FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended:
September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from
to
Commission file number: 0-15159
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 no.)
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
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 ( )
As of October 31, 1996, the Registrant had 12,154,239 shares of
Common Stock outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations for the three month periods
ended September 30, 1996 and September 30, 1995
Consolidated Statements of Operations for the six month periods ended
September 30, 1996 and September 30, 1995
Consolidated Balance Sheets as of September 30, 1996 and March 31,
1996
Consolidated Statements of Cash Flows for the six month periods ended
September 30, 1996 and September 30, 1995
Notes to Consolidated Financial Statements
<TABLE>
RENTRAK CORPORATION
STATEMENTS OF OPERATIONS
<CAPTION>
(Unaudited)
Three Months Ended September 30,
1996 1995
<S> <C> <C>
REVENUES:
PPT $ 29,962,381 $ 26,611,510
Other 5,442,310 1,312,331
35,404,691 27,923,841
OPERATING COSTS AND EXPENSES:
Cost of sales 25,446,970 22,008,497
Selling and administrative 3,683,032 4,089,237
29,130,002 26,097,734
INCOME FROM OPERATIONS 6,274,689 1,826,107
OTHER INCOME (EXPENSE):
Interest income 112,054 201,109
Interest expense (62,035) (84,515)
Other 110,000 (198,087)
160,019 (81,493)
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME
TAX PROVISION 6,434,708 1,744,614
INCOME TAX PROVISION 2,458,775 505,938
INCOME FROM CONTINUING OPERATIONS 3,975,933 1,238,676
LOSS FROM OPERATIONS OF DISCONTINUED
SUBSIDIARIES (LESS APPLICABLE INCOME
TAX BENEFIT OF $959,959 in 1995) - (1,465,579)
NET INCOME (LOSS) $ 3,975,933 $ (226,903)
EARNINGS (LOSS) PER COMMON
SHARE AND COMMON
EQUIVALENT SHARE
Continuing operations $ 0.26 $ 0.10
Discontinued operations - (0.12)
NET INCOME (LOSS) $ 0.26 $ (0.02)
SHARES USED IN PER SHARE
CALCULATION 16,323,636 11,897,209
The accompanying notes are an integral
part of these statements.
RENTRAK CORPORATION
STATEMENTS OF OPERATIONS
<CAPTION>
(Unaudited)
Six Months Ended September 30,
1996 1995
<S> <C> <C>
REVENUES:
PPT $ 52,611,077 $ 48,636,467
Other 6,556,724 2,643,864
59,167,801 51,280,331
OPERATING COSTS AND EXPENSES:
Cost of sales 44,901,304 40,896,909
Selling and administrative 7,305,860 8,200,453
52,207,164 49,097,362
INCOME FROM OPERATIONS 6,960,637 2,182,969
OTHER INCOME (EXPENSE):
Interest income 285,675 470,394
Interest expense (181,950) (93,127)
Other 318,875 (198,087)
422,600 179,180
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME
TAX PROVISION 7,383,237 2,362,149
INCOME TAX PROVISION 2,831,008 685,023
INCOME FROM CONTINUING OPERATIONS 4,552,229 1,677,126
LOSS FROM OPERATIONS OF DISCONTINUED
SUBSIDIARIES (LESS APPLICABLE INCOME
TAX BENEFIT OF $1,479,273 in 1995) - (2,240,146)
NET INCOME (LOSS) $ 4,552,229 $ (563,020)
EARNINGS (LOSS) PER COMMON SHARE
AND COMMON EQUIVALENT SHARE
Continuing operations $ 0.31 $ 0.14
Discontinued operations - (0.19)
NET INCOME (LOSS) $ 0.31 $ (0.05)
SHARES USED IN PER
SHARE CALCULATION 16,300,423 11,710,528
The accompanying notes are an integral
part of these statements.
RENTRAK CORPORATION
BALANCE SHEETS
ASSETS
<CAPTION>
(Unaudited)
September 30, March 31,
1996 1996
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 4,879,700 $ 2,683,128
Investment securities available
for sale - 344,500
Accounts receivable, net of
allowance for doubtful accounts
of $345,259 and $627,895 15,611,237 15,116,203
Accounts receivable - affiliates 1,437,811 3,227,006
Advances to program suppliers 1,391,151 1,462,875
Inventory 1,492,983 1,737,695
Deferred tax asset 1,427,969 1,353,226
Other current assets 1,793,786 3,343,389
Total current assets 28,034,637 29,268,022
PROPERTY AND EQUIPMENT, net 1,016,678 1,466,177
INTANGIBLES, net 345,132 347,137
NOTES RECEIVABLE - AFFILIATE 2,800,000 2,800,000
OTHER INVESTMENTS, net 1,772,972 3,477,105
DEFERRED TAX ASSET 3,002,538 2,918,838
OTHER ASSETS 709,178 1,225,331
NET NONCURRENT ASSETS OF
DISCONTINUED OPERATIONS 14,749,248 14,749,248
$ 52,430,383 $ 56,251,858
The accompanying notes are an integral
part of these balance sheets.
