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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[ X ]Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for fiscal year ended March 31, 2001 or
[ ]Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 0-15159
RENTRAK CORPORATION
(exact name of registrant as specified in its charter)
Oregon 93-0780536
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification Number)
7700 NE Ambassador Place, Portland, Oregon 97220
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (503) 284-7581
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) 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 for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ ------
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 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 [ ]
As of June 20, 2001, the aggregate market value of the registrant's common stock
held by non-affiliates of the registrant, based on the last sales price as
reported by NASDAQ, was $37,967,894.
As of June 20, 2001, the Registrant had 12,292,605 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
PORTIONS OF THE DEFINITIVE PROXY STATEMENT FOR THE 2001 ANNUAL MEETING OF THE
SHAREHOLDERS ARE INCORPORATED BY REFERENCE INTO PART III OF THIS FORM 10-K
TABLE OF CONTENTS
Item PART I Page
- ---- ----
1. Business 3
2. Properties 9
3. Legal Proceedings 9
4. Submission of Matters to a Vote of Security Holders 11
PART II
5. Market for Registrant's Common Equity and Related 11
Stockholder Matters
6. Selected Financial Data 13
7. Management's Discussion and Analysis of Financial 14
Condition and Results of Operations
7A. Quantitative and Qualitative Disclosures About Market 23
Risk
8. Financial Statements and Supplementary Data 24
9. Changes in and Disagreements with Accountants on 52
Accounting and Financial Disclosure
PART III
10. Directors and Executive Officers of the Registrant 52
11. Executive Compensation 52
12. Security Ownership of Certain Beneficial Owners 52
and Management
13. Certain Relationships and Related Transactions 52
PART IV
14. Exhibits, Financial Statement Schedules and Reports on 53
Form 8-K
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PART I
ITEM 1. BUSINESS
GENERAL
The Company's primary business is the collection and processing of
rental and sales information regarding videocassettes leased to home video
specialty stores and other retailers by way of its Pay Per Transaction
system (the "PPT System"). Under the Company's PPT System, home video
specialty stores and other retailers that rent videocassettes to consumers
("Retailers"), including grocery stores and convenience stores, lease
videocassettes and other media ("Cassettes") from Rentrak for a low
up-front fee and share a portion of each retail rental transaction with
the Company. The Company's PPT System generated 71 percent, 82 percent and
86 percent of total revenues in fiscal years 2001, 2000 and 1999,
respectively.
The Company engages in additional lines of business through the
following subsidiaries:
3PF.COM, Inc. (formerly ComAlliance), provides order processing,
inventory management, and fulfillment services to Internet retailers
and wholesalers and to other businesses requiring just-in-time
fulfillment. 3PF.COM, Inc.'s Web-site can be accessed at
www.3PF.COM.
BlowOut Video, Inc., sells videocassettes and digital videodiscs
through its Web-site www.blowoutvideo.com, and through seven retail
outlets.
PAY-PER-TRANSACTION SYSTEM
The Company distributes Cassettes principally to home video
specialty stores through its PPT System. The PPT System enables Retailers
to obtain Cassettes at a significantly lower initial cost than if they
purchased the Cassettes from traditional video distributors.
Under the PPT System, after the Retailer is approved for
participation in the PPT System, Cassettes are leased to the Retailer for
a low initial fee (the "Order Processing Fee") plus a percentage of
revenues generated by the Retailer from rentals to consumers (the
"Transaction Fee"). The Company retains a portion of each Order Processing
Fee and Transaction Fee and remits the remainder to the appropriate motion
picture studios or other licensees or owners of the rights to certain
video programming ("Program Suppliers") that hold the distribution rights
to the Cassettes. Due to the lower cost of "bringing Cassettes in the
door", Retailers generally obtain a higher number of Cassettes under the
PPT System than the traditional distribution method. The expected benefit
to the Retailer is a higher volume of rental transactions, as well as a
reduction in capital cost and risk. The expected benefit to the Program
Supplier is an increase in the total number of Cassettes shipped,
resulting in increased revenues and opportunity for profit. The expected
benefit to the consumer is the potential of finding more copies of certain
newly released hit titles and a greater selection of other titles at
Retailers participating
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in the PPT System ("Participating Retailers").
The Company markets its PPT System throughout the United States,
Canada and the United Kingdom. Following the sale of a 5.6 percent
interest in Rentrak Japan Co. Ltd. ("Rentrak Japan"),in April, 2001, the
Company also owns a 3.4 percent interest in Rentrak Japan
a Japanese corporation which markets a similar service to video retailers
in Japan. Rentrak has the right, and upon the occurrence of certain
conditions will be required, to sell its remaining 3.4 percent interest in
Rentrak Japan for a minimum of approximately $2.4 million.
In February 1998, the Company entered into a Shareholders Agreement
and a PPT License Agreement with Columbus Holdings Limited and Rentrak UK
Limited to develop the Company's PPT distribution and information
processing business in the United Kingdom through Rentrak UK. The Company
presently owns a 92 percent equity interest in Rentrak UK. As of March 31,
2000, Rentrak UK was not generating income or positive cash flow and the
Company's investment of $222,000 was written off. As of March 31, 2001,
Rentrak UK continued to generate no income or cash flow. Management of the
Company has made changes to decrease the cost of operations, including
space and staffing costs, and it is continuing to closely evaluate the
financial performance of operations. Management is considering various
alternatives including selling or closing down Rentrak UK's operations.
The Company currently offers substantially all of the titles of a
number of Program Suppliers, including Buena Vista Pictures Distribution,
Inc., a subsidiary of The Walt Disney Company, Paramount Home Video, Inc.,
Universal Studios Home Video Inc., and Twentieth Century Fox Home
Entertainment (formerly Fox Video), a subsidiary of Twentieth Century Fox
Film Corporation. The Company's arrangements with Program Suppliers are of
varying duration, scope and formality. In some cases, the Company has
obtained Cassettes pursuant to contracts or arrangements with Program
Suppliers on a title-by-title basis and in other cases the contracts or
arrangements provide that all titles released for distribution by such
Program Supplier will be provided to the Company for the PPT System. Many
of the Company's agreements with Program Suppliers, including all major
Program Suppliers, may be terminated upon relatively short notice.
Therefore, there can be no assurance that any of the Program Suppliers
will continue to distribute Cassettes through the PPT System, continue to
have available for distribution titles which the Company can distribute on
a profitable basis, or continue to remain in business. Even if titles are
otherwise available from Program Suppliers to the Company, there can be no
assurance that they will be made available on terms acceptable to the
Company. During the last three years, the Company has not experienced any
material difficulty acquiring suitable Cassettes for the Company's markets
on acceptable terms and conditions from Program Suppliers that have agreed
to provide the same to the Company. The Company has one Program Supplier
that supplied product that generated 18 percent, a second that generated
15 percent, and a third that generated 13 percent of Rentrak revenues for
the year ended March 31, 2001. There were no other Program Suppliers who
provided product that generated more than 10 percent of revenues for the
year ended March 31, 2001.
The Company currently receives a significant amount of product from
three Program Suppliers. Although management does not believe that these
relationships
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will be terminated in the near term, a loss of any of these suppliers
could have an adverse effect on the Company's operating results.
Certain Program Suppliers have requested, and the Company has provided,
financial or performance commitments from the Company, including advances,
warrants, or guarantees, as a condition of obtaining certain titles. The
Company determines whether to provide such commitments on a case-by-case
basis, depending upon the Program Supplier's success with such titles
prior to home video distribution and the Company's assessment of expected
success in home rental distribution. The Company intends to continue this
practice of providing such commitments and there can be no assurance that
this practice will not in the future result in losses which may be
material.
Distribution of Cassettes
The Company's proprietary Rentrak Profit Maker Software (the "RPM
Software") allows Participating Retailers to order Cassettes through their
Point of Sale ("POS") system software and provides the Participating
Retailers with substantial information regarding all offered titles.
Ordering occurs via a networked computer interface. To further assist the
Participating Retailers in ordering, the Company also produces a monthly
product catalogue called "Ontrak."
To be competitive, Retailers must be able to rent their Cassettes on
the "street date" announced by the Program Supplier for the title. Rentrak
has contracted with its subsidiary 3PF.COM to distribute Rentrak's
Cassettes via overnight air courier to assure delivery to Participating
Retailers on the street date. The freight costs of such distribution
comprise a portion of the Company's cost of sales.
Computer Operations
To participate in the Company's PPT System, Retailers must install
Rentrak approved computer software and hardware to process all of their
rental and sale transactions. Participating Retailers are required to use
one of the POS software vendors approved by the Company as conforming to
the Company's specifications. The Company's RPM Software resides on the
Retailer's POS computer system and transmits a record of PPT transactions
to the Company over a telecommunications network. The RPM Software also
assists the Retailer in ordering newly released titles and in managing the
inventory of Cassettes.
The Company's information system processes these transactions and
prepares reports for Program Suppliers and Participating Retailers. In
addition, it determines variations from statistical norms for potential
audit action. The Company's information system also transmits information
on new titles and confirms orders made to the RPM Software at the Retailer
location.
Retailer Auditing
From time to time, the Company audits Participating Retailers in
order to verify that they are reporting all rentals and sales of Cassettes
on a consistent,
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accurate and timely basis. Several different types of exception reports
are produced weekly. These reports are designed to identify any
Participating Retailers that vary from the Company's statistical norms.
Depending upon the results of the Company's analysis of the reports, the
Company may conduct an in-store audit. Audits may be performed with or
without notice and any refusal to allow such an audit can be cause for
immediate termination from the PPT System. If audit violations are found,
the Participating Retailer is subject to fines, audit fees, immediate
removal from the PPT System and/or repossession of all leased Cassettes.
Seasonality
The Company believes that the home video industry is seasonal
because Program Suppliers tend to introduce hit titles at two periods of
the year, early summer and Christmas. Since the release to home video
usually follows the theatrical release by approximately six months
(although significant variations occur on certain titles), the seasonal
peaks for home video also generally occur in early summer and at
Christmas. The Company believes its volume of rental transactions
reflects, in part, this seasonal pattern, although the growth of Program
Suppliers, titles available to the Company, and Participating Retailers
may tend to obscure any seasonal effect. The Company believes such
seasonal variations may be reflected in future quarterly patterns of its
revenues and earnings.
Retailer Financing Program
In 1992, at a time when the video industry was experiencing rapid
growth, the Company established a Retailer Financing Program whereby, on a
selective basis, it provided financing to Participating Retailers that the
Company believed had potential for substantial growth in the industry. In
connection with these financings, the Company typically made a loan and/or
an equity investment in the Participating Retailer. In some cases, the
Company obtained a warrant to purchase stock in the Participating
Retailer. As part of such financing, the Participating Retailer typically
agreed to cause all of its current and future retail locations to
participate in the PPT System for a designated period of time (usually 5 -
20 years). Under these agreements, Participating Retailers were typically
required to obtain all of their requirements of Cassettes offered under
the PPT System or obtain a minimum amount of Cassettes based on a
percentage of the Participating Retailer's revenues. Notwithstanding the
long term nature of such agreements, both the Company and the
Participating Retailer retained the right, in certain circumstances, to
terminate such agreement upon 30-90 days' prior written notice.
During the three month period ended September 30, 2000, the Company
announced the discontinuance of new financings under the Retailer
Financing Program. Write-offs of assets associated with this program
during fiscal 2001 were $6.1 million, including $4.4 million due to the
Company from Video Update, Inc. The Company continues to seek to enforce
agreements entered into in connection with this program in accordance with
their terms to the extent practicable.
-6-
Competition
The Cassette distribution business is a highly competitive industry
that is rapidly changing. The traditional, and still dominant, method of
distributing Cassettes to Retailers is through purchase transactions;
i.e., a Retailer purchases Cassettes from a distributor and then offers
the Cassettes for rental or sale to the general public. As described in
greater detail above (see "Pay-Per-Transaction System"), the Company's PPT
System offers Retailers an alternative method of obtaining Cassettes.
Accordingly, the Company faces intense competition from all of the
traditional distributors, including Ingram Entertainment, Inc., VPD, Baker
and Taylor, Inc., and Video One Canada, Ltd. These and other traditional
distributors have extensive distribution networks, long-standing
relationships with Program Suppliers and Retailers, and, in some cases,
significantly greater financial resources than the Company.
In the last two years certain traditional distributors have taken
steps to offer Cassettes to Retailers on a revenue sharing basis. For
example, several traditional distributors have executed licensing
agreements with Supercomm, Inc. ("Supercomm"), a wholly-owned subsidiary
of The Walt Disney Company, to market product on revenue sharing terms.
Several traditional distributors have also executed revenue sharing
agreements with motion picture studios ("Studios"). Several traditional
distributors have also entered into licensing agreements with the Company
to distribute Cassettes to Retailers using the PPT System.
The Company also competes with Supercomm on two levels: (1)
domestically - for processing data for certain Studios' direct
relationships with Blockbuster Video and other Retailers; and (2)
internationally in certain markets. Supercomm also processes data for
traditional distributors such as Ingram who then compete with the Company
for revenue sharing Cassettes as well as traditional Cassettes.
The Company also faces direct competition from the Studios.
Beginning in 1997, several major Studios offered Retailers discounted
pricing if such Retailers substantially increased the quantity of
Cassettes purchased. Also, some major Studios have offered Cassettes to
Retailers on a lease basis. In addition, all major Studios sell Cassettes
directly to major Retailers including Blockbuster, the world's largest
chain of home video specialty stores. The Company believes all of the
major Studios have executed direct revenue sharing agreements with
Blockbuster and Hollywood Entertainment, the world's second largest chain
of home video specialty stores. The Company also believes that certain
Studios have executed direct revenue sharing agreements with several other
large Retailers. The Company does not believe that the Studios have
executed direct revenue sharing agreements with other smaller Retailers,
but there can be no assurance that they will not do so in the future.
The Studios also compete with the Company by releasing certain
Cassette titles on a "sell-
-7-
through" basis; i.e., they bypass the traditional rental period by selling
the Cassettes directly to consumers at a price of approximately $9.95 to
$19.95. To date, such "sell-through" distribution has generally been
limited to certain newly released hit titles with wide general family
appeal. However, because the Company's PPT business is partially dependent
upon the existence of a rental period, a shift toward such "sell-through"
distribution, particularly with respect to popular titles, could have a
material adverse effect on the Company's business.
The Company also competes with businesses that use alternative
distribution methods to provide video entertainment directly to consumers,
such as the following: (1) direct broadcast satellite transmission
systems; (2) traditional cable television systems; (3) pay-per-view cable
television systems; and (4) delivery of programming via the Internet. Each
of these distribution methods employs digital compression techniques to
increase the number of channels available to consumers and, therefore, the
number of movies that may be transmitted. Technological improvements in
this distribution method, particularly "video-on-demand," may make this
option more attractive to consumers and thereby materially diminish the
demand for Cassette rentals. Such a consequence could have a material
adverse effect on the Company's business.
Foreign Operations
On December 20, 1989, the Company entered into an agreement with
Culture Convenience Club, Co., Ltd. ("CCC"), a Japanese corporation, which
is Japan's largest video specialty retailer. Pursuant to the agreement,
the parties formed Rentrak Japan, a Japanese corporation, which is
presently owned 3.4 percent by the Company and 90 percent by CCC's largest
shareholder, Tsutaya Shoten Co., Ltd. Rentrak Japan was formed to
implement the PPT System in Japan. The Company provided its PPT technology
and the use of certain trademarks and service marks to Rentrak Japan, and
CCC provided management personnel, operating capital, and adaptation of
the PPT technology to meet Japanese requirements. On August 6, 1992, the
Company entered into an expanded definitive agreement with CCC to develop
the PPT System in certain markets throughout the world.
