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: December
31, 1999
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 (IRS Employer
incorporation or organization) Identification no.)
7700 NE Ambassador Place, Portland, Oregon 97220
(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 January 31, 2000, the Registrant had 10,505,137 shares
of Common Stock outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1999 and
March 31, 1999
Consolidated Statements of Operations for the three
month periods ended December 31, 1999 and December 31,
1998
Consolidated Statements of Income for the nine month
periods ended December 31, 1999 and December 31, 1998
Consolidated Statements of Cash Flows for the nine
month periods ended December 31, 1999 and December 31,
1998
Notes to Consolidated Financial Statements
<TABLE>
RENTRAK CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<CAPTION>
(UNAUDITED)
December 31, March 31,
1999 1999
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $6,891,564 $2,145,963
Accounts receivable, net of allowance for doubtful
accounts of $326,205 and $355,241 29,212,096 23,906,398
Advances to program suppliers 2,829,741 2,840,262
Inventory 3,478,284 2,804,983
Deferred tax asset 1,579,637 1,579,637
Income tax receivable 438,334 3,006,502
Other current assets 2,091,227 3,467,473
Total current assets 46,520,883 39,751,218
PROPERTY AND EQUIPMENT, net 2,265,995 1,723,448
OTHER INVESTMENTS, net 596,600 2,014,701
DEFERRED TAX ASSET 2,974,371 2,497,762
OTHER ASSETS 1,976,037 3,469,660
TOTAL ASSETS $54,333,886 $49,456,789
The accompanying notes are an integral
part of these consolidated balance sheets.
</TABLE>
<TABLE>
RENTRAK CORPORATION
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
(UNAUDITED)
December 31, March 31,
1999 1999
<S> <C> <C>
CURRENT LIABILITIES:
Line of credit $4,960,000 $7,925,000
Accounts payable 19,843,226 16,628,294
Accrued liabilities 7,549,601 5,822,574
Accrued compensation 796,836 941,836
Deferred revenue 3,749,951 100,415
Net current liabilities of discontinued operations 112,813 3,746,766
Total current liabilities 37,012,427 35,164,885
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: 10,500,805 shares
at December 31, 1999 and 10,439,948 at
March 31, 1999 10,501 10,440
Capital in excess of par value 44,374,799 43,644,479
Cumulative other comprehensive income (loss) (639,878) 137,747
Accumulated deficit (25,520,099) (28,751,757)
Less - Deferred charge - warrants (903,864) (749,005)
17,321,459 14,291,904
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $54,333,886 $49,456,789
The accompanying notes are an integral
part of these consolidated balance sheets.
</TABLE>
<TABLE>
RENTRAK CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
(UNAUDITED)
Three Months Ended December 31,
1999 1998
<S> <C> <C>
REVENUES:
PPT $19,965,669 $21,568,044
Other 5,819,395 5,438,936
25,785,064 27,006,980
OPERATING COSTS AND EXPENSES:
Cost of sales 21,129,291 23,271,818
Selling, general, and administrative 6,016,945 4,182,641
27,146,236 27,454,459
INCOME (LOSS) FROM OPERATIONS (1,361,172) (447,479)
OTHER INCOME (EXPENSE):
Interest income 61,993 144,094
Interest expense (233,422) (149,207)
Other (157,944)
(171,429) (163,057)
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAX BENEFIT (1,532,601) (610,536)
INCOME TAX BENEFIT (546,162) (272,172)
NET LOSS ($986,439) ($338,364)
EARNINGS (LOSS) PER SHARE:
Basic: ($0.09) ($0.03)
Diluted: ($0.09) ($0.03)
The accompanying notes are an integral
part of these consolidated statements.
