UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1 TO
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to __________
Commission File Number 0-29466
National Research Corporation
(Exact name of Registrant as specified in its charter)
Wisconsin 47-063400
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1033 "O" Street, Lincoln Nebraska 68508
(Address of principal executive offices) (Zip Code)
(402) 475-2525
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.001 par value, outstanding as of August 10, 1998: 7,305,000
shares
<PAGE>
The undersigned registrant hereby amends Items 1 and 2 of Part I and
Item 6 of Part II of its Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998 to provide in their entirety as set forth below. The financial
information for the three and six months ended June 30, 1998 has been restated
to reflect a revised charge for acquired in process research and development
cost and a correction in the accrual of interest income. The charge for acquired
research and development cost was revised to conform with recent guidance from
the Securities and Exchange Commission on such valuations.
-2-
<PAGE>
PART I - Financial Information
ITEM 1 Financial Statements
NATIONAL RESEARCH CORPORATION
CONDENSED BALANCE SHEETS
June 30, December 31,
1998 1997
----------- ------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 1,424,101 $ 4,688,352
Investments in marketable debt
securities 12,041,555 13,220,553
Trade accounts receivable
less allowance for doubtful
accounts of $72,808 in 1998
and $62,808 in 1997 3,917,463 3,094,772
Unbilled revenues 913,729 559,856
Prepaid expenses and other 831,787 184,156
Other receivables 648,874 -
Deferred income taxes 144,476 127,225
----------- ------------
Total current assets 19,921,985 21,874,914
----------- ------------
Property and equipment, net of accumulated
depreciation and amortization 1,271,930 519,955
Deferred income taxes 1,165,856 155,775
Other 87,175 12,482
Goodwill and other intangibles, net of
accumulated amortization 3,004,247 -
----------- ------------
Total assets $ 25,451,193 $ 22,563,126
=========== ============
Liabilities and Shareholders' Equity
Current liabilities:
Current portion - notes payable $ 30,754 $ -
Accounts payable and accrued expenses 1,761,747 615,930
Accrued wages, bonuses and profit sharing 1,544,866 1,161,917
Income taxes payable 48,786 118,000
Billings in excess of revenues earned 3,937,792 2,297,751
----------- ------------
Total current liabilities 7,323,945 4,193,598
Notes payable, net of current portion 89,549 -
Bonuses and profit sharing accruals 318,117 248,684
Other accrued expense 321,529 -
----------- ------------
Total long-term liabilities 729,195 248,684
------------ ------------
Total liabilities 8,053,140 4,442,282
----------- ------------
Shareholders' equity:
Common stock, $.001 par value; authorized
20,000,000 shares, issued and
outstanding 7,305,000 7,305 7,305
Preferred stock, $.01 par value;
authorized 2,000,000
shares, no shares issued and
outstanding - -
Additional paid-in capital 16,839,839 16,839,839
Retained earnings 550,909 1,273,700
------------ ------------
Total shareholders' equity 17,398,053 18,120,844
----------- ------------
Total liabilities and
shareholders' equity $ 25,451,193 $ 22,563,126
=========== ============
See accompanying notes to condensed financial statements.
