per year. Total
profit-sharing expense was $48,989 and $75,229 in 1995 and 1996, respectively,
and no expense was recognized for the six months ended June 30, 1996 and 1997.

The Company sponsors nonqualified profit sharing bonus and incentive plans
for employees and members of executive management of the Company. Certain
bonuses under the executive management incentive plan are paid over a five-year
period. Expense recorded under these plans was $118,775, $468,052 and $552,832
in 1994, 1995 and 1996, respectively, and $258,104 and $422,568 for the six
months ended June 30, 1996 and 1997, respectively.

(7) RELATED PARTY TRANSACTIONS

At December 31, 1994, accrued wages, bonuses and profit sharing included
amounts due to a former minority shareholder in the amount of $29,106 on an
unsecured 3.5% note issued by the Company in conjunction with its redemption of
the former shareholder's stock in the Company. The note was paid in full in
January 1995. Interest expense incurred on this note during 1994 was $431. There
was no interest expense incurred during 1995.

(8) SPECIAL BONUS

In August 1997, the Company decided to pay special cash bonuses aggregating
$1,740,000 to certain executive officers (other than the selling shareholder)
prior to termination of its S Corporation status. The related compensation
charge will be recognized by the Company in the fourth quarter of 1997. The
effect of this charge has been given effect as if the bonuses had been paid in
the unaudited pro forma balance sheet as of June 30, 1997. These special cash
bonuses will reduce the amount otherwise available for distribution to the
Company's shareholders prior to the termination of its S Corporation status.

F-11
<PAGE> 57

======================================================

NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING
SHAREHOLDER OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE
IN ANY JURISDICTION IN WHICH THE PERSON MAKING THE OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF
THIS PROSPECTUS.

------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Information................. 2
Prospectus Summary..................... 3
Risk Factors........................... 6
Use of Proceeds........................ 11
S Corporation Termination.............. 11
Dividend Policy........................ 12
Capitalization......................... 13
Dilution............................... 14
Selected Financial Data................ 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 17
Business............................... 24
Management............................. 34
Principal and Selling Shareholders..... 38
Certain Transactions................... 39
Description of Capital Stock........... 39
Shares Eligible for Future Sale........ 41
Underwriting........................... 43
Legal Matters.......................... 44
Experts................................ 44
Index to Financial Statements.......... F-1
</TABLE>

------------------

UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THIS
OFFERING), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.

======================================================

2,100,000 SHARES

NATIONAL RESEARCH CORPORATION LOGO

COMMON STOCK

---------------------------

PROSPECTUS

OCTOBER , 1997

---------------------------

WILLIAM BLAIR & COMPANY

ROBERT W. BAIRD & CO.
INCORPORATED

======================================================
<PAGE> 58

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission registration fee......... $ 9,514
NASD filing fee............................................. 3,640
Nasdaq National Market listing fee.......................... 36,000
Blue sky fees and expenses.................................. 10,000
Transfer agent expenses and fees............................ 6,000
Printing and engraving expenses............................. 100,000
Accountants' fees and expenses.............................. 95,000
Legal fees and expenses..................................... 170,000
Miscellaneous............................................... 69,846
--------
Total............................................. $500,000
========
</TABLE>

All of the above fees, costs and expenses will be paid by the Company.
Other than the SEC registration fee, the NASD filing fee and the Nasdaq National
Market listing fee, all fees and expenses are estimated.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Pursuant to the Wisconsin Business Corporation Law and the Company's
By-Laws, directors and officers of the Company are entitled to mandatory
indemnification from the Company against certain liabilities and expenses (i) to
the extent such officers or directors are successful in the defense of a
proceeding and (ii) in proceedings in which the director or officer is not
successful in defense thereof, unless (in the latter case only) it is determined
that the director or officer breached or failed to perform his or her duties to
the Company and such breach or failure constituted: (a) a willful failure to
deal fairly with the Company or its shareholders in connection with a matter in
which the director or officer had a material conflict of interest; (b) a
violation of the criminal law unless the director or officer had reasonable
cause to believe his or her conduct was lawful or had no reasonable cause to
believe his or her conduct was unlawful; (c) a transaction from which the
director or officer derived an improper personal profit; or (d) willful
misconduct. The Wisconsin Business Corporation Law specifically states that it
is the public policy of Wisconsin to require or permit indemnification,
allowance of expenses and insurance in connection with a proceeding involving
securities regulation, as described therein, to the extent required or permitted
as described above. Additionally, under the Wisconsin Business Corporation Law,
directors of the Company are not subject to personal liability to the Company,
its shareholders or any person asserting rights on behalf thereof for certain
breaches or failures to perform any duty resulting solely from their status as
directors, except in circumstances paralleling those in subparagraphs (a)
through (d) outlined above.

Expenses for the defense of any action for which indemnification may be
available may be advanced by the Company under certain circumstances.

The indemnification provided by the Wisconsin Business Corporation Law and
the Company's By-Laws is not exclusive of any other rights to which a director
or officer may be entitled. The general effect of the foregoing provisions may
be to reduce the circumstances which an officer or director may be required to
bear the economic burden of the foregoing liabilities and expense.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

The shares issued by the Company or its predecessor, as hereinafter set
forth, have been adjusted to reflect an approximately 239.5-for-1 stock dividend
paid on September 15, 1997.

II-1
<PAGE> 59

In connection with the reincorporation of the Company in the State of
Wisconsin in September 1997, the Company (a) was formed as a wholly-owned
subsidiary of its predecessor Nebraska corporation and (b) issued an aggregate
of 6,055,000 shares, on a one-for-one basis, to the two shareholders of its
predecessor corporation, Michael D. Hays and Jona S. Raasch. No underwriters
were engaged in connection with the foregoing issuances. Such issuances were
effected in reliance upon the exemption from registration provided by Section
4(2) of the Securities Act of 1933 for transactions not involving a public
offering.