</TABLE>
<TABLE>
RENTRAK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
(UNAUDITED)
Nine Months Ended December 31,
1999 1998
<S> <C> <C>
REVENUES:
PPT $69,374,611 $79,917,052
Other 14,503,091 12,878,387
83,877,702 92,795,439
OPERATING COSTS AND EXPENSES:
Cost of sales 67,023,807 78,852,512
Selling, general, and administrative 15,040,717 12,167,661
82,064,524 91,020,173
INCOME FROM OPERATIONS 1,813,178 1,775,266
OTHER INCOME (EXPENSE):
Interest income 135,937 375,759
Interest expense (560,683) (243,199)
Other (275,712)
(424,746) (143,152)
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAX PROVISION 1,388,432 1,632,114
INCOME TAX PROVISION 530,277 613,675
INCOME FROM CONTINUING OPERATIONS 858,155 1,018,439
GAIN FROM DISPOSAL OF DISCONTINUED
SUBSIDIARIES (PLUS INCOME TAX
BENEFIT OF $483,502) 2,373,502
NET INCOME $3,231,657 $1,018,439
EARNINGS PER SHARE:
Basic:
Continuing operations $0.08 $0.09
Discontinued operations $0.23 $0.00
$0.31 $0.09
Diluted:
Continuing operations $0.08 $0.09
Discontinued operations $0.22 $0.00
$0.30 $0.09
The accompanying notes are an integral
part of these consolidated statements.
</TABLE>
<TABLE>
RENTRAK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
(Unaudited)
Nine Months Ended December 31,
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $3,231,657 $1,018,439
Adjustments to reconcile income to
net cash provided by (used in) in operations
Gain on disposal of discontinued operations (2,373,502) 0
Loss on sale of assets 17,607 275,712
Depreciation and Amortization 1,039,530 807,425
Amortization of warrants 389,280 536,758
Provision for doubtful accounts 108,062 72,235
Studio advance reserves 1,593 9,121
Deferred income taxes 0 517,048
Change in specific accounts:
Accounts receivable (4,389,966) 2,266,232
Advances to program suppliers 8,928 (3,369,480)
Inventory (673,301) (529,271)
Income tax receivable 2,568,168 0
Other current assets 1,376,246 (2,459,048)
Accounts payable 2,914,932 (3,095,181)
Accrued liabilities & compensation 1,582,027 106,153
Deferred revenue 3,649,536 (778,546)
Net current liabilities of discontinued operations (1,260,451) (197,309)
Net cash provided by (used in) operations 8,190,346 (4,819,712)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, equipment, and inventory (1,140,454) (398,407)
Investments in retailer financing program 0 (947,759)
Proceeds from sale of investments 361,894 469,339
Disposal (purchase) of other assets & intangibles 112,573 (1,565,071)
Net cash used in investing activities (665,987) (2,441,898)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payment) under line of credit (2,965,000) 4,029,289
Repurchase of common stock 0 (1,759,057)
Issuance of common stock 186,242 109,797
Net cash provided by (used in) financing activitie (2,778,758) 2,380,029
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 4,745,601 (4,881,581)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF THIS PERIOD 2,145,963 6,361,680
CASH AND CASH EQUIVALENTS AT END OF PERIOD $6,891,564 $1,480,099
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for -
Interest $286,017 $243,199
Income taxes paid, net of refunds received (2,428,003) 427,155
NON-CASH TRANSACTIONS
Increase (decrease) in net unrealized gain on
investments securities (777,624) 811,551
Retailer Financing Program Investment through
conversion of accounts receivable 74,234 42,669
The accompanying notes are an integral
part of these consolidated statements.
</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 disclosures 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 month and nine month periods
ended December 31, 1999 are not necessarily indicative of
the results to be expected for the entire fiscal year ending
March 31, 2000. The Condensed Consolidated Financial
Statements should be read in conjunction with the
Consolidated Financial Statements and footnotes thereto
included in the Company's 1999 Annual Report to
Shareholders.
The Condensed Consolidated 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 Condensed 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 inter-company
accounts and transactions. Investments in affiliated
companies owned 20 to 50 percent are accounted for by the
equity method.