RENTRAK CORPORATION
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
(Unaudited)
September 30, March 31,
1996 1996
<S> <C> <C>
CURRENT LIABILITIES:
Line of credit $ - $ 2,700,000
Accounts payable 15,783,433 21,795,843
Accrued liabilities 3,097,497 2,163,325
Accrued compensation 1,544,254 1,240,543
Deferred revenue 1,436,876 2,004,865
Net current liabilities of
discontinued operations 11,942,858 11,942,858
Total current liabilities 33,804,918 41,847,434
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock $.001 par value;
Authorized: 10,000,000 shares - -
Common stock, $.001 par value;
Authorized: 30,000,000 shares
Issued and outstanding:
12,141,241 shares at September 30,
1996 and 12,138,216 shares at
March 31, 1996 12,141 12,138
Capital in excess of par value 49,088,037 49,583,514
Net unrealized gain on investment
securities 45,774 567,508
Accumulated deficit (28,813,933) (33,366,162)
Less- Deferred charge - warrants (1,706,554) (2,392,574)
18,625,465 14,404,424
$ 52,430,383 $ 56,251,858
The accompanying notes are an integral
part of these balance sheets.
RENTRAK CORPORATION
STATEMENT OF CASH FLOWS
<CAPTION>
(Unaudited)
Six Months Ended September 30,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 4,552,229 $ (563,020)
Adjustments to reconcile
income (loss) to net
cash provided (used) in operations
Gain on investment/asset sales (318,875) (236,964)
Depreciation 506,755 1,069,403
Amortization of intangibles 82,462 681,348
Amortization of warrants 189,107 337,144
Provision for doubtful accounts (88,633) (461,693)
Retailer financing program reserves (334,911) (503,098)
Studio advance reserves (112,612) 350,000
Deferred income taxes 161,331 -
Change in specific accounts, net of
effects in 1995 of purchase of business:
Accounts receivable (406,401) (1,890,640)
Advance to program suppliers 184,336 761,664
Inventory 244,712 (1,140,100)
Other current assets 3,338,798 (4,799,425)
Accounts payable (6,012,410) (1,849,360)
Accrued liabilities and compensation 1,237,883 567,778
Deferred revenue (567,989) -
Net cash provided (used) by
operations 2,655,782 (9,111,638)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (76,120) (934,360)
Payment for purchase of business,
net of cash acquired - (77,507)
Reductions (purchases) of other assets
and intangibles 435,696 (1,718,663)
Reduction in retailer
financing program 1,334,911 2,190,699
Proceeds from sale of investments/assets 544,864 2,836,849
Net cash provided by
investing activities 2,239,351 2,241,271
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (payments) under line of credit (2,700,000) -
Net Redemptions of Common Stock 1,439 1,277,525
Net cash provided (used)
by financing activities (2,698,561) 1,277,525
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 2,196,572 (5,592,842)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 2,683,128 13,815,718
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 4,879,700 $ 8,222,876
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for -
Interest $ 197,642 $ -
Income taxes paid (refunded) $ (314,228) $ 112,559
NON-CASH ACTIVITIES:
Decrease in Net Unrealized
Gain (loss) on
Investment Securities $ 521,734 $ (1,434,182)
Reduction of Warrants $ 496,913 $ -
</TABLE>
RENTRAK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A: Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial
Statements of RENTRAK CORPORATION (the "Company"), have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission (SEC). Certain information and footnote dis-
closures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. The
results of operations for the three and six month periods ended
September 30, 1996 are not necessarily indicative of the results to
be expected for the entire fiscal year ending March 31, 1997. The
Condensed Consolidated Financial Statements should be read in
conjunction with the Consolidated Financial Statements and footnotes
thereto included in the Company's 1996 Annual Report to Shareholders.
The financial statements reflect, in the opinion of management, all
material adjustments (which include only normal and recurring
adjustments) necessary to present fairly the Company's financial
position and results of operations.
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.
