<PAGE>
This filing consists of 95 pages.
The Exhibit Index is on Page 56.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - K/A
X Annual Report Pursuant to Section 13 or 15 (d) of the Securities
- ----- Exchange Act of 1934 for fiscal year ended March 31, 1996 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 25, 1996, 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 $4.3125.
(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 25, 1996. Includes shares held by certain depository
organizations.)
As of June 25, 1996, the Registrant had 12,139,639 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE DEFINITIVE PROXY STATEMENT FOR THE 1996 ANNUAL MEETING
OF THE SHAREHOLDERS ARE INCORPORATED BY REFERENCE INTO PART III OF THIS
FORM 10-K
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(In Thousands, Except Per Share Amounts)
Year Ended March 31,
-------------------------------------------------------------------
1992 1993 1994 1995 1996
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net revenues:
Processing fees $ 2,260 $ 2,299 $ 1,662 $ 1,114 $ 551
Handling fees 11,063 12,170 13,712 18,052 25,716
Transaction fees 27,738 33,399 40,967 49,904 70,187
Sell-through 5,196 4,980 5,665 8,923 10,601
Other 1,165 1,237 1,955 6,555 6,211
International operations 0 200 116 0 0
-------------------------------------------------------------------
Total net revenues 47,422 54,285 64,077 84,548 113,266
Cost of sales 37,759 41,297 49,697 66,375 95,168
-------------------------------------------------------------------
Gross profit 9,663 12,988 14,380 18,173 18,098
Selling and administrative expense 10,138 14,742 14,008 15,527 20,860
Suspension of European operations 0 0 901 0 0
Other income (expense) 242 521 538 3,522 681
-------------------------------------------------------------------
Income (loss) from continued operations before
benefit (provision) for income taxes, minority
partner interests and extraordinary item (233) (1,233) 9 6,168 (2,081)
Income tax benefit (provision) 0 (305) 764 (768) 595
-------------------------------------------------------------------
Income (loss) from continued operations before
minority partner interests and extraordinary item (233) (1,538) 773 5,400 (1,486)
Losses attributable to minority partner
interests 0 649 131 0 0
-------------------------------------------------------------------
Income (loss) from continued operations before
extraordinary item (233) (889) 904 5,400 (1,486)
Discontinued Operations: (1)
Loss from operations of discontinued subsidiaries
less applicable income tax provision (benefit) (286) (91) (287) (18,700)
Loss on disposal of subsidiaries (12,100)
Extraordinary item, income tax benefit from
carryforward of net operating losses 0 280 0 0 0
-------------------------------------------------------------------
Net income (loss) $ (233) $ (895) $ 813 $ 5,113 $(32,286)
-------------------------------------------------------------------
-------------------------------------------------------------------
Net income (loss) per share - assuming issuance
of all dilutive contingent shares
Continuing operations $ (0.03) $ (0.07) $ 0.09 $ 0.42 $ (0.12)
Discontinued operations 0.00 (0.03) (0.01) (0.02) (2.56)
-------------------------------------------------------------------
Net income (loss) $ (0.03) $ (0.10) $ 0.08 $ 0.40 $ (2.68)
-------------------------------------------------------------------
-------------------------------------------------------------------
Common shares and common share equivalents
outstanding 8,552 9,306 10,162 14,317 12,019
</TABLE>
<TABLE>
<CAPTION>
March 31,
-------------------------------------------------------------------
1992 1993 1994 1995 1996
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (2)
Working Capital $ 18,875 $ 17,116 $ 16,155 $ 12,897 $(12,579)
Total Assets 27,582 34,824 44,620 64,818 56,252
Long-term Debt 5 0 0 0 0
Stockholders' Equity 21,398 22,722 29,523 40,292 14,404
</TABLE>
(1) Discontinued Operations includes the operations of TPI and BlowOut.
Results of operations in 1993 reflect only those of BlowOut as TPI was
acquired during fiscal year 1994. Additional acquisitions were made by TPI
and BlowOut during 1995 and 1996, therefore comparisons between years are
not meaningful. See acquisitions footnote 8 and discontinued operations
footnote 15 in the consolidated financial statements.
(2) The 1995 and prior balance sheets have not been restated for discontinued
operations.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Item Page
---- ----
Report of Independent Public 24
Accountants
Consolidated Balance Sheets as of March 31, 1996 25
and 1995
Consolidated Statements of Operations for Years 26
Ended March 31, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity 28
for Years Ended March 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for Years 29
Ended March 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements 30
Financial Statement Schedules
Schedule II 52
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 Rentrak Corporation:
We have audited the accompanying consolidated balance sheets of Rentrak
Corporation and subsidiaries, as of March 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended March 31, 1996. 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, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended March 31, 1996 in conformity with generally accepted accounting
principles.
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 purposes of complying with the Securities
and Exchange Commission's rules and is 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.