NOTE B: Net Income (Loss) Per Share
Basic earnings (loss) per common share is computed by
dividing net income (loss) by the weighted average number of
shares of common stock outstanding during the periods.
Diluted earnings (loss) per common share is computed on the
basis of the weighted average shares of common stock
outstanding plus common equivalent shares arising from
dilutive stock options and warrants.
The weighted average number of shares of common stock
equivalents and net income used to compute basic and diluted
earnings per share for the three and nine month periods
ended December 31, 1999 and 1998 were as follows:
<TABLE>
Note B: Net Income (Loss) Per Share
<CAPTION>
3-Months Ended 9-Months Ended
December 31, 1999 December 31, 1999
Basic Diluted Basic Diluted
<S> <C> <C> <C> <C>
Weighted average
number of shares
of common stock
outstanding 10,489,273 10,489,273 10,467,632 10,467,632
Dilutive effect of
exercise of
stock options - - - 142,715
Weighted average
number of shares of
common stock
outstanding and
common stock
equivalents 10,489,273 10,489,273 10,467,632 10,610,347
Net Income:
Continuing operations ($986,439) ($986,439) $858,155 $858,155
Discontinued operations $0 $0 $2,373,502 $2,373,502
Net income ($986,439) ($986,439) $3,231,657 $3,231,657
Earnings per share:
Continuing operations ($0.09) ($0.09) $0.08 $0.08
Discontinued operations $0.00 $0.00 $0.23 $0.22
Earnings per share ($0.09) ($0.09) $0.31 $0.30
</TABLE>
<TABLE>
<CAPTION>
3-Months Ended 9-Months Ended
December 31, 1998 December 31, 1998
Basic Diluted Basic Diluted
<S> <C> <C> <C> <C>
Weighted average
number of shares
of common stock
outstanding 10,654,847 10,654,847 10,882,549 10,882,549
Dilutive effect of
exercise of
stock options - - - 363,247
Weighted average
number of shares of
common stock
outstanding and
common stock
equivalents 10,654,847 10,654,847 10,882,549 11,245,796
Net Income:
Continuing operations ($338,364) ($338,364) $1,018,439 $1,018,439
Discontinued operations $0 $0 $0 $0
Net income ($338,364) ($338,364) $1,018,439 $1,018,439
Earnings per share:
Continuing operations ($0.03) ($0.03) $0.09 $0.09
Discontinued operations $0.00 $0.00 $0.00 $0.00
Earnings per share ($0.03) ($0.03) $0.09 $0.09
Options and warrants to purchase approximately 6.7 million and 6.3
million shares of common stock for the quarters ended December 31, 1999
and 1998, respectively, and 5.3 million and 3.9 million for the nine month
periods ended December, 1999 and 1998, respectively, were outstanding but
were not included in the computation of diluted EPS because the warrants'
and options' exercise prices were greater than the average market price of
the common shares during the periods. The options and warrants, which expire
during fiscal years 2000 through 2009 remain outstanding at December 31, 1999.
</TABLE>
NOTE C: Business Segments, Significant Suppliers and
Major Customer
The Company classifies its services in three segments, PPT,
3PF.COM and other. Non PPT services including operations of
BlowOut Video, a video retailers, the Company's internet
based fulfillment service provider and amounts received
pursuant to royalty agreements.
<TABLE>
Business Segments
<CAPTION>
1999 1998
Three Nine Months Three Nine Months
Months Ended Months Ended
Ended December Ended December
December 31, December 31,
31, 31,
<S> <C> <C> <C> <C>
NET SALES: (1)
PPT $20,190,078 $69,998,227 $21,660,697 $80,293,042
3PF.COM(2) 2,763,393 7,211,346 2,894,169 7,516,147
OTHER 3,826,654 9,696,529 2,544,767 5,395,673
$26,780,125 $86,906,102 $27,099,633 $93,204,862
INCOME(LOSS)FROM
OPERATIONS (1)
PPT ($525,416) $3,663,655 ($760,133) ($181,550)
3PF.COM (2) (585,835) (613,515) 68,630 600,940
OTHER 124,812 181,517 353,139 599,049
($986,439) $3,231,657 ($338,364) $1,018,439
(1) Total amounts differ from those reported on the
consolidated financial statements as intercompany
transactions and investments in subsidiaries are not
eliminated for segment reporting purposes.
