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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A-1
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-26526
MOOVIES, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 47-1012733
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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201 BROOKFIELD PARKWAY, SUITE 200
GREENVILLE, SOUTH CAROLINA
(Address of principal executive offices)
29607
(Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (864) 213-1700
Securities registered pursuant to Section 12(b) of the Act:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
None Not Applicable
</TABLE>
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, $.001 PAR VALUE
(Title of Class)
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. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
The aggregate market value of voting stock held by nonaffiliates of the
Registrant was approximately $90,959,701 at March 26, 1996 (6,615,251 shares).
The number of common shares outstanding at March 26, 1996 was 8,658,532
(exclusive of treasury shares).
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement to be mailed to
stockholders in connection with the registrant's 1996 Annual Meeting of
Stockholders are incorporated by reference into Part III, Items 10-13.
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PART 1
ITEM 1. BUSINESS
GENERAL
As of December 31, 1995, Moovies, Inc. (the "Company") operated 148 video
specialty stores located in South Carolina, North Carolina, Georgia, Virginia,
Ohio, New Jersey, New York, Connecticut, Pennsylvania and Iowa. The Company's
stores rent and sell a wide range of videos and video games, rent video players
and video game equipment, and sell video accessories such as blank cassettes,
cleaning equipment and a variety of confectionery items. Twenty-seven of the
Company's stores, all of which were superstores, were operated under the Moovies
format at year end. The Company expects to complete conversion of its remaining
video speciality stores to the Moovies name and logo by July 31, 1996.
Tonight's Feature Limited Partnership II, the Company's predecessor (the
"Predecessor"), opened its first store in 1989 and in 1992 introduced the
Moovies superstore format which was the prototype for the Company's stores. The
Company was incorporated in November 1994 for the purpose of entering into
agreements to acquire video specialty stores and consummating an intitial public
offering of stock. In June 1995, the Company entered into definitive acquisition
agreements with nine selling groups to acquire 76 video specialty stores (the
"Initial Acquisitions") located in Georgia, Virginia, New Jersey, North
Carolina, Ohio, New York, Connecticut and Pennsylvania. Concurrently with the
completion of its initial public offering in August 1995, the Predecessor's
corporate general partner was merged into the Company and the Initial
Acquisitions were consummated. Since the Company's initial public offering and
prior to year end, the Company has acquired 48 additional video specialty stores
in six separate acquisitions (the "Recent Acquisitions") (the Initial
Acquisitions and the Recent Acquisitions collectively, the "Acquisitions").
BUSINESS AND EXPANSION STRATEGY
The key elements of the Company's business and expansion strategy are as
follows:
SUPERSTORES. The Company believes that focusing on the superstore format
will enhance the Company's profitability. Superstores are defined in publicly
available published reports ("Industry Reports") on the video store industry by
independent parties, as stores carrying 7,500 or more tapes, including 4,500
titles. The Company believes that the superstore format is generally the most
profitable store format. All of the Company's stores are superstores. The most
significant advantages of the superstore format include the following:
(Bullet) A broader selection of titles and greater availability of new
releases, which generate increased customer traffic;
(Bullet) Sufficient floor space to develop categories and themes and
to create an entertaining environment; and
(Bullet) Reduced labor costs (the Company's highest operating expense)
as a percentage of revenues.
These characteristics enable superstores to produce revenues and profit
levels sufficient to justify paying the generally higher lease rates of
preferred store locations.
CUSTOMER SERVICE. The Company seeks to provide a high level of customer
service at each of its stores. The Company offers a broad selection of new
releases and catalog product, is committed to offering more copies of the newest
releases than many of its competitors, provides customers with personalized
attention and maintains a fun, family-oriented environment centered around the
central "Moovies" theme.
GEOGRAPHIC CONCENTRATION. The Company generally concentrates its new store
openings and activities in the areas in which other Moovies stores are located
to maximize operating efficiencies. The Company believes that this geographic
concentration allows the Company to more easily monitor store operations through
its area management structure and to achieve operating efficiencies in inventory
management, marketing, distribution, training and store supervision. Since the
Company operates multiple stores, it is able to receive relatively large
aggregate cooperative advertising credits from its distributors. The Company
receives cooperative advertising credits for each store it operates, and by
operating multiple stores in a single geographic market, the Company can more
effectively use cooperative advertising credits to maximize the impact of its
advertising.
NEW STORE DEVELOPMENT. The Company intends to expand its operations through
new store openings. The Company opened 15 new Moovies format superstores from
its initial public offering through December 31, 1995 and closed two stores. The
Company anticipates opening approximately 50 new superstores by the end of 1996,
principally in markets with multiple shopping areas and a sufficient population
base to support more than one video specialty store operator. The Company
generally expects to open these stores in geographic areas where the Company is
already operating stores and attractive acquisition opportunities are not
available. The Company currently estimates that the total cash required to open
a new
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Moovies superstore, including store fixtures and equipment, leasehold
improvements and rental and sale inventory, typically ranges from $250,000 to
$300,000 per superstore.
TARGETED ACQUISITIONS. The Company believes that acquiring clusters of
superstores in targeted market areas is a cost-effective means of entering a new
market, particularly when the stores are in desirable locations. The Company
does not concentrate its acquisition activities on specific regions of the
country, preferring instead to evaluate opportunities as and where they arise.
Because of a recent trend toward consolidation in the industry, the Company
believes smaller chain operators perceive the need to join larger organizations
for enhanced access to working capital, marketing efficiencies and other
economies of scale to compete successfully in the future. This has created an
opportunity for the Company to grow further through acquisitions, and as a
result, the Company believes that it will continue to be presented with
attractive acquisition opportunities.
MOOVIES STORES
The following table provides geographic information about the number of
existing stores in each state as of December 31, 1995.
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STATE NUMBER OF STORES
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South Carolina.......................................................... 32
Ohio.................................................................... 21
Virginia................................................................ 20
Georgia................................................................. 18
North Carolina.......................................................... 16
Iowa.................................................................... 15
Pennsylvania............................................................ 14
New York................................................................ 10
New Jersey.............................................................. 1
Connecticut............................................................. 1
Total................................................................. 148
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The Company's management structure is designed to enhance the overall
performance of the Company's video specialty stores by providing more consistent
and supportive supervision of store operations. The Company's operations are
divided into four areas, each of which has district managers responsible for
store operations within the region. Each of the Company's stores is managed by a
full time store manager, who typically has one assistant manager.
Management believes that the concentration of the Company's stores in
clusters enhances the Company's control of its store operations and enables the
Company to respond more quickly to changing market conditions. Because the
Company's stores are geographically concentrated, area managers typically visit
stores within their respective areas at least twice a month. These visits are
made to ensure adherence to Company-specified operating standards and to discern
current market information. In addition, area managers meet on a regular basis
with other senior management at the Company's headquarters to discuss their
operations. The Company believes that these meetings facilitate prompt
decision-making and enable the Company to respond rapidly to changing market
conditions and consumer demand.
In choosing new store sites, the Company considers such factors as
visibility, access, traffic volume, consumer demographics and convenience to
residential neighborhoods, regardless of the proximity of competing video
specialty stores. Company superstores are generally located in trade areas with
populations of more than 25,000, such as suburbs of metropolitan markets. The
Company's stores have generally performed well in close proximity to competing
superstores, which the Company believes is due in part to unsatisfied market
demand. The Company's stores generally are located in stand-alone sites or strip
shopping centers for heightened visibility, with a preference for end-cap
locations. The Company's stores range in size from approximately 3,000 to 11,300
square feet, with an average size of approximately 5,700 square feet. Most of
the stores are leased pursuant to leases with terms ranging from one to ten
years and varying renewal options. The Company is responsible for taxes,
insurance and utilities under most of these leases. Generally, the Company's
stores are open seven days a week, from 10:00 a.m. to 11:00 p.m.