Beginning in 1994, the Company became entitled to a royalty of 1.67%
for all sales of up to $47,905,000 plus one-half of one percent of sales
greater than $47,905,000 in each royalty year (June 1 - May 31). The
Company received royalty payments of $1,000,000 in fiscal year 1995 and
$1,000,000 in fiscal year 1999. In December 1999, the Company received a
prepayment of $2,500,000 in exchange for $4,000,000 of credit related to
the annual royalty, which was recognized in revenues as royalties were
earned under the terms of the contract. As of March 31, 2001,
approximately $746,000 had been recorded as deferred revenue on the
accompanying consolidated balance sheet to be recognized in future
periods.
Effective April 2, 2001 the Company and Rentrak Japan entered into a
restructuring agreement of their relationship. The Company transferred
exclusive rights to implement its PPT System within specified countries in
the Far East, including related trademark and other intellectual property
rights, to Rentrak Japan. In exchange for the transfer, Rentrak Japan made
a lump sum payment of $5.65 million to the Company and released certain of
the Company's payment obligations totaling $2.1 million. As part of the
transaction, Rentrak Japan's obligation to pay annual royalties to the
Company in connection with use of its PPT System was terminated.
-8-
Trademarks, Copyrights, and Proprietary Rights
The Company has registered its "RENTRAK", "PPT", "Pay Per
Transaction", "Ontrak", "BudgetMaker", "DataTrak", "Prize Find" , "Blowout
Video", "Fastrak", "GameTrak", "RPM", "Videolink+", "Unless You're Rich
Enough Already", "Sportrak", "Movies For The Hungry Mind", "VidAlert",
"Active Home Video", "Movie Wizard", and "Gotta Have It Guarantee" marks
under federal trademark laws. The Company has applied and obtained
registered status in several foreign countries for many of its trademarks.
The Company claims a copyright in its RPM Software and considers it to be
proprietary.
Employees
As of March 31, 2001, including all subsidiaries, the Company
employed 408 active employees. The Company considers its relations with
its employees to be good.
Financial Information About Industry Segments
See Note 12 of the Notes to the Consolidated Financial Statements
for information regarding the Company's business segments.
ITEM 2. PROPERTIES
The Company currently maintains its headquarter offices in Portland,
Oregon where it leases 48,807 square feet of office space. The lease began
on January 1, 1997 and expires on December 31, 2006. The Company's
subsidiary, 3PF.COM, Inc., maintains two distribution facilities in
Wilmington, Ohio and one in Columbus, Ohio where it leases 102,400,
121,600 and 388,264 square feet, respectively. These distribution
facilities also include administrative office space. These three
distribution facility leases expire on June 30, 2002, December 31, 2010
and February 28, 2008, respectively. Management believes its office space
and distribution facility space is adequate and suitable for its current
operations. Management does not anticipate a problem in obtaining
additional suitable space to meet its needs as necessary.
ITEM 3. LEGAL PROCEEDINGS
In June 1998, Video Update, Inc. ("Video Update") filed a complaint
(the "Video Update Complaint") against the Company entitled Video Update,
Inc. v. Rentrak Corp., Civil Action No. 98-286, in the United States
District Court for the District of Delaware. The Video Update Complaint
alleges various violations of the antitrust laws, including that the
Company has monopolized or attempted to monopolize a market for
videocassettes leased to retain video stores in violation of Section 2 of
the Sherman Act. Video Update further alleges that the Company's
negotiation and execution of an exclusive, long-term revenue sharing
agreement with Video Update violates Section 1 of the Sherman Act and
Section 3 of the Clayton Act. Video Update is seeking unspecified monetary
relief, including treble damages and attorney fees, and equitable relief,
including an injunction prohibiting the Company from enforcing its
agreement with Video
-9-
Update or any exclusivity provision against videocassette suppliers and
video retailers. In August 1998, the Court granted the Company's motion to
dismiss the Video Update Complaint pursuant to Federal Rules of Civil
Procedure Rule 12(b)(3) on the basis of improper venue.
In August 1998, Video Update filed a new complaint against the
Company in the United States District Court for the District of Oregon
(the "Re-Filed Complaint"), Case No. 98-1013HA. The Re-Filed Complaint is
substantially the same as the previous complaint. The Company believes the
Re-Filed Complaint lacks merit and intends to vigorously defend against
the allegations in the Complaint. The Company has answered the Re-Filed
Complaint denying its material allegations and asserting several
affirmative defenses. The Company also has counterclaimed against Video
Update alleging, among other things, breach of contract, breach of the
covenant of good faith and fair dealing, promissory fraud, breach of
fiduciary duty, breach of trust, constructive fraud, negligent
misrepresentation and intentional interference with business advantage,
and is seeking damages and equitable relief.
In October 1998, the Company filed a motion for summary judgment
seeking to dismiss the lawsuit filed against it by Video Update. In
January 1999, the Company filed a separate motion for partial summary
judgment on its breach of contract counterclaim seeking to recover more
than $4.4 million in fees and interest which the Company claims Video
Update owes to it. The court denied Rentrak's motions without reaching the
merits and without prejudice to refiling the motions after discovery had
been conducted. On October 21, 1999, the Company amended its counterclaims
to add additional claims, including a claim for trade secret
misappropriation and a claim for recovery of personal property. The
amended countercomplaint also added Video Update's chairman, Daniel
Potter, as a defendant to the fraud and negligent misrepresentation
claims. Mr. Potter filed a motion to dismiss the Company's claims against
him which motion was granted by the Court on April 13, 2000. Video Update
also moved to dismiss six of the Company's claims. On April 13, 2000, the
Court granted Video Update's motion in part and dismissed the following
claims: promissory fraud, breach of fiduciary duty, breach of trust,
constructive fraud, and negligent misrepresentation. On July 31, 2000, the
Company filed multiple motions for summary judgment including a motion
seeking to dismiss Video Update's antitrust claim and a motion seeking a
finding that Video Update breached its contract with Rentrak. On September
18, 2000, Video Update filed a voluntary petition under Chapter 11 of the
federal Bankruptcy Code. In light of the bankruptcy case, the District
Court dismissed the Re-Filed Complaint and counterclaims on its own motion
in January 2001, but that action could be reinitiated by Video Update at
any time. The Company has filed a proof of claim in the bankruptcy case
asserting the claims the Company asserted in its counterclaim in the
District Court action.
On November 15, 2000, 3PF.COM, Inc., a subsidiary of the Company,
filed a proceeding with the American Arbitration Association against
Reel.com, Inc., a subsidiary of Hollywood Entertainment Corporation
("Hollywood"), for breach of a servicing, warehousing, and distribution
agreement, and against Hollywood in connection with its guarantee of the
obligations of Reel.com, Inc., under the agreement. 3PF.COM, Inc., is
seeking damages in the amount of $4,776,237 plus an amount to be
determined as consequential damages, together with prejudgment interest
and attorney fees. Hollywood and Reel.com, Inc., have filed a counterclaim
for attorney fees.
-10-
On February 20, 2001, the Company filed a complaint against Ron
Berger, Chairman and Chief Executive Officer and a director of Rentrak
until September 2000, in the Circuit Court of the State of Oregon for the
County of Multnomah (No. 0102-01814), seeking cancellation of shares of
Rentrak common stock acquired by Mr. Berger through an option loan program
offered to the Company's officers in June 2000 and damages for the
conversion of an automobile and computer equipment plus an over-advance
payment of business expenses less setoffs. On or about March 29, 2001, Mr.
Berger filed a counterclaim seeking damages of approximately $1.76 million
plus attorney fees from Rentrak for conversion of Mr. Berger's director's
fees and dividends from Rentrak Japan, breach of an agreement to
compensate Mr. Berger for cancellation of options to purchase Rentrak
stock, failure to pay accumulated wages and compensation, breach of an
agreement to provide options to purchase stock in Rentrak's subsidiary
3PF.COM, Inc., and failure to reimburse Mr. Berger for life insurance
premiums and cancellation of family health insurance. The claim for breach
of an agreement to provide options to purchase stock in the subsidiary is
also asserted against counterclaim defendant 3PF.COM, Inc. The Company has
denied liability for the counterclaims. On June 15, 2001, the Company
filed an amended complaint alleging claims for breach of duty of care and
breach of fiduciary duty against Mr. Berger arising out of his activities
as an officer and director of the Company involving Video City, Inc., and
seeking damages with respect to those claims in an amount to be proved at
trial but not less than $6.0 million. The case is presently in the
discovery phase. The Company intends to contest the case vigorously.
The Company is also subject to legal proceedings and claims that
arise in the ordinary course of its business. In the opinion of
management, the amount of any ultimate liability with respect to these
actions is not expected to materially affect the financial position or
results of operations of the Company as a whole.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders of the Company
through the solicitation of proxies or otherwise during the fourth quarter
of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock, $.001 par value, is traded on the Nasdaq
National Market, where its prices are quoted under the symbol "RENT". As
of May 31, 2001 there were approximately 315 holders of record of the
Company's common stock. On May 31, 2001, the closing sales price of the
Company's common stock as quoted on the Nasdaq National Market was $3.50.
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The following table sets forth the reported high and low sales
prices of the Company's common stock for the periods indicated as
regularly quoted on the Nasdaq National Market.
QUARTER ENDED HIGH LOW
JUNE 30, 1999 $5.25 $2.66
SEPTEMBER 30, 1999 $6.00 $3.50
DECEMBER 31, 1999 $7.41 $3.25
MARCH 31, 2000 $7.25 $5.13
JUNE 30, 2000 $5.88 $3.13
SEPTEMBER 30, 2000 $4.16 $3.00
DECEMBER 31, 2000 $3.69 $1.50
MARCH 31, 2001 $4.09 $2.03
DIVIDENDS
Holders of the Company's common stock are entitled to receive
dividends if, as, and when declared by the Board of Directors out of funds
legally available therefor, subject to the dividend and liquidation rights
of any preferred stock that may be issued and subject to the dividend
restrictions in the Company's bank credit agreement described in Note 5 of
the Notes to the Consolidated Financial Statements.
No cash dividends have been paid or declared during the last five
fiscal years. The present policy of the Board of Directors is to retain
earnings to provide funds for operation and expansion of the Company's
business. The Company's bank credit agreement limits the payment of
dividends on the Company's stock. The Company does not intend to pay cash
dividends in the foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------(In Thousands Except Per Share Amounts)
Year Ended March 31,
2001 2000 1999 1998 1997
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Consolidated Statements of Operations Data
Net revenues:
Application fees $ 20 $ 311 $ 371 $ 383 $ 354
Order processing fees 18,563 23,086 22,420 25,313 22,720
Transaction fees 57,127 62,440 72,835 78,671 70,467
Sell-through fees 6,578 7,811 11,347 9,383 11,101
Other 34,111 19,736 16,814 9,001 11,634
Total net revenues 116,399 113,384 123,787 122,751 116,276
Cost of sales 93,600 91,706 103,943 100,974 90,882
Gross profit 22,799 21,678 19,844 21,777 25,394
Selling and administrative expense 32,967 26,449 15,996 14,572 16,160
Net (gain) loss on litigation settlement (225) (7,792) 1,099 - -
Other income (expense) (2,149) (1,519) 597 652 999
Income (loss) from continuing operations before
discontinued operations and benefit(provision)
for income taxes (12,092) 1,502 3,347 7,857 10,233
Income tax benefit (provision) 4,515 (451) (1,304) (3,199) (3,950)
Income (loss) from continuing operations before
discontinued operations (7,577) 1,051 2,043 4,658 6,283
Discontinued Operations: (1)
Gain on disposal of subsidiaries - 2,374 - - -
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Net income (loss) ($7,577) $3,425 $2,043 $4,658 $6,283
======================================================================
Diluted earnings (loss) per common share
Continuing operations $(0.63) $0.10 $0.18 $0.41 $0.52
Discontinued operations $ - $0.22 $ - $ - $ -
Earnings (loss) per common share $(0.63) $0.32 $0.18 $0.41 $0.52
----------------------------------------------------------------------
Common shares and common share equivalents
used to compute diluted EPS 11,985 10,759 11,066 11,445 12,159
----------------------------------------------------------------------
At March 31,
2001 2000 1999 1998 1997
----------------------------------------------------------------------
Balance Sheet Data
Working Capital $ 3,643 $9,871 $4,586 $1,062 $1,488
Total Assets 39,126 50,473 49,457 51,609 43,048
Long-term Liabilities 1,175 1,677 - - -
Stockholders' Equity 11,387 18,081 14,292 13,254 11,272
(1) See Note 13 of the Notes to Consolidated Financial
Statements.
-13-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
Certain information included in the Annual Report on Form 10-K (including
Management's Discussion and Analysis of Financial Condition and Results of
Operations regarding revenue growth, gross profit margin and liquidity)
constitute forward-looking statements that involve a number of risks and
uncertainties. Forward looking statements may be identified by the use of
forward-looking words such as "may", "will", "expects", "intends",
"anticipates", "estimates", or "continues" or the negative thereof or
variations thereon or comparable terminology. The following factors are
among the factors that could cause actual results to differ materially
from the forward-looking statements: the Company's ability to continue to
market the PPT System successfully, the financial stability of the
Participating Retailers and their performance of their obligations under
the PPT System, non-renewal of the Company's line of credit, business
conditions and growth in the video industry and general economic
conditions, both domestic and international; competitive factors,
including increased competition, expansion of revenue sharing programs
other than the PPT System by Program Suppliers, new technology, and the
continued availability of Cassettes from Program Suppliers. This Annual
Report on Form 10-K further describes some of these factors.
RENTRAK CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Years Ended March 31, 2001, 2000 and 1999
2001 2000 1999
-----------------------------------------
REVENUES
$116,399,048 $113,384,220 $123,787,390
OPERATING COSTS AND EXPENSES
Cost of sales 93,600,177 91,706,290 103,942,898
Selling, general, and administrative 32,967,141 26,448,569 15,995,941
Net (gain) expense on litigation (225,000) (7,791,880) 1,099,154
settlement
-----------------------------------------
110,362,979 121,037,993 26,342,318
-----------------------------------------
INCOME (LOSS) FROM OPERATIONS (9,943,270) 3,021,241 2,749,397
Other income (expense) (2,148,673) (1,519,378) 597,108
-----------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAX PROVISION AND GAIN
FROM DISPOSAL OF DISCONTINUED
OPERATIONS 1,501,863 3,346,505 (12,091,943)
Income tax benefit (provision) 4,514,575 (450,559) (1,303,999)
-----------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS (7,577,368) 1,051,304 2,042,506
Gain from disposal of discontinued
operations including income tax benefit of $483,502 - 2,373,502 -
-----------------------------------------
NET INCOME (LOSS) $(7,577,368) $3,424,806 $2,042,506
=========================================
-14-
Fiscal 2001 Compared to Fiscal 2000
Continuing Operations - Domestic PPT Operations and Other
Continuing Subsidiaries
For the year ended March 31, 2001, the Company's total consolidated
revenue increased $3.0 million to $116.4 million from $113.4 million in
the prior year. Total consolidated revenue includes the following PPT
System fees: application fees generated when Retailers are approved for
participation in the PPT System; order processing fees generated when
Cassettes are ordered by and distributed to Retailers; transaction fees
generated when Retailers rent Cassettes to consumers; sell-through fees
generated when Retailers sell Cassettes to consumers; and buy out fees
when Retailers purchase Cassettes at the end of the lease term. In
addition, total revenue includes charges to customers of the Company's
subsidiary 3PF.COM, Inc., which provides e-commerce order processing,
fulfillment and inventory management services, sales of Cassettes through
the Company's retail subsidiary BlowOut Video, Inc., charges for internet
services provided by the Company's subsidiary formovies.Com, Inc. and
royalty payments from Rentrak Japan.