(2) 3PF.COM, Inc's revenues related to the shipment of
cassettes to PPT Customers was $770,652, $509,210,
$2,404,784, and $2,940,033, for the three month periods
ended December 31, 1999 and 1998 and the nine month
periods ended December 31, 1999 and 1998, respectively.
</TABLE>
For the quarter ended December 31, 1999, the Company had one
program supplier whose product generated 23 percent, a
second that generated 14 percent, and a third that generated
11 percent of Rentrak revenue. For the nine month period
ended December 31, 1999, the Company had one program
supplier whose product generated 23 percent, a second that
generated 21 percent, and a third that generated an
additional 14 percent of Rentrak revenue. No other program
supplier provided product which generated more than 10
percent of revenue for the three or nine month periods ended
December 31, 1999.
For the quarter ended December 31, 1998, the Company had one
program supplier whose product generated 25 percent, a
second that generated 21 percent, and a third that generated
an additional 15 percent of Rentrak revenue. For the nine
month period ended December 31, 1998, the Company had one
program supplier whose product generated 30 percent, a
second that generated 26 percent, and a third that generated
an additional 16 percent of Rentrak revenue. No other
program supplier provided product which generated more than
10 percent of revenue for the three or nine month periods
ended December 31, 1998. One customer accounted for 11
percent of the Company's revenues in the three month period
ended December 31, 1999.
NOTE D: Discontinued Operations
On November 26, 1996, the Company made a distribution to its
shareholders of 1,457,343 shares of common stock of BlowOut
Entertainment, Inc. ("BlowOut"). The operations of BlowOut
were reflected as discontinued operations in the March 31,
1996 consolidated financial statements.
On March 22, 1999, BlowOut filed for Chapter 11 of the
Federal Bankruptcy Code in the United States Bankruptcy
Court for the District of Delaware. At that same time
BlowOut filed a motion to sell substantially all the assets
of BlowOut. The sale to a third party video retailer was
approved by the Bankruptcy Court on May 10, 1999, and closed
on May 17, 1999. The Company was the principal creditor of
BlowOut. In 1996, the Company had agreed to guarantee up to
$7 million of indebtedness of BlowOut ("Guarantee").
Pursuant to the terms of the Guarantee, the Company agreed
to guarantee any amounts outstanding under BlowOut's credit
facility. As the proceeds from the sale of the BlowOut
assets were not sufficient to cover the amounts due under
this facility, the Company, pursuant to the Guarantee, has
agreed to a payment plan to fulfill BlowOut's obligation
under its credit facility. The amount outstanding at
December 31, 1999 is approximately $674,000. The funds
remaining, if any, after payment of administrative and cost
claims after dismissal of the case may further reduce the
amount due under the credit facility.
During the quarter ended June 30, 1999, the Company recorded
a gain on the disposal of discontinued operations of $1.9
million related to BlowOut , as the liability related to
BlowOut contingencies was less than estimated. The Company
also reduced the valuation allowance which was recorded
against the deferred tax asset related to liabilities of
discontinued operations. This reduction of approximately
$.5 million in the valuation allowance was recorded as an
income tax benefit from discontinued operations in the
accompanying consolidated income statement.
