UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended October 31, 1997
or
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from _____ to _____
Commission file number: 0-24346
VIDEO UPDATE, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 41-1461110
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3100 World Trade Center
30 East 7th Street
St. Paul, Minnesota 55101
(Address of Principal Executive Offices)
(Zip Code)
(612) 222-0006
(Registrant's Telephone Number, Including Area Code)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
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 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___
The number of shares of Class A Common Stock, $.01 par value,
outstanding at December 12, 1997 is 18,104,591 and the number of shares of Class
B Common Stock, $.01 par value, outstanding is 2,000,000.
<PAGE>
VIDEO UPDATE, INC.
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
- ------------------------------ --------
ITEM 1. Financial Statements
Consolidated Balance Sheets - April 30, 1997, and
October 31, 1997 3
Consolidated Statements of Income - Three Months and
Six Months Ended October 31, 1996 and October 31, 1997 4
Consolidated Statements of Cash Flows - Three Months
and Six Months Ended October 31, 1996 and October 31, 1997 5
Notes to Consolidated Financial Statements - October 31, 1997 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 13
ITEM 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
<PAGE>
PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS
VIDEO UPDATE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
ASSETS
April 30, October 31,
1997 1997
--------- ---------
(UNAUDITED)
<S> <C> <C>
Cash and cash equivalents $ 2,424 $ 96
Accounts receivable 3,776 3,593
Notes receivable from related parties 1,394 1,470
Inventory 7,318 9,119
Videocassette rental inventory -- net 45,479 56,785
Property and equipment -- net 33,069 41,750
Prepaid expenses 783 1,875
Recoverable income taxes -- 1,502
Goodwill -- net 37,716 36,612
Other assets 1,648 1,752
--------- ---------
Total assets $ 133,607 $ 154,554
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 20,564 $ 32,534
Accounts payable 12,196 21,712
Accrued expenses 2,415 2,884
Accrued rent 2,238 3,450
Accrued compensation 1,779 1,548
Income taxes payable 1,096 --
Deferred income taxes 2,327 3,021
Commitments and contingencies
Stockholders' equity:
Preferred Stock, par value $.01 per share:
Authorized shares -- 5,000,000
Issued shares -- none -- --
Class A Common Stock, par value $.01 per share:
Authorized shares -- 60,000,000
Issued and outstanding shares -- 18,170,341 at April 30,
1997 and 18,104,591 at October 31, 1997 182 181
Class B Common Stock, par value $.01 per share:
Authorized, issued and outstanding shares --
2,000,000 at April 30, 1997 and October 31, 1997 20 20
Additional paid-in capital 86,085 85,585
Retained earnings 6,806 5,909
Foreign currency translation (421) (610)
--------- ---------
92,672 91,085
Notes receivable from officers for the exercise of options (1,680) (1,680)
--------- ---------
Total stockholders' equity 90,992 89,405
--------- ---------
Total liabilities and stockholders' equity $ 133,607 $ 154,554
========= =========
</TABLE>
SEE ACCOMPANYING NOTES.
Note: The balance sheet at April 30, 1997 has been derived from the audited
financial statements at that date but does not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
<PAGE>
VIDEO UPDATE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
October 31, October 31,
1996 1997 1996 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Rental revenue $ 18,444 $ 29,152 $ 35,628 $ 56,964
Service fees 165 193 284 343
Product sales 1,515 3,786 2,775 6,630
-------- -------- -------- --------
20,124 33,131 38,687 63,937
Costs and expenses:
Store operating expenses 15,868 27,973 30,286 53,372
Selling, general and administrative 2,044 3,167 4,022 5,841
Cost of product sales 956 2,362 1,636 3,852
Amortization of goodwill 371 502 743 1,022
-------- -------- -------- --------
19,239 34,004 36,687 64,087
-------- -------- -------- --------
Operating income (loss) 885 (873) 2,000 (150)
Interest expense (152) (670) (318) (1,176)
Other income 119 74 129 180
-------- -------- -------- --------
(33) (596) (189) (996)
-------- -------- -------- --------
Income (loss) before income taxes 852 (1,469) 1,811 (1,146)
Income tax expense (benefit) 382 (462) 778 (249)
======== ======== ======== ========
Net income (loss) $ 470 $ (1,007) $ 1,033 $ (897)
======== ======== ======== ========
Net income (loss) per share $ 0.03 $ (0.05) $ 0.08 $ (0.05)
======== ======== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
VIDEO UPDATE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Six Months Ended October 31,
1996 1997
-------- --------
OPERATING ACTIVITIES
Net income (loss) $ 1,033 $ (897)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 11,409 19,670
Accrued rent 700 1,212
Deferred income taxes 131 694
Changes in operating assets and liabilities, net
of acquisitions of businesses:
Accounts receivable (976) 179
Inventory 946 (1,801)
Other assets (722) (1,414)
Accounts payable 2,643 9,516
Income taxes payable (168) (2,598)
Other liabilities 529 9
-------- --------
Net cash provided by operating activities 15,525 24,570
INVESTING ACTIVITIES
Purchase of videocassette rental inventory (17,169) (26,799)
Purchase of property and equipment (6,329) (11,343)
Investment in businesses, net of cash acquired (166) (610)
Notes receivable from officers -- (160)
Payments on notes receivable 420 43
-------- --------
Net cash used in investing activities (23,244) (38,869)
FINANCING ACTIVITIES
Proceeds from notes payable 5,326 14,000
Payments on notes payable (9,525) (2,029)
Proceeds from issuance of common stock, net 25,032 --
-------- --------
Net cash provided by financing activities 20,833 11,971
-------- --------
Increase (decrease) in cash and cash equivalents 13,114 (2,328)
Cash and cash equivalents at beginning of the period 676 2,424
-------- --------
Cash and cash equivalents at end of the period $ 13,790 $ 96
======== ========
SEE ACCOMPANYING NOTES.
<PAGE>
VIDEO UPDATE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997
(UNAUDITED)
1. GENERAL
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six months ended October 31, 1997 are
not necessarily indicative of the results that may be expected for the year
ending April 30, 1998. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended April 30, 1997.