-3-
<PAGE>
<TABLE>
NATIONAL RESEARCH CORPORATION
CONDENSED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------ -----------------------
1998 1997 1998 1997
---------- ---------- --------- ---------
Revenues:
<S> <C> <C> <C> <C>
Renewable performance tracking services
and custom research $ 3,859,714 $3,407,093 $6,964,710 $6,506,266
Renewable syndicated service 170,003 103,691 471,107 444,312
---------- -------- --------- ---------
Total revenues 4,029,717 3,510,784 7,435,817 6,950,578
---------- --------- ---------- ---------
Operating expenses:
Direct expenses 2,015,961 1,617,304 3,524,922 3,010,725
Selling, general and administrative 1,242,811 886,619 2,431,399 1,837,420
Depreciation and amortization 66,363 37,971 118,356 79,568
Acquired in-process research and
development cost 2,737,542 -- 2,737,542 --
Severance charge 303,740 -- 303,740 --
---------- --------- ---------- ---------
Total operating expenses 6,366,417 2,541,894 9,115,959 4,927,713
---------- --------- --------- ---------
Operating income (loss) (2,336,700) 968,890 (1,680,142) 2,022,865
Other income:
Interest income 255,330 51,963 517,530 97,030
Interest expense (1,303) -- (1,303) --
---------- --------- ---------- ---------
Total other income 254,027 51,963 516,227 97,030
---------- --------- --------- ---------
Income (loss) before income taxes (2,082,673) 1,020,853 (1,163,915) 2,119,895
Income tax benefit (798,125) -- (441,125) --
---------- --------- --------- ---------
Net income (loss) (1,284,548) 1,020,853 (722,790) 2,119,895
Pro forma income taxes -- 408,341 -- 847,958
---------- --------- --------- ---------
Pro forma net income (loss) $(1,284,548) $ 612,512 $ (722,790) $1,271,937
========== ========= ========== =========
Pro forma net income per share--basic
and diluted $ (0.18) $ 0.10 $ (0.10) $ 0.21
========== ========= ========= =========
Weighted average shares and share equivalents
outstanding--basic and diluted 7,305,000 6,184,812 7,305,000 6,184,812
========== ========= ========= =========
</TABLE>
See accompanying notes to condensed financial statements.
-4-
<PAGE>
NATIONAL RESEARCH CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended
June 30,
-------------------------
1998 1997
------------ -----------
Cash flows from operating activities:
Net income (loss) $ (722,790) $ 2,119,895
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 118,356 79,568
Acquired in-process research and development
cost, net of tax 1,669,309 -
Changes in assets and liabilities:
Trade accounts receivable 301,027 (954,206)
Unbilled revenues (144,197) (371,576)
Prepaid expenses and other (699,678) (582,407)
Deferred income taxes 40,901 (300,514)
Accounts payable and accrued expenses 947,658 394,456
Accrued wages, bonuses and profit sharing 303,612 -
Income taxes payable (69,214) -
Billings in excess of revenues earned 794,460 1,126,830
------------ -----------
Net cash provided by operating
activities 2,539,444 1,512,046
------------ -----------
Cash flows from investing activities:
Purchases of property and equipment (713,731) (232,452)
Acquisition, net of cash acquired (5,616,353) -
Accounts receivable - other (648,874) -
Purchases of securities available-for-sale (8,169,883) (329,871)
Proceeds from the maturities of securities
available-for-sale 9,348,881 1,500,057
------------ -----------
Net cash provided by (used in)
investing activities (5,799,960) 937,734
------------ -----------
Cash flows from financing activities:
Dividends paid - (1,610,330)
Payments on notes payable (3,735) -
----------- -----------
Net cash provided by (used
in) financing activities (3,735) (1,610,330)
----------- -----------
Net increase (decrease) in cash
and cash equivalents (3,264,251) 839,450
Cash and cash equivalents at beginning of period 4,688,352 2,782,212
----------- -----------
Cash and cash equivalents at end of period $ 1,424,101 $ 3,621,662
=========== ===========
Supplemental disclosure of cash paid for:
Interest $ 1,303 $ -
=========== ===========
Taxes $ 577,650 $ -
=========== ===========
See accompanying notes to condensed financial statements.
-5-
<PAGE>
NATIONAL RESEARCH CORPORATION
Notes to Condensed Financial Statements
1. INTERIM FINANCIAL REPORTING
The condensed balance sheet of National Research Corporation (the "Company") at
December 31, 1997 was derived from the Company's audited balance sheet as of
that date. All other financial statements contained herein are unaudited and, in
the opinion of management, include all adjustments (consisting only of normal
recurring adjustments) the Company considers necessary for a fair presentation
of financial position, results of operations and cash flows in accordance with
generally accepted accounting principles.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These condensed financial statements should be
read in conjunction with the financial statements and notes thereto that are
included in the Company's Form 10-K for the fiscal year ended December 31, 1997,
filed with the Securities and Exchange Commission in March 1998.