ARTHUR ANDERSEN LLP
Portland, Oregon,
June 3, 1996
<PAGE>
RENTRAK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1996 AND 1995
ASSETS
1996 1995
------------ -----------
CURRENT ASSETS:
Cash and cash equivalents $2,683,128 $10,709,405
Investment securities available for sale 344,500 -
Accounts receivable, net of allowance for doubtful
accounts of $627,895 and $642,580 15,116,203 14,711,439
Accounts receivable - affiliate 3,227,006 -
Advances to program suppliers 1,462,875 2,683,710
Inventory 1,737,695 6,291,032
Deferred tax asset 1,353,226 915,404
Other current assets 3,343,389 2,112,021
------------ -----------
Total current assets 29,268,022 37,423,011
------------ -----------
PROPERTY AND EQUIPMENT, net 1,466,177 4,924,122
INTANGIBLES, net of accumulated amortization of
$3,399,678 and $3,472,783 347,137 11,011,121
NOTES RECEIVABLE, net - 3,035,787
NOTE RECEIVABLE, affiliate 2,800,000 -
OTHER INVESTMENTS, net 3,477,105 2,919,919
DEFERRED TAX ASSET 2,918,838 1,926,673
OTHER ASSETS 1,225,331 3,577,035
NET NONCURRENT ASSETS OF DISCONTINUED OPERATIONS 14,749,248 -
------------ -----------
$ 56,251,858 $64,817,668
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 2,700,000 $ -
Accounts payable 21,795,843 17,799,146
Accrued liabilities 2,163,325 3,301,513
Accrued compensation 1,240,543 2,016,820
Deferred revenue 2,004,865 1,408,076
Net current liabilities of discontinued operations 11,942,858 -
------------ -----------
Total current liabilities 41,847,434 24,525,555
------------ -----------
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: 12,138,216 shares in
1996 and 11,277,246 shares in 1995 12,138 11,277
Capital in excess of par value 49,583,514 44,598,939
Net unrealized gain (loss) on investment securities 567,508 (170,747)
Accumulated deficit (33,366,162) (1,080,493)
Less- Deferred charge - warrants (2,392,574) (3,066,863)
------------ -----------
14,404,424 40,292,113
------------ -----------
$ 56,251,858 $64,817,668
------------ -----------
------------ -----------
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, 1996, 1995 AND 1994
1996 1995 1994
------ ------ ------
REVENUES:
PPT $108,073,429 $79,793,584 $62,005,968
Other 5,192,891 4,754,315 2,070,544
------------ ----------- -----------
113,266,320 84,547,899 64,076,512
------------ ----------- -----------
OPERATING COSTS AND EXPENSES:
Cost of sales 95,167,529 66,374,471 49,697,063
Selling and administrative 20,859,923 15,526,912 14,007,731
Suspension of European operations - - 900,563
------------ ----------- -----------
116,027,452 81,901,383 64,605,357
------------ ----------- -----------
Income (loss) from operations (2,761,132) 2,646,516 (528,845)
------------ ----------- -----------
OTHER INCOME (EXPENSE):
Interest income 1,078,798 695,190 566,301
Interest expense (208,307) - (28,257)
Gain on sale of investments 62,091 2,826,849 -
Other (251,911) - -
------------ ----------- -----------
------------ ----------- -----------
680,671 3,522,039 538,044
------------ ----------- -----------
Income (loss) from continuing
operations before income tax
provision (benefit) and
minority partner interests (2,080,461) 6,168,555 9,199
INCOME TAX (PROVISION) BENEFIT 594,792 (768,045) 763,919
------------ ----------- -----------
Income (loss) from continuing
operations before minority
partner interests (1,485,669) 5,400,510 773,118
LOSSES ATTRIBUTABLE TO MINORITY PARTNER
INTERESTS - - 130,918
------------ ----------- -----------
Income (loss) from continuing
operations (1,485,669) 5,400,510 904,036
(continued)
<PAGE>
RENTRAK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
1996 1995 1994
------------ ----------- -----------
DISCONTINUED OPERATIONS:
Loss from operations of discontinued
subsidiaries (less applicable income
tax provision (benefit) of
$(2,500,000), $(40,814) and $0 for
1996, 1995 and 1994, respectively) $(18,700,000) $ (286,987) $ (90,971)
Loss on disposal of subsidiaries
including provision of $4,800,000 for
operating losses during phaseout
periods (less applicable income tax
benefit of $0) (12,100,000) - -
------------ ----------- -----------
Net income (loss) $(32,285,669) $ 5,113,523 $ 813,065
------------ ----------- -----------
------------ ----------- -----------
NET INCOME (LOSS) PER SHARE
EARNINGS (LOSS) PER COMMON SHARE AND COMMON
EQUIVALENT SHARE:
Continuing operations $ (.12) $ .43 $ .09
Discontinued operations (2.56) (.02) (.01)
------------ ----------- -----------
Net income (loss) $(2.68) $ .41 $ .08
------------ ----------- -----------
------------ ----------- -----------
EARNINGS (LOSS) PER COMMON SHARE AND COMMON
EQUIVALENT SHARE - assuming issuance
of all dilutive contingent shares:
Continuing operations $ (.12) $ .42 $ .09
Discontinued operations (2.56) (.02) (.01)
------------ ----------- -----------
Net income (loss) $(2.68) $ .40 $ .08
------------ ----------- -----------
------------ ----------- -----------
The accopanying notes are an integral part of these statements.
<PAGE>
RENTRAK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Common Stock (Accumulated Net Unrealized
-------------- Capital in Deficit) Cumulative Gains (Losses)
Number of Excess of Retained Translation on Investment
Shares Amount Warrants Per Value Earnings Adjustment Securities Total
----------- -------- ---------- ------------ ----------- ----------- -------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1993 9,474,894 $9,475 $ - $29,635,765 $(7,007,081) $ 83,866 $ - $22,722,025
Repurchase of common stock (83,963) (84) - (444,544) - - - (444,628)
Issuance of common stock
for acquisition 776,200 776 - 4,957,828 - - - 4,958,604
Issuance of common stock
under employee stock
option plan 56,846 57 - 123,214 - - - 123,271
Net income - - - - 813,065 - - 813,065
Cumulative translation
adjustment - - - - - (63,866) - (63,866)
Net unrelized gain on
investment securities - - - - - - 1,434,182 1,434,182
----------- -------- ---------- ------------ ----------- ----------- -------------- -----------
BALANCE AT MARCH 31, 1994 10,224,057 10,224 - 34,272,263 (6,194,016) - 1,434,182 29,522,653
Repurchase of common stock (38,300) (38) - (189,512) - - - (189,550)
Issuance of common stock 364,445 364 - 1,549,257 - - - 1,549,621
Issuance of common stock
for acquistions 639,561 640 - 5,110,526 - - - 5,111,166
Issuance of common stock
under employee stock
option plan 87,483 87 - 322,428 - - - 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 - - (3,533,977) 3,533,977 - - - -
Amortization of warrants - - 467,114 - - - - 467,114
----------- -------- ---------- ------------ ----------- ----------- -------------- -----------
BALANCE AT MARCH 31, 1995 11,277,246 11,277 (3,066,863) 44,598,939 (1,080,493) - (170,747) 40,292,113
Repurchase of common stock (69,300) (69) - (341,631) - - - (341,700)
Issuance of common stock 883,000 883 - 5,230,577 - - - 5,231,460
Issuance of common stock
under employee stock
option plan 47,270 47 - 95,629 - - - 95,676
Net loss - - - - (32,285,669) - - (32,285,669)
Change in net unrealized
gains (losses) on
investment securities - - - - - - 738,255 738,255
Amortization of warrants - - 674,289 - - - - 674,289