RECLASSIFICATION
Certain prior year items have been reclassified to conform with the
fiscal 1998 presentation.
2. NET INCOME PER COMMON SHARE
Net income (loss) per share under the treasury stock method is computed
by dividing net income (loss) for the year by the weighted average number of
shares of common stock and common stock equivalents, if dilutive, outstanding
during the year. If the number of shares of common stock obtainable on exercise
of outstanding options and warrants in the aggregate exceeds 20% of the number
of common shares outstanding at the end of the period for which the computation
is being made, the treasury stock method shall be modified in determining the
dilutive effect of the options and warrants. The "treasury stock method -
modified" is presented if it is found to be dilutive. The weighted average
number of shares used in the net income (loss) per share calculation was reduced
by the common shares placed in escrow in connection with the Company's initial
public offering.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED OCTOBER 31, ENDED OCTOBER 31,
-------------------- --------------------
1996 1997 1996 1997
-------- -------- -------- --------
(In thousands, except per share amount)
<S> <C> <C> <C> <C>
EARNINGS PER SHARE
Net income (loss) $ 470 $ (1,007) $ 1,033 $ (897)
======== ======== ======== ========
Weighted average shares outstanding:
Class A common shares outstanding at quarter end 18,018 18,105 18,018 18,105
Class B common shares outstanding at quarter end 2,000 2,000 2,000 2,000
Less: Class B common shares placed in escrow in
connection with the initial public offering (1,300) (1,300) (1,300) (1,300)
Effect of using weighted average common shares
outstanding (4,465) -- (5,740) --
Effect of shares issuable under stock options and
warrants based on the treasury stock method 348 177 483 177
-------- -------- -------- --------
14,601 18,982 13,461 18,982
======== ======== ======== ========
Net income (loss) per common and common
equivalent share $ 0.03 $ (0.05) $ 0.08 $ (0.05)
======== ======== ======== ========
</TABLE>
<PAGE>
In February, 1997 the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted on April
30, 1998. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior periods.
Under the new requirements for calculating primary earnings per share, the
dilutive effect of stock options will be excluded. The impact is expected to
result in no change in primary earnings per share for the three months and six
months ended October 31, 1997 and 1996. The impact of Statement 128 on the
calculation of fully diluted earnings per share for these quarters is not
expected to be material.
3. DEFICIENCY OBLIGATIONS - ACQUISITIONS
In connection with three acquisitions in which the Company has issued
an aggregate of 574,506 shares of Class A Common Stock in fiscal 1996 and 1997,
the Company may be obligated to make deficiency payments to such sellers equal
to the difference between the guaranteed price of $7.00 to $15.00 for each share
issued, and the actual market price obtained for such shares as of specified
dates between July 1996 and October 1998. The remaining deficiency payments are
estimated to be approximately $2,680,000 based on the closing stock price of
$3.125 at October 31, 1997. The Company has the option of satisfying
approximately $1,220,000 of this liability at October 31, 1997 through the
issuance of additional shares of Class A Common Stock. The Company is currently
disputing whether any deficiency payment is due with respect to 239,163 shares
held by a seller in one of the acquisitions; the seller is claiming a deficiency
payment based on proceeds from the sale of Class A Common Stock during the six
month period of March 1996 to September 1996.
During October 1997, a cash deficiency payment was made with regard to
an acquisition in the cash amount of $68,562.
4. STOCKHOLDER'S EQUITY
In the first quarter of fiscal 1998, the Company canceled 65,750 shares
of Class A Common Stock issued to a seller (reducing paid in capital and
goodwill by approximately $500,000) as part of a purchase price adjustment
related to one of the Company's Canadian acquisitions.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion of the financial condition and results of
operations should be read in conjunction with the Company's unaudited
consolidated financial statements and notes thereto appearing elsewhere herein.
OVERVIEW
The Company franchised its first store in January 1983 and opened its
first Company-owned store in September 1989. By July 1994, when the Company
completed its initial public offering, the Company had grown to 15 Company-owned
stores and 30 franchised stores. Subsequently, the Company substantially
accelerated its growth and as of October 31, 1997 operated 387 Company-owned
stores in 20 states and six provinces in Canada, and has 34 franchised stores
predominantly in the United States. The majority of the Company's stores located
in the United States are superstores. Superstores are video specialty stores
that carry more than 7,500 rental units.
As a result of the acquisitions completed during fiscal 1995, 1996 and
1997, the Company anticipates that its results of operations will be reduced by
the amortization of goodwill of approximately $36,612,000, with anticipated
quarterly non-cash charges of approximately $504,000. The Company anticipates
that future acquisitions will involve the recording of additional significant
amounts of goodwill and deferred charges on its balance sheet.
<PAGE>
The Company generates revenues primarily from the rental of
videocassettes and video games, from service fees from its franchisees, and from
the sale of products. As reflected in the chart below, rental revenues at Video
Update stores have accounted for the substantial majority of the Company's
revenues. The Company expects that this trend will continue.
THREE MONTHS ENDED SIX MONTHS ENDED
OCTOBER 31, OCTOBER 31,
-------------------- --------------------
1996 1997 1996 1997
------- ------- ------- -------
(In thousands) (In thousands)
Rental revenue $18,444 $29,152 $35,628 $56,964
Service fees 165 193 284 343
Product sales 1,515 3,786 2,775 6,630
------- ------- ------- -------
$20,124 $33,131 $38,687 $63,937
======= ======= ======= =======
OPERATING RESULTS
The table below sets forth the percentage of revenues represented by
certain items included in the Company's statement of operations for the periods
indicated.