As a result of one of its acquisitions, the Company supplied and managed
the video inventory of video departments located in approximately 80
supermarkets in several states. The Company generally received 75% of the
revenues from such operations. In 1995, the revenues received by the Company
from the supermarket operations of the entity acquired were approximately
$456,000. The Company sold this business in March 1996 to enable the Company to
focus its resources on the operation of video specialty stores.
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INITIAL ACQUISITIONS
Set forth below is a brief description of each of the Initial Acquisitions
which were consummated concurrently with the initial public offering:
FIRST ROW. Under a Merger Agreement, Moovies, Inc. acquired from First Row
Video, Inc. and Video Game Trader, Inc. (collectively, "First Row and Game
Trader") 24 video specialty stores and certain related operations. All of the
stores and outlets are located in Eastern Ohio and Western Pennsylvania.
MOVIE STARS. Under an Asset Purchase Agreement, Moovies, Inc. acquired from
Movie Stars Entertainment Corp. ("Movie Stars") ten video specialty stores. Nine
stores are located in Poughkeepsie, New York and its surrounding area and the
tenth store is located in Fairfield, Connecticut.
VIDEO EXPRESS. Under a Merger Agreement, Moovies, Inc. acquired from
PARR-Four, Inc. ("Video Express") ten video specialty stores located in the
Norfolk, Virginia area.
VIDEO STARS. Under a Merger Agreement, Moovies, Inc. acquired from BREM,
Inc. ("Video Stars") eight video specialty stores located in the Norfolk,
Virginia area.
VIDEO WAREHOUSE 1. Under an Asset Purchase Agreement, Moovies, Inc.
acquired from Lott's Video Warehouse of Athens, Inc. and four other related
corporations (collectively, "Video Warehouse 1") five video specialty stores
located in Northern Georgia.
VIDEO WAREHOUSE 2. Under Asset Purchase Agreements and Merger Agreements,
Moovies, Inc. acquired from Video Warehouse of Augusta #1, Inc. and six related
partnerships and corporations (collectively, "Video Warehouse 2") seven video
specialty stores located in Southern Georgia.
KING VIDEO. Under a Merger Agreement, Moovies, Inc. acquired from King
Video, Inc. ("King Video") five video specialty stores located in Blacksburg,
Virginia and its surrounding area.
L.A. VIDEO. Under an Asset Purchase Agreement, Moovies, Inc. acquired from
L.A. Video, L.A. Video of Upper Dublin, Inc. and L.A. Video of Aldan, Inc.
(collectively, "L.A. Video") five video specialty stores located in suburban
areas of Philadelphia, Pennsylvania.
PLANET VIDEO. Under an Asset Purchase Agreement, Moovies, Inc. acquired
from Planet Video, Inc., and a related corporation, XIMPEC, Inc. (collectively,
"Planet Video") two video specialty stores located in Drescher, Pennsylvania and
Trenton, New Jersey.
RECENT ACQUISITIONS
Since the Company's initial public offering, the Company has acquired an
aggregate of 53 video specialty stores in seven acquisitions. These acquisitions
included the acquisition of the "Movies to Go" chain of 13 stores in September
1995, the "Pic-A-Flick" chain of 23 stores in December 1995, the "Movie Store"
chain of eight stores in December 1995, the "Showtime" chain of five stores in
March 1996 and several smaller acquisitions.
In September 1995, the Company acquired the "Movies to Go" chain of 13
stores and certain related operations located in Iowa ("Moovies to Go") through
a merger transaction for aggregate consideration of 344,421 shares of common
stock of the Company, the assumption of approximately $685,000 in debt, and
approximately $1,420,000 in cash. The Company paid the cash portion of the
consideration with proceeds from its initial public offering.
In December 1995, the Company acquired the "Pic-A-Flick" chain of 23 stores
located in North and South Carolina ("Pic-A-Flick Group") through a merger and
asset purchase transaction with eight corporations for aggregate consideration
of 336,134 shares of common stock of the Company and notes in the aggregate
principal amount of $5,000,000, due January 5, 1996 (which were secured by
letters of credit from a bank and subsequently repaid using proceeds from
borrowings under the line of credit).
In December 1995, the Company acquired the "Movie Store" chain of eight
stores located in the Atlanta metropolitan area ("Movie Store Group") through
merger and asset purchase transactions for aggregate consideration of 161,449
shares of the Company's Common Stock, the assumption of approximately $270,000
in debt ($166,000 of which was repaid at closing), $190,000 in cash, and a
promissory note in the principal amount of $435,215 due January 5, 1996 and a
promissory note in the principal amount of $468,650 with five installments of
$93,730 each due quarterly from April 1, 1996 through April 1, 1997. Under the
terms of the merger and asset purchase agreements, the Company is required to
issue up to a maximum of 42,580 additional shares if the Company's closing
trading price does not equal and/or exceed $14.375 for a ten consecutive trading
day period between December 21, 1995 and September 3, 1996. If at any time
during this period the price does
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exceed $14.375 for a consecutive ten day period, the Company's contingent
obligation to issue these additional shares will terminate. The Company paid the
cash portion of the consideration with borrowings under its line of credit with
a bank. The $435,000 note was repaid in January 1996 with borrowings under the
line of credit.
In March 1996, the Company acquired the "Showtime Video" chain of five
stores in an asset purchase transaction for aggregate consideration of
approximately $400,000 in cash and a $1.9 million note payable. The Company paid
the cash portion of the consideration and repaid the note in April 1996 with
borrowings under its line of credit. Showtime operates three stores in Fort
Collins, Colorado, one in Boulder, Colorado, and one in Greeley, Colorado.
MERCHANDISING
A typical Company superstore carries a broad selection of new release
titles (videos released in the last 12 months) and approximately 8,500 catalog
titles (generally, videos in release for over 12 months). Each store has a few
special interest titles, covering subjects such as sports, exercise and
education, which are selected by management to appeal to the customer base in
the particular store's market area. Movies are listed and displayed
alphabetically within each category. In 1995, over 82% of the Company's net
revenues were derived from the rental of videos and video games. In 1995, over
17% of the Company's net revenues were derived from the sale of videos,
including previously rented videos, video games and other products.
As of December 31, 1995, 27 stores were operated under the Moovies name and
logo. The Company intends to operate all of its video specialty stores under the
Moovies name and logo and will complete conversion of its stores by June 30,
1996. Moovies stores feature distinctive signs and colorful awnings on the
store's exterior and interior. The Company's signature interior features a video
wall displaying 16-20 televisions in block formation. Whimsical category titles
such as "Mooving On" (travel), "Moo-Dun-It" (mystery), "Cowboys" (westerns),
"Kung Moo" (martial arts) and "Moosicals" (musicals) direct customers to their
preferred titles. "Moo Releases" (new releases) are displayed alphabetically
along the perimeter of each store for easier selection by customers. The
Company's new prototype store will incorporate a children's section complete
with a monitor playing children's videos.
The Company generally has a three day, two night rental term for new
releases and catalog titles. While the Company is committed to offering more
copies of popular new releases than its competitors, the Company also believes
that these rental terms tend to keep new releases readily available. In the case
of a major box office hit offered for rental, the Company typically orders 20 to
40 copies of that title for each store and may order as many as 200 copies for a
single store. For each superstore, the Company bases the selection and quantity
of videos on demographic data for the region or neighborhood in which the store
is located, as well as the past or projected performance of that store. Upon
conversion to the Moovies format, the Company's stores will not rent or sell "X"
rated movies. The Company is in the process of phasing out the limited number of
"X" rated videos that were acquired in connection with the Initial Acquisitions.
The Company assesses late fees for videos returned beyond the initial term.