----------- -------- ---------- ------------ ----------- ----------- -------------- -----------
BALANCE AT MARCH 31, 1996 12,138,216 $12,138 $(2,392,574) $49,583,514 $(33,366,162) $ - $ 567,508 $ 14,404,424
----------- -------- ---------- ------------ ----------- ----------- -------------- -----------
----------- -------- ---------- ------------ ----------- ----------- -------------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE>
RENTRAK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
1996 1995 1994
------ ------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(32,285,669) $5,113,523 $813,065
Adjustments to reconcile net income
(loss) to net cash provided (used) by
operations-
Loss on disposal of discontinued
operations 12,100,000 - -
Loss (gain) on asset and investment
sales 426,827 (2,826,849) 893,116
Depreciation 5,034,493 1,441,872 769,748
Amortization and write-off of
intangibles 11,545,750 1,242,564 678,588
Amortization of warrants 674,289 467,114 -
Provision for doubtful accounts 523,315 (582,386) (43,160)
Retailer financing program reserves 2,789,701 2,974,912 -
Reserves on advances to program
suppliers 1,345,406 572,300 -
Losses attributable to minority
partner interests - - (130,918)
Deferred income taxes (4,966,997) (2,737,426) -
Cumulative translation adjustments - - (83,866)
Change in specific accounts, net of
effects in 1996, 1995 and 1994
from purchase of businesses:
Accounts receivable (2,138,592) (4,726,871) 796,241
Inventories (5,638,802) (1,490,480) -
Advances to program suppliers 1,025,835 659,348 (1,278,411)
Other current assets (1,641,277) (1,244,614) (958,020)
Accounts payable 7,156,983 4,746,922 (641,559)
Accrued liabilities and
compensation 2,403,732 1,420,639 1,117,287
Deferred revenue 1,073,929 1,408,076 -
----------- ----------- -----------
Net cash provided (used) by
operating activities (571,077) 6,438,644 1,932,111
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, equipment and
inventory (10,143,322) (1,273,080) (1,758,893)
Investments in retailer financing
program (2,183,000) (8,930,618) -
Cash paid for purchases of businesses,
net of cash acquired (377,848) - (1,342,352)
Purchases of other assets - 309,849 (1,198,989)
Purchases of investments (344,500) (4,400,253) (8,271,811)
Maturities of investments - 4,400,253 19,596,118
Proceeds from sale of investment 951,394 3,027,540 134,982
Purchase of other assets and intangibles (242,176) (973,319) (364,979)
Proceeds from retailer financing program 1,199,005 - -
Proceeds from sale of assets 1,100,000 - -
----------- ----------- -----------
Net cash provided (used) by
investing activities (10,040,447) (7,839,620) 6,794,076
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (payments) of long-term debt 2,537,844 (3,259,724) -
Borrowing on notes payable 3,501,971 - -
Cash received from minority partner - - 50,000
Repurchase of common stock (341,700) (189,550) (444,628)
Issuance of common stock 114,011 1,743,937 123,271
----------- ----------- -----------
Net cash provided (used) by
financing activities 5,812,126 (1,705,337) (271,357)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (4,799,398) (3,106,313) 8,454,830
CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR 10,709,405 13,815,718 5,360,888
CASH AND CASH EQUIVALENTS INCLUDED IN NET
CURRENT LIABILITIES OF DISCONTINUED
OPERATIONS 3,226,879 - -
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $2,683,128 $10,709,405 $13,815,718
----------- ----------- -----------
----------- ----------- -----------
The accompanying notes are an integral part of these statements.
<PAGE>
RENTRAK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995 AND 1994
1. BUSINESS OF THE COMPANIES, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND
OTHER ITEMS:
INTRODUCTION
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.
Under its PPT program, which is the Company's primary continuing operation, the
Company enters into contracts with program suppliers to distribute video
cassettes which are then leased to retailers (producers of motion pictures and
licensees and distributors of home video cassettes), for a percentage of the
rentals charged by the retailers.
PLANNED DIVESTITURES
During the quarter ended March 31, 1996, the Company assessed its overall
business strategy and decided to divest two subsidiary units -- The Pro Image,
Inc. (TPI) and BlowOut Entertainment, Inc. (BlowOut). The Company's Board of
Directors has approved the spin-off of TPI and BlowOut. Thus, the operations of
TPI and BlowOut are reflected as discontinued operations in the accompanying
statements of operations. Refer to Note 15 for discussion of divestiture plans,
reserves established by the Company related to the discontinued operations, and
the nature of management's estimates used in determining the reserves.
TPI, a wholly owned subsidiary of the Company, franchises retail outlets
and operates Company-owned retail stores. TPI also operates a wholly owned
subsidiary, Team Spirit, Inc. (Team Spirit), which was acquired during the
year ended March 31, 1995 (see Note 8). TPI and Team Spirit Stores sell
sports-oriented products and apparel featuring products licensed by college
and professional sports teams. As of March 31, 1996, TPI franchised
approximately 167 retail outlets in 43 states, Canada, Germany, Mexico,
Japan, Korea and Indonesia. Including Team Spirit, TPI operates 66
Company-owned retail stores in 28 states throughout the country.
BlowOut, a 93 percent owned subsidiary of the Company, is engaged in the
business of operating "store within a store" retail video outlets which
rent and sell motion picture videocassettes, video games, computer games
and programs on CD-ROMs in Wal-Mart Super Centers, Super Kmart Centers and
Ralph's grocery stores. BlowOut was formed by the merger of an existing
subsidiary with two entities which were acquired during the year (see
Note 8). As of March 31, 1996, the Company operated 187 stores.
<PAGE>
EFFECT OF DIVESTITURES ON THE COMPANY
Both TPI and BlowOut have experienced significant losses from operations and
have used significant amounts of cash to fund operations during their most
recent fiscal year. TPI is currently operating with minimal cash and has
developed a new business plan which incorporates certain store closures, staff
reductions, and other measures.
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. BlowOut is currently pursuing financing
from several sources and the Company has agreed to guarantee up to $7 million of
outside financing to BlowOut.
The Company's exposure related to adverse financial and operational developments
at TPI and BlowOut is limited to its receivables from and investment in BlowOut
which will be retained after the planned spin-off (see Note 15), certain
guarantees previously made to BlowOut (see Note 9) and any funding covered by
the financing guarantee discussed above. The Company believes it has the
wherewithal to fulfill these obligations and does not believe that the issues
faced by TPI and BlowOut will have a material adverse effect on the Company.
RENTRAK JAPAN
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.
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.
