-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RhYenZPPMSC4Sj1GSFDNHMzLwpd7AcPq5GR9z6wshxSVvCm/jdbQDQbewV6x6fcz T5EmRuAoK7o6aZRjIa3Y4w== 0000897069-99-000107.txt : 19990301 0000897069-99-000107.hdr.sgml : 19990301 ACCESSION NUMBER: 0000897069-99-000107 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19990226 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL RESEARCH CORP CENTRAL INDEX KEY: 0000070487 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-TESTING LABORATORIES [8734] IRS NUMBER: 470634000 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 000-29466 FILM NUMBER: 99552206 BUSINESS ADDRESS: STREET 1: 1033 O ST CITY: LINCOLN STATE: NE ZIP: 68508 BUSINESS PHONE: 4024752525 MAIL ADDRESS: STREET 1: 1033 O ST CITY: LINCOLN STATE: NE ZIP: 68508 10-Q/A 1 AMENDED FORM 10-Q 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 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- 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- NATIONAL RESEARCH CORPORATION CONDENSED STATEMENTS OF INCOME (Unaudited)
Three months ended Six months ended June 30, June 30, ------------------------ ----------------------- 1998 1997 1998 1997 ---------- ---------- --------- --------- Revenues: 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 ========== ========= ========= =========
See accompanying notes to condensed financial statements. -4- 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- 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- 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.
Percentage of Total Revenues --------------------------------- Three months Six months ended June 30, ended June 30, ----------------- ------------- 1998 1997 1998 1997 ----------------- ------------- Revenues: 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% =============== =============
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- 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- 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- 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- 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- 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- EX-27 2 FINANCIAL DATA SCHEUDLE
5 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. 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 1,424 12,042 3,990 73 0 19,922 1,928 656 25,451 7,324 90 0 0 7 17,391 25,451 0 7,436 0 3,525 5,591 5 1 (1,680) (441) (1,680) 0 0 0 (723) (.10) (.10)
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