SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended: June
30, 2000
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 July 31, 2000, the Registrant had 12,293,684 shares
of Common Stock outstanding.
EXPLANATORY NOTE
This Amendment No. 1 on Form 10-Q/A amends Items 1 and 2 of
Part I and Item 6 of Part II of the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2000, as
filed by the Registrant on August 10, 2000, and is being
filed to reflect the restatement of the Registrant's
condensed consolidated financial statements (the
"Restatement"). The Restatement reflects corrections of
accounting for certain revenues and deferred revenues not
recorded correctly during the quarter ended June 30, 2000.
A discussion of the Restatement and a summary of the
effects of the Restatement are presented in Note B. to the
condensed consolidated financial statements.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2000 (as
restated) and March 31, 2000
Consolidated Statements of Income for the three-month
periods ended June 30, 2000 (as restated) and June 30,
1999
Consolidated Statements of Cash Flows for the three-
month periods ended June 30, 2000 (as restated) and
June 30, 1999
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
RENTRAK CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
(AS RESTATED)
(UNAUDITED)
June 30, March 31,
2000 2000
------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 6,368,417 $ 4,028,271
Accounts receivable, net of allowance
for doubtful accounts of $820,857
and $836,945 19,779,554 21,820,168
Advances to program suppliers 2,999,931 2,982,766
Inventory 3,692,406 3,889,603
Income tax receivable 190,617 169,300
Deferred tax asset 1,878,113 1,878,113
Notes receivable 4,142,222 4,061,618
Other current assets 2,517,671 1,757,081
-------------------- -------------
Total current assets 41,568,931 40,586,920
-------------------- -------------
PROPERTY AND EQUIPMENT, net 2,820,240 2,642,700
OTHER INVESTMENTS, net 302,481 302,481
DEFERRED TAX ASSET 3,370,175 3,346,212
OTHER ASSETS 3,620,960 3,595,041
-------------------- -------------
TOTAL ASSETS $51,682,787 $50,473,354
============ ============
The accompanying notes are an integral
part of these consolidated balance sheets.
</TABLE>
<TABLE>
<CAPTION>
RENTRAK CORPORATION
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(AS RESTATED)
(UNAUDITED)
June 30, March 31,
2000 2000
------------- -------------
<S> <C> <C>
CURRENT LIABILITIES:
Line of credit $ 4,385,350 $ -
Accounts payable 18,998,388 24,162,040
Accrued liabilities 2,867,638 2,645,567
Accrued compensation 676,709 1,476,703
Current portion of deferred revenue 2,761,694 1,500,262
Notes payable 500,000 500,000
Net current liabilities of
discontinued operations 319,281 430,923
------------- -------------
Total current liabilities 30,509,060 30,715,495
------------- -------------
LONG-TERM DEFERRED REVENUE 2,474,326 1,677,272
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: 12,293,684
shares at June 30, 2000 and 10,514,561
at March 31, 2000 12,294 10,515
Capital in excess of par value 52,810,473 44,445,199
Notes receivable (8,097,636) -
Cumulative other comprehensive income (loss) (303,785) (264,684)
Accumulated deficit (25,076,949) (25,326,951)
Less - Deferred charge - warrants (644,996) (783,492)
------------- -------------
18,699,401 18,080,587
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $51,682,787 $50,473,354
============= =============
The accompanying notes are an integral
part of these consolidated balance sheets.
</TABLE>
<TABLE>
<CAPTION>
RENTRAK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended June 30,
2000 1999
<S> <C> <C>
REVENUES:
PPT $22,349,375 $26,441,311
Other 6,685,572 4,553,759
------------- -------------
29,034,947 30,995,070
------------- -------------
OPERATING COSTS AND EXPENSES:
Cost of sales 22,971,790 24,437,684
Selling, general, and administrative 5,880,362 3,968,129
Net (gain) expense from litigation
settlement (225,000) 531,024
------------- -------------
28,627,152 28,936,837
------------- -------------
INCOME FROM OPERATIONS 407,795 2,058,233
------------- -------------
OTHER INCOME (EXPENSE):
Interest income 156,566 38,183
Interest expense (183,484) (165,425)
------------- -------------
(26,918) (127,242)
------------- -------------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAX PROVISION 380,877 1,930,991
INCOME TAX PROVISION 130,878 691,505
------------- -------------
INCOME FROM CONTINUING OPERATIONS 249,999 1,239,486
GAIN FROM DISPOSAL OF DISCONTINUED
SUBSIDIARIES (PLUS INCOME TAX
BENEFIT OF $483,502) - 2,373,502
------------- -------------
NET INCOME $ 249,999 $ 3,612,988
============= =============
EARNINGS PER SHARE:
Basic:
Continuing operations $ 0.02 $ 0.12
Discontinued operations $ - $ 0.23
------------- -------------
$ 0.02 $ 0.35
============= =============
Diluted:
Continuing operations $ 0.02 $ 0.12
Discontinued operations $ - $ 0.23
------------- -------------
$ 0.02 $ 0.35
============= =============
The accompanying notes are an integral
part of these consolidated statements.
