- --------------------------------------------------------------------------------
PROSPECTUS SUPPLEMENT
(To Prospectus dated October 24, 1996)
Pursuant to Rule 424(b)(3)
Registration Statement No. 333-13899
1,850,000 Shares
MOOVIES, INC.
Common Stock
This Prospectus Supplement relates to the offer and sale from time to time
by Moovies, Inc., a Delaware corporation ("Moovies" or the "Company"), or its
subsidiaries, of up to 1,850,000 shares of Moovies common stock, $.001 par
value, (the "Common Stock"), in exchange for shares of capital stock of other
companies, or in exchange for assets used in or related to the business of such
companies. This Prospectus Supplement does not contain complete information
about the offering of the Common Stock of the Company. Additional information is
contained in the prospectus (the "Prospectus") dated October 24, 1996 and
attached hereto. Prospective investors are urged to read both this Prospectus
Supplement and the Prospectus in full. Sales of the Common Stock of the Company
may not be consummated unless the purchaser has received both this Prospectus
Supplement and the Prospectus. See "Securities Covered By This Prospectus" in
the Prospectus dated October 24, 1996. Shares offered hereby may generally be
resold by the persons acquiring them without further registration under the
Securities Act of 1933. For further information on resales, see "Resales" in the
Prospectus. The Company's Common Stock is traded and quoted on the Nasdaq Stock
Market under the symbol "MOOV." On December 31, 1996, the last reported sale
price for the Company's Common Stock on the Nasdaq Stock Market's National
Market System (the "Nasdaq Stock Market") was $5.1875 per share. See "Price
Range of Common Stock" in Prospectus.
These securities involve a high degree of risk. Prospective investors
should consider the "Risk Factors" set forth at Page S-2 herein and at Page 7 in
the accompanying Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY MOOVIES. NEITHER THE PROSPECTUS NOR THE PROSPECTUS
SUPPLEMENT CONSTITUTES AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY
ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM
IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY
CHANGE IN THE FACTS SET FORTH OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR
ANY PROSPECTUS SUPPLEMENT OR IN THE AFFAIRS OF MOOVIES SINCE SUCH DATE.
The shares to be offered hereby may be sold (i) in transactions of the type
specified in paragraph (a) of Rule 145 promulgated by the Securities and
Exchange Commission, (ii) in a merger in which the applicable state law would
not require the solicitation of the votes or consents of all the security
holders of the company being acquired, (iii) in an exchange offer for securities
of the issuer or another security, (iv) in a public reoffering or resale of any
such securities acquired pursuant to this offering; or (iv) in more than one of
the transactions listed above. If used for reoffering or resale, this prospectus
will be amended as required to include information regarding selling
stockholders.
The date of this Prospectus Supplement is December 31, 1996.
393140.4
<PAGE>
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE COMMON STOCK OF THE COMPANY. ADDITIONAL INFORMATION IS CONTAINED
IN THE PROSPECTUS. PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE COMMON STOCK OF THE COMPANY
MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS.
This Supplement to the Prospectus dated October 24, 1996 (the "Original
Prospectus") of Moovies, Inc. ("Moovies" or the "Company") supplements and
updates the Original Prospectus as set forth herein. Capitalized terms which
have defined meanings in the Original Prospectus have the same respective
meanings in this Supplement as they have in the Original Prospectus, except as
otherwise specifically indicated. This Supplement is being delivered together
with a copy of the Original Prospectus and should be read in conjunction with
the Original Prospectus.
This Supplement describes the Company's Shareholder Protection Rights
Agreement dated December 20, 1996; updates historical financial data contained
in the Original Prospectus with data from the Company's Quarterly Report on Form
10-Q for the quarter ended September 29, 1996; and updates and revises certain
portions of the "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and "Description of Capital
Stock" sections of the Original Prospectus. This Supplement does not purport to
update any other material in the Prospectus.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
Additional Information..................................................................................................S-1
Updates to "Risk Factors"...............................................................................................S-2
Anti-Takeover Provisions................................................................................................S-2
Financial Information...................................................................................................S-4
Update to Management's Discussion and Analysis of Financial Condition and Results of Operations.........................S-9
Results of Operations...................................................................................................S-9
Liquidity and Capital Resources........................................................................................S-10
Updates to "Description of Capital Stock"..............................................................................S-11
Rights Agreement.......................................................................................................S-11
</TABLE>
ADDITIONAL INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copies at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at regional
offices of the Commission located at 7 World Trade Center, Suite 1300, New York,
New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material can be obtained by mail
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Company files its reports and
other information electronically with the Commission. The Commission maintains a
Web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of such site is http://www.sec.gov. The Common Stock is listed on
the Nasdaq Stock Market's National Market System and such reports, proxy and
information statements and other information concerning the Company can be
inspected and copied at the Nasdaq Stock Market, 1735 K Street, N.W.,
Washington, D.C. 20006-1506.