The increase in total consolidated revenue was primarily due to a
decline in (i) the number of total titles released to the PPT System, as
well as the number of theatrical titles released and the box office
performance of those titles; and (ii) increased revenue from services
provided by 3PF.COM, Inc. In addition, PPT revenue was also affected by a
reduction in the total number of Cassettes leased under the PPT System,
due in part to Studios offering more titles under various "copy depth"
programs, intended to increase the number of Cassettes in distribution by
lowering the cost of rental videocassettes to Retailers, than they have in
the past and to the willingness of program suppliers to engage in direct
revenue sharing arrangements with the largest retailer chains.
In fiscal 2001, PPT revenues were $ 83.6 million, a decrease of
$10.9 million, or 12 percent, from $94.5 million in fiscal 2000.
Application-fee revenue was $20,000 compared to $300,000 in the prior
year, as the Company discontinued its practice of charging new retailers a
fee at the time of application to use the PPT System. During the year,
order processing-fee revenue decreased to $18.6 million from $23.1 million
in fiscal 2000, a decrease of $4.5 million, or 19 percent. Transaction-fee
revenue totaled $57.1 million, a decrease of $5.3 million, or 8 percent,
from $62.4 million the previous year. Sell-through revenue was $6.6
million in fiscal 2001 as compared to $7.8 million in fiscal 2000, a
decrease of $1.2 million, or 17 percent.
Royalty revenue from Rentrak Japan decreased to $1.1 million during
fiscal 2001 from $1.8 million the previous year. This decrease was due to
a one-time recognition of $0.5 million of royalty income in fiscal 2000,
which was subsequently reversed in fiscal 2001 due to a change in the
business arrangements between Rentrak and Rentrak Japan.
Cost of sales for the PPT business in fiscal 2001 decreased to $67.1
million from $79.6 million the prior year, a decrease of $12.5 million.
The change is primarily due to the factors that led to changes in revenue
as noted above. In fiscal 2001, the Company's PPT System gross profit
margin increased to 20 percent from 16 percent the previous year.
-15-
PPT business selling and administrative expenses were $23.8 million
in fiscal 2001 compared to $22.0 million in fiscal 2000. This increase of
$1.8 million, or 8 percent, was primarily attributable to the following
items all reported in the quarter ended September 30, 2000: (i) a $1.3
million severance payment to the Company's former chairman and chief
executive officer; (ii) $0.6 million in legal costs and proxy solicitation
costs incurred by the Company related to the proxy contest at the 2000
annual shareholders meeting and (iii) $0.4 million in costs to reimburse
the dissident shareholder group for their legal and other costs associated
with the proxy contest. While the Company wrote off or reserved
approximately $8.5 million in assets related to the Retailer Financing
Program, investments and accounts receivable during the quarter ended
September 30, 2000, it also increased reserves and wrote off other assets
totaling approximately $9.0 million during the fourth quarter of fiscal
2000.
The net gain from the litigation settlement with a prior customer of
the Company, Hollywood Entertainment, was $225,000 for fiscal 2001
compared to $7.8 million for fiscal 2000, a decrease of approximately $7.6
million. Most of the proceeds from this settlement were received in fiscal
2000 when the claim was finalized; the $225,000 represents the receipt of
an insurance settlement in fiscal 2001 relating to this claim.
PPT other income(expense) increased from expense of $1.4 million in
fiscal 2000 to expense of $2.1 million for fiscal 2001, an increase of
$0.7 million. This increase is primarily due to: (i) a decrease in
interest income; (ii) an increase in interest expense due to an increased
use of the line of credit in fiscal 2001; (iii) an increase in loss on the
sale of investment securities; (iv) a $0.5 million loss realized on the
sale of stock received previously by the Company pursuant to the
settlement of a claim with a customer and (v) the writeoff of assets or
writedown of various assets to their net realizable value.
For the fiscal year ended March 31, 2001, the Company recorded a
pre-tax loss of $7.6 million, or 9 percent of total revenue, from its PPT
business, including royalty revenue from Rentrak Japan, compared to
pre-tax income of $1.1 million, or 1 percent of total revenue, in the
prior fiscal year. This decrease is due primarily to: (i) the increase in
selling and administrative expenses and (ii) the decrease in the net gain
from the litigation settlement, as noted above.
The Cassette distribution business is a highly competitive industry
that is rapidly changing. The effect of these changes could have a
material impact on the Company's operations. Item 1. Business--Competition
further describes certain of these factors.
Included in total consolidated revenue are the results from other
subsidiaries, primarily the operations of 3PF.COM, Inc. ("3PF") and
Blowout Video, Inc.
Total revenues from 3PF increased to $23.4 million at March 31, 2001
compared to $11.6 million at March 31, 2000, an increase of $11.8 million.
This increase was primarily due to increased volume from existing
customers. Cost of sales was $21.7 million, an increase of $11.6 million
over the $10.1 million recorded in fiscal 2000. This increase is due to:
(1) a $1.1 million increase in occupancy cost as 3PF expanded its
operations into a new facility late in fiscal 2000 to provide additional
operating capacity for business growth; (2) a $4.5 million increase in
-16-
freight cost in conjunction with the overall increase in business
growth and revenue; and (3) a $4.3 million increase in warehouse labor
cost in conjunction with the overall increase in business growth and
revenue. As a percentage of total 3PF revenue, total cost of sales was 93%
and 87% for fiscal 2001 and 2000, respectively. Selling and administrative
expenses increased to $5.5 million in fiscal 2001 from $2.6 million in
fiscal 2000, an increase of $2.9 million. As a percentage of total
revenue, selling and administrative expenses increased to 23 percent for
fiscal 2001 from 22 percent for the prior year. This $2.9 million increase
was due to increased compensation, advertising, travel and entertainment
expenses, depreciation and other costs as the Company invested in the
overhead infrastructure to support growth in its business. Additionally,
the Company recognized $0.9 million in bad debt expense during fiscal 2001
primarily relating to a customer that filed for bankruptcy. The Company
anticipates its selling and administrative expenses to moderate or lessen
in the future in conjunction with the overall size of business it is
operating.
As a result of the foregoing factors, for the fiscal year ended
March 31, 2001, 3PF recorded a pre-tax loss of $3.8 million, or 16 percent
of total revenue. This compares with pre-tax loss of $1.1 million, or 9
percent of total revenue, in fiscal 2000.
Total revenue from BlowOut Video, Inc. increased to $11.7 million in
fiscal 2001 from $9.5 million in fiscal 2000, an increase of $2.2 million,
or 23 percent. Cost of sales was $8.7 million, an increase of $2.7 million
over the $6.0 million recorded in fiscal 2000. Total cost of sales as a
percentage of total revenue was 74% and 63% for fiscal 2001 and 2000,
respectively. As a result, the gross margin decreased to 26% in fiscal
2001 from 37% in fiscal 2000. Selling and administrative expenses
increased to $3.6 million in fiscal 2001 from $3.0 million in fiscal 2000,
an increase of $0.6 million. As a percentage of total revenue for BlowOut
Video, Inc., selling and administrative expenses decreased to 31 percent
for fiscal 2001 from 32 percent for the prior year.
For the fiscal year ended March 31, 2001, BlowOut Video, Inc.
recorded a pre-tax loss of $0.7 million, or 6 percent of total revenue.
This compares with pre-tax income of $0.2 million, or 2 percent of total
revenue, in fiscal 2000.
As a result of the above, for the fiscal year ended March 31, 2001,
the Company recorded a consolidated pre-tax loss from continuing
operations of $12.1 million, or 10 percent of total consolidated revenue,
compared to consolidated pre-tax income from continuing operations of $1.5
million, or 1 percent of total consolidated revenue, in the prior fiscal
year. This decrease is due primarily to the increase in selling and
administrative expenses from the PPT System and 3PF business, as well as
the decrease in the litigation gain from fiscal 2000, offset by an
increase in the gross margin from the Company's operations, as noted
above.
The consolidated effective tax rate providing the tax benefit for
continuing operations for fiscal 2001 was 37.3%, compared to a
consolidated effective tax rate of 30.0% providing the tax provision for
fiscal 2000. The Company expects to benefit from the tax benefit created
in fiscal 2001, by net operating loss carryforwards, in future periods.
-17-
Fiscal 2000 Compared to Fiscal 1999
Continuing Operations - Domestic PPT Operations and Other
Continuing Subsidiaries
For the year ended March 31, 2000, the Company's total consolidated
revenue decreased $10.4 million to $113.4 million from $123.8 million in
the prior year. The decrease in total revenue was primarily due to lower
revenues from the Company's core PPT System business. The decrease in PPT
revenue resulted primarily from the following: (i) a reduction in the
total number of Cassettes leased under the PPT System, (ii) an increase in
incentives offered by the Company to entice retailers to order more
product; (iii) an increase in various "copy depth" programs; (iv) an
increase in studio direct revenue-sharing arrangements with the larger
video store chains; and (v) the loss of some customers due to continuing
industry consolidation.
For the PPT business in fiscal 2000, application-fee revenue was
$0.3 million compared to $0.4 million in the prior year. During the year
order processing-fee revenue increased to $23.1 million from $22.4 million
in fiscal 1999, an increase of $0.7 million, or 3 percent. Transaction-fee
revenue totaled $62.4 million, a decrease of $10.4 million, or 14 percent,
from $72.8 million the previous year. Sell-through revenue was $7.8
million in fiscal 2000 as compared to $11.3 million in fiscal 1999, a
decrease of $3.5 million, or 31 percent.
Royalty revenue from Rentrak Japan decreased to $1.8 million during
fiscal 2000 from $2.2 million the previous year. This decrease was due to
a one time royalty payment from Rentrak Japan of $1.0 million in January
1999, which was partially offset by an increase in fiscal 2000 royalties
due to increased revenues generated by Rentrak Japan and a one-time
royalty payment of $0.5 million received from Rentrak Japan.
Consolidated cost of sales in fiscal 2000 decreased to $91.7 million
from $103.9 million the prior year, a decrease of $12.2 million. The
change is primarily due to the factors that led to changes in revenue
noted above. In fiscal 2000, the Company's gross profit margin increased
to 19 percent from 15 percent the previous year, excluding the $1.0
million royalty payment from Rentrak Japan.
Consolidated selling and administrative expenses were $26.4 million
in fiscal 2000 compared to $16.0 million in fiscal 1999. This increase of
$10.4 million, or 65 percent, was primarily due to (i) increased reserves
related to an outstanding receivable account and writeoffs of other assets
for a total of approximately $9.0 million in the fourth quarter of fiscal
2000; (ii) increased compensation and occupancy costs associated with the
expanding fulfillment and order processing business; and (iii) increased
advertising expenditures.
In January 2000, the Company recorded a gain of approximately $7.8
million as a result of settling litigation with Hollywood Entertainment.
Other income decreased from $0.6 million in fiscal 1999 to an
expense of $1.5 million for fiscal 2000, a decrease of $2.1 million. This
decrease is primarily due to the loss on sale of investments recognized in
fiscal 2000 of approximately $1.2
-18-
million compared to a gain on sale of investments in fiscal 1999 of
approximately $0.5 million.
For the fiscal year ended March 31, 2000, the Company recorded a
consolidated pre-tax income from continuing operations of $1.5 million, or
1 percent of total revenue, compared to $3.3 million of pre-tax income
from continuing operations, or 3 percent of total revenue, in the prior
fiscal year. This decrease is due primarily to the increase in selling and
administrative expenses as noted above offset by the net gain on
litigation settlement.
The consolidated effective tax rate providing the tax provision for
continuing operations for fiscal 2000 was 30.0%, compared to a
consolidated effective tax rate of 39.0% providing the tax provision for
fiscal 1999.
Included in the amounts above are the results from other
subsidiaries, primarily the operations of 3PF and BlowOut Video, Inc.
Total revenues from 3PF increased to $11.6 million at March 31, 2000
compared to $10.5 million at March 31, 1999, an increase of $1.1 million.
This increase was primarily due to increased volume from existing
customers. Cost of sales was $10.1 million, an increase of $1.7 million
over the $8.4 million recorded in fiscal 1999. This increase is due to the
increase in freight and warehouse labor due primarily to the increase in
revenue as noted above. Selling and administrative expenses increased to
$2.6 million in fiscal 2000 from $1.2 million in fiscal 1999, an increase
of $1.4 million. As a percentage of total 3PF revenue, selling and
administrative expenses increased to 22 percent for fiscal 2000 from 11
percent for the prior year. This increase was due to increased
compensation, advertising and travel and entertainment expenses. These
costs increased primarily due to expanded sales and marketing efforts.
As a result of the foregoing factors, for the fiscal year ended
March 31, 2000, 3PF recorded a pre-tax loss of $1.0 million, or 9 percent
of total revenue. This compares with pre-tax income of $0.6 million, or 6
percent of total revenue, in fiscal 1999.
Total revenues from BlowOut Video, Inc. increased to $9.5 million in
fiscal 2000 from $8.4 million in fiscal 1999, an increase of $1.1 million,
or 13 percent. Cost of sales was $6.0 million, an increase of $0.8 million
over the $5.2 million recorded in fiscal 1999. Selling and administrative
expenses increased to $3.0 million in fiscal 2000 from $2.4 million in
fiscal 1999, an increase of $0.6 million. As a percentage of total
revenue, selling and administrative expenses increased to 32 percent for
fiscal 2000 from 29 percent for the prior year. These increases were
primarily the result of opening three new stores during fiscal 2000.
For the fiscal year ended March 31, 2000, BlowOut Video, Inc.
recorded pre-tax income of $0.2 million, or 2 percent of total revenue.
This compares with pre-tax income of $0.7 million, or 8 percent of total
revenue, in fiscal 1999.
-19-
Discontinued Operations
On November 26, 1996, the Company made a distribution to its
shareholders of 1,457,343 shares of common stock of its then subsidiary
BlowOut Entertainment, Inc. ("BlowOut"). BlowOut is not related to the
Company's wholly owned subsidiary BlowOut Video, Inc. The operations of
BlowOut were reflected as discontinued operations in the March 31, 1996
consolidated financial statements. During the fiscal year ended March 31,
2000, the Company recorded a gain on the disposal of discontinued
operations of $1.9 million related to BlowOut, as the liability related to
BlowOut contingencies was less than estimated. The Company also reduced
the valuation allowance that was recorded against the deferred tax asset
related to liabilities of discontinued operations. This reduction of
approximately $0.5 million in the valuation allowance was recorded as an
income tax benefit from discontinued operations in the accompanying
consolidated income statement.