On October 25, 1994, the predecessor corporation to the Company issued and
sold 2,886 shares of Common Stock to an employee and director of the predecessor
corporation to the Company for $475.20. No underwriters were engaged in
connection with the foregoing sale. Such sale was effected in reliance upon the
exemption from registration provided by Section 4(2) of the Securities Act of
1933 for transactions not involving a public offering.

Other than as set forth in the preceding paragraphs, the Company has not
sold any securities within the past three years.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits. The exhibits listed in the accompanying Exhibit Index are
filed as part of this Registration Statement.

(b) Financial Statement Schedules. The financial statement schedules listed
in the accompanying Financial Statement Schedule Index are filed as
part of this Registration Statement.

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-2
<PAGE> 60

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Lincoln,
and State of Nebraska, on this 1st day of October, 1997.

NATIONAL RESEARCH CORPORATION

By: /s/ MICHAEL D. HAYS
------------------------------------
MICHAEL D. HAYS
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>

/s/ MICHAEL D. HAYS President, Chief Executive Officer October 1, 1997
- --------------------------------------------- and Director (Principal Executive
Michael D. Hays Officer)

/s/ PATRICK E. BEANS Vice President, Treasurer, Secretary October 1, 1997
- --------------------------------------------- and Chief Financial Officer
Patrick E. Beans (Principal Financial and Accounting
Officer)
</TABLE>

II-3
<PAGE> 61

FINANCIAL STATEMENT SCHEDULE INDEX

<TABLE>
<CAPTION>
FORM S-1
PAGE
--------
<S> <C>
Independent Auditors' Report on Financial Statement
Schedules................................................. S-2
Schedule II -- Valuation and Qualifying Accounts............ S-3
</TABLE>

All other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedules, or because the information required is included in the financial
statements and notes thereto.

S-1
<PAGE> 62

INDEPENDENT AUDITORS' REPORT

The Board of Directors
National Research Corporation:

The audits referred to in our report dated June 6, 1997, except as to note
8 which is as of August 8, 1997, included the related financial statement
schedule as of December 31, 1996, and for each of the years in the three-year
period ended December 31, 1996, included in the registration statement. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based on our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

KPMG Peat Marwick LLP

Lincoln, Nebraska
June 6, 1997

S-2
<PAGE> 63

NATIONAL RESEARCH CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
BALANCE AT WRITE-OFFS, BALANCE
BEGINNING BAD DEBT NET OF AT END
OF YEAR EXPENSE RECOVERIES OF YEAR
---------- -------- ----------- -------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1994........................ $ -- $10,000 $ -- $10,000
Year ended December 31, 1995........................ 10,000 24,100 9,100 25,000
Year ended December 31, 1996........................ $25,000 $30,764 $10,764 $45,000
</TABLE>

See accompanying independent auditors' report.

S-3
<PAGE> 64

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<S> <C>
(1) Proposed Form of Underwriting Agreement.*
(3.1) Articles of Incorporation of National Research Corporation,
as amended to date.*
(3.2) By-Laws of National Research Corporation, as amended to
date.*
(5) Opinion of Foley & Lardner regarding legality of securities
being offered.*
(10.1) Agreement, dated as of August 15, 1994, among National
Research Corporation, The Permanente Medical Group, Inc. and
Kaiser Foundation Health Plan, Inc. [this agreement expired
on March 31, 1996].+
(10.2) National Research Corporation 1997 Equity Incentive Plan.*
(10.3) National Research Corporation Incentive Plan adopted as of
October 14, 1994 but terminated in August 1997.*
(10.4) National Research Corporation Director Stock Plan.*
(10.5) Employment Memorandum, dated as of July 15, 1994, from
National Research Corporation to Patrick E. Beans.*
(10.6) Employment Agreement, dated as of December 1, 1996, between
National Research Corporation and Sharon Flaherty.*
(10.7) Subcontract, dated as of May 9, 1997, as amended, between
National Research Corporation and United HealthCare
Corporation.+*
(23.1) Consent of Foley & Lardner (included in Exhibit (5)).*
(23.2) Consent of KPMG Peat Marwick LLP.
(27) Financial Data Schedule (EDGAR version only).*
(99) Consent of Patrick E. Beans regarding his election to the
Board of Directors immediately prior to the effective date
of this Registration Statement.*
</TABLE>

- -------------------------
* Previously filed.

+ Portions of this exhibit have been redacted and are subject to a confidential
treatment request filed with the Secretary of the Securities and Exchange
Commission pursuant to Rule 406 under the Securities Act of 1933, as amended.
The redacted material is being filed separately with the Securities and
Exchange Commission.

E-1

<PAGE> 1

EXHIBIT (10.1)

AGREEMENT

This Agreement is made by and between NATIONAL RESEARCH CORPORATION, a
Nebraska corporation ("NRC"), and THE PERMANENTE MEDICAL GROUP, INC., a
California corporation ("TPMG"), and KAISER FOUNDATION HEALTH PLAN, INC., a
California nonprofit public benefit corporation ("KFHP"), for the benefit of
its Northern California Region. TPMG and KFHP are hereinafter referred to
together as "Kaiser".

WHEREAS, the parties to this Agreement have entered into a Memorandum of
Understanding dated January 18, 1994 ("MOU"), which describes the terms of an
arrangement between the parties regarding a Member/Patient Survey Project to be
undertaken by NRC for Kaiser, and in an Addendum to the MOU describes a
Competitor Benchmark Study and the trial of certain Listening System Software
(TM); and

WHEREAS, the parties desire to enter into this Agreement to set forth the
terms and conditions governing the transaction as described herein which shall
supersede the MOU.