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a registration statement on Form S-4
under the Securities Act of 1933, as amended, with respect to the shares of
Common Stock offered hereby. This Prospectus Supplement does not contain all of
the information set forth in the Registration Statement and the exhibits and
schedules thereto, as permitted by the rules and regulations of the Commission.
For further information with respect to the Company and the shares of Common
Stock offered hereby, reference is hereby made to such Registration Statement,
exhibits and schedules filed with Registration Statement 333-13899. Statements
contained in the Prospectus as to the contents of any contract or other document
referred to are not necessarily complete, and in each instance
393140.4
S-1
<PAGE>
reference is made to the copy of such contract or other document filed as
an exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. A copy of the Registration Statement may be
examined without charge at the offices of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 and at regional offices of the Commission located
at 7 World Trade Center, 13th Floor, New York, New York, 10048 and at
Northwestern Atrium, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of all or any part thereof may be obtained from the Public
Reference Section of the Commission, Washington, D.C. 20549 upon payment of the
fees prescribed by the Commission.
UPDATES TO "RISK FACTORS"
The following portions of the "Risk Factors" section of the Original
Prospectus are hereby updated and revised as follows:
The discussion in this Prospectus Supplement and the Original Prospectus
contains forward looking statements that involve risks and uncertainties. The
Company's actual results could differ significantly from those discussed herein.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business," as
well as those discussed elsewhere in this Prospectus Supplement and the Original
Prospectus. Statements contained in this Prospectus Supplement and the Original
Prospectus that are not historical facts are forward looking statements that are
subject to the safe harbor created by the Private Securities Litigation Reform
Act of 1995. A number of important factors could cause the Company's actual
results for 1996 and beyond to differ materially from those discussed herein,
and from those expressed in any forward looking statements made by, or on behalf
of, the Company. These factors include, without limitation, those listed below
in this Prospectus Supplement, and in the Original Prospectus, in "Risk
Factors."
Anti-Takeover Provisions
The Company's Board of Directors has the authority to issue up to one
million shares of Preferred Stock and to determine the price, rights,
preferences and privileges of those shares without any further vote or action by
the stockholders. The rights of the holders of Common Stock will be subject to,
and may be adversely affected by, the rights of the holders of any shares of
Preferred Stock that may be issued in the future. The issuance of Preferred
Stock could have the effect of making it more difficult for a third party to
acquire a majority of the outstanding voting stock of the Company, thereby
delaying, deferring or preventing a change of control of the Company. In
addition, certain provisions in the Company's Certificate of Incorporation and
Bylaws relating to dividing the Board of Directors into three classes,
restrictions on calling special meetings of stockholders, restrictions on
amendments to the Bylaws and prohibitions against action by majority written
consent of the stockholders may discourage or make more difficult any attempt by
a person or group of persons to obtain control of the Company.
The Company is subject to the anti-takeover provisions of Section 203 of
the Delaware General Corporation Law. In general, the statute prohibits a
publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. For purposes of Section
203, a "business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder, and an
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior, did own) 15% or more of a
corporation's voting stock. See "Description of Capital Stock Preferred Stock;
- -Certain Charter and Bylaw Provisions."
In addition, options issued pursuant to the Company's 1995 Stock Plan will
vest immediately upon a Change in Control as defined in the option agreements.
See "Management-Compensation Committee Interlocks and Insider Participation."
On December 20, 1996 the Company's Board of Directors adopted a Shareholder
Protection Rights Agreement (the "Rights Agreement"). Under the Rights
Agreement, a dividend of one right ("Right") to purchase a fraction of a share
of a newly created class of preferred stock, was declared for each share of
Common Stock outstanding at the close of business on December 31, 1996. The
Rights, which expire on December 31, 2006, may be exercised only if certain
conditions are met, such as the acquisition (or the announcement of a tender
offer the consummation of which would result in the acquisition) of beneficial
ownership of 15 percent or more of the Common Stock ("15% Acquisition") by a
person or
393140.4
S-2
<PAGE>
affiliated group. The Rights, if exercised, would cause substantial
dilution to a person or group of persons that attempts to acquire the Company
without the prior approval of the Board of Directors. The Board of Directors may
cause the Company to redeem the Rights for nominal consideration. The Rights
Agreement may discourage or make more difficult any attempt by a person or group
of persons to obtain control of the Company. See "Description of Capital Stock -
Rights Agreement."