Pro Image Inc's. ("Pro Image") year-end is February 28. As there are
no intervening events which materially affect the financial position
or results of operations, the consolidated statements include Pro
Image's balance sheet as of August 31, 1996 and February 29, 1996 and
the statement of operations and cash flows for the three and six
month periods ended August 31, 1995, which are included in the
Consolidated Financial Statements as discontinued operations.
BlowOut Entertainment, Inc's ("BlowOut") balance sheet as of
September 30, 1996 and March 31, 1996 and the statements of
operations and cash flows for the three and six month periods ended
September 30, 1995 are included in the Consolidated Financial
Statements as discontinued operations.
Subsequent to March 31, 1996, the Company approved plans to
discontinue the operations of Pro Image and BlowOut (see Note B and
Note 15 to the Notes to the March 31, 1996 Consolidated Financial
Statements included in the 1996 Annual Report to Shareholders filed
on Form 10-K). Accordingly, the financial results of these entities
are reflected as discontinued operations in the March 31, 1996 and
September 30, 1996 financial statements, and the previous year
statements of operations have been restated to reflect these entities
as discontinued. The 1995 cash flow statement has not been restated.
NOTE B: Planned Divestitures
During the quarter ended March 31, 1996, the Company assessed its
overall business strategy and decided to divest two subsidiary units
-- Pro Image and BlowOut. The Company's Board of Directors has
approved in principle the spin-off of BlowOut and the sale or other
disposition of Pro Image. Thus, the operations of Pro Image and
BlowOut are reflected as discontinued operations in the accompanying
statements of operations. Refer to Note 15 of the Notes to the March
31, 1996 Consolidated Financial Statements included in the 1996
Annual Report to Shareholders filed on Form 10-K for a discussion of
the Company's divestiture plans, reserves established by the Company
related to the discontinued operations, and the nature of
management's estimates used in determining the reserves. At
September 30, 1996 there have been no changes in the total reserves
which were recorded at March 31, 1996 related to discontinued
operations.
During the quarter, further progress was achieved with the Company's
plans to divest its two discontinued operations. Pro Image, composed
of 158 franchised and 66 corporately owned stores at June 30th, has
been downsized to 42 corporately owned stores and 141 franchised
stores. This was accomplished through the closure of 17 under
performing corporate stores, and the sale of 7 corporate stores and
the termination of franchise agreements covering 18 stores. Proceeds
of the sales and terminations were used to increase inventory at the
remaining stores and to reduce Pro Image bank debt. Pro Image
expects to sell or close the remaining stores and to divest the
franchise business before the end of the fiscal year.
The Company expects to complete a distribution of shares comprising
approximately 60% of BlowOut prior to November 30, 1996. The
distribution is expected to result in Rentrak stockholders receiving
one BlowOut share for every 8.34 Rentrak shares they hold at the
record date. Rentrak's holding in BlowOut will be reduced to 9.9% in
the process.
Both Pro Image and BlowOut have experienced significant losses from
operations and have used significant amounts of cash to fund
operations during their most recent fiscal year and for the three and
six month periods ended September 30, 1996.
BlowOut is essentially a start-up company and is experiencing rapid
growth requiring additional financing if it is to continue its
expansion and to support operations of recently opened stores. In
July 1996, BlowOut obtained a credit facility in an aggregate
principal amount of $2.0 million for a five-year term. Amounts
outstanding under the credit facility bear interest at a fixed rate
per annum equal to 13.98% The loan is guaranteed by the Company
until the lender is satisfied that BlowOut's financial condition is
sufficient to justify the release of the Company's guarantee. Each
quarter the lender has agreed to consider increasing its commitment.
In August 1996, BlowOut also obtained an additional revolving line of
credit in the maximum principal amount at one time outstanding of
$5.0 million. Under the Line of Credit, BlowOut may only draw up to
80% of the Orderly Liquidation Value (as defined by the Line of
Credit) of eligible new and used video cassette inventory. Advances
under the Line of Credit will bear interest at a floating rate per
annum equal to the Bank of America Reference Rate plus 2.75% (11% as
of September 30, 1996). The term of the Line of Credit is three
years. The Line of Credit will be guaranteed by the Company until
BlowOut is "spun-off" to the shareholders of the Company and the
shares of BlowOut Common Stock are publicly traded, thereafter, the
Company has agreed, under certain circumstances in the event of
default under the Line of Credit, to repurchase BlowOut's video
cassette inventory at specified amounts.
The Company's exposure related to adverse financial and operational
developments at Pro Image and BlowOut is limited to its receivables
from and investment in BlowOut which will be retained after the
planned spin-off (see Note 15 of the Notes to the March 31, 1996
Consolidated Financial Statements), certain guarantees previously
made to BlowOut (see Note 9 of the Notes to the March 31, 1996
Consolidated Financial Statements) and any funding covered by the
financing guarantees discussed above. The Company believes it has
the wherewithal to fulfill these obligations and does not believe
that the issues faced by Pro Image and BlowOut will have a material
adverse effect on the Company.