SIX MONTHS ENDED OCTOBER 31,
----------------------------
1996 1997
----- -----
Revenues:
Rental revenue 92.1 % 89.1 %
Service fees 0.7 0.5
Product sales 7.2 10.4
----- -----
Total revenues 100.0 100.0
Costs and expenses:
Store operating expenses 78.3 83.5
Selling, general and administrative 10.4 9.1
Cost of product sales 4.2 6.0
Amortization of goodwill 1.9 1.6
----- -----
Total cost and expenses 94.8 100.2
----- -----
Operating income (loss) 5.2 (0.2)
Other income (expense):
Interest expense (0.8) (1.9)
Other income 0.3 0.3
----- -----
Total other income (expense) (0.5) (1.6)
----- -----
Income (loss) before income taxes 4.7 (1.8)
Income tax expense (benefit) 2.0 (0.4)
----- -----
Net income (loss) 2.7 % (1.4)%
===== =====
<PAGE>
SIX MONTHS ENDED OCTOBER 31, 1997 COMPARED TO SIX MONTHS ENDED OCTOBER 31, 1996
RENTAL REVENUE. Rental revenue was approximately $56,964,000 and
$35,628,000, or 89.1% and 92.1% of total revenues for the six months ended
October 31, 1997 and 1996, respectively. The increase in rental revenue of
$21,336,000 was derived primarily from video stores acquired during fiscal 1997,
from the opening of 79 Company-owned stores, net of closings, since the second
quarter of fiscal 1997, and from a 3% increase in same store revenues.
SERVICE FEES. Service fees were approximately $343,000 and $284,000, or
0.5% and 0.7% of total revenues for the six months ended October 31, 1997 and
1996, respectively. Continuing service fees and royalties from franchisees
accounted for 91.3% and 89.4% of total service fees, respectively.
PRODUCT SALES. Product sales were approximately $6,630,000 and
$2,775,000, or 10.4% and 7.2% of total revenues for the six months ended October
31, 1997 and 1996, respectively. The increase in product sales of $3,855,000 was
primarily a result of product sales by the video stores acquired during fiscal
1997, from the opening of 79 Company-owned video stores, net of closings, since
the second quarter of fiscal 1997 and from the increase in sales of fixed assets
to franchisees. The increase as a percentage of total revenues was primarily due
to a difference in product mix.
STORE OPERATING EXPENSES. Store operating expenses consist primarily of
compensation and related expenses including regional management expenses,
occupancy expenses, and depreciation and amortization expenses. Operating
expenses were approximately $53,372,000 and $30,286,000, or 83.5% and 78.3% of
total revenues for the six months ended October 31, 1997 and 1996, respectively.
The increase in store operating expenses of $23,086,000 was primarily the result
of video stores acquired during fiscal 1997 and the opening of 79 Company-owned
video stores, net of closings, since the second quarter of fiscal 1997.
Compensation and related expenses were approximately $14,817,000 and
$8,935,000, or 23.2% and 23.1% of total revenues for the six months ended
October 31, 1997 and 1996, respectively. The increase of $5,882,000 was
primarily due to video stores acquired during fiscal 1997 and from the opening
of 79 Company-owned video stores, net of closings, since the second quarter of
fiscal 1997.
Occupancy expenses were approximately $15,967,000 and $8,917,000, or
25.0% and 23.0% of total revenues for the six months ended October 31, 1997 and
1996, respectively. The increase of approximately $7,050,000 was primarily due
to video stores acquired during fiscal 1997 and from the opening of 79
Company-owned stores, net of closings, since the second quarter of fiscal 1997.
The increase as a percentage of total revenues was primarily due to revenues of
new and acquired stores not meeting management's expectations due primarily
(management believes) to lack of public acceptance of new release titles and
higher costs associated with the opening of new video stores prior to revenue
reaching maturity during the first two years of operation.
Depreciation and amortization expenses were approximately $17,967,000
and $10,267,000, or 28.1% and 26.5% of total revenues for the six months ended
October 31, 1997 and 1996, respectively. Depreciation and amortization expense
reflects the depreciation of store equipment and fixtures and the amortization
of videocassettes. The increase of $7,700,000 was primarily attributable to the
addition of new release videocassette inventory for new, existing, and acquired
stores. The increase as a percentage of total revenues was primarily due to
revenues of new and acquired stores not meeting management's expectations due
primarily (management believes) to lack of public acceptance of new release
titles and higher costs associated with the opening of new video stores prior to
revenue reaching maturity during the first two years of operation. Amortization
expense as a percentage of revenues for future periods may vary based on the
Company's purchase of videocassette inventory, which is subject to change based
on the Company's rate of expansion, studio release schedules and anticipated
market demand.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses were approximately $5,841,000 and $4,022,000, or 9.1%
and 10.4% of total revenues for the six months ended October 31, 1997 and 1996,
respectively. The increase of approximately $1,819,000 was primarily due to
<PAGE>
adding management personnel and administrative staff to support the Company's
growth and related expenditures. The decrease as a percentage of total revenues
was due to the increase in total revenues without a proportional increase in
corporate overhead.
COST OF PRODUCT SALES. Cost of product sales was approximately
$3,852,000 and $1,636,000, or 6.0% and 4.2% of total revenues for the six months
ended October 31, 1997 and 1996. The cost of product sales as a percentage of
total product sales revenue was approximately 58.1% and 59.0% for fiscal 1997
and 1996, respectively. The decrease in the cost of product sales as a
percentage of total product sales was primarily due to a difference in product
mix.
AMORTIZATION OF GOODWILL. Amortization of goodwill was approximately
$1,022,000 and $743,000 or 1.6% and 1.9% of total revenues for the six months
ended October 31, 1997 and 1996, respectively. The decrease as a percentage of
total sales was primarily attributable to an increase in sales from new store
openings without a proportional increase in the amortization of certain
intangible assets resulting from the video stores acquired.
INTEREST EXPENSE. Interest expense was approximately $1,176,000 and
$318,000, or 1.9% and 0.8% of total revenues for the six months ended October
31, 1997 and 1996, respectively. The increase of $858,000 was primarily
attributable to interest on increased borrowings under the Company's bank line
of credit.
OTHER INCOME. Other income was approximately $180,000 and $129,000, or
0.3% of total revenues for the six months ended October 31, 1997 and 1996. The
increase of $51,000 was primarily due to an increase in interest on notes
receivable from officers.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations to date through cash from
operations, the proceeds of prior equity and debt offerings, borrowings under
bank facilities, trade credit and equipment leases. The Company's principal
capital requirements are for the opening and build out of new superstores, the
purchase of videocassette rental inventory, and the acquisition of existing
stores each of which varies based on market conditions and expansion plans.