393140.4
S-3
<PAGE>
FINANCIAL INFORMATION
Condensed Consolidated Financial Statements
<TABLE>
<CAPTION>
MOOVIES, INC.
Consolidated Balance Sheets
September 29, 1996 December 31, 1995
(unaudited) (unaudited)
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 5,205,448 $ 3,563,788
Receivables 1,174,300 2,780,214
Merchandise inventory 5,347,197 2,617,496
Deferred income tax benefit 1,486,115 984,136
Prepaid rent 1,237,678 739,804
Other 2,240,840 1,243,708
----------------------- ------------------------
Total current assets 16,691,578 11,929,146
Videocassette rental inventory, net 21,558,855 16,728,416
Furnishings and equipment, net 24,364,091 9,858,952
Goodwill 39,731,619 29,080,621
Deposits and other assets 836,794 622,361
----------------------- ------------------------
$ 103,182,937 $ 68,219,496
======================= ========================
Liabilities and Stockholders' Equity
Current liabilities:
Line of credit $ 13,795,934 $ 2,500,000
Notes payable 2,600,000 5,935,215
Current portion of long-term debt 355,041 481,064
Accounts payable 12,603,608 10,567,375
Accrued liabilities 4,692,683 3,065,603
----------------------- ------------------------
Total current liabilities 34,047,266 22,549,257
Long-term debt, less current portion 102,654 2,410,987
Deferred income tax payable 7,397,993 5,796,051
----------------------- ------------------------
41,547,913 30,756,295
Commitments
Stockholders' equity:
Preferred stock, $.001 par value; 1,000,000 shares
authorized; no shares issued and outstanding - -
Common stock, $.001 par value; 25,000,000
shares authorized; issued and outstanding
11,926,620 shares at September 29, 1996 and
8,658,532 shares at December 31, 1995 11,927 8,659
Additional paid-in capital 58,335,362 35,857,767
Retained earnings 3,287,735 1,596,775
----------------------- ------------------------
Total stockholders' equity 61,635,024 37,463,201
----------------------- ------------------------
$ 103,182,937 $ 68,219,496
======================= ========================
See accompanying notes to consolidated financial statements.
</TABLE>
393140.4
S-4
<PAGE>
<TABLE>
<CAPTION>
MOOVIES, INC.
Consolidated Statements of Operations
(unaudited)
Three months ended Nine months ended
Sept. 29, 1996 Sept. 30, 1995 Sept. 29, 1996 Sept. 30, 1995
Revenues:
<S> <C> <C> <C> <C>
Rental revenues $ 19,126,293 $ 6,022,931 $ 51,759,671 $ 8,292,834
Product sales 2,967,489 1,004,951 7,934,783 1,233,058
-------------------- --------------------- ---------------------- --------------------
22,093,782 7,027,882 59,694,454 9,525,892
Operating costs and expenses:
Operating expenses 16,242,077 4,243,178 42,579,576 6,016,028
Cost of product sales 1,790,515 899,380 4,958,007 1,090,888
Selling, general and
administrative 2,408,842 1,022,873 7,019,124 1,400,755
Amortization of goodwill 465,143 - 1,219,548 -
-------------------- --------------------- ---------------------- --------------------
20,906,577 6,165,431 55,776,255 8,507,671
-------------------- --------------------- ---------------------- --------------------
Operating income 1,187,205 862,451 3,918,199 1,018,221
Interest expense, net (296,461) (106,271) (996,979) (185,320)
Other, net 3,192 - (11,330) -
-------------------- --------------------- ---------------------- --------------------
Income before income taxes and
extraordinary item 893,936 756,180 2,909,890 832,901
Income tax expense 353,105 265,822 1,154,640 265,822
-------------------- --------------------- ---------------------- --------------------
Net income before extraordinary 540,831 490,358 1,755,250 567,079
item
Extraordinary item - loss on early
extinguishment of debt 64,290 - 64,290 -
-------------------- --------------------- ---------------------- --------------------
Net income $ 476,541 $ 490,358 $ 1,690,960 $ 567,079
==================== ===================== ====================== ====================
Net income per share:
Net income before $ 0.05 $ 0.10$ 0.18$ 0.33
extraordinary item
Extraordinary item - loss on 0.01 - 0.01 -
early extinguishment of
debt
-------------------- --------------------- ---------------------- --------------------
Net income $ 0.04 $ 0.10$ 0.17$ 0.33
==================== ===================== ====================== ====================
Weighted average shares 11,850,000 5,015,382 9,904,000 1,710,993
outstanding
==================== ===================== ====================== ====================
</TABLE>
See accompanying notes to consolidated financial statements.