Net current liabilities of discontinued operations at
December 31, 1999, relate to amounts to be paid pursuant to
the Guarantee, net of tax benefit.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
Forward Looking Statements
Certain information included in Management's Discussion and
Analysis of Financial Conditions and Results of Operations
constitute forward-looking statements that involve a number
of risks and uncertainties. Forward looking statements are
identified by the use of forward-looking words such as
"may", "will", "expects", "intends", "anticipates",
"estimates", or "continues" or the negative thereof or
variations thereon or comparable terminology. The following
factors are among the factors that could cause actual
results to differ materially from the forward-looking
statements: the Company's ability to continue to market the
Pay Per Transaction ("PPT") System successfully, the
financial stability of participating retailers and their
performance of their obligations under the PPT System, non-
renewal of the Company's line of credit, business conditions
and growth in the video industry and general economics, both
domestic and international; competitive factors, including
increased competition, expansion of revenue sharing programs
other than the PPT System by program suppliers, new
technology and the continued availability of prerecorded
videocassettes ("Cassettes") from program suppliers. Such
factors are discussed in more detail in the Company's 1999
Annual Report to Shareholders.
Results of Operations
For the quarter ended December 31, 1999, total revenue
decreased $1.2 million, or 4.4 percent, to $25.8 million
from $27 million in the quarter ended December 31, 1998.
For the nine month period ended December 31, 1999, total
revenue decreased $8.9 million, or 9.6 percent, to $83.9
million from $92.8 million in the nine month period ended
December 31, 1998. Total revenue includes the following
fees: application fees generated when retailers are approved
for participation in the PPT System; order processing fees
generated when Cassettes are ordered by and distributed to
retailers; transaction fees generated when retailers rent
Cassettes to consumers; sell-through fees generated when
retailers sell Cassettes to consumers; buy out fees when
retailers purchase Cassettes at the end of the lease term.
In addition, total revenue includes royalty payments from
Rentrak Japan, charges to customers of the Company's
fulfillment business known as 3PF.COM, Inc., formerly
ComAlliance, and sale of Cassettes.
The decrease in total revenues for the three month and nine
month periods ended December 31, 1999 is primarily due to
the reduction in (i) the total number of Cassettes leased
under the PPT System due in part to program suppliers
offering more titles under copy depth programs than
historical levels and program suppliers engaging in direct
revenue sharing with the larger chains; (ii) the number of
titles released to the PPT System; and (iii) a one-time
royalty of $1 million from Rentrak Japan which was recorded
in September 1998. These reductions in revenue were
partially offset by an increase in revenue related to the
Company's order processing and fulfillment services.
Cost of sales for the quarter ended December 31, 1999
decreased to $21.1 million from $23.3 million in the quarter
ended December 31, 1998, a decrease of $2.2 million, or 9.4
percent. Cost of sales for the nine month period ended
December 31, 1999 decreased to $67.0 million from $78.9
million the prior year, a decrease of $11.9 million or 15.1
percent. The decrease for the three month and nine month
periods ended December 31, 1999 is due to the reduction in
revenue as noted above and a decrease in cost of sales as a
percentage of revenue due to a decrease in incentives
offered by the Company to entice retailers to order more
product.
The gross profit margin increased to 18.2 percent in the
quarter ended December 31, 1999 from 13.7 percent the
previous year. The gross profit margin increased to 20.1
percent in the nine month period ended December 31, 1999
from 15.0 percent in the nine month period ended December
31, 1998. These increases are primarily due to a reduction
in incentives offered by the Company during 1999 versus
1998.
Selling, general and administrative expenses were $6.0
million for the quarter ended December 31, 1999 compared to
$4.2 million in the quarter ended December 31, 1998, an
increase of $1.8 million, or 42.9 percent. Selling general
and administrative expenses were $15.0 million in the nine
month period ended December 31, 1999 compared to $12.2
million in the nine month period ended December 31, 1998, an
increase of $2.8 million or 23.0 percent. The increase in
selling, general and administrative expenses is primarily
due to increased legal fees; marketing expenses and
compensation related to the Company's order processing and
fulfillment services; the added expenses of starting Rentrak
International; and expenses incurred as a result of Rentrak
becoming the operator of Rentrak UK.