NOW, THEREFORE, in consideration of the mutual promises and agreements set
forth herein, and intending to be legally bound, the parties agree as follows:

1. SCOPE OF SERVICES/CHANGE REQUESTS.

(a) NRC shall provide services to Kaiser as described in the Task
Specification for Member/Patient Survey Project, attached hereto as Attachment
A, which Attachment is incorporated in this Agreement by this reference.
Additionally, NRC shall provide services to Kaiser as described in the Task
Specification for Competitor Benchmark Study, attached hereto as Attachment B,
which Attachment is incorporated in this Agreement by this reference. Such
Task Specifications may, during the term of this Agreement, be amended by
mutual agreement of the parties with such amendments to be in writing and
executed by authorized representatives of the parties. NRC shall also provide
KFHP's Northern California Regional Office the Listening System Software (TM)
on a trial usage basis as described in Attachment C, which Attachment is
incorporated in this Agreement by this reference.

(b) Change Requests. Kaiser may request changes to the services described
in Section 1(a) above during the course of this Agreement. NRC shall make
reasonable efforts to accommodate such changes within the scope and schedule of
this Agreement. If any requested change is of such a material nature as to
result in additional costs and expenses or delay in the schedule, NRC shall
immediately notify Kaiser of the amount of such additional cost and the impact
on the schedule. Kaiser shall promptly notify NRC of its desire to implement
such change. No such change, however, shall be implemented until the details
and cost of such change is agreed upon in writing by NRC and Kaiser.

2. ASSIGNED PERSONNEL.

(a) NRC will provide qualified and trained personnel to perform the Task
Specifications, Attachments A and B hereto, at NRC's offices in Lincoln,
Nebraska. NRC shall
<PAGE> 2

designate a project leader who will be the principal contact between Kaiser and
NRC. NRC project leader will be David Copper. Kaiser will also designate a
principal contact person. Kaiser's principal contact person will be J. Mark
Rogers. NRC shall assign and direct its employees in such a manner as
necessary to perform the Task Specifications, Attachments A and B hereto.

(b) During the Initial Term or any renewal term of this Agreement, and
continuing for a period of one (1) year thereafter, NRC and Kaiser agree not to
hire, nor to engage on contract, nor to solicit the employment of any of the
other's employees with whom there is contact during an assignment under this
Agreement, without the written authorization of the other.

3. TERM. This Agreement shall become effective as of February 1, 1994 (the
"Effective Date"), and shall continue in effect through March 31, 1996 unless
earlier terminated by one of the parties hereto in accordance with the
provisions of paragraph 6 hereinbelow (the "Initial Term").

4. COMPENSATION AND TERMS OF PAYMENT. The compensation payable by Kaiser
to NRC shall be as follows:

(a) The compensation for performance by NRC of the Task Specification for
the Member/Patient Survey Project, as specified in Attachment A hereto, shall
be * Dollars ($ * ) for the period commencing with the Effective Date of this
Agreement through *, and the compensation to be paid to NRC by Kaiser for the
performance of such Project during the period of * through * shall be *
Dollars ($ * ). The compensation payable by Kaiser to NRC for the period from
the Effective Date through * is payable as follows:

On or before * $ *

Upon initiation of sampling $ *

On * and the first day of each
month thereafter (eight payments)
through * $ *

Final payment for *, upon receipt
and acceptance by Kaiser of the full
* sample data set and performance
reports for facilities and departments $ *

_______________
* Indicates that material has been omitted and confidential treatment
has been requested therefor. All such omitted material has been filed
separately with the SEC pursuant to Rule 406.

-2-
<PAGE> 3

The compensation payable by Kaiser to NRC for the period from * through * is
payable as follows:

Commencing * and as of
the first day of each month through
* $ *

Final payment for *, upon receipt
and acceptance by Kaiser of the full
* sample data set and performance
reports for facilities and departments
(no earlier than * ) $ *

(b) The compensation for performance by NRC of the Task Specification for
the Competitor Benchmark Study, as set forth in Attachment B hereto, shall be
the sum of * Dollars ($ * ), payable one-half upon execution of this
Agreement and one-half on or before *.

(c) In addition to the payments set forth in subparagraphs 4(a) and (b)
hereof, Kaiser shall reimburse NRC for NRC's actual costs for reasonable travel
expenses (including air travel costs, hotel, meals and incidental expenses) for
NRC personnel, and overnight express delivery service charges when such travel
expenses or overnight express deliveries are requested by representatives of
Kaiser. In-house photocopying, routine postage and telephone (within
California) are excluded from reimbursable expenses and shall not be charged to
Kaiser. It is estimated that air travel, hotel, meals and incidental expenses
for a two-day trip to the offices of Kaiser's Northern California Region will
approximate One Thousand Five Hundred Dollars ($1,500), and four to six such
trips will be required during each twelve-month period. NRC will bill Kaiser
for the foregoing out-of-pocket expenses on a monthly basis and shall furnish
to Kaiser copies of bills for which expense reimbursement is being requested.
Reimbursable expenses shall not exceed * Dollars ($ * ).

(d) Records. NRC shall maintain complete and accurate accounting records,
in a form in accordance with generally accepted accounting principles, to
substantiate NRC's fees and expenses under this Agreement. Kaiser shall have
the right to review these records during the term of this Agreement. If this
Agreement is subject to the provisions of Section 952 of P.L. 96-499, which
governs access to books and records of subcontractors of services to Medicare
providers where the cost or value of such services under the contract exceeds
Ten Thousand Dollars ($10,000.00) over a twelve (12) month period, then NRC
shall permit

-3-
<PAGE> 4

representatives of the Secretary of the Department of Health and Human Services
and the Comptroller General, in accord with criteria and procedures contained
in applicable Federal regulations, to have access to their books, documents and
records as necessary to verify the cost of services provided under this
Agreement.