393140.4
S-5
<PAGE>
<TABLE>
<CAPTION>
MOOVIES, INC.
Consolidated Statements of Cash Flows
(unaudited)
Nine months ended
September 29, September 30,
1996 1995
Operating activities:
<S> <C> <C>
Net Income $ 1,690,960 $ 567,079
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 14,827,260 2,347,255
Amortization of discount on long-term debt - 40,046
Changes in operating assets and liabilities:
Receivables 1,860,289 (285,134)
Merchandise inventory (2,584,701) (20,615)
Other current assets (1,495,006) -
Deposits and other assets (184,455) 273,092
Accounts payable 2,036,233 645,216
Accrued liabilities 512,080 (1,297,038)
Deferred income taxes 1,099,963 112,691
---------------------- --------------------
Net cash provided by operating activities 17,762,623 2,382,592
---------------------- --------------------
Investing activities:
Purchases of videocassette rental inventory, net (15,350,754) (2,091,200)
Purchases of furnishings and equipment, net (15,600,372) (1,771,588)
Proceeds from the sale of the grocery division 745,625 -
Business acquisitions (11,322,687) (1,825,541)
---------------------- --------------------
Net cash used in investing activities (41,528,188) (5,688,329)
---------------------- --------------------
Financing activities:
Proceeds from line of credit borrowings, net 11,295,934 -
Proceeds from issuance of long-term debt 2,000,000 2,100,000
Principal payments on long-term debt (10,369,572) (5,947,151)
Proceeds from issuance of common stock, net 22,480,813 36,963,330
Cash paid, in the form of a deemed dividend, - (22,559,870)
for the purchase of videochains
Proceeds from the exercise of warrants 50 -
Capital/partner withdrawals, net - (227,707)
---------------------- --------------------
Net cash provided by financing activities 25,407,225 10,328,602
---------------------- --------------------
Increase (decrease) in cash and cash equivalents 1,641,660 7,022,865
Cash and cash equivalents at beginning of period 3,563,788 169,591
---------------------- --------------------
Cash and cash equivalents at end of period $ 5,205,448 $ 7,192,456
====================== ====================
Supplemental disclosure of cash flow information:
Cash paid for interest $ 725,680 $ 95,106
====================== ====================
</TABLE>
See accompanying notes to consolidated financial statements.
393140.4
S-6
<PAGE>
Notes to Condensed Financial Information
(1) Basis of Presentation
As of November 14, 1996, Moovies operates 210 video specialty superstores
located in Georgia, South Carolina, North Carolina, Tennessee, Virginia,
Pennsylvania, New Jersey, New York, Connecticut, Ohio, Iowa, Colorado,
Minnesota, Wisconsin, South Dakota and Nebraska. Moovies' superstores 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.
The interim financial information included herein is unaudited. The
financial information for the three month and nine month periods ended
September 30, 1995 reflects the operations of Tonight's Feature Limited
Partnership II ("Tonight's Feature" or the "Predecessor") which was
operated as a partnership for income tax purposes. Accordingly, income
taxes were paid by the Predecessor's general partners and the Predecessor
had no income tax liability. Moovies, Inc. (the "Company") was incorporated
in November 1994 for the purpose of entering into agreements to acquire
video specialty stores, consummating an initial public offering of stock
and operating video specialty stores. In August 1995, concurrently with the
completion of an initial public offering of Company stock, the Predecessor
was merged into Moovies, Inc. The financial information reflects the
results of Tonight's Feature for all periods presented and includes the
results of Moovies, Inc. from August 9, 1995. The financial information for
the three month and nine month periods ended September 29, 1996 reflects
the operations of the Company. Certain information and footnote disclosures
normally included in the financial statements have been condensed or
omitted pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC"), although the Company believes that the
disclosures made are adequate to make the information presented not
misleading. This financial information should be read in conjunction with
the consolidated financial statements and related notes contained in the
Company's Annual Report on Form 10-K which was previously filed with the
SEC. Other than as indicated herein, there have been no significant changes
from the financial data published in that report. In the opinion of
management, such unaudited information reflects all adjustments, consisting
only of normal recurring accruals and other adjustments as disclosed
herein, necessary for a fair presentation of the unaudited information. The
results of operations for interim periods are not necessarily indicative of
the results expected for the full year.