At October 31, 1997, the Company had cash and cash equivalents of
approximately $96,000. The Company uses an unclassified balance sheet in its
financial statements, and as a result, does not classify its assets or
liabilities as current or noncurrent. If the Company were to use a classified
balance sheet, a portion of videocassette rental inventories would be classified
as noncurrent because they are not assets that are reasonably expected to be
completely realized in cash or sold in one year. The acquisition cost of these
inventories, however, would be reflected in current liabilities. The Company
believes that classification of videocassette rental inventories as noncurrent
assets would be misleading because it would not indicate the level of assets
expected to be converted into cash in the next year as a result of rentals or
sales of these videocassettes.
For the six months ended October 31, 1997 net cash provided by
operating activities was approximately $24,570,000. Net cash used in investment
activities was approximately $38,869,000 consisting primarily of approximately
$11,343,000 for new and remodeled stores, and conversion costs associated with
acquired stores, and approximately $26,799,000 for the purchase of videocassette
inventory for existing and new stores. Net cash generated from financing
activities was approximately $11,971,000 resulting primarily from proceeds under
the Company's bank line of credit.
In February 1997, a syndicate led by Bank of America National Trust and
Savings Association (successor by merger to "Bank of America Illinois") extended
a $60 million revolving credit facility (as amended, the "Line of Credit") to
the Company, with amounts borrowed thereunder bearing interest at variable rates
based on the Federal Funds rate or the Eurodollar rate. The Line of Credit is
convertible into a two-year term loan if it is not renewed or restructured on or
before February 1998. As of October 31, 1997, approximately $32,000,000 was
<PAGE>
outstanding under the Line of Credit, bearing interest at 8.4% to 9.3%. During
the term of the Line of Credit and thereafter to the extent any amounts are
outstanding under the Line of Credit, the Company is subject to various
restrictive covenants, including limitations on further indebtedness, other than
trade credit and capital or operating leases, and requirements that the Company
obtain written consent for certain acquisitions of new businesses or their
assets (excluding new superstore openings) or entering into business
combinations, including mergers, syndicates or joint ventures. The Line of
Credit also restricts the amount and terms of debt that may be issued to sellers
of acquired businesses and requires that the Company maintain certain cash flow
ratios as well as certain ratios of total liabilities to tangible net worth.
For the remainder of the current fiscal year, management currently
expects to focus on maximizing the operating efficiencies of its existing and
previously acquired locations and on completing the build out of new stores in
locations for which the Company has signed lease commitments, rather than on
aggressively expanding with new superstores in additional metropolitan areas
where it does not presently have locations. The Company expects to fund its
short-term capital needs, including the purchase of videocassette rental
inventory and the build out of new stores, primarily through cash from
operations, trade credit, and borrowings under the Line of Credit, if available
(subject to the Company's maintenance of certain cash flow and tangible net
worth ratios). No assurances can be given that the Company will not require
additional sources of financing as a result of store openings or build outs
currently in progress, disappointing operating results, unavailability under or
non-renewal of the Line of Credit as a result of such operating results, or
unanticipated cash needs or opportunities. Moreover, no assurances can be given
that such additional funds will be available on satisfactory terms, if at all.
If the Company is unable to obtain such additional financing, the Company may be
required to reduce its overall expenditures and the Company's ability to
maintain or expand its current level of operations could be materially and
adversely affected.
In addition, in July 1997, the Company announced it had entered into an
Agreement and Plan of Merger (the "Agreement") to acquire Moovies, Inc.
("Moovies") in a stock-for-stock merger transaction (the "Merger"). In October
1997, the Company announced that it had entered into an Amendment (the
"Amendment") to the Agreement (collectively, the Amendment and the Agreement are
referred to as the "Merger Agreement"). The Merger Agreement provides that each
stockholder of Moovies will receive .75 shares of Video Update Class A Common
Stock for each share of Moovies Common Stock. The Merger is subject to
stockholder approval of both companies, and is currently anticipated to be
completed some time in the first calendar quarter of 1998.
The obligations of the Company and Moovies to consummate the Merger are
subject to the satisfaction of certain conditions, including, but not limited
to, obtaining requisite approvals of the stockholders of the Company and
Moovies, obtaining consents under their respective bank credit agreements (for
the Company, a consent under and/or a modification of the Line of Credit),
obtaining adequate financing, obtaining requisite regulatory approvals
(including under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, the "HSR Act" and the effectiveness under the securities laws of a
registration statement which has not yet been filed), and the continuing
accuracy, in all material respects, as of the effective time of the Merger of
the representations and warranties made by the Company and Moovies in the Merger
Agreement. Additionally, the Company intends to seek a restructuring/renewal of
its current bank line of credit in connection with (and to satisfy conditions
to) the consummation of the Merger Agreement, of which no assurance can be
given. Each party has the right to waive certain of the closing conditions
referred to above. No assurance can be given that these conditions will be
satisfied or waived or that the Merger will be consummated on a timely basis, if
at all.
The Company filed the Notification and Report Form required by the HSR
Act on November 13, 1997, and early termination of the waiting period
established by the HSR Act was granted on or about November 18, 1997. Although
such early termination has been granted, no assurances can be given that
governmental action under the antitrust laws will not be taken before or after
consummation of the Merger.
The Company has promissory notes (the "Recourse Notes") from the
Company's Chief Executive Officer and from the President for approximately
$2,004,000 and $1,114,000, respectively, including accrued interest through
October 31, 1997. The Recourse Notes were issued by the executives upon their
<PAGE>
exercise in August 1995 of 420,000 options granted to them under the Stock
Option Plans in May 1995 at an exercise price of $4.3125, the fair market value
of the stock on the date options were granted. The Recourse Notes represent the
total exercise price of such options plus amounts advanced by the Company to
such executives to satisfy then anticipated tax liabilities. The Recourse Notes,
which provide for full recourse against the respective officer's personal assets
and Company stockholdings, are due and payable in October 1999, and accrue
interest at 8% per annum. In the event that the obligors sell shares of the
Company's stock, the net proceeds thereof will be applied to payment, in part or
in full, of the Recourse Notes.