(e) Other charges in compensation or expense reimbursement pursuant to this
paragraph shall occur only on mutual written agreement of the parties. In no
event will equipment or software purchased by NRC be billed to or reimbursable
by Kaiser without the prior written consent of Kaiser.

(f) Kaiser and NRC acknowledge and agree that increases in the postal rates
may be implemented by the United States Postal Service subsequent to the
Effective Date. Any such postal rate increases will be passed through to
Kaiser on a dollar-for-dollar basis. Other changes in compensation or expense
reimbursement pursuant to this paragraph shall occur only on mutual written
agreement of the parties.

5. INVOICES. NRC will invoice Kaiser for compensation payable to NRC for
services rendered in connection with the performance of the Task Specifications
and for all reimbursable out-of-pocket expenses. Kaiser shall make payment to
NRC in U.S. Dollars of all amounts due and owing within * ( * ) days after
receipt of invoice. Kaiser shall pay a late payment fee of * percent (*%) per
month for the outstanding balance of any amount past due for more than three
(3) business days after receipt of notice from NRC that such amount is past
due.
6. TERMINATION.

(a) Termination For Default. If either NRC or Kaiser shall at any time
during the Initial Term, or any renewal term hereof, fail or refuse to perform
in accordance with any material provision of this Agreement, then the other
party may serve upon such defaulting party a notice of intention to terminate
this Agreement, which notice shall specify the claimed neglect, failure or
refusal, and shall be served in accordance with the NOTICES section of this
Agreement. If within thirty (30) days after the date of providing such written
notice, the defaulting party shall not have cured the default indicated in such
Notice, or presented a plan acceptable to the other party to cure such default,
then upon the expiration of such thirty (30) day period, the other party may,
at its option, elect to terminate this Agreement. In the event of termination
by Kaiser due to NRC's uncured default, NRC shall, within thirty (30) days
after termination, refund to Kaiser all amounts paid by Kaiser for NRC's
services but not yet performed through the date of termination, including any
prepaid out-of-pocket expenses reimbursed by Kaiser through the date of
termination. The right of either party to terminate this Agreement for default
shall not be affected by such party's failure to take action with respect to
any previous default.

-4-
<PAGE> 5

(b) Termination Without Cause. At its option and for its convenience,
Kaiser may terminate this Agreement for any reason upon thirty (30) days
written notice to NRC. NRC shall be entitled to payment for all amounts
specified herein for its services performed through the date of termination,
and reimbursed for its out-of-pocket expenses through the date of termination,
including expenses incurred for inventory of materials relating to this
Agreement which could not otherwise be used by NRC customers.

(c) Actions on Termination. NRC shall not perform any more services or
incur any further costs claimed to be reimbursable hereunder after the date of
the termination notice, without the prior written approval of Kaiser. Upon
termination, NRC shall act in such a manner as to facilitate Kaiser's or any
new consultant's assumption of duties; provided however, that NRC shall not be
obligated to provide to any new consultant any NRC proprietary materials or NRC
confidential information utilized by NRC in its performance pursuant to this
Agreement.

7. CONFIDENTIAL INFORMATION. NRC acknowledges that it and its employees,
agents or representatives may, in the course of performance of this Agreement,
require access to proprietary or confidential information of Kaiser and will be
exposed to or acquire information which is proprietary to or confidential to
Kaiser, its affiliated companies, vendors or Kaiser members or employees. This
information may include data relating to survey results, identities of Kaiser
members or employees involved in the survey, financial data, personnel records,
computer programs, marketing information and, to the extent marked proprietary
or confidential, any other information relating to the business affairs of
Kaiser. All such information obtained by NRC or its employees, agents and
representatives, shall be deemed to be the confidential and proprietary
information of Kaiser ("Confidential Information"). NRC agrees to hold such
information in strict confidence and not to disclose such information for any
purposes other than the provision of services to Kaiser under this Agreement
and to take appropriate actions by instruction or agreement with each of its
employees, contractors, agents and representatives to keep such information
confidential and NRC will, upon written request by Kaiser, have all NRC
employees, contractors, agents and representatives performing work under this
Agreement sign the confidentiality agreements satisfactory to Kaiser. NRC
further acknowledges that Kaiser has a legal obligation to keep all
Confidential Information confidential, including without limitation, all
patient records, medical records, test results and personnel records; and that
the unauthorized disclosure of the same could irreparably damage Kaiser and its
affiliated corporations; and that by reason of its duties under its Agreement,
NRC may come into possession of such Confidential Information. If NRC breaches
this provision, damages may not be an adequate remedy and Kaiser shall be
entitled to injunctive relief to restrain such breach, threatened or actual.
Upon termination of this Agreement, NRC shall return to Kaiser all Confidential
Information in NRC's possession. This paragraph shall survive the termination
of this Agreement.

-5-
<PAGE> 6

8. TITLE AND POSSESSION. NRC does not convey to Kaiser, nor does Kaiser
obtain any rights in any software programs, systems, data or materials provided
by NRC in the course of performing this Agreement. NRC shall retain all
rights, title and interest in the Listening System Software (TM) provided to
Kaiser for its use as stated in Attachment C hereto. Kaiser is hereby granted
all rights of ownership and the right to produce or copy all of the survey
response data and periodic reports provided by NRC to Kaiser as specified in
the Task Specification for Member/Patient Survey Project, Attachment A hereto,
or the Task Specification for Competitor Benchmark study, Attachment B hereto.
All survey forms, results, data, member lists; all other information and
materials provided by Kaiser; and all survey reports and other reports produced
by NRC under this Agreement, shall remain the property of Kaiser and NRC shall
return all such information and material to Kaiser upon completion or earlier
termination of this Agreement unless otherwise instructed in writing by Kaiser.