FINANCIAL CONDITION
At March 31, 2001, total assets were $39.1 million, a decrease of
$11.4 million from $50.5 million a year earlier. The Company had $3.3
million of cash on hand at March 31, 2001, including $1.0 million of
restricted cash, compared to $4.0 million at March 31, 2000. Accounts
receivable decreased $10.6 million from $21.8 million at March 31, 2000 to
$11.2 million at March 31, 2001, primarily due to: (1) the write off of
amounts owing from two customers in the Retailer Financing Program
totaling approximately $5.2 million and various other customer account
write-offs during the quarter ended September 30, 2000; (2) the provision
of a specific customer allowance in the amount of approximately $0.7
million for the anticipated non-collection of one of 3PF's trade accounts
due the Company as the result of a bankruptcy filing by a customer during
the quarter ended December 31, 2000; (3) the recording of a provision for
an allowance totaling approximately $0.3 million for the quarter ended
December 31, 2000 for the anticipated non-collection of other customer
accounts of the PPT business and 3PF, based on the Company's assessment of
the collectibility of those accounts due to changes in the financial
condition and payment ability of those customers; (4) the receipt of an
approximate $2.5 million payment from a customer on its account during the
quarter ended March 31, 2001 in conjunction with the settlement of an
agreement; and (5) continual improvement in collections from customers.
Notes receivable decreased to $0 at March 31, 2001 due to a payment of
$4.16 million, including interest, received by the Company in July 2000
from a customer pursuant to the settlement of a claim. Property and
equipment increased $1.8 million from $2.6 million at March 31, 2000 to
$4.4 million at March 31, 2001, primarily due to acquisitions of equipment
by 3PF. Total deferred tax assets increased $4.5 million from $5.2 million
at March 31, 2000 to $9.7 million at March 31, 2001, primarily due to the
tax loss carryforward created from the loss from continuing operations
during the quarter ended September 30, 2000. The Company believes it will
realize this deferred tax asset in future periods. Other assets decreased
$1.5 million from $3.6 million at March 31, 2000 to $2.1 million at March
31, 2001 primarily due to the sale of some of the Company's investments.
-20-
At March 31, 2001, total liabilities were $27.7 million, a decrease
of $4.7 million from $32.4 million at March 31, 2000. The line of credit
increased to $1.9 million at March 31, 2001 from $0 at March 31, 2000
primarily due to working capital requirements. Accounts payable decreased
$5.5 million from $24.2 million at March 31, 2000 to $18.7 million at
March 31, 2001, primarily due to payments owing to the Company's product
suppliers made during the quarter ended June 30, 2000. Note payable
decreased to $0 at March 31, 2001 due to the payoff of a promissory note
to a former director of the Company during the quarter ended September 30,
2000. Total deferred revenue decreased approximately $1.6 million from
$3.2 million at March 31, 2000 to $1.6 million at March 31, 2001, due to
the recognition of earnings in accordance with agreements with related
party organizations and customers.
Accordingly, at March 31, 2001, stockholders' equity was $11.4 million, a
decrease of $6.7 million from $18.1 million at March 31, 2000. Most of
this decrease in stockholders' equity is attributable to the consolidated
net loss of $7.6 million for fiscal 2001.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2001, the Company had cash and other liquid investments
of $3.3 million, including $1.0 million of restricted cash, compared to
$4.0 million at March 31, 2000. At March 31, 2001 the Company's current
ratio (current assets/current liabilities) was 1.14 compared to 1.32 a
year earlier.
In May 2000 the Company obtained a replacement line of credit with a
lender in an amount not to exceed the lesser of (a) $12 million or (b) the
sum of 85% of the net amount of eligible accounts receivable. Interest
under the credit line is payable monthly at the bank's prime rate plus 1/4
percent (8.25 percent at March 31, 2001). The line is secured by
substantially all of the Company's assets. The terms of the credit
agreement include financial covenants requiring: (1) $15 million of
tangible net worth to be maintained at all times; (2) a consolidated net
profit to be achieved each fiscal year equal to or exceeding $1.00 and (3)
$5 million of working capital to be maintained at all times. The agreement
also restricts the amount of loans and indebtedness and limits the payment
of dividends on the Company's stock, among other requirements. The
agreement expires in May 2005. The Company has determined that it is out
of compliance with the three financial covenants as of March 31, 2001. The
Company has obtained waivers of compliance for these three financial
covenants as of March 31, 2001 and for the twelve month period then ended.
The Company has initiated discussions of these covenants with its lender
and is seeking covenant modifications, if necessary. Based upon
discussions between the Company and its lender, the Company believes it
will successfully receive future waivers and/or modifications, if
necessary, and also believes it will have sufficient cash resources to
repay all outstanding borrowings as due. The Company received a $2.5
million payment on account from a customer on March 31, 2001, as well as
it received a $5.65 million payment from Rentrak Japan in a transaction
consummated in April 2001 (See Note 14 of the Notes to the Consolidated
Financial Statements). At March 31, 2001, the Company had $1.9 million of
outstanding borrowings under this agreement.
-21-
In 1992, the Company established a Video Retailer Loan Program
whereby, on a selective basis, it provided financing to Participating
Retailers that the Company believed had the potential for substantial
growth in the industry. In connection with these financings, the Company
typically made a loan to and/or an equity investment in the Participating
Retailer. In some cases, the Company obtained a warrant to purchase stock
in the Participating Retailer. As part of such financing, the retailer
typically agreed to cause all of its current and future retail locations
to participate in the PPT System for a designated period of time (usually
5-20 years). Under these agreements, Participating Retailers were
typically required to obtain all of their requirements of Cassettes
offered under the PPT System or obtain a minimum amount of Cassettes based
on a percentage of the retailer's revenues. Notwithstanding the long term
nature of such agreements, both the Company and the Participating Retailer
retained the right to terminate such agreement upon 30-90 days' prior
written notice in certain circumstances.
During the three month period ended September 30, 2000, the Company
announced the discontinuance of new financings under this program.
Write-offs of assets associated with this program during the three month
period ended September 30, 2000 were $6.1 million, including $4.4 million
due to the Company from Video Update, Inc. The Company continues to seek
to enforce agreements entered into in connection with this program in
accordance with their terms to the extent practicable.
The Company was the principal creditor of BlowOut, which filed a
petition under Chapter 11 of the Federal Bankruptcy Code in March 1999. In
1996, the Company had agreed to guarantee up to $7 million of indebtedness
of BlowOut (the "Guarantee"). BlowOut had a credit facility (the "Credit
Facility") in an aggregate principal amount of $2 million for a five-year
term. Amounts outstanding under the Credit Facility bear interest at
14.525 percent per annum. Pursuant to the terms of the Guarantee, the
Company agreed to guarantee any amounts outstanding under the Credit
Facility. As the proceeds from the sale of the BlowOut assets in May 1999
in the bankruptcy proceeding were not sufficient to cover the amounts due
under this facility, the Company, pursuant to the Guarantee, agreed to a
payment plan to fulfill BlowOut's obligation under the Credit Facility.
The funds remaining, if any, after payment of administrative and cost
claims after dismissal of the case may further reduce the amount due under
the Credit Facility. As of March 31, 2001, the balance owing under this
obligation was approximately $300,000. The payments, as made, will be
recorded as a reduction of "net current liabilities of discontinued
operations" on the Company's balance sheet.
The Company's sources of liquidity include its cash balance, cash
generated from operations and its available credit resources. Based on the
Company's current budget and projected cash needs, the Company believes
these available sources of liquidity will be sufficient to fund the
Company's operations for the fiscal year ending March 31, 2002.
-22-
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The Company has considered the provisions of Financial Reporting
Release No. 48 "Disclosure of Accounting Policies for Derivative Financial
Instruments and Derivative Commodity Instruments, and Disclosure of
Quantitative and Qualitative Information about Market Risk Inherent in
Derivative Financial Instruments, Other Financial Instruments and
Derivative Commodity Instruments." The Company had no holdings of
derivative financial or commodity instruments at March 31, 2001. A review
of the Company's other financial instruments and risk exposures at that
date revealed that the Company had exposure to interest rate risk. The
Company utilized sensitivity analyses to assess the potential effect of
this risk and concluded that near-term changes in interest rates should
not materially adversely affect the Company's financial position, results
of operations or cash flows.
-23-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Item Page
---- ----
Report of Independent Public 25
Accountants
Consolidated Balance Sheets as of March 31, 2001 26
and 2000
Consolidated Statements of Operations for the Years 28
Ended March 31, 2001, 2000 and 1999
Consolidated Statements of Stockholders' Equity 29
for the Years Ended March 31, 2001, 2000 and 1999
Consolidated Statements of Cash Flows for the Years 30
Ended March 31, 2001, 2000 and 1999
Notes to Consolidated Financial Statements 32
Financial Statement Schedules -- 51
Schedule II
Schedules not included have been omitted because they are not
applicable or the required information is shown in the financial
statements or notes thereto.
-24-
Report of Independent Public Accountants
To Rentrak Corporation:
We have audited the accompanying consolidated balance sheets of Rentrak
Corporation (an Oregon corporation) and subsidiaries as of March 31, 2001 and
2000, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended March 31,
2001. These consolidated financial statements and the schedule referred to below
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and schedule based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Rentrak Corporation and
subsidiaries as of March 31, 2001 and 2000 and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
2001 in conformity with accounting principles generally accepted in the United
States.
Our audits were made for the purpose of forming an opinion on the consolidated
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic consolidated
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic consolidated financial statements
and, in our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic consolidated financial
statements taken as a whole.
/s/ Arthur Andersen LLP
Portland, Oregon
May 23, 2001
-25-
Rentrak Corporation and Subsidiaries
Consolidated Balance Sheets
As of March 31, 2001 and 2000
ASSETS
2001 2000
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents $3,322,917 $4,028,271
Accounts receivable, net of allowance for doubtful accounts
of $2,090,075 and $836,945 11,151,817 21,820,168
Advances to program suppliers 1,328,165 2,982,766
Inventory 3,514,354 3,889,603
Income tax receivable 279,160 169,300
Deferred income taxes 7,319,266 1,878,113
Notes receivable - 4,061,618
Other current assets 3,291,915 1,757,081
---------- ----------
Total current assets 30,207,594 40,586,920
---------- ----------
PROPERTY AND EQUIPMENT, net 4,439,773 2,642,700
OTHER INVESTMENTS, net - 302,481
DEFERRED INCOME TAXES 2,419,634 3,346,212
OTHER ASSETS 2,059,247 3,595,041
---------- ---------
Total assets $39,126,248 $50,473,354
========== ==========
(Continued)
-26-
Rentrak Corporation and Subsidiaries
Consolidated Balance Sheets (Continued)
As of March 31, 2001 and 2000
LIABILITIES AND STOCKHOLDERS' EQUITY
2001 2000
--------- ----------
CURRENT LIABILITIES:
Line of credit $ 1,917,705 $ -
Accounts payable 18,699,289 24,162,040
Accrued liabilities 3,418,043 2,645,567
Accrued compensation 1,127,785 1,476,703
Deferred revenue 1,245,643 1,500,262
Note payable - 500,000
Net current liabilities of discontinued operations 156,046 430,923
---------- ----------
Total current liabilities 26,564,511 30,715,495
---------- ----------
LONG-TERM LIABILITIES:
Deferred revenue 379,104 1,677,272
Other 795,875 -
---------- ----------
1,174,979 1,677,272
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value; authorized: 10,000,000
shares - -
Common stock, $.001 par value; authorized: 30,000,000
shares; issued and outstanding: 12,235,621 shares in 2001
and 10,514,561 shares in 2000 12,236 10,515
Capital in excess of par value 52,471,599 44,445,199
Notes receivable (7,728,186) -
Cumulative other comprehensive loss (49,572) (264,684)
Accumulated deficit (32,904,319) (25,326,951)
Deferred charge - warrants (415,000) (783,492)
---------- ----------
Total stockholders' equity 11,386,758 18,080,587
---------- ----------
Total liabilities and stockholders' equity $39,126,248 $50,473,354
========== ==========
The accompanying notes are an integral part of these consolidated balance
sheets.
-27-
Rentrak Corporation And Subsidiaries
Consolidated Statements of Stockholders' Equity
For the Years Ended March 31, 2001, 2000 and 1999
Common Stock Cumulative
---------------------- Capital In Other
Number of Excess of Notes Comprehensive Accumlated
Shares Amount Par Value Receivable Income (Loss) Deficit
------------ ------- ---------- ---------- ------------- ----------
BALANCE AT MARCH 31, 1998 10,986,455 $10,987 $45,365,298 - $54,645 $(30,794,263)
Repurchase of common stock (592,484) (593) (1,964,622) - - -
Issuance of common stock under
employee stock option plans 45,977 46 118,375 - - -
Net income - - - - - 2,042,506
Change in unrealized gain
(loss) on investment
securities, net of tax - - - - 83,102 -
Total comprehensive income
Income tax benefit from stock
option exercise - - 41,428 - - -
Issuance of warrants - - 84,000 - - -
Amortization of warrants - - - - - -
---------- -------- ---------- ---------- ------------- ----------
BALANCE AT MARCH 31, 1999 10,439,948 10,440 43,644,479 - 137,747 (28,751,757)
Issuance of common stock under
employee stock option plans 74,613 75 228,882 - - -
Net income - - - - - 3,424,806
Change in unrealized gain
(loss) on investment
securities, net of tax - - - - (402,431) -
Total comprehensive income
Income tax benefit from stock
option exercise - - 27,699 - - -
Issuance of warrants - - 544,139 - - -
Amortization of warrants - - - - - -
---------- -------- ---------- ---------- ------------- ----------
BALANCE AT MARCH 31, 2000 10,514,561 10,515 44,445,199 - (264,684) (25,326,951)
Issuance of common stock under
employee stock option plans 1,721,060 1,721 8,026,400 (7,728,186) - -
Net loss - - - - - (7,577,368)
Change in unrealized gain
(loss) on investment
securities, net of tax - - - - 215,112 -
Total comprehensive income
Amortization of warrants - - - - - -
---------- -------- ---------- ---------- ------------- ----------
BALANCE AT MARCH 31, 2001 12,235,621 $12,236 $52,471,599 $(7,728,186) $(49,572) $(32,904,319)
========== ======== ========== ========== ============= ==========
Deferred
Charge Comprehensive
Warrants Total Income (Loss)
---------- ----- -------------
BALANCE AT MARCH 31, 1998 $(1,382,542) $13,254,125
Repurchase of common stock - (1,965,215)
Issuance of common stock under
employee stock option plans - 118,421
Net income - 2,042,506 $2,042,506
Change in unrealized gain
(loss) on investment
securities, net of tax - 83,102 83,102
---------
Total comprehensive income $2,125,608
=========
Income tax benefit from stock
option exercise - 41,428
Issuance of warrants (84,000) -
Amortization of warrants 717,537 717,537
---------- ---------
BALANCE AT MARCH 31, 1999 (749,005) 14,291,904
Issuance of common stock under
employee stock option plans - 228,957
Net income - 3,424,806 $3,424,806
Change in unrealized gain
(loss) on investment
securities, net of tax - (402,431) (402,431)
----------
Total comprehensive income $3,022,375
==========
Income tax benefit from stock
option exercise - 27,699
Issuance of warrants (544,139) -
Amortization of warrants 509,652 509,652
---------- ----------
BALANCE AT MARCH 31, 2000 (783,492) 18,080,587
Issuance of common stock under
employee stock option plans - 299,935
Net loss - (7,577,368 $(7,577,368)
Change in unrealized gain
(loss) on investment
securities, net of tax - 215,112 215,112
----------
Total comprehensive income $(7,362,256)
==========
Amortization of warrants 368,492 368,492
---------- ----------
BALANCE AT MARCH 31, 2001 $(415,000) $11,386,758
========== ==========
The accompanying notes are an integral part of these consolidated
statements
-28-
Rentrak Corporation and Subsidiaries
Consolidated Statements of Operations
For the Years Ended March 31, 2001, 2000 and 1999
2001 2000 1999
----------- ----------- -----------
REVENUES:
PPT $82,773,886 $93,393,869 $106,406,342
Other 33,625,162 19,990,351 17,381,048
----------- ----------- -----------
116,399,048 113,384,220 123,787,390
----------- ----------- -----------
OPERATING COSTS AND EXPENSES:
Cost of sales 93,600,177 91,706,290 103,942,898
Selling and administrative 32,967,141 26,448,569 15,995,941
Net (gain) expense from litigation settlement
(Note 10) (225,000) (7,791,880) 1,099,154
----------- ----------- -----------
126,342,318 110,362,979 121,037,993
----------- ----------- -----------
Income (loss) from operations (9,943,270) 3,021,241 2,749,397
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income 307,240 743,464 429,830
Interest expense (768,599) (669,373) (381,825)
Gain (loss) on investments (1,687,314) (1,207,483) 549,103
Other - (385,986) -
----------- ----------- -----------
(2,148,673) (1,519,378) 597,108
----------- ----------- -----------
Income (loss) from continuing operations
before income tax benefit (provision)
and gain from disposal of discontinued
operations (12,091,943) 1,501,863 3,346,505
INCOME TAX BENEFIT (PROVISION) 4,514,575 (450,559) (1,303,999)
----------- ----------- -----------
Net income (loss) from continuing
operations (7,577,368) 1,051,304 2,042,506
GAIN FROM DISPOSAL OF DISCONTINUED OPERATIONS,
INCLUDING INCOME TAX BENEFIT OF $483,502 - 2,373,502 -
----------- ----------- -----------
Net income (loss) $ (7,577,368) $ 3,424,806 $ 2,042,506
=========== =========== ===========
EARNINGS (LOSS) PER COMMON SHARE:
Basic-
Continuing operations $ (.63) $ .10 $ .19
Discontinued operations - .23 -
----------- ----------- -----------
Net income (loss) per common share $ (.63) $ .33 $ .19
=========== =========== ===========
Diluted-
Continuing operations $ (.63) $ .10 $ .18
Discontinued operations - .22 -
----------- ----------- -----------
Net income (loss) per common share $ (.63) $ .32 $ .18
=========== =========== ===========
The accompanying notes are an integral part of these consolidated statements.
