-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, EJ4ui6jF364MDDlAW1EbcXP9r+rB7OeArZWL9HIvPIIvgdGR6F4+cVXzosMuAzIG Terupwt9UALeTT+b9tNy8A== 0000912057-95-005054.txt : 199506300000912057-95-005054.hdr.sgml : 19950630 ACCESSION NUMBER: 0000912057-95-005054 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950629 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: RENTRAK CORP CENTRAL INDEX KEY: 0000800458 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 930780536 STATE OF INCORPORATION: OR FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-15159 FILM NUMBER: 95551104 BUSINESS ADDRESS: STREET 1: 7227 NE 55TH CITY: PORTLAND STATE: OR ZIP: 97218 BUSINESS PHONE: 5032847581 MAIL ADDRESS: STREET 1: PO BOX 18888 CITY: PORTLAND STATE: OR ZIP: 97218 FORMER COMPANY: FORMER CONFORMED NAME: NATIONAL VIDEO INC DATE OF NAME CHANGE: 19881004 10-K405 1 FORM 10K This filing consists of _______ pages. The Exhibit Index is on Page _____. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 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, 1995 or Transition report pursuant to Section 13 or 15(d) of the Securities - ------ Exchange Act of 1934 COMMISSION FILE NUMBER D-15159 RENTRAK CORPORATION (exact name of registrant as specified in its charter) OREGON 93-0780536 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number.) 7227 N.E. 55TH AVENUE, PORTLAND, OREGON 97218 (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 21, 1995, the aggregate market value of the voting stock held by non-affiliates of the registrant, based on the last sales price as reported by NASDAQ was $60,142,050. (Excludes value of shares of Common Stock held of record by directors and officers and by shareholders whose record ownership exceeded five percent of the shares outstanding at June 21, 1995. Includes shares held by certain depository organizations.) As of June 21, 1995, the Registrant had 11,270,568 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE PORTIONS OF THE DEFINITIVE PROXY STATEMENT FOR THE 1995 ANNUAL MEETING OF THE SHAREHOLDERS ARE INCORPORATED BY REFERENCE INTO PART III OF THIS FORM 10-K TABLE OF CONTENTS PART I Item Page - ---- ---- 1. Business 4 2. Properties 3. Legal Proceedings __ 4. Submission of Matters to a Vote of Security Holders __ PART II 5. Market for the Registrant's Common Stock and Related __ Stockholder Matters 6. Selected Financial Data __ 7. Management's Discussion and Analysis of Financial __ Conditions and Results of Operations 8. Financial Statements and Supplementary Data __ 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure __ PART III 10. Directors and Executive Officers of the Registrant __ 11. Executive Compensation __ 12. Security Ownership of Certain Beneficial Owners __ and Management 13. Certain Relationships and Related Transactions __ PART IV 14. Exhibits, Financial Statement Schedules and __ Reports on Form 8-K (A) Financial Statements of Rentrak Japan __ These statements are not provided as Rentrak Corporation's equity in the pretax income of Rentrak Japan does not meet the significant subsidiary test using a 20% threshold. The royalty income received from Rentrak Japan is under a separate royalty arrangement. PART I ITEM 1. BUSINESS - ------------------------------------------- GENERAL Rentrak Corporation (the "Company") is a diversified entertainment company that through its operating subsidiaries, engage in two primary businesses. Through its Rentrak Home Entertainment ("RHE") division, the Company distributes videocassettes through its Pay-Per-Transaction (PPT) system. In addition, the Company operates an independent chain of licensed sports apparel stores through its Pro Image subsidiary. The Company was originally incorporated in Oregon in 1977 and until September 1988 operated its business under the name National Video, Inc. Until the commencement of its PPT System in 1986, the Company's principal business activity was the sale of franchises for the operation of video specialty stores ("National Video Stores"). As of April 1, 1988, there were 531 National Video Stores operating in the Company's franchise system, making it the largest chain in North America at that time. On September 20, 1988, the Company sold its franchise operations to West Coast Video Holdings, Inc. ("West Coast"). Concurrent with the sale, the Company changed its name to Rentrak Corporation. Upon consummation of the sale, the Company's PPT System became its primary business. PAY-PER-TRANSACTION The Company distributes pre-recorded video cassettes ("Cassettes") principally to home video specialty stores under its Pay Per Transaction revenue sharing system (the "PPT System"). The PPT System enables home video specialty stores and other retailers, including grocery stores and convenience stores, who rent Cassettes to consumers ("Retailers") to obtain Cassettes at a significantly lower initial cost than if they