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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 12B-25
NOTIFICATION OF LATE FILING
Commission File Number: 0-19253
(Check One)
[x] Form 10-K and Form 10-KSB Form [ ] 11-K
[ ] Form 20-F [ ] Form 10-Q and Form 10-QSB [ ] Form N-SAR
For the period ended April 30, 1998
[ ] Transition Report on Form 10-K and Form 10-KSB
[ ] Transition Report on Form 20-F
[ ] Transition Report on Form 11-K
[ ] Transition Report on Form 10-Q and Form 10-QSB
[ ] Transition Report on Form N-SAR
For the transition period ended _____________
Nothing in this form shall be construed to imply that the
Commission has verified any information contained herein.
If the notification relates to a portion of the filing checked
above, identify the item(s) to which the notification relates:
PART I
REGISTRANT INFORMATION
Full name of registrant: Video Update, Inc.
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Former name if applicable:
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Address of principal executive office (STREET AND NUMBER):
3100 World Trade Center, 30 East Seventh Street
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City, State and Zip Code: St. Paul, Minnesota 55101
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PART II
RULE 12B-25(B) AND (C)
If the subject report could not be filed without unreasonable
effort or expense and the registrant seeks relief pursuant to Rule 12b-25(b),
the following should be completed. (Check box if appropriate.)
[X](a) The reasons described in reasonable detail in Part III
of this form could not be eliminated without unreasonable effort or expense;
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[X](b) The subject annual report, semi-annual report,
transition report on Form 10-K, 10-KSB, 20-F, 11-K or Form N-SAR, or portion
thereof will be filed on or before the 15th calendar day following the
prescribed due date; or the subject quarterly report or transition report on
Form 10-Q, 10-QSB, or portion thereof will be filed on or before the fifth
calendar day following the prescribed due date; and
[ ](c) The accountant's statement or other exhibit
required by Rule 12b-25(c) has been attached if applicable.
PART III
NARRATIVE
State below in reasonable detail the reasons why Form 10-K,
10-KSB, 11-K, 20-F, 10-Q, 10-QSB, N-SAR or the transition report or portion
thereof could not be filed within the prescribed time period. (Attach extra
sheets if needed).
THE COMPANY IS IN THE PROCESS OF FINALIZING ITS FINANCIAL
STATEMENTS, WHICH IS TAKING ADDITIONAL TIME DUE TO THE COMPANY'S RECENT
ACQUISITION OF MOOVIES, INC. THE COMPANY IS ALSO CIRCULATING THE DRAFT OF ITS
FORM 10-K AMONG ITS OUTSIDE DIRECTORS AND IS ATTEMPTING TO OBTAIN
COMMENTS/APPROVAL FROM ALL DIRECTORS PRIOR TO THE FILING OF SAME. THE COMPANY
INTENDS TO FILE ITS FORM 10-K WELL WITHIN THE EXTENSION OF TIME PROVIDED BY RULE
12B-25.
PART IV
OTHER INFORMATION
(1) Name and telephone number of person to contact in regard
to this notification.
Daniel A. Potter, Chief Executive Officer (651) 222-0006
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(Name) (Area Code and Telephone Number)
(2) Have all other periodic reports required under Section 13
or 15(d) or the Securities Exchange Act of 1934 or Section 30 of the Investment
Company Act of 1940 during the preceding 12 months or for such shorter period
that the registrant was required to file such report(s) been filed? If the
answer is no, identify report(s).
[X]Yes [ ] No
(3) Is it anticipated that any significant change in results
of operations from the corresponding period for the last fiscal year will be
reflected by the earnings statements to be included in the subject report or
portion thereof?
[X]Yes [ ] No
If so: attach an explanation of the anticipated change, both
narratively and quantitatively, and, if appropriate, state the reasons why a
reasonable estimate of the results cannot be made.
SEE EXHIBIT A ATTACHED HERETO, CONSISTING OF THE COMPANY'S
PRESS RELEASE DATED JUNE 29, 1998.
Video Update, Inc.
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(Name of Registrant as Specified in Charter)
Has caused this notification to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: July 29, 1998 By: /s/Daniel A. Potter
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Daniel A. Potter, Chief Executive Officer
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EXHIBIT A
JUNE 29, 1998 PRESS RELEASE
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[LETTERHEAD OF VIDEO UPDATE]
CONTACT: Video Update, Inc.
