<PAGE>
This filing consists of _______
pages. The Exhibit Index is on
Page _____.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - K
X Annual Report Pursuant to Section 13 or 15 (d) of the Securities
- ------ Exchange Act of 1934 for fiscal year ended March 31, 1995 or
Transition report pursuant to Section 13 or 15(d) of the Securities
- ------ Exchange Act of 1934
COMMISSION FILE NUMBER D-15159
RENTRAK CORPORATION
(exact name of registrant as specified in its charter)
OREGON 93-0780536
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number.)
7227 N.E. 55TH AVENUE, PORTLAND, OREGON 97218
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (503) 284-7581
SECURITIES REGISTERED PURSUANT TO SECTION 12 (B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT:
COMMON STOCK $.001 PAR VALUE
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K, or any amendment to
this Form 10-K [ ]
As of June 21, 1995, the aggregate market value of the voting stock held by
non-affiliates of the registrant, based on the last sales price as reported by
NASDAQ was $60,142,050.
(Excludes value of shares of Common Stock held of record by directors and
officers and by shareholders whose record ownership exceeded five percent of the
shares outstanding at June 21, 1995. Includes shares held by certain depository
organizations.)
As of June 21, 1995, the Registrant had 11,270,568 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE DEFINITIVE PROXY STATEMENT FOR THE 1995 ANNUAL MEETING OF
THE SHAREHOLDERS ARE INCORPORATED BY REFERENCE INTO PART III OF THIS FORM 10-K
<PAGE>
TABLE OF CONTENTS
PART I
Item Page
- ---- ----
1. Business 4
2. Properties
3. Legal Proceedings __
4. Submission of Matters to a Vote of Security Holders __
PART II
5. Market for the Registrant's Common Stock and Related __
Stockholder Matters
6. Selected Financial Data __
7. Management's Discussion and Analysis of Financial __
Conditions and Results of Operations
8. Financial Statements and Supplementary Data __
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure __
PART III
10. Directors and Executive Officers of the Registrant __
11. Executive Compensation __
12. Security Ownership of Certain Beneficial Owners __
and Management
13. Certain Relationships and Related Transactions __
<PAGE>
PART IV
14. Exhibits, Financial Statement Schedules and __
Reports on Form 8-K
(A) Financial Statements of Rentrak Japan __
These statements are not provided as Rentrak
Corporation's equity in the pretax income of Rentrak
Japan does not meet the significant subsidiary test
using a 20% threshold. The royalty income received
from Rentrak Japan is under a separate royalty
arrangement.
<PAGE>
PART I
ITEM 1. BUSINESS
- -------------------------------------------
GENERAL
Rentrak Corporation (the "Company") is a diversified entertainment company
that through its operating subsidiaries, engage in two primary businesses.
Through its Rentrak Home Entertainment ("RHE") division, the Company distributes
videocassettes through its Pay-Per-Transaction (PPT) system. In addition, the
Company operates an independent chain of licensed sports apparel stores through
its Pro Image subsidiary.
The Company was originally incorporated in Oregon in 1977 and until
September 1988 operated its business under the name National Video, Inc. Until
the commencement of its PPT System in 1986, the Company's principal business
activity was the sale of franchises for the operation of video specialty stores
("National Video Stores"). As of April 1, 1988, there were 531 National Video
Stores operating in the Company's franchise system, making it the largest chain
in North America at that time. On September 20, 1988, the Company sold its
franchise operations to West Coast Video Holdings, Inc. ("West Coast").
Concurrent with the sale, the Company changed its name to Rentrak Corporation.
Upon consummation of the sale, the Company's PPT System became its primary
business.
PAY-PER-TRANSACTION
The Company distributes pre-recorded video cassettes ("Cassettes")
principally to home video specialty stores under its Pay Per Transaction revenue
sharing system (the "PPT System"). The PPT System enables home video specialty
stores and other retailers, including grocery stores and convenience stores, who
rent Cassettes to consumers ("Retailers") to obtain Cassettes at a significantly
lower initial cost than if they purchased the Cassettes from conventional video
distributors. Under the PPT System, after the Retailer pays a processing fee
(the "Processing Fee") to the Company and is approved for participation in the
PPT System, Cassettes are leased to the Retailer for a one-time fee (the
"Handling Fee") plus a percentage of revenues generated by retailers from
rentals to consumers (the "Transaction Fee"). The Company retains a portion of
each Handling and Transaction Fee and remits the remainder to the appropriate
owner of the Cassette's distribution rights, usually motion picture producers,
licensees or distributors ("Program Suppliers"). The anticipated benefit to the
Retailer is a higher volume of rental transactions, as well as a reduction in
capital cost and risk. The anticipated benefit to the Program Supplier is an
increase in the total number of Cassettes shipped, resulting in increased
revenues and opportunity for profit. The anticipated benefit to the consumer is
the potential of finding more copies of certain newly released hit titles and a
greater selection of other titles at Retailers participating in the PPT System
("Participating Retailers"). The Company markets its PPT System service
throughout the United States and Canada. The Company also owns a twenty-five
percent interest in Rentrak Japan Corporation, a Japanese corporation which
markets a similar service to video retailers in Japan. Prior to June 16, 1994,
the Company's ownership position was thirty three and one-third percent.
Under conventional distribution, a Program Supplier sells the Cassette to a
distributor for an average price of approximately $62. The distributor then
sells the Cassette to a Retailer for an average price of approximately $67. The
Retailer then rents the Cassette to the consumer at an average price of $2.50
and retains all of the rental revenue.
The Company currently offers substantially all of the titles of eleven of
the companies believed to represent the twenty largest Program Suppliers,
including Twentieth Century Fox Home Entertainment (formerly Fox Video), a
subsidiary of Twentieth Century Fox Film Corporation, and Buena Vista Pictures
Distribution, Inc., which, on July 22, 1994, entered into a definitive agreement
to distribute all of its rental priced theatrical product through the Company's
PPT System. The Company's arrangements with Program Suppliers have been of
varying duration, scope and
<PAGE>
formality. In some cases, the Company has obtained Cassettes pursuant to
contracts or arrangements with Program Suppliers on a title-by-title basis and
in other cases the contracts or arrangements provide that all Cassettes released
for distribution by such Program Supplier will be provided to the Company for
the PPT System. There can be no assurance that any of the Program Suppliers
will continue to distribute through the Company's PPT System, continue to have
available for distribution Cassettes which the Company can distribute on a
profitable basis, or continue to remain in business. In addition, some of the
Company's agreements with its major Program Suppliers may be terminated upon a
relatively short notice. Even if Cassettes are otherwise available from Program
Suppliers to the Company, there can be no assurance that they will be made
available on terms acceptable to the Company. During the last three years, the
Company has not experienced any material deficiency in its ability to acquire
cassettes which are suitable for the Company's markets on acceptable terms and
conditions from Program Suppliers who have agreed to provide the same to the
Company.
Certain Program Suppliers have requested financial or performance
commitments from the Company, including advances, warrants, letters of credit or
guarantees as a condition of obtaining certain titles. The Company has provided
such commitments primarily to induce Program Suppliers to begin participation in
the PPT System and to demonstrate its financial benefits. The Company
determines whether to provide such commitments on a case-by-case basis,
depending upon the Program Supplier's success with such titles prior to home
video distribution and the Company's assessment of expected success in home
rental distribution. The Company intends to continue this practice of providing
such commitments and there can be no assurance that this practice will not in
the future result in losses which may be material.
In certain cases, the Company has entered into and plans to continue to
enter into long term PPT agreements (usually 5-20 years) with certain retailers.
Notwithstanding the long term nature of such agreements, both the Company and
the retailer may, in some cases, retain the right to terminate such agreement
upon 30-90 days prior written notice. Therefore, no assurance can be given that
any of such long term PPT agreements with retailers will continue for the entire
term of the PPT agreement.
DISTRIBUTION OF CASSETTES
The Company's proprietary software allows the Retailer to order Cassettes
through their Point of Sale (POS) system and provides the Retailer with
substantial information regarding all offered titles. Ordering occurs via a
networked computer interface. To further assist the Retailer in ordering, the
Company also produces a monthly product catalogue called "Ontrak."
To be competitive, Retailers must be able to rent their Cassettes on the
"street date" announced by the Program Supplier for the title. The Company
distributes its Cassettes via overnight air courier to assure delivery to
Participating Retailers on the street date. The costs of such distribution
comprise a significant portion of the Company's cost of sales.
COMPUTER OPERATIONS
To participate in the Company's PPT System, Retailers must have approved
computer software and hardware to process all of their rental and sale
transactions. In order to participate in the PPT System, Retailers are required
to use one of the POS software vendors approved by the Company as conforming to
the Company's specifications. The Company's Rentrak Profit Maker Software (the
"RPM Software") resides on the Retailer's POS computer system and transmits a
record of PPT transactions to the Company over a telecommunications network.
The RPM Software also assists the Retailer in ordering newly released titles and
in managing the inventory of Cassettes.
The Company's computer processes these transactions and prepares reports
for Program Suppliers and Retailers. In addition, it determines variations from
statistical norms for potential audit
<PAGE>
action. The Company's computer also transmits information on new titles and
confirm orders made to the RPM Software at the Retailer location.
Streamlined Solutions, Inc., ("SSI") an Oregon corporation, is a wholly
owned subsidiary of the Company. SSI markets the Company's expertise in such
areas as information processing and just in time distribution. SSI also does
business as a software development company. The operations of SSI include the
development and sale of computer software used in the operation of a variety of
retail outlets.
RETAILER AUDITING
The Company audits Participating Retailers in order to verify that they are
reporting all rentals and sales on a consistent, accurate and timely basis.
Several different types of exception reports are produced weekly. These reports
are designed to identify any Participating Retailers who vary from the Company's
statistical norms. Depending upon the results of the Company's analysis of the
reports, the Company may conduct an in-store audit. Audits are conducted with
and without notice and refusal to allow such an audit is cause for immediate
termination from the PPT System. If audit violations are found, the
Participating Retailer is subject to fines, audit penalties, immediate removal
from the PPT System and repossession of all leased Cassettes.
SEASONALITY
The Company believes that the home video industry is seasonal because
Program Suppliers tend to introduce hit titles at two periods of the year, early
summer and Christmas. Since the release to home video usually follows the
theatrical release by approximately six months (although significant variations
do occur on certain titles), the seasonal peaks for home video also generally
occur in early summer and at Christmas. The Company believes its volume of
rental transactions reflects, in part, this seasonal pattern, although the
growth of Program Suppliers, titles available to the Company, and Participating
Retailers may tend to obscure any seasonal effect. The Company believes such
seasonal variations may be reflected in future quarterly patterns of its
revenues and earnings.
RETAILER FINANCING PROGRAM
The Company has established a retailer financing program whereby on a
selective basis, the Company will provide financing to video retailers which the
Company believe demonstrate prospects for substantial growth in the industry.
In connection with these financings, the Company typically makes a loan and/or
equity investment in the retailer. In some cases, a warrant to purchase stock
may be obtained. As part of such financing, the retailer typically agrees to
cause all of its current and future retail locations to participate in the PPT
System for a designated period of time. These financings are speculative in
nature and involve a high degree of risk and no assurance of a satisfactory
return on investment can be given. The failure of certain of these investments
under its retailer financing program could have a material adverse impact on the
Company's results of operations and financial performance. The Board of
Directors has authorized up to $14 million to be used in connection with the
Company's retailer financing program. As of June 5, 1995, the Company has
invested or made oral or written commitments for substantially all of the $14
million authorized for this program (See note 4 of the Consolidated Financial
Statements).
COMPETITION
The home video industry is highly competitive. The Company has one direct
competitor presently distributing cassettes on a revenue sharing basis. The
Company, SuperComm, Inc., is a wholly-owned subsidiary of the Walt Disney Co.
and has thus far concentrated its efforts in the supermarket industry. In
addition, the Company faces substantial competition from conventional
<PAGE>
distributors. The Company's competitors include organizations which have
existing distribution networks, long-standing relationships with Program
Suppliers and Retailers, and/or significantly greater financial resources than
the Company. Moreover, several companies are believed to be currently
developing or testing technologies which could be implemented to provide
alternatives to PPT.
In addition to the direct competition described above, the Company faces
indirect competition from alternative delivery technologies which are intended
to provide video entertainment directly to the consumer. These technologies
include: 1) direct broadcast satellite transmission systems, which broadcast
movies in digital format direct from satellites to small antennas in the home;
2) cable systems which may transmit digital format movies to the home over cable
systems employing fiber-optic technology and 3) pay cable television systems,
which may employ digital data compression techniques to increase the number of
channels available and hence the number of movies which can be transmitted.
Another source of indirect competition comes from Program Suppliers releasing
titles intended for "sell-through" rather than rental to consumers at
approximately $20 to $30. To date, such "sell-through" pricing has generally
been limited to certain newly released hit titles with wide general family
appeal. As the Company's business is dependent upon the existence of a home
video rental market, a substantial shift in the video business to alternative
technologies or "sell-through" policies could have a material adverse effect on
the Company's operations.
FOREIGN OPERATIONS
To date, the Company has operated primarily in the United States with 581
Participating Retailers in Canada. On December 20, 1989, the Company entered
into an agreement with Culture Convenience Club, Co., Ltd. (CCC), a Japanese
corporation, which is Japan's largest video specialty retailer. CCC believes it
represents over ten (10%) percent of the retail video rental market in Japan.
Pursuant to the agreement, the parties formed Rentrak Japan, a corporation,
which is presently owned twenty-five percent by the Company and seventy-five
percent by CCC. Prior to June 16, 1994 the Company owned a thirty three and
one-third percent interest in Rentrak Japan. Rentrak Japan was formed to
implement the Company's PPT Program in Japan, with future expansion to The
Philippines, Singapore, Taiwan, Hong Kong, South Korea, North Korea, China,
Thailand, Indonesia, Malaysia and Vietnam. The Company provided its PPT
technology and the use of certain trademarks and service marks to Rentrak Japan,
and CCC provided management personnel, operating capital, and adaptation of the
PPT technology to meet Japanese requirements. On August 6, 1992, the Company
entered into an expanded definitive agreement with CCC to develop Rentrak's PPT
Program in certain markets throughout the world. On June 16, 1994, the company
and CCC entered into a Second Amendment to Business Cooperation Agreement.
Pursuant to this agreement, the company will receive a royalty of 1.67% for all
sales of up to $47,905,000 plus one-half of one percent of sales greater than
$47,905,000 in each fiscal year. In addition, the Company will receive a one
time royalty of $2,000,000 payable $1,000,000 by July 31, 1994, which the
company received, and $1,000,000 no later than March 31, 1999. The Company also
sold to CCC 34 shares of Rentrak Japan reducing the Company's ownership in
Rentrak Japan to twenty-five percent from thirty three and one-third percent.
The term of the Agreement has been extended from the year 2001 to the year 2039.
On August 25, 1993, the Company announced that it suspended its efforts to
establish operations in German-speaking Europe and the Company took a one-time
charge of approximately $.9 million as a result. The company's decision was
based on its failure to obtain sufficient product flow commitments from Program
Suppliers to achieve a critical mass in German-speaking Europe.
TRADEMARKS, COPYRIGHTS, AND PROPRIETARY RIGHTS
The Company has registered its "RENTRAK", "PPT", "Pay Per Transaction",
"Ontrak", "BudgetMaker", "DataTrak", "Prize Find" and "BlowOut Video" marks
under federal trademark laws. The Company has applied and obtained registered
status in several foreign countries for many of
<PAGE>
its trademarks. The Company claims a copyright in its PPT computer software and
considers it to be proprietary.
EMPLOYEES
As of March 31, 1995, RHE employed 171 full-time employees. None of RHE's
employees are represented by a labor union. RHE considers its relations with
its employees to be good.
Including all subsidiaries, the Company employs 682 full-time employees,
including its three officers.
LICENSED SPORTS APPAREL
On October 15, 1993, the Company acquired all of the outstanding shares of
common stock of The Pro Image Inc., ("TPI"), a Utah corporation. At the time of
acquisition TPI was primarily a franchisor of retail sports apparel stores.
TPI was incorporated in 1985 as a franchiser of retail sporting apparel
stores. In 1987, TPI formed a wholly-owned subsidiary for the purpose of
selling merchandise at wholesale prices to franchisees. In 1990, TPI formed a
wholly-owned subsidiary for the purpose of selling merchandise to retail
customers through Company-owned stores.
On August 31, 1994, the Company acquired all of the outstanding common
stock of Team Spirit, Inc. ("Team Spirit"). Team Spirit operates 39 sports
licensed apparel stores in fifteen states primarily located in the Midwestern
United States. Simultaneous with the acquisition, Rentrak transferred all of
the assets of Team Spirit to TPI and Team Spirit became a wholly owned
subsidiary of TPI.
On October 5, 1994, Rentrak acquired all of the outstanding common stock of
Image Makers, Inc, and Barenz-Runia, Inc. These companies were franchisees of
TPI and operated seven stores in the Pacific Northwest. Simultaneous with the
acquisition, the net assets of the combined companies were transferred to TPI.
As of March 31, 1995, TPI operates approximately 175 franchise stores in 45
states, Canada, Germany, Mexico and Japan. TPI also operates 54 company-owned
retail stores in 19 states throughout the country. The franchisees and company-
owned stores are primarily located in major regional malls. TPI also generates
revenue via sales of product from the TPI distribution center to franchisees.
These sales are provided as a service to the franchisees and are not profitable.
The Company intends to continue to expand its sports licensed apparel
business through further acquisitions, through sales of new franchises and
through opening of new corporate-owned stores. The Company intends to pay the
purchase price for any acquisitions in cash, shares of the Company's common
stock, other securities, or a combination thereof. The Company is also actively
pursuing international franchise opportunities.
TPI has, since the acquisition by Rentrak, and will continue to be able to
take advantage of Rentrak's expertise in the areas of distribution and software
development. Shortly after the acquisition, TPI's warehouse facilities were
moved from Utah to be consolidated with Rentrak's warehouse in Wilmington, Ohio.
Rentrak's distribution expertise has allowed TPI to deliver product to franchise
and corporate stores via air freight to arrive in the stores overnight at prices
similar to what was provided by ground transportation. This is particularly
important for special events in the sports industry (i.e., championship events,
player trades. etc.)
COMPUTER OPERATIONS
<PAGE>
Rentrak has developed custom point-of-sale software for TPI stores. This
software ("SporTrak") has been installed in all corporate-owned stores and is
planned to begin to be marketed to franchise stores late in fiscal 1996. In
addition to being beneficial to the daily operations of the stores, the SporTrak
software will allow TPI corporate and franchise stores and TPI's warehouse to
maintain a common inventory data base, and will provide an easy and quick method
to transfer inventory between stores. This, combined with Rentrak's
distribution expertise, will allow a customer in any TPI store to select product
from all of the other stores around the country as well as the TPI warehouse,
and have the product arrive at the store or at their home the next day.
INTERNATIONAL FRANCHISING
Another area of potential growth in TPI's business is international
franchising. In the first quarter of 1996, TPI sold master franchise agreements
in Japan and Korea and generated $350,000 in international franchise fees. In
signing international master franchise agreements, TPI contracts with an
individual residing in the applicable country, providing rights to the
trademarks and tradenames as well as training and support. TPI receives an
initial franchise fee as well as a percentage of royalties on all subsequent
franchises sold by the master franchisee.
SEASONALITY
TPI and Team Spirit's regional mall-based stores are heavily dependent on
the Christmas holiday season. Approximately 35% of annual sales and the
majority of the profits in mall-based stores are generated in the months of
November and December.
COMPETITION
TPI and Team Spirit face intense competition for customers and for suitable
store locations from a variety of retailers. TPI and Team Spirit compete with
traditional and specialty retailers (regional chains, specialty stores, local
operators and mail order companies), mass merchandisers (discount stores and
department stores) and large format retailers (warehouse and superstore
operators). Some of these competitors have substantially greater resources than
the Company.
<PAGE>
FOREIGN OPERATIONS
TPI currently has 19 franchise stores in Canada, 2 in Mexico, 1 in Japan
and 1 in Germany. In addition, during the first quarter of fiscal 1996, TPI
signed master franchise agreements in Korea and Japan.
TRADEMARKS, COPYRIGHTS, AND PROPRIETARY RIGHTS
The Company has acquired the registered marks, "The Pro Image", "The Pro
Image U Shop", "The Pro Image Everything For The Sports Fan" and "The Pro Image
Campus".
EMPLOYEES
As of March 31, 1995, TPI employed 404 employees, including its five
officers. None of TPI's employees are represented by a labor union. TPI
considers its relations with its employees to be good.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
See Note 14 of the Notes to the Consolidated Financial Statements.
ITEM 2. PROPERTIES
- ----------------------------------------
The Company currently maintains its executive offices in Portland, Oregon.
RHE is located at this location. It leases a 30,000 square foot building for
its executive offices. The Company's lease expires on November 30, 1997. The
Company maintains its distribution facilities in Wilmington, Ohio where it
leases 102,400 square feet. The Company's lease expires on June 7, 2002.
Management believes its office and warehouse space is adequate and suitable for
its current and foreseeable future.
TPI leases it's corporate headquarters offices at Bountiful, Utah in a
11,500 square foot office building. TPI also leases an approximately 3,000
square foot office in Omaha, Nebraska where corporate store operations are
headquartered. TPI's corporate stores are leased facilities located throughout
the country. The average size of a TPI corporate store is approximately 2,000
square feet.
ITEM 3. LEGAL PROCEEDINGS
- ----------------------------------------
In February, 1991, a suit was filed against the Company alleging causes of
action for breach of contract, breach of implied covenant of good faith and
fiduciary duty, and violation of a state unfair business practice statute.
These allegations arise out of the Company's alleged refusal to grant the
plaintiff a National Video franchise. A lower court jury has awarded damages of
approximately $450,000 to the plaintiff on the alleged charges, including
attorney fees. The Company appealed the lower court decision; however, that
decision was upheld by the appeals court. The damage award is fully reserved by
the Company and the award is expected to be paid in fiscal 1996.
The Company is subject to other legal proceedings and claims which arise in
the ordinary course of its business. In the opinion of management, the amount
of any ultimate liability with respect to these actions should not materially
affect the financial position or results of operations of the Company as a
whole.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
- --------------------------------------------------------------------------------
No matter was submitted to a vote of security holders of the Company
through the solicitation of proxies or otherwise during the fourth quarter of
the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
- --------------------------------------------------------------------------------
The Company's common stock, $.001 par value, is traded on the NASDAQ
National Market System and prices are quoted on the NASDAQ National Market
Issues quotations under the symbol "RENT". Prior to the Company's public
offering on November 14, 1986, there was no public market for the common stock.
As of June 21, 1995 there were approximately 436 holders of record of the
Company's common stock. On June 21, 1995, the closing sales price of the common
stock as quoted on the NASDAQ National Market Issues was $6.25.
The following table sets forth the reported high and low sales prices of
the common stock for the period indicated as regularly quoted on the NASDAQ
National Market Issues quotations. The over-the-counter market quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commissions
and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
QUARTER ENDED HIGH LOW
- ----------------------------------------------------------------------------
<S> <C> <C>
JUNE 30, 1993 $ 5.875 $ 4.50
- ----------------------------------------------------------------------------
SEPTEMBER 30, 1993 $ 7.125 $ 4.75
- ----------------------------------------------------------------------------
DECEMBER 31, 1993 $ 7.75 $ 5.125
- ----------------------------------------------------------------------------
MARCH 31, 1994 $ 7.375 $ 4.625
- ----------------------------------------------------------------------------
JUNE 30, 1994 $ 7.50 $ 4.75
- ----------------------------------------------------------------------------
SEPTEMBER 30, 1994 $ 9.375 $ 6.25
- ----------------------------------------------------------------------------
DECEMBER 31, 1994 $ 9.25 $ 6.25
- ----------------------------------------------------------------------------
MARCH 31, 1995 $ 8.75 $ 6.25
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</TABLE>
DIVIDENDS:
No cash dividends have been paid or declared during the last two fiscal
years. The present policy of the Board of Directors is to retain earnings to
provide funds for operation and expansion of the Company's business. The
Company does not intend to pay cash dividends in the foreseeable future.
<PAGE>
PAGE ______ OF ______
ITEM 6. SELECTED FINANCIAL DATA
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In Thousands, Except Per Share Amounts)
Year Ended March 31,
-------------------------------------------------
1991 1992 1993 1994 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data
Net revenues:
Processing fees $2,699 $2,260 $2,299 $1,662 $1,114
Handling fees 10,220 11,063 12,170 13,712 18,052
Transaction fees 18,955 27,738 33,399 40,967 49,904
Sell-through 1,762 5,196 4,980 5,665 8,923
Other 306 1,165 1,287 6,775 34,173
International operations 0 0 200 116 0
--------- --------- --------- --------- ---------
Total net revenues 33,942 47,422 54,335 68,897 112,166
Cost of sales 25,473 37,759 41,299 52,162 83,533
--------- --------- --------- --------- ---------
Gross profit 8,469 9,663 13,036 16,735 28,633
Selling and administrative expense 7,076 10,138 15,054 16,393 26,183
Suspension of European operations 0 0 0 901 0
Other income (expense) (63) 242 499 477 3,391
--------- --------- --------- --------- ---------
Income (loss) before benefit (provision) for
income taxes, minority partner interests
and extraordinary item 1,330 (233) (1,519) (82) 5,841
Income tax benefit (provision) (508) 0 (305) 764 (727)
--------- --------- --------- --------- ---------
Income (loss) before minority partner
interests and extraordinary item 822 (233) (1,824) 682 5,114
Losses attributable to minority partner
interests 0 0 649 131 0
Income (loss) before extraordinary item 822 (233) (1,175) 813 5,114
Extraordinary item, income tax benefit from
carryforward of net operating losses 476 0 280 0 0
--------- --------- --------- --------- ---------
Net income (loss) $1,298 ($233) ($895) $813 $5,114
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss) per share - assuming issuance
of all dilutive contingent shares $0.22 ($0.03) ($0.10) $0.08 $0.40
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Common shares and common share equivalents
outstanding 6,252 8,552 9,306 10,162 14,317
</TABLE>
<TABLE>
<CAPTION>
At March 31,
-------------------------------------------------
1991 1992 1993 1994 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data
Working Capital $1,152 $18,875 $17,116 $16,155 $12,897
Total Assets 9,854 27,582 34,824 44,620 64,584
Long-term Debt 15 5 0 0 0
Stockholders' Equity 3,101 21,398 22,722 29,523 40,228
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------
RESULTS OF OPERATIONS
For a more meaningful analysis, results are presented for four groups of
operations: Domestic PPT Operations, which include Canadian PPT operations;
International Operations, which represent Rentrak's European operations that
were suspended in fiscal 1994; Pro Image, Inc. and its subsidiaries ("TPI"); and
Other Domestic Subsidiaries. The following tables break out these groups for
the years ended March 31, 1995, 1994 and 1993. All significant intercompany
transactions have been eliminated.
<TABLE>
<CAPTION>
DOMESTIC PPT INTERNATIONAL OTHER
YEAR ENDED MARCH 31, 1995 OPERATIONS OPERATIONS TPI(1) SUBSIDIARIES CONSOLIDATED
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 79,793,584 $ - $26,363,211 $ 6,009,436 $ 112,166,231
Cost of sales 64,447,737 - 16,840,331 2,245,260 83,533,328
Gross profit margin 15,345,847 - 9,522,880 3,764,176 28,632,903
SG&A 12,459,006 - 9,252,704 4,471,724 26,183,434
Other income (expense) 3,522,039 - (130,754) 0 3,391,285
Net income (loss) before taxes $ 6,408,880 $ - $ 139,422 $ (707,548) 5,840,754
- -----------------------------------------------------------------------------------------------------------------------------------
Income tax provision 727,231
- ---------------------------------- -----------------
Net income $ 5,113,523
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DOMESTIC PPT INTERNATIONAL OTHER
YEAR ENDED MARCH 31, 1994 OPERATIONS OPERATIONS TPI(2) SUBSIDIARIES CONSOLIDATED
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $62,005,968 $ 115,937 $ 3,950,705 $ 2,823,877 $ 68,896,487
Cost of sales 49,191,633 183,702 2,245,000 541,492 52,161,827
Gross profit margin 12,814,335 (67,765) 1,705,705 2,282,385 16,734,660
SG&A 10,750,036 2,357,246 1,264,924 2,920,992 17,293,198
Other income (expense) 472,393 65,083 (61,450) 740 476,766
Net income (loss) before taxes $ 2,536,692 $ (2,359,928) $ 379,331 $ (637,867) (81,772)
- -----------------------------------------------------------------------------------------------------------------------------------
Income tax benefit 763,919
Minority interest 130,918
- ---------------------------------- -----------------
Net income $ 813,065
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Includes Results of Operations from March 1, 1994 through February 28, 1995
(2) Includes Results of Operations from October 15, 1993 (date of acquisition) through
February 28, 1994
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DOMESTIC PPT INTERNATIONAL OTHER
YEAR ENDED MARCH 31, 1993 OPERATIONS OPERATIONS TPI SUBSIDIARIES CONSOLIDATED
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 52,847,386 $ 200,443 $ - $ 1,287,037 $ 54,334,866
Cost of sales 40,770,396 508,048 - 20,123 41,298,567
Gross profit margin 12,076,989 (307,604) - 1,266,914 13,036,299
SG&A 11,463,957 2,016,904 - 1,573,290 15,054,151
Other income (expense) 523,020 (2,623) - (21,438) 498,959
Net income (loss) before $ 1,136,052 $ (2,327,131) $ - $ (327,814) (1,518,893)
taxes and minority interest
- -----------------------------------------------------------------------------------------------------------------------------------
Income tax provision 25,000
Minority interest 648,833
- ---------------------------------- -----------------
Net income (loss) $ (895,061)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
FISCAL 1995 COMPARED TO FISCAL 1994
DOMESTIC PPT OPERATIONS
For the year ended March 31, 1995, total revenue from Domestic PPT Operations
increased $17.8 million, or 29 percent, rising to $79.8 million from $62.0
million in the prior year. In addition to royalty payments from Rentrak Japan,
total revenue includes the following fees: processing fees generated when
retailers are approved for participation in the PPT system; handling fees
generated when prerecorded videocassettes ("Cassettes") are distributed to
retailers; transaction fees generated when retailers rent Cassettes to
consumers; and sell-through fees generated when retailers sell Cassettes to
consumers.
The increase in total revenue and the increases described in the following
paragraphs were primarily due to the growth in (i) the number of retailers
approved to lease Cassettes from the Company (the "Participating Retailers");
(ii) the number of participating program suppliers ("Program Suppliers"),
primarily Buena Vista; (iii) the number of titles released to the system; and
(iv) the total number of Cassettes leased under the system. By fiscal year-end,
the number of Participating Retailers had grown 14 percent to 3,614 from 3,176 a
year earlier. As of March 31, 1995, there were 3,034 retailers located in the
United States and 580 located in Canada. Total revenue and the gross profit
margin are expected to grow at a modest rate over the next year.
In fiscal 1995, processing-fee revenue decreased to $1.1 million from $1.7
million in fiscal 1994, a decline of $0.6 million, or 33 percent. The decrease
was due to a reduction in the amount of processing fees charged.
During the year, handling-fee revenue rose to $18.1 million from $13.7 million
in fiscal 1994, an increase of $4.4 million, or 32 percent. Transaction-fee
revenue totaled $49.9 million, an increase of $8.9 million, or 22 percent, from
$41.0 million the previous year. Sell-through revenue was $8.9 million in
fiscal 1995 as compared to $5.7 million in fiscal 1994, an increase of $3.2
million, or 58 percent.
Royalty revenue from Rentrak Japan increased to $1.8 million during fiscal 1995.
There was no royalty revenue in the prior year. Included in fiscal 1995's
royalty revenue was a nonrecurring payment of $1.0 million.
Cost of sales in fiscal 1995 rose to $64.4 million from $49.2 million the prior
year, an increase of $15.2 million, or 31 percent. This change parallels the
change in total revenues. In fiscal 1995, the gross profit margin decreased to
19 percent from 21 percent the previous year. The decrease
<PAGE>
reflects an increase in major motion picture studio product, which traditionally
has a lower gross margin.
Selling, general and administrative expenses were $12.5 million in fiscal 1995
compared to $10.8 million in fiscal 1994. This increase of $1.7 million, or 16
percent, was primarily due to continued efforts to assure system integrity and
the strengthening of the management team. In addition, the Company incurred
additional expense related to reserves on long-term investments and receivables.
As a percentage of total revenue, selling, general and administrative expenses
decreased to 16 percent at year-end from 17 percent the previous year.
Other income increased from $0.5 million in fiscal 1994 to $3.5 million for
fiscal 1995, an increase of $3.0 million. This increase was due to the sale of
certain investment securities held for sale for a gain of $2.8 million.
For the year ended March 31, 1995, Domestic PPT Operations recorded a pretax
profit of $6.4 million, or 8 percent of total revenue, compared to a pretax
profit of $2.5 million, or 4 percent of total revenue, in fiscal 1994.
THE PRO IMAGE, INC.
For the fiscal year ended February 28, 1995, Pro Image, Inc. ("TPI") recorded
total revenue of $26.4 million, a gross margin of $9.5 million (36 percent), and
a pretax profit of $0.1 million (less than 1 percent of revenue). Comparisons
to the fiscal year ended February 28, 1994, are not meaningful because of the
acquisition of Team Spirit, Inc. ("Team Spirit") in fiscal 1995. The Pro Image
results for fiscal 1995 include those for Team Spirit from September 1994
through February 1995.
TPI's net income for fiscal 1995 was negatively impacted by increased operating
expenses associated with advertising, market research, promotion and store
design expenses, as well as reserves for doubtful accounts and inventory. These
expenses, totaling approximately $2 million, are considered to be onetime
expenses that are not expected to be incurred in the coming year. In addition,
TPI recorded approximately $0.7 million in amortization of goodwill associated
with the acquisition of TPI and Team Spirit.