(2) Change in Amortization Method for Videocassette Rental Inventory
Effective January 1, 1996, the Company adopted an accelerated method of
amortizing its videocassette rental inventory. Under this new method,
videocassette rental inventory, which includes video games, is stated at
cost, including the related costs to prepare such videocassettes for rent,
and is amortized over its estimated economic life of 36 months, to its
salvage value ($6 per videocassette during 1996). All copies of new release
videocassettes are amortized on an accelerated basis during their first
four months to an average net book value of $15 and then on a straight-line
basis to their salvage value of $6 over the next 32 months.
The method for calculating amortization of videocassette rental inventory
in 1995 was as follows: videocassettes that were considered base stock
("catalog titles"), together with related costs to prepare them for rent,
are amortized over 36 months on a straight-line basis. New release
videocassettes are amortized as follows: the tenth and any succeeding
copies of each title per store are amortized over nine months on a
straight-line basis; 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 copies one through three of the titles per store are
amortized as base stock.
The new method of amortization was adopted because the Company believes
that (i) accelerating expense recognition for new release videocassettes
during the first four months more closely matches the typically higher
revenue generated following a title's release, (ii) $15 represents a
reasonable average carrying value for tapes to be rented or sold after four
months, and (iii) $6 represents a reasonable salvage value for all tapes
after 36 months.
The new method of amortization has been applied to videocassette rental
inventory that was held at January 1, 1996. The adoption of the new method
of amortization was accounted for as a change in accounting estimate
effected by a change in accounting principle, and accordingly, the Company
recorded $860,000, or $0.06 per share, as a pre-tax charge to operating
expenses in the first quarter.
393140.4
S-7
<PAGE>
(3) Public Offering.
On June 28, 1996 the Company completed a public offering of 2,800,000
shares of common stock. On July 3, 1996 the Company closed this offering of
2,800,000 and on July 30, 1996 the Company closed on 420,000 additional
shares issued in accordance with the over-allotment option granted to the
underwriters. The net proceeds to the Company from the sale of common stock
and the over-allotment, after deducting offering expenses, were
approximately $22.5 million.
The Company used $8.9 million of the proceeds to fund the Premiere
acquisition described below. Another $3.5 million of the proceeds was used
to repay the subordinated note payable to Sirrom Capital. In conjunction
with that repayment, the Company recorded an extraordinary item, net of
income taxes, of $64,290. The remaining proceeds were used to reduce the
outstanding amount on the Company's line of credit and for general
operating activities.
(4) Premiere Acquisition.
On July 3, 1996, the Company acquired certain assets and business of
American Multi-Entertainment, Inc. d/b/a Premiere Video ("Premiere Video")
in an asset purchase transaction for aggregate consideration of
approximately $11.5 million, consisting of $8.9 million in cash at closing
and a final payment of $2.6 million payable in January 1997 which has been
secured by a bank letter of credit. Premiere Video owned and operated 23
stores in Minnesota, Iowa, Wisconsin, South Dakota and Nebraska.
(5) Pro Forma Financial Data
The following pro forma supplemental information for Moovies, Inc. presents
operations as if Moovies, Inc. had completed (i) its initial public
offering of common stock, (ii) the acquisition of 129 video specialty
stores and related operations, (iii) its secondary public offering of
common stock, (iv) the acquisition of the Premiere Video chain of 23 stores
and (v) the adoption of an accelerated method of amortizing its
videocassette rental inventory as of the beginning of the periods
presented.
<TABLE>
<CAPTION>
Three months ended Nine months ended
---------------------------------- -------------------------------
Sept. 29, Sept. 30, Sept. 29, Sept. 30,
1996 1995 1996 1995
---------------- ---------------- --------------- --------------
(in thousands, except per share information
<S> <C> <C> <C> <C>
Proforma revenues $ 22,094 $ 19,432 $ 65,743 $ 58,147
Proforma operating costs and expenses $ 20,907 $ 17,255 $ 59,955 $ 52,290
Proforma net income $ 541 $ 1,235 $ 2,874 $ 3,299
Proforma net income per share $ 0.04 $ 0.10 $ 0.24 $ 0.27
Weighted average shares outstanding 12,078 12,160 $ 12,078 12,160
</TABLE>
393140.4
S-8
<PAGE>
UPDATE TO MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(November 14, 1996)
Results of Operations
NOTE: The discussion in this "Update to Management's Discussion and
Analysis of Financial Condition and Results of Operations" is as of November 14,
1996, except where otherwise indicated.