On January 1, 1998, the Company adopted the American Institute of Certified
Public Accountants Statement of Position No. 98-1 (SOP 98-1), Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use. Under that
accounting standard, the Company expenses as incurred computer software costs
incurred in the preliminary project stage, which involved the conceptual
formulation, evaluation and selection of technology alternatives. Costs incurred
related to the design, coding installation and testing of software during the
application project stage are capitalized. Costs incurred for training and
application maintenance are expenses as incurred. The Company has capitalized
approximately $486,000 of costs incurred for the development of internal use
software for the six months ended June 30, 1998, with such costs classified as
property and equipment. Prior to January 1, 1998, the Company's accounting
policy was to expense as incurred all costs of software developed for internal
use. Costs incurred prior to January 1, 1998, for the development of internal
use software have not been adjusted or capitalized as a result of the Company's
adoption of SOP 98-1.
2. S CORPORATION STATUS
From August 1, 1994, through October 13, 1997 (three days prior to the Company's
initial public offering), the Company was an S Corporation and, accordingly, was
not subject to Federal and state income taxes for the six months ended June 30,
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. Since October 14, 1997, the Company has been
C Corporation.
-6-
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following table sets forth, for the periods indicated, selected financial
information derived from the Company's condensed financial statements, expressed
as a percentage of total revenues. The trends illustrated in the following table
may not necessarily be indicative of future results. The discussion that follows
the table should be read in conjunction with the condensed financial statements.
<TABLE>
<CAPTION>
Percentage of Total Revenues
---------------------------------
Three months Six months
ended June 30, ended June 30,
----------------- -------------
1998 1997 1998 1997
----------------- -------------
Revenues:
<S> <C> <C> <C> <C>
Renewable performance tracking services
and custom research 95.8% 97.0% 93.7% 93.6%
Renewable syndicated service 4.2 3.0 6.3 6.4
--------------- -------------
Total revenues 100.0 100.0 100.0 100.0
--------------- -------------
Operating expenses:
Direct expenses 50.0 46.1 47.4 43.3
Selling, general and administrative 30.9 25.3 32.7 26.4
Depreciation and amortization 1.6 1.0 1.5 1.1
Acquired in-process research and development cost 67.9 -- 36.8 --
Severance charge 7.5 -- 4.1 --
--------------- -------------
Total operating expenses: 157.9 72.4 122.5 70.8
--------------- -------------
Operating income (loss) (57.9%) 27.6% (22.5%) 29.2%
=============== =============
</TABLE>
Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997
Total revenues. Total revenues increased 14.8% in the three-month period ended
June 30, 1998, to $4.0 million from $3.5 million in the three month period ended
June 30, 1997. Revenues from the Company's renewable performance tracking
services and custom research increased 13.3% to $3.9 million in the three month
period ended June 30, 1998 from $3.4 million in the same period during 1997
primarily due to the addition of new clients, the acquisition of Healthcare
Research Systems, Ltd. ("HRS") in June 1998 and, to a lesser extent, an increase
in the scope of existing tracking projects. Revenues for the Company's renewable
syndicated service increased 64.0% to $170,000 in the three month period ended
June 30, 1998 compared to $104,000 in the same three month period in 1997. Such
an increase reflects increased sales of the 1997 annual edition of the NRC
Healthcare Market Guide following its release in the prior year.
Direct expenses. Direct expenses increased 24.7% to $2.0 million in the
three-month period ended June 30, 1998 from $1.6 million in the same period
during 1997. The increase in direct expenses in the 1998 period was due to
increases in postage and printing expenses of $36,000, outside field services of
$57,000 and labor and payroll expenses of $355,000, which were due partially to
-7-
<PAGE>
increased costs associated with the addition of a telephone call center and to
increased revenues. Direct expenses increased as a percentage of total revenues
to 50.0% in the three-month period ended June 30, 1998, from 46.1% during the
same period of 1997.