Stephen L. Reynolds, Chief Financial Officer
Phone: 612-222-0006
FOR IMMEDIATE RELEASE
VIDEO UPDATE, INC. REPORTS FOURTH QUARTER AND FISCAL 1998 RESULTS;
COMMENTS ON OUTLOOK FOR FIRST QUARTER; INTEGRATION OF ACQUIRED MOOVIES
LOCATIONS ON TRACK; SIGNING OF REVENUE SHARING LICENSING AGREEMENT
WITH MAJOR STUDIO; ANNOUNCES CHANGE IN FISCAL YEAR
ST. PAUL, MN, June 29, 1998 - Video Update, Inc. (NASDAQ
National Market: VUPDA, VUPDZ), an international video rental chain, today
announced its results for the quarter and year ended April 30, 1998. Net loss
for the quarter, inclusive of significant one-time charges as described below,
was $15,394,000 or $0.59 per share compared to net income of $1,307,000 or $0.07
per share for the fourth quarter of fiscal 1997. Exclusive of the one-time
charges, the net loss for the quarter would have been $3,615,000 or $0.14 per
share. Revenues for the quarter increased 87% to $50,434,000 from $26,969,000
and same store sales declined by 2%. These results were consistent with the
announcement by the Company on May 7, 1998.
For the fiscal year ended April 30, 1998, the Company reported
a net loss of $14,480,000 or $0.70 per share, inclusive of the one-time charges
compared to net income of $4,620,000 or $0.28 per share, diluted for fiscal
1997. Exclusive of the one-time charges, the net loss for the year would have
been $2,701,000 or $0.13 per share. Revenues for the year increased 70% to
$156,154,000 from $91,799,000 and same store sales for the year increased by 2%.
The Company, as previously announced, took significant
one-time charges of approximately $17 million in the quarter ended April 30,
1998. These charges consisted of the following: (i) $3.8 million related to the
Moovies transaction, $3.5 million of which was a non-cash, non-tax deductible
charge to compensation expense related to the release of shares from escrow and
the remainder was for other transaction related expenses; (ii) $2.3 million in
write-downs associated with the closing of underperforming stores; (iii) $2.8
million in reserves for future cash outlays for lease terminations and
miscellaneous closing costs; (iv) $3.7 million non-cash charge relating to the
restated employment agreements for the Company's Chief Executive Officer and its
President, which amount will be applied to their existing stock option related
loan obligations to the Company and $3.5 million will be used to pay income tax
expenses arising from this transaction; and, (v) $700,000 for the early
retirement of the Company's previous senior bank facility.
(continued)
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VIDEO UPDATE, INC./ FY 1998
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Commenting on the operating results and charges to income, the
Company's Chief Financial Officer, Stephen L. Reynolds stated: "We are committed
to improving our results and we are taking several actions in this regard. Among
them, we are in the process of closing 41 underperforming stores; we are
converting the acquired Moovies locations to the Video Update operational
systems; and we are presently analyzing opportunities for further cost savings."
Regarding the restated employment agreements, Mr. Reynolds stated: "Under the
previous employment arrangements, the Company had significant financial
obligations to these executives if they left at a time when they had outstanding
loan obligations to the Company. These new agreements allow us to eliminate the
uncertainty relating to those obligations in the future."
The Company's Chairman and CEO, Daniel A. Potter, stated:
"Obviously, we are disappointed with how fiscal 1998 ended. We attribute much of
this to the delay in closing the Moovies transaction, which required significant
management attention and added more than 250 superstores to our base in March
1998, well into our fourth quarter and some eight months after we first signed a
merger agreement. Although the delay impacted our fourth quarter results, it
also reflected a reduction in the original exchange ratio of 1.1 shares of Video
Update, Class A Common Stock for every 1.0 Moovies share to the final 0.75 to
1.0 ratio, upon which we closed the transaction. We look back at this as a
`cleanup' quarter that will allow us to put certain charges behind us and move
forward on the basis of our significant strengths, including great locations,
aggressive marketing, extensive selection of solid hit titles and experienced
management team."
Mr. Potter continued, "The Moovies transaction has presented
us with significant opportunities. Our core base of Video Update superstores in
the U.S. and Canada are performing well so far this quarter with positive
single-digit same store sales increases in both May and June, compared to the
same period last year and reflect the fact that our operating strategy and
format distinguish us from other retailers. Our challenge is to convert the
acquired Moovies locations, which as a unit are not yet performing to our
expectations, into stable, solidly performing Video Update superstores as
quickly as possible. Although we now have all of the acquired locations
"on-line" with Video Update's information and computer systems, the process of
integrating the acquired locations is a continuing one which we expect to
complete by Thanksgiving. And we are on track to do this. We are taking
immediate steps to adjust layout and marketing to the Video Update system. We
also are in the process of immediately closing underperforming acquired
locations."
Mr. Potter continued, "We remain very enthusiastic about the
Moovies acquisition, the video industry and the Company's prospects this year.