</TABLE>
<TABLE>
<CAPTION>
RENTRAK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AS RESTATED)
(UNAUDITED) (UNAUDITED)
Three Months Ended June 30,
------------ ------------
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $249,999 $3,612,988
Adjustments to reconcile income to
net cash provided by (used in)
operating activities
Gain on disposal of discontinued operations - (2,373,502)
Depreciation and amortization 299,153 328,879
Amortization of warrants 138,496 177,041
Provision for doubtful accounts 15,093 -
Retailer financing program reserves - 305
Deferred income taxes (23,963) -
Change in specific accounts:
Accounts receivable 2,025,521 (3,092,312)
Advances to program suppliers (17,165) (1,207,335)
Inventory 197,197 437,620
Income tax receivable (21,317) 367,032
Notes receivable (80,604) -
Other current assets (760,590) 307,082
Accounts payable (5,163,652) (230,005)
Accrued liabilities & compensation (577,923) 975,256
Deferred revenue (current) 1,261,432 11,363
Net current liabilities of discontinued
operations (111,642) (643,194)
Deferred revenue (long-term) 797,054 -
------------ ------------
Net cash used in operations (1,772,911) (1,328,782)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, equipment, and inventory (454,664) (65,939)
Disposal (purchase) of other assets & intangibles (87,046) 150,483
------------ ------------
Net cash provided by (used in)
investing activities (541,710) 84,544
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line of credit 4,385,350 325,000
Issuance of common stock 269,417 5,769
------------ ------------
Net cash provided by financing activities 4,654,767 330,769
------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 2,340,146 (913,469)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF THIS PERIOD 4,028,271 2,145,963
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $6,368,417 $1,232,494
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for -
Interest $49,552 $195,095
Income taxes paid, net of refunds received 79,830 19,330
NON-CASH TRANSACTIONS
Reclassification of accounts receivable to
other investments - 10,174
Change in unrealized gain (loss) on investment
securities, net of tax (39,098) (52,396)
Notes issued for common stock 8,097,636 -
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 period ended June 30, 2000
are not necessarily indicative of the results to be expected
for the entire fiscal year ending March 31, 2001. The
Condensed Consolidated Financial Statements should be read
in conjunction with the Consolidated Financial Statements
and footnotes thereto included in the Company's 2000 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: Restatement
In September 2000 the Company determined that it was
necessary to revise its June 30, 2000 interim quarterly
financial statements. The restatement was required because
additional information became known at that time regarding
the terms and conditions of an agreement the Company entered
into with one of its customers in June 2000 (see Note F.
Agreement). With the knowledge of this additional
information, the Company immediately recognized it had
incorrectly recorded $1.25 million as revenue for the
quarter ended June 30, 2000, that should have been recorded
as deferred revenue, until certain agreements between the
Company and this customer are completed.
In view of the effect of the incorrectly recorded revenue
and deferred revenue related to this matter, the Company
restated its quarterly consolidated financial statements for
the first quarter of the fiscal year ending March 31, 2001
to adjust previously reported revenue and deferred revenue.
The financial statements and related notes set forth in this
Form 10-Q/A reflect all such restatements related to these
adjustments to revenue and deferred revenue noted above.