In addition, as of October 31, 1997, the Company has a note receivable
from the President of the Company for approximately $32,000 which accrues
interest at 8% per annum and is expected to be due November 1998, subject to
board approval. The note represents advances from the Company to the President
from January 1994 to April 1994, together with accrued interest.
In connection with three acquisitions in which the Company has issued
an aggregate of 574,506 shares of Class A Common Stock in fiscal 1996 and 1997,
the Company may be obligated to make deficiency payments to such sellers equal
to the difference between the guaranteed price of $7.00 to $15.00 for each share
issued, and the actual market price obtained for such shares as of specified
dates between July 1996 and October 1998. The remaining deficiency payments are
estimated to be approximately $2,680,000 based on the closing stock price of
$3.125 at October 31, 1997. The Company has the option of satisfying
approximately $1,220,000 of this liability at October 31, 1997 through the
issuance of additional shares of Class A Common Stock. The Company is currently
disputing whether any deficiency payment is due with respect to 239,163 shares
held by a seller in one of the acquisitions; the seller is claiming a deficiency
payment based on proceeds from the sale of Class A Common Stock during the six
month period of March 1996 to September 1996.
The Company generally does not offer lines of credit or guarantees for
the obligations of its franchisees, although on occasion, the Company has made
short term loans to current franchisees. The Company intends to evaluate the
possibility of providing loans or limited guarantees for certain franchisee
obligations, which in the aggregate are not expected to be material to the
Company's financial condition.
Substantially all Company-owned stores are in leased premises, except
for three stores that are located on premises owned by the Company. The Company
expects that most future stores will occupy leased premises.
Reference to Private Securities Litigation Reform Act: Statements made
by the Company that are not historical facts are forward looking statements that
involve risks and uncertainties. Actual results could differ materially from
those expressed or implied in forward looking statements. All such forward
looking statements are subject to the safe harbor created by the Private
Securities Litigation Reform Act of 1995. Important factors that could cause
financial performance to differ materially from past results and from those
expressed or implied in this document include, without limitation, the risks of
acquisition of businesses (including limited knowledge of the businesses
acquired and misrepresentations by sellers), including the proposed acquisition
of Moovies, changes in business strategy or development plans, new store
openings, availability of products, availability of financing, competition,
management, ability to manage growth, loss of customers, weather (particularly
on weekends and holidays), consumer acceptance of new release videocassette
titles, and a variety of other factors. The obligations of the Company and
Moovies to consummate the Merger are subject to the satisfaction of certain
conditions, including, but not limited to, obtaining requisite approvals of the
stockholders of the Company and Moovies, obtaining consents under the respective
bank credit agreements of the Company and Moovies, obtaining adequate financing,
obtaining requisite regulatory approvals and the continuing accuracy, in all
material respects, as of the effective time of the Merger, of the
representations and warranties made by the Company and Moovies in the Merger
Agreement. No assurance can be given that these conditions will be satisfied or
waived or that the Merger will be consummated on a timely basis, if at all.
Further information on these and other risks is included in the Company's Annual
Report on Form 10-K for the year ended April 30, 1997, as well as the Company's
other filings with the Securities and Exchange Commission.
<PAGE>
INFLATION
To date, inflation has not had a material effect on the Company's
business. The Company anticipates that its business will be affected by general
economic trends. Although the Company has not operated during a period of high
inflation, it believes that it would generally be able to pass increased costs
resulting from inflation on to customers.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The video rental industry generally experiences revenue declines in
April and May, due in part to the change to Daylight Savings Time and to
improved weather, and in September and October, due in part to school openings
and the introduction of new network and cable television programs.
The Company's video rental business may be affected by other factors,
including acquisitions by the Company of existing video stores, additional and
existing competition, marketing programs, weather, special or unusual events,
variations in the number of superstore openings, and other factors that may
affect retailers in general.
The Company depends significantly on availability and consumer
acceptance of new release videocassette titles available for rental. To the
extent that available new release titles fail to stimulate consumer interest and
retail traffic, operating results could be materially adversely affected.
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1. LEGAL PROCEEDINGS
In connection with the acquisition of the assets of Videoland, Inc.
("Videoland") in November 1995, the Company issued 239,163 shares of its Class A
Common Stock (the "Videoland Shares") to the sellers of the assets of Videoland
(the "Videoland Sellers"). With respect to the Videoland Shares, the Company
agreed to make a deficiency payment in October 1996 to the Videoland Sellers if
the gross proceeds received by such sellers from the sale of the Videoland
Shares during the six months from March 1996 through September 1996 is not equal
to the number of shares of Videoland Shares sold multiplied by $12.00. The
Videoland Sellers were subject to certain "lockup" or sale restrictions as a
condition to any deficiency payment. Although the Videoland Sellers have now
requested a deficiency payment of approximately $1,220,000 in October 1996 based
on a sale of all of the Videoland Shares, the Company believes that the
Videoland Sellers have violated the contractual lockup and sale restrictions.
Accordingly, the Company has initiated an action in federal district court in
Minnesota for a declaratory judgment that the Videoland Sellers are not entitled
to any deficiency payment. Discovery in this matter has been completed and
cross-motions for summary judgment are now pending before the court. Although no
assurances can be given as to the outcome of such action, the Company intends to
vigorously pursue the matter.
On January 23, 1997, the Company filed an action (the "Minnesota
Action") for breach of contract, breach of warranty, and negligence against
Kieffer & Co., Inc., a sign manufacturer, ("Kieffer") seeking damages that
resulted from Kieffer's manufacture and installation of signs on the Company's
stores in several states in the United States. Kieffer filed counterclaims
against the Company for breach of contract seeking $317,341.76 in damages. On
January 24, 1997, Kieffer commenced a separate action for breach of contract
(the "Wisconsin Action") against the Company in Sheboygan County (Wisconsin)
Circuit Court seeking the same damages alleged in their counterclaim in the
Minnesota Action. The Company removed the Wisconsin Action to the United States
District Court for the Eastern District of Wisconsin. That court has stayed the
Wisconsin Action pending the resolution of the Minnesota Action. On December 3,
1997, the parties settled their dispute pursuant to a confidential settlement
agreement containing mutual releases (the "Kieffer Settlement Agreement").
