FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended: 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.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2000 and March
31, 2000
Consolidated Statements of Income for the three month
periods ended June 30, 2000 and June 30, 1999
Consolidated Statements of Cash Flows for the three month
periods ended June 30, 2000 and June 30, 1999
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
RENTRAK CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
(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
(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 3,262,039 2,645,567
Accrued compensation 736,388 1,476,703
Current portion of deferred revenue 1,511,694 1,500,262
Notes payable 500,000 500,000
Net current liabilities of discontinued
operations 319,281 430,923
Total current liabilities 29,713,140 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 (24,281,029) (25,326,951)
Less - Deferred charge - warrants (644,996) (783,492)
19,495,321 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 $23,599,375 $26,441,311
Other 6,685,572 4,553,759
30,284,947 30,995,070
OPERATING COSTS AND EXPENSES:
Cost of sales 22,971,790 24,437,684
Selling, general, and administrative 5,940,041 3,968,129
Net (gain) expense from litigation
settlement (225,000) 531,024
28,686,831 28,936,837
INCOME FROM OPERATIONS 1,598,116 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 1,571,198 1,930,991
INCOME TAX PROVISION 525,279 691,505
INCOME FROM CONTINUING OPERATIONS 1,045,919 1,239,486
GAIN FROM DISPOSAL OF DISCONTINUED
SUBSIDIARIES (PLUS INCOME TAX
BENEFIT OF $483,502) - 2,373,502
NET INCOME $ 1,045,919 $ 3,612,988
EARNINGS PER SHARE:
Basic:
Continuing operations $ 0.10 $ 0.12
Discontinued operations $ - $ 0.23
$ 0.10 $ 0.35
Diluted:
Continuing operations $ 0.10 $ 0.12
Discontinued operations $ - $ 0.23
$ 0.10 $ 0.35
The accompanying notes are an integral
part of these consolidated statements.
</TABLE>
<TABLE>
<CAPTION>
RENTRAK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended June 30,
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $1,045,919 $3,612,988
Adjustments to reconcile income to
net cash provided by (used in)
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 (123,843) 975,256
Deferred revenue (current) 11,432 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: 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>
Note B: Net Income Per Share
<CAPTION>
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 $ 1,045,919 $1,045,919 $1,239,486 $1,239,486
Discontinued operations - 2,373,502 2,373,502
Net income: $1,045,919 $1,045,919 $3,612,988 $3,612,988
Earnings per share:
Continuing operations $0.10 $0.10 $0.12 $0.12
Discontinued operations - 0.23 0.23
Net income $0.10 $0.10 $0.35 $0.35
</TABLE>
NOTE C: 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 form Rentrak Japan.
<TABLE>
Business Segments
<CAPTION>
Three Months Ended Three Months Ended
June 30, 2000 June 30, 1999
<S> <C> <C>
NET SALES: (1)
PPT $23,876,756 $26,555,648
3PF.COM, Inc. (2) 4,305,100 3,500,810
OTHER 3,151,661 2,072,560
$31,333,517 $32,129,018
INCOME (LOSS) FROM
OPERATIONS: (1)
PPT $2,200,127 $1,576,148
3PF.COM, Inc. (2) (828,576) 342,034
OTHER 226,565 140,051
$1,598,116 $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.
</TABLE>
For the quarter ended June 30, 2000, the Company had one program
supplier whose product generated 21 percent, a second that
generated 19 percent, and a third that generated 11 percent of
Rentrak revenue. No other program supplier provided product,
which generated more than 10 percent of revenue for the three-
month period ended June 30, 2000. One customer accounted for 11
percent of the Company's revenue 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 an additional 18
percent of Rentrak revenue. No other program supplier provided
product, which generated more than 10 percent of revenue for the
three-month period ended June 30, 1999. No customer accounted
for more than 10 percent of the Company's revenue in the three-
month period ended June 30, 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, 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: E Agreement
In June 2000, the Company entered into an agreement with one of
its customers, modifying an existing contract. Under terms of
the agreement the customer made a payment to the Company in the
amount of $2.5 million. $1.25 million of the payment has been
recorded as revenue in the consolidated statement of income for
the quarter ended June 30, 2000, as the amount relates to the
modification of certain contractual obligations. The additional
$1.25 million was paid to the Company as a prepayment toward
services through June 30, 2006. As services are provided by the
Company's subsidiary, 3PF.COM, Inc., 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 on the Company's balance sheet as of June 30,
2000.
NOTE F: 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 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.
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 Condition and Results of Operation
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 2000 Annual Report to Shareholders.
Results of Operations
For the quarter ended June 30, 2000, total revenue decreased $0.7
million, or 2 percent, to $30.3 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 revenues 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 the
3PF.COM, Inc.'s Services, as well as the recognition of $1.25
million of revenue related to an agreement with a customer as
noted above (See Note E.).
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 and due to the
recognition of $1.25 million of revenue related to an agreement
with a customer as noted above (See Note E.) that had negligible
cost of sales associated with the transaction.
As a result, the gross profit margin increased to 24 percent in
the quarter ended June 30, 2000 from 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. 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 and (4) increased legal
costs.
The effective tax rate during the quarter ended June 30, 2000 was
33% 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 $1.0 million, or 3
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
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 June 30, 2000, total assets were $51.7 million, an increase of
$1.2 million from the $50.5 million at June 30, 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 as noted above
(See Note E.). 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. 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 $0.6 million from
$2.6 million at March 31, 2000 to $3.2 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 $0.8
million from $3.2 million at March 31, 2000 to $4.0 million at
June 30, 2000 due to the $1.25 million non-refundable advance
payment for future services of 3PF.COM, Inc. related to an
agreement with a customer as noted above (See Note E).