Management expects TPI's revenue to increase substantially in the coming fiscal
year due to the inclusion of Team Spirit for the entire year, revenue generated
from new company-owned Pro Image retail stores, and franchise fees generated
internationally. Revenues from domestic franchise fees and franchise royalties
are expected to be flat next year. Management expects the gross margin
percentage to increase due to a higher percentage of sales generated by company-
owned stores. Management also expects operating expenses to decrease as a
percentage of sales because overhead expenses should remain flat or decrease as
revenues and store operating expenses increase.
OTHER SUBSIDIARIES
Other Subsidiaries are comprised of a software development company and other
video retail and wholesale operations. Total revenue from Other Subsidiaries
increased to $6.0 million in fiscal 1995 from $2.8 million in fiscal 1994, an
increase of $3.2 million, or 113 percent.
Cost of sales was $2.2 million, an increase of $1.7 million (315 percent) over
the $0.5 million recorded in fiscal 1994.
Selling, general and administrative expenses increased to $4.5 million in fiscal
1995 from $2.9 million in fiscal 1994, an increase of $1.6 million, or 53
percent. As a percentage of total revenue, selling, general and administrative
expenses decreased to 74 percent at year-end from 103 percent a year earlier.
<PAGE>
For the year ended March 31, 1995, Other Subsidiaries recorded a pretax loss of
$0.7 million, or 12 percent of total revenue. This compares with a pretax loss
of $0.6 million, or 21 percent of total revenue, in fiscal 1994. Changes in
revenues, cost of sales, selling and administrative costs and pretax losses were
due to the start-up status of three of the entities, and to expansion efforts by
the other entities.
CONSOLIDATED BALANCE SHEET
At March 31, 1995, total assets were $64.8 million, an increase of $20.2 million
from the $44.6 million of a year earlier. A substantial portion of the increase
was due to the acquisition of Team Spirit, which added approximately $10 million
to total assets. Accounts receivable grew to $14.7 million at the end of fiscal
1995 from $9.4 million at the end of fiscal 1994, a $5.3 million increase. Most
of this increase was due to a rise in domestic PPT revenue levels. Inventory at
year-end equaled $6.3 million, up $5.5 million from $0.8 million at the end of
fiscal 1994. Of this increase, approximately $3.6 million was related to the
Team Spirit acquisition, and the rest was due to the opening of additional TPI
company stores. As of March 31, 1995, property and equipment had increased $2.1
million to $4.9 million from $2.8 million a year earlier. Of this increase,
approximately $2.1 million was related to the Team Spirit acquisition. At year-
end, intangibles had risen to $11.0 million from $6.8 million at the end of
fiscal year 1994, an increase of $4.2 million. Most of this amount was related
to the acquisitions made by TPI. All warrants which the Company issued in
fiscal 1995, have been valued by an outside valuation firm using standard
warrant valuation models. The value of the warrants of $3.5 million has been
recorded in the equity section and will be amortized over the associated periods
to be benefited by each group of warrants. For fiscal 1995, expense associated
with the warrants is $0.5 million.
FISCAL 1994 COMPARED TO FISCAL 1993
DOMESTIC PPT OPERATIONS
For the year ended March 31, 1994, total revenue from Domestic PPT Operations
rose to $62.0 million from $52.8 million in the prior year, an advance of $9.2
million, or 17 percent.
The increase in total revenue and the increases described in the following
paragraphs were primarily due to the growth in (i) the number of Participating
Retailers; (ii) the number of Program Suppliers, primarily Twentieth Century Fox
Home Entertainment (formerly FoxVideo); (iii) the number of titles released to
the system; and (iv) the total number of Cassettes leased under the system. In
fiscal 1994, the number of Participating Retailers grew to 3,176 from 2,737 the
prior year, for a 16 percent increase. As of March 31, 1994, there were 2,768
retailers located in the United States and 408 located in Canada.
For the year, processing-fee revenue decreased to $1.7 million from $2.3 million
in fiscal 1993, a decline of $0.6 million, or 28 percent. The decrease was due
to a reduction in the amount of processing fees charged.
Handling-fee revenue rose to $13.7 million from $12.2 million in fiscal 1993, an
increase of $1.5 million, or 13 percent. Transaction-fee revenue increased to
$41.0 million from $33.4 million the previous year, a $7.6 million or 23 percent
improvement. Sell-through revenue grew to $5.7 million from $5.0 million in
fiscal 1993, an increase of $0.7 million, or 14 percent.
Cost of sales for fiscal 1994 increased to $49.2 million from $40.8 million the
prior year, an increase of $8.4 million, or 21 percent. This change paralleled
the change in total revenues. The gross profit margin decreased to 21 percent
from 23 percent the previous year. The decrease in the gross profit margin
reflects an increase in major motion picture studio product, which traditionally
has a lower gross margin.
<PAGE>
Selling, general and administrative expenses decreased by $0.7 million, or 6
percent, to $10.8 million in fiscal 1994 from $11.5 million in fiscal 1993. The
decrease was primarily due to a company-wide effort to control and reduce
corporate operating costs. As a percentage of total revenue, selling, general
and administrative expenses decreased to 17 percent from 22 percent in fiscal
1993.
For the year ended March 31, 1994, Domestic PPT Operations recorded a pretax
profit of $2.5 million, or 4 percent of total revenue, as compared to a pretax
profit of $1.1 million, or 2 percent of total revenue, in fiscal 1993.
INTERNATIONAL OPERATIONS
For the year ended March 31, 1994, total revenue from International Operations
decreased to $0.1 million from $0.2 million the prior year, a decline of $0.1
million, or 42 percent. The decline was due to the closure of a portion of the
retail locations. Cost of sales dropped to $0.2 million from $0.5 million in
fiscal 1993, a decrease of $0.3 million, or 64 percent. Selling, general and
administrative expenses in fiscal 1994 increased $0.3 million, or 13 percent, to
$2.3 million from $2.0 million in fiscal 1993.
At year-end, International Operations recorded a pretax loss of $2.3 million, as
compared to a pretax loss of $1.7 million in fiscal 1993.
The Company has suspended its efforts to establish a subsidiary in German
speaking Europe. As a result of this decision, in fiscal 1994 the Company took
a charge of approximately $2.4 million to write down the value of the related
assets and to account for operating costs and costs to suspend operations. This
decision stems from the difficulties the Company had in getting sufficient
product flow commitments from Program Suppliers.
THE PRO IMAGE, INC.
For the four and one-half months ended February 28, 1994, TPI recorded total
revenues of $4.0 million, cost of sales of $2.2 million, selling and
administrative expenses of $1.3 million, and a net profit of $0.4 million, or 10
percent of total revenue. The Company acquired TPI on October 15, 1993, and
therefore did not have operating results from the TPI business for the year
ended March 31, 1993.
OTHER SUBSIDIARIES
Other Subsidiaries are comprised of a software development company and other
video retail and wholesale operations. For fiscal 1994, total revenue from
Other Subsidiaries increased to $2.8 million from $1.3 million in fiscal 1993,
an increase of $1.5 million, or 119 percent.
In fiscal 1994, cost of sales increased 2,591 percent to $0.5 million from $0.02
million in fiscal 1993.
Selling, general and administrative expenses increased by $1.3 million, or 86
percent, to $2.9 million in fiscal 1994 from $1.6 million in fiscal 1993. As a
percentage of total revenue, selling, general and administrative expenses
decreased to 103 percent in fiscal 1994 from 122 percent in the prior year.
For the year ended March 31, 1994, Other Subsidiaries recorded a pretax loss of
$0.6 million, or 21 percent of total revenue, as compared to a pretax loss of
$0.3 million, or 25 percent of total revenue, in fiscal 1993. Changes in
revenues, cost of sales, selling and administrative costs and pretax losses were
due to the start-up status of three of the entities, and to expansion efforts by
the other entities.
<PAGE>
CONSOLIDATED BALANCE SHEET
For the year ended March 31, 1994, total assets increased to $44.6 million from
$34.8 million in the prior year, an increase of $9.8 million. The increase was
primarily due to the acquisition of TPI.
The write-off of European assets amounted to $0.8 million, which included $0.06
million in accounts receivable, $0.09 million in other current assets, $0.5
million in property and equipment, and $0.09 million in other long-term assets.
In addition to the $0.8 million write-down of assets during fiscal 1994, the
Company incurred $1.4 million in European operating costs and $0.1 million in
cash expenditures to finalize operations. Most of the $2.3 million in losses
related to European operations in fiscal 1994 was funded through a stock
offering in 1991.
At year-end, intangibles had increased to $7.0 million from $1.2 million in
fiscal 1993. The increase was due to goodwill arising from the acquisition of
TPI. Other assets increased to $3.6 million from $2.2 million in the prior
year, a $1.4 million change. The change was primarily due to an increase of
$0.5 million in long-term Program Supplier advances and a $1.0 million increase
in a long-term-occupancy security deposit for a domestic subsidiary. The
increase in the Program Supplier advances was primarily due to the Company's
entering into new agreements that had a longer term than in the past.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1995, the Company had cash and other liquid investments of $10.7
million, compared to $16.2 million at March 31, 1994. At year-end, the
Company's current ratio (current assets/current liabilities) declined to 1.53
from 2.07 a year earlier. This decline was primarily due to the expenditures of
cash to fund the Retailer Financing Program.
The Company has an agreement with a financial institution for a line of credit
in the amount of $7.5 million. The agreement expires on July 25, 1995. Under
this agreement, the Company is required to maintain average compensating
balances of $1.5 million in its checking and money accounts. Interest is
payable monthly at a rate that varies in relation to the bank's prime rate. The
lender has been granted a warrant to purchase 10,000 unregistered shares of
common stock of the Company at $7 per share, which exceeded market value at the
date of grant. The line of credit is secured by substantially all of the
Company's assets, excluding TPI's. The terms of the agreement require, among
other things, a minimum amount of tangible net worth, minimum current ratio and
minimum ratio of total liabilities to tangible net worth. The agreement also
restricts the amount of net losses, loans and indebtedness and limits the
payment of dividends on the Company's stock. There were no borrowings under the
line of credit as of March 31, 1995.
In April 1994, TPI entered into a $2.0 million line-of-credit arrangement with a
financial institution. Interest on borrowings under this credit agreement
accrue at the bank's prime rate. Borrowings are collateralized by the Company's
accounts receivable and inventory, and require monthly payments of principal
plus accrued interest. In January 1995, the available borrowing under this
agreement was increased to the lesser of $4.0 million or the amount of the
borrowing base as defined in the agreement. Interest under the revised
agreement is accrued at the bank's prime rate plus 0.5 percent. There were no
borrowings under the credit agreement at February 28, 1995. The credit
agreement expires on July 31, 1995.
In December 1989, the Company entered into a definitive agreement with Culture
Convenience Club Co., Ltd. (CCC)-Rentrak's joint-venture partner in Rentrak
Japan-to develop Rentrak's PPT distribution and information processing business
in certain markets throughout the world. On June 16, 1994, the Company and CCC
entered into a Second Amendment to Business Cooperation Agreement. Pursuant to
this agreement, the Company will receive a royalty of 1.67 percent for all sales
up to $47.9 million plus 0.5 percent of sales greater than $47.9 million in each
fiscal year. In addition, the Company will receive a onetime royalty of $2.0
million payable $1.0 million in fiscal 1995 and $1.0 million no later than March
31, 1999. The payment for fiscal 1995 has been received. Rentrak Japan
received additional territories in which to market PPT. In addition, the
<PAGE>
Company sold 34 shares of Rentrak Japan to CCC for 6.8 million Yen ($68,068),
reducing the Company's ownership in Rentrak Japan to 25 percent from 33 1/3
percent. The term of the agreement was extended from the year 2001 to the year
2039.
On July 22, 1994, the Company entered into a long-term distribution agreement
with Buena Vista Pictures Distribution ("Buena Vista"). Under the terms of the
agreement, substantially all rental-priced theatrical and nontheatrical titles
offered under Buena Vista's various labels will be offered to retailers on the
PPT system. The agreement is for a five-year term with a five-year renewal
option on the part of Buena Vista, and was effective with Buena Vista's
September titles. In connection with the agreement, The Walt Disney Company has
received warrants from Rentrak to purchase up to 2,673,500 shares of Rentrak
common stock at an exercise price of $7.13 per share subject to the meeting of
certain conditions.
In connection with the signing of Buena Vista, the Company issued a warrant to
Twentieth Century Fox Home Entertainment (formerly FoxVideo) to acquire 423,750
shares of Rentrak common stock at an exercise price of $7.13.
In August 1994, the Company acquired all of the outstanding stock of Team
Spirit. Team Spirit operates 39 licensed sports apparel stores in 15 states,
most of which are in the Midwest. Simultaneously with the acquisition, Rentrak
transferred all of the assets of Team Spirit to TPI, and Team Spirit became a
wholly owned subsidiary of TPI. The net purchase price was approximately $4.4
million and was paid via issuance of approximately 557,000 shares of common
stock. At the time of purchase, Team Spirit had approximately $4 million in
outstanding bank debt which was immediately paid by the Company.
In October 1994, the Company acquired all of the outstanding stock of Image
Makers, Inc. and Barenz-Runia, Inc. These companies were franchisees of TPI and
operated seven stores in the Pacific Northwest. Simultaneously with the
acquisition, the net assets of the combined companies were transferred to TPI.
The combined net purchase price was approximately $0.7 million and was paid by
issuance of approximately 82,000 shares of common stock.
The Company intends to continue to expand its licensed sport apparel business
through further acquisitions, through sales of new franchises and through the
opening of new corporate stores. Working capital needed to fund the increased
inventory and fixed assets associated with the increase in company-owned stores
is expected to be provided by existing bank credit agreements. The Company
intends to pay the purchase price for any such acquisitions in cash, shares of
the Company's common stock or other securities, or a combination thereof.
The Company has established a retailer financing program whereby the Company
will provide, on a selective basis, financing to video retailers who the Company
believes have demonstrated the probability of substantial growth in the
industry. In connection with these financings, the Company typically makes a
loan to and/or an equity investment in the retailer. In some cases, a warrant
to purchase stock may be obtained. As part of such financing, the retailer
typically agrees to cause all of its current and future retail locations to
participate in the PPT system for a designated period of time. These financings
are speculative in nature and involve a high degree of risk, and no assurance of
a satisfactory return on investment can be given. The failure of certain of
these investments could have a material adverse impact on the Company's results
of operations and financial position. The Board of Directors has authorized up
to $14 million to be used in connection with the Company's retailer financing
program. As of May 1995, the Company has invested in, or made commitments to
loan to or invest in, various video retailers in amounts representing
substantially all of the $14 million authorized. The loans, investments or
commitments are to various retailers and individually range from $0.2 million to
$3.0 million. As the financings are made, and periodically throughout the terms
of the agreements, the Company assesses the likelihood of recoverability of the
amounts invested or loaned based on the financial position of each retailer. As
of March 31, 1995, the Company has invested or loaned approximately $9.2 million
under the program. Because of the financial condition of a number of these
retailers, the Company has reserved approximately $3.2 million of the original
loan or investment amount.
<PAGE>
The Company is currently either negotiating extensions of its existing credit
facilities or negotiating new credit facilities with its existing financial
institutions. The Company is also considering the placement of long-term debt
or the issuance of additional securities in the public market. No assurance can
be given that any of the credit facilities will be extended or new ones obtained
or that the Company will be able to issue either long-term debt or additional
securities on terms acceptable to the Company.
Subject to the foregoing, the Company believes its existing cash, cash generated
from operations and available credit facilities (assuming such facilities are
extended or new ones obtained) will be sufficient to meet its cash requirements
for at least the next 12 months.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- --------------------------------------------
Index to Consolidated Financial Statements
Item Page
- ---- ----
Report of Independent Public __
Accountants
Consolidated Balance Sheets as of March 31, 1995 __
and 1994
Consolidated Statements of Operations for Years __
Ended March 31, 1995, 1994 and
1993
Consolidated Statements of Stockholders' Equity __
for Years Ended March 31, 1995,
1994 and 1993
Consolidated Statements of Cash Flows for Years __
Ended March 31, 1995, 1994 and
1993
Notes to Consolidated Financial Statements __
Financial Statement Schedules
Schedule II __
Schedules not included have been omitted because they are not applicable or
the required information is shown in the financial statements or notes
thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
- --------------------------------------
None
<PAGE>
Report of Independent Public Accountants
To the Board of Directors and Stockholders of
Rentrak Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Rentrak
Corporation and subsidiaries, as of March 31, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended March 31, 1995. These consolidated
financial statements and the schedule referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements and schedule 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Rentrak
Corporation and subsidiaries as of March 31, 1995 and 1994, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended March 31, 1995 in conformity with generally accepted accounting
principles.
As explained in Note 1 to the consolidated financial statements, effective
April 1, 1993 and March 31, 1994, the Company changed its methods of accounting
for income taxes and investment securities, respectively.
Our audits were made for the purpose of forming an opinion on the consolidated
financial statements taken as a whole. The schedule listed in the index to
financial statements is presented for the purpose of complying with the
Securities and Exchange Commission's rules and are not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in our audits of the consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the consolidated
financial statements taken as a whole.
Portland, Oregon,
May 26, 1995
<PAGE>
RENTRAK CORPORATION AND SUBSIDIARIES
------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
AS OF MARCH 31, 1995 AND 1994
-----------------------------
<TABLE>
<CAPTION>
A S S E T S
-----------
1995 1994
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $10,709,405 $13,815,718
Investment securities available for sale (Notes 1
and 2) - 2,387,500
Accounts receivable, net of allowance for doubtful
accounts of $642,580 and $1,224,966 14,711,439 9,352,306
Advances to program suppliers (Note 8) 2,683,710 3,915,358
Inventory (Note 1) 6,291,032 819,850
Deferred tax asset (Note 6) 915,404 -
Other current assets 2,112,021 961,903
----------- -----------
Total current assets 37,423,011 31,252,635
----------- -----------
PROPERTY AND EQUIPMENT, net (Notes 1 and 3) 4,924,122 2,796,730
INTANGIBLES, net of accumulated amortization of
$3,472,783 and $2,235,454 (Note 1) 11,011,121 6,750,109
NOTES RECEIVABLE, net (Note 4) 3,035,787 -
OTHER INVESTMENTS, net (Note 4) 2,919,919 -
DEFERRED TAX ASSET (Note 6) 1,926,673 -
OTHER ASSETS 3,577,035 3,820,971
----------- -----------
$64,817,668 $44,620,445
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $17,799,146 $10,707,701
Accrued liabilities 3,301,513 3,659,800
Accrued compensation 2,016,820 730,291
Deferred revenue (Note 1) 1,408,076 -
----------- -----------
Total current liabilities 24,525,555 15,097,792
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 8 and 9)
STOCKHOLDERS' EQUITY (Notes 5, 7 and 10):
Preferred stock, $.001 par value; Authorized:
10,000,000 shares - -
Common stock, $.001 par value; Authorized: 30,000,000 and 20,000,000 shares in 1995 and
1994, respectively; Issued and outstanding: 11,277,246 shares in 1995 and 10,224,057
shares in 1994 11,277 10,224
Capital in excess of par value 44,598,939 34,272,263
Net unrealized gain (loss) on investment securities (170,747) 1,434,182
Accumulated deficit (1,080,493) (6,194,016)
Less- Deferred charge - warrants (3,066,863) -
----------- -----------
40,292,113 29,522,653
----------- -----------
$64,817,668 $44,620,445
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE>
RENTRAK CORPORATION AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
FOR THE YEARS ENDED MARCH 31, 1995, 1994 AND 1993
-------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES (Note 1):
PPT $ 79,793,584 $62,005,968 $52,847,386
Sports apparel 26,363,211 3,950,705 -
Other 6,009,436 2,939,814 1,487,480
------------ ----------- -----------
112,166,231 68,896,487 54,334,866
------------ ----------- -----------
OPERATING COSTS AND EXPENSES:
Cost of sales (Note 1) 83,533,328 52,161,827 41,298,567
Selling and administrative 26,183,434 16,392,635 15,054,151
Suspension of European operations
(Note 11) - 900,563 -
------------ ----------- -----------
109,716,762 69,455,025 56,352,718
------------ ----------- -----------
Income (loss) from operations 2,449,469 (558,538) (2,017,853)
------------ ----------- -----------
OTHER INCOME (EXPENSE):
Interest income 600,415 579,222 559,787
Interest expense (35,979) (3,905) (60,828)
Gain on sale of investments 2,826,849 - -
Other - (98,551) -
------------ ----------- -----------
3,391,285 476,766 498,959
------------ ----------- -----------
Income (loss) before income tax provision (benefit),
minority partner interests and extraordinary item 5,840,754 (81,772) (1,518,894)
INCOME TAX (PROVISION) BENEFIT (Note 6) (727,231) 763,919 (304,813)
------------ ----------- -----------
Income (loss) before minority partner interests and
extraordinary item
5,113,523 682,147 (1,823,707)
LOSSES ATTRIBUTABLE TO MINORITY PARTNER
INTERESTS (Note 1) - 130,918 648,833
------------ ----------- -----------
Income (loss) before
extraordinary item 5,113,523 813,065 (1,174,874)
EXTRAORDINARY ITEM, income tax benefit from carryforward of net
operating losses (Note 6)
- - 279,813
------------ ----------- -----------
Net income (loss) $ 5,113,523 $ 813,065 $ (895,061)
============ =========== ===========
</TABLE>
(continued)
<PAGE>
RENTRAK CORPORATION AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
-------------------------------------------------
FOR THE YEARS ENDED MARCH 31, 1995, 1994 AND 1993
-------------------------------------------------
NET INCOME (LOSS) PER SHARE (Note 1)
------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
EARNINGS PER COMMON SHARE AND COMMON
EQUIVALENT SHARE:
Income (loss) before extraordinary item $ .41 $ .08 $ (.13)
Extraordinary item - - .03
----------- ----------- -----------
Net income (loss) per share $ .41 $ .08 $ (.10)
=========== =========== ===========
EARNINGS PER COMMON SHARE AND COMMON EQUIVALENT SHARE - assuming
issuance of all dilutive contingent shares:
Income (loss) before extraordinary item $ .40 $ .08 $ (.13)
Extraordinary item - - .03
----------- ----------- -----------
Net income (loss) per share $ .40 $ .08 $ (.10)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
RENTRAK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Common Stock
------------------- Capital in
Number of Excess of
Shares Amount Warrants Par Value
---------- -------- ----------- ------------
<S> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1992 9,032,837 $ 9,033 $ - $27,500,526
Issuance of common stock 318,379 318 - 1,980,744
Issuance of common stock under
employee stock option plan 123,678 124 - 154,495
Issuance of warrants - - 1,300,000 -
Warrant subscription receivable - - (1,300,000) -
Net loss - - - -
Cumulative translation adjustment - - - -
---------- ------- ----------- -----------
BALANCE AT MARCH 31, 1993 9,474,894 9,475 - 29,635,765
Repurchase of common stock (83,963) (84) - (444,544)
Issuance of common stock for
acquisition 776,280 776 - 4,957,828
Issuance of common stock under
employee stock option plan 56,846 57 - 123,214
Net income - - -
Cumulative translation adjustment - - - -
Net unrealized gain on investment
securities - - - -
---------- ------- ----------- -----------
BALANCE AT MARCH 31, 1994 10,224,057 10,224 - 34,272,263
Repurchase of common stock (38,300) (38) - (189,512)
Issuance of common stock 364,445 364 - 1,549,257
Issuance of common stock for
acquisitions 639,561 640 - 5,110,526
Issuance of common stock under
employee stock option plan 87,483 87 - 322,428
Net income - - - -
Change in net unrealized gains
(losses) on investment securities - - - -
Issuance of warrants - - (3,533,977) 3,533,977
Amortization of warrants - - 467,114 -
---------- ------- ----------- -----------
BALANCE AT MARCH 31, 1995 11,277,246 $11,277 $(3,066,863) $44,598,939
========== ======= =========== ===========
<CAPTION>
(Accumulated Net Unrealized
Deficit) Cumulative Gains (Losses)
Retained Translation on Investment
Earnings Adjustment Securities Total
------------ ------------ -------------- ------------
<S> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1992 $(6,112,020) $ - $ - $21,397,539
Issuance of common stock - - - 1,981,062
Issuance of common stock under
employee stock option plan - - - 154,619
Issuance of warrants - - - 1,300,000
Warrant subscription receivable - - - (1,300,000)
Net loss (895,061) - - (895,061)
Cumulative translation adjustment - 83,866 - 83,866
----------- -------- ----------- -----------
BALANCE AT MARCH 31, 1993 (7,007,081) 83,866 - 22,722,025
Repurchase of common stock - - - (444,628)
Issuance of common stock for
acquisition - - - 4,958,604
Issuance of common stock under
employee stock option plan - - - 123,271
Net income 813,065 - - 813,065
Cumulative translation adjustment - (83,866) - (83,866)
Net unrealized gain on investment
securities - - 1,434,182 1,434,182
----------- -------- ----------- -----------
BALANCE AT MARCH 31, 1994 (6,194,016) - 1,434,182 29,522,653
Repurchase of common stock - - - (189,550)
Issuance of common stock - - - 1,549,621
Issuance of common stock for
acquisitions - - - 5,111,166
Issuance of common stock under
employee stock option plan - - - 322,515
Net income 5,113,523 - - 5,113,523
Change in net unrealized gains
(losses) on investment securities - - (1,604,929) (1,604,929)
Issuance of warrants - - - -
Amortization of warrants - - - 467,114
----------- -------- ----------- -----------
BALANCE AT MARCH 31, 1995 $(1,080,493) $ - $ (170,747) $40,292,113
=========== ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
RENTRAK CORPORATION AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE YEARS ENDED MARCH 31, 1995, 1994 AND 1993
-------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 5,113,523 $ 813,065 $ (895,061)
Adjustments to reconcile net income
(loss) to net cash provided (used) by
operations-
Gain on investment sales (2,826,849) - -
Depreciation 1,441,872 769,748 422,882
Amortization of intangibles 1,242,564 678,588 889,157
Amortization of warrants 467,114 - -
Provision for doubtful accounts (582,386) (43,160) 366,568
Retailer financing program reserves 2,974,912 - -
Studio advance reserves 572,300 - -
Losses attributable to minority
partner interests - (130,918) (648,833)
Loss on asset sales - 893,116 -
Deferred income taxes (2,737,426) - -
Cumulative translation adjustments - (83,866) -
Change in specific accounts, net of
effects in 1995 and 1994 from
purchase of businesses:
Accounts receivable (4,726,871) 796,241 (3,725,418)
Inventories (1,490,480) - -
Advances to program suppliers 659,348 (1,278,411) (690,472)
Other current assets (1,244,614) (958,020) (397,527)
Accounts payable 4,746,922 (641,559) 5,241,300
Accrued liabilities and
compensation 1,420,639 1,117,287 612,823
Deferred revenue 1,408,076 - -
------------ ------------ ------------
Net cash provided by operating
activities 6,438,644 1,932,111 1,175,419
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,273,080) (1,758,893) (1,576,044)
Investments in retailer financing
program (8,930,618) - -
Cash paid for purchases of businesses,
net of cash acquired - (1,342,352) -
Purchases of other assets 309,849 (1,198,989) (870,749)
Purchases of investments (4,400,253) (8,271,811) (41,861,363)
Maturities of investments 4,400,253 19,596,118 30,537,056
Proceeds from sale of investment 2,836,849 - -
Purchase of intangibles (782,620) (229,997) (476,337)
------------ ------------ ------------
Net cash provided (used) by
investing activities (7,839,620) 6,794,076 (14,247,437)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of debt assumed in acquisition $ (3,259,724) $ - $ (18,304)
Cash received from minority partner - 50,000 729,751
Repurchase of common stock (189,550) (444,628) -
Issuance of common stock 1,743,937 123,271 2,085,681
------------ ------------ ------------
Net cash provided (used) by
financing activities (1,705,337) (271,357) 2,797,128
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(3,106,313) 8,454,830 (10,274,890)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
13,815,718 5,360,888 15,635,778
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 10,709,405 $ 13,815,718 $ 5,360,888
============ ============ ============
</TABLE>
(continued)
<PAGE>
RENTRAK CORPORATION AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
-------------------------------------------------
FOR THE YEARS ENDED MARCH 31, 1995, 1994 AND 1993
-------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest $ 35,979 $ 3,905 $ 3,939
Income taxes 3,288,189 62,127 31,029
NONCASH FINANCING AND INVESTING ACTIVITIES:
Issuance of warrants 3,533,977 - -
Addition to other assets through
issuance of common stock 128,199 - -
Addition to licensing agreements
through issuance of common stock - - 50,000
Acquisition of businesses through
issuance of stock 5,111,166 5,542,639 -
Purchase of other assets through
credits to accounts receivable - - 360,000
Increase (decrease) in net unrealized
gains (losses) on investment
securities through adjustments to
stockholders' equity (1,604,929) 1,434,182 -
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
RENTRAK CORPORATION AND SUBSIDIARIES
------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
MARCH 31, 1995, 1994 AND 1993
-----------------------------
1. BUSINESS OF THE COMPANIES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Rentrak Corporation (the Company) (an Oregon corporation) is principally engaged
in the distribution of prerecorded video cassettes to the home video market
throughout the United States and Canada using its Pay-Per-Transaction (PPT)
revenue sharing program.
In December 1989, the Company entered into a definitive agreement with Culture
Convenience Club Co., Ltd. (CCC), Rentrak's joint venture partner in Rentrak
Japan, to develop Rentrak's PPT distribution and information processing business
in certain markets throughout the world. On June 16, 1994, the Company and CCC
amended the agreement. Pursuant to this amendment, the Company will receive a
royalty of 1.67 percent for all sales of up to $47,905,000, plus one-half of 1
percent (0.5%) of sales greater than $47,905,000 in each fiscal year. In
addition, the Company received a one-time royalty of $2 million payable $1
million in fiscal 1995, which has been received; and $1 million no later than
March 31, 1999. The payment of $1 million due on March 31, 1999 has not been
recognized as revenue by the Company due to uncertainty of collection. Rentrak
Japan will receive additional territories to market PPT. In addition, the
Company sold 34 shares of Rentrak Japan to CCC for 6,800,000 Yen ($68,068),
reducing the Company's ownership in Rentrak Japan from 33-1/3 percent to 25
percent. The term of the Agreement was extended from the year 2001 to the year
2039.
In the fall of 1992, the Company initiated efforts to globalize its PPT
operations by entering the European market. The Company, with its partner in
Rentrak Japan, formed two jointly owned European corporations, Rentrak Europe
and Videotheken Management. Rentrak Europe's purpose was to market PPT in Europe
and was owned by the Company and by the Japanese partner. The Company was the
majority shareholder. Videotheken Management's purpose was to develop video
outlets in the German market and was owned by the Company and by the Japanese
partner. The Company was the controlling shareholder. Rentrak Europe and
Videotheken Management ceased operations during the quarter ended September 30,
1993, and the rights to the corporations were subsequently sold in the quarter
ended December 31, 1993. The decision to cease operations stems from the
difficulties the Company had in getting sufficient product flow commitments from
program suppliers. However, in the future, the Company may explore opportunities
to expand its PPT market in Europe as well as other foreign countries.
Minority interest represents the minority shareholders' proportionate share of
the equity of certain ventures. The minority shareholders' proportionate share
of losses in excess of their equity in the entities is recorded in the Company's
accompanying statement of operations. The Company is currently negotiating the
sale of its ownership in the remaining entity to the minority partner.
<PAGE>
-2-
On October 15, 1993, the Company acquired all of the outstanding shares of
common stock of The Pro Image Inc., a Utah corporation (TPI), pursuant to the
Stock Purchase Agreement by and among the Company, TPI and the shareholders of
TPI. As of March 31, 1995, TPI franchised approximately 175 retail outlets in 45
states, Canada, Germany, Mexico and Japan. Including Team Spirit, which was
acquired during the year, as discussed below, TPI also operates 54 company-owned
retail stores in 19 states throughout the country. These stores sell
sports-oriented products and apparel featuring products licensed by college and
professional sports teams.
In August 1994, the Company acquired all of the outstanding stock of Team
Spirit, Inc. (Team Spirit) for a net purchase price of approximately $4.4
million, with payment made through the issuance of approximately 557,000 shares
of Rentrak Common Stock (see Note 12). Team Spirit operates 39 stores in 15
states, including Nebraska, Illinois, Michigan, Iowa, Minnesota, Missouri and
Kansas, which sell licensed sports apparel and gifts. Simultaneous with the
acquisition, Rentrak transferred all of the assets of Team Spirit to TPI and
Team Spirit became a wholly owned subsidiary of TPI.
In October 1994, the Company acquired all of the outstanding stock of Image
Makers, Inc. and Barenz-Runia, Inc. (see Note 12). These companies were
franchisees of TPI and operated seven stores in the Pacific Northwest.
Simultaneous with the acquisition, the net assets of the combined companies were
contributed to TPI. The combined purchase price was approximately $686,000 and
was paid by issuing approximately 82,000 shares of the Company's common stock.
The above acquisitions were accounted for as purchases and the results of
operations are included in the accompanying consolidated statement of operations
from the date of acquisition.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company, its
majority owned subsidiaries, and those subsidiaries in which the Company has a
controlling interest after elimination of all intercompany accounts and
transactions. Investments in affiliated companies owned 20 to 50 percent are
accounted for by the equity method.
TPI and Team Spirit's year-ends are February 28. As there are no intervening
events which materially affect the financial position or results of operations,
the consolidated financial statements include TPI's balance sheet as of February
28, 1995 and 1994 and the statements of operations, stockholder's equity and
cash flows for the 12-month period and 4-1/2 month period ending February 28,
1995 and 1994, respectively. Team Spirit's balance sheet as of February 28, 1995
and the statements of operations, stockholder's equity and cash flows for the
six-month period ending February 28, 1995 are included in the consolidated
financial statements.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.
<PAGE>
-3-
INVESTMENT SECURITIES
Effective March 31, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115 (SFAS 115), "Accounting for Certain Investments in Debt and
Equity Securities," which changed the accounting for certain debt and equity
securities. In accordance with SFAS 115, securities are classified as available
for sale.
Securities, classified as available for sale, are shown at market with an
adjustment to stockholders' equity to reflect net unrealized gains and losses,
net of tax.
INVENTORY
Inventory consists primarily of sports apparel and related finished goods
merchandise. Inventory is carried at the lower of cost (first-in, first-out
method) or market value.