Although the parties have executed the Kieffer Settlement Agreement, all steps
necessary to consummate such agreement will not take place until
<PAGE>
December 31, 1997. The parties will then execute and file with both the
Minnesota and Wisconsin courts the appropriate stipulations to dismiss both
cases with prejudice. Although no assurance can be given as to whether all
necessary steps to consummate the Kieffer Settlement Agreement will take place,
the Company does not believe that the resolution of the matter will materially
adversely impact the Company's financial position or results of operations.
The Company has been in litigation with CHJ Associates ("CHJ"), a
Washington limited partnership, over a lease agreement. The matter has been
resolved by the execution of an executory settlement agreement (the "CHJ
Settlement Agreement"), under which CHJ will develop one or more Video Update
stores for the Company in Washington state. Although no assurance can be given
as to whether CHJ will comply with the terms of the CHJ Settlement Agreement,
the Company does not believe that the resolution of the matter will materially
adversely impact the Company's financial position or results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits. The following exhibits are filed herewith:
Exhibit No. Title
----------- -----
10 Amended and Restated Voting Agreement
executed in connection with the
proposed merger with Moovies Inc.
27 Financial Data Schedule
B. Reports on Form 8-K. Listed below are all Current Reports or
amendments on Form 8-K that were filed during the fiscal quarter covered by this
report, listing the items reported, any financial statements filed, and the
dates of such reports.
1. Current Report on Form 8-K filed October 31, 1997,
reporting the Amendment to the Agreement and Plan of Merger by
and among Video Update, Inc., VUI Merger Corp. and Moovies,
Inc., dated as of October 27, 1997.
<PAGE>
SIGNATURES
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.
VIDEO UPDATE, INC.
Date: December 15, 1997: By: /s/Daniel A. Potter
DANIEL A. POTTER,
Chief Executive Officer and
Chairman of the Board of Directors
Date: December 15, 1997: By: /s/Christopher J. Gondeck
CHRISTOPHER J. GONDECK,
Chief Financial Officer
EXHIBIT 10
AMENDED AND RESTATED VOTING AGREEMENT
AMENDED AND RESTATED VOTING AGREEMENT, dated as of October 27, 1997
(the "Agreement"), among Video Update, Inc. a Delaware corporation ("BUYER"),
VUI Merger Corp., a Delaware corporation ("SUB"), Moovies, Inc., a Delaware
corporation ("COMPANY") and the persons listed on attached Schedule 1 annexed
hereto, each with an address as set forth on Schedule 1 (such individuals being
hereinafter referred to individually as "Stockholder" and collectively as
"Stockholders").
WHEREAS, BUYER, SUB, and COMPANY have entered into an Agreement and
Plan of Merger, dated as of July 9, 1997 and an Amendment to the Agreement and
Plan of Merger dated as of the date hereof (the "Amendment"), both of which are
collectively referred to as the "Merger Agreement";
WHEREAS, BUYER, SUB, COMPANY and Stockholders have entered into a
Voting Agreement dated as of July 9, 1997 (the "July 9, 1997 Voting Agreement");
WHEREAS, BUYER, SUB, COMPANY and Stockholders, in connection with the
Amendment, wish to amend and replace the July 9, 1997 Voting Agreement with this
Amended and Restated Voting Agreement dated as of October 27, 1997;
WHEREAS, initially capitalized terms not otherwise defined herein shall
have their respective meanings as set forth in the Merger Agreement, a copy of
which has been provided to each of the Stockholders;
WHEREAS, each of the Stockholders is familiar with the terms and
conditions of the Merger Agreement and the transactions referred to therein and
contemplated thereby ("Transactions");
WHEREAS, as of the date hereof, the Stockholders beneficially (as
defined in Rule 13-d promulgated under the Exchange Act) own that number of
BUYER or COMPANY Shares set forth opposite each Stockholder's respective name on
Schedule 1; and
WHEREAS, as a condition to the willingness of BUYER, SUB and COMPANY to
enter into the Merger Agreement, and to induce BUYER, SUB and COMPANY to enter
into the Merger Agreement, BUYER SUB, and COMPANY have required that each of the
Stockholders agree and the Stockholders have agreed to vote, or cause to be
voted, all their BUYER and COMPANY Shares, as the case may be, in favor of the
Merger and the Transactions, upon the terms and subject to the conditions of
this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereto agree as follows:
ARTICLE 1.
AGREEMENT TO VOTE
SECTION 1.01. VOTING AGREEMENT. BUYER, SUB, COMPANY and Stockholders
hereby agree that (a) the July 9, 1997 Voting Agreement shall cease to be of any
further force or effect and (b) this Amended and Restated Voting Agreement shall
amend and replace the July 9, 1997 Voting Agreement. Until the Termination Date
(as hereinafter defined), each of the Stockholders agree with each other
Stockholder and with BUYER, SUB and COMPANY that he shall vote, or cause to be
voted, all of his BUYER and COMPANY Shares, as the case may be, and any other
BUYER, and COMPANY Shares, as the case may be, that may hereafter be acquired by
such Stockholder ("Additional Shares") in favor of the Merger and the
Transactions, as the case may be, and to the extent applicable and not
prohibited by contract, in favor of the Requisite BUYER Stockholder Proposal (as
defined in the Merger Agreement).
<PAGE>
SECTION 1.02. NO TRANSFER. Until the Termination Date, no Stockholder
shall, except as permitted under any existing security agreement or encumbrance
relating to such Stockholder, transfer any interest in any of his or her BUYER
or COMPANY Shares, create, suffer or permit to be created any security interest,
lien, claim, pledge, option, right of first refusal, agreement, charges or other
encumbrances of any nature whatsoever on or with respect to his BUYER or COMPANY
Shares or any BUYER or COMPANY Additional Shares, other than those arising under
the Securities Act and any applicable state securities or "Blue Sky" laws.