For the quarter ended December 31, 1999, the Company
recorded a net loss of $1.0 million compared to a net loss
of $.3 million in the quarter ended December 31, 1998. This
increase in net loss is primarily due to the increase in
selling, general and administrative expenses as noted above
partially offset by the decrease in cost of sales. For the
nine month period ended December 31, 1999, the Company
recorded net income of $3.2 million, compared to net income
of $1.0 million in the nine month period ended December 31,
1998. This increase in profits is primarily due to the gain
from disposal of discontinued operations of $2.4 million
recognized in the nine month period ended December 31, 1999,
and increases in gross margin dollars offset by increases in
selling, general and administrative expenses as noted above.
Discontinued Operations
On March 22, 1999, BlowOut filed for Chapter 11 of the
Federal Bankruptcy Code in the United States Bankruptcy
Court for the District of Delaware. At that same time
BlowOut filed a motion to sell substantially all the assets
of BlowOut. BlowOut is not related to the Company's wholly
owned subsidiary BlowOut Video, Inc. The sale to a third
party video retailer was approved on May 10, 1999 and closed
on May 17, 1999.
During the quarter ended June 30, 1999, the Company recorded
a gain on the disposal of discontinued operations of $1.9
million related to BlowOut as the liability related to
BlowOut contingencies was less than anticipated. The
Company also reduced the valuation allowance which was
recorded against the deferred tax asset related to
liabilities of discontinued operations. This reduction of
$0.5 million in the valuation allowance was recorded as an
income tax benefit from discontinued operations in the
accompanying consolidated income statement.
Consolidated Balance Sheet
At December 31, 1999, total assets were $54.3 million, an
increase of $4.8 million from the $49.5 million at March 31,
1999. As of December 31, 1999, cash increased $4.8 million
to $6.9 million from $2.1 million at March 31, 1999.
Accounts receivable increased $5.3 million from $23.9
million at March 31, 1999 to $29.2 million at December 31,
1999. These increases were offset by a decrease in other
current assets of $1.4 million from $3.5 million at March
31, 1999 to $2.1 million at December 31, 1999, an increase
in deferred revenue of $3.6 million to $3.7 million at
December 31, 1999 from $.1 million at March 31, 1999 and a
decrease in income tax receivable from $3.0 million at March
31, 1999 to $.4 million at December 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company had cash of $6.9 million
compared to $2.1 million at March 31, 1999. At December 31,
1999, the Company's current ratio (current assets/current
liabilities) increased to 1.26 from 1.13 at March 31, 1999.
The Company has an agreement for a line of credit with a
financial institution in an amount not to exceed the lesser
of (a) $7.5 million or (b) the sum of 80 percent of the net
amount of eligible accounts receivable as defined in the
agreement. The line of credit expires on June 30, 2000.
Interest is payable monthly at the bank's prime rate plus
one percent (9.5 percent at December 31, 1999). The line is
secured by substantially all of the Company's 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. As of December 31, 1999, the Company was
in compliance with these covenants or waivers have been
obtained. The Company had $5 million outstanding under this
line at December 31, 1999.
The Company has established a retailer financing program
whereby the Company provides, on a selective basis,
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 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 some or all of their requirements of
Cassettes from those 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 Board of Directors has authorized up to $18 million to
be used in connection with the Company's retailer financing
program. As of December 31, 1999, the Company had invested
or loaned approximately $7.3 million in various retailers.
The investments individually range from $23,000 to $4.7
million. Interest rates per annum on the various loans
range from 5 percent to 10 percent. As each financing is
made, and periodically throughout the term of the agreement,
the Company assesses the likelihood of recoverability of the
amount 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
December 31, 1999, the Company reserved approximately $4.4
million.