PROPERTY AND EQUIPMENT
Depreciation of fixed assets, other than movie tapes, is computed on the
straight-line method over estimated useful lives of three to five years. Movie
tapes are depreciated ratably over their expected related revenue stream.
Leasehold improvements are amortized over the lives of the underlying leases or
the service lives of the improvements, whichever is shorter.
INTANGIBLES
During fiscal years 1995, 1994 and 1993, the Company paid cash and issued stock
for approximately $11,000, $206,000 and $883,000, respectively, for licensing
agreements with product and service suppliers. These agreements are being
amortized on the straight-line method over one to ten years.
In connection with the acquisition of TPI, the Company purchased certain
intangible assets totaling $6,269,050. These assets include customer and dealer
lists, a covenant not to compete, franchise agreements and goodwill. These
assets are being amortized on the straight-line method over a 12-year period.
In connection with the acquisitions of Team Spirit and then Image Makers, Inc.
and Barenz-Runia, Inc., the Company purchased goodwill totaling approximately
$4.1 million and $557,000, respectively The goodwill will be amortized on the
straight-line method over a 15-year period.
The Company believes the above useful lives are appropriate based on the factors
influencing acquisition decisions. These factors include store location,
profitability and general industry outlook. The Company reviews its intangible
assets for asset impairment at the end of each quarter, or more frequently when
events or changes in circumstances indicate that the carrying amount of
intangibles may not be recoverable. To perform that review, the Company
estimates the sum of expected future undiscounted preinterest expense net cash
flows from the operating activities. If the estimated net cash flows are less
than the carrying amount of intangibles, the Company will recognize an
impairment loss in an amount necessary to write down intangibles to a fair value
as determined from expected discounted future cash flows.
<PAGE>
-4-
REVENUE RECOGNITION
Under its PPT program, the Company enters into contracts to distribute video
cassettes leased by retailers from video program suppliers (producers of motion
pictures and licensees and distributors of home video cassettes), for a
percentage of the fees charged to the retailers. The lease agreements provide
for a one-time initial handling fee and continuing transaction fees based on a
percentage of rental revenues earned by the retailer upon renting the video
cassettes to their customers. The Company recognizes handling fees as revenue
when the video cassettes are shipped to the retailers and recognizes transaction
fees when the video cassettes are rented to the consumers. When the Company's
revenue is fixed and determinable at time of shipment of video cassettes to the
retailers, deferred revenue is recorded and recognized as revenue in the
statement of operations when the video cassettes are rented to the consumers.
The corresponding liability to video program suppliers for their share of the
fees is recorded to cost of sales when the revenue is recognized with a
corresponding amount to accounts receivable. The Company also charges retailers
a processing fee upon admission to the PPT program. This fee is recognized as
PPT revenue when the application to participate in the PPT program is approved.
Stockholders and directors, or their families, own interests in several stores
participating in the PPT program. The Company realized revenues from these
stores of $426,102, $422,053 and $474,073 during 1995, 1994 and 1993,
respectively.
TPI is entitled to a royalty of up to 4 percent of gross sales generated by
franchise retail stores. TPI recognizes royalty fee revenues in the period sales
are made by the franchise retail stores. TPI recognizes initial franchise fees
from franchise sales as revenue when the services or conditions relating to the
sale are performed or satisfied. TPI defers the portion of the initial franchise
fee related to an obligation to perform future training services for the
franchisee. This deferred franchise fee is recorded as revenue at the time the
training is completed or the obligation expires.
INCOME TAXES
Effective April 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS 109). Under the liability
method specified by SFAS 109, deferred tax assets and liabilities are determined
based on the temporary differences between the financial statement basis and tax
basis of assets and liabilities as measured by the enacted tax rates for the
years in which the taxes are expected to be paid. Prior to April 1, 1993, the
Company accounted for income taxes in accordance with Accounting Principles
Board Opinion No. 11. As permitted by SFAS 109, prior period financial
statements have not been restated.
NET INCOME (LOSS) PER SHARE
At March 31, 1995, primary earnings per share are based on the weighted average
number of shares outstanding and the assumed exercise of common stock equivalent
options and warrants regardless of whether the market price of the common stock
exceeded the exercise price of the options and warrants. The number of treasury
shares assumed to be purchased with the proceeds from the exercise of the
options and warrants was limited to 20 percent of the outstanding shares at
period-end. Those purchases were assumed to have been made at the average market
price of the Company's common stock during the year. Proceeds from exercise of
the options and warrants in excess of those used to purchase treasury shares
were assumed to have been invested in government securities with the resultant
interest income, adjusted
<PAGE>
-5-
for appropriate tax effects, added to net income for purposes of calculating
earnings per share. For the 1995 primary earnings per share calculation,
13,397,951 common shares and common share equivalents were assumed outstanding
and $394,249 of assumed interest income, net of tax, was added to the Company's
net income for purposes of computing earnings per share.
Fully diluted earnings per share at March 31, 1995 are based on the weighted
average number of shares outstanding and the assumed exercise of common stock
equivalent options and warrants regardless of whether the market price of the
common stock exceeded the exercise price of the options and warrants. In
addition, contingent warrants were assumed to have been exercised. The number of
treasury shares assumed to be purchased with the proceeds from the exercise of
the options and warrants was limited to 20 percent of the outstanding shares at
period-end. Those purchases were assumed to have been made at the greater of the
average or ending market price of the Company's common stock during the year.
Proceeds from exercise of the options and warrants in excess of those used to
purchase treasury shares were assumed to have been invested in government
securities with the resultant interest income, adjusted for appropriate tax
effects, to be added to net income for purposes of calculating earnings per
share. For the 1995 fully diluted earnings per share calculation, 14,317,380
common shares and common share equivalents were assumed outstanding and $582,494
of assumed interest income, net of tax, was added to the Company's net income
for purposes of computing earnings per share.
Earnings per common share and common equivalent share for 1994 were computed by
dividing net income by the weighted average number of shares of common stock and
common stock equivalents outstanding during the year. The number of common
shares was increased by the number of shares issuable on the exercise of options
and warrants when the market price of the common stock exceeded the exercise
price of the options and warrants. This increase in the number of common shares
was reduced by the number of common shares that are assumed to have been
repurchased with the proceeds from the exercise of the options and warrants.
Those repurchases were assumed to have been made at the average price of the
common stock during the year. Weighted average shares outstanding used in both
the primary and fully diluted earnings per share calculation are 10,162,461.
Loss per common share and common equivalent share for 1993 was computed based
only on the weighted average number of shares of common stock actually
outstanding, which was 9,305,950.
FOREIGN OPERATIONS
Foreign currency assets and liabilities are translated into U.S. dollars at the
exchange rates in effect at the balance sheet date. Results of operations are
translated at average exchange rates during the period for revenue and expenses.
Translation gains and losses resulting from fluctuations in the exchange rates
are accumulated as a separate component of stockholders' equity. Translation
gains or losses were not material for any period presented.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform with current year presentation.
<PAGE>
-6-
2. INVESTMENT SECURITIES:
The carrying value and estimated fair value of securities at March 31 were as
follows:
<TABLE>
<CAPTION>
Unrealized Unrealized
Cost Gross Gain Gross Loss Fair Value
--------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
As of March 31, 1995:
Available for sale-
Noncurrent:
Corporate securities $389,065 $ - $(275,398) $ 113,667
======== ========== ========= ==========
As of March 31, 1994:
Available for sale-
Current:
Corporate securities $ 10,000 $2,377,500 $ - $2,387,500
Noncurrent:
Corporate securities 389,065 - (64,303) 324,762
-------- ---------- --------- ----------
$399,065 $2,377,500 $ (64,303) $2,712,262
======== ========== ========= ==========
</TABLE>
3. PROPERTY AND EQUIPMENT:
Property and equipment, at cost, consists of:
<TABLE>
<CAPTION>
March 31,
------------------------
1995 1994
------------ ------------
<S> <C> <C>
Furniture and fixtures $ 5,932,263 $ 4,051,866
Machinery and equipment 1,247,352 898,270
Leasehold improvements 3,666,333 866,615
----------- -----------
10,845,948 5,816,751
Less accumulated depreciation (5,921,826) (3,020,021)
----------- -----------
$ 4,924,122 $ 2,796,730
=========== ===========
</TABLE>
4. RETAILER FINANCING PROGRAM:
The Company has established a retailer financing program whereby on a selective
basis the Company will provide financing to video retailers which the Company
believes have demonstrated the prospect for substantial growth in the industry.
In connection with these financings, the Company typically makes a loan and/or
equity investment in the retailer. In some cases, a warrant to purchase stock
may be obtained. As part of such financings, the retailer typically agrees to
cause all of its current and future retail locations to participate in the PPT
System for a designated period of time. These financings are speculative in
nature and involve a high degree of risk and no assurance of a satisfactory
return on investment can be given.
<PAGE>
-7-
The Board of Directors has authorized up to $14 million to be used in connection
with the Company's retailer financing program. As of May 1995, the Company has
invested or made oral or written commitments to loan to or invest in various
video retailers in amounts totaling substantially all of the $14 million
authorized. The loans, investments or commitments are to various retailers and
individually range from $200,000 to $3,000,000. The investments are accounted
for at cost as all investments represent less than 10 percent of the entity's
equity. The notes, which have payment terms that vary according to the
individual loan agreements, are due 1995 through 1999. Interest rates on the
various loans range from the prime rate plus 1 percent to the prime rate plus 3
percent. As the financings are made, and periodically throughout the terms of
the agreements, the Company assesses the recoverability of the amounts based on
the financial position of each retailer. As of March 31, 1995, the Company has
invested or loaned approximately $9.2 million under the program. Because of the
financial condition of a number of these retailers, the Company has provided
reserves of approximately $3.2 million of the total original loan or investment
amount.
Subsequent to year-end, the Company increased its ownership in one of the
retailers in the above program to approximately 57 percent or a controlling
interest. See Note 15.
5. LINE OF CREDIT:
The Company has an agreement for a line of credit in the amount of $7,500,000
with a financial institution which expires on July 25, 1995. Under this
agreement, the Company is required to maintain average compensating balances of
$1,500,000 in its checking and money accounts. Interest is payable monthly at a
rate that varies in relation to the bank's prime rate. The lender has been
granted the option to purchase 10,000 unregistered shares of common stock of the
Company at $7 per share, which exceeded market value at the date of grant. The
line is secured by substantially all of the Company's assets (excluding TPI
assets). The terms of the agreement require, among other things, a minimum
amount of tangible net worth, minimum current ratio and minimum total
liabilities to tangible net worth. The agreement also restricts the amount of
net losses, loans and indebtedness and limits the payment of dividends on the
Company's stock. The Company is in compliance with these covenants as of March
31, 1995. There were no borrowings on the line of credit as of March 31, 1995.
In April 1994, TPI entered into a $2,000,000 line of credit arrangement with a
financial institution. Interest on borrowings under this credit agreement accrue
at the bank's prime rate. Borrowings are collateralized by TPI's accounts
receivable and inventory and require monthly payments of principal plus accrued
interest. In January 1995, the available borrowing under this agreement was
increased to the lesser of $4 million or the amount of the borrowing base as
defined in the agreement. Interest under the revised agreement is accrued at the
bank's prime rate plus .5 percent. There were no borrowings under the credit
agreement at February 28, 1995. The credit agreement expires on July 31, 1995.
<PAGE>
-8-
6. INCOME TAXES:
The provision (benefit) for income taxes is as follows for the years ended
March 31:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Current tax provision
Federal $ 2,221,956 $ 21,949 $ 427,005
State 367,741 91,081 25,118
----------- ---------- ---------
2,589,697 113,030 452,123
Deferred tax benefit (1,862,466) (876,949) (147,310)
----------- --------- ---------
Income tax provision (benefit) $ 727,231 $(763,919) $ 304,813
=========== ========= =========
</TABLE>
In 1993, the income tax provision was substantially offset by the benefit from
the carryforward of net operating losses (NOL) for United States purposes. This
benefit has been reported as an extraordinary item in the accompanying
consolidated statement of operations.
The reported provision (benefit) for income taxes differs from the amount
computed by applying the statutory federal income tax rate of 34 percent to
income before provision (benefit) for income taxes as follows for the years
ended March 31:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- ----------
<S> <C> <C> <C>
Provision (benefit)computed at statutory
rates $ 1,985,856 $ (27,802) $ 516,424
State taxes, net of federal benefit 242,709 91,081 16,165
Utilization of foreign loss carryforwards (1,143,876) - -
Change in valuation allowance (953,470) - -
Purchase accounting amortization adjustments 288,657 - -
Other 307,355 - -
Alternative minimum tax - 49,751 (227,776)
Benefit of recognition of deferred tax assets - (876,949) -
----------- --------- ---------
$ 727,231 $(763,919) $ 304,813
=========== ========= =========
</TABLE>
Prior to 1995, the Company was uncertain as to whether the foreign loss
carryforwards could be utilized and therefore no deferred tax asset was
established. In the current year, it has been determined that the losses can be
utilized and therefore the Company has appropriately reduced 1995 taxable
income.
The total reduction in the valuation allowance during the year ended March 31,
1995, was $953,470. The valuation allowance as of March 31, 1994, was recorded
against the portion of the NOL deferred tax asset which did not satisfy the
recognition criteria set forth in SFAS 109.
<PAGE>
-9-
Deferred tax assets and liabilities are comprised of the following components at
March 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
Deferred tax assets:
<S> <C> <C>
Current-
Vacation accrual $ 132,060 $ 96,122
Allowance for doubtful accounts 147,502 465,487
Retailer-related accruals 203,403 -
Retailer financing program reserve 122,099 -
Legal settlement accrual 171,686 171,686
Net operating loss carryforward - 193,952
Other 138,654 3,235
---------- ----------
Total current deferred tax assets 915,404 930,482
---------- ----------
Noncurrent-
Depreciation 138,969 -
Retailer financing program reserve 1,351,706 -
Warrant amortization 177,504 -
Unrealized loss on investment securities 104,651 -
Other 153,843 41,735
Acquisition amortization - 112,327
Net operating loss carryforward - 853,281
---------- ----------
Total noncurrent deferred tax assets 1,926,673 1,007,343
Deferred tax assets valuation allowance - (953,470)
---------- ----------
Total deferred tax assets, net of valuation
allowance $2,842,077 $ 984,355
========== ==========
Deferred tax liability:
Current-
Unrealized gain on investment securities $ - $ (879,015)
Studio guarantees - (51,467)
---------- ----------
Total current deferred tax liabilities - (930,482)
Noncurrent-
Depreciation - (53,873)
---------- ----------
Total noncurrent deferred tax liability - (53,873)
---------- ----------
Total deferred tax liabilities $ - $ (984,355)
========== ==========
</TABLE>
7. STOCKHOLDERS' EQUITY:
On October 15, 1993, the Company acquired all of the outstanding shares of
common stock of TPI and Kartoyz, Inc., pursuant to a stock purchase agreement.
The aggregate consideration paid by the Company for all outstanding shares of
TPI common stock and all outstanding shares of Kartoyz common stock was
approximately $1.2 million in cash and 776,280 shares of common stock. In
addition, the Company agreed to pay up to $650,000 based upon future TPI
royalties. As of March 31, 1995, the Company has paid $200,000 under the royalty
arrangement. The balance of $450,000 has been recorded in accrued liabilities.
<PAGE>
-10-
On August 31, 1994, the Company acquired all of the outstanding shares of common
stock of Team Spirit for a net purchase price of approximately $4.4 million,
with payment made through the issuance of approximately 557,000 shares of the
Company's common stock. The Company acquired net assets of approximately
$300,000 and recorded goodwill of approximately $4.1 million.
In October 1994, the Company acquired all of the outstanding stock of Image
Makers, Inc. and Barenz-Runia, Inc. for a net purchase price of approximately
$686,000, with payment made through the issuance of approximately 82,000 shares
of the Company's common stock. The Company acquired net assets of approximately
$129,000 and recorded goodwill of approximately $557,000.
In September 1994, a program supplier exercised warrants to acquire 250,000
shares of the Company's common stock for $5.19 per share. The warrants were
granted in 1991.
STOCK OPTIONS AND WARRANTS
Options are granted under the 1986 Stock Option and the Directors' Stock Option
Plans, which are administered by the Board of Directors, at an exercise price
equal to fair market value as of the date of grant. Options under the 1986 Stock
Option Plan are generally exercisable over four to ten years and expire ten
years after date of grant. Options under the Directors' Stock Option Plan are
generally exercisable over one to five years and expire five years after date of
grant. As of March 31, 1995, the Company has 1,022,266 options available to be
granted and 3,873,500 shares of common stock reserved for issuance under these
plans.
The table below summarizes the plan's activity:
<TABLE>
<CAPTION>
Options Outstanding
-------------------------------------
Number Price
of Per Aggregate
Shares Share Price
---------- ------------- ------------
<S> <C> <C> <C>
Balance at March 31, 1992 626,900 $ .75 - 9.53 $ 1,812,072
Granted 340,444 5.38 - 8.00 1,955,764
Issued (123,678) 1.00 - 6.25 (154,619)
Canceled (6,710) 1.38 - 6.38 (29,537)
--------- ------------ -----------
Balance at March 31, 1993 836,956 1.13 - 9.53 3,583,680
Granted 364,672 4.44 - 6.50 1,839,177
Issued (56,846) 1.13 - 6.25 (123,271)
Canceled (162,389) 1.13 - 6.38 (887,287)
--------- ------------ -----------
Balance at March 31, 1994 982,393 1.13 - 9.53 4,412,299
Granted 1,709,900 4.94 - 8.50 9,883,418
Issued (87,483) 1.13 - 6.75 (210,065)
Canceled (37,467) 1.38 - 6.75 (213,209)
--------- ------------ -----------
Balance at March 31, 1995 2,567,343 $1.13 - 9.53 $13,872,443
========= ============ ===========
</TABLE>
<PAGE>
-11-
As of March 31, 1995, 859,158 options to purchase stock were exercisable. The
remaining 1,708,185 options are subject to restrictions which prohibit them from
being exercised as of March 31, 1995.
In connection with the secondary offering in May 1991, the Company issued to its
investment banker a warrant to purchase 147,500 shares of the Company's common
stock. The exercise price per share of $8.90 equaled market value at the date of
grant. The warrants would have expired on May 22, 1994. However, the Board of
Directors extended the expiration date to May 22, 1996.
In August 1992, the Company entered into an agreement with a service supplier to
use and sublease certain software on the PPT system. As part of the agreement,
the Company paid a licensing fee of $188,000, sold 251,889 shares of common
stock for $7 per share ($1,763,223), which approximated market value at date of
transaction, and granted a warrant to purchase 251,889 shares of common stock at
an exercise price of $9.50 per share, which exceeded market value at the date of
grant, through August 1997. The licensing fee was capitalized in other assets
and is being amortized over five years, the life of the licensing agreement.
In August 1992, the Company entered into an agreement with CCC to develop
Rentrak's pay-per-transaction and information processing business in certain
markets throughout the world. The agreement guarantees a maximum 25 percent
equity interest for CCC in any new company formed to develop PPT in these
markets. As part of the agreement, CCC was issued warrants to acquire up to 1.2
million shares of the Company's common stock for $1.3 million. The warrants were
to be purchased before December 31, 1993. The $1.3 million was not paid and the
option to acquire the 1.2 million shares has expired by its terms. At March 31,
1993, the Company had recorded a subscription receivable for $1.3 million which
is shown as an offset to the warrants in the stockholders' equity section of the
balance sheet. The exercise price of these warrants did not exceed the market
price of the Company's stock at the date of grant.
In September 1992, the Company agreed to issue warrants to buy up to 1,000,000
shares of the Company's common stock in connection with entering into a
long-term licensing agreement with a program supplier. Certain contractual
arrangements must be performed by the program supplier, however, before any
warrants are issued. At March 31, 1995, a warrant to purchase 600,000 shares of
common stock had been issued at an exercise price of $7.14 per share which
approximated market value at date of grant.
In July 1994, the Company agreed to issue warrants to buy up to 2,673,750 shares
of the Company's common stock in connection with entering into a long-term
licensing agreement with a program supplier. Of the warrants, 1,423,750 are
issuable based on the program supplier's continuing business with the Company.
The remainder of the warrants are issuable upon the meeting of certain
conditions by the program supplier, including the delivery of predetermined
numbers of titles for inclusion in the Company's PPT program. The warrants were
issued at an exercise price of $7.13 per share, which approximated market value
at date of grant.
As a result of the July 1994 agreement discussed above, the Company issued
warrants to acquire 423,750 shares of the Company's common stock to another
program supplier under a favored nations clause in the contract with that
program supplier. This supplier had received a previous grant for 1,000,000
shares (see above). These warrants were also issued at an exercise price of
$7.13 per share, which approximated market value at date of grant.
<PAGE>
-12-
In December 1994, the Company agreed to issue warrants to buy up to 250,000
shares of the Company's common stock to certain customers. The warrants are
issuable if the customers meet certain purchasing commitments established by the
Company. The warrants were issued at an exercise price of $7.00 per share, which
approximated market value at date of grant.
All warrants which the Company agreed to issue in 1995 have been valued by an
outside valuation firm using standard warrant valuation models. The value of the
warrants of $3,533,977 has been recorded in the equity section and will be
amortized over the associated periods to be benefited by each group of warrants.
For 1995, expense associated with the warrants is $467,114.
8. COMMITMENTS:
LEASES
The Company leases its facilities under operating leases expiring at various
dates through 2008. Rental payments over the term of the leases exceeding one
year are as follows:
<TABLE>
<CAPTION>
Year ending March 31,
---------------------
<S> <C>
1996 $ 3,387,649
1997 2,882,406
1998 2,452,032
1999 1,983,698
2000 1,378,302
2001 and thereafter 5,264,031
-----------
$17,348,118
===========
</TABLE>
The leases provide for payment of taxes, insurance and maintenance by the
Company. The Company also rents vehicles and equipment on a short-term basis.
Rent expense under operating leases was $2,357,640, $749,000 and $514,000 for
the years ended March 31, 1995, 1994 and 1993, respectively.
GUARANTEES AND ADVANCES
The Company has entered into several guarantee contracts with program suppliers
providing titles for distribution under the PPT system. In general, these
contracts guarantee the suppliers minimum payments. In some cases these
guarantees were paid in advance. Any advance payments that the Company has made
and will be realized within the current year are included in advances to program
suppliers. The long-term portion is included in other assets. Both the current
and long-term portion are amortized to cost of sales as revenues are generated
from the related cassettes.
The Company, using empirical data, estimates the projected revenue stream to be
generated under these guarantee arrangements and accrues for projected losses or
reduces the carrying amount of advances to program suppliers for any guarantee
that it estimates will not be fully recovered through future revenues. Total
commitments under guarantees as of March 31, 1995, are approximately
$55,578,027, of which $52,065,242 had been earned. As of March 31, 1995, the
Company has recorded $572,300 for potential losses under such guarantee
arrangements.
<PAGE>
-13-
9. CONTINGENCIES:
In February 1991, a suit was filed against the Company alleging causes of action
for breach of contract, breach of implied covenant of good faith and fiduciary
duty, and violation of a state unfair business practice statute. These
allegations arise out of the Company's alleged refusal to grant the plaintiff a
National Video franchise.
A lower court jury has awarded damages of approximately $450,000 to the
plaintiff on the alleged charges, including attorney fees. The Company appealed
the lower court decision; however, that decision was upheld by the appeals
court. The damage award is fully reserved by the Company and settlement of the
case is likely to occur in 1996.
The Company is subject to other legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of any
ultimate liability with respect to these actions will not materially affect the
financial position or results of operation of the Company.
10. RENTRAK JAPAN:
As is discussed in Note 1, the Company owns a one-fourth interest in Rentrak
Japan. Summarized financial data for the joint venture, after translation to
U.S. currency, at March 31, 1995, 1994 and 1993, and for the years then ended is
as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Current assets $39,738,319 $14,773,880 $ 5,418,142
Noncurrent assets 5,543,662 4,044,049 4,188,514
Current liabilities 41,411,744 18,585,255 7,644,229
Noncurrent liabilities 4,871,295 2,285,771 2,313,793
Shareholders' deficit (1,001,059) (2,053,097) (351,366)
Net sales 88,382,895 56,082,841 34,074,869
Cost of sales 57,750,231 44,218,531 27,193,907
Net income (loss) 1,424,334 (1,589,437) (560,339)
</TABLE>
As of March 31, 1993, the Company's investment has been written down to zero.
The Company has provided no guarantee or other financial commitments for the
investee which would require the recognition of additional losses in 1994 from
the investee under the equity method. During 1995, no income was recognized by
the Company as the Company's share of net income does not exceed the net losses
not recognized during the period the equity method was suspended.
11. SUSPENSION OF EUROPEAN OPERATIONS:
The write off of European assets, which was incurred in the quarter ended
September 30, 1993, amounted to $789,155, composed of $56,042 in accounts
receivable, $94,200 in other current assets, $549,008 in property and equipment,
and $89,905 in other long-term assets. In addition to the $789,155 write down of
assets in the quarter ended September 30, 1993, during the year ended March 31,
1994, the Company incurred $1.4 million in European operating costs as well as
$111,408 in cash expenditures to finalize operations. During the period the
equity method was suspended.
<PAGE>
-14-
12. ACQUISITIONS:
On October 15, 1993, the Company acquired all of the outstanding shares of
common stock of TPI pursuant to the Stock Purchase Agreement and all of the
outstanding shares of Kartoyz. Kartoyz operated one retail outlet which sold
licensed gifts and products related to automobiles. The Company suspended the
Kartoyz operations during fiscal year 1994.
The aggregate consideration paid by the Company for all outstanding shares of
TPI common stock and all outstanding shares of Kartoyz common stock was
approximately $1.2 million in cash and 776,280 shares of common stock at $7.14
per share. In addition, the Company agreed to pay up to $650,000 based upon
future TPI royalties. As of March 31, 1995, the Company has paid $200,000 under
the royalty arrangement. The balance of $450,000 has been recorded in accrued
liabilities.
The Company changed TPI's year-end from December 31 to February 28 subsequent to
the acquisition. The change was made to more closely match TPI's year-end with
the Company's year-end of March 31 and to allow sufficient time for the process
of consolidating financial information. There were no intervening events which
materially affect the financial position or results of operations. As such, the
consolidated financial statements include TPI's balance sheet as of February 28,
1995 and 1994 and the statements of operations, stockholder's equity and cash
flows for the 12 month period and 4-1/2 month period ending February 28, 1995
and 1994, respectively.
Summarized unaudited consolidated pro forma financial data for the Company for
the year ended March 31, 1994, which includes TPI financial data for the twelve
months ended December 31, 1993, presented as if the acquisition had been
consummated as of the beginning of the Company's year, is as follows:
<TABLE>
<S> <C>
Revenues $74,008,593
Net income 878,425
Net income per share .09
</TABLE>
The pro forma information given above does not purport to be indicative of the
results that actually would have been obtained if the operations were combined
during the periods presented, and is not intended to be a projection of future
results or trends.
In August 1994, the Company acquired all of the outstanding stock of Team
Spirit. The net purchase price was approximately $4.4 million and was paid via
issuance of approximately 557,000 shares of common stock. The Company acquired
assets of approximately $6 million and recorded goodwill of approximately $4.1
million. At the time of purchase, Team Spirit, Inc. had approximately $2.3
million in other liabilities and approximately $3.3 million in outstanding bank
debt which was immediately paid by the Company.
<PAGE>
-15-
Summarized unaudited consolidated pro forma financial data for the Company for
the years ended March 31, 1995 and 1994, which includes Team Spirit financial
data for the twelve months ended January 31, 1995 and 1994, presented as if the
acquisition had been consummated as of the beginning of the Company's year, is
as follows:
<TABLE>
<CAPTION>
1995 1994
------------- ------------
<S> <C> <C>
Revenues $118,369,990 $85,667,518
Net income 4,278,548 1,150,253
Net income per share -
primary .35 .11
Net income per share -
assuming full dilution .34 .11
</TABLE>
The pro forma information given above does not purport to be indicative of the
results that actually would have been obtained if the operations were combined
during the periods presented, and is not intended to be a projection of future
results or trends.
13. EMPLOYEE BENEFIT PLANS:
At January 1, 1991, the Company established an employee benefit plan (the
Rentrak Plan) pursuant to Section 401(k) of the Internal Revenue Code for
certain qualified employees. Contributions made to the 401(k) plan are based on
percentages of employees' salaries. The amount of the Company's contribution is
at the discretion of Board of Directors. Contributions under the 401(k) plan for
the years ended March 31, 1995, 1994 and 1993 were $35,347, $25,430 and $22,360,
respectively.
TPI has a 401(k) savings plan (the TPI Plan) which covers all employees who are
at least 21 years of age and who have completed at least 1,000 hours of service.
Under the TPI Plan, employees may contribute up to 20 percent of their earnings.
TPI matched the first 6 percent of employee contributions at a level of 50
percent through December 31, 1994. TPI's contributions to the Plan for the 12
month period ended February 28, 1995 were $30,029 and for the 4-1/2 month period
ended February 28, 1994 were approximately $7,100. As of January 1, 1995, the
TPI Plan was frozen and TPI employees began contributing to the Rentrak Plan.
The Company has an Employee Stock Purchase Plan (the Plan). The Board of
Directors has reserved 200,000 shares of the Company's common stock for issuance
under the Plan, of which 171,536 shares remain authorized and available for sale
to employees.
All employees meeting certain eligibility criteria may be granted the
opportunity to purchase common stock, under certain limitations, at 85 percent
of market value. Payment is made through payroll deductions.
Under the Plan, employees purchased 11,062 shares for aggregate proceeds of
$78,449, 8,663 shares for aggregate proceeds of $51,694 and 5,995 shares for
aggregate proceeds of $38,935 in 1995, 1994 and 1993, respectively.
<PAGE>
-16-
14. BUSINESS SEGMENTS, GEOGRAPHIC INFORMATION AND MAJOR CUSTOMER:
<TABLE>
<CAPTION>
BUSINESS SEGMENTS
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Net sales:
PPT $ 79,793,584 $62,005,968 $52,847,386
Sports apparel 26,363,211 3,950,705 -
Other 6,009,436 2,939,814 1,487,480
------------ ----------- -----------
$112,166,231 $68,896,487 $54,334,866
============ =========== ===========
Income (loss) from operations:
PPT $ 2,886,841 $ 2,064,299 $ 613,032
Sports apparel 270,176 440,781 -
Other (707,548) (3,063,618) (2,630,885)
------------ ----------- -----------
$ 2,449,469 $ (558,538) $(2,017,853)
============ =========== ===========
Identifiable assets:
PPT $ 39,132,490 $33,284,507 $32,802,483
Sports apparel 22,610,120 8,950,132 -
Other 3,075,058 2,385,806 2,021,147
------------ ----------- -----------
$ 64,817,668 $44,620,445 $34,823,630
============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
GEOGRAPHIC INFORMATION
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Revenues from unaffiliated customers:
United States $112,166,231 $68,780,550 $54,134,422
Foreign - 115,937 200,444
------------ ----------- -----------
$112,166,231 $68,896,487 $54,334,866
============ =========== ===========
Net income (loss):
United States $ 5,113,523 $ 3,092,075 $ 783,238
Foreign - (2,279,010) (1,678,299)
------------ ----------- -----------
$ 5,113,523 $ 813,065 $ (895,061)
============ =========== ===========
Identifiable assets:
United States $ 64,817,668 $44,620,445 $33,849,383
Foreign - - 974,247
------------ ----------- -----------
$ 64,817,668 $44,620,445 $34,823,630
============ =========== ===========
</TABLE>
There were no sales or transfers between geographic areas in any of the years
presented.
<PAGE>
-17-
The Company has one program supplier that supplied product that generated 19
percent, a second that generated 12 percent, and a third that generated 11
percent of Rentrak revenues for the year ended March 31, 1995. The Company had
one program supplier that supplied product that generated 26 percent and a
second program supplier that supplied product that generated 23 percent of
Rentrak revenues for the year ended March 31, 1994. The Company had one program
supplier that supplied product that generated 34 percent of revenues for the
year ended March 31, 1993. There were no other program suppliers who contributed
more than 10 percent of sales for the years ended March 31, 1995, 1994 and 1993.
15. SUBSEQUENT EVENTS:
On May 26, 1995, the Company entered into an agreement to acquire 3.2 million
shares of Entertainment One, Inc. from the majority shareholder. When combined
with the 669,230 shares Rentrak purchased from Entertainment One, Inc. in July
1994, Rentrak's ownership will consist of approximately 57 percent of the issued
and outstanding stock of Entertainment One, or a controlling interest.
Entertainment One, Inc. operates 46 video departments inside Wal Mart stores in
14 states and Canada, 8 supermarket video departments and 5 video specialty
stores in Illinois. The acquisition will be accounted for as a purchase.
In May 1995, the Board of Directors approved a shareholders' rights plan
designed to ensure that all of the Company's shareholders receive fair and equal
treatment in the event of any proposal to acquire control of the Company. Under
the rights plan, each shareholder will receive a dividend of one right for each
share of the Company's outstanding common stock, entitling the holders to
purchase one additional share of the Company's common stock. The rights become
exercisable after any person or group acquires 15 percent or more of the
Company's outstanding common stock, or announces a tender offer which would
result in the offeror becoming the beneficial owners of 15 percent or more of
the Company's outstanding stock.