9. WARRANTY.

(a) NRC warrants that the services provided hereunder will be performed in
a good and workmanlike manner, and that the deliverables provided by NRC to
Kaiser will conform to the applicable Task Specification. NRC's sole
obligation under this warranty is to correct and adjust the deliverables which,
within a reasonable time, are found to not conform to this warranty.

(b) NRC does not warrant or represent that the services or products
provided pursuant to this Agreement will be capable of achieving any particular
result in Kaiser's business, or that all errors, defects or deficiencies can or
will be found or corrected, or that any deliverables which are the subject of
the Task Specification will be error free. NRC'S ENTIRE LIABILITY AND KAISER'S
EXCLUSIVE REMEDY FOR DEFECTIVE PERFORMANCE OR NON-PERFORMANCE UNDER THE
WARRANTY CONTAINED IN THIS SECTION 9 SHALL BE LIMITED TO CORRECTION AND
ADJUSTMENT OF OR SUBSTITUTION FOR THE SERVICES OR PRODUCTS WHICH DO NOT COMPLY
WITH THIS WARRANTY, PROVIDED THAT NRC PROMPTLY AND IMMEDIATELY CORRECT, ADJUST
OR SUBSTITUTE THE SERVICES OR THE PRODUCTS WHICH DO NOT COMPLY WITH THIS
WARRANTY AND FURTHER PROVIDED THAT KAISER SHALL ALLOW A REASONABLE OPPORTUNITY
FOR NRC TO PROVIDE SUCH REMEDY AND SHALL ASSIST NRC, AT NRC'S EXPENSE, IN
IDENTIFYING AND ANALYZING SUCH DEFECTS OR DEFICIENCIES.

(c) THE LIMITED WARRANTY PROVIDED HEREIN IS IN LIEU OF ALL OTHER
WARRANTIES, GUARANTEES AND CONDITIONS, EXPRESS OR IMPLIED, INCLUDING BUT NOT
LIMITED TO ANY IMPLIED WARRANTIES AND CONDITIONS OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE AND THOSE ARISING BY STATUTE OR OTHERWISE IN LAW, OR
FROM A COURSE OF DEALING OR USAGE OF TRADE.

(d) IN NO EVENT SHALL NRC BE OBLIGATED OR LIABLE TO KAISER FOR ANY
CONSEQUENTIAL, INCIDENTAL OR INDIRECT DAMAGES ARISING OUT OF OR IN CONNECTION
WITH THE SERVICES OR PRODUCTS PROVIDED BY NRC HEREUNDER, OR ANY DELIVERABLES
PROVIDED BY NRC TO KAISER

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<PAGE> 7

HEREUNDER, INCLUDING BUT NOT LIMITED TO LOSS OF REVENUE OR PROFIT, EVEN IF NRC
HAS BEEN ADVISED OR KNEW OR SHOULD HAVE KNOWN OF THE POSSIBILITY OF SUCH
DAMAGES OR LOSS.

10. INDEMNITY.

(a) Kaiser shall, except to the extent of NRC negligence or willful
misconduct, indemnify and hold NRC harmless from and against any and all
liabilities, claims, actions, proceedings or suits against NRC by any
physician, specialist or other employee of Kaiser, or by any third party
arising out of or connected with the performance by NRC pursuant to this
Agreement and the Task Specification, or any use by Kaiser of the deliverables
produced by NRC pursuant to the agreement and Task Specification. This
indemnity shall include all costs, attorneys' fees and damages which NRC is or
may be required to pay by reason of any claims, actions, proceedings or suits
against NRC. NRC shall give Kaiser written notification of any claims,
actions, proceedings or suits against NRC within the scope of this
indemnification. Upon receipt of such notice, Kaiser shall, at its expense,
defend NRC, and NRC shall provide Kaiser with reasonable assistance and
cooperation to facilitate the defense or settlement of such claim, action,
proceeding or suit.

(b) NRC shall indemnify and hold harmless Kaiser, its officers, agents,
affiliates and employees from and against all liabilities, claims, losses,
damages, demands and expenses, including reasonable attorneys' fees, arising
out of NRC's breach of Section 7, Confidential Information and for personal
injury or property damage to the extent that any such liabilities, claims,
losses, damages, demands or expenses are caused by any act, error or omission
of NRC, its officers, employees, agents or consultants. This indemnity shall
include all costs, attorneys' fees and damages which Kaiser is or may be
required to pay by reason of any claims, actions, proceedings or suits against
Kaiser. Kaiser shall give NRC written notification of any claims, actions,
proceedings or suits against Kaiser within the scope of this indemnification.
Upon receipt of such notice, NRC shall, at its expense, defend Kaiser, and
Kaiser shall provide NRC with reasonable assistance and cooperation to
facilitate the defense or settlement of such claim, action, proceeding or suit.

11. INDEPENDENT CONTRACTOR. NRC is an independent contractor and engages
in the operation of its own business, and neither party is or shall be
considered to be the agent of the other party for any purposes. Neither party
has authorization to enter into any contracts, assume any obligations or make
any warranties or representations on behalf of the other party. Nothing in
this Agreement shall be construed to establish a relationship of co-partner or
joint venturer between the parties. Kaiser shall not be responsible to NRC,
NRC's employee or any governing body for any payroll-related taxes related to
the performance of this Agreement.