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 the last day of February. 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 29, 1996 and February 28, 1995 and the statements of operations,
stockholders' equity and cash flows for the 12-month periods ending February 29,
<PAGE>
1996 and February 28, 1995 and the 4-1/2 month period ending February 28,
1994. Team Spirit's balance sheet as of February 29, 1996 and February 28,
1995 and the statements of operations, stockholder's equity and cash flows
for the 12-month period ending February 29, 1996 and the 6-month period
ending February 28, 1995 are included in the consolidated financial
statements. These periods are based on the acquisition dates of the
respective entities.
BlowOut's balance sheet as of March 31, 1996 and 1995 and the statements of
operations, stockholders' equity and cash flows for the years ended March 31,
1996, 1995 and 1994 are included in the consolidated financial statements.
Subsequent to March 31, 1996, the Company approved plans to discontinue the
operations of TPI and BlowOut (see Note 15). Accordingly, the financial results
of these entities are reflected as discontinued operations in the March 31, 1996
financial statements, and the previous years' statements of operations have been
restated to reflect these entities as discontinued. The 1995 balance sheet and
all cash flow periods have not been restated.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
These estimates include reserves on retailer financing program investments (see
Note 4) and estimated losses on disposal of discontinued operations (see
Note 15). Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.
INVESTMENT SECURITIES
Statement of Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities (SFAS 115)" requires the Company to
classify and account for its security investments as trading securities,
securities available for sale or securities held to maturity depending on the
Company's intent and ability to hold or trade the securities at time of
purchase. Securities available for sale are stated on the balance sheet at
their fair market value with an adjustment to stockholders' equity to reflect
net unrealized gains and losses, net of tax. Securities held to maturity are
stated at amortized cost.
Detail of the proceeds from the sales of available for sale securities and
realized gains and losses on sales of equity securities are as follows:
Proceeds Gross Gains Gross Losses
---------- ------------- --------------
1994 $ 134,982 $ 84,982 $ -
1995 3,027,548 2,856,716 (25,767)
1996 951,394 150,288 (88,197)
<PAGE>
FINANCIAL INSTRUMENTS
A financial instrument is cash or a contract that imposes or conveys, a
contractual obligation or right, to deliver, or receive, cash or another
financial instrument. The estimated fair value of all material financial
instruments, including retail financing program notes receivable, approximated
their carrying values at March 31, 1996 and 1995.
INVENTORY
Inventory consists of videocassettes held for sale and is carried at the lower
of cost (first-in, first-out method) or market value.
PROPERTY AND EQUIPMENT
Depreciation of fixed assets is computed on the straight-line method over
estimated useful lives of three to five years. Leasehold improvements are
amortized over the lives of the underlying leases or the service lives of the
improvements, whichever is shorter.
INTANGIBLES
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.
During fiscal years 1996, 1995 and 1994, the Company paid cash and issued stock
for approximately $21,000, $11,000 and $206,000, 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 in 1994, 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. 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. Prior to March 31, 1996, these assets
were being amortized on the straight-line method over a 12-year period based on
the factors influencing the acquisition decision. The Company believed the
above useful lives were appropriate based on the factors influencing acquisition
decisions. These factors included store location, profitability and general
industry outlook. The Company analyzes the realizability of all costs in excess
of the fair values of net assets acquired related to acquisitions to determine
if any write-down is necessary. Prior to the fourth quarter of 1996, the
Company's analysis determined that no write-down was necessary. Due to events
which occurred during the fourth quarter such as continuation of operating
losses and the decision to dispose of TPI (including subsidiaries) the Company's
analysis determined that intangible assets of approximately $9,300,000 were not
recoverable. Thus, the assets were written off to their estimated fair value of
$0. These write-offs are reflected in losses from discontinued operations.
<PAGE>
REVENUE RECOGNITION
The PPT 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 payable. 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 $255,568, $426,102 and $422,053 during 1996, 1995 and 1994,
respectively.
INCOME TAXES
The Company accounts for income taxes in accordance with 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.
NET INCOME (LOSS) PER SHARE
Loss per common share and common equivalent share for 1996 was computed based on
the weighted average number of shares of common stock and common equivalent
shares outstanding, which was 12,019,273.
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 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.
<PAGE>
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.
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.
ADVERTISING EXPENSE
Advertising expense, net of cooperative advertising reimbursements, totaled
$1,472,702, $(95) and $290,603 for the years ended March 31, 1996, 1995 and
1994, respectively.
<PAGE>
Statement of Cash Flows
The Company made the following cash payments for the years ended March 31:
1996 1995 1994
------ -------- -------
INTEREST $ 326,870 $ 35,979 $ 3,905
INCOME TAXES 236,545 3,288,189 62,127
NONCASH FINANCING AND INVESTING
ACTIVITIES:
Issuance of warrants - 3,533,977 -
Addition to other assets through
issuance of common stock - 128,199 -
Acquisition of businesses through
issuance of stock 5,213,125 5,111,166 5,542,639
Changes in net unrealized gains
(losses) on investment securities
through adjustments to
stockholders' equity 738,255 (1,604,929) 1,434,182
RECENT PRONOUNCEMENTS
During May 1993, the Financial Accounting Standards Board issued Statement
No. 114 (SFAS 114), "Accounting by Creditors for Impairment of a Loan," which
requires the Company to evaluate the collectibility of both contractual interest
and contractual principal of all receivables when assessing the need for a loss
accrual. The Company has adopted the provisions of SFAS 114 (see Note 4).
During March 1995, the Financial Accounting Standards Board issued Statement
No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of," which requires the Company to review for
impairment of long-lived assets, certain identifiable intangibles, and goodwill
related to those assets whenever events or changes in circumstances indicate
that the carrying amount of an asset might not be recoverable. In certain
situations, an impairment loss would be recognized. The Company has adopted the
provisions of SFAS 121 which did not have a material effect on the Company's
financial statements.
During October 1995, the Financial Accounting Standards Board issued Statement
No. 123 (SFAS 123), "Accounting for Stock-Based Compensation," which establishes
a fair value-based method of accounting for stock-based compensation plans and
requires additional disclosures for those companies that elect not to adopt the
new method of accounting. The Company will continue to account for employee
purchase rights and stock options under APB Opinion No. 25, "Accounting for
Stock Issued to Employees." SFAS 123 disclosures will be effective for fiscal
years beginning after March 31, 1996.