Selling, general and administrative expenses. Selling general and administrative
expenses increased 40.2% to $1.2 million for the three-month period ended June
30, 1998 from $887,000 for the same period in 1997. This increase was primarily
due to an increase of $288,000 associated with the expansion of the Company's
sales and marketing workforce and $64,000 associated with being a public
company. Sales, general and administrative expenses increased as a percentage of
total revenues to 30.8% for the three-month period ended June 30, 1998, from
25.3% for the same period in 1997.
Depreciation and amortization. Depreciation and amortization expenses increased
74.8% to $66,000 in the three-month period ended June 30, 1998 from $38,000 in
the same period of 1997 partially due to the acquisition of HRS. Depreciation
and amortization expenses as a percentage of total revenues increased to 1.6% in
the three-month period ended June 30, 1998, from 1.1% in the same period of
1997.
Acquired in-process research and development cost and severance charge. In
connection with the acquisition of HRS in June 1998, the Company incurred a
one-time, non-recurring charge of $2.7 million for costs assigned to in-process
research and development activities of the acquired company and operating
expenses for severance costs of $304,000 for duplicative employees of the
Company as a result of the acquisition. The aggregate charges to income net of
taxes associated with the acquisition were approximately $1.9 million, or $0.26
per share.
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
Total revenues. Total revenues increased 7.0% in the first six months of 1998 to
$7.4 million from $7.0 million in the first six months of 1997. Revenues from
the Company's renewable performance tracking services and custom research
increased 7.0% to $7.0 million in the first six months of 1998 from $6.5 million
in the same period of 1997 primarily due to the addition of new clients, the
acquisition of HRS in June 1998, and, to a lesser extent, an increase in the
scope of existing tracking projects. Revenues from the Company's renewable
syndicated service increased 6.0% to $471,000 in the first six months of 1998
from $444,000 in the same period of 1997. Such increase reflects the addition of
new syndicated service clients.
Direct expenses. Direct expenses increased 17.1% to $3.5 million in the first
six months of 1998 from $3.0 million in the first six months of 1997. The
increase in direct expenses in the 1998 period was due to increases in outside
field services of $64,000 and labor and payroll expenses of $500,000 due
partially to increased costs associated with the addition of a telephone call
center and to increased revenues. Direct expenses increased as a percentage of
total revenues to 47.4% in the first six months of 1998 from 43.3% during the
first six months of 1997.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 32.3% to $2.4 million for the first six months
of 1998 from $1.8 million for the first six months of 1997. This increase was
primarily due to an increase of $504,000 associated with the expansion of the
Company's sales and marketing workforce and an increase of $191,000 associated
with being a public company. Selling, general and administrative expenses
increased as a percentage of total revenues to 32.7% for the first six months of
1998 from 26.4% for the first six months of 1997.
-8-
<PAGE>
Depreciation and amortization. Depreciation and amortization expenses increased
48.7% to $118,000 in the first six months of 1998 from $80,000 in the first six
months of 1997 partially due to the acquisition of HRS. Depreciation and
amortization expenses increased as a percentage of total revenues to 1.6% in the
first six months of 1998 from 1.1% in the first six months of 1997.
Liquidity and Capital Resources
The Company's principal source of funds historically 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, 1998, the Company had cash and cash equivalents of $1.4 million
and working capital of $12.7 million.
During the six months ended June 30, 1998, the Company generated $2.5 million of
net cash from operating activities as compared to $1.5 million of net cash
generated during the same period in the prior year. The increase in cash flow
was due partially to the timing of the collection of a $717,000 account
receivable in January 1998 and the timing of costs incurred in advance of
billings on certain projects, combined with growth in accounts receivable,
unbilled revenues and billings in excess of cost.