A summary of the impact of the restatements to reduce
previously reported revenue with an associated reduction in
bonus accrual for the quarter ended June 30, 2000 and as of
June 30, 2000 follows:
<TABLE>
<CAPTION>
Consolidated Statement of Income
Three Months Ended June 30, 2000
-------------- --------------
Previously As
Reported Restated
<S> <C> <C>
REVENUES:
PPT $23,599,375 $ 22,349,375
Other 6,685,572 6,685,572
-------------- --------------
30,284,947 29,034,947
-------------- --------------
OPERATING COSTS AND EXPENSES:
Cost of sales 22,971,790 22,971,790
Selling, general, and administrative 5,940,041 5,880,362
Net (gain) expense from
litigation settlement (225,000) (225,000)
-------------- --------------
28,686,831 28,627,152
-------------- --------------
INCOME FROM OPERATIONS 1,598,116 407,795
-------------- --------------
OTHER INCOME (EXPENSE):
Interest income 156,566 156,566
Interest expense (183,484) (183,484)
-------------- --------------
(26,918) (26,918)
-------------- --------------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAX PROVISION 1,571,198 380,877
INCOME TAX PROVISION 525,279 130,878
-------------- --------------
INCOME FROM CONTINUING OPERATIONS 1,045,919 249,999
GAIN FROM DISPOSAL OF DISCONTINUED
SUBSIDIARIES (PLUS INCOME TAX
BENEFIT OF $483,502) - -
-------------- --------------
NET INCOME $ 1,045,919 $ 249,999
============== ==============
EARNINGS PER SHARE:
Basic:
Continuing operations $ 0.10 $ 0.02
Discontinued operations $ - $ -
-------------- --------------
$ 0.10 $ 0.02
============== ==============
Diluted:
Continuing operations $ 0.10 $ 0.02
Discontinued operations $ - $ -
-------------- --------------
$ 0.10 $ 0.02
============== ==============
</TABLE>
<TABLE>
<CAPTION>
Consolidated Balance Sheet
June 30, 2000
--------------- ---------------
Previously As
Reported Restated
--------------- ---------------
<S> <C> <C>
CURRENT LIABILITIES:
Accrued liabilities $ 3,262,039 $ 2,867,638
Accrued compensation 736,388 676,709
Current portion of deferred revenue 1,511,694 2,761,694
Total Current Liabilities 29,713,140 30,509,060
STOCKHOLDERS' EQUITY:
Accumulated deficit $(24,281,029) $(25,076,949)
Total Stockholders' Equity 19,495,321 18,699,401
</TABLE>
NOTE C: Net Income Per Share
Basic earnings per common share is computed by dividing net
income by the weighted average number of shares of common
stock outstanding during the periods. Diluted earnings 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 month periods ended June
30, 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
Note C: Net Income Per Share
(As Restated)
Three Months Ended Three Months Ended
June 30, 2000 June 30, 1999
------------ ------------ ------------ ------------
Basic Diluted Basic Diluted
<S> <C> <C> <C> <C>
Weighted average number of
shares of common stock
outstanding 10,816,915 10,816,915 10,440,614 10,440,614
Dilutive effect of exercise
of stock options - 113,276 - 101,071
------------ ------------ ------------ ------------
Weighted average number
of shares of common stock
outstanding and common
stock equivalents 10,816,915 10,930,191 10,440,614 10,541,685
============ ============ ============ ============
Net Income:
Continuing operations $ 249,999 $249,999 $1,239,486 $1,239,486
Discontinued operations - - 2,373,502 2,373,502
------------ ------------ ------------ ------------
Net income: $249,999 $249,999 $3,612,988 $3,612,988
============ ============ ============ ============
Earnings per share:
Continuing operations $0.02 $0.02 $0.12 $0.12
Discontinued operations - - 0.23 0.23
------------ ------------ ------------ ------------
Net income $0.02 $0.02 $0.35 $0.35
============ ============ ============ ============
</TABLE>
Options and warrants to purchase approximately 2,900,000 and 5,600,000
shares of common stock were outstanding for the three month period
ended June 30, 2000 and 1999 respectively, 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. The options and warrants, which expire
during fiscal years 2000 through 2008, remain outstanding at June 30, 2000.
NOTE D: Business Segments, Significant Suppliers and Major
Customer
The Company classifies its services in three segments, PPT,
3PF.COM, Inc. and Other. Under its Pay-Per-Transaction (PPT)
revenue sharing program, the Company enters into contracts to
lease videocassettes from program suppliers (producers of motion
pictures and licensees and distributors of home video cassettes)
which are then leased to retailers for a percentage of the
rentals charged by the retailers. 3PF.COM, Inc. is the Company's
e-commerce provider of order processing, fulfillment and
inventory management services. Other includes the operations of
BlowOut Video, a video retail subsidiary, ForMovies.Com, an
internet service, and amounts received pursuant to royalty
agreements, primarily from Rentrak Japan.