<PAGE>
2. INVESTMENT SECURITIES:
The carrying value and estimated fair value of marketable securities at March 31
were as follows:
Unrealized Unrealized
Cost Gross Gain Gross Loss Fair Value
------- ---------- ---------- ----------
As of March 31, 1996:
Available for sale-
Current:
Corporate securities $207,125 $ 137,375 $ - $ 344,500
------- ---------- ---------- ----------
------- ---------- ---------- ----------
Noncurrent:
Corporate securities $680,672 $1,118,462 $(340,499) $1,458,635
------- ---------- ---------- ----------
------- ---------- ---------- ----------
As of March 31, 1995:
Available for sale-
Noncurrent:
Corporate securities $389,065 $ - $(275,398) $ 113,667
------- ---------- ---------- ----------
------- ---------- ---------- ----------
Investment securities which have limited marketability are classified as
noncurrent as management does not believe that they will be sold within one
year.
3. PROPERTY AND EQUIPMENT:
Property and equipment, at cost, consists of:
March 31,
-------------------------
1996 1995
----------- -----------
Furniture and fixtures $4,101,822 $5,932,263
Machinery and equipment 399,897 1,247,352
Leasehold improvements 849,534 3,666,333
----------- -----------
5,351,253 10,845,948
Less accumulated depreciation (3,885,076) (5,921,826)
----------- -----------
$1,466,177 $4,924,122
----------- -----------
----------- -----------
<PAGE>
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 the potential 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. The amounts the Company could ultimately
receive could differ materially in the near-term from the amounts assumed in
establishing the reserves.
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 1996, the Company has
invested or made oral or written commitments to loan to or invest substantially
all of the $14 million authorized in various video retailers. The loans,
investments or commitments are to various retailers and individually range from
$200,000 to $1,600,000. The investments are stated on the balance sheet at
their fair market value in accordance with SFAS 115. The notes, which have
payment terms that vary according to the individual loan agreements, are due
1997 through 2001. Interest rates on the various loans range from the prime
rate plus 1 percent to the prime rate plus 2 percent. Due to the speculative
nature of these loans, interest income is not recognized until received.
The loans are reviewed for impairment in accordance with SFAS 114. A valuation
allowance has been established for the amount by which the recorded investment
in the loan exceeds the measure of the impaired loan. 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, 1996, the Company has approximately $7,300,000 in loans and
investments outstanding under the program. Because of the financial condition
of a number of these retailers, which became apparent during the year ended
March 31, 1996, the Company significantly increased its reserves to
approximately $6,000,000 of the total original loan or investment amount. At
March 31, 1995, the Company had invested or loaned approximately $9,200,000
under the program and had provided reserves of approximately $3,200,000.
The activity in the total reserves for the retailer financing program are as
follows for the years ended March 31:
1996 1995
---------- -----------
Beginning balance $3,242,850 $ -
Provision 2,789,701 3,242,850
---------- -----------
Ending balance $6,032,551 $3,242,850
---------- -----------
---------- -----------
<PAGE>
5. LINE OF CREDIT:
The Company has an agreement for a line of credit in an amount not to exceed the
lesser of $10,000,000 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
(8.75 percent at March 31, 1996). 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 and BlowOut 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 or has obtained
waivers of noncompliance as of March 31, 1996. At March 31, 1996, the Company
had $2,700,000 outstanding under this agreement.
6. INCOME TAXES:
The provision (benefit) for income taxes from continuing operations is as
follows for the years ended March 31:
1996 1995 1994
-------- -------- --------
Current tax provision
Federal $1,663,070 $1,887,414 $ 21,949
State 324,606 338,067 91,081
---------- ---------- ---------
1,987,676 2,225,481 113,030
Deferred tax benefit (2,582,468) (1,457,436) (876,949)
---------- ---------- ---------
Income tax provision (benefit) $ (594,792) 768,045 $(763,919)
---------- ---------- ---------
---------- ---------- ---------
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:
1996 1995 1994
-------- -------- --------
Provision (benefit) computed at statutory
rates $(707,357) $ 2,097,309 $ 3,128
State taxes, net of federal benefit (214,240) 256,331 91,081
Utilization of foreign loss carryforwards - (1,143,876) -
Change in valuation allowance - (953,470) -
Alternative minimum tax - - 18,821
Benefit of recognition of deferred tax assets - - (876,949)
Amortization of warrants 236,058 - -
Utilization of foreign tax credit (100,000) - -
Other 190,747 511,751 -
-------- -------- --------
$(594,792) $ 768,045 $(763,919)
-------- -------- --------
-------- -------- --------
<PAGE>
- 11 -
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 fiscal year 1995, it was determined that the losses could be
utilized and therefore the Company appropriately reduced 1995 taxable income.
The total reduction in the valuation allowance during the year ended March 31,
1996 and 1995, was $0 and $953,470, respectively. 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.
Deferred tax assets and liabilities from continuing operations are comprised of
the following components at March 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Deferred tax assets:
Current-
Vacation accrual $ 104,948 $ 132,060
Allowance for doubtful accounts 238,600 147,502
Retailer-related accruals 1,081,039 203,403
Retailer financing program reserve - 122,099
Legal settlement accrual 76,000 171,686
Unrealized gain on investment securities (52,203) -
Other (95,158) 138,654
---------- ----------
Total current deferred tax assets 1,353,226 915,404
---------- ----------
Noncurrent-
Depreciation 128,077 138,969
Retailer financing program reserve 2,384,798 1,351,706
Warrant amortization - 177,504
Program supplier reserves 598,800 -
Unrealized (gain) loss on investments (221,527) 104,651
Other 28,690 153,843
---------- ----------
Total noncurrent deferred tax assets $2,918,838 $1,926,673
========== ==========
Total deferred tax assets $4,272,064 $2,842,077
========== ==========
</TABLE>
7. STOCKHOLDERS' EQUITY:
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, 1996, the Company has 624,853 options available
to be granted and 3,873,500 shares of common stock reserved for issuance under
these plans.
<PAGE>
- 12 -
The table below summarizes the plan's activity:
Options Outstanding
-------------------------------------
Number Price
of Per Aggregate
Shares Share Price
---------- ----------- -----------
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
Granted 548,807 4.78 - 6.31 2,867,980
Issued (47,270) 1.13 - 5.62 (95,677)
Canceled (301,394) 4.88 - 7.88 (2,132,971)
--------- ------------ -----------
Balance at March 31, 1996 2,767,486 $1.13 - 9.53 $14,511,775
========= ============ ===========
As of March 31, 1996, 1,261,485 options to purchase stock were exercisable. The
remaining 1,506,001 options are subject to restrictions which prohibit them from
being exercised as of March 31, 1996.