SUPPLIERS
The video inventory in each of the Company's stores consists of catalog and
new release titles, which it either purchases or rents. The Company purchases
approximately 83% of its new release videos and all of its catalog videos
directly from video wholesalers. The Company purchases from such wholesalers
rather than directly from movie studios because the Company believes that the
cost savings of direct purchases would not offset the expense to the Company of
establishing its own distribution system. Currently, the typical cost of new
release videos purchased by the Company is approximately $60 to $67 for titles
the Company will rent and $8 to $17 for titles acquired for immediate resale as
well as for rental. Catalog titles also typically cost from $8 to $17. The
Company has selected two primary suppliers to fulfill the majority of its video
needs. The Company believes that if its relationships with its primary suppliers
are terminated, the Company could obtain videos from other suppliers at prices
and on terms comparable to those available from its current suppliers.
The Company also rents new release titles under revenue sharing
arrangements. The Company presently spends approximately 20% of its new release
budget to obtain new releases from Rentrak pursuant to a revenue sharing
agreement which expires in 2005. Under this agreement, the Company is obligated
to obtain a minimum annual dollar amount of new release titles from Rentrak, and
to the extent that the Company elects to obtain a new release title from
Rentrak, it must obtain all copies of that title from Rentrak. Approximately 50%
of new release titles available through normal distribution channels in any
given period are also available through Rentrak as a result of its supplier
relationship with certain movie studios. During the revenue sharing period,
which is generally one year (but does not exceed two years) per title, the movie
studio retains ownership of the video and the Company shares the rental revenue
with Rentrak rather than purchasing the video for a fixed cost. In addition, the
Company must make an initial payment of from $8 to $10 per video obtained
pursuant to this agreement. At the end of the revenue sharing period for a
title, the Company has the option to purchase the copies of that title,
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generally for less than $5 per copy. Revenue sharing allows the Company to order
a large number of copies to meet most of the temporarily heavy demand that
exists during the first few weekends after a title's release. In addition,
revenue sharing reduces the risk that the Company will be unable to recover the
acquisition cost of a video through rental revenue before the popularity of the
title declines significantly. In order to obtain the full benefits of the
Rentrak revenue sharing arrangement, the Company must correctly estimate the
number of new releases that it should lease from Rentrak. To the extent that the
Company obtains too many new release videos, the Company's profits under the
revenue sharing arrangement for such releases may be adversely affected.
MARKETING AND ADVERTISING
The Company markets its stores and merchandise through radio and direct
mail and to a lesser extent through newspaper advertising, discount coupons,
celebrity appearances and promotional materials. The Company also publishes a
proprietary monthly video guide designed to help customers determine what videos
to watch. The cost of these activities is primarily funded through advertising
allowances and market development funds that the Company receives from its video
wholesale suppliers. In addition, the Company benefits from the advertising and
marketing of studios and theaters in connection with their efforts to promote
films and increase box office revenues. The Company's advertising emphasizes the
stores' selection, service and value and also promotes the Company's family
orientation.
INVENTORY
The Company aggressively manages its store inventory. In each of its
markets, management seeks to maintain the largest selection of new releases and
catalog product consistent with maximization of store profitability. Buying
decisions are made centrally and are based on the size of the active customer
base, new release dates, box office results, industry newsletters and
management's knowledge of the popularity of certain types of movies in its
markets. The Company believes that centralized buying allows it to obtain better
volume discounts. To maximize customer satisfaction and store profitability,
rentals are monitored on a daily basis in each store, enabling the Company to
reallocate videos and video games among stores to respond to customer demand.
MANAGEMENT INFORMATION SYSTEMS
The Company is installing a new management information system ("MIS").
Presently, the new system is installed in approximately 100 stores. The Company
expects the new system to be implemented in all of the stores it now operates
within the next three months. The new MIS uses a point-of-sale ("POS") computer
located at each store that records all rental and sale information upon customer
checkout using scanned bar code information and updates such information when
the videos and video games are returned. This POS system is tied to a
computerized information system at the corporate offices. The Company believes
data generated by the MIS will help management monitor store operations and
inventory more effectively and at lower cost than the previous systems. The
Company also believes its ability to review rental history by title and location
will assist it in making purchasing decisions with respect to new releases. The
MIS can also enable the Company to perform its monthly physical inventory using
bar code recognition, which is more efficient, more accurate and less costly
than a manual count.
COMPETITION AND TECHNOLOGICAL OBSOLESCENCE
The video retail industry is highly competitive. The Company's stores
compete with other video specialty stores, including stores operated by regional
and national chains, such as Blockbuster, and with other businesses offering
videos and video games, such as supermarkets, pharmacies, convenience stores,
bookstores, mass merchants, mail order operations and other retailers. Some of
the Company's competitors, including Blockbuster, have significantly greater
financial and marketing resources, market share and name recognition than the
Company. In addition, the Company's stores compete with other leisure-time
activities, including movie theaters, network and cable television, live
theater, sporting events and family entertainment centers. However, many of
these have a higher per-person cost than the rental of a video.
The Company believes the principal competitive factors among participants
in the video retail industry are store location and visibility, title selection,
the number of copies of each new release available and customer service. While
the Company does not believe that price is a significant competitive factor
among video retailers, the Company believes that price is a significant factor
relative to competition with movie theaters and other forms of entertainment.
The Company's goal is to generally offer a high level of service and more titles
and more copies of new releases than its competitors.
The Company's stores also compete with Pay-Per-View cable television
systems, in which home subscribers pay a fee to see a movie selected by the
subscriber. Existing Pay-Per-View services offer a limited number of channels
and movies and
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are generally available only to households with a converter to unscramble
incoming signals. Recently developed technologies, however, permit certain cable
companies, direct broadcast satellite companies, telephone companies and other
telecommunications companies to transmit a much greater number of movies to
homes in more markets as frequently as every five minutes, and are referred to
as Near Video-on-Demand. These technologies, by providing alternatives to home
video rentals and purchases, could have a material adverse effect on the
Company's business. None of these technologies, however, currently have
penetration in the consumer market as high as the estimated 80% penetration of
the VCR nor currently represent as large a percentage of revenue to the movie
studios as video specialty stores. Over the long term, further improvement in
these technologies could lead to the availability of a broad selection of movies
to consumers on demand, referred to as Video-on-Demand, at a price which is
competitive with the price of video rentals, which could have a material adverse
effect on the Company's financial condition and results of operations. Although
the Company does not believe that these technologies represent a competitive
threat to its business within the next five years, technological advances or
changes in the manner in which movies are marketed, including the earlier
release of movie titles to cable television or other distribution channels,
could make these technologies more attractive and economical, which could have a
material adverse effect on the business of the Company and on the Company's
financial condition and results of operations.
EMPLOYEES
As of December 31, 1995, the Company employed 1,875 persons, of whom 560
were employed on a full-time basis. None of the Company's employees are
represented by a labor union, and the Company believes that its relations with
its employees are good.
INTELLECTUAL PROPERTY
The Company owns a number of trademarks and service marks that have been
registered with the United States Patent and Trademark Office, including
MOOVIES(Register mark). The Company has applied to register CLUB COW A BUBBA and
HOLY COW WHATTA VIDEO STORE! for video rental services and promotional products
related to its business. The Company considers its trade names and logos to be
an important part of its business.
In late 1995, the Company engaged the services of an advertising design
firm which conducted market analyses and provided designs and design assistance
resulting in refinements in the Company's signage, logos, and related materials.
The Company and the advertising design firm disagreed as to the amount due for
such services, and subsequent discussions resulted in the payment of
approximately $129,000, which the Company believes fully discharged its
obligations in respect of such services. However, the advertising firm has
recently asserted ownership rights to certain designs that it helped develop,
(which it asserts have been included in most of the Company's signage, logos and
related materials) and has demanded that the Company cease its use of the
subject designs or pay to obtain all such rights. The Company disputes the
claims of the advertising firm and intends to defend vigorously any related
legal action which may be instituted. Management believes that the ultimate
resolution of this dispute will not have a material adverse effect on the
Company's financial condition or results of operations.