<PAGE>
Schedule II
RENTRAK CORPORATION
-------------------
VALUATION AND QUALIFYING ACCOUNTS
---------------------------------
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COST AND TO OTHER RECOVERIES AT END OF
YEAR ENDED: OF PERIOD EXPENSES ACCOUNTS (DEDUCTIONS) PERIOD
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
March 31, 1993 $901,558 $946,093 - ($579,525) $1,268,126
March 31, 1994 1,268,126 (687,189) - 644,029 1,224,966
March 31, 1995 1,224,966 (2,984,899) - 2,402,513 642,580
ADVANCES TO PROGRAM
SUPPLIERS - RESERVE $0 $572,300 - - $572,300
March 31, 1995
INVENTORY RESERVE
March 31, 1995 0 336,046 - - 336,046
OTHER CURRENT ASSETS - RETAILER
FINANCING PROGRAM RESERVE
March 31, 1995 0 267,937 - - 267,937
OTHER ASSETS - RETAILER FINANCING
PROGRAM RESERVE
March 31, 1995 0 2,974,912 - - 2,974,912
</TABLE>
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- --------------------------------------
Pursuant to General Instruction G(3) to Form 10-K, the information called
for by this item 10 is incorporated by reference from the Company's definitive
Proxy Statement for its 1995 Annual Meeting of Shareholders filed with the
Securities and Exchange Commission pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended. See "Election of Directors" Page
__ and "Executive Officers" Page __.
ITEM 11. EXECUTIVE COMPENSATION
- ------------------------------------------------------------
Pursuant to General Instruction G(3) to Form 10-K, the information called
for by this item 11 is incorporated by reference from the Company's definitive
Proxy Statement for its 1995 Annual Meeting of Shareholders filed with the
Securities and Exchange Commission pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended. See "Executive Compensation" Page
__.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
- --------------------------------------------------------------
Pursuant to General Instruction G(3) to Form 10-K, the information called
for by this item 12 is incorporated by reference from the Company's definitive
Proxy Statement for its 1995 Annual Meeting of Shareholders filed with the
Securities and Exchange Commission pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended. See "Security Ownership of Certain
Beneficial Owners and Directors" Page __.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ----------------------------------------------------------------
Pursuant to General Instruction G(3) to Form 10-K, the information called
for by this item 13 is incorporated by reference from the Company's definitive
Proxy Statement for its 1995 Annual Meeting of Shareholders filed with the
Securities and Exchange Commission pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended. See "Compensation Committee
Interlocks And Insider Participation" Page __ and Certain Relationships And
Transactions" Page __.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON
FORM 8-K
- -----------------------------------------------------------------
(a)(1) FINANCIAL STATEMENTS
The following documents are filed as part of the Report:
CONSOLIDATED FINANCIAL STATEMENTS: The consolidated financial
statements of the Company are included in Item 8 of this Report:
Report of Independent Public
Accountants
Consolidated Balance Sheets as of March 31, 1995
and 1994
Consolidated Statements of Operations for Years
Ended March 31, 1995, 1994 and
1993
Consolidated Statements of Stockholders' Equity
for Years Ended March 31, 1995,
1994 and 1993
Consolidated Statements of Cash Flows for Years Ended
March 31, 1995, 1994, and 1993
Notes to Consolidated Financial Statements
(a)(2) FINANCIAL STATEMENT SCHEDULES
CONSOLIDATED FINANCIAL STATEMENT SCHEDULES: The following
consolidated financial statement schedule has been included in Item 8
of this Report:
Schedule II - Valuation and Qualifying Accounts
Schedules not included have been omitted because they are not applicable
or the required information is shown in the financial statements or notes
thereto.
(a)(3) EXHIBITS(3): The exhibits required to be filed pursuant to Item 601 of
Regulation S-K are set forth in the Exhibit Index.
(b) FORM 8-K REPORTS. During the last quarter of fiscal 1995, the Company
filed two reports on Form 8-K.
1. Form 8-K dated January 25, 1995
________________________
(3) A shareholder may obtain a copy of any exhibit included in this Report upon
payment of a fee to cover the reasonable expenses of furnishing such exhibits by
written request to F. Kim Cox, Executive V.P., or Karl D. Wetzel, V.P. Chief
Accounting Officer, Rentrak Corporation, 7227 N.E. 55th Avenue, Portland, Oregon
97218
<PAGE>
Item 5 - Other Events
Item 7 - Financial Statements and Exhibits
Item 5 - Other Events
Item 7 - Financial Statements and Exhibits - filed March 29, 1995
2. Form 8-K dated June 5, 1995
Item 5 - Other Events
Item 7 - Financial Statements, Pro Forma
Financial Information and Exhibits
(C) Exhibits (See Exhibit Index)
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
RENTRAK CORPORATION
By /s/ Ron Berger
--------------------------------------
Ron Berger, President
Date June 29, 1995
-------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and the dates indicated.
Principal Executive Officer:
By /s/ Ron Berger June 29, 1995
--------------------------------------
Ron Berger, President
Principal Financial Officer:
By /s/ F. Kim Cox June 29, 1995
--------------------------------------
F. Kim Cox, Executive Vice President
Principal Accounting Officer:
By /s/ Karl D. Wetzel June 29, 1995
--------------------------------------
Karl D. Wetzel
Majority of Board of Directors:
By /s/ L. Barton Alexander June 29, 1995
--------------------------------------
L. Barton Alexander, Director
By /s/ Ron Berger June 29, 1995
--------------------------------------
Ron Berger, Chairman
By /s/ Peter Dal Bianco June 29, 1995
--------------------------------------
Peter Dal Bianco, Director
By /s/ James P. Jimirro June 29, 1995
--------------------------------------
James P. Jimirro, Director
By /s/ Bill LeVine June 29, 1995
--------------------------------------
Bill LeVine, Director
<PAGE>
By /s/ Muneaki Masuda June 29, 1995
--------------------------------------
Muneaki Masuda, Director
By /s/ Stephen Roberts June 29, 1995
--------------------------------------
Stephen Roberts, Director
<PAGE>
EXHIBIT INDEX
The following exhibits are filed herewith or, if followed by a number in
parentheses, are incorporated herein by reference from the corresponding exhibit
filed in the report or registration statement identified in the footnotes
following this index:
Exhibit Number Exhibit Page
- -------------- ------- ----
3.1 a) Amended and Restated Articles of
Incorporation, dated September 3, 1986 (1)
b) Articles of Amendment to Articles of
Incorporation dated July 30, 1987 (19)
c) Articles of Amendment to Articles of
Incorporation dated September 12, 1988 (20)
d) Articles of Amendment to Articles of
Incorporation dated September 21, 1988 (20)
e) Articles of Amendment to Articles of
Incorporation dated September 3, 1991 (21)
f) Articles of Amendment to Articles of
Incorporation dated August 31, 1994 (22)
3.2 1995 Restated Bylaws, as amended to date (15)
4.1 Articles of Incorporation,
as amended to date (incorporated by reference
to Exhibit 3.1)
4.2 Articles II and V of the 1995 Restated Bylaws
(incorporated by reference to Exhibit 3.2).
9 Common Stock Purchase Agreement dated
December 20, 1989 (4)
Executive Compensation Plans and Arrangements
(10.1-10.13)
10.1 1986 Second Amended and Restated Stock Option Plan
and Forms of Stock Options Agreements (18)
10.2 Stock Option Agreement with F. Kim Cox, dated
October 1, 1985 (1)
10.3 Employment Agreement with Michael R. Lightbourne
dated December 6, 1989 (6)
10.4 Stock Option Agreement with Ron Berger, dated
April 18, 1990 (7)
<PAGE>
Exhibit Number Exhibit Page
- -------------- ------- ----
10.5 Stock Option Agreement with Ron Berger, dated
December 20, 1994
10.6 Consulting Agreement with Bart Alexander, dated
February 1, 1991 (8)
10.7 Employment Agreement with Ron Berger dated
June 1, 1994 (16)
10.8 Agreement with F. Kim Cox dated August 7, 1991 (9)
10.9 Employment Agreement with Ed Barnick dated
January 1, 1994 (16)
10.10 Rentrak Corporation Amended and Restated Directors
Stock Option Plan (11)
10.11 Rentrak's 401-K Plan (12)
10.12 Employment Agreement with Jim Weiss dated
October 3, 1994
10.13 Amended and Restated 1992 Employee
Stock Purchase Plan of Rentrak Corporation
10.14 Lease for principal executive offices & Operating
facilities of the Company, dated
March 11, 1987 (2)
10.15 Asset Purchase and Sale Agreement with West Coast
Video Holdings, Inc., dated June 24, 1988 (3)
10.16 Subordinated Note and Common Stock Warrant
Purchase Agreement, dated March 13, 1990 (5)
10.17 Joint Development Agreement with CCC dated
August 6, 1993 (13)
10.18 Business Loan Agreement with Silicon
Valley Bank dated October 12, 1993 (16)
10.19 Business Loan Modification Agreement with Silicon
Valley Bank dated June 6, 1994 (16)
<PAGE>
Exhibit Number Exhibit Page
- -------------- ------- ----
10.20 Stock Purchase Agreement dated as
of October 15, 1993 between Rentrak
Corporation, The Pro Image, Inc., and
the shareholders of The Pro Image, Inc., and
the Principal exhibits thereto (14)
10.21 Second Amendment to Business
Cooperation Agreement between Rentrak
Corporation, Culture Convenience Club
Co., Ltd., and Rentrak Japan dated
June 16, 1994 (16)
10.22 Stock Purchase Agreement dated
as of July 31, 1994, among Rentrak
Corporation, Team Spirit, Edwin D.
Schoening, John M. Dixon, Daniel E.
Dixon, Terrance A. Hogan and Deborah
K. Hogan and the Principal exhibits
thereto (17)
11 Statement of Computation of Per Share
Earnings
13 Annual report to Security Holders
22 List of Subsidiaries of Registrant
24.1 Consent of Arthur Andersen, LLP
- -------------------------------------------
(1) Filed in S-1 Registration Statement, File # 338511 as filed on
November 14, 1986.
(2) Filed as Exhibit 10.20 to Form 10-K filed on June 29, 1987.
(3) Filed as Exhibit to current Report on Form 8-K filed on July 8, 1988.
(4) Filed as Exhibit 34 to Form 10-K filed on June 25, 1990.
(5) Report on Form 8-K filed on April 24, 1990.
(6) Filed as Exhibit 10.8 to 1991 Form 10-K filed on May 6, 1991.
(7) Filed as Exhibit 10.9 to 1991 Form 10-K filed on May 6, 1991.
(8) Filed as Exhibit 10.10 to 1991 Form 10-K filed on May 6, 1991.
(9) Filed as Exhibit 10.14 to 1992 Form 10-K filed on June 25, 1992.
(10) Filed as Exhibit 10.16 to 1992 Form 10-K filed on June 25, 1992.
(11) Filed as Exhibit B to 1994 Proxy Statement dated July 11, 1994.
(12) Filed as Exhibit 10.1 to Form 10-K filed on June 28, 1993.
(13) Filed as Exhibit 10.5 to Form 10-K filed on June 28, 1993.
(14) Filed as Exhibit to Form 8-K filed on October 15, 1993.
(15) Filed as Exhibit to Form 8-K filed on June 5, 1995.
(16) Filed as Exhibit to 1994 Form 10-K filed on June 29, 1994.
(17) Filed as Exhibit to Form 8-K filed on September 15, 1994.
(18) Filed as Exhibit A to 1994 Proxy Statement dated July 11, 1994.
(19) Filed on Page 4 of the 1987 Proxy Statement dated July 7, 1987.
(20) Filed on Page 4 of the 1988 Proxy Statement dated August 17, 1988.
(21) Filed on Page 16 of the 1991 Proxy Statement dated July 3, 1991.
(22) Filed on Page 27 of the 1994 Proxy Statement dated July 11, 1994.
<PAGE>
REVISED Exhibit 10.12
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (hereinafter referred to as the "Agreement") is
made and entered into effective September 12, 1994, by and between RENTRAK HOME
ENTERTAINMENT, a wholly owned subsidiary of RENTRAK CORPORATION, an Oregon
corporation (hereinafter referred to as "Employer"), and James Patrick Weiss
(hereinafter referred to as "Employee").
W I T N E S S E T H:
WHEREAS, Employer is principally engaged in the business of distributing
prerecorded video cassettes to video stores and other retailers through it
innovative distribution system known as pay-per-transaction; and
WHEREAS, Employer desires to employ Employee in the position of Senior Vice
President, and Employee desires to be so employed.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements herein contained, the recitals set forth hereinabove which by this
reference are incorporated herein, and other good and valuable consideration,
the receipt of which is hereby acknowledged, the parties hereby agree as
follows:
SECTION 1. EMPLOYMENT
1.01 POSITION AND TITLE. Employer shall employ and engage the services of
Employee, in the position of Senior Vice President, for the term of this
Agreement as defined in Section 2, INFRA, pursuant to the terms and conditions
set forth in this Agreement.
1.02 DUTIES AND PLACE OF EMPLOYMENT. Employee shall be responsible for,
and perform duties associated with his position as Senior Vice President and
other duties as may be directed by the Employer, from time to time. Employee
shall: (i) devote his full business time during normal business hours to the
business and affairs of Employer; (ii) use his best efforts to promote the
interests of Employer; and (iii) perform faithfully and efficiently his
responsibilities. Employee shall perform his duties at Employer's principal
executive offices which are currently located at 7227 N.E. 55th Avenue,
Portland, Oregon 97218. Subject to the terms of this Agreement, Employee shall
comply promptly and faithfully with all of Employer's policies, instructions,
directions, requests, rules and regulations.
SECTION 2. TERM AND TERMINATION
2.01 STATED TERM. Employment shall commence on the effective date of this
Agreement and shall continue until
1
<PAGE>
Employee's employment under this Agreement is terminated pursuant to Section
2.02, Section 2.03, or Section 2.04, INFRA ("Term").
2.02 AT WILL TERMINATION. Notwithstanding anything herein to the
contrary, Employee's employment may be terminated at any time with or without
reason, by Employer upon thirty (30) days written notice to Employee, or by
Employee upon thirty (30) days written notice to Employer.
2.03 FOR CAUSE TERMINATION. Employee's employment may be terminated by
Employer upon seven (7) days notice for "cause." Termination for "cause" is
defined for purposes of this subsection as termination for: (i) material failure
of Employee to substantially perform the reasonable and attainable instructions
of Employer as to his duties hereunder; or (ii) an act or acts of misconduct by
Employee which is determined by the Employer to be materially injurious to
Employer monetarily or otherwise; or (iii) material violation by Employee of any
provision of this Agreement. For purposes of this subsection, termination for
"cause" shall not include any act or failure to act on Employee's part if done
or omitted to be done by him in demonstrable good faith and with the reasonable
belief that his act or omission was in the best interest of the Employer or
pursuant to an express policy of Employer at the time of such act or omission.
2.04 DISABILITY OR DEATH. Employee's employment shall be terminable
immediately upon Employee's death or disability. "Disability" is defined for
purposes of this subsection as absence from Employee's full time duties with
Employer as a result of Employee's incapacity due to physical or mental illness
for ninety (90) days calculated on a cumulative basis over any two year period
during the term of this Agreement. Nothing in this Section 2.04 is intended to
violate any Oregon State law regarding parental or family leave policies or any
other applicable law.
SECTION 3. COMPENSATION
3.01 BASE SALARY. Commencing September 12, 1994, Employee shall be paid
an annual base salary in the amount of One hundred twenty five thousand dollars
($125,000.00) ("Base Salary"). The Base Salary shall be paid to Employee in
equal semi-monthly installments in arrears on the seventh (7th) and twenty-
second (22nd) day of each month, commencing as of the month following the
effective date of this Agreement. Should the seventh (7th) or the twenty-second
(22nd) day of any month not be a business day, Employee's semi-monthly
installment of the Base Salary otherwise due on such date shall be paid to
Employee on the business day closest to the date such semi-monthly installment
is due (i.e., if the seventh (7th) day of the month falls on a Saturday, the
semi-monthly installment shall be paid on the preceding business day or if the
seventh (7th) day of the month falls on a Sunday, the semi-monthly installment
shall be paid on the next following business day). Employee's Base Salary may
be
2
<PAGE>
increased or decreased in the discretion of Employer during the Term of this
Agreement.
3.02 BONUS COMPENSATION. Nothing herein shall preclude the Employer from
authorizing the payment of additional compensation to Employee over and above
the Base Salary at any time payable to him under his Agreement, whether as a
bonus or otherwise. The payment of such additional compensation shall not
operate as an amendment obligating Employer to make any similar payment or to
pay additional compensation at any future time or for any future period, or be
deemed to affect Employee's Base Salary in any manner.
3.03 STOCK OPTIONS. Upon the commencement of the Term of this Agreement,
Employer shall grant Employee twenty five thousand (25,000) options for
Employer's stock pursuant to that certain Incentive Stock Option Agreement, a
copy of which is attached to this Agreement as Exhibit A. The option price
shall be the average of the bid and ask price on the effective date of this
Agreement, or the actual date employment begins, whichever is later.
3.04 BENEFITS.
3.04A VACATION AND HOLIDAY PAY. Employee shall be entitled
to vacation and paid holidays as provided under Employer's
then current policies and procedures. As of the effective
date of this Agreement, Employee will be entitled to: (i)
one (1) week of paid vacation after six months of employment
and will thereafter accrue vacation time at the rate of one
hundred twenty (120) hours per year; and (ii) after ninety
(90) days of service, will be eligible to receive pay for
Employer-paid holidays including: (i) New Years Day (ii)
Memorial Day (iii) Independence Day (iv) Labor Day (v)
Thanksgiving Day (vi) Friday following Thanksgiving Day
(vii) Christmas Eve and (viii) Christmas Day.
3.04B INSURANCE. Employee shall be entitled to medical,
life, worker's compensation, social security and state
unemployment insurance benefits as provided under Employer's
then current terms, policies and procedures. Employee shall
not be entitled to disability insurance benefits.
3.04C TUITION REIMBURSEMENT. Employee shall be entitled to
reimbursement for all tuition, enrollment fees, and books
pursuant to Employers education assistance program.
Employee shall comply with all Employer's
3
<PAGE>
terms, policies and procedures regarding its
education assistance program.
3.04D VEHICLE ALLOWANCE. Employee shall be
entitled to reimbursement for vehicle lease payments in an
amount not to exceed four hundred dollars ($400.00) per
month, together with the cost of taxes, licensing,
insurance, and maintenance on the leased vehicle and
reimbursement for gas and oil when the vehicle is used for
company business.
3.04E RELOCATION EXPENSES. Employer shall advance to
Employee: (i) the cost for packing and moving Employee's
household goods to Portland, Oregon in an amount not to
exceed ______________________ ($_________); (ii) realtors
fees associated with Employee's sale of his residence in
Washington in an amount not to exceed Nine Thousand Dollars
($9,000.00); and (iii) closing costs associated with
Employee's purchase of a new residence in Oregon in an
amount not to exceed Seven Thousand Dollars ($7,000.00).
Employee acknowledges that Employee must account to Employer
for all amounts expended for the above reimbursements and
that the amounts reimbursed for (ii) and (iii), above, will
constitute income to Employee subject to Employee's portion
of Employer withholding taxes which will, at Employee's
option, be taken out of Base Salary installments due or by
direct reimbursement from Employee to Employer. The amounts
advanced for (i), above are considered deductible moving
expenses and are not subject to withholding tax. In
addition, Employer shall pay to Employee certain costs of
living for a period of time not to exceed sixty (60) days to
cover costs of Employee's housing associated with moving
Employee and his family from Washington to the Portland,
Oregon metropolitan area, together with any other expenses
associated with such move. Employee shall account to
Employer (within sixty (60) days) amounts expended in moving
Employee and his family. Employee acknowledges that the
money advanced constitutes taxable, nondeductible income to
Employee, subject to Employee's portion of Employer
withholding taxes which will, at Employee's option, be taken
out of Base Salary installments due or by direct
reimbursement from Employee to Employer.
4
<PAGE>
3.04F MISCELLANEOUS BENEFITS. In addition
to any other compensation or benefits to be received by
Employee pursuant to the Term of this Agreement, Employee
shall be entitled to participate in any employee benefits
which Employer may from time to time provide its employees
generally.
SECTION 4. PAYMENTS UPON TERMINATION OF EMPLOYMENT
4.01 TERMINATION FOR CAUSE. In the event of the termination of Employee's
employment by Employer for cause as defined in Section 2.03, SUPRA, or in the
event of termination of Employee's employment by Employee, Employer shall pay to
Employee the amount of compensation accrued pursuant to Section 3.01, SUPRA, as
of the date of termination.
4.02 TERMINATION FOR DEATH OR DISABILITY. In the event of the termination
of Employee's employment due to his death or disability, Employer shall pay to
Employee's estate or legal representative the amount of compensation accrued
pursuant to Section 3.01, SUPRA, as of the date of termination plus a lump sum
severance payment equal to six months of the Base Salary.
4.03 OTHER TERMINATION. In the event of termination of Employee's
employment by Employer other that as provided in Section 4.01 or 4.02, SUPRA,
Employer shall pay Employee the amount of compensation accrued pursuant to
Section 3.01, SUPRA, as of the date of termination plus severance payments in an
amount not greater than six months of the Base Salary, payable in installments
as if still employed; subject however, to Employee demonstrating that he is
using his best efforts to find employment. In the event Employee does not use,
or cannot demonstrate that he is using, his best efforts to obtain other
employment or if Employee does use his best efforts to obtain other employment
and is successful in obtaining such employment, severance payments shall cease.
4.04 CONTINUATION OF BENEFITS. Except in the event of termination of
Employee's employment by Employer for cause as defined in Section 2.03, SUPRA,
or in the event of termination of Employee's employment by Employee, benefits
provided in Section 3.04, SUPRA, shall continue for a period equal to one
hundred and eighty (180) days from the date of termination.
4.05 OTHER COMPENSATION. Except a set forth in this Section 4, no other
compensation shall be due or payable to Employee upon termination of his
employment.
SECTION 5. PERSONAL NATURE
This Agreement is personal, and is being entered into based upon the
singular skill, qualifications and experience of Employee. Employee shall not
assign this Agreement or any rights hereunder without the express written
consent of Employer which
5
<PAGE>
may be withheld with or without reason. Employee hereby grants to Employer the
right to use Employee's name, likeness and/or biography in connection with the
services performed by Employee hereunder and in connection with the advertising
or exploitation of any project with respect to which Employee performs services
hereunder.
SECTION 6. NOTICES
Any and all notices or other communications required or permitted by this
Agreement or by law shall be deemed duly served and given when personally
delivered to the party to whom such notice or communication is directed or, in
lieu of such personal service, when deposited in the United States mail,
certified, return receipt requested, first class postage prepaid, addressed as
follows:
EMPLOYER: Rentrak Home Entertainment
--------- 7227 N.E. 55th Avenue
P.O. Box 18888
Portland, Oregon 97218
Attn: Ron Berger
EMPLOYEE: James Patrick Weiss
-------- 6209 125th Avenue S.E.
Bellevue, Washington 98006
Each party may change its address for purposes of this Section by giving
written notice of such change in the manner provided for in this Section.
SECTION 7. MISCELLANEOUS PROVISIONS.
7.01 ATTORNEYS' FEES. In the event that it should be become necessary for
any party to bring an action, including arbitration, either at law or in equity,
to enforce or interpret the terms of this Agreement, each party shall pay its
own legal fees in connection with such action.
7.02 APPLICABLE LAW AND VENUE. This Agreement is executed and intended to
be performed in the State of Oregon and the laws of such State shall govern its
interpretation and effect. If suit is instituted by any party hereto or by any
other party for any cause or matter arising from or in connection with the
respective rights or obligations of the parties hereunder, the sole jurisdiction
and venue for such action shall be the Circuit Court of the State of Oregon in
and for the County of Multnomah.
7.03 INTEGRATION. Employee has simultaneously executed an Employee
Confidentiality and Noncompetition Agreement (a copy of which is attached hereto
as Exhibit B) which remains in effect and is incorporated into the terms and
conditions of employment under this Agreement. Except as set forth in the
preceding sentence, this Agreement constitutes the entire agreement of the
parties with respect to the subject matter of this Agreement and
6
<PAGE>
supersedes all prior agreements, negotiations, or understandings, whether oral
or written, between the parties with respect thereto.
7.04 HEIRS AND ASSIGNS. Subject to any restriction on assignment
contained herein, this Agreement shall be binding upon and shall inure to the
benefit of the respective party's heirs, successors and assigns.
7.05 SEVERABILITY. Any provision in this Agreement which is, by competent
judicial authority, declared illegal, invalid or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such illegality, invalidity or unenforceability without invalidating the
remaining provisions hereof or affecting the legality, validity or
enforceability or such provision in any other jurisdiction. The parties hereto
agree to negotiate in good faith to replace any illegal, invalid or
unenforceable provision that, to the extent possible, will preserve the economic
bargain of this Agreement, or otherwise to amend this Agreement, including the
provision relating to choice of law, to achieve such result.
7.06 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, and the counterparts shall together
constitute one and the same agreement, notwithstanding that all of the parties
are not signatory to the original or the same counterpart.
7.07 CAPTIONS. The headings and captions herein are inserted solely for
the purpose of convenience of reference and are not intended to govern, limit,
or aid in the construction of any term or provision hereof.
7.08 EXECUTION. Each of the parties hereto shall execute, acknowledge and
deliver any instrument necessary to carry out the provisions of this Agreement.
7.09 CONSTRUCTION. This Agreement has been prepared by legal counsel for
Employer. Employee has been advised and by his execution hereof acknowledges,
that he has the right to and should have this Agreement reviewed by his own
separate legal counsel. This Agreement has been negotiated at arms' length with
the benefit of or opportunity to seek legal counsel and, accordingly, shall not
be construed against any of the parties.
//
//
//
//
//
//
//
//
//
//
//
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
EMPLOYER: EMPLOYEE:
RENTRAK HOME I acknowledge that I have read and agree
ENTERTAINMENT to the foregoing Agreement including,
without limitation, the provision
By: allowing termination of my employment
------------------------- "at will" by Employer in Section 2.01,
Ron Berger, President SUPRA.
-----------------------
James Patrick Weiss
8
<PAGE>
AMENDED AND RESTATED
1992 EMPLOYEE STOCK PURCHASE PLAN
OF
RENTRAK CORPORATION
SECTION 1. PURPOSE OF THE PLAN. The purpose of the Amended and Restated
1992 Employee Stock Purchase Plan (the "Plan") of Rentrak Corporation (the
"Company") is to secure for the Company and its shareholders the benefits of the
incentive inherent in the ownership of the Company's common stock by present and
future employees of the Company and those of its wholly-owned subsidiaries
selected by the Board of Directors of the Company (individually a "Subsidiary"
and collectively, "Subsidiaries"). The Plan is intended to comply with the
provisions of Section 423 of the Internal Revenue Code of 1986, as amended, (the
"Code"), and it shall be administered, interpreted and construed in accordance
with such provisions.
SECTION 2. ADMINISTRATION.
A. Until otherwise determined by the Board of Directors, the Plan shall
be administered by the Stock Option Committee of Board of Directors of the
Company (the "Committee"). Meetings of the Committee for purposes of
administering the Plan shall be held at such times and places as its Chairman
may determine, and the Committee shall establish its own rules for taking
action.
B. Among other things, subject to the express provisions of the Plan, the
Committee shall have the authority to determine the eligibility of employees to
participate in the Plan, which of any future subsidiaries of the Company shall
participate in the Plan, and the procedures by which employees shall obtain and
file an election to participate in the Plan ("Election"). A procedure for
systematic payroll deductions will be established for employees who file such an
Election (herein referred to as "Participating Employees") and for the proper
accounting thereof. The Committee shall select an investment firm to maintain
the shares purchased by Participating Employees and shall interpret the Plan,
supervise its administration and take all other actions in connection therewith
as it deems necessary or advisable.
-1-
<PAGE>
The interpretation by the Committee of any provisions of the Plan or of any
rights granted under it shall be final. No member of the Committee shall be
liable for any action or determination made in good faith with respect to the
Plan or any rights granted thereunder.
SECTION 3. SHARES RESERVED FOR THE PLAN. There shall be reserved for
issuance and purchase by Participating Employees under the Plan an aggregate of
Two Hundred Thousand 200,000 shares of common stock of the Company, par value
$.001 per share. Shares subject to the Plan may be either authorized but
unissued shares or shares that were previously issued and subsequently
reacquired by the Company, including shares purchased in the open market.
SECTION 4. ELIGIBLE EMPLOYEES. All present and future employees of the
Company and its Subsidiaries shall be eligible to participate in the Plan;
provided that each such employee (a) has been employed by the Company or a
Subsidiary for at least six (6) months prior to an Election Date; (b) is
customarily employed by the Company at least 20 hours per week; and (c) does not
own, directly or indirectly, immediately after any Investment Date (as defined
in subsection 8A herein), stock possessing five percent (5%) or more (including
stock subject to outstanding options or purchase rights held by such employee)
of the total combined voting power or value of all classes of stock of the
Company or any of its subsidiaries. The rules set forth in Section 424(d) of
that Code shall apply for purposes of calculating the foregoing percentage
limitation. An "Election Date" means either January 1 or July 1 of each Plan
Year so long as the Plan shall exist.
SECTION 5. ELECTION TO PARTICIPATE.
A. Each employee satisfying the requirements for eligibility set forth in
Section 4 above may elect to participate in the Plan by filing with the Company
prior to any Election Date a Notice of Election authorizing (1) specified
regular payroll deductions during the Plan Year (as defined in Section 16
hereof) beginning on such Election Date, not to exceed an amount which would
equal 10 percent of his Total Compensation (as defined below) during each such
Plan Year, and (2) the utilization of such deductions to purchase shares of the
Company's common stock pursuant to Section 8 hereof. A Notice of Election shall
take effect upon the first Election Date after it is filed with the Company and
shall remain in effect until revoked or modified by the
-2-
<PAGE>
Participating Employee as provided in subsection 5C below. The term "Total
Compensation" shall mean the total of all forms of direct remuneration paid to a
Participating Employee during any Plan Year, including salary and commissions,
but excluding any additional sums such as payments for overtime, bonuses, shift
differential, profit sharing or Section 401(k) contributions, or reimbursement
for business expenses; PROVIDED, HOWEVER, that at the time an employee first
becomes eligible to participate in the Plan, he shall be entitled to make a one-
time contribution to the Plan equal to 10 percent of his Total Compensation for
the six month period immediately preceding the Election Date on which his
participation in the Plan becomes effective. Notwithstanding anything to the
contrary herein, payroll deductions must be in equal amounts of not less than
Ten Dollars ($10.00) per pay period.
B. The Company shall withhold from each payroll check issued to a
Participating Employee the amount specified in such Employee's most recent
Notice of Election, and the amount so withheld shall be credited to the
Participating Employee's payroll deduction account. Amounts credited to a
Participating Employee's payroll deduction account shall earn no interest and
shall be held by the Company as a "debtor" of the Participating Employee and not
as a "trustee." Prior to utilizing such amounts to purchase shares of the
Company's common stock pursuant to Section 8 hereof, the Company may use these
sums for any proper corporate purpose as determined by the Committee and the
Committee shall not be obligated to segregate such amounts.
C. Upon written notice to the Company, a Participating Employee may at
any time revoke his Notice of Election to participate in the Plan. Unless such
employee also elects in writing to withdraw the balance of his payroll deduction
account not theretofore utilized to purchase shares, such balance shall
thereafter be utilized to purchase shares as provided herein, notwithstanding
that such employee has otherwise ceased to be a Participating Employee in the
Plan. In such case, the employee may participate in the Plan during any
subsequent Plan Year, provided that he files a new Notice of Election with the
Company. A revocation of a Notice of Election to Participate shall be effective
beginning with the first regular payroll period of the Company or Subsidiary (as
the case may be) following receipt of the notice required by this subsection 5C.
A Participating Employee may also modify his Notice of Election as of January 1
and July 1 of each Plan
<PAGE>
Year, to increase or decrease the amount of his payroll deduction, by filing a
new Notice of Election specifying the new deduction percentage not latter than
the proposed effective date of the change.
D. The Committee shall establish a procedure whereby a Participating
Employee, who is on a temporary leave of absence and wishes to continue his
participation in the Plan through the remainder of the Plan Year, shall be
permitted to make voluntary contributions to purchase shares hereunder. Such
contributions shall be subject to the same terms and provisions of the Plan as
payroll deductions.
SECTION 6. LIMITATIONS UPON NUMBER OF SHARES WHICH AN EMPLOYEE MAY
PURCHASE AND PERIOD DURING WHICH SHARES MAY BE PURCHASED. No Participating
Employee shall be granted the right to purchase stock under this Plan or any
other employee stock purchase plans maintained by the Company and its
subsidiaries which accrues at an annual rate which exceeds the twenty five
thousand dollar ($25,000) limitation contained in Section 423(b)(8) of the Code
or that may be exercised after the expiration of the period set forth in Section
423(b)(7) of the Code.
SECTION 7. COMPANY CONTRIBUTION TO PURCHASE PRICE. The Company shall be
obligated to pay 15 percent of the purchase price of the shares purchased on
behalf of Participating Employees under this Plan. To satisfy this obligation
the Company shall pay to the investment firm designated by the Committee, within
the time period specified in Section 8.B. below, an amount equal to 17.64705
percent of the total amount contributed by Participating Employees to the Plan
under Section 5 herein as of each Investment Date (as specified in Section 8
below).
SECTION 8. METHOD OF PURCHASE AND INVESTMENT ACCOUNTS.
A. On the last day of March, June, September and December, (each of such
dates being referred to herein as an "Investment Date"), each Participating
Employee shall be deemed to have exercised an option to purchase the maximum
number of shares of the Company's common stock that can be purchased under the
procedures set forth in this Section 8 with the amounts then credited to such
Employee's payroll deduction account.
<PAGE>
B. Within ten (10) business days after each Investment Date, the Company
shall transfer both the balance in each Participating Employee's payroll
deduction account and the Company's contribution as determined pursuant to
Section 7 above (the "Available Funds"), to the investment firm designated by
the Committee. Subject to subsections 8C and 8E below, on or before the 15th
business day after each Investment Date, the investment firm shall purchase in
the market on behalf of all of the Participating Employees the maximum number of
whole shares of the Company's common stock that can be purchased with the
Available Funds at the then prevailing market price.
C. Each purchase of shares under this Section 8 shall be effective only
to the extent that the total number of shares reserved for the Plan pursuant to
Section 3 hereof is not exceeded. If the amount of Available Funds as of any
Investment Date exceeds the amount needed to purchase all of the shares
remaining under the Plan, the available shares shall be allocated among the
Participating Employees in proportion to the balances standing in their payroll
deduction accounts on such Investment Date. Any amounts transferred to the
investment firm which are not expended to purchase shares shall be refunded to
the Participating Employees and the Company in proportion to the amounts
contributed by each of them.