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.
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, 1997.
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 was being amortized over five years, the life of the licensing agreement.
In fiscal year 1995, the asset was written down to zero as the agreement was
terminated.
<PAGE>
- 13 -
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.
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 1996 and 1995, expense associated with the warrants was $674,289 and
$467,114, respectively.
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.
8. ACQUISITIONS:
As discussed in Note 1, Rentrak consolidated the businesses and operations of an
existing subsidiary with two entities which were acquired during the year and
were subsequently discontinued (see Note 15). The acquisitions of these two
entities are described below.
<PAGE>
- 14 -
ENTERTAINMENT ONE, INC. ACQUISITION
On August 31, 1994, the Company acquired 169,230 newly issued shares of common
stock of Entertainment One, Inc. (E-1) valued at $338,460 in lieu of a financing
fee associated with $1,700,000 of financing provided by the Company to E-1. On
December 1, 1994, the Company acquired 500,000 newly issued shares of common
stock in E-1 at $2.00 per share. Following the acquisition, the Company owned
approximately 9.6 percent of the outstanding shares of E-1. On May 26, 1995,
the Company purchased 3,200,000 shares of common stock of E-1 from an E-1
stockholder at $.004 per share. Following the acquisition, the Company owned
approximately 57 percent of the outstanding shares of E-1.
In connection with this acquisition, the five "stand-alone" video stores owned
by E-1 were sold in June 1995 for approximately $1,100,000. These assets were
valued at their net realizable value when allocating the purchase price to the
assets acquired and liabilities assumed.
On October 20, 1995, the Company purchased from E-1 $985,591 principal amount of
convertible debentures, all of which were converted into 13,798,275 shares of
common stock of E-1 on December 15, 1995. Also on December 15, 1995, the
Company converted a $2,000,000 line of credit that it had provided to E-1 into
28,000,000 shares of common stock of E-1. Following these transactions, the
Company owned 93 percent of the outstanding shares of E-1.
The results of operations of the acquired stores for the ten-month period ended
March 31, 1996, have been included in the results of discontinued operations of
the Company.
SUPERCENTER ENTERTAINMENT CORPORATION ACQUISITION
On August 31, 1995, the Company acquired certain assets and assumed certain
liabilities of Supercenter Entertainment Corporation (SEC), which constituted
the Wal-Mart and Kmart "store within a store" video retail operations of SEC.
The total cost of the SEC acquisition of $5,200,000 was provided by issuing
878,000 shares of common stock with an aggregate market value of approximately
$5,200,000.
The results of operations of the acquired stores for the seven-month period
ended March 31, 1996, are included in the results of discontinued operations of
the Company.
The purchase method of accounting was used to record both the E-1 and SEC
acquisitions. As a result of the SEC and E-1 acquisitions, costs in excess of
underlying net asset values of approximately $5,200,000 were recorded to
intangible assets, consisting of goodwill and favorable lease contracts.
If the E-1 acquisition and the SEC acquisition had occurred at the beginning of
the years ended March 31, 1996 and 1995, revenues, net loss from continuing
operations and net loss per common share and common share equivalent from
continuing operations would not be impacted as the E-1 and SEC operations were
discontinued in the year ended March 31, 1996, and the results of the related
business segment (video retail) are not included in revenues, net loss from
continuing operations, and net loss per common share and common share equivalent
from continuing operations in any periods presented in the consolidated
statements of operations (see Note 15).
<PAGE>
- 15 -
The following table presents the unaudited pro forma results of discontinued
operations for the years ended March 31, 1996 and 1995, as if the E-1
acquisition and the SEC acquisition had been consummated at the beginning of the
respective periods. These pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of what would have occurred
had the acquisitions been consummated at the beginning of the respective
periods.
Year Ended March 31,
---------------------------
1996 1995
------------ -----------
(Unaudited)
Revenue from discontinued operations $ 61,047,768 $36,519,143
Net loss from discontinued operations (18,984,378) (5,169,914)
Net loss per share from discontinued operations (1.53) (0.30)
TEAM SPIRIT ACQUISITION
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.
If the Team Spirit acquisition had occurred at the beginning of the year ended
March 31, 1995, revenues, net loss from continuing operations and net loss per
common share and common share equivalent from continuing operations would not be
impacted as the Team Spirit operations were discontinued in the year ended
March 31, 1996, and the results of the related business segment (sports apparel)
are not included in revenues, net loss from continuing operations and net loss
per common share and common share equivalent from continuing operations in any
periods presented in the consolidated statements of operations (see Note 15).
The following table presents the unaudited pro forma results of discontinued
operations for the year ended March 31, 1995, as if the Team Spirit acquisition
had been consummated at the beginning of the year. These pro forma results have
been prepared for comparative purposes only and do not purport to be indicative
of what would have occurred had the acquisition been made at the beginning of
the period.
Year Ended
March 31, 1995
---------------
(Unaudited)
Revenue from discontinued operations $33,822,091
Net loss from discontinued operations (1,154,924)
Net loss per share from discontinued operations (0.04)
<PAGE>
- 16 -
9. 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:
Year ending March 31,
----------------------
1997 $ 1,205,994
1998 1,396,430
1999 1,592,980
2000 1,602,341
2001 1,623,410
2002 and thereafter 8,740,710
-----------
$16,161,865
===========
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 $1,319,271, $1,030,640 and $574,124 for
the years ended March 31, 1996, 1995 and 1994, 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. As of
March 31, 1996, the Company has recorded $1,918,000 for potential losses under
such guarantee arrangements.
The Company has guaranteed BlowOut's liabilities to certain vendors for video
tape purchases and for equipment purchases at BlowOut stores. At March 31,
1996, the amount owed by BlowOut for these purchases was approximately
$2,372,000.
The Company has guaranteed $2,000,000 of notes payable of BlowOut. In the event
the guarantee is required, payment may be made in Rentrak stock and/or cash.
<PAGE>
- 17 -
10. CONTINGENCIES:
The Company is subject to certain 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.
11. 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, 1996, 1995 and 1994, and for the years then ended is
as follows:
1996 1995 1994
----------- ---------- -----------
Current assets $ 34,123,179 $39,809,085 $14,773,880
Noncurrent assets 7,792,028 5,543,661 4,044,049
Current liabilities 37,440,434 44,460,125 18,585,255
Noncurrent liabilities 4,307,679 4,252,586 2,285,771
Shareholders' equity (deficit) 167,094 (3,359,965) (2,053,097)
Net sales 115,912,094 88,382,895 56,082,841
Cost of sales 77,291,283 59,935,511 44,218,531
Net income (loss) 2,920,047 (760,946) (1,589,437)
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 and
1995 from the investee under the equity method. During 1996, 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.