NOTE C: Net Income/Loss Per Share
For the quarter and six month periods ended September 30, 1995, net
loss per share of common stock is computed on the basis of the
weighted average shares of common stock outstanding plus common
equivalent shares arising from dilutive stock options, using the
treasury stock method. The Company's outstanding warrants were not
dilutive during these periods.
For the quarter and six month periods ended September 30, 1996, net
earnings per share is computed using the "modified" treasury stock
method. Under this method, the number of shares 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 stock
options and warrants is limited to 20 percent of the outstanding
shares at period end. Proceeds from exercise of the options and
warrants in excess of those used to purchase treasury shares were
assumed to have been used to repay amounts outstanding under the
Company's line of credit and then any excess to have been invested in
government securities with the resultant net interest income,
adjusted for appropriate tax effects, added to net income for
purposes of calculating earnings per share.
NOTE D: Interest in Foreign Corporation
In December 1989, the Company entered into an agreement with a
Japanese Corporation and formed a jointly-owned Japanese corporation,
Rentrak Japan. Rentrak Japan's purpose is to market PPT in the
Pacific Rim. The Company has provided its PPT technology and certain
trademarks and service marks. The Japanese owner has provided
substantially all operating capital. Until August 1996, the Company
had a one-fourth interest in Rentrak Japan and accounted for its
interest in Rentrak Japan using the equity method. As of March 31,
1993, the Company's investment in Rentrak Japan was written down to
zero. The Company had provided no guarantees or other financial
commitments for the investee which would require the recognition of
additional losses under the equity method.
In August 1996, the Company sold 60 shares of Rentrak Japan stock to
a Japanese corporation for $110,000. This reduced the Company's
interest in Rentrak Japan from 25 percent to 10 percent. In
addition, the Company received a one-time royalty payment from
Rentrak Japan of $4,390,000 in August, 1996.
NOTE E: Major Suppliers
For the quarter ended September 30, 1996, the Company had one program
supplier whose product generated 31 percent, a second that generated
25 percent, and a third that generated an additional 18 percent of
Rentrak revenues. For the six month period ended September 30, 1996,
the Company had one program supplier whose product generated 35
percent, a second that generated 26 percent and a third that
generated an additional 16 percent of Rentrak revenues. No other
program suppliers provided product which generated more than 10
percent of revenue for the three or six month periods ended September
30, 1996.
For the quarter ended September 30, 1995, the Company had one program
supplier whose product generated 38 percent, a second that generated
21 percent, and a third that generated an additional 12 percent of
Rentrak revenues. For the six month period ended September 30, 1995,
the Company had one program supplier whose product generated 37
percent, a second that generated 23 percent, and a third that
generated an additional 10 percent of Rentrak revenues. No other
program suppliers provided product which generated more than 10
percent of revenue for the three or six month periods ended September
30, 1995.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
Information included in Management's Discussion and Analysis of
Financial Conditions and Results of Operations regarding revenue
growth, gross profit margin and liquidity constitute forward-looking
statements that involve a number of risks and uncertainties. The
following factors are among the factors that could cause actual
results to differ materially from the forward-looking statements:
business conditions and growth in the video industry and general
economics, both domestic and international; competitive factors,
including increased competition, new technology, and the continued
availability of cassettes from Program Suppliers. Such factors are
discussed in more detail in the Company's 1996 Annual Report to
Shareholders.
Results of Operations
As discussed in the Notes to the March 31, 1996 Consolidated
Financial Statements, the Company determined plans to discontinue the
operations of Pro Image and BlowOut. Accordingly the financial
results of these entities are reflected as discontinued operations in
the September 30, 1996 and the March 31, 1996 financial statements,
and the previous years statements of operations have been restated to
reflect these entities as discontinued.
For a more meaningful analysis, results are presented for three
groups of operations: Continuing Operations which is comprised
primarily of Domestic PPT Operations, including Canada PPT
Operations; Discontinued Operations of Pro Image; and Discontinued
Operations of BlowOut. All significant intercompany transactions
have been eliminated except for those transactions between continuing
and discontinued operations which are expected to continue in the
future after disposition of the entities.