ITEM 2. PROPERTIES
All of the Company's stores are leased pursuant to leases with terms
ranging from one to ten years, with varying option renewal periods and which
range from 3,000 to 11,300 square feet. The Company anticipates that future
stores will also be located on leased premises.
The Company recently leased a new corporate headquarters located at 201
Brookfield Parkway, Greenville, South Carolina. This facility consists of an
aggregate of approximately 25,000 square feet of office space.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently involved in legal proceedings that management
believes could have a material adverse effect on the Company's financial
condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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ITEM 6. SELECTED FINANCIAL DATA
The selected historical financial data presented under the captions
Statement of Operations Data and Balance Sheet Data of the Company for the years
ended December 31, 1992, 1993, and 1994 have been derived from the financial
statements of the Predecessor, which during 1995 was merged into the Company.
The selected historical financial data presented under the captions Statements
of Operations Data and Balance Sheet Data as of and for the year ended December
31, 1995 was derived from the consolidated financial statements of the Company.
Such financial statements were audited by KPMG Peat Marwick LLP, independent
certified public accountants. The selected financial data presented under the
captions Statement of Operations Data and Balance Sheet Data as of and for the
year ended December 31, 1991 are derived from the unaudited financial statements
of the Predecessor. In the opinion of the Company, such unaudited financial
statements reflect all adjustments, consisting only of normal, recurring
adjustments, necessary for a fair presentation of the results of operations and
financial condition for such periods. The Pro Forma Operations Data does not
purport to represent what the Company's results of operations would actually
have been had such transactions actually occurred as of the dates indicated or
to project the Company's results of operations for any future period. The
Selected Financial Data and the Pro Forma Operating Data set forth below should
be read in conjunction with the financial statements and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this filing.
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YEARS ENDED DECEMBER 31,
1991 1992 1993 1994 1995
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(IN THOUSANDS,)EXCEPT PER SHARE AND OPERATING
DATA
STATEMENT OF OPERATIONS DATA (1):
Revenues:
Rental revenues........................................................... $1,728 $2,857 $3,579 $4,070 $20,309
Product sales............................................................. 244 256 310 322 4,349
Total.................................................................. 1,972 3,113 3,889 4,392 24,658
Operating costs and expenses:
Operating expenses........................................................ 1,387 2,241 2,798 3,121 15,593
Cost of product sales..................................................... 206 127 240 278 2,979
General and administrative................................................ 228 313 573 611 2,955
Amortization of goodwill.................................................. -- -- -- -- 148
Operating income............................................................ 151 432 278 382 2,983
Non-operating income (expense):
Interest expense, net..................................................... (29) (35) (43) (101) (197)
Other, net................................................................ -- -- -- -- 25
Income before income taxes.................................................. $ 122 $ 397 $ 235 $ 281 2,811
Provision for income taxes.................................................. 1,046
Net income.................................................................. $ 1,765
Net income per share........................................................ $ 0.52
Weighted average shares used in computation................................. 3,395
PRO FORMA STATEMENT OF OPERATIONS DATA (2):
Pro forma revenues........................................................ $59,709 $67,831
Pro forma operating income................................................ 5,651 7,482
Pro forma income before income taxes...................................... 5,403 7,217
Pro forma net income...................................................... $3,296 $ 4,339
Pro forma net income per share............................................ $ 0.37 $ 0.48
Weighted average shares used in computation............................... 8,860 8,960
OPERATING DATA:
Number of stores at end of period......................................... 7 8 8 9 148
Increase (decrease) in same store revenues (3)............................ 18.2% (6.5%) 8.2% 10.5% 1.4%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents................................................. $ 89 $ 151 $ 242 $ 170 $ 3,564
Videocassette rental inventory, net....................................... 942 969 820 931 16,728
Total assets.............................................................. 1,520 1,660 1,644 2,098 68,219
Long-term debt, less current portion...................................... 187 22 1,078 1,309 2,411
Total liabilities......................................................... 797 536 1,953 2,502 30,756
Equity (deficit).......................................................... 723 1,124 (309) (404) 37,463
</TABLE>
(1) The Statement of Operations Data reflect the results of operations of the
Predecessor for 1991 through 1994 and for a portion of 1995. During these
periods the Predecessor was operated as a limited partnership and therefore
had no income tax liability.
(2) The Pro forma Statement of Operations Data for the years ended December 31,
1994 and 1995 gives effect to the Acquisitions and the Company's initial
public offering as if they had been completed as of the beginning of the
indicated period.
(3) The increase (decrease) in same store revenues compares revenues from stores
owned by the Company at the end of the indicated period open throughout both
the indicated period and the corresponding period of the prior year.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company opened its first video superstore under the "Moovies" name,
logo and format in June 1992. As of December 31, 1995, the Company owned and
operated 148 video specialty stores, including 27 under the "Moovies" name and
logo, and certain related operations. The Company's revenues consist of rental
revenues and product sales revenues. Rental revenues include revenue from
rentals of videos, video games, video players and video game machines. Product
sales revenues are derived from sales of videos and video games, including
excess rental inventory, and confectionery and other items.
Operating costs and expenses include operating expenses, cost of product
sales, general and administrative expenses and amortization of goodwill.
Operating expenses comprise amortization of videos purchased for rental, fees
and lease expense for leased videos and all store expenses, including occupancy,
payroll, store opening expenses and direct store promotions expenses.
Videos and video games purchased by the Company for rental to its customers
are stated at cost and amortized over their estimated economic lives with no
provision for salvage value. Catalog titles (generally, videos in release for
over 12 months), together with related processing costs to prepare them for
rental, are amortized over 36 months on a straight-line basis. New release
videos (videos released in the last 12 months) are amortized as follows: the
first through third copies of each title per store are amortized as catalog
titles; the fourth through ninth copies of each title per store are amortized
40% in the first year and 30% in each of the second and third years; and the
tenth and any succeeding copies of each title per store are amortized over nine
months on a straight-line basis. The Company adopted its current method of
amortization for videos concurrently with the initial public offering and the
Initial Acquisitions. This method was followed by the industry's major
competitors and the Company adopted this method as the industry standard.
Recently, a competitor has announced a change in its amortization method. The
Company is reviewing this alternative method of amortization and may or may not
choose to adopt it in future periods. At this time, the Company is unable to
predict the impact such a change would have on its results of operations.
Under its agreement with Rentrak, pursuant to which the Company leases
videos for rental to its customers, the Company pays a handling fee of $8 to $10
for each video. During the revenue sharing period, which is generally one year
(but does not exceed two years) the movie studio that supplies the video to
Rentrak owns the video, and the rental revenues are shared by Rentrak and the
Company on a predetermined basis. Generally, the percentage of rental revenue
retained by the Company is fixed for the first sixty days of the revenue sharing
period and is then set at a higher rate for the remainder of the term. The
Company may also sell excess copies of a video title and share the sale proceeds
with Rentrak on a predetermined basis. At the end of the revenue sharing period
for a video title, the Company may purchase remaining copies of that title
generally for less than $5 per copy. The handling fee per video is amortized on
a straight-line basis over the revenue sharing period, and revenue sharing
payments are expensed when incurred.
Cost of product sales is comprised of cost of videos sold rather than
rented to customers and the cost of confectionery and other products sold in the
Company's stores. The cost of a video is measured at its amortized basis when
sold, if previously used as a rental video, or at the Company's cost if
purchased for sell-through, or at a varying basis if a leased product, depending
upon when in the revenue sharing period it is sold.