12. 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 year
ended March 31, 1994, the equity method was suspended.
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, 1996, 1995 and 1994 were $40,436, $35,347 and
$25,430, respectively.
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 165,311 shares remain authorized and available for sale
to employees.
<PAGE>
- 18 -
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 5,059 shares for aggregate proceeds of
$28,781, 11,062 shares for aggregate proceeds of $78,449 and 8,663 shares for
aggregate proceeds of $51,694 in 1996, 1995 and 1994, respectively.
14. BUSINESS SEGMENTS, GEOGRAPHIC INFORMATION, SIGNIFICANT SUPPLIERS AND MAJOR
CUSTOMER:
BUSINESS SEGMENTS - CONTINUING OPERATIONS
1996 1995 1994
------------ ------------ -----------
Net sales:
PPT $108,073,429 $ 79,793,584 $62,005,968
Other 5,192,891 4,754,315 2,070,544
------------ ------------ -----------
$113,266,320 $ 84,547,899 $64,076,512
=========== ============ ===========
Income (loss) from operations:
PPT $ (2,574,745) $ 2,886,841 $ 2,064,299
Other (186,387) (240,325) (2,593,144)
------------ ------------ -----------
$ (2,761,132) $ 2,646,516 $ (528,845)
============ ============ ===========
Identifiable assets:(1)
PPT $ 39,122,002 $ 39,132,490 $33,284,507
Sports apparel - 22,610,120 8,950,132
Retail video - 1,101,399 1,398,961
Other 2,380,608 1,973,659 986,845
------------ ------------ -----------
$ 41,502,610 $ 64,817,668 $44,620,445
============ ============ ===========
Depreciation:
PPT $ 806,416 `$ 698,979 $ 513,315
Other 208,421 160,925 65,251
------------ ------------ -----------
$ 1,014,837 $ 859,904 $ 578,566
============ ============ ===========
Amortization:
PPT $ 1,520,445 $ 847,620 $ 512,074
Other - 156,924 22,279
------------ ------------ -----------
$ 1,520,445 $ 1,004,544 $ 534,353
============ ============ ===========
Capital Expenditures:
PPT $ 640,821 $ 430,021 $ 969,454
Other 11,679 - 76,586
------------ ------------ -----------
$ 652,500 $ 430,021 $ 1,046,040
============ ============ ============
<PAGE>
- 19 -
BUSINESS SEGMENTS - DISCONTINUED OPERATIONS
1996 1995 1994
------------ ------------ -----------
Net sales:
Sports apparel $ 39,131,760 $ 26,363,211 $ 3,950,705
Retail video 17,466,804 1,255,121 869,270
------------ ------------ -----------
$ 56,598,564 $ 27,618,332 $ 4,819,975
============ ============ ===========
Income (loss) from discontinued
operations:
Sports apparel $ (4,576,815) $ 270,176 $ 440,781
Retail video (6,568,656) (467,223) (470,474)
------------ ------------ -----------
$(11,145,471) $ (197,047) $ (29,693)
============ ============ ===========
Depreciation:
Sports apparel $ 968,180 $ 438,871 $ 92,452
Retail Video 3,051,476 143,097 98,730
------------ ------------ -----------
$ 4,019,656 $ 581,968 $ 191,182
============ ============ ===========
Amortization:
Sports apparel $ 10,195,094 $ 684,889 $ 129,542
Retail video 504,500 20,245 14,693
------------ ------------ -----------
$ 10,699,594 $ 705,134 $ 144,235
============ ============ ===========
Capital Expenditures, net of
acquisitions:
Sports apparel $ 1,774,507 $ 832,621 $ 23,147
Retail video 7,716,315 10,438 689,706
------------ ------------ -----------
$ 9,490,822 $ 843,059 $ 712,853
============ ============ ===========
GEOGRAPHIC INFORMATION - CONTINUING OPERATIONS
1996 1995 1994
------------ ------------ -----------
Revenues from unaffiliated customers:
United States $113,266,320 $ 84,547,899 $63,960,575
Foreign - - 115,937
------------ ------------ -----------
$113,266,320 $ 84,547,899 $64,076,512
============ ============ ===========
Net income (loss):
United States $ (1,485,669) $ 5,400,510 $ 3,183,046
Foreign - - (2,279,010)
------------ ------------ -----------
$ (1,485,669) $ 5,400,510 $ 904,036
============ ============ ===========
<PAGE>
- 20 -
1996 1995 1994
------------ ------------ -----------
Identifiable assets:(1)
United States $ 41,502,610 $ 64,817,668 $44,620,445
Foreign - - -
------------ ------------ -----------
$ 41,502,610 $ 64,817,668 $44,620,445
============ ============ ===========
GEOGRAPHIC INFORMATION - DISCONTINUED OPERATIONS
1996 1995 1994
------------ ------------ -----------
Revenues from unaffiliated customers:
United States $ 56,598,564 $ 27,618,332 $ 4,819,975
Foreign - - -
------------ ------------ -----------
$ 56,598,564 $ 27,618,332 $ 4,819,975
============ ============ ===========
Loss from operations of discontinued
subsidiaries
United States $(18,700,000) $ (286,987) $ (90,971)
Foreign - - -
------------ ------------ -----------
Loss on disposal of subsidiaries:
United States (12,100,000) - -
Foreign - - -
------------ ------------ -----------
Net loss $(30,800,000) $ (286,987) $ (90,971)
============ ============ ===========
There were no sales or transfers between geographic areas in any of the years
presented.
(1) 1995 and 1994 identifiable assets have not been restated from discontinued
operations.
The Company has one program supplier that supplied product that generated
39 percent, a second that generated 21 percent, and a third that generated
15 percent of Rentrak revenues for the year ended March 31, 1996. The Company
has one program supplier that supplied product that generated 26 percent, a
second that generated 17 percent, and a third that generated 15 percent of
Rentrak revenues for the year ended March 31, 1995. The Company had one program
supplier that supplied product that generated 28 percent and a second program
supplier that supplied product that generated 25 percent of Rentrak revenues for
the year ended March 31, 1994. There were no other program suppliers who
provided product accounting for more than 10 percent of sales for the years
ended March 31, 1996, 1995 and 1994.