D. The shares which are purchased pursuant to this Section 8 shall be
maintained by the investment firm in a separate investment account for each
Participating Employee. A Participating Employee is for all purposes the
beneficial owner of the shares held in his or her investment account and may
sell the shares therein at any time. Certificates may be registered only in the
name of the Participating Employee, or, if the Participation Employee so
indicates on his Notice of Election, in the Participating Employee's name
jointly with a member of the Participating Employee's family as joint tenants
with the right of survivorship. All dividends paid with respect to the shares
in a Participating Employee's investment account shall be paid directly to such
Employee by the investment firm.
E. No fractional shares shall be purchased for the account of any
Participating Employee. Any portion of a Participating Employee's payroll
deduction account which cannot be utilized to purchase an additional whole share
of the Company's common stock shall be credited to such Employee's payroll
deduction account and retained by
<PAGE>
the investment firm to purchase additional shares on future Investment Dates.
SECTION 9. TITLE OF ACCOUNTS. Each account with the designated investment
firm shall be in the name of the Participating Employee, or if he so indicates
in his Notice of Election, in his name jointly with a member of his family as
joint tenants with the right of survivorship.
SECTION 10. RIGHTS AS A SHAREHOLDER. When amounts in a Participating
Employee's payroll deduction account are utilized to purchase shares of common
stock of the Company pursuant to Section 8 hereof, he shall have all the rights
and privileges of a shareholder of the Company with respect to such shares.
Neither the establishment of the Plan, the grant or the exercise of any rights
to purchase shares of common stock under the Plan nor anything else in this Plan
shall impose upon the Company or any Subsidiary any obligation to employ or
continue to employ any employee. The right of the Company or any Subsidiary to
terminate any Participating Employee shall not be diminished or affected because
any rights to purchase shares of the Company's common stock have been granted to
such Participating Employee.
SECTION 11. RIGHTS NOT TRANSFERABLE. The rights granted under the Plan
are not transferable by a Participating Employee and are exercisable only by him
during his lifetime.
SECTION 12. RETIREMENT, TERMINATION AND DEATH. In the event of a
Participating Employee's retirement, termination of employment, or death, his
participation in the Plan shall immediately cease, and the balance in his
payroll deduction account not previously utilized to purchase stock shall be
refunded to him. In the event of his death, such refund shall be paid to his
estate.
SECTION 13. BROKERAGE COMMISSIONS AND EXPENSES OF THE PLAN. No brokerage
commissions or related fees shall be charged to Participating Employees in
connection with the purchase of shares of the Company's common stock under the
Plan. All costs and expenses incurred in administering the Plan shall be borne
by the Company. Any costs and expenses incurred in connection with the sale of
shares
-6-
<PAGE>
purchased pursuant to this Plan shall be the responsibility of the Participating
Employee.
SECTION 14. AMENDMENT OR TERMINATION OF THE PLAN. At any time, the Board
of Directors may amend or terminate the Plan; provided that no amendment shall
take effect prior to the Election Date which immediately follows the date the
amendment was adopted unless the Board of Directors specifies an earlier
effective date; and provided further that no such amendment may, without timely
approval of the shareholders of the Company (a) increase the maximum number of
shares reserved for the Plan (as specified in Section 3 hereof), (b) change the
persons or categories of employees eligible to participate in the Plan (as
specified in Section 4 hereof), unless such change is occasioned by an amendment
to Section 423 of the Code for which no shareholder approval is required, or (c)
materially increase the benefits accruing to participants in the Plan.
SECTION 15. RECAPITALIZATION, DISSOLUTION OR MERGER.
A. If at any time there shall be an increase or decrease in the number of
outstanding shares or common stock of the Company by reason of a
recapitalization, reclassification, stock split up, combination of shares, or
dividend or other distribution payable in capital stock, or in the event of any
other corporate reorganization within the meaning of Section 424 or any other
relevant provision of the Code, an appropriate adjustment shall be made by the
Committee in the number and kind of shares reserved for the Plan. The Committee
shall take appropriate action to ensure that the purchase price specified in
Section 7, the number of shares subject to outstanding options and any other
affected provisions of the Plan are appropriately adjusted so as not to
constitute a "modification" as that term is defined in Section 424 of the Code.
The adjustments made by the Committee shall be final, binding and conclusive;
provided that no rights granted pursuant to the Plan shall be adjusted in a
manner which causes them to fail to qualify as rights created pursuant to an
Employee Stock Purchase Plan within the meaning of Section 423 of the Code.
B. In the event of a dissolution or liquidation of the Company or merger,
consolidation or other reorganization in which the Company is not the surviving
corporation, the Plan shall terminate upon the date of approval of such
dissolution, liquidation, merger, consolidation or
<PAGE>
other reorganization by the Company's shareholders. Upon such termination, all
payroll deductions authorized under the Plan shall cease and any deductions
which have not yet been utilized shall be returned to the Participating
Employee.
SECTION 16. EFFECTIVE DATE OF THE PLAN. This Amended and Restated Plan
shall be effective as of January 1, 1994. A "Plan Year" shall be that 12 month
period which begins on January 1 or any anniversary date thereafter, so long as
the Plan shall exist.
<PAGE>
RENTRAK CORPORATION
1986 SECOND AMENDED AND RESTATED STOCK OPTION PLAN
INCENTIVE STOCK OPTION
AND
INCENTIVE STOCK OPTION AGREEMENT
This Incentive Stock Option is granted, and this Incentive Stock Option
Agreement (the "Agreement") is executed to be effective as of December 20, 1994,
by Rentrak Corporation, an Oregon corporation (the "Company"), and Ron Berger
(the "Optionee).
RECITALS
A. The Company's Board of Directors has duly adopted, and the Company's
shareholders have approved, that certain 1986 Second Amended and Restated Stock
Option Plan (the "Plan"), a copy of which is available for review in the
Company's administrative offices.
B. The Plan authorizes the Company's Board of Directors or an
Administrative Committee thereof (the "Stock Option Committee") to grant
Incentive Stock Options to officers and employees of the Company and any of the
Company's Affiliates (as such term is defined in the Plan).
C. On or about April 8, 1994, the Stock Option Committee, upon due
consideration and as further inducement to the Optionee to enter into an
Employment Agreement with the Company, dated June 1, 1994 (the "Employment
Agreement"), designated the Optionee to receive an Incentive Stock Option under
the Plan covering a total of 70,949 shares of the Common Stock of the Company
and a Nonstatutory Stock Option covering a total of 929,051 shares of said
Common Stock (hereinafter the "April 8th Options"), the exercisability of which
were made subject to the Company's achievement of certain performance objectives
established by the Stock Option Committee. The April 8th Options were granted
subject to obtaining shareholder approval, which approval was obtained on
December 12, 1994.
D. Subsequent to the issuance of the April 8th Options the Stock Option
Committee and the Optionee first learned that keying the exercisability of the
April 8th Options to the satisfaction of future performance objectives subjected
the Company to the risk that it would have to book substantial charges against
its future income if the value of the Company's stock increased significantly
during the term of said options.
E. In order to avoid the adverse financial statement impact to the
Company from the use of performance objectives, the Optionee has agreed to
cancel the April 8th Options in consideration of the grant by the Stock Option
Committee of this replacement Incentive Stock Option and a Nonstatutory Option
of even date herewith covering a total of 1,000,000 shares, both bearing an
exercise price equal to the fair market value of the Company's Common Stock as
of the effective date of the grant of this Option.
1- Incentive Stock Option Agreement
<PAGE>
NOW, THEREFORE THE PARTIES HERETO COVENANT AND AGREE AS FOLLOWS:
1. NUMBER OF SHARES SUBJECT TO OPTION AND OPTION PRICE. The Company
hereby grants to the Optionee an Incentive Stock Option (the "Option") to
purchase from the Company 70,949 shares of the Common Stock of the Company at an
option price of $6.375 per share. The Option is exercisable upon the terms and
conditions contained herein. For the reasons stated in the Recitals hereto,
Optionee agrees that the April 8th Options are hereby cancelled and that the
Option granted hereby shall replace the April 8th Option.
2. ADDITIONAL TERMS OF THE OPTION. Subject to the provisions of
Paragraph 3 below, the Option shall have the following terms:
2.1 The effective date of the grant of the Option is December 20,
1994.
2.2 The Option shall vest on the dates set forth below ("Vesting
Dates") as to the number of shares set forth below.
<TABLE>
<CAPTION>
PERCENTAGE ANNUAL CUMULATIVE
---------- ------ ----------
DATE VESTED SHARES VESTED SHARES VESTED
---- ------ ------------- -------------
<S> <C> <C> <C>
March 31, 1995 20% 14,190 14,190
March 31, 1996 20% 14,190 28,380
March 31, 1997 20% 14,190 42,570
March 31, 1998 20% 14,190 56,760
March 31, 1999 20% 14,189 70,949
</TABLE>
2.3 Notwithstanding anything to the contrary in paragraph 2.2 above,
in the event the employment of the Optionee is terminated by the Company
pursuant to Section 5.4 of the Employment Agreement, this Option shall
immediately vest as to any Option shares that have not previously vested in
accordance with paragraph 2.2 above ("Unvested Shares").
2.4 The Option shall expire on the earlier of April 7, 2004, or the
applicable date specified below (the "Expiration Date").
a) Six (6) months following the effective date of the termination of
the Optionee's employment by the Company on account of the Optionee's
disability (within the meaning of Section 22(e)(3) of the Internal Revenue
Code of 1986, as amended (the "Code");
b) One (1) year following the termination of the Optionee's
employment by the Company on account of the Optionee's death;
c) Thirty (30) days following the effective date of the termination
of the Optionee's employment by the Company for any reason other than
disability (as defined in paragraph (a) above) or death;
d) The date of any sale, transfer or hypothecation, or any attempted
sale, transfer or hypothecation in violation of Section 8 of the Plan which
provides that an Option shall not be transferable or exercisable by any
person other than the Optionee, except as provided in paragraphs (d)(1),
(d)(2), and (d)(3), below:
2- Incentive Stock Option Agreement
<PAGE>
1) In the event of the death of the Optionee, any Options held
by the Optionee shall pass to the person or persons entitled thereto
pursuant to the Will of the Optionee or the applicable laws of descent
and distribution (a "Qualified Successor"). Any right under the
Option which the Optionee could have exercised immediately prior to
the date of his death shall, subject to the terms of this paragraph
2.4 and paragraphs 2.6 and 2.7 below, be exercisable by his Qualified
Successor for a period of one (1) year following his death.
2) In the event of the death of the Optionee following
termination of his employment on account of disability, but prior to
the expiration of the six (6) month period specified in paragraph 2.4
(a) above, this Option shall pass to and be exercisable by the
Qualified Successor of the Optionee in the manner specified above for
a period of one (1) year following the original termination of his
employment.
3) In the event a guardian or conservator (a "Guardian") is
appointed for the Optionee as the result of the termination of the
Optionee's employment by the Company on account of Optionee's
disability (as defined above) any Option held by the Optionee, which
could have been exercised immediately prior to such termination of the
employment, shall, subject to this paragraph 2.4 and paragraphs 2.6
and 2.7 below, be exercisable by the Guardian of the Optionee for a
period of six (6) months following such termination of employment.
4) Options held by a Qualified Successor or a Guardian shall
continue to vest to the extent provided in paragraph 2.7 herein.
5) In the event that two or more persons constitute the
Qualified Successor or the Guardian of the Optionee, all rights of the
Qualified Successor or Guardian shall be exercisable, if at all, by
the unanimous agreement of these persons.
2.5 To the extent vested, the Option may be exercised in whole or in
part at any time and from time to time prior to the Expiration Date.
2.6 The Option must be exercised, if at all, as to a whole number of
shares. In addition, the Option may be exercised for not less than ten (10)
shares at any time, unless the total number of shares purchasable under the
Option at that time is less than ten (10), in which case the Option may be
exercised for that lesser number of shares.
2.7 If, because of death or disability, the Optionee is no longer
employed as an officer or employee of the Company, this Option shall continue to
vest in accordance with the schedule set forth in paragraph 2.2 above during the
period prior to termination of the Option as provided herein. If the Optionee
no longer is employed as an officer or employee of the Company for any reason
other than death, disability or a termination pursuant to Section 5.4 of the
Employment Agreement, the vesting of the Option shall cease and the Option
granted hereunder shall be limited to those shares which were immediately
exercisable by the Optionee as of the effective date of such termination.
3- Incentive Stock Option Agreement
<PAGE>
3. ADJUSTMENTS TO AND/OR CANCELLATIONS OF THE OPTION.
3.1 If there is a material alteration in the capital structure of the
Company on account of a reorganization, merger, recapitalization, exchange of
shares, stock split, reverse stock split, stock dividend, or otherwise, the
Stock Option Committee shall make such adjustments to the Plan and to the
Options then outstanding under the Plan as the Stock Option Committee determines
to be appropriate and equitable under the circumstances. Such adjustments may
include, without limitation, (a) a change in the number or kind of shares of
stock of the Company covered by the Options and/or (b) a change in the Option
Price payable per share; provided, however, that the aggregate Option Price
applicable to the unexercised portion of existing Options shall not be altered,
it being intended that any adjustments made with respect to these Options shall
apply only to the price per share and the number of shares subject thereto. For
purposes of this Section, neither (i) the issuance of additional shares of stock
of the Company in exchange for adequate consideration (including services), nor
(ii) the conversion of outstanding preferred shares of the Company into Common
Stock, shall be deemed a material alteration of the capital structure of the
Company. In the event the Stock Option Committee shall determine that the
nature of a material alteration in the capital structure of the Company is such
that it is not practical or feasible to make appropriate adjustments to the Plan
or to this Option, such event shall be deemed a Terminating Event subject to
paragraph 3.2 below.
3.2 In the event of (a) the dissolution or liquidation of the
Company, (b) a reorganization, merger, or consolidation of the Company with one
or more corporations as a result of which the Company will not be a surviving
corporation, (c) the sale of all or substantially all of the assets of the
Company, (d) a sale or other transfer or m ore than eighty percent (80%) of the
then outstanding shares of Common Stock of the Company, or (e) a material change
in the capital structure of the Company that is subject to this Section in
accordance with the last sentence of Section 3.1 above (any of such events is
herein referred to as a "Terminating Event"), the Stock Option Committee shall
determine whether a provision will be made in connection with the Terminating
Event for an appropriate assumption of this Option or for substitution of
appropriate new options covering stock of a successor corporation employing the
Optionee or stock of an affiliate of such successor employer corporation. If
the Stock Option Committee determines that such an appropriate assumption or
substitution will be made, the Stock Option Committee shall give notice of the
determination to the Optionee and the provisions of such assumption or
substitution, and any adjustments made (i) to the number and kind of shares
subject to the Option outstanding under the Plan (or to options issued in
substitution therefor), (ii) to the Option price and/or (iii) to the terms and
conditions of this Option, which determination shall be binding upon the
Optionee. If the Stock Option Committee determines that no assumption or
substitution will be made, the Stock Option Committee shall give notice of this
determination to the Optionee, whereupon the Optionee shall have the right for a
period of thirty (30) days following the notice to exercise in full or in part
any unexercised or unexpired Option then held by him, without regarding to any
vesting provision to which the Option may have otherwise been subject pursuant
to paragraph 2.2 above. Upon the expiration of this thirty (30) day period,
this Option shall expire to the extent not earlier exercised, and the Plan shall
terminate.
4. EXERCISE OF THE OPTION. The Option shall be exercised, if at all, by
(a) delivering to the Company a written notice in the form of the document
attached as Exhibit A specifying the number of shares of Common Stock for which
exercise is made, (b) tendering full payment of the option price, as required by
Section 7 of the Plan, for the shares for which exercise is made, and (c)
tendering to the Company full payment of any amounts the Company determines must
be withheld
4- Incentive Stock Option Agreement
<PAGE>
for tax purposes from the Optionee as a result of the exercise of the Option and
the issuance of the shares.
5. TRANSFERABILITY OF THE OPTION. Except as provided in paragraph 2.4
above and Section 8 of the Plan, the Option shall not be transferable or
exercisable by any person other than the Optionee.
6. WARRANTIES, REPRESENTATIONS AND ACKNOWLEDGEMENTS OF THE OPTIONEE. By
executing this Agreement, the Optionee accepts the Option and agrees to be bound
by all of the terms of this Agreement and the Plan. In addition, the Optionee
acknowledges that exercise of the Option and the sale of the shares of Common
Stock acquired upon exercise thereof may have tax implications for which the
Optionee should seek individual advice by his or her own tax counselor or
advisor.
7. INDEMNIFICATION BY THE OPTIONEE. The Optionee agrees that, in the
event of a claim against the Company resulting from a breach by the Optionee of
the representations, warranties or provisions contained in this Agreement, the
Optionee will indemnify and hold the Company harmless from any loss or damage,
including attorney's fees or other legal expenses, incurred in the defense or
payment of any such claim against the Company.
8. NO RIGHT TO CONTINUED RELATIONSHIP. Nothing herein shall confer upon
the Optionee the right to continue as an officer or employee of the Company, nor
affect any right which the Company may have to terminate its relationship
(whether or not for cause) with the Optionee.
9. RIGHTS AS SHAREHOLDER. The Optionee shall have no rights as a
shareholder of the Company, including, without limitation, any rights to
dividends or other rights for which the record date is prior to the date the
certificate representing the shares acquired upon exercise of the Option is
issued, on account of the Option or on account of shares of Common Stock of the
Company which will be acquired upon exercise of the Option (but with respect to
which no certificates have been delivered to the Optionee).
10. FURTHER ASSURANCES. The Optionee agrees from time to time to execute
such additional documents as the Company may reasonably require in order to
effect the purposes of the Plan and this Agreement.
11. BINDING EFFECT. This Agreement shall be binding upon the Optionee and
the optionee's heirs, successors and assigns, including, without limitation, the
Qualified Successor or Guardian of the Optionee (as those terms are defined in
paragraph 2.4(d) above).
12. WAIVERS/MODIFICATIONS. No waivers, alterations or modifications of
this Agreement shall be valid unless in writing and duly executed by the party
against whom enforcement of such waiver, alteration or modification is sought.
The failure of any party to enforce any of its rights against the other party
for breach of any of the terms of this Agreement shall not be construed a waiver
of such rights as to any continued or subsequent breach.
13. MODIFICATION AND TERMINATION. The rights of the Optionee hereunder
are subject to modification and termination in certain events as provided in the
Plan.
14. RESTRICTION ON SALE OF SHARES. Optionee represents and agrees that
upon his exercise of the Option, in whole or in part, unless there is in effect
at the time under the Securities Act of 1933, as amended, a registration
statement relating to the shares acquired, such shares will
5- Incentive Stock Option Agreement
<PAGE>
be acquired for his own account, for investment purposes only and not with a
view toward the distribution or public offering thereof nor with any present
intention of reselling or distributing the shares at any particular future time,
and that upon exercise thereof he will furnish to the Company a written
statement to such effect, satisfactory to the Company in form and substance.
Optionee agrees that any certificates issued upon exercise of this Option may
bear a legend indicating that their transferability is restricted in accordance
with applicable state or federal securities law. Any person or persons entitled
to the Option under circumstances in which Optionee would be required to furnish
such a written statement shall furnish to the Company a written statement to the
same effect, satisfactory to the Company in form and substance.
15. PLAN GOVERNS. This Agreement and the Option evidenced hereby are made
and granted pursuant to the Plan and are in all respects limited by and subject
to the express terms and provisions of that Plan, as it may be amended from time
to time and construed by the Committee.
16. NOTICES. All notices to the Company shall be addressed to the members
of the Stock Option Committee with a copy to the Secretary of the Company at the
principal office of the Company at 7227 N.E. 55th Avenue, Portland, Oregon
97218, and all notices to Optionee shall be addressed to Optionee at the address
of Optionee on file with the Company or its Affiliates, or to such other address
as either may designate to the other in writing. A notice shall be deemed to be
duly given upon the earlier of receipt by the addressee or three days following
deposit of such notice in a properly addressed sealed envelope, postage prepaid,
with the United States Postal Service. In lieu of giving notice by mail as
provided above, written notice under this Agreement may be given by personal
delivery to Optionee or to the Chairman of the Board of Directors of the Company
(as the case may be).
17. SALE OR OTHER DISPOSITION. Optionee hereby agrees that if Optionee
disposes (whether by sale, exchange, gift or otherwise) of any of the shares
acquired by exercise of this Option within two years of the grant date or within
one year after the transfer of such shares to Optionee upon exercise of this
Option, then Optionee shall notify the Company of such disposition in writing
within thirty (30) days from the date of such disposition. Said written notice
shall state the date of such disposition, and the type and amount of the
consideration received for such share or shares by Optionee in connection
therewith. In the event of any such disposition, the Company shall have the
right to require Optionee to immediately pay the Company the amount of taxes (if
any) which the Company is required to withhold under federal and/or state law in
order to obtain the benefit of any deduction that would otherwise be available
as a result of the granting or exercise of the subject Option or the disposition
of the subject shares.
18. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Oregon.
6- Incentive Stock Option Agreement
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
RENTRAK CORPORATION
By /s/ Bill LeVine
---------------------------
Bill LeVine
Member, Stock Option Committee
By /s/ James Jimirro
---------------------------
James Jimirro
Member, Stock Option Committee
OPTIONEE:
By /s/ Ron Berger
---------------------------
Ron Berger
7- Incentive Stock Option Agreement
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE OF INCENTIVE OPTION
To: RENTRAK CORPORATION
7227 N.E. 55th Avenue
Post Office Box 18888
Portland, Oregon 97218
The undersigned exercises the option to purchase _____________ shares of
common stock of Rentrak Corporation (the "Company") granted to the undersigned
pursuant to the terms of the Company's 1986 Second Amended and Restated Stock
Option Plan (the "Plan") and the Incentive Stock Option and Incentive Stock
Option Agreement effective as of December 20, 1994.
Accompanying this notice is: [select one] (1) ____ cash, certified check
or cashier's check in the amount of $_________, or (2) a certificate
representing ____ shares of Common Stock of the Company valued at $____________
per share (the fair market price of those shares on the day preceding the date
hereof) representing the option price of $____________ per share plus the amount
the Company has determined must be withheld for tax purposes; or (3)
____________ I hereby request to exercise this option through a cashless
transaction and have provided the name and address of my broker below. I
understand that if I elect to pursue a cashless transaction, Rentrak Corporation
will request and authorize the stock transfer company to issue the
certificate(s) in the name of my broker to facilitate completion of the
transaction.
Date:_________________________
BROKER OPTIONEE
- ------------------------------
------------------------------
Address: Address:
- ------------------------------ ------------------------------
- ------------------------------ ------------------------------
- ------------------------------ ------------------------------
8- Incentive Stock Option Agreement
<PAGE>
RENTRAK CORPORATION
1986 SECOND AMENDED AND RESTATED STOCK OPTION PLAN
NONSTATUTORY STOCK OPTION
AND
NONSTATUTORY STOCK OPTION AGREEMENT
This Nonstatutory Stock Option is granted, and this Nonstatutory Stock
Option Agreement (the "Agreement") is executed to be effective as of December
20, 1994, by Rentrak Corporation, an Oregon corporation (the "Company"), and Ron
Berger (the "Optionee).
RECITALS
A. The Company's Board of Directors has duly adopted, and the Company's
shareholders have approved, that certain 1986 Second Amended and Restated Stock
Option Plan (the "Plan"), a copy of which is available for review in the
Company's administrative offices.
B. The Plan authorizes the Company's Board of Directors or an
Administrative Committee thereof (the "Stock Option Committee") to grant
Incentive Stock Options to officers and employees of the Company and any of the
Company's Affiliates (as such term is defined in the Plan).
C. On or about April 8, 1994, the Stock Option Committee, upon due
consideration and as further inducement to the Optionee to enter into an
Employment Agreement with the Company, dated June 1, 1994 (the "Employment
Agreement"), designated the Optionee to receive an Incentive Stock Option under
the Plan covering a total of 70,949 shares of the Common Stock of the Company
and a Nonstatutory Stock Option covering a total of 929,051 shares of said
Common Stock (hereinafter the "April 8th Options"), the exercisability of which
were made subject to the Company's achievement of certain performance objectives
established by the Stock Option Committee. The April 8th Options were granted
subject to obtaining shareholder approval, which approval was obtained on
December 12, 1994.
D. Subsequent to the issuance of the April 8th Options the Stock Option
Committee and the Optionee first learned that keying the exercisability of the
April 8th Options to the satisfaction of future performance objectives subjected
the Company to the risk that it would have to book substantial charges against
its future income if the value of the Company's stock increased significantly
during the term of said options.
E. In order to avoid the adverse financial statement impact to the
Company from the use of performance objectives, the Optionee has agreed to
cancel the April 8th Options in consideration of the grant by the Stock Option
Committee of this replacement Nonstatutory Option and an Incentive Stock Option
of even date herewith covering a total of 1,000,000 shares, both bearing an
exercise price equal to the fair market value of the Company's Common Stock as
of the effective date of the grant of this Option.
1 - Nonstatutory Stock Option Agreement
<PAGE>
NOW, THEREFORE THE PARTIES HERETO COVENANT AND AGREE AS FOLLOWS:
1. NUMBER OF SHARES SUBJECT TO OPTION AND OPTION PRICE. The Company
hereby grants to the Optionee an Nonstatutory Stock Option (the "Option") to
purchase from the Company 929,051 shares of the Common Stock of the Company at
an option price of $6.375 per share. The Option is exercisable upon the terms
and conditions contained herein. For the reasons stated in the Recitals hereto,
Optionee agrees that the April 8th Options are hereby cancelled and that the
Option granted hereby shall replace the April 8th Option.
2. ADDITIONAL TERMS OF THE OPTION. Subject to the provisions of
Paragraph 3 below, the Option shall have the following terms:
2.1 The effective date of the grant of the Option is December 20,
1994.
2.2 The Option shall vest on the dates set forth below ("Vesting
Dates") as to the number of shares set forth below.
<TABLE>
<CAPTION>
Percentage Annual Cumulative
---------- ------ ----------
Date Vested Shares Vested Shares Vested
---- ------ ------------- -------------
<S> <C> <C> <C>
March 31, 1995 20% 185,810 185,810
March 31, 1996 20% 185,810 371,620
March 31, 1997 20% 185,810 557,430
March 31, 1998 20% 185,810 743,240
March 31, 1999 20% 185,811 929,051
</TABLE>
2.3 Notwithstanding anything to the contrary in Section 2.2 above, in
the event the employment of the Optionee is terminated by the Company pursuant
to Section 5.4 of the Employment Agreement, this Option shall immediately vest
as to any Option shares that have not previously vested in accordance with
Section 2.2 above ("Unvested Shares".
2.4 The Option shall expire on the earlier of April 7, 2004, or the
applicable date specified below (the "Expiration Date").
a) Six (6) months following the effective date of the termination of
the Optionee's employment by the Company on account of the Optionee's
disability (within the meaning of Section 22(e)(3) of the Internal Revenue
Code of 1986, as amended (the "Code");
b) One (1) year following the termination of the Optionee's
employment by the Company on account of the Optionee's death;
c) Thirty (30) days following the effective date of the termination
of the Optionee's employment by the Company for any reason other than
disability (as defined in paragraph (a) above) or death;
d) The date of any sale, transfer or hypothecation, or any attempted
sale, transfer or hypothecation in violation of Section 8 of the Plan
which provides that an Option shall not be transferable or exercisable by
any person other than the Optionee, except as provided in paragraphs
(d)(1), (d)(2), and (d)(3), below:
2 - Nonstatutory Stock Option Agreement
<PAGE>
1) In the event of the death of the Optionee, any Options held
by the Optionee shall pass to the person or persons entitled thereto
pursuant to the Will of the Optionee or the applicable laws of
descent and distribution (a "Qualified Successor"). Any right under
the Option which the Optionee could have exercised immediately prior
to the date of his death shall, subject to the terms of this
Paragraph 2.4, be exercisable by the Qualified Successor for a period
of one (1) year following his death.
2) In the event of the death of the Optionee following
termination of his employment on account of disability but prior to
the expiration of the six (6) month period specified above, this
Option shall pass to and be exercisable by the Qualified Successor of
the Optionee in the manner specified above for a period of one (1)
year following the original termination of his employment.
3) In the event a guardian or conservator (a "Guardian") is
appointed for the Optionee as the result of the termination of the
Optionee's employment by the Company on account of Optionee's
disability (as defined above) any Option held by the Optionee, which
could have been exercised immediately prior to such termination of
the employment, shall, subject to this Section 2.4, be exercisable by
the Guardian of the Optionee for a period of six (6) months following
such termination of employment.
4) Options held by a Qualified Successor or a Guardian shall
continue to vest to the extent provided in Section 2.7 herein.
5) In the event that two or more persons constitute the
Qualified Successor or the Guardian of the Optionee, all rights of
the Qualified Successor or Guardian shall be exercisable, if at all,
by the unanimous agreement of these persons.
2.5 To the extent vested, the Option may be exercised in whole or in
part at any time and from time to time prior to the Expiration Date.
2.6 The Option must be exercised, if at all, as to a whole number of
shares. In addition, the Option may be exercised for not less than ten (10)
shares at any time, unless the total number of shares purchasable under the
Option at that time is less than ten (10), in which case the Option may be
exercised for that lesser number of shares.
2.7 If, because of death or disability, the Optionee is no longer
employed as an officer or employee of the Company, this Option shall continue to
vest in accordance with the schedule set forth in Paragraph 2.2 above during the
period prior to termination of the Option as provided herein. If, for any
reason other than death or disability, the Optionee no longer is employed as an
officer or employee, the vesting of the Option shall cease and the Option
granted hereunder shall be limited to those shares which were immediately
exercisable by the Optionee as of the date of the effective date of such
termination.
3. ADJUSTMENTS TO AND/OR CANCELLATION OF THE OPTION.
3.1 If there is a material alteration in the capital structure of the
Company on account of a reorganization, merger, recapitalization, exchange of
shares, stock split, reverse stock split, stock dividend, or otherwise, the
Stock Option Committee shall make such adjustments to the Plan and to the
Options then outstanding under the Plan as the Stock Option Committee
3 - Nonstatutory Stock Option Agreement
<PAGE>
determines to be appropriate and equitable under the circumstances. Such
adjustments may include, without limitation, (a) a change in the number or
kind of shares of stock of the Company covered by the Options and/or (b) a
change in the Option Price payable per share; provided, however, that the
aggregate Option Price applicable to the unexercised portion of existing Options
shall not be altered, it being intended that any adjustments made with respect
to these Options shall apply only to the price per share and the number of
shares subject thereto. For purposes of this Section, neither (i) the issuance
of additional shares of stock of the Company in exchange for adequate
consideration (including services), nor (ii) the conversation of outstanding
preferred shares of the Company into Common Stock, shall be deemed a material
alteration of the capital structure of the Company. In the event the Stock
Option Committee shall determine that the nature of a material alteration in the
capital structure of the Company is such that it is not practical or feasible to
make appropriate adjustments to the Plan or to this Option, such event shall be
deemed a Termination Event as defined below.
3.2 In the event of (a) the dissolution or liquidation of the
Company, (b) a reorganization, merger, or consolidation of the Company with one
or more corporations as a result of which the Company will not be a surviving
corporation, (c) the sale of all or substantially all of the assets of the
Company, (d) a sale or other transfer or m ore than eighty percent (80%) of the
then outstanding shares of Common Stock of the Company, or (e) a material change
in the capital structure of the Company that is subject to this Section in
accordance with the last sentence of Section 3.1 above (any of such events is
herein referred to as a "Terminating Event"), the Stock Option Committee shall
determine whether a provision will be made in connection with the Terminating
Event for an appropriate assumption of this Option for stock or for substitution
of appropriate new options covering stock of a successor corporation employing
the Optionee under this Plan and Agreement or stock of an affiliate of such
successor employer corporation. If the Stock Option Committee determines that
such an appropriate assumption or substitution will be made, the Stock Option
Committee shall give notice of the determination to the Optionee and the
provisions of such assumption or substitution, and any adjustments made (i) to
the number and kind of shares subject to the Option outstanding under the Plan
(or to options issued in substitution therefor), (ii) to the Option price and/or
(iii) to the terms and conditions of this Option, shall be binding upon the
Optionee. If the Stock Option Committee determines that no assumption or
substitution will be made, the Stock Option Committee shall give notice of this
determination to the Optionee, whereupon the Optionee shall have the right for a
period of thirty (30) days following the notice to exercise in full or in part
any unexercised or unexpired Option then held by him or her, without regarding
to any contingent vesting provision to which the Option may have otherwise been
subject pursuant to Paragraph 2.2 above. Upon the expiration of this thirty
(30) day period, this Option shall expire to the extent not earlier exercised,
and the Plan shall terminate.
4. EXERCISE OF THE OPTION. The Option shall be exercised, if at all, by
(a) delivering to the Company a written notice in the form of the document
attached as Exhibit A specifying the number of shares of Common Stock for which
exercise is made, (b) tendering full payment of the option price, as required by
Section 7 of the Plan, for the shares for which exercise is made, and (c)
tendering to the Company full payment of any amounts the Company determines must
be withheld for tax purposes from the Optionee as a result of the exercise of
the Option and the issuance of the shares.
5. TRANSFERABILITY OF THE OPTION. Except as provided in Section 2.4
above and Paragraph 8 of the Plan, the Option shall not be transferable or
exercisable by any person other than the Optionee.
4 - Nonstatutory Stock Option Agreement
<PAGE>
6. WARRANTIES, REPRESENTATIONS AND ACKNOWLEDGEMENTS OF THE OPTIONEE. By
executing this Agreement, the Optionee accepts the Option and agrees to be bound
by all of the terms of the Option, this Agreement and the Plan. In addition,
the Optionee acknowledges that exercise of the Option and the sale of the shares
of Common Stock acquired upon exercise thereof may have tax implications for
which the Optionee should seek individual advice by his or her own tax counselor
or advisor.
7. INDEMNIFICATION BY THE OPTIONEE. The Optionee agrees that, in the
event of a claim against the Company resulting from a breach by the Optionee of
the representations, warranties or provisions contained in this Agreement, the
Optionee will indemnify and hold the Company harmless from any loss or damage,
including attorney's fees or other legal expenses, incurred in the defense or
payment of any such claim against the Company.