Continuing Operations - PPT Operations and Other Continuing
Subsidiaries
For the quarter ended September 30, 1996, total revenue increased
$7.5 million, or 27 percent, rising to $35.4 million from $27.9
million in the quarter ended September 30, 1995. For the six month
period ended September 30, 1996, total revenue increased $7.9
million, or 15 percent, rising to $59.2 million from $51.3 million in
the six month period ended September 30, 1995. 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; sell-through fees generated when
retailers sell Cassettes to consumers; royalty payments from Rentrak
Japan; and sale of video cassettes.
During the quarter ended September 30, 1996, the Company received,
and recognized in other revenue, $4.4 million in one-time royalty
payments from Rentrak Japan. In addition to the royalty revenue, the
increase in total revenue and the increases described in the
following paragraph were primarily due to the growth in (i) the
number of retailers approved to lease Cassettes under the PPT system
from the Company (the "Participating Retailers") and (ii) the total
number of Cassettes leased under the PPT system. By September 30,
1996, the number of Participating Retailers had grown 20 percent to
4,879 from 4,077 a year earlier.
Cost of sales for the quarter ended September 30, 1996 rose to $25.5
million from $22.0 million the prior year, an increase of $3.5
million, or 16 percent. Cost of sales for the six month period ended
September 30, 1996 rose to $44.9 million from $40.9 million the prior
year, an increase of $4.0 million or 10 percent. The increases are
primarily due to the increase in revenue noted above.
The gross profit margin increased to 28 percent in the quarter ended
September 30, 1996 from 21 percent the previous year. The gross
profit margin increased to 24 percent in the six month period ended
September 30, 1996 from 20 percent in the six month period ended
September 30, 1995. The increases are primarily due to the inclusion
of the one-time royalty payment of $4.4 million. Excluding the $4.4
million royalty payment, the gross margin was 18% in both the three
and six month periods ended September 30, 1996. The decrease from
the previous year reflects an increase in major motion picture studio
product, which traditionally has a lower gross margin and the
curtailment of the operations of the software development company
which historically has generated higher margins.
Selling, general and administrative expenses were $3.7 million for
the quarter ended September 30, 1996 compared to $4.1 million in the
quarter ended September 30, 1995, a decrease of $.4 million, or 10
percent. Selling, general and administrative expenses were $7.3
million in the six month period ended September 30, 1996 compared to
$8.2 million in the six month period ended September 30, 1995, a
decrease of $0.9 million or 11 percent. These decreases were
primarily due to the reduction in advertising co-op allowances in
excess of amounts retained from program suppliers. As a percentage
of total revenue, selling, general and administrative expenses
decreased from 15 percent for the quarter ended September 30, 1995 to
10 percent for the quarter ended September 30, 1996. As a percentage
of total revenue, selling, general and administrative expenses
decreased from 16 percent for the six month period ended September
30, 1995 to 12 percent for the six month period ended September 30,
1996. These decreases are primarily due to the $4.4 million in
royalty revenue which had no effect on selling, general and
administrative expenses.
Other income (expense) was $0.2 million for the quarter ended
September 30, 1996 and ($0.1) million for the quarter ended September
30, 1995. Other income was $0.4 million in the six month period
ended September 30, 1996 and $0.2 million in the six month period
ended September 30, 1995, an increase of $0.2 million or 136 percent.
Other income in the six month period ended September 30, 1996
includes a gain of $0.3 million on the sale of corporate securities
which includes the sale of 60 shares of Rentrak Japan stock for
$110,000.
For the quarter ended September 30, 1996, PPT Operations recorded a
pre-tax profit of $6.4 million, or 18 percent of total revenue,
compared to a pre-tax profit of $1.7 million, or 6 percent of total
revenue in the quarter ended September 30, 1995. For the six month
period ended September 30, 1996, Domestic PPT Operations recorded a
pre-tax profit of $7.4 million, or 12 percent of total revenue,
compared to a pre-tax profit of $2.4 million or 5 percent of total
revenue for the six month period ended September 30, 1995.
Included in the amounts above are the results from Other Subsidiaries
which are primarily comprised of a software development company and
other video retail and other operations. For the quarter ended
September 30, 1996, Other Subsidiaries recorded pre-tax income of
$0.1 million compared to a pre-tax loss of $0.4 million for the
quarter ended September 30, 1995. For the six month period ended
September 30, 1996, Other Subsidiaries recorded pre-tax income of
$0.1 million compared to a pre-tax loss of $0.4 million for the six
month period ended September 30, 1995.