General and administrative expense is comprised of corporate office
expenses, including office equipment and facilities costs, management salaries
and benefits, advertising expense, professional fees and all other items of
corporate expense.
As described in Item I, Business, of this Form 10-K, the Company acquired
76 video specialty stores in August 1995 (the "Initial Acquisitions"). Since the
stockholders and owners of each of the video chains acquired pursuant to the
Initial Acquisitions were considered promoters as defined under Rule 1-02(s) of
Regulation S-X and are stockholders who transferred assets and liabilities to
Moovies, Inc. in exchange for Common Stock contemporaneously with the initial
public offering, Moovies, Inc. recorded the assets and liabilities acquired in
the Initial Acquisitions at the historical cost basis of the transferors in
accordance with the provisions of Securities and Exchange Commission Staff
Accounting Bulletin 48. As a result of recording the acquired assets at their
historical cost basis, no goodwill was recorded by the Company in connection
with the Initial Acquisitions.
The Company acquired 48 video specialty stores after the Initial
Acquisitions but prior to December 31, 1995 (the "Recent Acquisitions"). The
video stores acquired in the Recent Acquisitions were recorded under the
purchase method of accounting, and the excess of cost over the estimated fair
value of the assets acquired of $29.2 million is being amortized over 20 years
on a straight-line basis. The Initial Acquisitions and the Recent Acquisitions
are collectively referred to as the "Acquisitions."
<PAGE>
The following table sets forth for the periods indicated (i) statement of
operations data expressed as a percentage of total revenues and (ii) the number
of stores open at the end of each period.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1993 1994 1995
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Rental revenues......................................................... 92.0% 92.7% 82.4%
Product sales........................................................... 8.0 7.3 17.6
Total................................................................ 100.0 100.0 100.0
Operating costs and expenses:
Operating expenses...................................................... 71.9 71.1 63.2
Cost of product sales................................................... 6.2 6.3 12.1
General and Administrative.............................................. 14.7 13.9 12.0
Amortization of goodwill................................................ -- -- 0.6
Total................................................................ 92.8 91.3 87.9
Operating Income.......................................................... 7.2 8.7 12.1
Non-operating expense..................................................... (1.1) (2.3) (0.7)
Income before income taxes................................................ 6.1% 6.4% 11.4%
Number of stores open at end of period.................................... 8 9 148
</TABLE>
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
The Company's results of operations for the years ended December 31, 1994
and 1995 reflect only the operations of the Predecessor for the period from
January 1, 1994 to August 8, 1995 and include the results of the various
Acquisitions from and after their respective acquisition dates.
REVENUES. Revenues increased $20,266,000, or 461.5%, for 1995 to
$24,658,000 compared to revenues of $4,392,000 for 1994. The increased revenues
were primarily a result of the additional stores opened and acquired by the
Company between August 8 and December 31, 1995. Aggregate same store sales for
the Company, which include only the Predecessor's nine stores operated during
all of 1994, decreased approximately $276,000, or 6.3%. However, aggregate same
store sales on a pro forma basis, including all stores owned and operated by the
Company at December 31, 1995, increased $748,000, or 1.4%. Product sales as a
percentage of total revenues increased to 17.6% for 1995 compared to 7.3% for
1994. This increase is the result of greater emphasis by certain acquired
companies on product sales, including video game sales. The Company believes
that, because it intends to use leased product in the acquired stores and to use
more of its excess rental tapes as inventory in new stores instead of offering
such tapes for sale, rental revenues as a percentage of total revenues will be
higher for the year ending December 31, 1996 than they were for the year ending
December 31, 1995. The Company intends to focus its resources on its video
specialty superstores. Accordingly, subsequent to the year ended December 31,
1995, the Company sold its supermarket video operation in March 1996 for an
amount approximating its book value. The supermarket operations generated
approximately $456,000 in revenues in 1995.
OPERATING COSTS AND EXPENSES. Operating expenses increased $12,472,000 to
$15,593,000 for 1995 compared to $3,121,000 for 1994. Operating expenses as a
percentage of total revenues were 63.2% for 1995 compared to 71.1% for 1994.
This decrease was the result of the superior store level operating expense
efficiencies for the Company as compared to the Predecessor. The Company
anticipates that operating expenses as a percentage of total revenues in 1996
will be generally consistent with those experienced in 1995.
Cost of product sales increased $2,701,000 to $2,979,000 for 1995 compared
to $278,000 for 1994. The increase is directly related to the increases in
product sales. Cost of product sales as a percentage of product sales was 68.5%
for the year ended December 31, 1995 compared to 86.3% for 1994. This decrease
is the result of the Acquisitions' closer management of product sales and
increasing the mix of higher margin items, including video games. The Company
anticipates that the cost of product sales as a percentage of product sales for
1996 will be comparable to 1995 results, but may vary according to the mix of
products sold.
General and administrative expenses increased $2,344,000 to $2,955,000 for
1995 compared to $611,000 for 1994, reflecting the Acquisitions and additional
store openings. General and administrative expenses as a percentage of total
revenue were 12.0% and 13.9% for 1995 and 1994, respectively. The percentage
decrease, despite the increase in the amount of general and administrative
expenses, reflects the effect of spreading these expenses over significantly
greater revenues. The
<PAGE>
Company anticipates that 1996 general and administrative expenses will include
incremental costs incurred in connection with the establishment of corporate
infrastructure to support anticipated future growth.
INTEREST EXPENSE, NET. Interest expense increased $96,000 to $197,000 for
1995 from $101,000 for 1994. The increase related primarily to the issuance of a
$1.5 million note payable in mid April 1995 which was incurred to provide
financing for the completion of the Company's initial public offering of Common
Stock and the issuance of promissory notes in connection with one of the Initial
Acquisitions. These expenses were offset by interest income earned on the excess
cash received at the initial public offering, which was invested in short-term
securities from August 8, 1995 through December 31, 1995. Interest expense for
1996 is expected to increase due to borrowings under the Company's proposed
$22.5 million revolving credit facility in order to fund operations, new store
openings and additional acquisitions.
INCOME TAX EXPENSE. The Company had no income tax expense for 1994 or for
1995 through August 8 as the Predecessor was operated as a limited partnership.
Income tax expense for 1995 was approximately $1,046,000, representing an
effective income tax rate of 37.2%. The Company anticipates its effective income
tax rate will be approximately 40% in 1996.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
The Company's results of operations for the year ended December 31, 1994
reflect the operations of the Predecessor's eight stores plus one new store
opened during the year. The results of operations for the year ended December
31, 1993 reflect the operations of eight stores during the entire year.
REVENUES. Revenues increased $503,000, or 12.9%, to $4,392,000 for 1994
from $3,889,000 for 1993. Approximately $96,000 of the increase related to the
opening of the new store during 1994. The remainder of the increase related to
aggregate same store revenues increases of approximately $407,000, or 10.5%, for
1994. The increase in same store revenues in 1994 was attributable to a greater
volume of customer transactions, which the Company believes resulted primarily
from the ongoing implementation of its program of store upgrades which began in
1992. This program generally involved relocation to more prominent positions in
strip centers or to stand-alone locations, improved store design, increased
emphasis on more new release inventory and the change to the Moovies name, logo
and format.
OPERATING COSTS AND EXPENSES. Operating expenses increased $323,000 to
$3,121,000 for 1994 from $2,798,000 for 1993. This increase corresponded to the
increase in revenues in 1994 and was attributable to the new store opened during
1994, the relocation of two stores and the change to the Moovies name, logo and
format. During this period, the Company changed the mix of inventory purchases,
decreasing the use of leased product, which contributed to the reduction in
operating expenses as a percentage of revenues from 1993 to 1994.