8. NO RIGHT TO CONTINUED RELATIONSHIP. Nothing herein shall confer upon
the Optionee the right to continue as an officer or employee of the Company, nor
affect any right which the Company may have to terminate its relationship
(whether or not for cause) with the Optionee.
9. RIGHTS AS SHAREHOLDER. The Optionee shall have no rights as a
shareholder of the Company, including, without limitation, any rights to
dividends or other rights for which the record date is prior to the date the
certificate representing the shares acquired upon exercise of the Option is
issued, on account of the Option or on account of shares of Common Stock of the
Company which will be acquired upon exercise of the Option (but with respect to
which no certificates have been delivered to the Optionee).
10. FURTHER ASSURANCES. The Optionee agrees from time to time to execute
such additional documents as the Company may reasonably require in order to
effect the purposes of the Plan and this Agreement.
11. BINDING EFFECT. This Agreement shall be binding upon the Optionee
and the optionee's heirs, successors and assigns, including, without limitation,
the Qualified Successor or Guardian of the Optionee (as those terms are defined
in Section 2.4(d) above).
12. WAIVERS/MODIFICATIONS. No waivers, alterations or modifications of
this Agreement shall be valid unless in writing and duly executed by the party
against whom enforcement of such waiver, alteration or modification is sought.
The failure of any party to enforce any of its rights against the other party
for breach of any of the terms of this Agreement shall not be construed a waiver
of such rights as to any continued or subsequent breach.
13. MODIFICATION AND TERMINATION. The rights of the Optionee hereunder
are subject to modification and termination in certain events as provided in the
Plan.
14. RESTRICTION ON SALE OF SHARES. Optionee represents and agrees that
upon his exercise of the Option, in whole or in part, unless there is in effect
at the time under the Securities Act of 1933, as amended, a registration
statement relating to the shares acquired, such shares will be acquired for his
or her own account, for investment purposes only and not with a view toward the
distribution or public offering thereof nor with any present intention of
reselling or distributing the shares at any particular future time, and that
upon exercise thereof he or she will furnish to the Company a written statement
to such effect, satisfactory to the Company in form and substance. Optionee
agrees that any certificates issued upon exercise of this Option may bear a
legend indicating that their transferability is restricted in accordance with
applicable state or federal securities law. Any person or persons entitled to
the Option under circumstances in which
5 - Nonstatutory Stock Option Agreement
<PAGE>
Optionee would be required to furnish such a written statement shall furnish to
the Company a written statement to the same effect, satisfactory to the Company
in form and substance.
15. PLAN GOVERNS. This Agreement and the Option evidenced hereby are
made and granted pursuant to the Plan and are in all respects limited by and
subject to the express terms and provisions of that Plan, as it may be amended
from time to time and construed by the Committee.
16. NOTICES. All notices to the Company shall be addressed to the
members of the Stock Option Committee with a copy to the Secretary of the
Company at the principal office of the Company at 7227 N.E. 55th Avenue,
Portland, Oregon 97218, and all notices to Optionee shall be addressed to
Optionee at the address of Optionee on file with the Company or its Affiliates,
or to such other address as either may designate to the other in writing. A
notice shall be deemed to be duly given upon the earlier of receipt by the
addressee or three days following deposit of such notice in a properly addressed
sealed envelope, postage prepaid, with the United States Postal Service. In
lieu of giving notice by mail as provided above, written notice under this
Agreement may be given by personal delivery to Optionee or to the Chairman of
the Board of Directors of the Company (as the case may be).
17. SALE OR OTHER DISPOSITION. Optionee hereby agrees that if Optionee
disposes (whether by sale, exchange, gift or otherwise) of any of the shares
acquired by exercise of this Option within two years of the grant date or within
one year after the transfer of such shares to Optionee upon exercise of this
Option, then Optionee shall notify the Company of such disposition in writing
within thirty (30) days from the date of such disposition. Said written notice
shall state the date of such disposition, and the type and amount of the
consideration received for such share or shares by Optionee in connection
therewith. In the event of any such disposition, the Company shall have the
right to require Optionee to immediately pay the Company the amount of taxes (if
any) which the Company is required to withhold under federal and/or state law as
a result of the granting or exercise of the subject option in the disposition of
the subject shares.
18. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Oregon.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the day and year first above written.
RENTRAK CORPORATION
By /s/ Bill LeVine
--------------------------
Bill LeVine
Member, Stock Option Committee
By /s/ James Jimirro
----------------------------
James Jimirro
Member, Stock Option Committee
OPTIONEE:
By /s/ Ron Berger
--------------------------
Ron Berger
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE OF NONSTATUTORY OPTION
To: RENTRAK CORPORATION
7227 N.E. 55th Avenue
Post Office Box 18888
Portland, Oregon 97218
The undersigned exercises the option to purchase _____________ shares of
common stock of Rentrak Corporation (the "Company") granted to the undersigned
pursuant to the terms of the Company's 1986 Second Amended and Restated Stock
Option Plan (the "Plan") and the Nonstatutory Stock Option and Nonstatutory
Stock Option Agreement effective as of April 8, 1994.
Accompanying this notice is: [select one] (1) ____ cash, certified check
or cashier's check in the amount of $_________, or (2) a certificate
representing ____ shares of Common Stock of the Company valued at $____________
per share (the fair market price of those shares on the day preceding the date
hereof) representing the option price of $____________ per share plus the amount
the Company has determined must be withheld for tax purposes; or (3)
____________ I hereby request to exercise this option through a cashless
transaction and have provided the name and address of my broker below. I
understand that if I elect to pursue a cashless transaction, Rentrak Corporation
will request and authorize the stock transfer company to issue the
certificate(s) in the name of my broker to facilitate completion of the
transaction.
Date:
--------------------
BROKER OPTIONEE
_________________________ _________________________
Address: Address:
_________________________ _________________________
_________________________ _________________________
_________________________ _________________________
<PAGE>
Exhibit 11
RENTRAK CORPORATION
COMPUTATION OF NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
For the Year Ended
March 31, 1995
------------------------------
FULLY
PRIMARY DILUTED
------------------------------
<S> <C> <C>
Weighted average number of shares of common
stock outstanding 10,721,558 10,721,558
Dilutive effect of exercise of stock options 2,356,734 2,356,734
Dilutive effect of exercise of stock warrants 2,500,197 3,419,626
Less: purchase of treasury shares, up to
20% of shares outstanding at period end (2,180,538) (2,180,538)
------------------------------
Weighted average number of shares of common
stock and common stock equivalents 13,397,951 14,317,380
------------------------------
------------------------------
Net Income $5,113,523 $5,113,523
Plus: Interest income from investments assumed
purchased with proceeds from exercise of
stock options and warrants in excess of
proceeds used to purchase treasury stock 394,249 582,494
------------------------------
Net Income for purposes of computing
earnings per share $5,507,772 $5,696,017
------------------------------
------------------------------
Net Income per Share $0.41 $0.40
------------------------------
------------------------------
</TABLE>
<PAGE>
Exhibit 13
Rentrak Corporation and Subsidiaries
(Cover Design - PPT marquee)
1995 Annual Report to Shareholders
<PAGE>
About Rentrak
Headquartered in Portland, Oregon, Rentrak is a leader in electronic transaction
processing. Rentrak's core Pay-Per-Transaction-TM- (PPT-R-) division is the
world's largest nontraditional distributor of videocassettes. Currently, about
5,000 outlets systemwide stock cassettes leased through Rentrak from more than
100 studios and other suppliers of prerecorded video tapes.* Rentrak collects a
fee every time a retailer acquires a tape through PPT and every time a PPT
videocassette is rented to a customer.
Participating retailers, including over half of the top 10 video chains in the
country, use Rentrak's PPT system to help them bring in enough copies of popular
movies to satisfy their customers.** Leading movie studios, including Disney and
Twentieth Century Fox Home Entertainment, participate in PPT because Rentrak
helps them make more money on their titles.
Rentrak applies the same information processing and distribution strengths to
its second largest business, Pro Image, Inc., the largest independent chain of
licensed sports apparel stores. Rentrak bought Pro Image two years ago and has
successfully expanded the chain to 229 outlets in the United States and abroad.
A third business, Streamlined Solutions, Inc., takes Rentrak's expertise in
information systems, custom software development, warehouse management,
electronic ordering and just-in-time distribution and applies it to other retail
and franchise organizations as a provider of outsourced business services.
About The Cover
The PPT system, which resembles theatrical distribution, encourages studios to
lower their cost of goods in return for a share of the rental revenues generated
by retailers.
* Approximately 1,200 of the retailers participate in the PPT system through
Rentrak Japan Corporation, a 25-percent-owned joint venture of the Company.
** Source: Video Store magazine, "Top 100," December 1994.
<PAGE>
FINANCIAL HIGHLIGHTS
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR
Revenues $112,166 $68,897 $54,335 $47,422 $33,942
Net income (loss) 5,114 813 (895) (233) 1,298
Net income (loss) per share 0.40 0.08 (0.10) (0.03) 0.22
AT YEAR END
Working capital $12,898 $16,155 $17,116 $18,875 $ 1,152
Total assets 64,818 44,620 34,824 27,582 9,854
Long-term debt -- -- -- 5 15
Stockholders' equity 40,292 29,523 22,722 21,398 3,101
</TABLE>
The bottom half of the page includes four graphs. The graphs are for the years
1991, 1992, 1993, 1994 and 1995. From left to right the graphs have the
following headings: Revenues, Net income (loss), Total assets, and Working
Capital. The graphic results are reflective of the numbers included in the
table above.
<PAGE>
To our Shareholders:
Rentrak had a memorable and gratifying fiscal 1995. Revenues were up 63 percent,
climbing to a record $112.2 million from $68.9 million the previous year. Net
income was $5.1 million, or $.40 per share -- a huge increase over the $813,065,
or $.08 per share, reported for fiscal 1994.
Rentrak Home Entertainment, our primary business, was particularly successful
last year. The heart of this business, our Pay-Per-Transaction-TM- (PPT-R-)
videocassette distribution system, generated some 70 percent of our revenue. In
fact, it would be hard to overstate the momentum PPT gained in fiscal 1995. An
agreement to carry all of Disney's Buena Vista Home Video titles was the most
dramatic evidence of our progress.
Our second largest business, Pro Image, Inc., had a productive year as well. Pro
Image acquired the Team Spirit retail chain, becoming the largest licensed
sports apparel chain in the country.
RENTRAK HOME ENTERTAINMENT
DISNEY JOINS PPT
Our Rentrak Home Entertainment business is charged with expanding the PPT
system, primarily by adding more video stores and videocassette suppliers (such
as film studios). Our system allows retailers to lease, rather than buy,
videocassettes from movie studios and other suppliers through Rentrak. The
retailer's initial cost to bring a cassette in through PPT is about $8, compared
to about $67 through nonleasing types of distribution. Each time the cassette is
rented, the retailer shares the rental fee with the studio or supplier, and
Rentrak earns a portion of this fee. By helping a store to bring in more copies
of more popular movies, our distribution system helps retailers satisfy their
customers, which is crucial for their success.
For the year, revenues for the division increased 29 percent to $79.8 million
from $62.0 million the prior year. Net income before taxes jumped 153 percent to
$6.4 million from $2.5 million in fiscal 1994.
During fiscal 1995, Rentrak Home Entertainment added a new major supplier,
attracted more key retailers to the system and developed new product formats for
PPT. These were some of the highlights of the year:
* We announced a five-year contract to distribute all rental-priced video
titles from the Buena Vista Home Video labels. These labels include Touchstone
Home Video, Hollywood Pictures Home Video, Miramax Home Entertainment and Walt
Disney Pictures. Buena Vista, which is owned by Disney, is the top supplier in
the video industry. The agreement has stimulated more retailer interest in PPT.
* We added 438 stores to the PPT system, bringing the total to 3,614 from
3,176 last year, a 14 percent rise. We signed long-term agreements with
high-volume U.S. chains - including Hollywood Entertainment, the fourth largest
retailer (and one of the fastest growing chains) and Palmer Video, the eighth
largest retailer. By year-end, over half of the top 10 U.S. retailers were using
PPT.(i)
* During fiscal 1995, the largest franchised video chain in Canada - Jumbo
Video - successfully tested PPT in some of its stores. In the current fiscal
year, Jumbo signed an agreement adding more than 50 percent of its existing
stores, and all new stores, to our program.
* To attract the new stores, we lowered our processing fee and initiated a
direct response marketing program that was less costly than previous marketing
methods (such as seminars). We developed this strategy to take advantage of the
industry's better understanding and acceptance of revenue sharing. Our goal in
North America for fiscal 1996 is to add 600 stores.
* We made steady progress in rolling PPT out to video departments within
supermarkets. At year-end, we were supplying PPT product to over 400
supermarkets.
<PAGE>
* We expanded the PPT system by adding new product lines. In fiscal 1995, we
offered retailers cartridge-based video games for the Sega Genesis-TM- and
Nintendo-R- platforms on nonleasing terms. We also developed a program to lease
CD-ROM titles through the PPT system, since most personal computers sold today
have integrated CD-ROM drives. We believe this market will develop slowly and
then accelerate in 1996.
* We began beta testing a major enhancement to our proprietary software that
will help us attract even more large chains to PPT. The upgraded software runs
on the Windows-R- operating system and will allow chain operators to analyze
buys, track inventory, watch trends and run accounting reports for all of their
locations at one time, from a central location.
RENTRAK JAPAN
DRAMATIC GROWTH AT RENTRAK JAPAN
The Company owns a 25 percent stake in Rentrak Japan. Rentrak Japan's revenues
soared 58 percent to $88.4 million (U.S. dollars) from $56.1 million in fiscal
1994. After three years of operating losses, Rentrak Japan achieved net income
of $1.4 million.
Rentrak Japan is expanding rapidly and had 1,122 participating retailers at
year-end. During fiscal 1995, the Company signed a longer-term agreement with
Rentrak Japan. Under the new agreement, which expires in 2039, the Company
received royalty revenue totaling $1.8 million in fiscal 1995 (including a
onetime payment of $1.0 million).
PRO IMAGE, INC.
PRO IMAGE TAKES THE LEAD
Pro Image, Inc., which we acquired two years ago, is performing as planned. It
is now the largest independent chain of licensed sports apparel stores. At
year-end, Pro Image had 229 outlets, including 54 corporate outlets. Thirty-nine
of the corporate stores were added through our acquisition of the Team Spirit
chain. With outlets in 45 states, Canada, Mexico, Puerto Rico, Germany and
Japan, Pro Image is now a leader in an industry that is expected to reach $9
billion in sales by 1997.(ii)
Pro Image aggressively upgraded its business with investments in more efficient
computer and distribution systems, updated store designs and a TV/print
advertising campaign. These investments totaled approximately $2 million. Pro
Image was profitable despite these expenses, flat sales throughout the retail
apparel industry and unusually poor sales of licensed sports apparel
(attributable in part to the baseball and hockey strikes). For the fiscal year
ended February 28, 1995, Pro Image recorded total revenue of $26.4 million and a
pretax profit of $139,422. Without the charges described above, profit would
have been 8 percent of total revenue.
Pro Image will continue to open new stores, make further acquisitions that add
value to the business and expand aggressively internationally. We will
consolidate the administrative, buying and distribution functions of the
acquired entities to drive costs down and efficiencies up. In the first quarter
of the current fiscal year, a new point-of-sale system was installed at each
corporate store. The new system links the stores through e-mail, processes
layaways and returns, automates inventory control and allows faster sales
transactions.
<PAGE>
ENTERTAINMENT SUBSIDIARIES
SMALLER BUSINESSES WITH GROWTH POTENTIAL
The Company owns a number of subsidiaries closely related to our video rental
business. As a group, these subsidiaries had revenues of $6.0 million and a
loss of $707,548 for the year. The loss was primarily due to start-up and
expansion costs.
Revenues continued to grow from our Blowout Video chain, which offers
competitively priced new and used cassettes primarily to the tourist trade in
New York and Seattle. Revenues were up 272 percent to $3.8 million.
At year-end, we were looking at an additional site in Pittsburgh.
Our Supermarket Video, Inc. (SVI) subsidiary, which operates video departments
within leading grocery chains, is expanding as well. Supermarkets are the
fastest growing segment of the video rental industry, and video is one of the
fastest growing segments of the supermarket industry.(iii) It is therefore
important and opportune that we expand our SVI operations.
By recently purchasing a majority interest in Entertainment One, we have assumed
management of the video departments of 46 Wal-Mart Supercenters. Wal-Mart, the
largest retailer in the nation, is expected to generate more sales by the year
2000 than the five largest supermarket chains in the nation combined.(iv)
SYSTEMS SUBSIDIARY
CAPITALIZING ON OUR EXPERTISE
We continue to market our existing software development, warehousing,
distribution and field audit capabilities through Streamlined Solutions, Inc.
(SSI). By the end of fiscal 1995, SSI had signed its first revenue-producing
contract with a chain of dry cleaning stores. SSI is currently negotiating
contracts with several other retail chains and franchise organizations.
Ultimately, we expect SSI to produce a significant revenue stream, delivering a
piece of the rapidly growing market for outsourced business services.
LOOKING FORWARD
MORE GROWTH, HIGHER EARNINGS EXPECTED
The home video rental industry is strong and growing. The major players are
implementing ambitious expansions, and industry revenues are projected to hit
$19 billion by the year 2004.(v)
The concept of revenue sharing recently made trade headlines when Blockbuster
Video was reported to be approaching film studios with its own revenue-sharing
proposal. One Blockbuster official was quoted as saying that revenue sharing
would "pump up profits as well as customer satisfaction."
We, of course, already knew that, but this high-profile validation of revenue
sharing has stirred up key retailer interest. We believe it will motivate
additional stores to join Rentrak's PPT system.
However, we do not take anything for granted. We will continue to focus sharply
on our customers' needs while aggressively pursuing retailers and suppliers that
are not in the system.
Fiscal 1995 was a very successful year. Next year should be even more successful
as we hold costs down, as PPT revenues continue to grow and as Pro Image and our
other subsidiaries come into their own.
Thank you for your continuing confidence in our bright future.
<PAGE>
Ron Berger
Chairman, President
and Chief Executive Officer
Captions:
Photo of Ron Berger, first page of letter to shareholders
Caption: Ron Berger, Chairman, President and Chief Executive Officer
i Video Store magazine, "Top 100," December 1994
ii EPM Communications
iii Supermarket News, March 27, 1995
iv Discount Store News, April 17, 1995
v Video Store magazine, May 22, 1995
<PAGE>
SELECTED FINANCIAL DATA
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net revenues:
Processing fees $ 1,114 $ 1,662 $ 2,299 $ 2,260 $ 2,699
Handling fees 18,052 13,712 12,170 11,063 10,220
Transaction fees 49,904 40,967 33,399 27,738 18,955
Sell-through fees 8,923 5,665 4,980 5,196 1,762
Other 34,173 6,775 1,287 1,165 306
International operations -- 116 200 -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total net revenues 112,166 68,897 54,335 47,422 33,942
Cost of sales 83,533 52,162 41,299 37,759 25,473
- ---------------------------------------------------------------------------------------------------------------------------------
Gross profit 28,633 16,735 13,036 9,663 8,469
SG&A 26,183 16,393 15,054 10,138 7,076
Suspension of European operations -- 901 -- -- --
Other income (expense) 3,391 477 499 242 (63)
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) before provision for income taxes,
minority partner interests and extraordinary item 5,841 (82) (1,519) (233) 1,330
Income tax benefit (provision) (727) 764 (305) -- (508)
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) before minority
partner interests and extraordinary item 5,114 682 (1,824) (233) 822
Losses attributable to minority
partner interests -- 131 649 -- --
Income (loss) before extraordinary item 5,114 813 (1,175) (233) 822
Extraordinary item, income tax
benefit from carryforward of net
operating losses -- -- 280 -- 476
- ---------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 5,114 $ 813 $ (895) $ (233) $ 1,298
- ---------------------------------------------------------------------------------------------------------------------------------
Net income (loss) per share $ 0.40 $ 0.08 $ (0.10) $(0.03) $0.22
- ---------------------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding 14,517 10,162 9,306 8,552 6,252
AT MARCH 31, 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Working capital $12,898 $16,155 $17,116 $18,875 $ 1,152
Total assets 64,818 44,620 34,824 27,582 9,854
Long-term debt -- -- -- 5 15
Stockholders' equity 40,292 29,523 22,722 21,398 3,101
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
For a more meaningful analysis, results are presented for four groups of
operations: Domestic PPT Operations, which include Canadian PPT operations;
International Operations, which represent Rentrak's European operations that
were suspended in fiscal 1994; Pro Image, Inc. and its subsidiaries ("TPI"); and
Other Domestic Subsidiaries. The following tables break out these groups for
the years ended March 31, 1995, 1994 and 1993. All significant intercompany
transactions have been eliminated.
<TABLE>
<CAPTION>
DOMESTIC PPT INTERNATIONAL OTHER
YEAR ENDED MARCH 31, 1995 OPERATIONS OPERATIONS TPI(1) SUBSIDIARIES CONSOLIDATED
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 79,793,584 $ - $26,363,211 $ 6,009,436 $ 112,166,231
Cost of sales 64,447,737 - 16,840,331 2,245,260 83,533,328
Gross profit margin 15,345,847 - 9,522,880 3,764,176 28,632,903
SG&A 12,459,006 - 9,252,704 4,471,724 26,183,434
Other income (expense) 3,522,039 - (130,754) 0 3,391,285
Net income (loss) before taxes $ 6,408,880 $ - $ 139,422 $ (707,548) 5,840,754
- ---------------------------------------------------------------------------------------------------------------------------------
Income tax provision 727,231
- -------------------------------- -------------------------
Net income $ 5,113,523
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DOMESTIC PPT INTERNATIONAL OTHER
YEAR ENDED MARCH 31, 1994 OPERATIONS OPERATIONS TPI(2) SUBSIDIARIES CONSOLIDATED
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 62,005,968 $ 115,937 $ 3,950,705 $ 2,823,877 $ 68,896,487
Cost of sales 49,191,633 183,702 2,245,000 541,492 52,161,827
Gross profit margin 12,814,335 (67,765) 1,705,705 2,282,385 16,734,660
SG&A 10,750,036 2,357,246 1,264,924 2,920,992 17,293,198
Other income (expense) 472,393 65,083 (61,450) 740 476,766
Net income (loss) before taxes $ 2,536,692 $ (2,359,928) $ 379,331 $ (637,867) (81,772)
- ---------------------------------------------------------------------------------------------------------------------------------
Income tax benefit 763,919
Minority interest 130,918
- -------------------------------- -------------------------
Net income $ 813,065
- ---------------------------------------------------------------------------------------------------------------------------------
-------------------------------
<FN>
(1) Includes Results of Operations from March 1, 1994 through February 28, 1995
(2) Includes Results of Operations from October 15, 1993 (date of acquisition) through
February 28, 1994
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
DOMESTIC PPT INTERNATIONAL OTHER
YEAR ENDED MARCH 31, 1993 OPERATIONS OPERATIONS TPI SUBSIDIARIES CONSOLIDATED
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 52,847,386 $ 200,443 $ - $ 1,287,037 $ 54,334,866
Cost of sales 40,770,396 508,048 - 20,123 41,298,567
Gross profit margin 12,076,989 (307,604) - 1,266,914 13,036,299
SG&A 11,463,957 2,016,904 - 1,573,290 15,054,151
Other income (expense) 523,020 (2,623) - (21,438) 498,959
Net income (loss) before $ 1,136,052 $ (2,327,131) $ - $ (327,814) (1,518,893)
taxes and minority interest
- ---------------------------------------------------------------------------------------------------------------------------------
Income tax provision 25,000
Minority interest 648,833
- ------------------------------ --------------------------
Net income (loss) $ (895,061)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
FISCAL 1995 COMPARED TO
FISCAL 1994
DOMESTIC PPT OPERATIONS
For the year ended March 31, 1995, total revenue from Domestic PPT Operations
increased $17.8 million, or 29 percent, rising to $79.8 million from $62.0
million in the prior year. In addition to royalty payments from Rentrak Japan,
total revenue includes the following fees: processing fees generated when
retailers are approved for participation in the PPT system; handling fees
generated when prerecorded videocassettes ("Cassettes") are distributed to
retailers; transaction fees generated when retailers rent Cassettes to
consumers; and sell-through fees generated when retailers sell Cassettes to
consumers.
The increase in total revenue and the increases described in the following
paragraphs were primarily due to the growth in (i) the number of retailers
approved to lease Cassettes from the Company (the "Participating Retailers");
(ii) the number of participating program suppliers ("Program Suppliers"),
primarily Buena Vista; (iii) the number of titles released to the system; and
(iv) the total number of Cassettes leased under the system. By fiscal year-end,
the number of Participating Retailers had grown 14 percent to 3,614 from 3,176 a
year earlier. As of March 31, 1995, there were 3,034 retailers located in the
United States and 580 located in Canada. Total revenue and the gross profit
margin are expected to grow at a modest rate over the next year.
In fiscal 1995, processing-fee revenue decreased to $1.1 million from $1.7
million in fiscal 1994, a decline of $0.6 million, or 33 percent. The decrease
was due to a reduction in the amount of processing fees charged.
During the year, handling-fee revenue rose to $18.1 million from $13.7 million
in fiscal 1994, an increase of $4.4 million, or 32 percent. Transaction-fee
revenue totaled $49.9 million, an increase of $8.9 million, or 22 percent, from
$41.0 million the previous year. Sell-through revenue was $8.9 million in
fiscal 1995 as compared to $5.7 million in fiscal 1994, an increase of $3.2
million, or 58 percent.
Royalty revenue from Rentrak Japan increased to $1.8 million during fiscal 1995.
There was no royalty revenue in the prior year. Included in fiscal 1995's
royalty revenue was a nonrecurring payment of $1.0 million.
Cost of sales in fiscal 1995 rose to $64.4 million from $49.2 million the prior
year, an increase of $15.2 million, or 31 percent. This change parallels the
change in total revenues. In fiscal 1995, the gross profit margin
10
<PAGE>
decreased to 19 percent from 21 percent the previous year. The decrease
reflects an increase in major motion picture studio product, which traditionally
has a lower gross margin.
Selling, general and administrative expenses were $12.5 million in fiscal 1995
compared to $10.8 million in fiscal 1994. This increase of $1.7 million, or 16
percent, was primarily due to continued efforts to assure system integrity and
the strengthening of the management team. In addition, the Company incurred
additional expense related to reserves on long-term investments and receivables.
As a percentage of total revenue, selling, general and administrative expenses
decreased to 16 percent at year-end from 17 percent the previous year.
Other income increased from $0.5 million in fiscal 1994 to $3.5 million for
fiscal 1995, an increase of $3.0 million. This increase was due to the sale of
certain investment securities held for sale for a gain of $2.8 million.
For the year ended March 31, 1995, Domestic PPT Operations recorded a pretax
profit of $6.4 million, or 8 percent of total revenue, compared to a pretax
profit of $2.5 million, or 4 percent of total revenue, in fiscal 1994.
PRO IMAGE, INC.
For the fiscal year ended February 28, 1995, Pro Image, Inc. ("TPI") recorded
total revenue of $26.4 million, a gross margin of $9.5 million (36 percent), and
a pretax profit of $0.1 million (less than 1 percent of revenue). Comparisons
to the fiscal year ended February 28, 1994, are not meaningful because of the
acquisition of Team Spirit, Inc. ("Team Spirit") in fiscal 1995. The Pro Image
results for fiscal 1995 include those for Team Spirit from September 1994
through February 1995.
TPI's net income for fiscal 1995 was negatively impacted by increased operating
expenses associated with advertising, market research, promotion and store
design expenses, as well as reserves for doubtful accounts and inventory. These
expenses, totaling approximately $2 million, are considered to be onetime
expenses that are not expected to be incurred in the coming year. In addition,
TPI recorded approximately $0.7 million in amortization of goodwill associated
with the acquisition of TPI and Team Spirit.
Management expects TPI's revenue to increase substantially in the coming fiscal
year due to the inclusion of Team Spirit for the entire year, revenue generated
from new company-owned Pro Image retail stores, and franchise fees generated
internationally. Revenues from domestic franchise fees and franchise royalties
are expected to be flat next year. Management expects the gross margin
percentage to increase due to a higher percentage of sales generated by company-
owned stores. Management also expects operating expenses to decrease as a
percentage of sales because overhead expenses should remain flat or decrease as
revenues and store operating expenses increase.
OTHER SUBSIDIARIES
Other Subsidiaries are comprised of a software development company and other
video retail and wholesale operations. Total revenue from Other Subsidiaries
increased to $6.0 million in fiscal 1995 from $2.8 million in fiscal 1994, an
increase of $3.2 million, or 113 percent.
Cost of sales was $2.2 million, an increase of $1.7 million (315 percent) over
the $0.5 million recorded in fiscal 1994.
Selling, general and administrative expenses increased to $4.5 million in fiscal
1995 from $2.9 million in fiscal 1994, an increase of $1.6 million, or 53
percent. As a percentage of total revenue, selling, general and administrative
expenses decreased to 74 percent at year-end from 103 percent a year earlier.
For the year ended March 31, 1995, Other Subsidiaries recorded a pretax loss of
$0.7 million, or 12 percent of total revenue. This compares with a pretax loss
of $0.6 million, or 21 percent of total revenue, in fiscal 1994.
11
<PAGE>
Changes in revenues, cost of sales, selling and administrative costs and pretax
losses were due to the start-up status of three of the entities, and to
expansion efforts by the other entities.
CONSOLIDATED BALANCE SHEET
At March 31, 1995, total assets were $64.8 million, an increase of $20.2 million
from the $44.6 million of a year earlier. A substantial portion of the increase
was due to the acquisition of Team Spirit, which added approximately $10 million
to total assets. Accounts receivable grew to $14.7 million at the end of fiscal
1995 from $9.4 million at the end of fiscal 1994, a $5.3 million increase. Most
of this increase was due to a rise in domestic PPT revenue levels. Inventory at
year-end equaled $6.3 million, up $5.5 million from $0.8 million at the end of
fiscal 1994. Of this increase, approximately $3.6 million was related to the
Team Spirit acquisition, and the rest was due to the opening of additional TPI
company stores. As of March 31, 1995, property and equipment had increased $2.1
million to $4.9 million from $2.8 million a year earlier. Of this increase,
approximately $2.1 million was related to the Team Spirit acquisition. At year-
end, intangibles had risen to $11.0 million from $6.8 million at the end of
fiscal year 1994, an increase of $4.2 million. Most of this amount was related
to the acquisitions made by TPI. All warrants which the Company issued in
fiscal 1995, have been valued by an outside valuation firm using standard
warrant valuation models. The value of the warrants of $3.5 million has been
recorded in the equity section and will be amortized over the associated periods
to be benefited by each group of warrants. For fiscal 1995, expense associated
with the warrants is $0.5 million.
FISCAL 1994 COMPARED TO
FISCAL 1993
DOMESTIC PPT OPERATIONS
For the year ended March 31, 1994, total revenue from Domestic PPT Operations
rose to $62.0 million from $52.8 million in the prior year, an advance of $9.2
million, or 17 percent.
The increase in total revenue and the increases described in the following
paragraphs were primarily due to the growth in (i) the number of Participating
Retailers; (ii) the number of Program Suppliers, primarily Twentieth Century Fox
Home Entertainment (formerly FoxVideo); (iii) the number of titles released to
the system; and (iv) the total number of Cassettes leased under the system. In
fiscal 1994, the number of Participating Retailers grew to 3,176 from 2,737 the
prior year, for a 16 percent increase. As of March 31, 1994, there were 2,768
retailers located in the United States and 408 located in Canada.
For the year, processing-fee revenue decreased to $1.7 million from $2.3 million
in fiscal 1993, a decline of $0.6 million, or 28 percent. The decrease was due
to a reduction in the amount of processing fees charged.
Handling-fee revenue rose to $13.7 million from $12.2 million in fiscal 1993, an
increase of $1.5 million, or 13 percent. Transaction-fee revenue increased to
$41.0 million from $33.4 million the previous year, a $7.6 million or 23 percent
improvement. Sell-through revenue grew to $5.7 million from $5.0 million in
fiscal 1993, an increase of $0.7 million, or 14 percent.
Cost of sales for fiscal 1994 increased to $49.2 million from $40.8 million the
prior year, an increase of $8.4 million, or 21 percent. This change paralleled
the change in total revenues. The gross profit margin decreased to 21 percent
from 23 percent the previous year. The decrease in the gross profit margin
reflects an increase in major motion picture studio product, which traditionally
has a lower gross margin.
12
<PAGE>
Selling, general and administrative expenses decreased by $0.7 million, or 6
percent, to $10.8 million in fiscal 1994 from $11.5 million in fiscal 1993. The
decrease was primarily due to a company-wide effort to control and reduce
corporate operating costs. As a percentage of total revenue, selling, general
and administrative expenses decreased to 17 percent from 22 percent in fiscal
1993.
For the year ended March 31, 1994, Domestic PPT Operations recorded a pretax
profit of $2.5 million, or 4 percent of total revenue, as compared to a pretax
profit of $1.1 million, or 2 percent of total revenue, in fiscal 1993.
INTERNATIONAL OPERATIONS
For the year ended March 31, 1994, total revenue from International Operations
decreased to $0.1 million from $0.2 million the prior year, a decline of $0.1
million, or 42 percent. The decline was due to the closure of a portion of the
retail locations. Cost of sales dropped to $0.2 million from $0.5 million in
fiscal 1993, a decrease of $0.3 million, or 64 percent. Selling, general and
administrative expenses in fiscal 1994 increased $0.3 million, or 13 percent, to
$2.3 million from $2.0 million in fiscal 1993.
At year-end, International Operations recorded a pretax loss of $2.3 million, as
compared to a pretax loss of $1.7 million in fiscal 1993.
The Company has suspended its efforts to establish a subsidiary in German
speaking Europe. As a result of this decision, in fiscal 1994 the Company took
a charge of approximately $2.4 million to write down the value of the related
assets and to account for operating costs and costs to suspend operations. This
decision stems from the difficulties the Company had in getting sufficient
product flow commitments from Program Suppliers.
THE PRO IMAGE, INC.