12. INSURANCE.

a. NRC shall procure and maintain in effect the following policies of
insurance covering liability arising from or related to services performed or
to be performed by NRC under this Agreement:

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<PAGE> 8

(1) all insurance coverage required by Federal and State law, including
worker's compensation and employer's liability all with statutory minimum
limits;

(2) general comprehensive liability insurance with not less than a Two
Million Dollar ($2,000,000.00) combined single limit and aggregate, including
personal injury, death, sickness or disease of any persons and injury to or
destruction of property, including loss of use resulting therefrom, and also
including a contractual liability endorsement covering NRC's liability under
Section 8, Indemnity;

(3) automobile liability insurance (bodily injury and property damage
liability) with not less than a One Million Dollar ($1,000,000.00) combined
single limit each accident for bodily injury and property damage combined,
including coverage for all owned, hired and non-owned automobiles; and

(4) professional liability (errors and omissions) insurance with a limit
of not less than One Million Dollars ($1,000,000.00).

b. All insurance required under this Section shall be carried by companies
acceptable to Kaiser and the insurance required under subsections 12a(2) and
12a(3) shall name Kaiser and its affiliate, Kaiser Foundation Hospitals/Health
Plan, Inc., as additional insureds. All insurance shall also contain
cross-liability endorsements, be primary and noncontributing with respect to
any policies carried by Kaiser, and shall state that any coverage carried by
Kaiser shall be excess insurance.

c. NRC shall, upon execution of this Agreement, provide Kaiser with a
certificate of insurance evidencing these coverages, naming Kaiser and its
affiliate as additional insureds as required and providing that no such
coverage shall be subject to cancellation or material reduction in coverage
without thirty (30) days prior written notice to Kaiser. The insurance
requirements hereunder shall not limit or relieve NRC of its duties,
responsibilities or liabilities under this Agreement.

13. FORCE MAJEURE. Neither party shall be responsible for any failure to
comply with, or for any delay in, the performance of the terms of this
Agreement, including but not limited to, delays in delivery, to the extent that
such failure or delay is directly or indirectly caused by or results from
events of force majeure beyond the reasonable control of the party claiming a
failure to perform or delay under this paragraph.

14. TAXES. If Kaiser is exempt from payment of taxes, Kaiser shall
provide NRC with a certification of exemption or comparable document issued by
the applicable taxing

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authority, If exemption of Kaiser from taxes is not established, Kaiser shall
promptly pay to NRC an amount equal to any excise, use, privilege, sales, or
any other tax (except income and franchise taxes of NRC), assessment, or any
import duties, imposed by or under authority of any federal, state, provincial,
or local law, and to be paid by NRC with respect to the goods and services
furnished under this Agreement or any Attachment hereto. Notwithstanding any
other provision in this Agreement, in no event shall Kaiser be responsible to
NRC, the employees of NRC or any governing body for taxes or withholding on the
payroll of NRC.

15. NOTICES. All notices of any kind required or permitted under the
terms of this Agreement shall be in writing and shall be delivered by mailing a
copy thereof by certified or registered United States mail, postage prepaid,
with return receipt requested, or by overnight express delivery, addressed as
follows, or to such other address as either party shall give notice of from
time to time:

If to NRC:

NATIONAL RESEARCH CORPORATION
Gold's Galleria
1033 "O" Street, Suite 400
Lincoln, NE 68508
Attn: Michael Hays, President

If to Kaiser:

THE PERMANENTE MEDICAL GROUP, INC.
Executive Offices
1950 Franklin, 20th Floor
Oakland, CA 94612
Attn: Robert S. Klein, MD
Associate Executive Director

KAISER FOUNDATION HEALTH PLAN, INC.
Executive Offices
1950 Franklin, 20th Floor
Oakland, CA 94612
Attn: Jerry C. Fleming, Vice President

16. Intentionally Omitted.

17. NO PUBLICITY. NRC shall not, without the prior written consent of
Kaiser, use in advertising, publicity or otherwise the name of Kaiser
Foundation Health Plan, Inc., Kaiser Foundation Hospitals, The Permanente
Medical Group, Inc. or the Kaiser Permanente Medical Care Program, or refer to
the existence of this Agreement in any press releases, advertising or materials
distributed to prospective customers or other third parties.

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<PAGE> 10

18. BINDING EFFECT; ASSIGNMENT. This Agreement shall not be assigned by
either party without the prior written consent of the other, except that Kaiser
may assign this Agreement or any interest herein, to any organization directly
associated with the Kaiser Permanente Medical Care Program, or to (i) any
parent, subsidiary or affiliated corporation of Kaiser; or (ii) any corporation
with which Kaiser may merge or consolidate, except that Kaiser shall remain
responsible to NRC for the full performance of the terms of this Agreement.
Nothing in this Agreement, whether express or implied, is intended to confer
any rights or remedies under or by reason of this Agreement on any party other
than the parties hereto and their respective successors, nor is anything in
this Agreement intended to relieve or discharge the obligation or liability of
any third party to either party to this Agreement, nor shall any provision give
any third party any right of subrogation or action against either party to this
Agreement.

19. ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the entire
agreement between the parties pertaining to the subject matter hereof and
supersedes all prior agreements, representations, and understandings of the
parties hereto with respect to the subject matter hereof, including without
limitation, the MOU. This Agreement may be supplemented, modified or amended
only by a written instrument duly executed by authorized representatives of
each of the parties hereto.

20. ATTORNEYS' FEES. If any action is commenced to enforce any of the
provisions of this Agreement, including without limitation, an arbitration
proceeding, the prevailing party shall, in addition to other remedies, be
entitled to recover reasonable attorneys' fees and costs of suit from the other
party.

21. NONDISCRIMINATION. NRC recognizes that as a government contractor,
Kaiser is subject to various federal laws, executive orders and regulations
regarding equal opportunity and affirmative action which may also be applicable
to subcontractors. NRC, therefore, agrees that any and all applicable equal
opportunity and affirmative action clauses shall be incorporated herein as
required by federal laws, executive orders, and regulations which include the
following:

A. The nondiscrimination and affirmative action clauses contained in:
Executive Order 11246, as amended, relative to equal opportunity for all
persons without regard to race, color, religion, sex or national origin; the
Vocational Rehabilitation Act of 1973, as amended, relative to the employment
of qualified handicapped individuals without discrimination based upon their
physical or mental handicaps; the Vietnam Era Veterans Readjustment Assistance
Act of 1974, as amended relative to the employment of disabled veterans and
veterans of the Vietnam Era; and the implementing rules and regulations
prescribed by the Secretary of Labor in Title 41, Part 60 of the Code of
Federal Regulations.