Cost of product sales increased $38,000 to $278,000 for 1994 compared to
$240,000 for 1993, corresponding to the increased revenues from product sales.
Cost of sales as a percentage of product sales increased was 86.3% for 1994
compared to 77.4% for 1993. The increase was the result of the mix of product
sales.
General and administrative expenses increased to $610,000 for 1994 from
$573,000 for 1993. General and administrative expenses as a percentage of
revenues decreased to 13.9% for 1994 from 14.7% for 1993. This decrease was the
result of the Company's increasing revenues without a similar level of increase
in administrative cost.
INTEREST EXPENSE. Interest expense was $101,000 for 1994 compared to
$43,000 for 1993. This increase primarily resulted from a full year of
amortization of the discount on the long-term debt payable to the limited
partners in 1994 compared to only four months of discount amortization in 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary long-term capital needs are for acquiring and opening
new stores. The Company expects to fund such needs through cash flows from
operations, borrowing under credit facilities, operating equipment leases and
the net proceeds from the sale of debt and equity securities.
In August 1995 the Company closed its initial public offering and received
net proceeds of approximately $37.0 million. The proceeds were initially used
(i) to pay the $22.4 million cash portion of the Initial Acquisitions, which
were closed concurrently on August 8, 1995, and (ii) to repay approximately $4.2
million of long-term indebtedness assumed in connection with the Initial
Acquisitions and $1.4 million of long-term indebtedness of the Predecessor. The
remaining amount, $8.9 million, was invested temporarily in short-term
securities and was subsequently used to acquire and open additional superstores,
acquire new sites, renovate older locations, purchase computer equipment and for
general corporate purposes.
In December 1995 and January 1996 the Company borrowed a total of $6.5
million under its existing revolving credit facility from a bank. The proceeds
were used to fund a portion of the Recent Acquisitions. Borrowings outstanding
under the
<PAGE>
revolving credit facility bear interest at the bank's prime rate plus 1.25% and
interest is payable monthly. This facility terminates on July 15, 1996.
Borrowings outstanding under the revolving credit facility are secured by
substantially all of the Company's assets and the Company will be required to
comply with certain covenants. In addition, in January 1996 the Company borrowed
$2.0 million (the "Subordinated Credit Facility"), which is subordinated to the
Company's revolving credit facility. Borrowings outstanding under this
Subordinated Credit Facility bear interest at an annual rate equal to 13% and
mature in January 2001. In conjunction with this financing, the Company issued
the lender a warrant to purchase 20,000 shares of Common Stock at an exercise
price of $10.80 per share. In March 1996, the Company signed a commitment letter
with a bank for a secured revolving credit facility (the "Facility") for up to
$22.5 million to replace its existing credit facilities. The available amount of
the Facility will reduce quarterly beginning on March 31, 1997 with final
maturity of June 30, 1998. The interest rate of the facility is variable based
on LIBOR and the Company may repay the Facility at any time without penalty.
The Company funds its short-term working capital needs, including the
acquisition of videos and other inventory, primarily through cash from
operations. The Company expects that cash from operations will be sufficient to
fund future video and other inventory purchases and other working capital needs.
Under generally accepted accounting principles, rental inventories are treated
as non-current assets because they are not assets that are reasonably expected
to be completely realized in cash or sold in the normal business cycle. Although
the rental of this inventory generates a substantial portion of the Company's
revenue, the classification of these assets as noncurrent excludes them from the
computation of working capital. The cost of video inventory purchases, however,
is reported as a current liability until paid, and accordingly, is included in
the computation of working capital. Consequently, the Company believes working
capital is not an appropriate measure of its liquidity and it anticipates that
it will operate with a working capital deficit during 1996.
During 1995, net cash provided by operating activities was $9.3 million.
Net cash used in investing activities was $17.6 million, consisting primarily of
$3.5 million used to pay the cash portion of the Recent Acquisitions, $8.3
million to acquire rental inventory and $5.9 million used to purchase furniture
and fixtures. Net cash provided by financing activities was $11.7 million.
Financing sources of cash consisted of $36.9 million from the initial public
offering ("IPO") and $4.1 million from issuance of long-term debt. The primary
financing uses of cash were the payment of $22.4 million in the form of a deemed
dividend in connection with the Initial Acquisitions, and $9.2 million to repay
long-term debt. At December 31, 1995, the Company had cash of $3.6 million.
The Company's capital expenditures in 1996 will continue to focus on
implementing a new MIS, converting stores to the "Moovies" name and logo and
opening new stores. The Company's MIS is currently being used in approximately
100 video specialty stores that were acquired in connection with the
Acquisitions. In 1996, the Company intends to replace the various systems used
by its other stores with this system and to improve the computerized information
systems at the corporate offices at an estimated aggregate cost of approximately
$1.0 million. In addition, the Company intends to complete the conversion of the
stores acquired in connection with the Acquisitions to the "Moovies" name and
logo at an estimated aggregate cost of approximately $2.5 million. The Company
currently intends to open approximately 50 superstores in 1996. The Company
estimates that the total cash required to open a new Moovies superstore,
including store fixtures and equipment, leasehold improvements and rental and
sale inventory, typically ranges from $250,000 to $300,000 per superstore.
The Company believes that cash from operations and borrowing availability
under its existing credit facilities will be sufficient to fund its existing
operations, including its planned capital expenditures and new store openings,
through December 31, 1996. The Company routinely evaluates potential
acquisitions and is continuing to do so. To the extent that acquisitions cannot
be financed by sellers or with borrowings under the Company's credit facilities,
other financing will be required. There can be no assurance that any such
financing will be available or, if available, that it will be on terms and
conditions satisfactory or favorable to the Company.
GENERAL ECONOMIC TRENDS, QUARTERLY RESULTS AND SEASONALITY
The Company's results of operations are affected by economic trends in its
market areas. To date, the Company has not operated during a period of high
inflation but believes that it would generally be able to pass on increased
costs relating to inflation to its customers.
The video and video game rental portions of the Company's business are
somewhat seasonal, with revenues in April, May, September and October generally
being lower compared to other months of the year due to the weather in the
spring, and the start of school, the football season and the new television
season in the fall. Future operating results may be affected by many factors,
including variations in the number and timing of store openings, the public
acceptance of new release titles available for rental and sale, the timing of
the acquisition of existing video specialty retail stores, the extent of
competition,
<PAGE>
marketing programs, weather, special or unusual events and other factors that
may affect retailers in general. Any concentration of new store openings and the
related pre-opening costs in any particular fiscal quarter could have a material
adverse effect on the Company's operating results for that quarter.
RECENT ACCOUNTING DEVELOPMENTS
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 will be effective for fiscal years beginning after
December 31, 1995 and will require that the Company either recognize in its
consolidated financial statements costs related to its employee stock-based
compensation plans, such as stock options and stock purchase plans, or make pro
forma disclosures of such costs in a footnote to the consolidated financial
statements.
The Company expects to continue to use the intrinsic value based method of
Accounting Principles Board Opinion No. 25, as allowed under SFAS 123, to
account for all its employee stock-based compensation plans. Therefore, in its
consolidated financial statements for fiscal 1996, the Company will make the
required pro forma disclosures in a footnote to the consoldiated financial
statements. SFAS No. 123 is not expected to have a material effect on the
Company's consolidated results of operations or financial position.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8K.
<TABLE>
<C> <S>
(A) (1) FINANCIAL STATEMENTS:
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1994 and 1995
Consolidated Statements of Operations for the Years Ended December 31, 1993, 1994 and 1995
Consolidated Statements of Stockholders' Equity and Partners' Equity (Deficit) for the Years
Ended December 31, 1993, 1994 and 1995
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995
Notes to Consolidated Financial Statements
(A) (2) FINANCIAL STATEMENT SCHEDULES:
All schedules are omitted because they are not applicable or because required information is
included in the financial statements or notes thereto.