For the four and one-half months ended February 28, 1994, TPI recorded total
revenues of $4.0 million, cost of sales of $2.2 million, selling and
administrative expenses of $1.3 million, and a net profit of $0.4 million, or 10
percent of total revenue. The Company acquired TPI on October 15, 1993, and
therefore did not have operating results from the TPI business for the year
ended March 31, 1993.
OTHER SUBSIDIARIES
Other Subsidiaries are comprised of a software development company and other
video retail and wholesale operations. For fiscal 1994, total revenue from
Other Subsidiaries increased to $2.8 million from $1.3 million in fiscal 1993,
an increase of $1.5 million, or 119 percent.
In fiscal 1994, cost of sales increased 2,591 percent to $0.5 million from $0.02
million in fiscal 1993.
Selling, general and administrative expenses increased by $1.3 million, or 86
percent, to $2.9 million in fiscal 1994 from $1.6 million in fiscal 1993. As a
percentage of total revenue, selling, general and administrative expenses
decreased to 103 percent in fiscal 1994 from 122 percent in the prior year.
For the year ended March 31, 1994, Other Subsidiaries recorded a pretax loss of
$0.6 million, or 21 percent of total revenue, as compared to a pretax loss of
$0.3 million, or 25 percent of total revenue, in fiscal 1993. Changes in
revenues, cost of sales, selling and administrative costs and pretax losses were
due to the start-up status of three of the entities, and to expansion efforts by
the other entities.
CONSOLIDATED BALANCE SHEET
For the year ended March 31, 1994, total assets increased to $44.6 million from
$34.8
13
<PAGE>
million in the prior year, an increase of $9.8 million. The increase was
primarily due to the acquisition of TPI.
The write-off of European assets amounted to $0.8 million, which included $0.06
million in accounts receivable, $0.09 million in other current assets, $0.5
million in property and equipment, and $0.09 million in other long-term assets.
In addition to the $0.8 million write-down of assets during fiscal 1994, the
Company incurred $1.4 million in European operating costs and $0.1 million in
cash expenditures to finalize operations. Most of the $2.3 million in losses
related to European operations in fiscal 1994 was funded through a stock
offering in 1991.
At year-end, intangibles had increased to $7.0 million from $1.2 million in
fiscal 1993. The increase was due to goodwill arising from the acquisition of
TPI. Other assets increased to $3.6 million from $2.2 million in the prior
year, a $1.4 million change. The change was primarily due to an increase of
$0.5 million in long-term Program Supplier advances and a $1.0 million increase
in a long-term-occupancy security deposit for a domestic subsidiary. The
increase in the Program Supplier advances was primarily due to the Company's
entering into new agreements that had a longer term than in the past.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1995, the Company had cash and other liquid investments of $10.7
million, compared to $16.2 million at March 31, 1994. At year-end, the
Company's current ratio (current assets/current liabilities) declined to 1.53
from 2.07 a year earlier. This decline was primarily due to the expenditures of
cash to fund the Retailer Financing Program.
The Company has an agreement with a financial institution for a line of credit
in the amount of $7.5 million. The agreement expires on July 25, 1995. Under
this agreement, the Company is required to maintain average compensating
balances of $1.5 million in its checking and money accounts. Interest is
payable monthly at a rate that varies in relation to the bank's prime rate. The
lender has been granted a warrant to purchase 10,000 unregistered shares of
common stock of the Company at $7 per share, which exceeded market value at the
date of grant. The line of credit is secured by substantially all of the
Company's assets, excluding TPI's. The terms of the agreement require, among
other things, a minimum amount of tangible net worth, minimum current ratio and
minimum ratio of total liabilities to tangible net worth. The agreement also
restricts the amount of net losses, loans and indebtedness and limits the
payment of dividends on the Company's stock. There were no borrowings under the
line of credit as of March 31, 1995.
In April 1994, TPI entered into a $2.0 million line-of-credit arrangement with a
financial institution. Interest on borrowings under this credit agreement
accrue at the bank's prime rate. Borrowings are collateralized by the Company's
accounts receivable and inventory, and require monthly payments of principal
plus accrued interest. In January 1995, the available borrowing under this
agreement was increased to the lesser of $4.0 million or the amount of the
borrowing base as defined in the agreement. Interest under the revised
agreement is accrued at the bank's prime rate plus 0.5 percent. There were no
borrowings under the credit agreement at February 28, 1995. The credit
agreement expires on July 31, 1995.
In December 1989, the Company entered into a definitive agreement with Culture
Convenience Club Co., Ltd. (CCC)-Rentrak's joint-venture partner in Rentrak
Japan-to develop Rentrak's PPT distribution and information processing business
in certain markets throughout the world. On June 16, 1994, the Company and CCC
entered into a Second Amendment to Business Cooperation Agreement. Pursuant to
this agreement, the Company will
14
<PAGE>
receive a royalty of 1.67 percent for all sales up to $47.9 million plus 0.5
percent of sales greater than $47.9 million in each fiscal year. In addition,
the Company will receive a onetime royalty of $2.0 million payable $1.0 million
in fiscal 1995 and $1.0 million no later than March 31, 1999. The payment for
fiscal 1995 has been received. Rentrak Japan received additional territories in
which to market PPT. In addition, the Company sold 34 shares of Rentrak Japan
to CCC for 6.8 million Yen ($68,068), reducing the Company's ownership in
Rentrak Japan to 25 percent from 33 1/3 percent. The term of the agreement was
extended from the year 2001 to the year 2039.
On July 22, 1994, the Company entered into a long-term distribution agreement
with Buena Vista Pictures Distribution ("Buena Vista"). Under the terms of the
agreement, substantially all rental-priced theatrical and nontheatrical titles
offered under Buena Vista's various labels will be offered to retailers on the
PPT system. The agreement is for a five-year term with a five-year renewal
option on the part of Buena Vista, and was effective with Buena Vista's
September titles. In connection with the agreement, The Walt Disney Company has
received warrants from Rentrak to purchase up to 2,673,500 shares of Rentrak
common stock at an exercise price of $7.13 per share subject to the meeting of
certain conditions.
In connection with the signing of Buena Vista, the Company issued a warrant to
Twentieth Century Fox Home Entertainment (formerly FoxVideo) to acquire 423,750
shares of Rentrak common stock at an exercise price of $7.13.
In August 1994, the Company acquired all of the outstanding stock of Team
Spirit. Team Spirit operates 39 licensed sports apparel stores in 15 states,
most of which are in the Midwest. Simultaneously with the acquisition, Rentrak
transferred all of the assets of Team Spirit to TPI, and Team Spirit became a
wholly owned subsidiary of TPI. The net purchase price was approximately $4.4
million and was paid via issuance of approximately 557,000 shares of common
stock. At the time of purchase, Team Spirit had approximately $4 million in
outstanding bank debt which was immediately paid by the Company.
In October 1994, the Company acquired all of the outstanding stock of Image
Makers, Inc. and Barenz-Runia, Inc. These companies were franchisees of TPI and
operated seven stores in the Pacific Northwest. Simultaneously with the
acquisition, the net assets of the combined companies were transferred to TPI.
The combined net purchase price was approximately $0.7 million and was paid by
issuance of approximately 82,000 shares of common stock.
The Company intends to continue to expand its licensed sport apparel business
through further acquisitions, through sales of new franchises and through the
opening of new corporate stores. Working capital needed to fund the increased
inventory and fixed assets associated with the increase in company-owned stores
is expected to be provided by existing bank credit agreements. The Company
intends to pay the purchase price for any such acquisitions in cash, shares of
the Company's common stock or other securities, or a combination thereof.
The Company has established a retailer financing program whereby the Company
will provide, on a selective basis, financing to video retailers who the Company
believes have demonstrated the probability of substantial growth in the
industry. In connection with these financings, the Company typically makes a
loan to and/or an equity investment in the retailer. In some cases, a warrant
to purchase stock may be obtained. As part of such financing, the retailer
typically agrees to cause all of its current and future retail locations to
participate in the PPT system for a designated period of time. These financings
are speculative in nature and involve a high degree of risk, and no assurance of
a satisfactory return on investment can be given. The failure of certain of
these investments could have a material adverse impact on the Company's results
of operations and financial position. The Board of Directors has authorized up
to $14 million to be used in connection with the Company's retailer financing
program. As of May 1995, the Company has invested in, or made commitments to
loan to or invest in, various video retailers in amounts representing
15
<PAGE>
substantially all of the $14 million authorized. The loans, investments or
commitments are to various retailers and individually range from $0.2 million to
$3.0 million. As the financings are made, and periodically throughout the terms
of the agreements, the Company assesses the likelihood of recoverability of the
amounts invested or loaned based on the financial position of each retailer. As
of March 31, 1995, the Company has invested or loaned approximately $9.2 million
under the program. Because of the financial condition of a number of these
retailers, the Company has reserved approximately $3.2 million of the original
loan or investment amount.
The Company is currently either negotiating extensions of its existing credit
facilities or negotiating new credit facilities with its existing financial
institutions. The Company is also considering the placement of long-term debt
or the issuance of additional securities in the public market. No assurance can
be given that any of the credit facilities will be extended or new ones obtained
or that the Company will be able to issue either long-term debt or additional
securities on terms acceptable to the Company.
Subject to the foregoing, the Company believes its existing cash, cash generated
from operations and available credit facilities (assuming such facilities are
extended or new ones obtained) will be sufficient to meet its cash requirements
for at least the next 12 months.
16
<PAGE>
RENTRAK CORPORATION AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
FOR THE YEARS ENDED MARCH 31, 1995, 1994 AND 1993
-------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
REVENUES (Note 1):
<S> <C> <C> <C>
PPT $ 79,793,584 $62,005,968 $52,847,386
Sports apparel 26,363,211 3,950,705 -
Other 6,009,436 2,939,814 1,487,480
------------ ----------- -----------
112,166,231 68,896,487 54,334,866
------------ ----------- -----------
OPERATING COSTS AND EXPENSES:
Cost of sales (Note 1) 83,533,328 52,161,827 41,298,567
Selling and administrative 26,183,434 16,392,635 15,054,151
Suspension of European operations
(Note 11) - 900,563 -
------------ ----------- -----------
109,716,762 69,455,025 56,352,718
------------ ----------- -----------
Income (loss) from operations 2,449,469 (558,538) (2,017,853)
------------ ----------- -----------
OTHER INCOME (EXPENSE):
Interest income 600,415 579,222 559,787
Interest expense (35,979) (3,905) (60,828)
Gain on sale of investments 2,826,849 - -
Other - (98,551) -
------------ ----------- -----------
3,391,285 476,766 498,959
------------ ----------- -----------
Income (loss) before income tax provision (benefit),
minority partner interests and extraordinary item
5,840,754 (81,772) (1,518,894)
INCOME TAX (PROVISION) BENEFIT (Note 6) (727,231) 763,919 (304,813)
------------ ----------- -----------
Income (loss) before minority partner interests and
extraordinary item
5,113,523 682,147 (1,823,707)
LOSSES ATTRIBUTABLE TO MINORITY PARTNER
INTERESTS (Note 1) - 130,918 648,833
------------ ----------- -----------
Income (loss) before
extraordinary item 5,113,523 813,065 (1,174,874)
EXTRAORDINARY ITEM, income tax benefit from carryforward of net
operating losses (Note 6)
- - 279,813
------------ ----------- -----------
Net income (loss) $ 5,113,523 $ 813,065 $ (895,061)
============ =========== ===========
</TABLE>
(continued)
<PAGE>
RENTRAK CORPORATION AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
-------------------------------------------------
FOR THE YEARS ENDED MARCH 31, 1995, 1994 AND 1993
-------------------------------------------------
NET INCOME (LOSS) PER SHARE (Note 1)
------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
EARNINGS PER COMMON SHARE AND COMMON
EQUIVALENT SHARE:
<S> <C> <C> <C>
Income (loss) before extraordinary item $ .41 $ .08 $ (.13)
Extraordinary item - - .03
----------- ----------- -----------
Net income (loss) per share $ .41 $ .08 $ (.10)
=========== =========== ===========
EARNINGS PER COMMON SHARE AND COMMON EQUIVALENT SHARE - assuming
issuance of all dilutive contingent shares:
Income (loss) before extraordinary item $ .40 $ .08 $ (.13)
Extraordinary item - - .03
----------- ----------- -----------
Net income (loss) per share $ .40 $ .08 $ (.10)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
RENTRAK CORPORATION AND SUBSIDIARIES
------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
AS OF MARCH 31, 1995 AND 1994
-----------------------------
<TABLE>
<CAPTION>
A S S E T S
-----------
1995 1994
CURRENT ASSETS: ------------ ------------
<S> <C> <C>
Cash and cash equivalents $10,709,405 $13,815,718
Investment securities available for sale (Notes 1
and 2) - 2,387,500
Accounts receivable, net of allowance for doubtful
accounts of $642,580 and $1,224,966 14,711,439 9,352,306
Advances to program suppliers (Note 8) 2,683,710 3,915,358
Inventory (Note 1) 6,291,032 819,850
Deferred tax asset (Note 6) 915,404 -
Other current assets 2,112,021 961,903
----------- -----------
Total current assets 37,423,011 31,252,635
----------- -----------
PROPERTY AND EQUIPMENT, net (Notes 1 and 3) 4,924,122 2,796,730
INTANGIBLES, net of accumulated amortization of $3,472,783 and $2,235,454 (Note 1)
11,011,121 6,750,109
NOTES RECEIVABLE, net (Note 4) 3,035,787 -
OTHER INVESTMENTS, net (Note 4) 2,919,919 -
DEFERRED TAX ASSET (Note 6) 1,926,673 -
OTHER ASSETS 3,577,035 3,820,971
----------- -----------
$64,817,668 $44,620,445
=========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable $17,799,146 $10,707,701
Accrued liabilities 3,301,513 3,659,800
Accrued compensation 2,016,820 730,291
Deferred revenue (Note 1) 1,408,076 -
----------- -----------
Total current liabilities 24,525,555 15,097,792
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 8 and 9)
STOCKHOLDERS' EQUITY (Notes 5, 7 and 10):
Preferred stock, $.001 par value; Authorized:
10,000,000 shares - -
Common stock, $.001 par value; Authorized: 30,000,000 and 20,000,000 shares in 1995 and
1994, respectively; Issued and outstanding: 11,277,246 shares in 1995 and 10,224,057
shares in 1994 11,277 10,224
Capital in excess of par value 44,598,939 34,272,263
Net unrealized gain (loss) on investment securities (170,747) 1,434,182
Accumulated deficit (1,080,493) (6,194,016)
Less- Deferred charge - warrants (3,066,863) -
----------- -----------
40,292,113 29,522,653
----------- -----------
$64,817,668 $44,620,445
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE>
RENTRAK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Common Stock
------------------- Capital in
Number of Excess of
Shares Amount Warrants Par Value
---------- -------- ----------- ------------
<S> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1992 9,032,837 $ 9,033 $ - $27,500,526
Issuance of common stock 318,379 318 - 1,980,744
Issuance of common stock under
employee stock option plan 123,678 124 - 154,495
Issuance of warrants - - 1,300,000 -
Warrant subscription receivable - - (1,300,000) -
Net loss - - - -
Cumulative translation adjustment - - - -
---------- ------- ----------- -----------
BALANCE AT MARCH 31, 1993 9,474,894 9,475 - 29,635,765
Repurchase of common stock (83,963) (84) - (444,544)
Issuance of common stock for
acquisition 776,280 776 - 4,957,828
Issuance of common stock under
employee stock option plan 56,846 57 - 123,214
Net income - - -
Cumulative translation adjustment - - - -
Net unrealized gain on investment
securities - - - -
---------- ------- ----------- -----------
BALANCE AT MARCH 31, 1994 10,224,057 10,224 - 34,272,263
Repurchase of common stock (38,300) (38) - (189,512)
Issuance of common stock 364,445 364 - 1,549,257
Issuance of common stock for
acquisitions 639,561 640 - 5,110,526
Issuance of common stock under
employee stock option plan 87,483 87 - 322,428
Net income - - - -
Change in net unrealized gains
(losses) on investment securities - - - -
Issuance of warrants - - (3,533,977) 3,533,977
Amortization of warrants - - 467,114 -
---------- ------- ----------- -----------
BALANCE AT MARCH 31, 1995 11,277,246 $11,277 $(3,066,863) $44,598,939
========== ======= =========== ===========
(Accumulated Net Unrealized
Deficit) Cumulative Gains (Losses)
Retained Translation on Investment
Earnings Adjustment Securities Total
------------ ------------ -------------- ------------
<S> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1992 $(6,112,020) $ - $ - $21,397,539
Issuance of common stock - - - 1,981,062
Issuance of common stock under
employee stock option plan - - - 154,619
Issuance of warrants - - - 1,300,000
Warrant subscription receivable - - - (1,300,000)
Net loss (895,061) - - (895,061)
Cumulative translation adjustment - 83,866 - 83,866
----------- -------- ----------- -----------
BALANCE AT MARCH 31, 1993 (7,007,081) 83,866 - 22,722,025
Repurchase of common stock - - - (444,628)
Issuance of common stock for
acquisition - - - 4,958,604
Issuance of common stock under
employee stock option plan - - - 123,271
Net income 813,065 - - 813,065
Cumulative translation adjustment - (83,866) - (83,866)
Net unrealized gain on investment
securities - - 1,434,182 1,434,182
----------- -------- ----------- -----------
BALANCE AT MARCH 31, 1994 (6,194,016) - 1,434,182 29,522,653
Repurchase of common stock - - - (189,550)
Issuance of common stock - - - 1,549,621
Issuance of common stock for
acquisitions - - - 5,111,166
Issuance of common stock under
employee stock option plan - - - 322,515
Net income 5,113,523 - - 5,113,523
Change in net unrealized gains
(losses) on investment securities - - (1,604,929) (1,604,929)
Issuance of warrants - - - -
Amortization of warrants - - - 467,114
----------- -------- ----------- -----------
BALANCE AT MARCH 31, 1995 $(1,080,493) $ - $ (170,747) $40,292,113
=========== ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
RENTRAK CORPORATION AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE YEARS ENDED MARCH 31, 1995, 1994 AND 1993
-------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) $ 5,113,523 $ 813,065 $ (895,061)
Adjustments to reconcile net income
(loss) to net cash provided (used) by
operations-
Gain on investment sales (2,826,849) - -
Depreciation 1,441,872 769,748 422,882
Amortization of intangibles 1,242,564 678,588 889,157
Amortization of warrants 467,114 - -
Provision for doubtful accounts (582,386) (43,160) 366,568
Retailer financing program reserves 2,974,912 - -
Studio advance reserves 572,300 - -
Losses attributable to minority
partner interests - (130,918) (648,833)
Loss on asset sales - 893,116 -
Deferred income taxes (2,737,426) - -
Cumulative translation adjustments - (83,866) -
Change in specific accounts, net of
effects in 1995 and 1994 from
purchase of businesses:
Accounts receivable (4,726,871) 796,241 (3,725,418)
Inventories (1,490,480) - -
Advances to program suppliers 659,348 (1,278,411) (690,472)
Other current assets (1,244,614) (958,020) (397,527)
Accounts payable 4,746,922 (641,559) 5,241,300
Accrued liabilities and
compensation 1,420,639 1,117,287 612,823
Deferred revenue 1,408,076 - -
------------ ------------ ------------
Net cash provided by operating
activities 6,438,644 1,932,111 1,175,419
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,273,080) (1,758,893) (1,576,044)
Investments in retailer financing
program (8,930,618) - -
Cash paid for purchases of businesses,
net of cash acquired - (1,342,352) -
Purchases of other assets 309,849 (1,198,989) (870,749)
Purchases of investments (4,400,253) (8,271,811) (41,861,363)
Maturities of investments 4,400,253 19,596,118 30,537,056
Proceeds from sale of investment 2,836,849 - -
Purchase of intangibles (782,620) (229,997) (476,337)
------------ ------------ ------------
Net cash provided (used) by
investing activities (7,839,620) 6,794,076 (14,247,437)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of debt assumed in acquisition $ (3,259,724) $ - $ (18,304)
Cash received from minority partner - 50,000 729,751
Repurchase of common stock (189,550) (444,628) -
Issuance of common stock 1,743,937 123,271 2,085,681
------------ ------------ ------------
Net cash provided (used) by
financing activities (1,705,337) (271,357) 2,797,128
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(3,106,313) 8,454,830 (10,274,890)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
13,815,718 5,360,888 15,635,778
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 10,709,405 $ 13,815,718 $ 5,360,888
============ ============ ============
</TABLE>
(continued)
<PAGE>
RENTRAK CORPORATION AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
-------------------------------------------------
FOR THE YEARS ENDED MARCH 31, 1995, 1994 AND 1993
-------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
<S> <C> <C> <C>
Cash paid during the year for-
Interest $ 35,979 $ 3,905 $ 3,939
Income taxes 3,288,189 62,127 31,029
NONCASH FINANCING AND INVESTING ACTIVITIES:
Issuance of warrants 3,533,977 - -
Addition to other assets through
issuance of common stock 128,199 - -
Addition to licensing agreements
through issuance of common stock - - 50,000
Acquisition of businesses through
issuance of stock 5,111,166 5,542,639 -
Purchase of other assets through
credits to accounts receivable - - 360,000
Increase (decrease) in net unrealized
gains (losses) on investment
securities through adjustments to
stockholders' equity (1,604,929) 1,434,182 -
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
RENTRAK CORPORATION AND SUBSIDIARIES
------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
MARCH 31, 1995, 1994 AND 1993
-----------------------------
1. BUSINESS OF THE COMPANIES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Rentrak Corporation (the Company) (an Oregon corporation) is principally engaged
in the distribution of prerecorded video cassettes to the home video market
throughout the United States and Canada using its Pay-Per-Transaction (PPT)
revenue sharing program.
In December 1989, the Company entered into a definitive agreement with Culture
Convenience Club Co., Ltd. (CCC), Rentrak's joint venture partner in Rentrak
Japan, to develop Rentrak's PPT distribution and information processing business
in certain markets throughout the world. On June 16, 1994, the Company and CCC
amended the agreement. Pursuant to this amendment, the Company will receive a
royalty of 1.67 percent for all sales of up to $47,905,000, plus one-half of 1
percent (0.5%) of sales greater than $47,905,000 in each fiscal year. In
addition, the Company received a one-time royalty of $2 million payable $1
million in fiscal 1995, which has been received; and $1 million no later than
March 31, 1999. The payment of $1 million due on March 31, 1999 has not been
recognized as revenue by the Company due to uncertainty of collection. Rentrak
Japan will receive additional territories to market PPT. In addition, the
Company sold 34 shares of Rentrak Japan to CCC for 6,800,000 Yen ($68,068),
reducing the Company's ownership in Rentrak Japan from 33-1/3 percent to 25
percent. The term of the Agreement was extended from the year 2001 to the year
2039.
In the fall of 1992, the Company initiated efforts to globalize its PPT
operations by entering the European market. The Company, with its partner in
Rentrak Japan, formed two jointly owned European corporations, Rentrak Europe
and Videotheken Management. Rentrak Europe's purpose was to market PPT in Europe
and was owned by the Company and by the Japanese partner. The Company was the
majority shareholder. Videotheken Management's purpose was to develop video
outlets in the German market and was owned by the Company and by the Japanese
partner. The Company was the controlling shareholder. Rentrak Europe and
Videotheken Management ceased operations during the quarter ended September 30,
1993, and the rights to the corporations were subsequently sold in the quarter
ended December 31, 1993. The decision to cease operations stems from the
difficulties the Company had in getting sufficient product flow commitments from
program suppliers. However, in the future, the Company may explore opportunities
to expand its PPT market in Europe as well as other foreign countries.
Minority interest represents the minority shareholders' proportionate share of
the equity of certain ventures. The minority shareholders' proportionate share
of losses in excess of their equity in the entities is recorded in the Company's
accompanying statement of operations. The Company is currently negotiating the
sale of its ownership in the remaining entity to the minority partner.
<PAGE>
-2-
On October 15, 1993, the Company acquired all of the outstanding shares of
common stock of The Pro Image Inc., a Utah corporation (TPI), pursuant to the
Stock Purchase Agreement by and among the Company, TPI and the shareholders of
TPI. As of March 31, 1995, TPI franchised approximately 175 retail outlets in 45
states, Canada, Germany, Mexico and Japan. Including Team Spirit, which was
acquired during the year, as discussed below, TPI also operates 54 company-owned
retail stores in 19 states throughout the country. These stores sell
sports-oriented products and apparel featuring products licensed by college and
professional sports teams.
In August 1994, the Company acquired all of the outstanding stock of Team
Spirit, Inc. (Team Spirit) for a net purchase price of approximately $4.4
million, with payment made through the issuance of approximately 557,000 shares
of Rentrak Common Stock (see Note 12). Team Spirit operates 39 stores in 15
states, including Nebraska, Illinois, Michigan, Iowa, Minnesota, Missouri and
Kansas, which sell licensed sports apparel and gifts. Simultaneous with the
acquisition, Rentrak transferred all of the assets of Team Spirit to TPI and
Team Spirit became a wholly owned subsidiary of TPI.
In October 1994, the Company acquired all of the outstanding stock of Image
Makers, Inc. and Barenz-Runia, Inc. (see Note 12). These companies were
franchisees of TPI and operated seven stores in the Pacific Northwest.
Simultaneous with the acquisition, the net assets of the combined companies were
contributed to TPI. The combined purchase price was approximately $686,000 and
was paid by issuing approximately 82,000 shares of the Company's common stock.
The above acquisitions were accounted for as purchases and the results of
operations are included in the accompanying consolidated statement of operations
from the date of acquisition.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company, its
majority owned subsidiaries, and those subsidiaries in which the Company has a
controlling interest after elimination of all intercompany accounts and
transactions. Investments in affiliated companies owned 20 to 50 percent are
accounted for by the equity method.
TPI and Team Spirit's year-ends are February 28. As there are no intervening
events which materially affect the financial position or results of operations,
the consolidated financial statements include TPI's balance sheet as of February
28, 1995 and 1994 and the statements of operations, stockholder's equity and
cash flows for the 12-month period and 4-1/2 month period ending February 28,
1995 and 1994, respectively. Team Spirit's balance sheet as of February 28, 1995
and the statements of operations, stockholder's equity and cash flows for the
six-month period ending February 28, 1995 are included in the consolidated
financial statements.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.
<PAGE>
-3-
INVESTMENT SECURITIES
Effective March 31, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115 (SFAS 115), "Accounting for Certain Investments in Debt and
Equity Securities," which changed the accounting for certain debt and equity
securities. In accordance with SFAS 115, securities are classified as available
for sale.
Securities, classified as available for sale, are shown at market with an
adjustment to stockholders' equity to reflect net unrealized gains and losses,
net of tax.
INVENTORY
Inventory consists primarily of sports apparel and related finished goods
merchandise. Inventory is carried at the lower of cost (first-in, first-out
method) or market value.
PROPERTY AND EQUIPMENT
Depreciation of fixed assets, other than movie tapes, is computed on the
straight-line method over estimated useful lives of three to five years. Movie
tapes are depreciated ratably over their expected related revenue stream.
Leasehold improvements are amortized over the lives of the underlying leases or
the service lives of the improvements, whichever is shorter.
INTANGIBLES
During fiscal years 1995, 1994 and 1993, the Company paid cash and issued stock
for approximately $11,000, $206,000 and $883,000, respectively, for licensing
agreements with product and service suppliers. These agreements are being
amortized on the straight-line method over one to ten years.
In connection with the acquisition of TPI, the Company purchased certain
intangible assets totaling $6,269,050. These assets include customer and dealer
lists, a covenant not to compete, franchise agreements and goodwill. These
assets are being amortized on the straight-line method over a 12-year period.
In connection with the acquisitions of Team Spirit and then Image Makers, Inc.
and Barenz-Runia, Inc., the Company purchased goodwill totaling approximately
$4.1 million and $557,000, respectively The goodwill will be amortized on the
straight-line method over a 15-year period.
The Company believes the above useful lives are appropriate based on the factors
influencing acquisition decisions. These factors include store location,
profitability and general industry outlook. The Company reviews its intangible
assets for asset impairment at the end of each quarter, or more frequently when
events or changes in circumstances indicate that the carrying amount of
intangibles may not be recoverable. To perform that review, the Company
estimates the sum of expected future undiscounted preinterest expense net cash
flows from the operating activities. If the estimated net cash flows are less
than the carrying amount of intangibles, the Company will recognize an
impairment loss in an amount necessary to write down intangibles to a fair value
as determined from expected discounted future cash flows.
<PAGE>
-4-
REVENUE RECOGNITION
Under its PPT program, the Company enters into contracts to distribute video
cassettes leased by retailers from video program suppliers (producers of motion
pictures and licensees and distributors of home video cassettes), for a
percentage of the fees charged to the retailers. The lease agreements provide
for a one-time initial handling fee and continuing transaction fees based on a
percentage of rental revenues earned by the retailer upon renting the video
cassettes to their customers. The Company recognizes handling fees as revenue
when the video cassettes are shipped to the retailers and recognizes transaction
fees when the video cassettes are rented to the consumers. When the Company's
revenue is fixed and determinable at time of shipment of video cassettes to the
retailers, deferred revenue is recorded and recognized as revenue in the
statement of operations when the video cassettes are rented to the consumers.
The corresponding liability to video program suppliers for their share of the
fees is recorded to cost of sales when the revenue is recognized with a
corresponding amount to accounts receivable. The Company also charges retailers
a processing fee upon admission to the PPT program. This fee is recognized as
PPT revenue when the application to participate in the PPT program is approved.
Stockholders and directors, or their families, own interests in several stores
participating in the PPT program. The Company realized revenues from these
stores of $426,102, $422,053 and $474,073 during 1995, 1994 and 1993,
respectively.
TPI is entitled to a royalty of up to 4 percent of gross sales generated by
franchise retail stores. TPI recognizes royalty fee revenues in the period sales
are made by the franchise retail stores. TPI recognizes initial franchise fees
from franchise sales as revenue when the services or conditions relating to the
sale are performed or satisfied. TPI defers the portion of the initial franchise
fee related to an obligation to perform future training services for the
franchisee. This deferred franchise fee is recorded as revenue at the time the
training is completed or the obligation expires.
INCOME TAXES
Effective April 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS 109). Under the liability
method specified by SFAS 109, deferred tax assets and liabilities are determined
based on the temporary differences between the financial statement basis and tax
basis of assets and liabilities as measured by the enacted tax rates for the
years in which the taxes are expected to be paid. Prior to April 1, 1993, the
Company accounted for income taxes in accordance with Accounting Principles
Board Opinion No. 11. As permitted by SFAS 109, prior period financial
statements have not been restated.
NET INCOME (LOSS) PER SHARE
At March 31, 1995, primary earnings per share are based on the weighted average
number of shares outstanding and the assumed exercise of common stock equivalent
options and warrants regardless of whether the market price of the common stock
exceeded the exercise price of the options and warrants. The number of treasury
shares assumed to be purchased with the proceeds from the exercise of the
options and warrants was limited to 20 percent of the outstanding shares at
period-end. Those purchases were assumed to have been made at the average market
price of the Company's common stock during the year. Proceeds from exercise of
the options and warrants in excess of those used to purchase treasury shares
were assumed to have been invested in government securities with the resultant
interest income, adjusted
<PAGE>
-5-
for appropriate tax effects, added to net income for purposes of calculating
earnings per share. For the 1995 primary earnings per share calculation,
13,397,951 common shares and common share equivalents were assumed outstanding
and $394,249 of assumed interest income, net of tax, was added to the Company's
net income for purposes of computing earnings per share.
Fully diluted earnings per share at March 31, 1995 are based on the weighted
average number of shares outstanding and the assumed exercise of common stock
equivalent options and warrants regardless of whether the market price of the
common stock exceeded the exercise price of the options and warrants. In
addition, contingent warrants were assumed to have been exercised. The number of
treasury shares assumed to be purchased with the proceeds from the exercise of
the options and warrants was limited to 20 percent of the outstanding shares at
period-end. Those purchases were assumed to have been made at the greater of the
average or ending market price of the Company's common stock during the year.
Proceeds from exercise of the options and warrants in excess of those used to
purchase treasury shares were assumed to have been invested in government
securities with the resultant interest income, adjusted for appropriate tax
effects, to be added to net income for purposes of calculating earnings per
share. For the 1995 fully diluted earnings per share calculation, 14,317,380
common shares and common share equivalents were assumed outstanding and $582,494
of assumed interest income, net of tax, was added to the Company's net income
for purposes of computing earnings per share.
Earnings per common share and common equivalent share for 1994 were computed by
dividing net income by the weighted average number of shares of common stock and
common stock equivalents outstanding during the year. The number of common
shares was increased by the number of shares issuable on the exercise of options
and warrants when the market price of the common stock exceeded the exercise
price of the options and warrants. This increase in the number of common shares
was reduced by the number of common shares that are assumed to have been
repurchased with the proceeds from the exercise of the options and warrants.
Those repurchases were assumed to have been made at the average price of the
common stock during the year. Weighted average shares outstanding used in both
the primary and fully diluted earnings per share calculation are 10,162,461.
Loss per common share and common equivalent share for 1993 was computed based
only on the weighted average number of shares of common stock actually
outstanding, which was 9,305,950.
FOREIGN OPERATIONS
Foreign currency assets and liabilities are translated into U.S. dollars at the
exchange rates in effect at the balance sheet date. Results of operations are
translated at average exchange rates during the period for revenue and expenses.
Translation gains and losses resulting from fluctuations in the exchange rates
are accumulated as a separate component of stockholders' equity. Translation
gains or losses were not material for any period presented.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform with current year presentation.