purchased the Cassettes from conventional video distributors. Under the PPT System, after the Retailer pays a processing fee (the "Processing Fee") to the Company and is approved for participation in the PPT System, Cassettes are leased to the Retailer for a one-time fee (the "Handling Fee") plus a percentage of revenues generated by retailers from rentals to consumers (the "Transaction Fee"). The Company retains a portion of each Handling and Transaction Fee and remits the remainder to the appropriate owner of the Cassette's distribution rights, usually motion picture producers, licensees or distributors ("Program Suppliers"). The anticipated benefit to the Retailer is a higher volume of rental transactions, as well as a reduction in capital cost and risk. The anticipated benefit to the Program Supplier is an increase in the total number of Cassettes shipped, resulting in increased revenues and opportunity for profit. The anticipated 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 in the PPT System ("Participating Retailers"). The Company markets its PPT System service throughout the United States and Canada. The Company also owns a twenty-five percent interest in Rentrak Japan Corporation, a Japanese corporation which markets a similar service to video retailers in Japan. Prior to June 16, 1994, the Company's ownership position was thirty three and one-third percent. Under conventional distribution, a Program Supplier sells the Cassette to a distributor for an average price of approximately $62. The distributor then sells the Cassette to a Retailer for an average price of approximately $67. The Retailer then rents the Cassette to the consumer at an average price of $2.50 and retains all of the rental revenue. The Company currently offers substantially all of the titles of eleven of the companies believed to represent the twenty largest Program Suppliers, including Twentieth Century Fox Home Entertainment (formerly Fox Video), a subsidiary of Twentieth Century Fox Film Corporation, and Buena Vista Pictures Distribution, Inc., which, on July 22, 1994, entered into a definitive agreement to distribute all of its rental priced theatrical product through the Company's PPT System. The Company's arrangements with Program Suppliers have been 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 Cassettes released for distribution by such Program Supplier will be provided to the Company for the PPT System. There can be no assurance that any of the Program Suppliers will continue to distribute through the Company's PPT System, continue to have available for distribution Cassettes which the Company can distribute on a profitable basis, or continue to remain in business. In addition, some of the Company's agreements with its major Program Suppliers may be terminated upon a relatively short notice. Even if Cassettes 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 deficiency in its ability to acquire cassettes which are suitable for the Company's markets on acceptable terms and conditions from Program Suppliers who have agreed to provide the same to the Company. Certain Program Suppliers have requested financial or performance commitments from the Company, including advances, warrants, letters of credit or guarantees as a condition of obtaining certain titles. The Company has provided such commitments primarily to induce Program Suppliers to begin participation in the PPT System and to demonstrate its financial benefits. 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. In certain cases, the Company has entered into and plans to continue to enter into long term PPT agreements (usually 5-20 years) with certain retailers. Notwithstanding the long term nature of such agreements, both the Company and the retailer may, in some cases, retain the right to terminate such agreement upon 30-90 days prior written notice. Therefore, no assurance can be given that any of such long term PPT agreements with retailers will continue for the entire term of the PPT agreement. DISTRIBUTION OF CASSETTES The Company's proprietary software allows the Retailer to order Cassettes through their Point of Sale (POS) system and provides the Retailer with substantial information regarding all offered titles. Ordering occurs via a networked computer interface. To further assist the Retailer 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. The Company distributes its Cassettes via overnight air courier to assure delivery to Participating Retailers on the street date. The costs of such distribution comprise a significant portion of the Company's cost of sales. COMPUTER OPERATIONS To participate in the Company's PPT System, Retailers must have approved computer software and hardware to process all of their rental and sale transactions. In order to participate in the PPT System, 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 Rentrak Profit Maker