Discontinued Operations - Pro Image
The Board of Directors approved in principle the disposition of Pro
Image. The Company anticipates that the disposition will be effected
through a series of dispositions of all or substantially all of Pro
Image's assets. Pro Image, composed of 158 franchised and 66
corporately owned stores at June 30th, has been downsized to 42
corporately owned stores and 141 franchised stores. This was
accomplished through the closure of 17 under performing corporate
stores, and the sale of 7 corporate stores and the termination of
franchise agreements covering 18 stores. Proceeds of the sales and
terminations were used to increase inventory at the remaining stores
and to reduce Pro Image bank debt. Pro Image expects to sell or
close the remaining stores and to divest the franchise business
before the end of the fiscal year. Total revenue from Pro Image
decreased to $7.2 million for the quarter ended August 31, 1996 from
$8.3 million for the quarter ended August 31, 1995. Total revenue
from Pro Image increased to $14.3 million for the six months ended
August 31, 1996 from $14.2 million for the six months ended August
31, 1995. For the quarter ended August 31, 1996, Pro Image recorded
a pre-tax loss of $1.2 million. This compares with a pre-tax loss of
$0.8 million for the quarter ended August 31, 1995. For the six
months ended August 31, 1996, Pro Image recorded a pre-tax loss of
$2.8 million. This compares with a pre-tax loss of $2.1 million for
the six months ended August 31, 1995. The losses related to the
three and six months ended August 31, 1996 were accrued at March 31,
1996 and are therefore not reflected in the September 30, 1996
statements of operations.
Discontinued Operations - BlowOut
In October 1996, the Company filed with the Securities and Exchange
Commission a Form 10/A Registration Statement pursuant to which
Rentrak would dividend to its shareholders shares of BlowOut
representing approximately sixty percent ownership of BlowOut.
Rentrak would retain 9.9 percent and certain minority shareholders
would retain 30.1 percent. Final disposition of BlowOut is expected
to be completed prior to November 30, 1996. The proposed divestiture
through a stock dividend is subject to a number of conditions,
including formal declaration of a dividend by the Board of Directors.
Total revenue from BlowOut increased to $7.9 million for the quarter
ended September 30, 1996 from $3.1 million for the quarter ended
September 30, 1995. Total revenue from BlowOut increased to $15.2
million for the six months ended September 30, 1996 from $4.0 million
for the six months ended September 30, 1995. For the quarter ended
September 30, 1996, BlowOut recorded a pre-tax loss of $1.8 million.
This compares with a pre-tax loss of $1.7 million for the quarter
ended September 30, 1995. For the six months ended September 30,
1996, BlowOut recorded a pre-tax loss of $2.8 million. This compares
with a pre-tax loss of $1.9 million for the six months ended
September 30, 1995. The losses related to the three and six months
ended September 30, 1996 were accrued at March 31, 1996 and are
therefore not reflected in the September 30, 1996 statements of
operations. Comparisons to the three and six months ended September
30, 1995, are not meaningful because of the acquisitions of two
entities which occurred in June and September 1995. (See Note 8 of
the Notes to the Consolidated Financial Statements included in the
1996 Annual Report to Shareholders filed on form 10-K.)
Balance Sheet
At September 30, 1996, total assets were $52.4 million, a decrease of
$3.9 million from the $56.3 million at March 31, 1996. As of
September 30, 1996, Other Investments decreased $1.7 million to $1.8
million from $3.5 million at March 31, 1996. A majority of the
decline was due to the repayment of a $1.0 million investment. The
remaining portion was due to a decrease in the market value of
investments held at September 30, 1996. As of September 30, 1996,
Accounts Receivable-affiliates decreased $1.8 million due to
repayment from an affiliate of amounts due.
As noted earlier, the Company approved plans to discontinue the
operations of Pro Image and BlowOut. At September 30, 1996 and March
31, 1996, the net assets of Pro Image and BlowOut have been
segregated in the Consolidated Financial Statements.
Net noncurrent assets of Pro Image which are included in net
noncurrent assets of discontinued operations in the accompanying
Consolidated Financial Statements at September 30, 1996 and March 31,
1996 are comprised primarily of property and equipment and long-term
debt. Net current liabilities of Pro Image which are included in net
current liabilities of discontinued operations in the accompanying
Consolidated Financial Statements at September 30, 1996 and March 31,
1996 are comprised primarily of inventory, receivables, accounts
payable, accrued liabilities, estimated operating losses to be
incurred by Pro Image through the expected disposal date and other
costs associated with the disposition.