-29-
Rentrak Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended March 31, 2001, 2000 and 1999
2001 2000 1999
---------- ---------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(7,577,368) $3,424,806 $2,042,506
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities-
Gain on disposal of discontinued operations - (2,373,502) -
(Gain) loss on investments 597,124 1,207,483 (549,103)
Gain on litigation settlement - (7,791,880) -
Depreciation and amortization 1,266,515 1,780,966 1,286,515
Write-off of intangibles - 421,675 -
Amortization of warrants 368,492 509,652 717,537
Provision (credit) for doubtful accounts 7,758,211 6,341,032 (125,000)
Retailer financing program reserves 1,333,191 (373,394) 141,698
Reserves on advances to program suppliers 106,781 110,918 17,596
Deferred income taxes (4,646,420) (900,272) 1,176,909
Net proceeds from litigation settlement - 1,847,505 -
Change in assets and liabilities:
Accounts receivable 4,184,677 (3,231,008) 778,471
Advances to program suppliers 1,547,820 (253,422) (2,425,883)
Inventory 162,449 (1,084,620) (377,807)
Income tax receivable (109,860) 2,864,901 (1,014,739)
Notes receivable and other current assets 2,106,259 1,227,099 (537,802)
Accounts payable (6,778,293) 7,233,746 (4,561,190)
Accrued liabilities and compensation 423,558 357,860 158,730
Deferred revenue (1,552,787) 3,077,119 (729,448)
Other liabilities 795,875 - -
----------- ----------- ----------
Net cash provided by (used in)
operating activities (13,776) 14,396,664 (4,001,010)
----------- ----------- ----------
(Continued)
-30-
Rentrak Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
For the Years Ended March 31, 2001, 2000 and 1999
2001 2000 1999
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment $(2,947,219) $(1,790,501) $ (503,030)
Investments in retailer financing program - (384,500) (1,329,778)
Proceeds from retailer financing program - 228,539 -
Purchases of investments - (398,122) (570,512)
Proceeds from sale of investments 1,605,555 975,305 1,525,538
Additions of other assets and intangibles (792,677) (6,693) (1,238,601)
----------- ----------- ---------
Net cash used in investing activities (2,134,341) (1,375,972) (2,116,383)
----------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) on line of credit 1,917,705 (7,925,000) 1,925,000
Net borrowing (payments) on notes payable (500,000) (2,500,000) 3,000,000
Repurchase of common stock - - (1,965,215)
Issuance of common stock 299,935 228,957 118,421
----------- ----------- ---------
Net cash provided by (used in)
financing activities 1,717,640 (10,196,043) 3,078,206
----------- ----------- ---------
NET CASH PROVIDED BY (USED IN) CONTINUING OPERATIONS (430,477) 2,824,649 (3,039,187)
NET CASH USED IN DISCONTINUED OPERATIONS (274,877) (942,341) (1,176,530)
----------- ----------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (705,354) 1,882,308 (4,215,717)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,028,271 2,145,963 6,361,680
----------- ----------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $3,322,917 $4,028,271 $2,145,963
=========== =========== =========
The accompanying notes are an integral part of these consolidated statements.
-31-
Rentrak Corporation and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2001, 2000 and 1999
1. Business of the Companies, Summary of Significant Accounting Policies
and Other Items
Introduction
Rentrak Corporation (the Company) (an Oregon corporation) is principally engaged
in the processing of information regarding the rental and sale of video
cassettes and the distribution of prerecorded video cassettes to the home video
market throughout the United States and Canada using its Pay-Per-Transaction
(PPT) revenue sharing program.
Under its PPT program, the Company enters into contracts to lease video
cassettes from program suppliers (producers of motion pictures and licensees and
distributors of home video cassettes) which are then leased to retailers for a
percentage of the rentals charged by the retailers.
The Company's wholly owned subsidiary, 3PF.COM,Inc. (3PF), provides
e-fulfillment order processing and inventory management services to e-tailers,
wholesalers and businesses requiring just-in-time fulfillment.
The Company's wholly owned subsidiary BlowOut Video, Inc. sells video cassettes
and DVDs through its seven retail video stores that operate under the name of
BlowOut Video.
Rentrak Japan
In December 1989, the Company entered into a definitive agreement with Culture
Convenience Club Co., Ltd. (CCC), Rentrak's joint venture partner in Rentrak
Japan, to develop the Company's PPT distribution and information processing
business in certain markets throughout the world.
On June 16, 1994, the Company and CCC amended the agreement. Pursuant to this
amendment, the Company receives a royalty of 1.67 percent for all sales of up to
$47,905,000, plus one-half of one percent (0.5 percent) of sales greater than
$47,905,000 in each fiscal year. In addition, the Company received a one-time
royalty of $2 million, of which $1 million was paid in fiscal 1995 and $1
million was paid in fiscal 1999. The term of the Agreement was extended from the
year 2001 to the year 2039. As of March 31, 2001, the Company owned
approximately 9 percent of Rentrak Japan. In April 2001, the Company sold or
agreed to sell all of its interest in Rentrak Japan (Note 14).
In December 1999, the Company received a prepayment of $2,500,000 in exchange
for $4,000,000 of credit related to the annual royalty described above. This
credit is being recognized in revenues as royalties are earned under the terms
of the contract. As of March 31, 2001, $745,754 had been recorded as current
deferred revenue on the accompanying consolidated balance sheet. As discussed in
Note 14, in April 2001, this contract was effectively terminated with Rentrak
Japan forfeiting its rights to the prepayment.
Rentrak UK Limited
In February 1998, the Company entered into a Shareholders Agreement and a PPT
License Agreement with Columbus Holdings Limited and Rentrak UK Limited (Rentrak
UK) to develop the Company's PPT distribution and information processing
business in the United Kingdom through Rentrak UK. The PPT Agreement remains in
force in perpetuity, unless terminated due to material breach of contract,
liquidation of Rentrak UK or nondelivery, by the Company to Rentrak UK of all
retailer and studio software, including
-32-
all updates. Pursuant to the PPT Agreement, during the term of the PPT
Agreement, the Company will receive a royalty of 1.67 percent of Rentrak UK's
gross revenues from any and all sources. Rentrak UK was originally structured as
a joint venture between the Company, which owned 25 percent, Columbus Holdings
Limited, which owned 67 percent of the venture and Rentrak Japan, which owns 8
percent. On March 31, 1999, the Company acquired Columbus Holdings Limited's 67
percent interest, and now owns 92 percent of Rentrak UK. The acquisition, which
was not material to the operations of the Company, was accounted for as a
purchase. During fiscal 2000, Rentrak UK did not generate income or positive
cash flow and, as a result, the Company wrote off its investment of $222,000 in
that year. As of March 31, 2001, Rentrak UK continues to not generate income or
positive cash flow. Management of the Company is evaluating Rentrak UK's
operations and is exploring its options, including selling or closing down the
operations. Management intends to make a decision in the second quarter of
fiscal 2002.
Basis of Consolidation
The consolidated financial statements include the accounts of the Company, its
majority owned subsidiaries, and those subsidiaries in which the Company has a
controlling interest after elimination of all intercompany accounts and
transactions. Investments in affiliated companies owned 20 percent to 50 percent
are accounted for by the equity method.
Management Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. These estimates include, among others, reserves on financings
under the retailer financing program investments (Note 4). Actual results could
differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with a maturity of
three months or less at acquisition to be cash equivalents. Included in cash and
cash equivalents is $1,000,000 of restricted cash, as required by its bank,
which is held in highly liquid investments. The classification of this cash is
determined based on the expected term of the collateral requirement of the
operating cash account.
Investment Securities
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (SFAS 115), requires the Company to
classify and account for its security investments as trading securities,
securities available for sale or securities held to maturity depending on the
Company's intent and ability to hold or trade the securities at time of
purchase. Securities available for sale are stated on the balance sheet at their
fair market value with an adjustment to stockholders' equity reflected in other
comprehensive income (loss) as change in net unrealized gains and losses, net of
tax. Securities held to maturity are stated at amortized cost.
-33-
Details of the proceeds from the sales of available for sale securities and
realized gains and losses on sales of equity securities for the years ended
March 31 are as follows:
Gross Gross
Proceeds Gains Losses
-------- ------- -------
2001 $1,605,555 $ 9,570 $(606,694)
2000 975,305 554,971 (121,105)
1999 1,525,538 843,749 (294,646)
When, in management's opinion, available for sale securities have experienced an
other than temporary decline, the amount of the decline in market value below
cost is recorded in the statement of operations as a loss on investments.
In fiscal year 2000, management determined that certain investments had incurred
unrealized losses resulting from other than temporary declines in market value
below the cost of the investments. Unrealized losses from other than temporary
decline in market value of $1,245,157 were recorded in gain (loss) on
investments in the March 31, 2000 consolidated statement of operations. There
were no unrealized losses from other than temporary declines in market value
recognized in the March 31, 2001 and 1999 consolidated statements of operations.
Financial Instruments
A financial instrument is cash or a contract that imposes or conveys a
contractual obligation or right, to deliver or receive, cash or another
financial instrument. The estimated fair value of all material financial
instruments, including retailer financing program notes receivable, approximated
their carrying values at March 31, 2001 and 2000.
Inventory
Inventory consists of videocassettes, digital video discs (DVDs), and other home
entertainment products held for sale and is carried at the lower of cost
(first-in, first-out method) or market value.
Property and Equipment
Depreciation of property and equipment is computed on the straight-line method
over estimated useful lives of three to five years. Leasehold improvements are
amortized over the lives of the underlying leases or the service lives of the
improvements, whichever is shorter.
Intangibles and Other Long-Lived Assets
The Company reviews its intangible and other long-lived assets for asset
impairment at the end of each quarter, or more frequently when events or changes
in circumstances indicate that the carrying amount of intangible and other
long-lived assets may not be recoverable. The Company estimates the sum of
expected future undiscounted preinterest expense net cash flows from operating
activities. If the estimated net cash flows are less than the carrying amount of
intangible and other long-lived assets, the Company will recognize an impairment
loss in an amount necessary to write down intangible and other long-lived assets
to a fair value as determined from expected discounted future cash flows.
-34-
Revenue Recognition
The PPT agreements generally provide for a one-time initial order processing fee
and continuing transaction fees based on a percentage of rental revenues earned
by the retailer upon renting the video cassettes to their customers. The Company
recognizes order-processing fees as revenue when the video cassettes are shipped
to the retailers and recognizes transaction fees when the video cassettes are
rented to consumers.
When the Company's total revenue is fixed, determinable and billable at time of
shipment of video cassettes to the retailers, deferred revenue is recorded and
recognized as revenue in the statements of operations when the video cassettes
are rented to consumers. The corresponding obligation for their share of the
fees due to program suppliers is recorded as cost of sales when the revenue is
recognized with a corresponding liability recorded as accounts payable. The
Company also may charge retailers an application fee upon admission to the PPT
program. This fee is recognized as PPT revenue when the application to
participate in the PPT program is approved.
Revenues derived from fulfillment activities are recognized when products are
shipped and/or services are provided.
During fiscal 2000, the Company received a $2,500,000 prepayment from a customer
in exchange for $4,000,000 in credit related to a long-term agreement. This
prepayment related to periods subsequent to March 31, 2000 and has therefore
been recorded as deferred revenue on the accompanying consolidated balance
sheet. Deferred revenue will be recognized in future periods as revenues are
earned under the terms of the contract. Stockholders and directors, or their
families owned interests in several stores participating in the PPT program
through fiscal 2000. The Company realized revenues from these stores of
approximately $47,000 and $99,000 during fiscal 2000 and 1999, respectively.
Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). Under
the liability method specified by SFAS 109, deferred tax assets and liabilities
are determined based on the temporary differences between the financial
statement basis and tax basis of assets and liabilities as measured by the
enacted tax rates for the years in which the taxes are expected to be paid.
Earnings Per Share
Basic earnings per common share is computed by dividing net income by the
weighted average number of shares of common stock outstanding during the period.
Diluted earnings per common share is computed on the basis of the weighted
average shares of common stock outstanding plus common equivalent shares arising
from dilutive stock options.