Software (the "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 computer processes these transactions and prepares reports for Program Suppliers and Retailers. In addition, it determines variations from statistical norms for potential audit action. The Company's computer also transmits information on new titles and confirm orders made to the RPM Software at the Retailer location. Streamlined Solutions, Inc., ("SSI") an Oregon corporation, is a wholly owned subsidiary of the Company. SSI markets the Company's expertise in such areas as information processing and just in time distribution. SSI also does business as a software development company. The operations of SSI include the development and sale of computer software used in the operation of a variety of retail outlets. RETAILER AUDITING The Company audits Participating Retailers in order to verify that they are reporting all rentals and sales on a consistent, accurate and timely basis. Several different types of exception reports are produced weekly. These reports are designed to identify any Participating Retailers who 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 are conducted with and without notice and refusal to allow such an audit is cause for immediate termination from the PPT System. If audit violations are found, the Participating Retailer is subject to fines, audit penalties, immediate removal from the PPT System and 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 do 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 The Company has established a retailer financing program whereby on a selective basis, the Company will provide financing to video retailers which the Company believe demonstrate prospects for substantial growth in the industry. In connection with these financings, the Company typically makes a loan and/or equity investment in the retailer. In some cases, a warrant to purchase stock may be obtained. As part of such financing, the retailer typically agrees to cause all of its current and future retail locations to participate in the PPT System for a designated period of time. 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 failure of certain of these investments under its retailer financing program could have a material adverse impact on the Company's results of operations and financial performance. The Board of Directors has authorized up to $14 million to be used in connection with the Company's retailer financing program. As of June 5, 1995, the Company has invested or made oral or written commitments for substantially all of the $14 million authorized for this program (See note 4 of the Consolidated Financial Statements). COMPETITION The home video industry is highly competitive. The Company has one direct competitor presently distributing cassettes on a revenue sharing basis. The Company, SuperComm, Inc., is a wholly-owned subsidiary of the Walt Disney Co. and has thus far concentrated its efforts in the supermarket industry. In addition, the Company faces substantial competition from conventional distributors. The Company's competitors include organizations which have existing distribution networks, long-standing relationships with Program Suppliers and Retailers, and/or significantly greater financial resources than the Company. Moreover, several companies are believed to be currently developing or testing technologies which could be implemented to provide alternatives to PPT. In addition to the direct competition described above, the Company faces indirect competition from alternative delivery technologies which are intended to provide video entertainment directly to the consumer. These technologies include: 1) direct broadcast satellite transmission systems, which broadcast movies in digital format direct from satellites to small antennas in the home; 2) cable systems which may transmit digital format movies to the home over cable systems employing fiber-optic technology and 3) pay cable television systems, which may employ digital data compression techniques to increase the number of channels available and hence the number of movies which can be transmitted. Another source of indirect competition comes from Program Suppliers releasing titles intended for "sell-through" rather than rental to consumers at approximately $20 to $30. To date, such "sell-through" pricing has generally been limited to certain newly released hit titles with wide general family appeal. As the Company's business is dependent upon the existence of a home video rental market, a substantial shift in the video business to alternative technologies or "sell-through" policies could have a material adverse effect on the Company's operations. FOREIGN OPERATIONS To date, the Company has operated primarily in the United States with 581 Participating Retailers in Canada. 