ARTICLE 2.
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each of the Stockholders hereby represents and warrants to the other
Stockholders and to each of BUYER, SUB and COMPANY as follows:
SECTION 2.01. AUTHORITY RELATIVE TO THIS AGREEMENT. He has all
necessary power and authority to execute and deliver this Agreement to perform
his or her obligations hereunder and to consummate the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by such
Stockholder, constitutes a legal, valid and binding obligation of Stockholder,
enforceable against him in accordance with its terms, subject to applicable
bankruptcy, reorganization, insolvency, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and general principles
of equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
SECTION 2.02. NO CONFLICT. The execution and delivery of this Agreement
by the Stockholder does not, and the performance of this Agreement by the
Stockholder will not (i) require any consent, approval, authorization or permit
of, or filing with or notification to any governmental or regulatory authority,
domestic or foreign, (ii) conflict with or violate any law, rule, regulation,
order, judgment or decree applicable to the Stockholder or by which any property
or asset of the Stockholder is bound or affected, or (iii) result in any breach
of or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any right of termination,
amendment, acceleration or cancellation of, or result in the creation of a lien
or other encumbrance of any nature whatsoever on any property or asset of the
Stockholder or pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit franchise or other instrument or obligation to
which such Stockholder is a party or by which the Stockholder, BUYER or COMPANY
or any property or asset of the Stockholder or BUYER or COMPANY is bound or
affected.
SECTION 2.03. TITLE TO THE SHARES. As of the date hereof, the
Stockholder has sole voting authority with respect to the BUYER or COMPANY
Shares set forth opposite his name which are all the shares of BUYER or COMPANY
Common Stock owned, either of record or beneficially, by such Stockholder. The
Stockholder may vote such BUYER or COMPANY Shares free and clear of all options,
rights of first refusal, limitations on the Stockholder's voting rights, (other
than those arising under the Securities Act, and any applicable state securities
or "blue sky" laws), and, the Stockholder has not appointed or granted any proxy
which is still effective, with respect to the BUYER or COMPANY Shares and, until
the Effective Time (as defined in the Merger Agreement) shall take all actions
necessary to retain ownership of the BUYER or COMPANY Shares and to preserve his
rights to comply with Section 1.01.
SECTION 2.04. NO OTHER REPRESENTATIONS OR WARRANTIES.
Notwithstanding the representations and warranties contained in this Section 2,
the Stockholders make none of the representations or warranties contained in the
Merger Agreement with respect to BUYER or COMPANY or with respect to any
obligations, property or assets of BUYER or COMPANY.
<PAGE>
ARTICLE 3.
MISCELLANEOUS
SECTION 3.01. FURTHER ASSURANCE. The parties will execute and deliver
all such further documents and instruments and take all such further action as
may be necessary in order to carry out the intentions of this Agreement.
SECTION 3.02. SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
SECTION 3.03. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements and understandings, both written and oral,
between or among them with respect to the subject matter hereof.
SECTION 3.04. ASSIGNMENT; PARTIES IN INTEREST. This Agreement shall be
binding upon, inure solely to the benefit of, and be enforceable by, the parties
hereto and their successors and permitted assigns. Nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement.
SECTION 3.05. AMENDMENT; WAIVER. This Agreement may not be amended and
no term or condition hereof may be waived except by an instrument in writing
executed by the parties hereto.
SECTION 3.06. SEVERABILITY. If a court of competent jurisdiction shall
finally determine that any provision of this Agreement is invalid, illegal or
unenforceable, then all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect and such court shall modify such
invalid, illegal or unenforceable provision to the minimum extent necessary to
make same valid, legal an enforceable.
SECTION 3.07. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be delivered in person,
by telecopy, expedited delivery service (such as Federal Express) or by
registered or certified mail (postage prepaid, return receipt requested) to the
respective parties as follows:
If to BUYER or SUB
Video Update, Inc.
3300 World Trade Center
30 E. Seventh Street
St. Paul, MN 55101
Attention: Chief Executive Officer
with a copy to:
Lawrence H. Gennari, Esq.
Gadsby & Hannah LLP
225 Franklin Street
Boston, MA 02110
if to any one or more of the Stockholders:
<PAGE>
To the address set forth next to such stockholders name.
if to COMPANY:
Moovies, Inc.
201 Brookfield Parkway, Suite 200
Greenville, SC 29607
Attention: President and Chief Executive Officer
with a copy to:
Jonathan Golden, Esq.
Eva Cederholm, Esq.
Arnall Golden & Gregory LLP
2800 One Atlantic Center
1201 W. Peachtree Street
Atlanta, GA 30309
Such notice shall be effective on the day following receipt of delivery
in person, by verified telecopy or by expedited delivery service and shall be
effective four days after mailing in accordance the foregoing. The person to
whom notice is to be given, and any address, may be changed from time to time in
the manner set forth above (provided that notice of any change of address shall
be effective only upon receipt thereof).
SECTION 3.08. JURY TRIAL WAIVER. All parties hereto hereby waive trial
by jury in any action, counterclaim or proceeding of any kind arising under or
out of or in connection with this Agreement, the negotiations leading thereto,
the inducements to the parties to enter into this Agreement and to the
transactions it contemplates.
SECTION 3.09. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with the laws of the State of Delaware applicable to
contracts executed in and to be performed in that State.
SECTION 3.10. HEADINGS. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 3.11. TERMINATION. This Agreement shall terminate on the first
to occur of (a) the termination of the Merger Agreement in accordance with
Section 7 thereof; (b) the closing of the Merger Agreement and the consummation
of the Transactions; or (c) one year from the date hereof (the "Termination
Date"). In the event of the termination of this Agreement, this Agreement shall
forthwith become void and there shall be no liability on the part of BUYER, SUB
or COMPANY or each of the Stockholders under this Agreement, except with regard
to any breach of this Agreement prior to such termination.
SECTION 3.12. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, and the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
<PAGE>
IN WITNESS WHEREOF, each of BUYER, SUB or COMPANY has caused this
Agreement to be executed by its officer thereunto duly authorized and each of
the Stockholders has duly executed this Agreement as of the date first written
above.