The Company's results of operations for the three and nine months ended
September 30, 1995 reflect only the operations of the Predecessor for the period
from January 1, 1995 to August 8, 1995 and include the results of the various
acquisitions from and after their respective acquisition date.
Revenues. Revenues for the three and nine months ended September 29, 1996
were $22,094,000 and $59,694,000, respectively, compared to revenues of
$7,028,000 and $9,526,000 for the same periods in 1995. The increased revenues
were a result of the additional stores acquired and opened by the Company
concurrently with and subsequent to the initial public offering in August 1995.
Product sales as a percentage of total revenues were 13.4% and 13.3% for the
three and nine months ended September 29, 1996, respectively, compared to 14.3%
and 12.9% for the same periods in 1995.
During the quarter same store revenues declined by approximately three
percent as the video industry experienced the effects of the Olympics. The
Company had anticipated post-Olympic recovery which did not materialize.
Additionally, seven stores in Georgia continued to experience significant
declines in same store revenues. Management believes that this trend of
decreases in same store sales will be reversed in the next quarter, based in
part on anticipated new releases and certain steps taken with a view to improve
operations of the Georgia stores.
Operating Costs and Expenses. Operating expenses were $16,242,000 and
$42,580,000 for the three and nine months ended September 29,1996 compared to
$4,243,000 and $6,016,000 for comparable prior year periods. Operating expenses
as a percentage of total revenues were 73.5% and 71.3% for 1996 compared to
60.4% and 63.2% for 1995. Excluding the $860,000 pre-tax charge to operating
expenses in the first quarter (see Note 2), operating expenses for the nine
months ended September 29, 1996 would have been $41,720,000 or 69.9% of total
revenues. This increase resulted from a combination of higher product costs
associated with purchasing tapes for higher expected revenue levels and higher
costs associated with the opening of new stores as the new store revenues are
not yet at mature levels. In addition, the new method of accounting for the
amortization of videocassette rental inventory, as described in Note 2 to the
consolidated financial statements, accelerates the amortization of videocassette
rental inventory.
Cost of product sales increased $892,000 to $1,791,000 and $3,867,000 to
$4,958,000 for the three and nine months ended September 29, 1996. This increase
is directly related to the increase in product sales. Cost of product sales as a
percentage of product sales were 60.3% and 62.5% for the three and nine months
ended September 29, 1996 compared to 89.5% and 88.5% for 1995. This decrease is
the result of closer management of product sales by certain acquired companies
and increasing the mix of higher margin items.
General and administrative expenses increased to $2,409,000 and $7,019,000
for the three and nine months ended September 29, 1996, respectively, from
$1,023,000 and $1,401,000 for the comparable prior year periods, reflecting the
acquisitions and additional store openings. General and administrative expenses
as a percentage of total revenues were 10.9% and 11.8% for 1996 compared to
14.6% and 14.7% for 1995. 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.
Interest Expense, Net. Interest expense increased to $296,000 and $997,000
for the three and nine months ended September 29, 1996 from $106,000 and
$185,000 for the comparable prior year periods. The increase is related
primarily to additional borrowings under the Company's line of credit agreements
and subordinated credit facility.
Income Tax Expense. The Company had income tax expense for the three and
nine months ended September 30, 1995 of $266,000. Income tax expense for the
three and nine months ended September 29, 1996 was approximately $353,000 and
$1,155,000, respectively, representing an effective income tax rate of
approximately 39.5%.
393140.4
S-9
<PAGE>
Liquidity and Capital Resources
The Company's primary long-term capital needs are for opening and acquiring
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.
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 anticipates that it
will operate with a working capital deficit during 1996.
In December 1995 and January 1996 the Company borrowed a total of $6.5
million under an existing revolving credit facility from a bank. The proceeds
were used to fund the cash portion of certain acquisitions. In addition, in
January 1996 the Company borrowed $2.0 million (the "Subordinated Credit
Facility"), which was subordinated to the Company's revolving credit facility.
The Company repaid its Subordinated Credit Facility with the proceeds of its
second offering.
In March 1996, the Company signed a revolving credit facility (the
"Facility") for up to $22.5 million to replace its existing credit facilities.
The interest rate of the Facility is variable based on LIBOR and the Company may
repay the Facility at any time without penalty. As of December 31, 1996, the
Company had outstanding borrowings under the Facility of $19.0 million. In
December 1996, the Company signed an amended credit agreement to increase the
Facility to $30.0 million. Pursuant to such amendment, the available amount of
the Facility will reduce quarterly beginning on September 30, 1997 with final
maturity of December 31, 1998.