For the six months ended June 30, 1998, net cash used in investing activities
was $5.8 million as compared to net cash provided of $938,000 during the same
period in the prior year. The 1998 increase in cash used was primarily due to
the acquisition of HRS in June 1998 for approximately $5.6 million, the accounts
receivable-other related to the acquisition of $649,000 and investment of
$714,000 in furniture, computer equipment and production equipment to meet the
expansion of the Company's business, which was partially offset by the maturing
of investments in debt securities available-for-sale. The 1997 net cash provided
was primarily the maturing of investments available for sale which was partially
offset by an investment of $232,000 in furniture, computer equipment and
production equipment. 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 financing activities was $4,000 and $1.6 million for the six
months ended September 1998 and 1997, respectively. Net cash used in financing
activities for 1998 was for the payments of notes payable and for 1997 was the
result of S Corporation distributions to shareholders.
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, 1998 and as of December 31, 1997, the Company
had $3.9 million and $2.3 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, 1998 and
December 31, 1997, the Company had $914,000 and $560,000 of unbilled revenues,
respectively. Substantially all deferred and unbilled revenues will be earned
and billed, respectively, within 12 months of the respective period ends.
-9-
<PAGE>
PART II - Other Information
ITEM 6 Exhibits and Reports on Form 8-K
(a) Exhibit Number Description
(27) Financial Data Schedule (EDGAR version only)
(b) Reports on Form 8-K
On June 22, 1998, the Company filed a Current Report on Form 8-K,
dated June 11, 1998, to reflect (under Item 2 of Form 8-K) the Company's
acquisition of HRS. On August 12, 1998, the Company filed an amendment on Form
8-K/A to the Company's Current Report on Form 8-K dated June 11, 1998. The
report, as amended, included (under Item 7 of Form 8-K) the following financial
statements: for HRS -- Balance Sheets as of March 31, 1998 and December 31,
1997, Statements of Operations and Statements of Cash Flows for the year ended
December 31, 1997 and the three months ended March 31, 1998 and 1997 and
Statements of Members' Equity for the year ended December 31, 1997; and for the
Company -- Pro Forma Condensed Consolidated Balance Sheet as of March 31, 1998
and Pro Forma Condensed Consolidated Statements of Operations for the year ended
December 31, 1997 and for the three months ended March 31, 1998.
-10-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL RESEARCH CORPORATION
Date: February 26, 1999 By: /s/Patrick E. Beans
Patrick E. Beans
Vice President, Treasurer, Secretary
and Chief Financial Officer
-11-
<PAGE>
NATIONAL RESEARCH CORPORATION
EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q
For the Quarterly Period ended June 30, 1998
Exhibit
(27) Restated Financial Data Schedule (EDGAR version only)
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMAITON EXTRACTED FROM THE CONDENSED
FINANCIAL STATEMENTS OF NATIONAL RESEARCH CORPORATION AS OF AND FOR THE SIX
MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,424
<SECURITIES> 12,042
<RECEIVABLES> 3,990
<ALLOWANCES> 73
<INVENTORY> 0
<CURRENT-ASSETS> 19,922
<PP&E> 1,928
<DEPRECIATION> 656
<TOTAL-ASSETS> 25,451
<CURRENT-LIABILITIES> 7,324
<BONDS> 90
0
0
<COMMON> 7
<OTHER-SE> 17,391
<TOTAL-LIABILITY-AND-EQUITY> 25,451
<SALES> 0
<TOTAL-REVENUES> 7,436
<CGS> 0
<TOTAL-COSTS> 3,525
<OTHER-EXPENSES> 5,591
<LOSS-PROVISION> 5
<INTEREST-EXPENSE> 1
<INCOME-PRETAX> (1,680)
<INCOME-TAX> (441)
<INCOME-CONTINUING> (1,680)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (723)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