B. The utilization of small and minority business concerns clauses
contained in: the Small Business Act, as amended; Executive Order 11625; and
the Federal Acquisition Regulation (FAR) at 48 CFR Chapter 1, Part 19,
Subchapter D, and Part 52, Subchapter H, relative to the utilization of
minority business enterprises, small business concerns and small business
concerns owned and controlled by socially and economically disadvantaged
individuals, in the performance of contracts awarded by federal agencies.

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<PAGE> 11

22. MISCELLANEOUS.

(a) This Agreement shall be governed by and construed in accordance with
the laws of the State of California.

(b) The waiver by one party of the performance of a covenant, condition
or promise herein shall not invalidate this Agreement nor shall it be
considered a waiver by such party of any other covenant, condition or promise
herein, nor shall any such waiver be construed as a future waiver of the
performance of any other like act, covenant, condition or promise.

(c) Whenever possible, each provision of this Agreement shall be
interpreted in such a manner as to be effective and valid under applicable law;
provided, however, that in the event that any provision of this Agreement shall
be invalid or prohibited under such applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.

(d) The headings of the several paragraphs of this Agreement are inserted
solely for the convenience of reference and are not a part of this Agreement
and are not intended to govern, limit or aid in the construction of any of the
terms or provisions of this Agreement.

(e) This Agreement may be executed simultaneously in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. The parties hereto
agree that a facsimile copy of the signature of an authorized representative of
one or more of the parties hereto shall have the same legal effect as the
original signature of such representative.

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<PAGE> 12

IN WITNESS WHEREOF, the parties, by and through their authorized
representatives, have executed this Agreement on the dates indicated below.

NATIONAL RESEARCH CORPORATION ("NRC")

By: /s/ Michael Hays
---------------------------------
Name: Michael Hays
---------------------------------
Title: CEO
---------------------------------
Date: 7-15-94
---------------------------------

THE PERMANENTE MEDICAL GROUP, INC. ("TPMG")

By: /s/ Robert Klein
---------------------------------
Name: Robert Klein, MD
---------------------------------
Title: Associate Executive Director
---------------------------------
Date: 8/15/94
---------------------------------
KAISER FOUNDATION HEALTH PLAN, INC. ("KPHP")

By: /s/ Jerry C. Fleming
---------------------------------
Name: Jerry C. Fleming
---------------------------------
Title: V.P. Associate Regional Manager
---------------------------------
Date: 8/11/94
---------------------------------

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ATTACHMENT A

Task Specification for Member/Patient
Survey Project
_____________________________________

Kaiser will provide to NRC certain member and patient level data, and NRC,
by use of this data, will perform periodic surveys of Kaiser's members and
patients regarding satisfaction with the services such members and patients
have received from KPHP. Based upon survey results, NRC will provide period
reports to Kaiser as more specifically described herein. The Survey Project
will cover data for the period of * through *, unless extended pursuant to
Paragraph 3 of the agreement.

Kaiser will provide NRC with the data relating to the patient or member to
whom NRC shall transmit a survey form. Data pertaining to patients and members
shall include information as reasonably required by NRC to perform this Task
Specification, such information to be provided by Kaiser to NRC in a mutually
acceptable format. Kaiser agrees to exercise its best efforts to keep such
data up-to-date and accurate. Data regarding certain patients may be withheld
by Kaiser in the event that Kaiser determines that confidentiality
considerations so warrant.

Kaiser and NRC will cooperate in the design of a questionnaire to be used as
the survey instrument. Kaiser shall approve the survey in writing prior to
NRC's distribution of the instrument to patients or members. The survey
instrument may undergo periodic revision in response to Kaiser's needs for new
or different survey data.

NRC shall collect * completed patient surveys and * member surveys during
each of the periods of * through *, and * through *, as more specifically
described on the following page of this Attachment. These survey return
numbers are based on the * response rates of *% for the patient survey and *%
for the member survey.

NRC shall monitor a sample selection and avoid transmitting a survey to a
patient more than once during a * period. No member shall be surveyed if he or
she has made a visit to a Kaiser physician within the past * (*) months. (If a
member has visited a physician within the prior *, such member shall be
regarded as a "patient" for survey purposes). Kaiser shall provide NRC with
necessary data to establish the date of a member's last office visit.

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<PAGE> 14

* NRC will restrict its phone contacts to the hours of 10:00 a.m.-9:00
p.m. Monday through Friday, 10:00 a.m.-5:00 p.m. Saturday, and 12:00 p.m.-4:00
p.m. Sunday. Phone contacts shall be conducted in professional manner.

NRC will issue written reports using the survey returns on the following
schedule:

* - * facility reports and * Medical Center reports;

* - * facility reports, * Medical Center reports, and reports for
individual physicians and nurse practitioners;

* - * facility reports, * Medical Center reports, and reports for the
departments of each facility;

NRC shall hold in storage for a maximum of * (*) months the completed survey
forms received from members or patients. Thereafter, unless Kaiser wishes to
take possession of such surveys, such documents will be destroyed, provided,
however, that the survey results shall be stored by NRC on magnetic media.

At the beginning of each month, NRC shall deliver to Kaiser the original
copies of completed surveys received in the prior month which contain written
comments from the respondents. NRC shall make and retain copies of these
original surveys and hold them in storage for a maximum of * (*).

On a weekly basis, NRC will provide a written summary report to Kaiser
detailing the number of surveys mailed out and the number received by NRC.
This report shall be in a form specified by Kaiser as necessary to track the
response rate for mailings which occur at different times throughout the year,
and to track the response rate resulting from different stages of NRC's survey
process.