The Company currently receives a significant amount of product from one program
supplier. Although management does not believe that this relationship will be
terminated in the near term, a loss of this supplier could affect operating
results adversely. This disclosure is being provided pursuant to Statement of
Position No. 94-6. "Disclosure of Certain Significant Risks and Uncertainties,"
which was required to be adopted by the Company in this fiscal year.
<PAGE>
- 21 -
One customer accounted for 10 percent and 14 percent of the Company's revenues
in 1996 and 1995, respectively. No customers accounted for 10 percent or more
of the Company's revenue in 1994.
15. DISCONTINUED OPERATIONS:
In March 1996, the Board approved the spin-off of TPI into a separate public
company with Rentrak shareholders being issued new shares representing
100 percent ownership of TPI. Since then, the Company has been approached by
parties interested in acquiring TPI and the Company recently signed a nonbinding
letter of intent. The due diligence process is currently underway. Final
disposition of TPI either through a sale or the spinoff is expected to be
completed by year-end.
TPI is accounted for as discontinued operations and, accordingly, its operations
are segregated in the accompanying statement of operations. TPI incurred losses
from operations, net of income tax benefit, of approximately $12,720,000
(including a write-off of intangible assets of $9,300,000 (see Note 1)) for the
year ended February 29, 1996. This amount is included in loss from operations
of discontinued subsidiaries in the accompanying statement of operations. The
Company has also accrued at March 31, 1996, approximately $2,300,000 for the
operating losses estimated to be incurred by TPI through the disposal date and
other costs of approximately $6,700,000 associated with the disposition such as
professional fees and a write-down of the assets to their estimated realizable
value. A deferred tax asset related to these costs of approximately $3,380,000
was also recorded with a valuation allowance reserve against the entire asset.
These operating losses and costs are included in loss on disposal of
subsidiaries in the accompanying statement of operations.
Net noncurrent assets of TPI which are included in net noncurrent assets of
discontinued operations in the accompanying balance sheet at March 31, 1996 are
comprised primarily of property and equipment and long-term debt. Net current
liabilities of TPI which are included in net current liabilities of discontinued
operations in the accompanying balance sheet at March 31, 1996 are comprised
primarily of inventory, receivables, accounts payable, accrued liabilities,
estimated operating losses to be incurred by TPI through the disposal date and
other costs associated with the disposition.
In June 1996, the Board also approved the spin-off of BlowOut into a public
company with Rentrak shareholders being issued shares representing 73.1 percent
ownership of BlowOut. Rentrak will retain 19.9 percent and certain minority
shareholders will retain 7 percent. The 19.9 percent interest of the net assets
of BlowOut at March 31, 1996 has been recorded in other investments in the
accompanying balance sheet. Also, the Company has recorded accounts receivable
from BlowOut totaling $3,227,006 and a note receivable of $2,800,000 bearing
interest at 9 percent which is due March 1999. These balances represent amounts
due on transactions (primarily PPT charges) which will continue in the future
after BlowOut is spun off. Therefore, these amounts have not been eliminated in
consolidation. Final disposition of BlowOut is expected to be completed by
year-end.
<PAGE>
- 22 -
BlowOut is accounted for as discontinued operations and, accordingly, its
operations are segregated in the accompanying statement of operations. BlowOut
incurred losses from operations, net of income tax benefit, of approximately
$5,980,000 for the year ended March 31, 1996. This amount is included in loss
from operations of discontinued subsidiaries in the accompanying statement of
operations. The Company has also accrued at March 31, 1996, approximately
$2,500,000 for the operating losses estimated to be incurred by BlowOut through
the disposal date and professional fees of approximately $600,000 associated
with the disposition. A deferred tax asset related to these costs of
approximately $1,158,000 was also recorded with a valuation allowance reserve
against the entire asset. These operating losses and costs are included in loss
on disposal of subsidiaries in the accompanying statement of operations.
Net noncurrent assets of BlowOut are included in net noncurrent assets of
discontinued operations in the accompanying balance sheet at 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 balance
sheet at March 31, 1996 are comprised primarily of cash, inventory, accounts
payable, accrued liabilities, estimated operating losses to be incurred by
BlowOut through the disposal date and other costs associated with the
disposition.
Divestitures through stock dividend and spin-off are subject to a number of
conditions, including formal declaration of a dividend by the Board of
Directors.
Revenues, operating costs and expenses, other income and expenses, and income
taxes for fiscal years 1995 and 1994 have been reclassified for amounts
associated with the discontinued operations. The 1995 balance sheet has not
been restated.
Revenues from such operations for the periods ended March 31, were as follows:
1996 1995 1994
------------ ------------ -----------
TPI $39,131,760 $26,363,211 $3,950,705
BlowOut 17,466,804 1,255,121 869,270
Discontinued operations include management's best estimates of the anticipated
losses from discontinued operations through the date of disposition as well as
amounts expected to be realized on the spin-off and or sale of the two
subsidiaries. The estimates are based on an analysis of the operations of the
Companies, including costs which may be incurred to dispose of the entities.
The amounts the Company will ultimately incur could differ materially in the
near term from the amounts assumed in arriving at the loss on disposal of the
discontinued operations.
<PAGE>
- 23 -
Rentrak Corporation
Valuation and Qualifying Accounts
Schedule II
<TABLE>
<CAPTION>
Balance at Charged to Charged Balance
Beginning Cost and to Other Recoveries at End of
of Periods Exepenses Accounts (Deductions) Period
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
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
March 31, 1996 642,580 (2,327,028) (332,692) (1) 2,645,035 627,895
Advances to program suppliers reserve
March 31, 1995 0 572,300 - - 572,300
March 31, 1996 572,300 1,345,406 - - 1,917,706
Inventory reserve
March 31, 1995 0 336,046 - - 336,046
March 31, 1996 336,046 (336,046) (1) - 0
Other Current Assets-
Retailer Financing Program reserve
March 31, 1995 0 267,938 - - 267,938
March 31, 1996 267,938 846,582 - - 1,114,520
Other Assets-
Retailer Financing Program reserve
March 31, 1995 0 2,974,912 - - 2,974,912
March 31, 1996 2,974,912 1,943,119 - - 4,918,031
</TABLE>
(1) Transfered to discontinued operations
<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/ F. Kim Cox
-----------------------------------
Executive Vice President/Chief Financial Officer
Date July 2, 1996
---------------------------------