Business Segments
(As Restated)
Three Months Ended Three Months Ended
June 30, 2000 June 30, 1999
NET SALES: (1)
PPT $22,626,756 $26,555,648
3PF.COM, Inc. (2) 4,305,100 3,500,810
OTHER 3,151,661 2,072,560
$30,083,517 $32,129,018
INCOME (LOSS) FROM
OPERATIONS: (1)
PPT $1,009,806 $1,576,148
3PF.COM, Inc. (2) (828,576) 342,034
OTHER 226,565 140,051
$ 407,795 $2,058,233
(1) Total amounts differ from those reported on the consolidated
financial statements, as intercompany transactions are not
eliminated for segment reporting purposes.
(2) 3PF.COM, Inc.'s revenues related to the shipment of
cassettes to PPT Customers was $771,189 and $1,019,611 for
the three-month periods ended June 30, 2000 and 1999,
respectively.
For the quarter ended June 30, 2000, the Company had one program
supplier whose product generated 22 percent, a second that
generated 19 percent, and a third that generated 12 percent of
Rentrak revenues. No other program supplier provided product
that generated more than 10 percent of revenues for the three-
month period ended June 30, 2000. No customer accounted for more
than 10 percent of the Company's revenues in the three-month
period ended June 30, 2000.
For the quarter ended June 30, 1999, the Company had one program
supplier whose product generated 22 percent, a second that
generated 19 percent, and a third that generated 18 percent of
Rentrak revenues. No other program supplier provided product
that generated more than 10 percent of revenues for the three-
month period ended June 30, 1999. No customer accounted for more
than 10 percent of the Company's revenues in the three-month
period ended June 30, 1999.
NOTE E: 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 a petition under Chapter 11 of
the Federal Bankruptcy Code in the United States Bankruptcy Court
for the District of Delaware. Simultaneously 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, agreed to
a payment plan to fulfill BlowOut's obligation under its credit
facility. The amount outstanding at June 30, 2000 is
approximately $319,000. 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 $0.5 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 June 30,
2000 and June 30, 1999, relate to amounts to be paid pursuant to
the Guarantee, net of tax benefit.
NOTE F: Agreement
In June 2000, the Company entered into an agreement with one of
its customers to modify an existing contract. Under the terms of
the agreement, the customer made a payment to the Company in the
amount of $2.5 million and also increased its obligation to
purchase PPT product. The entire payment has been recorded as
deferred revenue on the Company's restated balance sheet at June
30, 2000. As part of this agreement, the customer agreed to
enter into certain additional agreements to be agreed upon by the
parties. One-half of the payment relates to the modification of
certain contractual obligations, still to be negotiated by the
Company and the customer. This $1.25 million has been recorded
as current deferred revenue until the contract is complete. The
additional $1.25 million was paid to the Company as a prepayment
toward services to be provided by the Company's subsidiary,
3PF.COM, Inc., through June 30, 2006, pursuant to an agreement
under negotiation. As services are provided by 3PF.COM, Inc., it
is contemplated that the customer can apply the prepaid $1.25
million as payment for certain of these services. Accordingly,
this $1.25 million has been recorded as long-term deferred
revenue. The customer has taken the position that it is entitled
to a refund of the $2.5 million payment upon its request if the
additional agreements were not finalized by July 14, 2000. The
customer has made such a request for refund; in addition, the
parties are continuing to negotiate the additional agreements.
NOTE G: Related Party Transactions
On June 16, 2000, the Company loaned $8,097,636 to two of its
officers to purchase 1,663,526 shares of stock upon exercise of
their employee stock options. The loans bear interest at the
federal funds rate in effect on the date of the loan (6.5%) and
interest is payable annually. The principal amount of the loans
is due on the earliest to occur of: (1) one year prior to the
expiration of the term of the borrower's current employment
agreement with Rentrak, (2) one year after the borrower leaves
Rentrak's employment unless such departure follows a "change of
control" (as defined in the loan agreements), (3) five years from
the date of the loan, or (4) one year from the date of the
borrower's death. The loans are secured by the stock purchased.
The loans are without recourse (except as to the stock securing
the loans) as to principal and are with full recourse against the
borrower as to interest. The notes receivable arising from these
transactions are presented as deductions from stockholders'
equity.