The Company was the principal creditor of BlowOut. In 1996,
the Company had agreed to guarantee up to $7 million of
indebtedness of BlowOut ("Guarantee"). BlowOut had a credit
facility (the "Credit Facility") in an aggregate principal
amount of $2 million for a five-year term. Amounts
outstanding under the Credit Facility bear interest at a
fixed rate per annum equal to 14.525 percent. Pursuant to
the terms of the Guarantee, the Company agreed to guarantee
any amounts outstanding under the Credit Facility until the
lender is satisfied, in its sole discretion, that BlowOut's
financial condition is sufficient to justify the release of
the Guarantee. As the proceeds from the sale of the BlowOut
assets were not sufficient to cover the amounts due under
this facility, the Company, pursuant to the Guarantee, has
agreed to a payment plan to fulfill BlowOut's obligation
under the Credit Facility. The funds remaining, if any,
after payment of administrative and cost claims after
dismissal of the case may further reduce the amount due
under the Credit Facility. As of December 31, 1999, the
balance owing under this obligation is approximately
$674,000.
Based on the Company's current budgets and projected cash
needs, the Company believes that its available sources of
liquidity are expected to be sufficient to fund the
Company's operations for the fiscal year ending March 31,
2000.
Year 2000
Many computer software programs, as well as hardware with
embedded software, use a two-digit date field to track and
refer to any given year. After, and in some cases prior to,
January 1, 2000, these software and hardware systems may
interpret the year "00" as "1900," which will cause them to
perform faulty calculations or shut down altogether. To the
extent that this "Year 2000" problem is present in the
Company's internal software and hardware systems, or those
of its suppliers or customers, there could be material
disruptions in such important functions as the ordering and
delivery of Cassettes, the reporting and tracking of
Cassette rental and sale transactions, and billing and
payment systems. Such difficulties could result in a number
of adverse consequences, including but not limited to
delayed or lost revenue, diversion of resources, damages to
the Company's reputation, increased administrative and
processing costs, and liability to suppliers or customers.
Any one or a combination of such consequences could have a
material adverse effect on the Company's business, operating
results, and financial condition.
Accordingly, the Company began assessing the scope of the
Year 2000 problem both internally and among its suppliers
and customers as far back as March 1997, and began
implementing remedial measures soon thereafter. The
Company's assessment and any required modifications were all
completed as of December 31, 1999. The total costs of the
Company's assessments, corrective measures, and testing was
less than $250,000.
As of January 31, 2000, the Company has not and does not
anticipate experiencing any significant problems related to
the Year 2000 issue that would be material to the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK.
None.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On January 23, 2000, the Company and Hollywood Entertainment
Corporation ("Hollywood") settled the case filed by the
Company against Hollywood, Franklin Bruce Giesbrecht and
Douglas A. Gordon in the Circuit Court of the State of
Oregon for the County of Multnomah, Case No. 98-04-02811.
Pursuant to the settlement, Hollywood paid the Company $14
million, $10 million of which was paid in cash and $4
million of which was paid by promissory note due within six
months of the settlement. In addition, Hollywood issued to
the Company 200,000 shares of Hollywood common stock.
Furthermore, Hollywood agreed to indemnify the Company
against any and all claims and demands made by Universal
Studios or Buena Vista Home Entertainment, Inc. arising from
the litigation, and the Company agreed to indemnify
Hollywood against any and all claims and demands made by
Twentieth Century Fox arising from the litigation. Under
the settlement, Hollywood is permitted to continue its
revenue sharing directly with the studios. Hollywood also
agreed to provide the Company with all of Hollywood's rental
and sales data on videocassettes and not to interfere with
the Company's being retained by an entity to act as a data
processor for Hollywood's data.
On November 21, 1997, Merle Harmon, individually and as
assignee for Merle Harmon Enterprises and Fan Fair
Corporation, filed suit against the Company and two of its
officers in the U.S. District Court for the Eastern District
of Wisconsin. The lawsuit related to the Company's failed
attempt to negotiate the purchase of Merle Harmon
Enterprises and Fan Fair Corporation. In October 1999, the
parties agreed to settle the case, and the Court dismissed
the lawsuit. Under the settlement agreement, the Company
paid Harmon an amount of cash that is immaterial to the
Company's results of operations. The Company's insurer
funded most of the settlement.