(A) (3) EXHIBITS
See the Index to Exhibits included on pages through .
(B) REPORTS ON FORM 8-K:
The Company filed a report on Form 8-K dated September 18, 1995 covering Item 2 under that
Form during the quarter ended December 31, 1995. Financial statements of business acquired
and pro forma financial information were included in a Report on Form 10-Q filed in November
1995.
The Company filed a report on Form 8-K dated December 11, 1995 covering Item 2 under that
Form during the quarter ended December 31, 1995. Financial statements of business acquired
and pro forma financial information were included in an 8-K/A Report filed in February 1996.
The Company filed a report on Form 8-K dated December 21, 1995 covering Item 2 under that
Form during the quarter ended December 31, 1995. Financial statements of business acquired
and pro forma financial information were included in an 8-K/A Report filed in February 1996.
(C) EXHIBITS:
See (a)(3) above.
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
MOOVIES, INC.
June 27, 1996 By: /s/ JOHN L. TAYLOR
John L. Taylor
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ F. ANDREW MITCHELL
F. Andrew Mitchell
Chief Financial Officer and
Director (Principal Financial and
Accounting Officer)
<PAGE>
EXHIBIT INDEX
(a) The following exhibits, which are furnished with this Form 10-K or
incorporated herein by reference, are filed as part of this Form 10-K:
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. EXHIBIT DESCRIPTION PAGE NO.
<C> <S> <C> <C>
2.1* -- Agreement and Plan of Merger dated June 15, 1995 among Moovies, Inc.,
Tonight's Feature, Inc., Douglas Raines, Michael Yeargin and Mortco,
Inc.
2.2* -- Agreement and Plan of Merger dated June 14, 1995 as amended by First
Amendment to Agreement and Plan of Merger and Waiver dated July 13, 1995
among Moovies, Inc., First Row Video, Inc., Video Game Trader, Inc.
Rokki Rogan and Robert Ulam.
2.3* -- Asset Purchase Agreement dated June 15, 1995 as amended by First
Amendment to Asset Purchase Agreement and Waiver dated June 30, 1995
among Moovies, Inc. and Movie Stars Entertainment Corp. and Alan
Daniels.
2.4* -- Agreement and Plan of Merger dated June 14, 1995 as amended by First
Amendment to Agreement and Plan of Merger and Waiver dated July 8, 1995
among Moovies, Inc., PARR-Four, Inc. d/b/a Video Express, Arthur F.
Greeder, III and Ann E. Greeder.
2.5* -- Agreement and Plan of Merger dated June 14, 1995 as amended by First
Amendment to Agreement and Plan of Merger and Waiver dated July 8, 1995
among Moovies, Inc., BREM, Inc. d/b/a Video Stars and Robert L. Brown,
Jr.
2.6* -- Asset Purchase Agreement dated June 14, 1995 as amended by First
Amendment to Asset Purchase Agreement and Waiver dated July 13, 1995
among Moovies, Inc., Lott's Video Warehouse of Athens, Lott's Video
Warehouse of Athens, Inc., No. 2, Lott's Video Warehouse of Dublin,
Inc., Lott's Video Warehouse of Gainesville, Inc., Lott's Video
Warehouse of Milledgeville, Inc., Bryant Lott and Jerry W. Lott.
2.7* -- Asset Purchase Agreement dated June 14, 1995 as amended by First
Amendment to Asset Purchase Agreement and Waiver dated July 13, 1995
among Moovies, Inc., Video Warehouse of Augusta #3, Gerald Pryor and
Michael Harden.
2.8* -- Asset Purchase Agreement dated June 14, 1995 as amended by First
Amendment to Asset Purchase Agreement and Waiver dated July 13, 1995
among Moovies, Inc., Video Warehouse of Macon #1, Gerald Pryor and Kevin
Griffin.
2.9* -- Asset Purchase Agreement dated June 14, 1995 as amended by First
Amendment to Asset Purchase Agreement and Waiver dated July 13, 1995
among Moovies, Inc., Video Warehouse of Savannah #2, Gerald Pryor and
Kevin Griffin.
2.10* -- Agreement and Plan of Merger dated June 14, 1995 as amended by First
Amendment to Agreement and Plan of Merger and Waiver dated July 13, 1995
among Moovies, Inc., Video Warehouse of Savannah #1, Inc., Gerald Pryor
and Kevin Griffin.
2.11* -- Agreement and Plan of Merger dated June 14, 1995 as amended by First
Amendment to Agreement and Plan of Merger and Waiver dated July 13, 1995
among Moovies, Inc., Video Warehouse of Augusta #2, Inc. and Gerald
Pryor.
2.12* -- Agreement and Plan of Merger dated June 14, 1995 as amended by First
Amendment to Agreement and Plan of Merger and Waiver dated July 13, 1995
among Moovies, Inc., Video Warehouse of Macon #3, Inc., Gerald Pryor,
Michael Harden and Eddie Williams.
2.13* -- Agreement and Plan of Merger dated June 14, 1995 as amended by First
Amendment to Agreement and Plan of Merger and Waiver dated July 13, 1995
among Moovies, Inc., Video Warehouse of Augusta #1, Inc. and Gerald
Pryor.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. EXHIBIT DESCRIPTION PAGE NO.
2.14* -- Asset Purchase Agreement dated June 14, 1995 as amended by First
Amendment to Asset Purchase Agreement and Waiver dated July 13, 1995
among Moovies, Inc., L.A. Video, L.A. Video of Upper Dublin, Inc., L.A.
Video of Aldan, Inc., Alan Warshaw and Linda Warshaw.
<C> <S> <C> <C>
2.15* -- Agreement and Plan of Merger dated June 14, 1995 as amended by First
Amendment to Agreement and Plan of Merger and Waiver dated June 30, 1995
among Moovies,Inc., King Video, Inc. and Thomas C. King.
2.16* -- Asset Purchase Agreement dated June 14, 1995 as amended by First
Amendment to Asset Purchase Agreement and Waiver dated July 13, 1995
among Moovies, Inc., Planet Video, Inc., XIMPEC, Inc. and Robert Klein.
2.17* -- Asset Purchase Agreement dated August 25, 1995 among Moovies, Inc.,
Moviemax Video Superstores, Inc., David Thomas Roberts, Deborah C.
Roberts, Freeman C. Todd and Carolyn C. Todd.
2.18** -- Agreement and Plan of Merger dated September 15, 1995 among Moovies,
Inc., Moovies of Iowa, Inc., MoveAmerica, Incorporated d/b/a Movies to
Go, Richard C. Eychaner, Andy Burton, Sheila Burton, Keith West, Howard
Eychaner, Mark Peters, Dave Ryan, Brian Gosnell, Kurt Vanderhoef, Kirk
Reinert, and Robert Keenan. (Incorporated by reference to Exhibit 2 to
the Company's Current Report on Form 8-K dated September 18, 1995).
2.19** -- Asset Purchase Agreement dated October 11, 1995 among Moovies, Inc.,
First Row Video #6 of Belmonte Avenue, Inc. d/b/a First Row Video, Mark
A. Mallen, and Stephanie R. Mallen.
2.20** -- Asset Purchase Agreement dated November 20, 1995 among Moovies, Inc.,
Smash Video, Inc., Bobby Harrelson, Rex Stephens, and Robert Exum.
2.21** -- Agreement and Plan of Merger dated December 11, 1995 among Moovies,
Inc., Moovies of the Carolinas, Inc., Pic-A-Flick of Berea, Inc.,
PAF-NC, Inc., Pic-A-Flick of Seneca, Inc., Video Warehouse of
Greenville, Inc., Pic-A-Flick Video International, Inc., Joseph G.