Net noncurrent assets of BlowOut which are included in net non
current assets of discontinued operations in the accompanying
Consolidated Financial Statements at September 30, 1996 and March 31,
1996 are comprised primarily of rental inventory, property and
equipment, intangibles, and long-term debt. Net current liabilities
of BlowOut which are included in net current liabilities of
discontinued operations in the accompanying Consolidated Financial
Statements at September 30, 1996 and March 31, 1996 are comprised
primarily of cash, inventory, accounts payable, accrued liabilities,
estimated operating losses to be incurred by BlowOut through the
expected disposal date and other costs associated with the
disposition.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company had cash and other liquid
investments of $4.9 million, compared to $3.0 million at March 31,
1996. At September 30, 1996, the Company's current ratio (current
assets/current liabilities) increased to .83 from .70 at March 31,
1996.
The Company has an agreement for a line of credit in an amount not to
exceed the lesser of $10 million or the sum of (a) 70 percent of the
net amount of eligible accounts receivable as defined in the
agreement plus (b) certain certificates of deposits and treasury
bills as defined in the agreement. The line of credit expires on
October 27, 1996. Interest is payable monthly at the bank's prime
rate plus 1.5 percent (9.75 percent at September 30, 1996). The
lender has been granted a warrant to purchase 30,000 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 Pro Image
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 was in
compliance with these covenants as of September 30, 1996. There were
no amounts outstanding on the line at September 30, 1996. Subsequent
to September 30, 1996, the Company received a commitment from the
bank to renew the line through October, 1997. The commitment is for
a line of credit in an amount not to exceed the lesser of $10 million
or the sum of (a) 80 percent of the net amount of eligible accounts
receivable as defined in the agreement, plus (b) certain certificates
of deposits and treasury bills as defined in the agreement. Interest
is payable at the bank's prime rate plus .5 percent or LIBOR plus 3
percent.
Pro Image has a line of credit arrangement with a financial
institution for the lesser of $5.0 million or the amount of the
borrowing base as defined in the agreement. Pro Image may borrow an
additional $1.0 million under the line of credit agreement, subject
to a dollar for dollar cash infusion from Rentrak. Interest under
the agreement is accrued at the financial institution's prime rate
(8.25 percent at May 31, 1996) plus .25 percent. The credit
agreement expires on July 31, 1997. As of August 31, 1996, Pro Image
was not in compliance with their debt covenants. Accordingly, the
outstanding balance of $1.8 million at August 31, 1996 under the line
of credit has been classified as current and is included in net
current liabilities of discontinued operations in the accompanying
Consolidated Financial Statements.
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 the potential for 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. Under
these agreements, retailers are typically required to obtain all of
their requirements of cassettes offered under the PPT system or
obtain a minimum amount of cassettes based on a percentage of the
retailer's revenues. 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. These financings are highly speculative in nature and
involve a high degree of risk, and no assurance of a satisfactory
return on investment can be given. The amounts the Company could
ultimately receive could differ materially in the near term from the
amounts assumed in establishing reserves.
The loans, investments or commitments made to various retailers
individually range from $0.2 million to $1.6 million. Interest rates
on the various loans range from the prime rate plus 1 percent to the
prime rate plus 2 percent. 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. This
assessment includes reviewing available financial statements and cash
flow projections of the retailer and discussions with retailers'
management.
As of September 30, 1996, the Company had approximately $5.5 million
outstanding in loans and investments under the program. Because of
the financial condition of a number of these retailers, the Company
has reserved approximately $5.3 million of the original loan or
investment amount.
Subsequent to September 30, 1996, the Board of Directors authorized
the Company to make additional loans and investments in retailers up
to a maximum of $10 million outstanding in total under the program at
any point in time.
Both Pro Image and BlowOut have experienced significant losses from
operations and have used significant amounts of cash to fund
operations during their most recent fiscal year and for the quarter
ended September 30, 1996.
BlowOut is essentially a start-up company and is experiencing rapid
growth requiring additional financing if it is to continue its
expansion and to support operations of recently opened stores. In
July 1996, BlowOut Obtained a credit facility in an aggregate
principal amount of $2.0 million for a five-year term. Amounts
outstanding under the credit facility bear interest at a fixed rate
per annum equal to 13.98% The loan is guaranteed by the Company
until the lender is satisfied that BlowOut's financial condition is
sufficient to justify the release of the Company's guarantee. Each
quarter the lender has agreed to consider increasing its commitment.
In August 1996, BlowOut also obtained an additional revolving line of
credit in the maximum principal amount at one time outstanding of
$5.0 million. Under the Line of Credit, BlowOut may only draw up to
80% of the Orderly Liquidation Value (as defined by the Line of
Credit) of eligible new and used video cassette inventory. Advances
under the Line of Credit will bear interest at a floating rate per
annum equal to the Bank of America Reference Rate plus 2.75% (11% as
of September 30, 1996). The term of the Line of Credit is three
years. The Line of Credit will be guaranteed by the Company until
BlowOut completes the contemplated spin-off transaction to the
lender's satisfaction. Thereafter, the Company has agreed, under
certain circumstances in the event of default under the Line of
Credit, to repurchase BlowOut's video cassette inventory at specified
amounts.