At the beginning of each month, NRC shall deliver to Kaiser an updated
electronic data set containing all survey responses received from members and
patients as of that date.

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<PAGE> 15

Such data sets will include for each respondent all survey items, necessary
weighing factors, Kaiser-supplied data (e.g., date of visit, provider code),
and survey tracking data maintained by NRC (e.g., date of survey mailing, last
contact, date of survey return to NRC). Such data sets shall be delivered in
the format and on the storage medium specified by Kaiser. NRC shall deliver
such documentation as necessary to access the delivered data sets, and shall
update the documentation whenever any changes are made to the data set contents
or format.

Due to the fact that a significant proportion of Kaiser's members and
patients are non-English speaking (and are not literate in the English
language), NRC will take reasonable steps to facilitate response by such
individuals to surveys. On the survey instrument NRC will provide an
explanation and 800 numbers to be staffed during extended business hours by
Spanish-speaking and Chinese-speaking individuals. Kaiser shall provide NRC
with the survey instrument translated from English to Spanish and English to
Chinese. Upon request, a Spanish-speaking Kaiser pateitn or member will be
provided with a Spanish language survey form. Upon request, a Chinese-speaking
Kaiser patient or member will be administered the survey over the phone by a
Chinese-speaking NRC staff person. If required, NRC will explore with Kaiser
the need to provide assistance to patients or members in other languages. NRC
shall include the requested data on survey activity and response rates for
these special language groups in its weekly survey activity and response
reports.

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ATTACHMENT B

Task Specification for Competitor Benchmark Study
_________________________________

In conjunction with Kaiser's Member/Patient Survey Project, NRC will conduct
a Competitor Benchmark Study of individuals enrolled in the following health
plans;

(a) Fee for service;

(b) Non-Kaiser managed care plans; and

Such Study shall be performed in accordance with this Task Specification.

The Study's objective is to provide Kaiser with comparative health plan
satisfaction scores. The sample group from which data will be collected will
be identified through the use of * . The responses will consist of *
individuals enrolled in a fee-for-service health care plan, * individuals
enrolled in a managed care plan other than Kaiser, and * individuals who are
Kaiser members. Due to the size of the sample, it will be impractical to
report study results by specific health care providers other than Kaiser. All
market research conducted in conjunction with this Study will be performed in
accordance with generally accepted standards for sound market research.

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<PAGE> 17

ATTACHMENT C

Listening System Software (TM) Trial
____________________________________

In conjunction with this Study, NRC will install at Kaiser's Northern
California Regional Office, NRC's Listening System Software (TM) (the
"Software"). The objective of such installation is to allow Kaiser, on a trial
basis for the period from the date of installation to *, to evaluate the
benefits and merits of the Software for licensing from NRC and installation at
each of Kaiser's Northern California Region Medical Centers.

NRC shall install one copy of the Software on a Kaiser personal computer at
an office of Kaiser's choice, train two (2) Kaiser personnel in the operation
of the Software, and support the Software for the duration of the trial review.
NRC will not charge Kaiser for the use, installation or support of the Software
during the trial period. Software support shall be provided Monday through
Friday (excluding holidays) from 9:00 a.m. to 4:00 p.m. Central Time via a
telephone user support line. NRC shall provide one (1) day of installation and
training services at Kaiser's site. NRC will furnish, free of charge, one (1)
Systems Operations Manual for training of Kaiser's personnel and for such
during the trial period.

NRC has, and shall retain, title to the Software during the trial period and
NRC warrants that it has the right to grant the license to the Software.
Kaiser shall not make copies of the Software for any purpose. Kaiser may not
alter or modify the Software or merge the Software into other programs. Kaiser
acknowledges that it has no proprietary interest in or right to use of the
Software except in accordance with the terms described herein.

Kaiser recognizes that the Software and other materials supplied by NRC to
Kaiser are subject to the proprietary rights of NRC. Kaiser agrees that it
will hold the Software in confidence, and that it shall not disclose to any
third party the Software and documentation and that the Software and
documentation are provided for Kaiser's exclusive use. Kaiser further
understands that operator manuals, training aids and other written materials
are subject to copyright protection.

If at the end of the trial period, Kaiser desires to enter into a license
for the use of the Software, Kaiser and NRC shall in good faith negotiate the
terms of a license agreement. If Kaiser does not desire to license the
Software, it shall return the Software and any documentation to NRC without
further obligation.

_______________
* Indicates that material has been omitted and confidential treatment has
been requested therefor. All such omitted material has been filed separately
with the SEC pursuant to Rule 406.

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<PAGE> 18

NRC warrants that it has the right to grant the license granted to Kaiser
under this Agreement, free and clear of any liens and encumbrances, and that
the Software will not infringe upon or violate any patent, copyright or trade
secret right of any third party. NRC shall indemnify, defend, save and hold
Kaiser harmless from any and all liabilities, including attorneys' fees and
costs, arising out of claims that the Software infringes the patent, trademark,
copyright, trade secret or other proprietary or intellectual property rights of
others. Kaiser shall promptly notify NRC in writing if Kaiser becomes subject
to any such claims. Kaiser shall, upon NRC's request and at NRC's expense and
to the extent Kaiser's interests are not adverse to NRC, provide reasonable
assistance to NRC in the defense of such action. NRC shall have the sole
control of the defense and settlement of such claims (except that any
settlement which will adversely affect the financial viability of NRC must be
approved by Kaiser) and NRC shall be entitled to replace or modify the Software
so that it becomes noninfringing provided that the performance of the Software
is not materially impaired thereby.

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<PAGE> 1

EXHIBIT (23.2)

ACCOUNTANTS' CONSENT

We consent to the use of our reports included herein and to the reference of
our firm under the heading "Experts" in the prospectus.

KPMG Peat Marwick LLP

Lincoln, Nebraska
October 1, 1997