We recently have signed one direct revenue sharing license agreement with a
major studio and feel confident about obtaining additional direct revenue
sharing agreements with other major motion picture studios. The upcoming crop of
new release titles is solid and includes The Wedding Singer, Good Will Hunting,
Primary Colors, US Marshals and Titanic. I am also happy to report that the
Company will be changing its fiscal year end from April 30 to January 31,
effective January 31, 1999. This will bring us in line with other retailers and
allow our stockholders and the investment community to more easily analyze and
compare our performance to others in the industry.
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VIDEO UPDATE, INC./ FY 1998
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Finally, we intend to continue to maximize the operating efficiencies of all of
our locations, which means a broader selection and availability of titles,
consistently superior customer service, and an even stronger commitment to the
core fundamental of good retailing: giving the customer what they want when they
want it."
Matters discussed in this news releases, including expectations express or
implied, as to the Company's future operating results, including results for the
quarter ending July 31, 1998, contain forward-looking statements that involve
risks and uncertainties. Future operating results or other events may differ
materially and significantly from such forward-looking statements and can be
impacted by many of the risk factors and concerns described in the Company's SEC
reports, including but not limited to competition, weather, and consumer
acceptance of then available new release movie titles. In addition, no
assurances can be given that the Company will be successful in timely
integrating and managing the operating, purchasing, marketing and management
information systems of Moovies with those of Video Update or that the Company
will be able to hire, train, retain and assimilate selected individuals employed
at acquired stores. These and other risks related to the acquisition of Moovies
are detailed from time to time in the Company's SEC reports, including Form 10-K
for the year ended April 30, 1997 and Form 10-Q for the quarter ended January
31, 1998 and in proxy materials that were mailed to Video Update and Moovies
stockholders on or about January 30, 1998.
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VIDEO UPDATE, INC./ FY 1998
PAGE 4 OF 5
VIDEO UPDATE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS FISCAL YEAR ENDED
ENDED APRIL 30 APRIL 30
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1997 1998 1997 1998
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<S> <C> <C> <C> <C>
Revenues: (unaudited) (unaudited)
Rental revenue $ 23,821 $ 44,785 $ 83,489 $ 138,279
Service fees 148 277 567 800
Product sales 3,000 5,372 7,743 17,075
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26,969 50,434 91,799 156,154
Costs and expenses:
Store operating expenses 20,270 44,150 69,366 128,971
Selling, general and administrative 2,151 16,521 8,231 25,813
Cost of product sales 1,702 4,567 4,544 11,513
Store closing charge -- 5,082 -- 5,082
Amortization of goodwill 474 830 1,613 2,353
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24,597 71,150 83,754 173,732
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Operating income (loss) 2,372 (20,716) 8,045 (17,578)
Interest expense (195) (1,779) (544) (3,702)
Other (expense) income 126 (143) 461 684
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(69) (1,922) (83) (3,018)
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Income (loss) before income taxes 2,303 (22,638) 7,962 (20,596)
Income tax expense (benefit) 996 (7,244) 3,342 (6,116)
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Net income (loss) $ 1,307 $ (15,394) $ 4,620 $ (14,480)
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Net income (loss) per share, basic $ 0.07 $ (0.59) $ 0.29 $ (0.70)
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Net income (loss) per share, diluted $ 0.07 $ (0.59) $ 0.28 $ (0.70)
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VIDEO UPDATE, INC./ FY 1998
PAGE 5 OF 5
VIDEO UPDATE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS
APRIL 30, APRIL 30,
1997 1998
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(IN THOUSANDS)
(unaudited)
<S> <C> <C>
Cash and cash equivalents $ 2,424 $ 1,433
Accounts receivable 3,776 4,737
Notes receivable from related parties 1,394 --
Inventories 4,811 12,449
Videocassette rental inventories - net 47,986 94,452
Property and equipment - net 33,069 68,913
Prepaid expenses 783 4,162
Income taxes receivable -- 2,430
Deferred income taxes -- 17,963
Goodwill - net 37,716 73,468
Other assets 1,649 5,792
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Total assets $ 133,608 $ 285,799
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LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 20,564 $ 104,488
Accounts payable 12,196 39,045
Accrued compensation 1,779 12,841
Accrued expenses 4,390 7,685
Accrued rent expense 264 5,073
Income taxes payable 1,096 --
Deferred income taxes 2,327 7,368
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 29,278,518 at April 30, 1998 182 293
Class B Common Stock, par value $.01 per share:
Authorized, issued and outstanding shares -- 20 --
2,000,000 at April 30, 1997 and non at April 30, 1998
Additional paid-in capital 86,085 117,641
Retained earnings (deficit) 6,806 (7,674)
Foreign currency translation (421) (961)
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92,672 109,299
Notes receivable from officers for the exercise of
options (1,680) --
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Total stockholders' equity 90,992 109,299
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Total liabilities and stockholders' equity $ 133,608 $ 285,799
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