The Company's exposure related to adverse financial and operational
developments at Pro Image and BlowOut is limited to its receivables
from and an investment in BlowOut which will be retained after the
planned disposition [See Note 15 of the Notes to the March 31, 1996
Consolidated Financial Statements], certain guarantees previously
made to BlowOut [See Note 9 of the Notes to the March 31, 1996
Consolidated Financial Statements] and any funding covered by the
BlowOut financing guarantees discussed above. The Company believes
BlowOut will be able to fulfill these obligations and does not
believe that the issues faced by Pro Image and BlowOut will have a
material adverse effect on the Company.
The Company's sources of liquidity include its cash balance, cash
generated from operations and its available credit facilities.
Although its operations generated negative cash flow during fiscal
1996 and substantial losses from discontinued operations, the sources
of liquidity referred to above, along with the flexibility that the
Company has in adjusting operating levels, are expected to be
sufficient to fund the Company's operations through its fiscal year
ending March 31, 1997.
PART II
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of matters to a Vote of Security Holders
On August 19, 1996, the Company conducted its Annual Meeting of
Shareholders ("meeting"). Both of the Company's nominees to
election as Director were elected. Voting for Directors was as
follows:
<TABLE>
<CAPTION>
Nominees For Percentage1 Withheld Percentage
<S> <C> <C> <C> <C>
Muneaki Masuda 9,999,332 97.15% 293,453 2.85%
Stephen Roberts 10,025,032 97.40% 267,753 2.60%
</TABLE>
Item 5. Exhibits and Reports on Form 8-K
(a) Exhibit 11 - Calculation of Net Income Per Share
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K - None
SIGNATURE
Pursuant to the requirements 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.
Dated this 13th day of November, 1996
RENTRAK CORPORATION:
/s/ Carolyn A. Pihl
Carolyn A. Pihl
Chief Accounting Officer
Signing on behalf of the registrant
1. Percentage of votes cast at the Meeting or by Proxy
<TABLE>
Exhibit 11
RENTRAK CORPORATION
Computation of Net Income Per Share
For The Period Ended September 30, 1996
<CAPTION>
For the Quarter Ended For the Six Months Ended
September 30, 1996 September 30, 1996
Primary Fully Diluted Primary Fully Diluted
<S> <C> <C> <C> <C>
Calculation of Outstanding Shares
Weighted average number of shares of
common stock outstanding 12,141,210 12,141,210 12,139,762 12,139,762
Dilutive effect of exercise of
stock options 4,936,924 6,610,674 4,914,899 6,588,649
Less: purchase of treasury shares, up to
20% of shares outstanding at period end (2,428,248) (2,428,248) (2,427,988) (2,427,988)
Weighted average number of shares of common
stock and common stock equivalents 14,649,886 16,323,636 14,626,673 16,300,423
Calculation of Net Income Per Share
Net Income $3,975,933 $3,975,933 $4,552,229 $4,552,229
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. 164,474 253,725 343,379 521,881
Net Income for purposes of computing
earnings per share. $4,140,407 $4,229,658 $4,895,608 $5,074,110
Net Income per Share $0.28 $0.26 $0.33 $0.31 <PAGE>
The computation of net income (loss) per share for the periods ending September 30, 1995 is not provided since it
can be clearly determined from the material contained in the footnotes to the financial statements.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<CASH> 4,879,700
<SECURITIES> 0
<RECEIVABLES> 17,394,307
<ALLOWANCES> 345,259
<INVENTORY> 1,492,983
<CURRENT-ASSETS> 28,034,637
<PP&E> 5,393,550
<DEPRECIATION> 4,376,872
<TOTAL-ASSETS> 52,430,383
<CURRENT-LIABILITIES> 33,804,918
<BONDS> 0
<COMMON> 12,141
0
0
<OTHER-SE> 18,613,324
<TOTAL-LIABILITY-AND-EQUITY> 52,430,383
<SALES> 59,167,801
<TOTAL-REVENUES> 59,167,801
<CGS> 44,901,304
<TOTAL-COSTS> 52,207,164
<OTHER-EXPENSES> (422,600)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 181,950
<INCOME-PRETAX> 7,383,237
<INCOME-TAX> 2,831,008
<INCOME-CONTINUING> 4,552,229
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,552,229
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.31
</TABLE>