On June 28, 1996 the Company completed a public offering of 2.8 million
shares of common stock and on July 3, 1996 received net proceeds of $19.4
million. On July 30, 1996 the underwriters exercised their over-allotment option
for 420,000 additional shares of common stock and the Company received
additional net proceeds of $3.1 million.
Concurrently with the closing of the public offering, the Company acquired
the Premiere Video chain in an asset purchase agreement. Pursuant to the
agreement, the Company paid $8.9 million in cash and the Company will make a
final payment of $2.6 million in January 1997. The Company's obligation to make
this payment has been secured by a letter of credit. In addition, the Company
repaid its $3.5 million subordinated Credit Facility and repaid $3.0 million of
its line of credit. The remaining proceeds were temporarily placed in short-term
investment securities and were used to finance new store openings and
acquisitions of other businesses that are consistent with the Company's growth
strategy. 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 June 30, 1997.
The Company has had preliminary discussions with numerous video rental
store owners at various times regarding the potential acquisition of their
stores. Management expects that some of these discussions will result in new
acquisitions, although the Company has no agreements or commitments to acquire
stores at this time. The Company is engaged in negotiations with the owners of a
total of 23 video retail stores and franchiser's rights in regard to a total of
45 video retail stores. In the event that the Company purchases this chain of
stores for cash, then the Company may require additional capital prior to June
30, 1997. The Company is considering additional financings which may be through
the issuance of debt or equity securities.
The Company's capital expenditures during 1997 will focus on opening new
stores and completing the implementation of a new MIS. The Company currently
intends to open approximately 18 additional superstores in the first quarter of
1997. 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's MIS is currently being used in approximately 200 video
specialty stores.
393140.4
S-10
<PAGE>
UPDATES TO "DESCRIPTION OF CAPITAL STOCK"
"Description of Capital Stock" section of the Original Prospectus is hereby
updated by appending the following to the end hereof:
Rights Agreement
On December 20, 1996 the Company's Board of Directors adopted the Rights
Agreement. Under the Rights Agreement, a dividend of one Right to purchase a
fraction of a share of a newly created class of preferred stock, called
Participating Preferred Stock, was declared for each share of Common Stock
outstanding at the close of business on December 31, 1996 (the "Record Time").
The Rights, which expire on December 31, 2006, may be exercised only if certain
conditions are met. Upon announcement that any person has acquired beneficial
ownership of 15% or more of the outstanding Common Stock (the "Flip-in
Trigger"), then:
(i) Rights owned by the person acquiring such stock (an "Acquiring Person")
or transferees thereof will automatically become void; and (ii) each other
Right will automatically become a right to buy, for the Exercise Price
described below, that number of shares of Common Stock or Participating
Preferred Stock having a market value of twice the Exercise Price.
Rights will separate from the Common Stock and become exercisable following
the earlier of ("Separation Time"): (i) the date of the Flip-in Trigger or (ii)
the tenth business day (or such later day as the Board of Directors may decide)
after any person commences a tender offer that would result in such person
acquiring beneficial ownership of 15% or more of the Common Stock. After the
Separation Time, each Right will entitle the holder to purchase, for an exercise
price of $30.00 ("Exercise Price"), a fraction of a share of Participating
Preferred Stock designed to have economic and voting terms similar to those of
one share of Common Stock. After an Acquiring Person has become such, the
Company may not consolidate or merge with, or sell 50% or more of its assets or
earning power to, any person (a "Flip-Over Transaction or Event") if at the time
of such merger or sale (or agreement to do any of the foregoing) the Acquiring
Person controls the Board of Directors and, in the case of a merger, will
receive different treatment than all other stockholders unless proper provision
is made so that each Right would thereafter become a right to buy, for the
Exercise Price, that number of shares of Common Stock of such other person
having a market value of twice the Exercise Price. If any person acquires
between 15% and 50% of the outstanding Common Stock, the Board of Directors may,
in lieu of allowing Rights to be exercised, exchange each outstanding Right for
one share of Common Stock or a fraction of a share of Participating Preferred
Stock designed to have economic and voting terms similar to those of one share
of Common Stock.