The weighted average number of shares of common stock and common stock
equivalents and net income (loss) used to compute basic and diluted earnings
(loss) per share for the years ended March 31 were calculated as follows:
-35-
2001 2000 1999
---------------- ----------------- -----------------
Basic Diluted Basic Diluted Basic Diluted
------ -------- ------ -------- ------ --------
Weighted average number of
shares of common stock
outstanding used to
compute basic earnings
(loss) per common share 11,985,023 11,985,023 10,477,334 10,477,334 10,775,126 10,775,126
Dilutive effect of
exercise of stock options - - - 281,787 - 291,017
---------- ---------- ---------- ---------- ---------- ----------
Weighted average number of
shares of common stock used
to compute diluted earnings
(loss) per common share outstanding
and common stock equivalents 11,985,023 11,985,023 10,477,334 10,759,121 10,775,126 11,066,143
========== ========== ========== ========== ========== ==========
Net income (loss) used in basic
and diluted earnings (loss) per
common share:
Continuing operations $(7,577,368)(7,577,368) $1,051,304 $1,051,304 $2,042,506 $2,042,506
Discontinued operations - - 2,373,502 2,373,502 - -
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) $(7,577,368)(7,577,368) $3,424,806 $3,424,806 $2,042,506 $2,042,506
========== ========== ========== ========== ========== ==========
Earnings (loss) per common share:
Continuing operations $ (0.63) (0.63) $ 0.10 $ 0.10 $ 0.19 $ 0.18
Discontinued operations - - 0.23 0.22 - -
---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) per
common share $ (0.63)$ (0.63) $ 0.33 $ 0.32 $ 0.19 $ 0.18
========== ========== ========== ========== ========== ==========
Options and warrants to purchase approximately 3,200,000, 4,400,000 and
4,400,000 shares of common stock were outstanding during the years ended March
31, 2001, 2000 and 1999, respectively, but were not included in the computation
of diluted EPS because the exercise price of the options and warrants were
greater than the average market price of the common shares.
Advertising Expense
Advertising expense, net of advertising reimbursements, totaled approximately
$492,000, $952,000 and $641,000 for the years ended March 31, 2001, 2000 and
1999, respectively.
-36-
Statements of Cash Flows
The Company had the following transactions for the years ended March 31:
2001 2000 1999
----------- ---------- ---------
CASH PAID (RECEIVED) FOR:
Interest $ 253,211 $ 656,723 $ 328,802
Income taxes, net of refunds 111,701 (1,645,085) (493,645)
NONCASH FINANCING AND INVESTING ACTIVITIES:
Reclassification of accounts receivable to other
assets and other investments - 1,023,794 269,775
Issuance of warrants - (544,139) (84,000)
Tax benefit from stock option exercises - (27,699) (41,428)
Receipt of note receivable in litigation settlement - 4,000,000 -
Receipt of common stock in litigation settlement - 1,944,375 -
Change in unrealized gain (loss) on investment securities,
net of tax 215,112 (402,431) 83,102
Notes issued, net of cancellations for common stock 7,728,186 - -
Comprehensive Income
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS 130). The Company has adopted SFAS 130. The statement establishes
presentation and disclosure requirements for reporting comprehensive income.
Comprehensive income includes charges or credits to equity that are not the
result of transactions with shareholders. Components of the Company's
comprehensive income (loss) consist of the change in unrealized gain (loss) on
investment securities (net of tax), net of the reclassification adjustment for
gains (losses) included in net income (loss) as of March 31 is as follows:
2001 2000 1999
--------- ---------- ---------
Holding gains (losses) arising during the period, net of tax $(12,470) $(534,988) $291,761
Less- Reclassification adjustment for gains (losses)
included in net income (loss), net of tax (227,582) (132,557) 208,659
-------- -------- -------
Change in unrealized gain (loss) on investment securities,
net of tax $215,112 $(402,431) $ 83,102
======== ======== =======
Reclassifications
Certain reclassifications have been made to prior year amounts to conform to the
current year presentation.
-37-
2. Investment Securities
The carrying value and estimated fair value of marketable securities at March 31
were as follows:
Carrying Unrealized Unrealized
Value Gross Gain Gross Loss Fair Value
-------- ---------- ----------- ----------
As of March 31, 2001:
Available for sale-
Noncurrent:
Corporate securities $ 143,309 $ 13 $ (79,969) $ 63,353
======== ======== ======== ========
As of March 31, 2000:
Available for sale-
Noncurrent:
Corporate securities $2,335,290 $ 30,319 $(457,233) $1,908,376
========= ======== ======== =========
Investment securities that have limited marketability are classified as
noncurrent as it is management's intent not to dispose of the securities within
one year.
3. Property and Equipment
Property and equipment, at cost, consists of:
March 31,
------------------------
2001 2000
----------- -----------
Furniture and fixtures $8,532,210 $7,054,568
Machinery and equipment 1,875,159 438,312
Leasehold improvements 2,092,844 2,060,114
----------- -----------
12,500,213 9,552,994
Less- Accumulated depreciation (8,060,440) (6,910,294)
----------- -----------
$4,439,773 $2,642,700
=========== ===========
4. Retailer Financing Program
In 1992, the Company established a retailer financing program whereby, on a
selective basis, it provided financing to Participating Retailers that the
Company believed had potential for substantial growth in the industry. In
connection with these financings, the Company typically made a loan and/or
equity investment in the Participating Retailer. In some cases, the Company
obtained a warrant to purchase stock in the Participating Retailer. As part of
such financings, the Participating Retailer typically agreed to cause all of its
current and future retail locations to participate in the PPT System for a
designated period of time (usually 5-20 years). These financings are speculative
in nature and involve a high degree of risk and no assurance of a satisfactory
return on investment can be given.
The loans are reviewed for impairment in accordance with FASB Statement of
Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment
of a Loan" (SFAS 114). A valuation allowance has been established for the amount
by which the recorded investment in the loan exceeds the
-38-
measure of the impaired loan. As the financings are made, and periodically
throughout the terms of the agreements, the Company assesses the recoverability
of the amounts based on the financial position of each retailer. The amounts the
Company could ultimately receive could differ materially in the near-term from
the amounts assumed in establishing the reserves. During the fiscal year 2001,
the Company discontinued new financings under this retailer financing program.
Write-offs of assets associated with this program during the fiscal year 2001
were $6.1 million, including $4.4 million of related accounts receivable due to
the Company from Video Update, Inc. The Company seeks to enforce agreements
entered into in connection with this program in accordance with their terms to
the extent practicable.
At March 31, 2001 the Company had invested or loaned approximately $6,600,000
under the program and had provided reserves of approximately $6,600,000. At
March 31, 2000 the Company had invested or loaned approximately $6,600,000 under
the program and had provided reserves of approximately $5,700,000. These
balances are included in other assets.
The activity in the total reserves for the retailer financing program is as
follows for the fiscal years ended March 31:
2001 2000
----------- -----------
Beginning balance $5,684,183 $9,575,688
Additions to reserve 925,216 1,245,157
Write-offs - (5,115,665)
Recoveries (10,885) (20,997)
--------- ---------
Ending balance $6,598,514 $5,684,183
========= =========
A substantial portion of the write-offs in fiscal 2000 related to assets which
were fully reserved in prior years.
5. Line of Credit
In May 2000 the Company obtained a replacement line of credit with a lender in
an amount not to exceed the lesser of (a) $12 million or (b) the sum of 85
percent of the net amount of eligible accounts receivable. Interest under the
line is payable monthly at the bank's prime rate plus 1/4 percent (8.25 percent
at March 31, 2001). The line is secured by substantially all of the Company's
assets. The terms of the credit agreement include financial covenants requiring:
(1) $15 million of tangible net worth to be maintained at all times; (2) a
consolidated net profit to be achieved each fiscal year equal to or exceeding
$1.00 and (3) $5 million of working capital to be maintained at all times. The
agreement also restricts the amount of loans and indebtedness and limits the
payment of dividends on the Company's stock, among other restrictions. This
agreement expires in May 2005. Based upon the financial results reported as of
March 31, 2001 and the year then ended, the Company has determined it is out of
compliance with the three financial covenants at March 31, 2001. The Company has
obtained waivers of compliance for these three financial covenants as of March
31, 2001 and for the year then ended. The Company has initiated discussions of
these covenants with its lender and is seeking covenant modifications, if
necessary. Based upon discussions between the Company and its lender, the
Company believes it will successfully receive future waivers and/or
modifications, if necessary, and will have sufficient cash resources to repay
all outstanding borrowings as due. At March 31, 2001, the Company had $1,917,705
outstanding borrowings under this agreement.
-39-
6. Related Party Note Payable
On January 29, 1998, the Company entered into a $3,000,000 unsecured note
payable with a director of the Company. The 10 percent interest-bearing note was
repaid in full in January 2000. During fiscal 2000, the Company's subsidiary,
Blowout Video Holding Company, entered into a $3,000,000 line of credit with the
same director of the Company. The line expires in August 2002 and bears interest
at prime plus 1 1/2 percent (9.5 percent at March 31, 2001). The line is secured
by substantially all the assets of BlowOut Video Holding Company. At March 31,
2001 and 2000, the Company had $0 and $500,000 outstanding under this agreement,
respectively.
7. Income Taxes
The provision (benefit) for income taxes is as follows for the years ended March
31:
2001 2000 1999
---------- -------- --------
Current tax provision:
Federal $ - $ - $ -
State - 125,192 -
---------- -------- --------
- 125,192 -
Deferred tax (benefit) provision (4,514,575) 325,367 1,303,999
---------- -------- ---------
Income tax (benefit) provision $(4,514,575) $450,559 $1,303,999
========= ======== =========
The reported provision (benefit) for income taxes from continuing operations
differs from the amount computed by applying the statutory federal income tax
rate of 34 percent to income before provision (benefit) for income taxes as
follows for the fiscal years ended March 31:
2001 2000 1999
---------- -------- --------
Provision (benefit) computed at
statutory rates $(4,111,261) $ 510,633 $1,137,812
State taxes, net of federal benefit (468,098) 59,474 133,860
Amortization of warrants 140,027 193,667 272,664
Recognition of net operating loss
carryforward - (131,507) -
Other (75,243) (181,708) (240,337)
---------- -------- ---------
$(4,514,575) $ 450,559 $1,303,999
========== ======== =========
-40-
Deferred tax assets and (liabilities) from continuing operations are comprised
of the following components at March 31, 2001 and 2000:
2001 2000
---------- ---------
Deferred tax assets:
Current-
Allowance for doubtful accounts $ 449,138 $ 78,113
Program supplier reserves 520,614 -
Foreign tax credit 500,000 823,559
Net operating loss carryforward 4,616,162 -
Unrealized loss on investments 119,015 -
Capital loss carry forward 279,407 327,749
Deferred revenue 473,453 570,100
Other 361,477 78,592
--------- ---------
Total current deferred tax assets 7,319,266 1,878,113
--------- ---------
Noncurrent-
Depreciation 445,631 423,846
Retailer financing program reserve 671,689 320,107
Program supplier reserves - 484,910
Unrealized loss on investments 30,384 299,296
Foreign tax credit 1,000,000 1,000,000
Deferred revenue 144,060 637,361
Other 127,870 180,692
--------- ---------
Total noncurrent deferred tax assets 2,419,634 3,346,212
--------- ---------
Total deferred tax assets $9,738,900 $5,224,325
========= =========
As of March 31, 2001, the Company has estimated NOL carryforwards for federal
income tax return purposes of approximately $12,100,000, which expire in 2021.
Although realization of the deferred tax assets is not assured, management
believes it is more likely than not that the Company will ultimately realize all
of its deferred tax assets.
8. Stockholders' Equity
Stock Options and Warrants
Effective March 31, 1997, the Company adopted the 1997 Non-Officer Employee
Stock Option Plan. The aggregate number of shares which may be issued upon
exercise of options under the plan shall not exceed 750,000. In August 1997, the
Company adopted the 1997 Equity Participation Plan. The aggregate number of
shares which may be issued upon exercise of options under the plan shall not
exceed 1,600,000. The plans are administered by the Stock Option Committee of
the Board which determines the terms and conditions of options issued under the
plans. Options granted to date under the plans become exercisable over four to
five years and expire ten years after date of grant. As of March 31, 2001, the
Company had 360,163 and 533,116 options available to be granted under the 1997
Non-Officer Employee Stock Option Plan and 1997 Equity Participation Plan,
respectively.
The Company has elected to account for its stock-based compensation plans in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," under which no compensation expense has been
recognized because the option price equals the market price of the
-41-
Company's stock at the grant date of the options. The Company has computed for
pro forma disclosure purposes the value of all options granted during fiscal
years 2001, 2000 and 1999, using the Black-Scholes option pricing model as
prescribed by SFAS 123, "Accounting for Stock-Based Compensation," and the
following assumptions:
2001 2000 1999
-------- -------- -------
Risk-free interest rate 4.77 - 6.82 % 5.37 - 6.91% 4.46 - 6.03%
Expected dividend yield 0% 0% 0%
Expected lives 5 - 10 years 5 - 10 years 5 - 10 years
Expected volatility 78.21% 72.20% 68.94%
Using the Black Scholes methodology, the total value of options granted during
fiscal years 2001, 2000 and 1999 was approximately $1,524,000, $2,560,000 and
$4,633,000, respectively, which would be amortized on a pro forma basis over the
vesting period of the option. The weighted average fair value of options granted
during the years ended March 31, 2001, 2000 and 1999 was $3.82, $4.03 and $5.04,
respectively. Options to purchase 1,026,899, 2,494,190 and 2,006,932 shares of
common stock were exercisable at March 31, 2001, 2000 and 1999, respectively.
These exercisable options had weighted average exercise prices of $4.39, $4.70
and $4.57 at March 31, 2001, 2000 and 1999, respectively.
Adjustments were made for options forfeited prior to vesting. Had compensation
expense for these plans been determined in accordance with SFAS 123, the
Company's net income (loss) and basic and diluted earnings (loss) per common
share reflected on the March 31, 2001, 2000 and 1999 statements of operations
would have been the following unaudited pro forma amounts:
2001 2000 1999
----------- ----------- ----------
Net income (loss)
As reported $(7,577,368) $3,424,806 $2,042,506
Pro forma (8,156,972) 2,293,758 95,767
Basic earnings (loss) per share
As reported $ (.63) $ .33 $ .19
Pro forma (.68) .22 .01
Diluted earnings (loss) per share
As reported $ (.63) $ .32 $ .18
Pro forma (.68) .21 .01
-42-
The table below summarizes the plans' activity:
Options Outstanding
--------------------------------
Weighted
Number of Average
Shares Exercise Price
------------- -----------------
Balance at March 31, 1998 2,825,325 $4.60
Granted-
Option price = fair market value 919,216 5.04
Exercised (45,977) 2.77
Canceled (252,458) 4.77
----------- -----
Balance at March 31, 1999 3,446,106 4.73
Granted-
Option price = fair market value 607,837 3.97
Option price > fair market value 15,000 7.38
Option price < fair market value 12,500 2.81
Exercised (74,613) 3.08
Canceled (147,128) 5.75
----------- -----
Balance at March 31, 2000 3,859,702 4.60
Granted-
Option price = fair market value 393,575 3.80
Option price > fair market value 5,420 4.61
Exercised (1,721,060) 4.67
Canceled (872,948) 5.12
----------- -----
Balance at March 31, 2001 1,664,689 $4.07
=========== =====
The following table summarizes information about stock options outstanding at
March 31, 2001:
Options Outstanding Options Exercisable
------------------------------------------------------- -------------------------
Outstanding Weighted Exercisable Weighted
Range of as of Weighted Average Average As of Average
Exercise March 31, Remaining Exercise March 31, Exercise
Prices 2001 Contractual Life Price 2001 Price
--------------- ----------------- --------------------- ------------- ------------- ---------
$1.00 - $2.59 45,000 9.8 $2.19 - $0.00
2.60 - 6.49 1,609,689 5.2 4.09 1,016,899 4.34
6.50 - 9.78 10,000 8.3 9.50 10,000 9.50
-------------- -------------
1.00 - 9.78 1,664,689 5.4 4.07 1,026,899 4.39
============== =============
In November 1996, the Company adjusted the number of shares of common stock
issued and outstanding to employees under the 1986 stock option plan. The
adjustment, which increased the number of shares outstanding by 222,408 shares,
also included reduction in the exercise price. This adjustment was done
-43-
to equalize the options' values before and after the distribution of the common
stock of BlowOut in November 1996 (Note 13).