Mahaffey, Sr., Joseph G. Mahaffey, Jr., and Susan J. Mahaffey.
(Incorporated by reference to Exhibit 2.1 to the Company's Current
Report on Form 8-K dated December 11, 1995).
2.22** -- Asset Purchase Agreement dated December 11, 1995 among Moovies, Inc.,
Moovies of the Carolinas, Inc., Pic-A-Flick of Chester, Inc., Take One
Video of Simpsonville, S.C., Inc., Joseph G. Mahaffey, Sr. and Alinda W.
Mahaffey. (Incorporated by reference to Exhibit 2.3 to the Company's
Current Report on Form 8-K dated December 11, 1995).
2.23** -- Stock Purchase Agreement dated December 11, 1995 among Moovies, Inc.,
Moovies of the Carolinas, Inc., Pic-A-Flick of Greenville, Inc., and
Joseph G. Mahaffey, Sr. (Incorporated by reference to Exhibit 2.2 to the
Company's Current Report on Form 8-K dated December 11, 1995).
2.24** -- Agreement and Plan of Merger dated December 21, 1995 among Moovies,
Inc., Moovies of Georgia, Inc., The Movie Store, Inc., The Movie Store
VI, Inc., and Paul D. Love. (Incorporated by reference to Exhibit 2.1 to
the Company's Current Report on Form 8-K dated December 21, 1995).
2.25** -- Asset Purchase Agreement dated December 21, 1995 among Moovies, Inc.,
Moovies of Georgia, Inc., and Movie Store VII, Inc. (Incorporated by
reference to Exhibit 2.3 to the Company's Current Report on Form 8-K
dated December 21, 1995).
2.26** -- Asset Purchase Agreement dated December 21, 1995 among Moovies, Inc.,
Moovies of Georgia, Inc., and Movie Store VII, Inc. and Parkaire Media
Associates, Inc. (Incorporated by reference to Exhibit 2.2 to the
Company's Current Report on Form 8-K dated December 21, 1995).
3.1* -- Restated Certificate of Incorporation of Moovies, Inc.
3.2* -- Restated Bylaws of Moovies, Inc.
4.1* -- Specimen Common Stock Certificate.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. EXHIBIT DESCRIPTION PAGE NO.
10.1* -- Form of Registration Rights Agreement.
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10.2* -- Rentrak National Account Agreement dated March 8, 1995, as amended by
First Addendum dated March 8, 1995 and Amendment to First Addendum dated
as of June 16, 1995.
10.2.1*+ -- Letter Agreement dated January 16, 1996, between Moovies, Inc. and Baker
& Taylor Information and Entertainment Services.
10.3* -- 1995 Stock Plan and forms of Stock Option Agreements.
10.4* -- Employment Agreement effective September 1994 between Tonight's Feature,
Inc. and John L. Taylor.
10.5* -- Employment Agreement effective March 1995 between Tonight's Feature
Limited Partnership II and F. Andrew Mitchell.
10.6* -- Form of Employment Agreement between Moovies, Inc. and Douglas Raines.
10.7* -- Form of Employment Agreement between Moovies, Inc. and Michael Yeargin.
10.8* -- Form of Employment Agreement between Moovies, Inc. and Alan Daniels.
10.9* -- Form of Employment Agreement between Moovies, Inc. and Robert Klein.
10.10* -- Form of Employment Agreement between Moovies, Inc. and Rokki Rogan.
10.11* -- Form of Employment Agreement between Moovies, Inc. and Arthur F.
Greeder, III.
10.12* -- Form of Employment Agreement between Moovies, Inc. and Alan Warshaw.
10.13* -- Loan Agreement, in the principal amount of $550,000 dated August 31,
1993 between Tonight's Feature Limited Partnership II and BB&T.
10.14* -- Promissory Note in the principal amount of $550,000 dated August 31,
1993, between Tonight's Feature Limited Partnership II and BB&T.
10.15* -- Promissory Note in the principal amount of $150,000 dated August 25,
1994, between Tonight's Feature Limited Partnership II and BB&T.
10.16* -- Promissory Note in the principal amount of $125,000 dated December 15,
1994, between Tonight's Feature Limited Partnership II and BB&T.
10.17* -- Secured Revolving Note in the principal amount of $250,000 dated
November 24, 1993 between Tonight's Feature Limited Partnership II and
Rentrak.
10.18* -- Security Agreement dated November 24, 1993 between Tonight's Feature
Limited Partnership II and Mortco, Inc.
10.19* -- Revolving Credit Agreement dated March 8, 1995 between Tonight's Feature
Limited Partnership II, Tonight's Feature, Inc. and Mortco, Inc., as
amended by First Amendment dated June 13, 1995.
10.20* -- Secured Revolving Note in the principal amount of $750,000 dated March
8, 1995 between Tonight's Feature and Mortco, Inc.
10.21* -- Security Agreement dated March 8, 1995 between Tonight's Feature and
Mortco, Inc.
10.22* -- Promissory Notes dated August 31, 1993 between Tonight's Feature and
former limited partners.
10.23* -- Warrant Agreement dated April 19, 1995 with Sirrom Capital Corporation,
as amended June 14, 1995.
10.24* -- Warrant Agreement dated April 19, 1995 with Mortco, Inc., as amended
June 13, 1995.
10.25* -- Stock Purchase Warrant dated November 30, 1994 with Theodore J. Coburn.
10.26* -- Form of Warrant for former limited partners.
10.27* -- Loan Agreement dated April 19, 1995 by and between Tonight's Feature
Limited Partnership II and Sirrom Capital Corporation
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. EXHIBIT DESCRIPTION PAGE NO.
10.28** -- Promissory Note from Moovies of the Carolinas, inc. in favor of Take One
Video of Simpsonville, S.C., Inc. in the amount of $1,625,000, with
related Letter of Credit to secure payment thereof from Carolina First
Bank.
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10.29** -- Promissory Note from Moovies of the Carolinas, Inc. in favor of Pic-
A-Flick of Chester, Inc. in the amount of $375,000, with related Letter
of Credit to secure payment thereof from Carolina First Bank.
10.30** -- Promissory Note from Moovies of the Carolinas, Inc. in favor of Joseph
G. Mahaffey, Sr., in the principal amount of $3,000,000, with related
Letter of Credit to secure payment thereof from Carolina First Bank.
10.31** -- Promissory Note dated December 21, 1995 from Moovies, Inc. in favor of
Movie Store VII, Inc. in the original principal amount of $435,215.
10.32** -- Promissory Note dated December 21, 1995 from Moovies, Inc. in favor of
Parkaire Media Associates, Ltd. in the original principal amount of
$468.650.
10.33** -- Stock Purchase Warrant from Moovies, Inc. to Joseph G. Mahaffey, Sr.
11.1** -- Statement Re Computation of Per Share Earnings.
21.1** -- Subsidiaries of the Company
23.1*** -- Consent of KPMG Peat Marwick LLP.
</TABLE>
* Incorporated by reference to the same Exhibit number in the Registrant's
Registration Statement on Form S-1 (No. 33-93562).
** Previously filed.
*** Filed herewith.
+ The Company has applied for confidential treatment of portions of this
Exhibit. Accordingly, portions thereof have been omitted and filed
separately.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Moovies, Inc.:
We consent to incorporation by reference in the Registration Statement on
Form S-8 of Moovies, Inc. of our report dated March 1, 1996, relating to the
consolidated balance sheets of Moovies, Inc. as of December 31, 1994 and 1995,
and the related consolidated statements of operations, stockholders' equity and
partners' equity (deficit), and cash flows for each of the years in the
three-year period ended December 31, 1995, which report appears in the December
31, 1995 annual report on Form 10-K of Moovies, Inc.
KPMG PEAT MARWICK LLP
Greenville, South Carolina
June 26, 1996
<PAGE>