<PAGE>
-6-
2. INVESTMENT SECURITIES:
The carrying value and estimated fair value of securities at March 31 were as
follows:
<TABLE>
<CAPTION>
Unrealized Unrealized
Cost Gross Gain Gross Loss Fair Value
--------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
As of March 31, 1995:
Available for sale-
Noncurrent:
Corporate securities $389,065 $ - $(275,398) $ 113,667
======== ========== ========= ==========
As of March 31, 1994:
Available for sale-
Current:
Corporate securities $ 10,000 $2,377,500 $ - $2,387,500
Noncurrent:
Corporate securities 389,065 - (64,303) 324,762
-------- ---------- --------- ----------
$399,065 $2,377,500 $ (64,303) $2,712,262
======== ========== ========= ==========
</TABLE>
3. PROPERTY AND EQUIPMENT:
Property and equipment, at cost, consists of:
<TABLE>
<CAPTION>
March 31,
------------------------
1995 1994
------------ ------------
<S> <C> <C>
Furniture and fixtures $ 5,932,263 $ 4,051,866
Machinery and equipment 1,247,352 898,270
Leasehold improvements 3,666,333 866,615
----------- -----------
10,845,948 5,816,751
Less accumulated depreciation (5,921,826) (3,020,021)
----------- -----------
$ 4,924,122 $ 2,796,730
=========== ===========
</TABLE>
4. RETAILER FINANCING PROGRAM:
The Company has established a retailer financing program whereby on a selective
basis the Company will provide financing to video retailers which the Company
believes have demonstrated the prospect for substantial growth in the industry.
In connection with these financings, the Company typically makes a loan and/or
equity investment in the retailer. In some cases, a warrant to purchase stock
may be obtained. As part of such financings, the retailer typically agrees to
cause all of its current and future retail locations to participate in the PPT
System for a designated period of time. These financings are speculative in
nature and involve a high degree of risk and no assurance of a satisfactory
return on investment can be given.
<PAGE>
-7-
The Board of Directors has authorized up to $14 million to be used in connection
with the Company's retailer financing program. As of May 1995, the Company has
invested or made oral or written commitments to loan to or invest in various
video retailers in amounts totaling substantially all of the $14 million
authorized. The loans, investments or commitments are to various retailers and
individually range from $200,000 to $3,000,000. The investments are accounted
for at cost as all investments represent less than 10 percent of the entity's
equity. The notes, which have payment terms that vary according to the
individual loan agreements, are due 1995 through 1999. Interest rates on the
various loans range from the prime rate plus 1 percent to the prime rate plus 3
percent. As the financings are made, and periodically throughout the terms of
the agreements, the Company assesses the recoverability of the amounts based on
the financial position of each retailer. As of March 31, 1995, the Company has
invested or loaned approximately $9.2 million under the program. Because of the
financial condition of a number of these retailers, the Company has provided
reserves of approximately $3.2 million of the total original loan or investment
amount.
Subsequent to year-end, the Company increased its ownership in one of the
retailers in the above program to approximately 57 percent or a controlling
interest. See Note 15.
5. LINE OF CREDIT:
The Company has an agreement for a line of credit in the amount of $7,500,000
with a financial institution which expires on July 25, 1995. Under this
agreement, the Company is required to maintain average compensating balances of
$1,500,000 in its checking and money accounts. Interest is payable monthly at a
rate that varies in relation to the bank's prime rate. The lender has been
granted the option to purchase 10,000 unregistered shares of common stock of the
Company at $7 per share, which exceeded market value at the date of grant. The
line is secured by substantially all of the Company's assets (excluding TPI
assets). The terms of the agreement require, among other things, a minimum
amount of tangible net worth, minimum current ratio and minimum total
liabilities to tangible net worth. The agreement also restricts the amount of
net losses, loans and indebtedness and limits the payment of dividends on the
Company's stock. The Company is in compliance with these covenants as of March
31, 1995. There were no borrowings on the line of credit as of March 31, 1995.
In April 1994, TPI entered into a $2,000,000 line of credit arrangement with a
financial institution. Interest on borrowings under this credit agreement accrue
at the bank's prime rate. Borrowings are collateralized by TPI's accounts
receivable and inventory and require monthly payments of principal plus accrued
interest. In January 1995, the available borrowing under this agreement was
increased to the lesser of $4 million or the amount of the borrowing base as
defined in the agreement. Interest under the revised agreement is accrued at the
bank's prime rate plus .5 percent. There were no borrowings under the credit
agreement at February 28, 1995. The credit agreement expires on July 31, 1995.
<PAGE>
-8-
6. INCOME TAXES:
The provision (benefit) for income taxes is as follows for the years ended
March 31:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Current tax provision
Federal $ 2,221,956 $ 21,949 $ 427,005
State 367,741 91,081 25,118
----------- ---------- ---------
2,589,697 113,030 452,123
Deferred tax benefit (1,862,466) (876,949) (147,310)
----------- --------- ---------
Income tax provision (benefit) $ 727,231 $(763,919) $ 304,813
=========== ========= =========
</TABLE>
In 1993, the income tax provision was substantially offset by the benefit from
the carryforward of net operating losses (NOL) for United States purposes. This
benefit has been reported as an extraordinary item in the accompanying
consolidated statement of operations.
The reported provision (benefit) for income taxes differs from the amount
computed by applying the statutory federal income tax rate of 34 percent to
income before provision (benefit) for income taxes as follows for the years
ended March 31:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- ----------
<S> <C> <C> <C>
Provision (benefit)computed at statutory
rates $ 1,985,856 $ (27,802) $ 516,424
State taxes, net of federal benefit 242,709 91,081 16,165
Utilization of foreign loss carryforwards (1,143,876) - -
Change in valuation allowance (953,470) - -
Purchase accounting amortization adjustments 288,657 - -
Other 307,355 - -
Alternative minimum tax - 49,751 (227,776)
Benefit of recognition of deferred tax assets - (876,949) -
----------- --------- ---------
$ 727,231 $(763,919) $ 304,813
=========== ========= =========
</TABLE>
Prior to 1995, the Company was uncertain as to whether the foreign loss
carryforwards could be utilized and therefore no deferred tax asset was
established. In the current year, it has been determined that the losses can be
utilized and therefore the Company has appropriately reduced 1995 taxable
income.
The total reduction in the valuation allowance during the year ended March 31,
1995, was $953,470. The valuation allowance as of March 31, 1994, was recorded
against the portion of the NOL deferred tax asset which did not satisfy the
recognition criteria set forth in SFAS 109.
<PAGE>
-9-
Deferred tax assets and liabilities are comprised of the following components at
March 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
Deferred tax assets:
<S> <C> <C>
Current-
Vacation accrual $ 132,060 $ 96,122
Allowance for doubtful accounts 147,502 465,487
Retailer-related accruals 203,403 -
Retailer financing program reserve 122,099 -
Legal settlement accrual 171,686 171,686
Net operating loss carryforward - 193,952
Other 138,654 3,235
---------- ----------
Total current deferred tax assets 915,404 930,482
---------- ----------
Noncurrent-
Depreciation 138,969 -
Retailer financing program reserve 1,351,706 -
Warrant amortization 177,504 -
Unrealized loss on investment securities 104,651 -
Other 153,843 41,735
Acquisition amortization - 112,327
Net operating loss carryforward - 853,281
---------- ----------
Total noncurrent deferred tax assets 1,926,673 1,007,343
Deferred tax assets valuation allowance - (953,470)
---------- ----------
Total deferred tax assets, net of valuation
allowance $2,842,077 $ 984,355
========== ==========
Deferred tax liability:
Current-
Unrealized gain on investment securities $ - $ (879,015)
Studio guarantees - (51,467)
---------- ----------
Total current deferred tax liabilities - (930,482)
Noncurrent-
Depreciation - (53,873)
---------- ----------
Total noncurrent deferred tax liability - (53,873)
---------- ----------
Total deferred tax liabilities $ - $ (984,355)
========== ==========
</TABLE>
7. STOCKHOLDERS' EQUITY:
On October 15, 1993, the Company acquired all of the outstanding shares of
common stock of TPI and Kartoyz, Inc., pursuant to a stock purchase agreement.
The aggregate consideration paid by the Company for all outstanding shares of
TPI common stock and all outstanding shares of Kartoyz common stock was
approximately $1.2 million in cash and 776,280 shares of common stock. In
addition, the Company agreed to pay up to $650,000 based upon future TPI
royalties. As of March 31, 1995, the Company has paid $200,000 under the royalty
arrangement. The balance of $450,000 has been recorded in accrued liabilities.
<PAGE>
-10-
On August 31, 1994, the Company acquired all of the outstanding shares of common
stock of Team Spirit for a net purchase price of approximately $4.4 million,
with payment made through the issuance of approximately 557,000 shares of the
Company's common stock. The Company acquired net assets of approximately
$300,000 and recorded goodwill of approximately $4.1 million.
In October 1994, the Company acquired all of the outstanding stock of Image
Makers, Inc. and Barenz-Runia, Inc. for a net purchase price of approximately
$686,000, with payment made through the issuance of approximately 82,000 shares
of the Company's common stock. The Company acquired net assets of approximately
$129,000 and recorded goodwill of approximately $557,000.
In September 1994, a program supplier exercised warrants to acquire 250,000
shares of the Company's common stock for $5.19 per share. The warrants were
granted in 1991.
STOCK OPTIONS AND WARRANTS
Options are granted under the 1986 Stock Option and the Directors' Stock Option
Plans, which are administered by the Board of Directors, at an exercise price
equal to fair market value as of the date of grant. Options under the 1986 Stock
Option Plan are generally exercisable over four to ten years and expire ten
years after date of grant. Options under the Directors' Stock Option Plan are
generally exercisable over one to five years and expire five years after date of
grant. As of March 31, 1995, the Company has 1,022,266 options available to be
granted and 3,873,500 shares of common stock reserved for issuance under these
plans.
The table below summarizes the plan's activity:
<TABLE>
<CAPTION>
Options Outstanding
-------------------------------------
Number Price
of Per Aggregate
Shares Share Price
---------- ------------- ------------
<S> <C> <C> <C>
Balance at March 31, 1992 626,900 $ .75 - 9.53 $ 1,812,072
Granted 340,444 5.38 - 8.00 1,955,764
Issued (123,678) 1.00 - 6.25 (154,619)
Canceled (6,710) 1.38 - 6.38 (29,537)
--------- ------------ -----------
Balance at March 31, 1993 836,956 1.13 - 9.53 3,583,680
Granted 364,672 4.44 - 6.50 1,839,177
Issued (56,846) 1.13 - 6.25 (123,271)
Canceled (162,389) 1.13 - 6.38 (887,287)
--------- ------------ -----------
Balance at March 31, 1994 982,393 1.13 - 9.53 4,412,299
Granted 1,709,900 4.94 - 8.50 9,883,418
Issued (87,483) 1.13 - 6.75 (210,065)
Canceled (37,467) 1.38 - 6.75 (213,209)
--------- ------------ -----------
Balance at March 31, 1995 2,567,343 $1.13 - 9.53 $13,872,443
========= ============ ===========
</TABLE>
<PAGE>
-11-
As of March 31, 1995, 859,158 options to purchase stock were exercisable. The
remaining 1,708,185 options are subject to restrictions which prohibit them from
being exercised as of March 31, 1995.
In connection with the secondary offering in May 1991, the Company issued to its
investment banker a warrant to purchase 147,500 shares of the Company's common
stock. The exercise price per share of $8.90 equaled market value at the date of
grant. The warrants would have expired on May 22, 1994. However, the Board of
Directors extended the expiration date to May 22, 1996.
In August 1992, the Company entered into an agreement with a service supplier to
use and sublease certain software on the PPT system. As part of the agreement,
the Company paid a licensing fee of $188,000, sold 251,889 shares of common
stock for $7 per share ($1,763,223), which approximated market value at date of
transaction, and granted a warrant to purchase 251,889 shares of common stock at
an exercise price of $9.50 per share, which exceeded market value at the date of
grant, through August 1997. The licensing fee was capitalized in other assets
and is being amortized over five years, the life of the licensing agreement.
In August 1992, the Company entered into an agreement with CCC to develop
Rentrak's pay-per-transaction and information processing business in certain
markets throughout the world. The agreement guarantees a maximum 25 percent
equity interest for CCC in any new company formed to develop PPT in these
markets. As part of the agreement, CCC was issued warrants to acquire up to 1.2
million shares of the Company's common stock for $1.3 million. The warrants were
to be purchased before December 31, 1993. The $1.3 million was not paid and the
option to acquire the 1.2 million shares has expired by its terms. At March 31,
1993, the Company had recorded a subscription receivable for $1.3 million which
is shown as an offset to the warrants in the stockholders' equity section of the
balance sheet. The exercise price of these warrants did not exceed the market
price of the Company's stock at the date of grant.
In September 1992, the Company agreed to issue warrants to buy up to 1,000,000
shares of the Company's common stock in connection with entering into a
long-term licensing agreement with a program supplier. Certain contractual
arrangements must be performed by the program supplier, however, before any
warrants are issued. At March 31, 1995, a warrant to purchase 600,000 shares of
common stock had been issued at an exercise price of $7.14 per share which
approximated market value at date of grant.
In July 1994, the Company agreed to issue warrants to buy up to 2,673,750 shares
of the Company's common stock in connection with entering into a long-term
licensing agreement with a program supplier. Of the warrants, 1,423,750 are
issuable based on the program supplier's continuing business with the Company.
The remainder of the warrants are issuable upon the meeting of certain
conditions by the program supplier, including the delivery of predetermined
numbers of titles for inclusion in the Company's PPT program. The warrants were
issued at an exercise price of $7.13 per share, which approximated market value
at date of grant.
As a result of the July 1994 agreement discussed above, the Company issued
warrants to acquire 423,750 shares of the Company's common stock to another
program supplier under a favored nations clause in the contract with that
program supplier. This supplier had received a previous grant for 1,000,000
shares (see above). These warrants were also issued at an exercise price of
$7.13 per share, which approximated market value at date of grant.
<PAGE>
-12-
In December 1994, the Company agreed to issue warrants to buy up to 250,000
shares of the Company's common stock to certain customers. The warrants are
issuable if the customers meet certain purchasing commitments established by the
Company. The warrants were issued at an exercise price of $7.00 per share, which
approximated market value at date of grant.
All warrants which the Company agreed to issue in 1995 have been valued by an
outside valuation firm using standard warrant valuation models. The value of the
warrants of $3,533,977 has been recorded in the equity section and will be
amortized over the associated periods to be benefited by each group of warrants.
For 1995, expense associated with the warrants is $467,114.
8. COMMITMENTS:
LEASES
The Company leases its facilities under operating leases expiring at various
dates through 2008. Rental payments over the term of the leases exceeding one
year are as follows:
<TABLE>
<CAPTION>
Year ending March 31,
---------------------
<S> <C>
1996 $ 3,387,649
1997 2,882,406
1998 2,452,032
1999 1,983,698
2000 1,378,302
2001 and thereafter 5,264,031
-----------
$17,348,118
===========
</TABLE>
The leases provide for payment of taxes, insurance and maintenance by the
Company. The Company also rents vehicles and equipment on a short-term basis.
Rent expense under operating leases was $2,357,640, $749,000 and $514,000 for
the years ended March 31, 1995, 1994 and 1993, respectively.
GUARANTEES AND ADVANCES
The Company has entered into several guarantee contracts with program suppliers
providing titles for distribution under the PPT system. In general, these
contracts guarantee the suppliers minimum payments. In some cases these
guarantees were paid in advance. Any advance payments that the Company has made
and will be realized within the current year are included in advances to program
suppliers. The long-term portion is included in other assets. Both the current
and long-term portion are amortized to cost of sales as revenues are generated
from the related cassettes.
The Company, using empirical data, estimates the projected revenue stream to be
generated under these guarantee arrangements and accrues for projected losses or
reduces the carrying amount of advances to program suppliers for any guarantee
that it estimates will not be fully recovered through future revenues. Total
commitments under guarantees as of March 31, 1995, are approximately
$55,578,027, of which $52,065,242 had been earned. As of March 31, 1995, the
Company has recorded $572,300 for potential losses under such guarantee
arrangements.
<PAGE>
-13-
9. CONTINGENCIES:
In February 1991, a suit was filed against the Company alleging causes of action
for breach of contract, breach of implied covenant of good faith and fiduciary
duty, and violation of a state unfair business practice statute. These
allegations arise out of the Company's alleged refusal to grant the plaintiff a
National Video franchise.
A lower court jury has awarded damages of approximately $450,000 to the
plaintiff on the alleged charges, including attorney fees. The Company appealed
the lower court decision; however, that decision was upheld by the appeals
court. The damage award is fully reserved by the Company and settlement of the
case is likely to occur in 1996.
The Company is subject to other legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of any
ultimate liability with respect to these actions will not materially affect the
financial position or results of operation of the Company.
10. RENTRAK JAPAN:
As is discussed in Note 1, the Company owns a one-fourth interest in Rentrak
Japan. Summarized financial data for the joint venture, after translation to
U.S. currency, at March 31, 1995, 1994 and 1993, and for the years then ended is
as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Current assets $39,738,319 $14,773,880 $ 5,418,142
Noncurrent assets 5,543,662 4,044,049 4,188,514
Current liabilities 41,411,744 18,585,255 7,644,229
Noncurrent liabilities 4,871,295 2,285,771 2,313,793
Shareholders' deficit (1,001,059) (2,053,097) (351,366)
Net sales 88,382,895 56,082,841 34,074,869
Cost of sales 57,750,231 44,218,531 27,193,907
Net income (loss) 1,424,334 (1,589,437) (560,339)
</TABLE>
As of March 31, 1993, the Company's investment has been written down to zero.
The Company has provided no guarantee or other financial commitments for the
investee which would require the recognition of additional losses in 1994 from
the investee under the equity method. During 1995, no income was recognized by
the Company as the Company's share of net income does not exceed the net losses
not recognized during the period the equity method was suspended.
11. SUSPENSION OF EUROPEAN OPERATIONS:
The write off of European assets, which was incurred in the quarter ended
September 30, 1993, amounted to $789,155, composed of $56,042 in accounts
receivable, $94,200 in other current assets, $549,008 in property and equipment,
and $89,905 in other long-term assets. In addition to the $789,155 write down of
assets in the quarter ended September 30, 1993, during the year ended March 31,
1994, the Company incurred $1.4 million in European operating costs as well as
$111,408 in cash expenditures to finalize operations. During the period the
equity method was suspended.
<PAGE>
-14-
12. ACQUISITIONS:
On October 15, 1993, the Company acquired all of the outstanding shares of
common stock of TPI pursuant to the Stock Purchase Agreement and all of the
outstanding shares of Kartoyz. Kartoyz operated one retail outlet which sold
licensed gifts and products related to automobiles. The Company suspended the
Kartoyz operations during fiscal year 1994.
The aggregate consideration paid by the Company for all outstanding shares of
TPI common stock and all outstanding shares of Kartoyz common stock was
approximately $1.2 million in cash and 776,280 shares of common stock at $7.14
per share. In addition, the Company agreed to pay up to $650,000 based upon
future TPI royalties. As of March 31, 1995, the Company has paid $200,000 under
the royalty arrangement. The balance of $450,000 has been recorded in accrued
liabilities.
The Company changed TPI's year-end from December 31 to February 28 subsequent to
the acquisition. The change was made to more closely match TPI's year-end with
the Company's year-end of March 31 and to allow sufficient time for the process
of consolidating financial information. There were no intervening events which
materially affect the financial position or results of operations. As such, the
consolidated financial statements include TPI's balance sheet as of February 28,
1995 and 1994 and the statements of operations, stockholder's equity and cash
flows for the 12 month period and 4-1/2 month period ending February 28, 1995
and 1994, respectively.
Summarized unaudited consolidated pro forma financial data for the Company for
the year ended March 31, 1994, which includes TPI financial data for the twelve
months ended December 31, 1993, presented as if the acquisition had been
consummated as of the beginning of the Company's year, is as follows:
<TABLE>
<CAPTION>
<S> <C>
Revenues $74,008,593
Net income 878,425
Net income per share .09
</TABLE>
The pro forma information given above does not purport to be indicative of the
results that actually would have been obtained if the operations were combined
during the periods presented, and is not intended to be a projection of future
results or trends.
In August 1994, the Company acquired all of the outstanding stock of Team
Spirit. The net purchase price was approximately $4.4 million and was paid via
issuance of approximately 557,000 shares of common stock. The Company acquired
assets of approximately $6 million and recorded goodwill of approximately $4.1
million. At the time of purchase, Team Spirit, Inc. had approximately $2.3
million in other liabilities and approximately $3.3 million in outstanding bank
debt which was immediately paid by the Company.
<PAGE>
-15-
Summarized unaudited consolidated pro forma financial data for the Company for
the years ended March 31, 1995 and 1994, which includes Team Spirit financial
data for the twelve months ended January 31, 1995 and 1994, presented as if the
acquisition had been consummated as of the beginning of the Company's year, is
as follows:
<TABLE>
<CAPTION>
1995 1994
------------- ------------
<S> <C> <C>
Revenues $118,369,990 $85,667,518
Net income 4,278,548 1,150,253
Net income per share -
primary .35 .11
Net income per share -
assuming full dilution .34 .11
</TABLE>
The pro forma information given above does not purport to be indicative of the
results that actually would have been obtained if the operations were combined
during the periods presented, and is not intended to be a projection of future
results or trends.
13. EMPLOYEE BENEFIT PLANS:
At January 1, 1991, the Company established an employee benefit plan (the
Rentrak Plan) pursuant to Section 401(k) of the Internal Revenue Code for
certain qualified employees. Contributions made to the 401(k) plan are based on
percentages of employees' salaries. The amount of the Company's contribution is
at the discretion of Board of Directors. Contributions under the 401(k) plan for
the years ended March 31, 1995, 1994 and 1993 were $35,347, $25,430 and $22,360,
respectively.
TPI has a 401(k) savings plan (the TPI Plan) which covers all employees who are
at least 21 years of age and who have completed at least 1,000 hours of service.
Under the TPI Plan, employees may contribute up to 20 percent of their earnings.
TPI matched the first 6 percent of employee contributions at a level of 50
percent through December 31, 1994. TPI's contributions to the Plan for the 12
month period ended February 28, 1995 were $30,029 and for the 4-1/2 month period
ended February 28, 1994 were approximately $7,100. As of January 1, 1995, the
TPI Plan was frozen and TPI employees began contributing to the Rentrak Plan.
The Company has an Employee Stock Purchase Plan (the Plan). The Board of
Directors has reserved 200,000 shares of the Company's common stock for issuance
under the Plan, of which 171,536 shares remain authorized and available for sale
to employees.
All employees meeting certain eligibility criteria may be granted the
opportunity to purchase common stock, under certain limitations, at 85 percent
of market value. Payment is made through payroll deductions.
Under the Plan, employees purchased 11,062 shares for aggregate proceeds of
$78,449, 8,663 shares for aggregate proceeds of $51,694 and 5,995 shares for
aggregate proceeds of $38,935 in 1995, 1994 and 1993, respectively.
<PAGE>
-16-
14. BUSINESS SEGMENTS, GEOGRAPHIC INFORMATION AND MAJOR CUSTOMER:
<TABLE>
<CAPTION>
BUSINESS SEGMENTS
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Net sales:
PPT $ 79,793,584 $62,005,968 $52,847,386
Sports apparel 26,363,211 3,950,705 -
Other 6,009,436 2,939,814 1,487,480
------------ ----------- -----------
$112,166,231 $68,896,487 $54,334,866
============ =========== ===========
Income (loss) from operations:
PPT $ 2,886,841 $ 2,064,299 $ 613,032
Sports apparel 270,176 440,781 -
Other (707,548) (3,063,618) (2,630,885)
------------ ----------- -----------
$ 2,449,469 $ (558,538) $(2,017,853)
============ =========== ===========
Identifiable assets:
PPT $ 39,132,490 $33,284,507 $32,802,483
Sports apparel 22,610,120 8,950,132 -
Other 3,075,058 2,385,806 2,021,147
------------ ----------- -----------
$ 64,817,668 $44,620,445 $34,823,630
============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
GEOGRAPHIC INFORMATION
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Revenues from unaffiliated customers:
United States $112,166,231 $68,780,550 $54,134,422
Foreign - 115,937 200,444
------------ ----------- -----------
$112,166,231 $68,896,487 $54,334,866
============ =========== ===========
Net income (loss):
United States $ 5,113,523 $ 3,092,075 $ 783,238
Foreign - (2,279,010) (1,678,299)
------------ ----------- -----------
$ 5,113,523 $ 813,065 $ (895,061)
============ =========== ===========
Identifiable assets:
United States $ 64,817,668 $44,620,445 $33,849,383
Foreign - - 974,247
------------ ----------- -----------
$ 64,817,668 $44,620,445 $34,823,630
============ =========== ===========
</TABLE>
There were no sales or transfers between geographic areas in any of the years
presented.
<PAGE>
-17-
The Company has one program supplier that supplied product that generated 19
percent, a second that generated 12 percent, and a third that generated 11
percent of Rentrak revenues for the year ended March 31, 1995. The Company had
one program supplier that supplied product that generated 26 percent and a
second program supplier that supplied product that generated 23 percent of
Rentrak revenues for the year ended March 31, 1994. The Company had one program
supplier that supplied product that generated 34 percent of revenues for the
year ended March 31, 1993. There were no other program suppliers who contributed
more than 10 percent of sales for the years ended March 31, 1995, 1994 and 1993.
15. SUBSEQUENT EVENTS:
On May 26, 1995, the Company entered into an agreement to acquire 3.2 million
shares of Entertainment One, Inc. from the majority shareholder. When combined
with the 669,230 shares Rentrak purchased from Entertainment One, Inc. in July
1994, Rentrak's ownership will consist of approximately 57 percent of the issued
and outstanding stock of Entertainment One, or a controlling interest.
Entertainment One, Inc. operates 46 video departments inside Wal Mart stores in
14 states and Canada, 8 supermarket video departments and 5 video specialty
stores in Illinois. The acquisition will be accounted for as a purchase.
In May 1995, the Board of Directors approved a shareholders' rights plan
designed to ensure that all of the Company's shareholders receive fair and equal
treatment in the event of any proposal to acquire control of the Company. Under
the rights plan, each shareholder will receive a dividend of one right for each
share of the Company's outstanding common stock, entitling the holders to
purchase one additional share of the Company's common stock. The rights become
exercisable after any person or group acquires 15 percent or more of the
Company's outstanding common stock, or announces a tender offer which would
result in the offeror becoming the beneficial owners of 15 percent or more of
the Company's outstanding stock.
<PAGE>
ARTHUR ANDERSEN LLP
Report of Independent Public Accountants
To the Board of Directors and Stockholders of
Rentrak Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Rentrak
Corporation and subsidiaries, as of March 31, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended March 31, 1995. 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 Rentrak Corporation and
subsidiaries as of March 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1995 in conformity with generally accepted accounting principles.
As explained in Note 1 to the consolidated financial statements, effective
April 1, 1993 and March 31, 1994, the Company changed its methods of accounting
for income taxes and investment securities, respectively.
/s/ Arthur Andersen LLP
Portland, Oregon,
May 26, 1995
<PAGE>
DIRECTORS, OFFICERS AND SHAREHOLDER INFORMATION
BOARD OF DIRECTORS
L. BARTON ALEXANDER
VENTURE CONSULTANT
RON BERGER
CHAIRMAN OF THE BOARD,
CHIEF EXECUTIVE OFFICER AND
PRESIDENT, RENTRAK CORPORATION
PETER DAL BIANCO
PRESIDENT, PAMLEY ENTERPRISES, LTD.
JAMES P. JIMIRRO
PRESIDENT, J2 COMMUNICATIONS
BILL LEVINE
PRESIDENT, LEVINE ENTERPRISES
MUNEAKI MASUDA
CHAIRMAN AND PRESIDENT,
CULTURE CONVENIENCE CLUB CO., LTD.
STEPHEN ROBERTS
PRESIDENT, THE S. ROBERTS COMPANY
CORPORATE OFFICERS
RENTRAK CORPORATION
RON BERGER
CHAIRMAN, CHIEF EXECUTIVE OFFICER
AND PRESIDENT
F. KIM COX
EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
SIGNIFICANT
OPERTING DIVISIONS
RENTRAK
HOME ENTERTAINMENT
ED BARNICK
VICE PRESIDENT, DISTRIBUTION
MARTY GRAHAM
VICE PRESIDENT,
PRODUCT DEVELOPMENT
MICHAEL R. LIGHTBOURNE
SR. VICE PRESIDENT, MARKETING
CHRIS ROBERTS
VICE PRESIDENT, SALES
JAMES P. WEISS
SR. VICE PRESIDENT, OPERATIONS
KARL D. WETZEL
VICE PRESIDENT, FINANCE
AND CHIEF FINANCIAL OFFICER
AMIR YAZDANI
VICE PRESIDENT, INFORMATION
SYSTEMS
PRO IMAGE, INC.
BRIAN CARMACK
PRESIDENT
DAN DIXON
VICE PRESIDENT, OPERATIONS,
TEAM SPIRIT
JOHN DIXON
VICE PRESIDENT, MERCHANDISING,
TEAM SPIRIT
GREG NICHOLS
VICE PRESIDENT, FRANCHISE OPERATIONS
KARIN OWENS
VICE PRESIDENT, MARKETING
DAVID E. RILEY
VICE PRESIDENT, MERCHANDISING
DAN E. STRONG
CHIEF FINANCIAL OFFICER
SHAREHOLDER INFORMATION
ANNUAL MEETING The Company's Annual Shareholder's Meeting will be held on Au-
gust 28, 1995 at 8:00 a.m., PDT at the Heathman Hotel, 1001 S.W. Broadway, Port-
land, OR 97205.
FORM 10-K The Company's Annual Report filed with the Securities and Exchange
Commission may be obtained free of charge by writing Mr. F. Kim Cox, Executive
Vice President and Chief Financial Officer at the corporate headquarters ad-
dress, 7227 N.E. 55th Avenue, Portland, OR 97218.
PUBLIC INFORMATION Financial analysts, stockbrokers, interested investors and
financial media desiring information about the Company should
contact Mr. F. Kim Cox at the corporate headquarters, or call Rentrak Cor-
poration, Investor Relations, at (503) 284-7581, extension 722.
MARKET PRICE OF COMMON STOCK The Company's common stock, $.001 par value, is
traded on the NASDAQ National Market System, and prices are quoted on the NASDAQ
National Market Issues quotations under the symbol "RENT." Prior to the Com-
pany's public offering on November 14, 1986, there was no public market for the
common stock. As of March 31, 1995, there were approximately 436 holders of
record of the Company's common stock. On March 31, 1995, the closing sales
price of the common stock as quoted by the NASDAQ National Market Issues was
$6.50.
The following table sets forth the reported high and lows sales prices of the
common stock for the period indicated as regularly quoted on the NASDAQ
National Market Issues quotations. The over-the-counter market quotations
reflect inter-dealer prices, without retail markup, markdown or commissions and
may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
- -----------------------------------------------------
<S> <C> <C>
June 30, 1993 $ 5.875 $ 4.50
September 30, 1993 7.125 4.75
December 31, 1993 7.75 5.125
March 31, 1994 7.375 4.625
June 30, 1994 7.50 4.75
September 30, 1994 9.375 6.25
December 31, 1994 9.25 6.25
March 31, 1995 8.75 6.25
</TABLE>
No cash dividends have been paid or declared. The present policy of the Board
of Directors is to retain earnings to provide funds for operation and expansion
of the Company's business. The Company does not intend to pay cash dividends in
the foreseeable future.
STOCK TRANSFER AGENT
U.S. STOCK TRANSFER
CORPORATION
1745 Gardena Avenue
Glendale, California 91204
(818) 502-1404
AUDITORS
ARTHUR ANDERSEN, LLP
Portland, Oregon
LEGAL COUNSEL
GARVEY, SCHUBERT & BARER
Portland, Oregon
PPT-Registered Trademark-, Rentrak-Registered Trademark-,
Pay-Per-Transaction-SM-, and Pro Image-SM- are registered trademarks of
Rentrak Corporation -C-1995, All rights reserved.
Sega-TM- is a trademark of Sega of America, Inc. Nintendo-Registered
Trademark- is a trademark of Nintendo of America, Inc. Windows-Registered
Trademark- is a registered trademark of Microsoft Corp.
<PAGE>
RENTRAK-R-
The People behind PPT-TM-
RENTRAK CORPORATION
7227 NORTHEAST 55TH AVENUE
P.O. BOX 18888
PORTLAND, OREGON 97218
INVESTOR RELATIONS
(503) 284-7581, EXT 722
<PAGE>
Exhibit 22
Subsidiaries of Registrant
/ / Dover Aggregates, Inc., a Delaware corporation doing business as BlowOut
Video.
/ / The Pro Image Inc., a Utah Corporation doing business as Pro Image and Team
Spirit.
/ / Streamlined Solutions, Inc., an Oregon corporation doing business as
Streamlined Solutions, Inc. and Streamlined Information Systems.
/ / SVI, Inc., a Delaware corporation doing business as Supermarket Video
Management, Inc.
/ / BlowOut Video, Inc., an Oregon corporation, doing business as BlowOut
Video.
/ / Mortco Inc., an Oregon corporation.
<PAGE>
Exhibit 24.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our reports included in this Form 10-K, into the Company's
previously filed Registration Statements: (1) Registration Statement File
number 33-40472 on Form S-8 of the 1986 Stock Option Plan, the 1985 Stock
Incentive Plan, the 1985 Key Employee Incentive Stock Option Plan and the
Individual Written Compensation Plan dated May 10, 1991, (2) Registration
Statement File number 33-44865 on Form S-8 of the 1986 Restated and Amended
Stock Option Plan and Directors' Stock Option Plan dated January 8, 1992, (3)
Registration Statement on Form S-8 of the 1992 Employee Stock Purchase Plan
dated June 16, 1992, (4) Registration Statement File Number 33-86548 on Form S-3
dated November 21, 1994.
Portland, Oregon,
June 26, 1995
<TABLE> <S> <C>
<PAGE>
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<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 10,709,405
<SECURITIES> 0
<RECEIVABLES> 15,354,019
<ALLOWANCES> 642,580
<INVENTORY> 6,291,032
<CURRENT-ASSETS> 37,423,011
<PP&E> 10,845,948
<DEPRECIATION> 5,921,826
<TOTAL-ASSETS> 64,817,668
<CURRENT-LIABILITIES> 24,525,555
<BONDS> 0
<COMMON> 11,277
0
0
<OTHER-SE> 40,280,836
<TOTAL-LIABILITY-AND-EQUITY> 64,817,668
<SALES> 112,166,231
<TOTAL-REVENUES> 112,166,231
<CGS> 83,533,328
<TOTAL-COSTS> 109,716,762
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