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 1.40 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 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 customer pursuant to
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 of 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK.
None.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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 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 been conducted. On October 21, 1999, the Company
amended its counterclaims to add additional claims, including 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. As of June 30,
2000, the Company had approximately $4,413,000 in accounts
receivable relating to PPT transactions from Video Update, which
the Company believes, are recoverable. Management intends to
monitor the situation quarterly and when management becomes aware
of information that indicates that the asset will not be
recovered, an appropriate reserve will be recorded. On July 31,
2000, the Company filed multiple motions for summary judgement
including a motion seeking to dismiss Video Update's antitrust
claim and a motion seeking a finding that Video Update breached
its contract with Rentrak. No hearing has been set. Trial is
scheduled to begin on January 9, 2001, in Portland, Oregon.
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. In September 1998, Movie Buffs filed counterclaims
against the Company and Third Party Claims against Hollywood
("Movie Buffs Counterclaims"). In September 1998 Roadrunner
Video ("Roadrunner Video") filed a third-party complaint in
intervention against the Company and Hollywood ("the Roadrunner
Complaint"). 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. The Company believes
the Movie Buffs Counterclaims and the Roadrunner Complaint lack
merit and the Company intends to vigorously defend against all of
the allegations therein. On July 17, 2000 the Company announced
that Roadrunner voluntarily dismissed with prejudice all of its
claims against the Company. Movie Buffs also has agreed to
dismiss with prejudice certain of its claims against the Company,
including its allegations that the Company violated anti-trust
laws. The Company has contemporaneously filed a motion for
summary judgement against the remaining Movie Buffs claims. The
Company paid no money to either Roadrunner or Movie Buff to
obtain dismissal of the various claims.
On February 10, 2000 the Company filed a complaint ("the Action
Video Complaint") against David D. Passerallo, and Action Video,
Inc. entitled Rentrak Corporation v. David D. Passerallo, an
individual and Action Video, a North Carolina corporation, Case
No. CV 00-214-HA, in the United District Court for the District
of Oregon. The Action Video Complaint alleges claims for
conversion, breach of contract, payment on advance agreement and
personal guarantee. On April 10, 2000, Action Video filed
counterclaims against the Company ("the Action Video
Counterclaims). This case is described in the Company's 10-K for
the year ended March 31, 2000. The Company has sought to dismiss
a number of Action Video's counterclaims. Action Video agreed to
dismiss certain of these counterclaims and has repled its
remaining counter claims. Action Video is no longer asserting
any antitrust claims against the Company. The Company believes
that the Action Video Counterclaims are without merit and intends
to vigorously defend against this litigation.
On June 13, 2000 in the United States Federal District Court in
Portland, Oregon, the Company filed a lawsuit against Donald
Kundinger, Paul Bogdanich, Jackson Hole Advisors, Paul Rosenbaum,
and a number of other shareholders and prospective board nominees
who had either been identified in a Schedule 13D filed by Mr.
Rosenbaum or had served on Rentrak a demand for a special
shareholders meeting. The suit claims that the defendants have
violated Sections 13 and 14 of the Securities Exchange Act by,
among other things filing a late and misleading Schedule 13D and
engaging in false and misleading solicitations. The suit also
alleges that Messrs. Kundinger and Bogdanich and Jackson Hole
Advisors have breached a contract entered into with Rentrak and
their fiduciary duties owed to Rentrak and that they have engaged
in fraud. The suit prays for declaratory and preliminary and
permanent injunctive relief against all the defendants and seeks
compensatory and punitive damages against Messrs. Kundinger and
Bogdanich and Jackson Hole Advisors. Rentrak has sough and
obtained a court order authorizing expedited discovery and is
vigorously conducting discovery against the defendants and
certain third parties.
On July 7, 2000, certain of the defendants who purport to be
members of a shareholder group identifying itself as the
Committee for Achievement of Rentrak Excellence filed their
answer denying the material allegations of the complaint,
asserting various affirmative defenses and asserting a
counterclaim against Rentrak, its directors, Rentrak Japan, K.K.
and Culture Convenience Club Co., Ltd. Alleging that Rentrak and
the other defendants have violated Section 13 (d) of the
Securities Exchange Act by failing to file a Schedule 13D within
10 days after they allegedly formed a group to acquire Rentrak
stock with the purpose or effect of influencing control of
Rentrak. As part of their allegations, the counterclaimants
allege that Rentrak has violated Regulation U promulgated by the
Board of Governors of the Federal Reserve System by granting
loans to Messrs. Berger and Cox to enable them to exercise
certain stock options for the purpose of defeating an impending
proxy fight for control of Rentrak. The counterclaimants pray
for declaratory and preliminary and permanent injunctive relief.
Rentrak does not believe that it or any of the other defendants
have violated Section 13 (d) or have formed any group. In
addition, Rentrak believes that the loans made to Messrs. Berger
and Cox in connection with the exercise of their stock options
complied with Regulation U. Rentrak and the other defendants are
vigorously defending against these allegations and the relief
sought.
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 that
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 August, 2000
RENTRAK CORPORATION:
/s/ F. Kim Cox
F. Kim Cox
President
Signing on behalf of the registrant