In March 1998, the Company agreed to issue warrants to buy up to 1,000,000
shares of the Company's common stock at an exercise price of $6.59 per share,
which exceeded market value at date of grant. The warrants were issued in
connection with entering into a long-term agreement with a customer. These
warrants expired unexercised in March 2000.
All warrants which the Company agreed to issue in 1995 and 1998 were valued by
an outside valuation firm using standard warrant valuation models. All warrants
issued in 1999 and 2000 were valued based on an internal valuation model using
the Black Scholes methodology. The value of the warrants of $4,762,116 was
recorded in the equity section and is being amortized over the associated
periods to be benefited by each warrant. In fiscal 2001, 2000 and 1999, expense
associated with the warrants was approximately $368,000, $510,000 and $718,000,
respectively.
In May 1995, the Board of Directors approved a shareholders' rights plan
designed to ensure that all of the Company's shareholders receive fair and equal
treatment in the event of certain proposals to acquire control of the Company.
Under the rights plan, each shareholder received a dividend of one right for
each share of the Company's outstanding common stock, entitling the holders to
purchase one additional share of the Company's common stock. The rights become
exercisable after any person or group acquires 15 percent or more of the
Company's outstanding common stock, or announces a tender offer which would
result in the offeror becoming the beneficial owners of 15 percent or more of
the Company's outstanding stock. Prior to the time that a person or group
acquires beneficial ownership of 15 percent or more of the Company's outstanding
stock, the Board of Directors, at their discretion, may waive this provision
with respect to any transaction or may terminate the rights plan.
Executive Option Loan Program
In June 2000, the board of directors approved a program to make loans available
to those officers of the Company who had an employment agreement for the purpose
of allowing them to exercise their vested, unexercised "out of the money"
employee stock options. The loans under this program bear interest at the
federal funds rate in effect on the date of the loan and interest is payable
annually. The principal amount of the loan is due on the earliest to occur of:
(1) one year prior to the expiration of the term of the borrower's current
employment agreement with the Company, (2) one year after the borrower leaves
the Company's employment unless such departure follows a "change of control" (as
defined in the loan agreements), (3) five years from the date of the loan, or
(4) one year from the date of the borrower's death. The loans are secured by the
stock purchased upon the exercise of the options. The loans are without recourse
(except as to the stock securing the loans) as to principal and are with full
recourse against the borrower as to interest. The offer to make these loans
expired September 30, 2000. Prior to September 30, 2000, several employees
accepted this offer and obtained loans from the Company. Because the loan
proceeds were immediately used to pay the exercise price of the options to the
Company, there was no net outflow of cash from the Company in connection with
these loans. The Company accounted for the options related to these loans using
variable accounting as prescribed by APB 25. As the exercise price of the
options was greater than the fair market value of the Company's stock through
March 31, 2001, no compensation expense was recorded. The balance remaining due
on these loans is reflected as an offset to equity in the accompanying
consolidated balance sheet and consolidated statement of shareholders' equity.
-44-
9. Commitments
Leases
The Company leases certain facilities and equipment under operating leases
expiring at various dates through 2009. Approximate rental payments over the
term of the leases exceeding one year are as follows:
Year Ending March 31,
----------------------
2002 $3,223,947
2003 3,449,400
2004 3,413,055
2005 3,404,573
2006 3,198,259
2007 and thereafter 7,139,731
----------
$23,828,965
==========
The leases provide for payment of taxes, insurance and maintenance by the
Company. The Company also rents vehicles and equipment on a short-term basis.
Rent expense under operating leases was approximately $2,953,840, $2,335,000 and
$1,926,000 for the fiscal years ended March 31, 2001, 2000 and 1999,
respectively.
Guarantees and Advances
The Company has entered into several guarantee contracts with program suppliers
providing titles for distribution under the PPT system. In general, these
contracts guarantee the suppliers minimum payments. In some cases these
guarantees were paid in advance. Any advance payments that the Company has made
and will be realized within the current year are included in advances to program
suppliers. The long-term portion is included in other assets. Both the current
and long-term portion are amortized to cost of sales as revenues are generated
from the related cassettes.
The Company, using empirical data, estimates the projected revenue stream to be
generated under these guarantee arrangements and accrues for projected losses or
reduces the carrying amount of advances to program suppliers for any guarantee
that it estimates will not be fully recovered through future revenues. As of
March 31, 2001 and 2000, the Company has reserved approximately $2,400,000 and
$2,000,000, respectively, for potential losses under such guarantee
arrangements.
On March 22, 1999, BlowOut filed for Chapter 11 of the Federal Bankruptcy Code
in the United States Bankruptcy Court for the District of Delaware. At that same
time BlowOut filed a motion to sell substantially all the assets of BlowOut.
BlowOut is not related to the Company's wholly owned subsidiary BlowOut Video,
Inc. The sale, to a third party video retailer, was approved on May 10, 1999 and
closed on May 17, 1999. The Company was the principal creditor of BlowOut. In
1996, the Company had agreed to guarantee up to $7 million of indebtedness of
BlowOut (Guarantee). Pursuant to the terms of the Guarantee, the Company agreed
to guarantee any amounts outstanding under BlowOut's credit facility. As the
sale of the BlowOut assets were not sufficient to cover the amounts due under
this facility, the Company, pursuant to the Guarantee, has agreed to a payment
plan to fulfill BlowOut's obligation under its credit facility. The amount
outstanding at March 31, 2001 is approximately $300,000. The payments, as made,
will be recorded as a reduction of "net current liabilities of discontinued
operations" on the accompanying balance sheet (see also Note 13).
-45-
Customer Agreement
In June 2000, the Company entered into an agreement with one of its customers to
modify an existing contract. Under terms of the agreement the customer made a
payment to the Company in the amount of $2,500,000. Subsequent to the signing of
the agreement, the customer took the position that it was entitled to a refund
of the payment, as additional agreements were not finalized as expected. On
March 31, 2001, the Company entered into a settlement agreement with the
customer whereby $1,600,000 of the $2,500,000 payment was determined to be
consideration for cancellation of certain rights of Rentrak under the existing
contract while the balance of $900,000 was held by the Company as a deposit to
be applied to future receivables generated by the customer. The $900,000 deposit
is to be allocated towards future receivables at the rate of $75,000 per
quarter, beginning with the quarter ended March 31, 2001. The long-term portion
of this credit has been included in other long-term liabilities on the
accompanying balance sheet.
10. Contingencies
In June 1998, Video Update, Inc. (Video Update) filed a complaint (the Video
Update Complaint) against the Company entitled Video Update, Inc. v. Rentrak
Corp., Civil Action No. 98-286, in the United States District Court for the
District of Delaware. The Video Update Complaint alleges various violations of
the antitrust laws, including that the Company has monopolized or attempted to
monopolize a market for videocassettes leased to retain video stores in
violation of Section 2 of the Sherman Act. Video Update further alleges that the
Company's negotiation and execution of an exclusive, long-term revenue sharing
agreement with Video Update violates Section 1 of the Sherman Act and Section 3
of the Clayton Act. Video Update is seeking unspecified monetary relief,
including treble damages and attorney fees, and equitable relief, including an
injunction prohibiting the Company from enforcing its agreement with Video
Update or any exclusivity provision against videocassette suppliers and video
retailers. In August 1998, the Court granted the Company's motion to dismiss the
Video Update Complaint pursuant to Federal Rules of Civil Procedure Rule
12(b)(3) on the basis of improper venue.
In August 1998, Video Update filed a new complaint against the Company in the
United States District Court for the District of Oregon (the Re-Filed
Complaint), Case No. 98-1013HA. The Re-Filed Complaint is substantially the same
as the previous complaint. The Company believes the Re-Filed Complaint lacks
merit and intends to vigorously defend against the allegations in the Complaint.
The Company has answered the Re-Filed Complaint denying its material allegations
and asserting several affirmative defenses. The Company also has counterclaimed
against Video Update alleging, among other things, breach of contract, breach of
the covenant of good faith and fair dealing, promissory fraud, breach of
fiduciary duty, breach of trust, constructive fraud, negligent misrepresentation
and intentional interference with business advantage, and is seeking damages and
equitable relief.
In October 1998, the Company filed a motion for summary judgment seeking to
dismiss the lawsuit filed against it by Video Update. In January 1999, the
Company filed a separate motion for partial summary judgment on its breach of
contract counterclaim seeking to recover more than $4.4 million in fees and
interest which the Company claims Video Update owes to it. The court denied
Rentrak's motions without reaching the merits and without prejudice to refiling
the motions after discovery had been conducted. On October 21, 1999, the Company
amended its counterclaims to add additional claims, including a claim for trade
secret misappropriation and a claim for recovery of personal property. The
amended countercomplaint also added Video Update's chairman, Daniel Potter, as a
defendant to the fraud and negligent misrepresentation claims. Mr. Potter filed
a motion to dismiss the Company's claims against him which motion was granted by
the Court on April 13, 2000. Video Update also moved to dismiss six of the
Company's claims. On April 13, 2000, the Court granted Video Update's motion in
part and dismissed the following claims: promissory fraud, breach of fiduciary
duty, breach of trust, constructive fraud, and negligent misrepresentation. On
July 31, 2000, the Company filed multiple motions for summary judgment including
a motion seeking to dismiss Video Update's antitrust claim and a motion seeking
a finding that Video Update breached its contract with Rentrak. On September 18,
2000, Video Update filed
-46-
a voluntary petition under Chapter 11 of the federal Bankruptcy Code. In light
of the bankruptcy case, the District Court dismissed the Re-Filed Complaint and
counterclaims on its own motion in January 2001, but that action could be
reinitiated by Video Update at any time. The Company has filed a proof of claim
in the bankruptcy case asserting the claims the Company asserted in its
counterclaim in the District Court action.
On November 15, 2000, 3PF.COM, Inc., a subsidiary of the Company, filed a
proceeding with the American Arbitration Association against Reel.com, Inc., a
subsidiary of Hollywood Entertainment Corporation (Hollywood), for breach of a
servicing, warehousing, and distribution agreement, and against Hollywood in
connection with its guarantee of the obligations of Reel.com, Inc., under the
agreement. 3PF.COM, Inc., is seeking damages in the amount of $4,776,237 plus an
amount to be determined as consequential damages, together with prejudgment
interest and attorney fees. Hollywood and Reel.com, Inc., have filed a
counterclaim for attorney fees.
On February 20, 2001, the Company filed a complaint against Ron Berger, Chairman
and Chief Executive Officer and a director of Rentrak until September 2000, in
the Circuit Court of the State of Oregon for the County of Multnomah (No.
0102-01814), seeking cancellation of shares of Rentrak common stock acquired by
Mr. Berger through an option loan program offered to the Company's officers in
June 2000 and damages for the conversion of an automobile and computer equipment
plus an over-advance payment of business expenses less setoffs. On or about
March 29, 2001, Mr. Berger filed a counterclaim seeking damages of approximately
$1.76 million plus attorney fees from Rentrak for conversion of Mr. Berger's
director's fees and dividends from Rentrak Japan, breach of an agreement to
compensate Mr. Berger for cancellation of options to purchase Rentrak stock,
failure to pay accumulated wages and compensation, breach of an agreement to
provide options to purchase stock in Rentrak's subsidiary 3PF.COM, Inc., and
failure to reimburse Mr. Berger for life insurance premiums and cancellation of
family health insurance. The claim for breach of an agreement to provide options
to purchase stock in the subsidiary is also asserted against counterclaim
defendant 3PF.COM, Inc. The Company has denied liability for the counterclaims.
On June 15, 2001, the Company filed an amended complaint alleging claims for
breach of duty of care and breach of fiduciary duty against Mr. Berger arising
out of his activities as an officer and director of the Company involving Video
City, Inc., and seeking damages with respect to those claims in an amount to be
proved at trial but not less than $6.0 million. The case is presently in the
discovery phase. The Company intends to contest the case vigorously.
The Company is also subject to legal proceedings and claims that arise in the
ordinary course of its business. In the opinion of management, the amount of any
ultimate liability with respect to these actions is not expected to materially
affect the financial position or results of operations of the Company as a
whole.
11. Employee Benefit Plans
On January 1, 1991, the Company established an employee benefit plan (the 401(k)
Plan) pursuant to Section 401(k) of the Internal Revenue Code for certain
qualified employees. Contributions made to the 401(k) Plan are based on
percentages of employees' salaries. The total amount of the Company's
contribution is at the discretion of the Board of Directors. Contributions under
the 401(k) Plan for the years ended March 31, 2000 and 1999 were approximately
$77,000 and $76,000, respectively. As of March 31, 2001, the Board of Directors
had not made a decision regarding contributions for the year ended March 31,
2001.
The Company has an Employee Stock Purchase Plan (the Plan). The Board of
Directors has reserved 200,000 shares of the Company's common stock for issuance
under the Plan, of which 139,773 shares remain authorized and available for sale
to employees. All employees meeting certain eligibility criteria may be granted
the opportunity to purchase common stock, under certain limitations, at 85
percent of market value. Payment is made through payroll deductions.
-47-
Under the Plan, employees purchased 4,000 shares for aggregate proceeds of
$13,561, 3,257 shares for aggregate proceeds of $14,370 and 4,245 shares for
aggregate proceeds of $20,214, in fiscal 2001, 2000 and 1999, respectively.
12. Business Segments, Significant Suppliers and Major Customer
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information," (SFAS 131). SFAS 131 requires the Company
to report certain information about operating segments. The Company classifies
its services in three segments, PPT, 3PF.COM and Other. Other services include
operations of BlowOut Video, a video retailer, website services and amounts
received pursuant to royalty agreements.
Business Segments
2001 2000 1999
----------- ---------- ----------
Net sales (1):
PPT $ 83,637,704 $ 94,149,121 $106,972,685
3PF.COM (2) 23,389,443 11,648,725 10,501,958
Other 13,488,063 11,654,081 6,912,523
----------- ---------- -----------
$120,515,210 $117,451,927 $124,387,166
=========== =========== ===========
Income (loss) from operations
PPT $ (6,694,623) $ 1,892,505 $ (1,115,934)
3PF.COM (2) (3,788,576) (1,131,654) 862,257
Other 539,929 2,260,390 3,003,074
----------- ---------- -----------
$ (9,943,270) $ 3,021,241 $ 2,749,397
=========== ========== ===========
Identifiable assets (1):
PPT $ 38,202,038 $ 44,571,673 $ 45,743,988
3PF.COM 8,425,876 2,703,360 1,152,171
Other 5,566,431 6,195,923 4,177,146
----------- ---------- -----------
$ 52,194,345 $ 53,470,956 $ 51,073,305
=========== ========== ===========
(1) Total amounts differ from those reported on the consolidated financial
statements as intercompany transactions and balances are not
eliminated for segment reporting purposes.
(2) 3PF.COM's revenues related to the shipment of cassettes to Rentrak's
PPT customers was $3,300,000, $3,300,000 and $3,800,000 for the years
ended March 31, 2001, 2000 and 1999, respectively.