NOTE H: Subsequent Event
In May 2000 the Company obtained a replacement line of credit with
a lender in an amount not to exceed the lesser of (a) $12 million
or (b) the sum of 85 percent of the net amount of eligible accounts
receivable. The terms of the credit agreement include financial covenants
requiring: (1) a minimum amount of tangible net worth to be maintained
at all times; (2) a minimum consolidated net profit to be achieved each
fiscal year and (3) a minimum amount of working capital to be maintained
at all times; an additional covenant places limits on payments for
obligations to officers, directors, shareholders or affiliates of the
Company. Subsequent to June 30, 2000 the Company has determined that it
will likely be out of compliance with one or more of these covenants as
of September 30, 2000. The Company intends to promptly seek waivers from
its lenders with respect to each covenant as to which it is determined
to not be in compliance.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
Certain information included in Management's Discussion and
Analysis of Financial Condition 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 economic conditions,
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 2000 Annual Report to
Shareholders.
Results of Operations
For the quarter ended June 30, 2000, total revenue decreased $2.0
million, or 6 percent, to $29.0 million from $31.0 million for
the quarter ended June 30, 1999. Total revenue includes the
following PPT Program 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 and buy out
fees generated when retailers purchase Cassettes at the end of
the lease term. In addition, total revenue includes charges to
customers of the Company's wholly owned subsidiary, 3PF.COM,
Inc., which provides e-commerce order processing, fulfillment and
inventory management services, sales of Cassettes through the
Company's retail subsidiary, BlowOut Video, charges for internet
services provided by ForMovies.Com and royalty payments primarily
from Rentrak Japan.
The decrease in total revenue for the three month period ended
June 30, 2000 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; and (ii) the number of
titles released to the PPT System. These reductions in revenue
were partially offset by an increase in revenue related to
3PF.COM, Inc.'s services.
Cost of sales for the quarter ended June 30, 2000 decreased to
$23.0 million from $24.4 million for the quarter ended June 30,
1999, a decrease of $1.4 million, or 6 percent. The decrease is
due to the reduction in revenue as noted above.
As a result, the gross profit margin remained consistent at 21
percent in the quarter ended June 30, 2000 with 21 percent in the
quarter ended June 30, 1999.
Selling, general and administrative expenses were $5.7 million
for the quarter ended June 30, 2000 compared to $4.5 million for
the quarter ended June 30, 1999, an increase of $1.2 million, or
27 percent, including the net gain and expense resulting from a
litigation settlement for these quarters, respectively. The
increase in selling, general and administrative expenses is
primarily due to: (1) increased investments in advertising for
the Company's business segments; (2) increased investments in
systems and infrastructure to support continuing growth of
3PF.COM, Inc.; (3) costs associated with the opening of new
retail video stores by the Company; (4) increased legal costs and
(5) the offset to expense in the quarter ended June 30, 2000
resulting from the gain from the litigation settlement.
The effective tax rate during the quarter ended June 30, 2000 was
34% compared to 36% during the quarter ended June 30, 1999.
As a result, for the quarter ended June 30, 2000, the Company
recorded income from continuing operations of $0.25 million, or 1
percent of total revenue, compared to income from continuing
operations of $1.2 million, or 4 percent of total revenue in the
quarter ended June 30, 1999.
Discontinued Operations
On March 22, 1999, BlowOut Entertainment, Inc. ("BlowOut") filed
a petition under Chapter 11 of the Federal Bankruptcy Code in the
United States Bankruptcy Court for the District of Delaware.
BlowOut simultaneously 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 June 30, 2000, total assets were $51.7 million, an increase of
$1.2 million from the $50.5 million at March 31, 2000. As of
June 30, 2000, cash increased $2.4 million to $6.4 million from
$4.0 million at March 31, 2000, primarily due to a $2.5 million
payment related to an agreement with a customer (See Note F).
Accounts receivable decreased $2.0 million from $21.8 million at
March 31, 2000 to $19.8 million at June 30, 2000 primarily due to
the decrease in revenues for the quarter as noted above and due
to the write off of approximately $0.6 million in accounts deemed
uncollectible. Other current assets increased $0.8 million from
$1.7 million at March 31, 2000 to $2.5 million at June 30, 2000.