VIDEO UPDATE, INC.
By:_____________________________________________
Name: Daniel A. Potter
Title: Chief Executive Officer
VUI MERGER CORP.
By:_____________________________________________
Name: Daniel A. Potter
Title: President
MOOVIES, INC.
By:_____________________________________________
Name: John Taylor
Title: President and Chief Executive Officer
<PAGE>
STOCKHOLDERS:
___________________________ ________________________________________________
Daniel A. Potter John L. Taylor
___________________________
Daniel C. Howard
___________________________ ________________________________________________
Richard Bedard Arthur F. Greeder, III, individually
___________________________ ________________________________________________
Bruce Carlson Arthur F. Greeder, III, as joint tenant with the
right of survivorship with Ann E. Greeder
___________________________ ________________________________________________
Michael Schifsky Ann E. Greeder, as joint tenant with the right
of survivorship with Arthur F. Greeder, III
___________________________ ________________________________________________
Robert E. Yager F. Andrew Mitchell
___________________________ ________________________________________________
Jana Vaughn Michael A. Yeargin
___________________________ ________________________________________________
Paul Kelnberger Theodore J. Coburn
___________________________ ________________________________________________
Bernard Patriacca Douglas M. Raines
___________________________ ________________________________________________
John M. Bedard Charles D. Way
<PAGE>
Schedule 1
Stockholder/Address Number of Shares
1. Daniel A. Potter 270,000 shares of Video Update
4569 McDonald Drive Overlook Inc. Class A Common Stock, $.01
Stillwater, MN 55082 par value per share ("VUI Class A
Shares")
1,086,759 shares of Video
Update Inc. Class B Common
Stock , $.01 par value per
share ("VUI Class B Shares")
2. John M. Bedard 150,000 VUI Class A Shares
4535 Olson Lake Trail 878,117 VUI Class B Shares
Lake Elmo, MN 55042
3. Daniel C. Howard
440 E. Montana Avenue 35,124 VUI Class B Shares
St. Paul, MN 55101
4. Christopher J. Gondeck 4,000 VUI Class A Shares
18905 9th Avenue North
Plymouth, MN
5. Richard Bedard 0 VUI Class A Shares
250 E. 6th Street, Apartment 224
St. Paul, MN 55101
6. Bruce Carslon 0 VUI Class A Shares
6476 175th Street W.
Farmington, MN 55024
7. Michael Schifsky 0 VUI Class A Shares
2707 Galatier Street
Roseville, MN 55113
8. Robert E. Yager 78,750 VUI Class A Shares
21382 Heath Avenue Crt. N.
Forest Lake, MN 55025
9. Jana Webster Vaughn 0 VUI Class A Shares
722 W. Mulberry Street
Stillwater, MN 55082
10. Paul M. Kelnberger 1,500 VUI Class A Shares
8208 Galway Road
Woodbury, MN 55125
11. Bernard Patriacca 0 VUI Class A Shares
78 Acorn Street
Millis, MA 02054
<PAGE>
12. John L. Taylor 456,740 shares of Moovies
1401 Winding Way Common Stock, $.001 par
Taylors, SC 29687 value per share ("Moovies Shares")
87,000 Moovies Shares subject to
margin call
13. F. Andrew Mitchell 221,711 Moovies Shares
101 Chelsea Lane
Greer, SC 29650
14. Douglas M. Raines 629,149 Moovies Shares
1006 Hyman Avenue 121,000 Moovies Shares subject to
Aspen, CO 81611 margin call
15. Michael A. Yeargin 637,649 Moovies Shares
1077 Altamont Road 28,000 Moovies Shares subject to
Greenville, SC 26909 margin call
16. Arthur F. Greeder, III 181,250 Moovies Shares
6806 A Oceanfront
Virginia Beach, VA 23451
17. Arthur F. Greeder, III and Ann E. 165,150 Moovies Shares
Greeder, joint tenants with the
right of survivorship
6806 A Oceanfront
Virginia Beach, VA 23451
18. Charles D. Way 14,000 Moovies Shares
c/o Ryan's Family Steakhouses, Inc.
405 Lancaster Avenue
Greer, SC 29650
19. Theodore J. Coburn 0 Moovies Shares
20 Davids Lane
Chatham, MA 02633
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE TWELVE MONTHS ENDED APRIL 30, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> OCT-31-1997
<CASH> 96
<SECURITIES> 0
<RECEIVABLES> 3,593
<ALLOWANCES> 0
<INVENTORY> 65,904
<CURRENT-ASSETS> 0<F1>
<PP&E> 50,146
<DEPRECIATION> 8,396
<TOTAL-ASSETS> 154,554
<CURRENT-LIABILITIES> 58,161<F1>
<BONDS> 517
0
0
<COMMON> 201
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 154,554
<SALES> 6,630
<TOTAL-REVENUES> 63,937
<CGS> 3,852
<TOTAL-COSTS> 64,087
<OTHER-EXPENSES> (180)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,176
<INCOME-PRETAX> (1,146)
<INCOME-TAX> (249)
<INCOME-CONTINUING> (897)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (897)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
<FN>
<F1>THE COMPANY UTILIZES AN UNCLASSIFIED BALANCE SHEET PRESENTATION. THIS FORMAT
WAS FOLLOWED BASED ON THE PREMISE THAT THE VIDEOCASSETTE RENTAL INVENTORY
REPRESENTS ASSETS USED BY THE COMPANY TO GENERATE CURRENT OPERATING INCOME, AND
MANAGEMENT BELIEVES THAT TO CLASSIFY ALL OF THESE COSTS AS NONCURRENT WOULD BE
MISLEADING TO THE READERS OF THE FINANCIAL STATEMENTS BECAUSE IT WOULD NOT
INDICATE THE LEVEL OF ASSETS EXPECTED TO BE CONVERTED INTO CASH IN THE NEXT
YEAR AS A RESULT OF THE RENTALS OF THE VIDEOCASSETTES.
</FN>
</TABLE>