The Company has one program supplier that supplied product that generated 18
percent, a second that generated 15 percent, and a third that generated 13
percent of the Company's revenues for the year ended March 31, 2001. The Company
has one program supplier that supplied product that generated 25 percent, a
second that generated 19 percent, and a third that generated 13 percent of the
Company's revenues for the year ended March 31, 2000. The Company has one
program supplier that supplied product that generated 28 percent, a second that
generated 26 percent, and a third that generated 15 percent of the Company's
revenues for the year ended March 31, 1999. There were no other program
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suppliers who provided product accounting for more than 10 percent of sales for
the years ended March 31, 2001, 2000 and 1999.
The Company currently receives a significant amount of product from three
program suppliers. Although management does not believe that these relationships
will be terminated in the near term, a loss of one of these suppliers could have
an adverse effect on operating results.
One customer accounted for 13 percent of the Company's revenues in 1999. No
customer accounted for more than 10 percent of the Company's revenues in fiscal
2001 and 2000.
13. Discontinued Operations
On November 26, 1996, the Company made a distribution to its shareholders of
1,457,343 shares of common stock (the BlowOut Common Stock) of BlowOut. BlowOut
is not related to the Company's wholly owned subsidiary BlowOut Video, Inc.
During the year ended March 31, 2000, the Company recorded a gain on the
disposal of discontinued operations of $1,900,000 related to BlowOut, as the
liability related to BlowOut contingencies was less than estimated. The Company
also reduced the valuation allowance that was recorded against the deferred tax
asset related to liabilities of discontinued operations. This reduction of
approximately $500,000 in the valuation allowance was recorded as an income tax
benefit from discontinued operations in the accompanying consolidated statement
of operations. Net current liabilities of discontinued operations at March 31,
2001 relate to amounts to be paid pursuant to the Guarantee, net of tax benefit.
14. Subsequent Events
Rentrak Japan
On April 2, 2001, the Company transferred exclusive rights to implement its PPT
system within specified countries in the Far East, including related trademark
and other intellectual property rights, to Rentrak Japan, which distributes
video cassettes, DVDs, and video games on a revenue-sharing basis throughout
Japan. In exchange for the transfer, Rentrak Japan made a lump sum cash payment
of $5.65 million and released certain payment obligations of the Company
totaling $2.1 million. As a part of the transaction, Rentrak Japan's obligation
to pay annual royalties to the Company in connection with use of its PPT system
was terminated.
The Company concurrently sold to So-Tsu Co., Ltd. (So-Tsu), an entity affiliated
with Rentrak Japan, 300,000 shares of Rentrak Japan stock, or approximately 5.6
percent of the outstanding Rentrak Japan shares, in exchange for a cash payment
of $4.0 million. The Company also repurchased from Rentrak Japan 614,000 shares
of the Company's common stock for a cash payment of $2.4 million, or $3.875 per
share. The Company repurchased an additional 390,000 shares of its common stock
for the same price per share, or a total of $1.5 million, from Culture
Convenience Club Co., Ltd., an entity affiliated with Rentrak Japan. The Company
also has the right to, and upon the occurrence of certain conditions will be
required to, sell its remaining 180,000 shares of Rentrak Japan stock,
representing approximately 3.4 percent of the outstanding Rentrak Japan shares,
for a minimum payment of 1,600 yen per share. Finally, the Company sold to
So-Tsu 1 percent of the Company's equity interest in its wholly owned subsidiary
3PF.Com, Inc., for a cash payment of $1 million.
The terms of the transactions between the Company and Rentrak Japan and its
affiliates were negotiated at arm's length. A director of the Company received a
fee totaling approximately $242,000 for his services in negotiating the
transaction.
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3PF.COM
On April 24, 2001, 3PF.COM announced the closure of its administrative office in
Skokie, IL. Services performed at this facility will now be performed at the
Company's headquarters. As a result of this closure, 3PF.COM expects to incur
severance costs related to terminated employees in addition to continued
payments on its operating lease of the office which was to expire in March 2003.
The total estimated cost of the closure of $770,000 will be recognized in the
first quarter of fiscal 2002.
One of 3PF.COM's major clients filed for Chapter 11 bankruptcy during May 2001,
which may negatively impact 3PF.COM's financial results during fiscal 2002. As a
result, management is closely evaluating the net realizable value of its assets
with respect to this matter. The Company is currently seeking opportunities to
replace this client, as well as attract new clients to 3PF.COM's business.
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RENTRAK CORPORATION
Valuation and Qualifying Accounts
Schedule II
Balance at Charged to Balance at
Beginning of Write Off and Other Recoveries The End of
Year Ended: Period Expenses Accounts (Deductions) Period
- -------------------------------------------------------------------------------------------------------------
Allowance for doubtful accounts
March 31, 1999 586,641 (125,000) - (106,400) 355,241
March 31, 2000 355,241 6,341,030 - (5,859,326) 836,945
March 31, 2001 836,945 7,758,211 - (6,505,081) 2,090,075
Advances to program suppliers reserve
March 31, 1999 1,182,757 (17,597) - - 1,165,160
March 31, 2000 1,165,160 110,918 - - 1,276,078
March 31, 2001 1,276,078 93,959 - - 1,370,037
Other Current Assets-
Retailer Financing Program reserve
March 31, 1999 - - 994,935 1 - 994,935
March 31, 2000 994,935 - (500,000) 1 - 494,935
March 31, 2001 494,935 343,500 - - 838,435
Other Assets-
Retailer Financing Program reserve
March 31, 1999 9,353,995 (194,888) (559,433) 1 (18,921) 8,580,753
March 31, 2000 8,580,753 1,245,157 (4,615,665) 2 (20,997) 5,189,248
March 31, 2001 5,189,248 581,715 - (10,884) 5,760,079
1 - Reclassified from Other Current Assets to Other Assets.
2 - Eliminated against Other Assets.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) to Form 10-K, the information
called for by this item 10 is incorporated by reference from the Company's
definitive Proxy Statement for its 2001 Annual Meeting of Shareholders to
be filed with the Securities and Exchange Commission pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended. See
"Election of Directors", "Executive Officers" and "Compliance with Section
16(a) of the Securities Exchange Act of 1934."
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to General Instruction G(3) to Form 10-K, the information
called for by this item 11 is incorporated by reference from the Company's
definitive Proxy Statement for its 2001 Annual Meeting of Shareholders to
be filed with the Securities and Exchange Commission pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended. See
"Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Pursuant to General Instruction G(3) to Form 10-K, the information
called for by this item 12 is incorporated by reference from the Company's
definitive Proxy Statement for its 2001 Annual Meeting of Shareholders to
be filed with the Securities and Exchange Commission pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended. See
"Security Ownership of Certain Beneficial Owners and Management".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G(3) to Form 10-K, the information
called for by this item 13 is incorporated by reference from the Company's
definitive Proxy Statement for its 2001 Annual Meeting of Shareholders to
be filed with the Securities and Exchange Commission pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended. See
"Compensation Committee Interlocks And Insider Participation" and "Certain
Relationships And Transactions".
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a)(1) Financial Statements
The following documents are filed as part of the Report:
Consolidated Financial Statements: The Consolidated
Financial Statements of the Company are included in
Item 8 of this Report as follows:
Report of Independent Public
Accountants
Consolidated Balance Sheets as of March 31, 2001
and 2000
Consolidated Statements of Operations for the Years
Ended March 31, 2001, 2000 and 1999
Consolidated Statements of Stockholders' Equity
for the Years Ended March 31, 2001,
2000 and 1999
Consolidated Statements of Cash Flows for the Years Ended
March 31, 2001, 2000 and 1999
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules
Consolidated Financial Statement Schedules: The
following consolidated financial statement schedule
has been included in Item 8 of this Report:
Schedule II - Valuation and Qualifying Accounts
Schedules not included have been omitted because they are not
applicable or the required information is shown in the financial
statements or notes thereto.
(a)(3) Exhibits: The exhibits required to be filed pursuant
to Item 601 of Regulation S-K are set forth in the Exhibit
Index.
(b) Form 8-K Reports. During the fourth quarter of fiscal 2001,
the Company filed no reports on Form 8-K.
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(c) Exhibits (See Exhibit Index)
1. A shareholder may obtain a copy of any exhibit included in this Report
upon payment of a fee to cover the reasonable expenses of furnishing such
exhibits by written request to Rick Nida, Vice President Investor
Relations, Rentrak Corporation, PO Box 18888, Portland, Oregon 97218.
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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.
RENTRAK CORPORATION
By /S/ F. Kim Cox
--------------------------------------
F. Kim Cox, President
Date June 28, 2001
--------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and the dates indicated.
Principal Executive Officer and Director:
By /S/ Paul A. Rosenbaum June 28, 2001
---------------------------
Paul A. Rosenbaum, Chairman and Chief
Executive Officer and Director
Principal Financial Officer:
By /S/ Mark L. Thoenes June 28, 2001
---------------------------
Mark L. Thoenes, Vice President &
Chief Financial Officer
Majority of Directors:
*By /S/ Cecil D. Andrus June 28, 2001
---------------------------
Cecil D. Andrus, Director
*By /S/ George H. Kuper June 28, 2001
---------------------------
George H. Kuper, Director
*By /S/ Joon S. Moon June 28, 2001
---------------------------
Joon S. Moon, Director
*By /S/ James G. Petcoff June 28, 2001
---------------------------
James G. Petcoff, Director
*By /S/ Stanford Stoddard June 28, 2001
---------------------------
Stanford Stoddard, Director
------------------
*By /S/ Mark L. Thoenes
--------------------------
Mark L. Thoenes, Attorney-in-Fact
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EXHIBIT INDEX
The following exhibits are filed herewith or, if followed by a
number in parentheses, are incorporated herein by reference from the
corresponding exhibit filed in the report or registration statement
identified in the footnotes following this index:
Exhibit
Number Exhibit
2 Agreement Concerning Changes to Business Cooperation Agreement
(Framework) between Rentrak Japan Co., Ltd. and Rentrak
Corporation. (1)
3.1 Amended and Restated Articles of Incorporation and amendments
thereto. (2)
3.2 1995 Restated Bylaws, as amended to date. (3)
10.1* 1986 Second Amended and Restated Stock Option Plan and Forms of
Stock Option Agreements. (4)
10.2* Amendment to 1986 Second Amended and Restated Stock Option Plan
dated May 19, 2000. (5)
10.3 Guarantee Agreement dated as of June 26, 1996, between Rentrak
Corporation and BlowOut Entertainment, Inc. (6)
10.4* Amended and Restated Employment Agreement with Marty Graham dated
May 17, 1997. (7)
10.5* Addendum to Employment Agreement with Marty Graham dated
June 8, 2000. (8)
10.6* Amendment to Employment Agreement with Marty Graham dated
September 1, 2000.
10.7* Employment Agreement with Michael Lightbourne dated July 10,
1997. (9)
10.8* Employment Agreement with Christopher Roberts dated October 27,
1997. (10)
10.9* Addendum to Employment Agreement with Christopher Roberts dated
June 8, 2000. (11)
10.10* Employment Agreement with Ron Berger dated April 21, 1998. (12)
10.11* Amendment to Employment Agreement with Ron Berger dated
August 28, 2000. (13)
10.12* Amendment to Employment Agreement with Ron Berger dated
September 11, 2000. (14)
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10.13* The 1997 Equity Participation Plan of Rentrak Corporation, as
amended.
10.14* Form of Non-Qualified Stock Option Agreement under 1997 Equity
Participation Plan.
10.15* Form of Incentive Stock Option Agreement under 1997 Equity
Participation Plan.
10.16* Employment Agreement with F. Kim Cox dated April 1, 1998. (15)
10.17* Promissory Note entered into with F. Kim Cox dated June 16, 2000.
(16)
10.18* Loan Agreement with F. Kim Cox dated June 16, 2000. (17)
10.19* Stock Pledge Agreement executed by F. Kim Cox, dated June 16,
2000. (18)
10.20* Promissory Note entered into with Ron Berger dated June 16, 2000.
(19)
10.21* Loan Agreement with Ron Berger dated June 16, 2000. (20)
10.22* Stock Pledge Agreement executed by Ron Berger, dated June 16,
2000. (21)
10.23 Loan and Security Agreement with Guaranty Business Credit
Corporation dated May 26, 2000. (22)
10.24 General Continuing Guarantee with Guaranty Business Credit
Corporation dated May 26, 2000. (23)
10.25* Employment Agreement with Mark L. Thoenes dated January 1, 2001.
10.26* Employment Agreement with Timothy J. Erwin dated January 1, 2001.
10.27* Employment Agreement with Richard A. Nida dated August 14, 1998, with
Addendum dated June 8, 2000.
10.28 Rights Agreement dated as of May 18, 1995, between Rentrak
Corporation and U.S. Stock Transfer Corporation. (24)
10.29* Letter Agreement between Rentrak Corporation and Joon S. Moon
entered into as of March 15, 2001.
10.30* Incentive Stock Option Agreement with Paul A. Rosenbaum dated
March 30, 2001.
10.31* Non-Qualified Stock Option Agreement with Paul A. Rosenbaum dated
March 30, 2001.
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21 List of Subsidiaries of Registrant.
23 Consent of Arthur Andersen LLP.
99 Description of Capital Stock of Rentrak Corporation.
- ---------------------------------
*Management Contract or Compensatory Plan or Arrangement.
1. Filed as Exhibit 2 to Form 8-K filed on April 17, 2001.
2. Filed in Form S-3 Registration Statement, File No. 33-8511, filed on
November 21, 1994.
3. Filed as Exhibit 3.1 to Form 10-Q filed on February 14, 2001.
4. Filed as Exhibit 10.1 to 1993 Form 10-K filed on June 28, 1993 (File
No. 0-15159).
5. Filed as Exhibit 10.30 to 2000 Form 10-K filed on June 29, 2000.
6. Filed as Exhibit 2 to Form 8-K filed on December 9, 1996.
7. Filed as Exhibit 10.1 to Form 10-Q filed on November 3, 1997.
8. Filed as Exhibit 10.23 to 2000 Form 10-K filed on June 29, 2000.
9. Filed as Exhibit 10.2 to Form 10-Q filed on November 3, 1997.
10. Filed as Exhibit 10.3 to Form 10-Q filed on November 3, 1997.
11. Filed as Exhibit 10.24 to 2000 Form 10-K filed on June 29, 2000.
12. Filed as Exhibit 10.35 to 1998 Form 10-K filed on June 25, 1998.
13. Filed as Exhibit 10.1 to Form 10-Q filed on November 14, 2000.
14. Filed as Exhibit 10.2 to Form 10-Q filed on November 14, 2000.
15. Filed as Exhibit 10.2 to Form 10-Q filed on November 6, 1998.
16. Filed as Exhibit 10.26 to 2000 Form 10-K filed on June 29, 2000.
17. Filed as Exhibit 10.35 to Amendment No. 1 on Form 10-K/A filed on
July 31, 2000.
18. Filed as Exhibit 10.33 to Amendment No. 1 on Form 10-K/A filed on
July 31, 2000.
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19. Filed as Exhibit 10.27 to 2000 Form 10-K filed on June 29, 2000.
20. Filed as Exhibit 10.28 to 2000 Form 10-K filed on June 29, 2000.
21. Filed as Exhibit 4 to Form 8-K filed on June 5, 1995.
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