Outstanding borrowings under the line of credit increased $4.4
million from $0 at March 31, 2000 to $4.4 million at June 30,
2000 due to changes in working capital needs and investments in
equipment during the quarter. Accounts payable decreased $5.2
million from $24.2 million at March 31, 2000 to $19.0 million at
June 30, 2000 due primarily to the timing of studio and other
vendor payments. Accrued liabilities increased $0.3 million from
$2.6 million at March 31, 2000 to $2.9 million at June 30, 2000
due primarily to the income tax accrual for the pre-tax results
of operations for the quarter. Deferred revenue increased $2.0
million from $3.2 million at March 31, 2000 to $5.2 million at
June 30, 2000 due to the $2.5 million payment related to an
agreement with a customer (See Note F).
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, the Company had cash of $6.4 million compared
to $4.0 million at March 31, 2000. At June 30, 2000, the
Company's current ratio (current assets/current liabilities)
increased to 1.36 from 1.32 at March 31, 2000.
The Company had 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.
Interest was payable monthly at the bank's prime rate plus one
percent (9.0 percent at March 31, 2000). The line was secured by
substantially all of the Company's assets. The terms of the
agreement required, among other things, a minimum amount of
tangible net worth, minimum current ratio and minimum total
liabilities to tangible net worth. The agreement also restricted
the amount of net losses, loans and indebtedness and limited the
payment of dividends on the Company's stock. As of March 31,
2000, the Company was in compliance with these covenants or
waivers had been obtained. The Company had $0 outstanding
borrowings under this agreement at March 31, 2000.
In May 2000 this line of credit was terminated and replaced with
a line of credit with a different lender in an amount not to
exceed the lesser of (a) $12 million or (b) the sum of 85% of the
net amount of eligible accounts receivable. Interest under the
new line is payable monthly at the bank's prime rate plus 1/4
percent (9.75 percent at June 30, 2000). 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, working capital and annual net profit. The
agreement also restricts the amount of loans and indebtedness and
limits the payment of dividends on the Company's stock.
As of June 30, 2000 the Company was in compliance with these
covenants. This agreement expires in May 2005. At June 30,
2000, the Company had $4.4 million outstanding borrowings under
this agreement.
In 1992, the Company established a Retailer Financing Program
whereby, on a selective basis, it provided financing to
Participating Retailers that the Company believed had potential
for substantial growth in the industry. In connection with these
financings, the Company typically made a loan to and/or an equity
investment in the Participating Retailer. In some cases, the
Company obtained a warrant to purchase stock in the Participating
Retailer. As part of such financing, the Participating Retailer
typically agreed to cause all of its current and future retail
locations to participate in the PPT System for a designated
period of time (usually 5 - 20 years). Under these agreements,
Participating Retailers were 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 Participating Retailer's revenues.
Notwithstanding the long term nature of such agreements, both the
Company and the Participating 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 Rentrak Video Retailer Loan Program was adopted in 1992 at a
time when the video industry was experiencing rapid growth. The
underlying rationale for this program was the belief that the
Company could expand its business and at the same time
participate in the rapid growth experienced by the video
retailers in which it invested. Now that the video industry is
entering a phase of maturation, the Company does not expect to
utilize this program in any material respect for any new
participants. However, the Company may make follow on loans or
investments in existing Video Retailer Loan Participants. As of
June 30, 2000, the Company had approximately $6.9 million in
loans and investments outstanding under the program and reserves
of approximately $5.7 million of the total original loan or
investment amount.
The Company was the principal creditor of BlowOut Entertainment,
Inc. ("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 June 30, 2000, the balance
owing under this obligation is approximately $319,000.
On July 21, 2000 the Company received a payment in the amount of
$4.16 million, including interest, from a former customer
pursuant to a promissory note given in connection with the
settlement of a claim. The promissory note was recorded as a
note receivable on the balance sheet of the Company at June 30,
2000.
During July 2000, the Company sold and received cash proceeds of
approximately $1.4 million from 200,000 shares of stock it
received previously pursuant to the settlement of a claim. As of
June 30, 2000, the book value of these shares was recorded as
other assets on the balance sheet of the Company.
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, 2001.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - Exhibit 27 - Amended Financial Data Schedule
(b) Reports on Form 8-K - No reports on Form 8-K were filed by
the registrant during the quarter ended June 30, 2000.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Dated this 13th day of November, 2000
RENTRAK CORPORATION:
/s/ F. Kim Cox
F. Kim Cox
President
Signing on behalf of the registrant