The Rights Agreement provides that, until the Separation Time (or earlier
redemption or expiration of the Rights), the Rights will be transferred with and
only with the Common Stock. Until the Separation Time (or earlier redemption or
expiration of the Rights), new Common Stock certificates issued after the Record
Time upon transfer or new issuance of Common Stock will contain a notation
incorporating the Rights Agreement by reference. Until the Separation Time (or
earlier redemption or expiration of the Rights), the surrender for transfer of
any certificates for Common Stock outstanding as of the Record Time, even
without such notation or a copy of a summary of rights being attached thereto,
will also constitute the transfer of the Rights associated with the Common Stock
represented by such certificate. As soon as practicable following the Separation
Time, separate certificates evidencing the Rights ("Rights Certificates") will
be mailed to holders of record of the Common Stock as of the close of business
on the Separation Time and such separate Rights Certificates alone will evidence
the Rights.
<PAGE>
The Rights will not be exercisable until the Business Day (as defined in
the Rights Agreement) following the Separation Time. The Rights will expire on
the earliest of (i) the Exchange Time (as defined below), (ii) the close of
business on December 31, 2006, (iii) the date on which the Rights are redeemed
as described below and (iv) upon the merger of the Registrant into another
corporation pursuant to an agreement entered into when there is no Acquiring
Person (in any such case, the "Expiration Time").
The Exercise Price payable, and the number of preferred shares or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution in the event of (i) a stock
dividend on, or a subdivision, combination or reclassification of, the Common
Stock, or (ii) a distribution of securities or assets in respect of, in lieu of
or in exchange for Common Stock (excluding regular periodic cash dividends or
dividends payable in Common Stock).
393140.4
S-11
<PAGE>
Preferred shares purchasable upon exercise of the Rights will not be
redeemable without the consent of the holders of such shares. Each preferred
share will be entitled to an aggregate dividend of 100 times the dividend
declared per Common Share (other than dividends or distributions paid in Common
Shares). In the event of liquidation, the holders of the Preferred Shares will
be entitled to be paid an amount per share equal to the aggregate amount
distributable upon such event to a holder of 100 shares of Common Stock (each as
adjusted for any stock dividend, stock split or combination into a smaller
number of shares). Each preferred share shall have 100 votes (as adjusted for
any stock dividend, stock split or combination into a smaller number of shares)
and shall vote as a class with the Common Stock voting on such matter. Finally,
in the event of any merger, consolidation or other transaction in which Common
Stock is exchanged, each preferred share will be entitled to receive 100 times
the amount received per share of Common Stock. Because of the nature of the
preferred shares, div- idend, liquidation and voting rights, the value of the
one one-hundredth interest in a preferred share purchasable upon exercise of
each Right should approximate the value of one share of Common Stock.
At any time after any person or group becomes an Acquiring Person and prior
to the acquisition by such person or group of 50% or more of the outstanding
Common Stock, the Board of Directors of the Company may exchange all (but not
less than all) of the then outstanding Rights (other than Rights owned by such
person or group which will have become void) at an exchange ratio of one share
of Common Stock, or one one-hundredth of a preferred share, per Right,
appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date of the Separation Time (the "Exchange
Ratio"). Immediately upon such action by the Board of Directors (the "Exchange
Time"), the right to exercise the Rights will terminate and each Right will
thereafter represent only the right to receive a number of shares of Common
Stock or one one-hundredths of a preferred share equal to the Exchange Ratio.
The Board of Directors may amend the Rights Agreement in any respect until
a "Flip-in Trigger" has occurred. Thereafter, the Board of Directors may amend
the Rights Agreement in any respect not materially adverse to Rights holders
generally. The Rights may be redeemed by the Board of Directors, at any time,
until a "Flip-in Trigger" has occurred, at a Redemption Price of $.001 per
Right.
While the purpose of the Rights and Rights Agreement is to provide the
Board of Directors a means to defend against abusive or certain drisciminatory
takeover techniques not in the best interests of the Company's stockholders, one
of the effects of the Rights Agreement may be to enable the Board of Directors
to render more difficult or to discourage an attempt to obtain control of the
Company by means of a tender offer, proxy contest, merger or otherwise, and
thereby to protect the continuity of the Company's management. The issuance of
the Rights and the authority granted to the Board of Directors under the Rights
Agreement may adversely affect the rights of the holders of Common Stock. The
Rights, if exercised, would cause substantial dilution to a person or group of
persons that attempts to acquire the Company without the prior approval of the
Board of Directors. Accordingly, the issuance of the Rights may have the effect
of delaying or preventing a change in control of the Company, discourage bids
for the Common Stock or may otherwise adversely affect the market price of the
Common Stock. See "Risk Factors - Anti-Takeover Provisions."
393140.4
S-12