In June 1998, Video Update, Inc. ("Video Update") filed a
complaint (the "Video Update Complaint") against the Company
entitled Video Update, Inc. v. Rentrak Corp., Civil Action
No. 98-286, in the United States District Court for the
District of Delaware. The Video Update Complaint alleges
various violations of the antitrust laws, including that the
Company has monopolized or attempted to monopolize a market
for videocassettes leased to retail video stores in
violation of Section 2 of the Sherman Act. Video Update
further alleges that the Company's negotiation and execution
of an exclusive, long-term revenue sharing agreement with
Video Update violates Section 1 of the Sherman Act and
Section 3 of the Clayton Act. Video Update is seeking
unspecified monetary relief, including treble damages and
attorneys' fees, and equitable relief, including an
injunction prohibiting the Company from enforcing its
agreement with Video Update or any exclusivity provision
against videocassette suppliers and video retailers. In
August 1998, the Court granted the Company's motion to
dismiss the Video Update Complaint pursuant to Federal Rules
of Civil Procedure Rule 12(b)(3) on the basis of improper
venue.
In August 1998, Video Update filed a new complaint against
the Company in the United States District Court for the
District of Oregon (the "Re-Filed Complaint"), Case No. 98-
1013HA. The Re-Filed Complaint is substantially the same as
the previous complaint. The Company believes the Re-Filed
Complaint lacks merit and intends to vigorously defend
against the allegations in the Complaint. The Company has
answered the Re-Filed Complaint denying its material
allegations and asserting several affirmative defenses. The
Company also has counterclaimed against Video Update
alleging, among other things, breach of contract, breach of
the covenant of good faith and fair dealing, promissory
fraud, breach of fiduciary duty, breach of trust,
constructive fraud, negligent misrepresentation and
intentional interference with business advantage, and
seeking damages and equitable relief.
In October 1998, the Company filed a motion for summary
judgment seeking to dismiss the lawsuit filed against it by
Video Update. In January of 1999, the Company filed a
separate motion for partial summary judgment on its breach
of contract counterclaim seeking to recover more than $4.4
million in fees and interest which the Company claims Video
Update owes to it. In response to the Company's motions,
Video Update asked the court for time to take discovery
before having to file oppositions. The court has given the
parties until June 30, 2000 to conduct discovery. The court
denied Rentrak's motions without reaching the merits and
without prejudice to re-filing the motions after discovery
has been conducted. Rentrak expects to re-file its motions
after discovery has taken place. On October 21, 1999, the
Company amended its counterclaims to add additional breach
of contract claims, a claim for trade secret
misappropriation and a claim for recovery of personal
property. The amended countercomplaint also added Video
Update's chairman, Daniel Potter as a defendant to the fraud
and negligent misrepresentation claims.
In August 1998, the Company filed a complaint (the "Movie
Buffs Complaint") against Susan Janae Kingston d/b/a/ Movie
Buffs ("Movies Buffs"), entitled Rentrak Corporation v.
Susan Janae Kingston, an individual, d/b/a/ Movie Buffs,
Case no. CV 98-1004 HA, in the United States District Court
for the District of Oregon. This case is described in the
Company's 10-Q for the quarter ended September 30, 1999.
The Company filed a motion to dismiss the Robinson-Patman
Act claims pursuant to Federal Rules of Civil Procedure
12(b)(6), which motion was granted. The court also granted
Roadrunner and Movie Buff's request to dismiss their claims
against Hollywood without prejudice.
In the event of an unanticipated adverse final determination
in respect to one or more of the cases discussed above, the
Company's consolidated net income for the period in which
such determination occurs could be materially affected.
The Company is also subject to 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 is not expected to materially
affect the financial position or results of operations of
the Company as a whole.
Item 2. Changes in Securities and Use of Proceeds - None
Item 3. Defaults upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders- None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - 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 10th day of February, 2000
RENTRAK CORPORATION:
/s/ Carolyn A. Pihl
Carolyn A. Pihl
Chief Financial Officer
Signing on behalf of the registrant
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