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. CCC believes it represents over ten (10%) percent of the retail video rental market in Japan. Pursuant to the agreement, the parties formed Rentrak Japan, a corporation, which is presently owned twenty-five percent by the Company and seventy-five percent by CCC. Prior to June 16, 1994 the Company owned a thirty three and one-third percent interest in Rentrak Japan. Rentrak Japan was formed to implement the Company's PPT Program in Japan, with future expansion to The Philippines, Singapore, Taiwan, Hong Kong, South Korea, North Korea, China, Thailand, Indonesia, Malaysia and Vietnam. 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 Rentrak's PPT Program in certain markets throughout the world. On June 16, 1994, the company and CCC entered into a Second Amendment to Business Cooperation Agreement. Pursuant to this agreement, the company will receive 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 fiscal year. In addition, the Company will receive a one time royalty of $2,000,000 payable $1,000,000 by July 31, 1994, which the company received, and $1,000,000 no later than March 31, 1999. The Company also sold to CCC 34 shares of Rentrak Japan reducing the Company's ownership in Rentrak Japan to twenty-five percent from thirty three and one-third percent. The term of the Agreement has been extended from the year 2001 to the year 2039. On August 25, 1993, the Company announced that it suspended its efforts to establish operations in German-speaking Europe and the Company took a one-time charge of approximately $.9 million as a result. The company's decision was based on its failure to obtain sufficient product flow commitments from Program Suppliers to achieve a critical mass in German-speaking Europe. TRADEMARKS, COPYRIGHTS, AND PROPRIETARY RIGHTS The Company has registered its "RENTRAK", "PPT", "Pay Per Transaction", "Ontrak", "BudgetMaker", "DataTrak", "Prize Find" and "BlowOut Video" 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 PPT computer software and considers it to be proprietary. EMPLOYEES As of March 31, 1995, RHE employed 171 full-time employees. None of RHE's employees are represented by a labor union. RHE considers its relations with its employees to be good. Including all subsidiaries, the Company employs 682 full-time employees, including its three officers. LICENSED SPORTS APPAREL On October 15, 1993, the Company acquired all of the outstanding shares of common stock of The Pro Image Inc., ("TPI"), a Utah corporation. At the time of acquisition TPI was primarily a franchisor of retail sports apparel stores. TPI was incorporated in 1985 as a franchiser of retail sporting apparel stores. In 1987, TPI formed a wholly-owned subsidiary for the purpose of selling merchandise at wholesale prices to franchisees. In 1990, TPI formed a wholly-owned subsidiary for the purpose of selling merchandise to retail customers through Company-owned stores. On August 31, 1994, the Company acquired all of the outstanding common stock of Team Spirit, Inc. ("Team Spirit"). Team Spirit operates 39 sports licensed apparel stores in fifteen states primarily located in the Midwestern United States. Simultaneous with the acquisition, Rentrak transferred all of the assets of Team Spirit to TPI and Team Spirit became a wholly owned subsidiary of TPI. On October 5, 1994, Rentrak acquired all of the outstanding common stock of Image Makers, Inc, and Barenz-Runia, Inc. These companies were franchisees of TPI and operated seven stores in the Pacific Northwest. Simultaneous with the acquisition, the net assets of the combined companies were transferred to TPI. As of March 31, 1995, TPI operates approximately 175 franchise stores in 45 states, Canada, Germany, Mexico and Japan. TPI also operates 54 company-owned retail stores in 19 states throughout the country. The franchisees and company- owned stores are primarily located in major regional malls. TPI also generates revenue via sales of product from the TPI distribution center to franchisees. These sales are provided as a service to the franchisees and are not profitable. The Company intends to continue to expand its sports licensed apparel business through further acquisitions, through sales of new franchises and through opening of new corporate-owned stores. The Company intends to pay the purchase price for any acquisitions in cash, shares of the Company's common stock, other securities, or a combination thereof. The Company is also actively pursuing international franchise opportunities. TPI has, since the acquisition by Rentrak, and will continue to be able to take advantage of Rentrak's expertise in the areas of distribution and software development. Shortly after the acquisition, TPI's warehouse facilities were moved from Utah to be consolidated with Rentrak's warehouse in Wilmington, Ohio. Rentrak's distribution expertise has allowed TPI to deliver product to franchise and corporate stores via air freight to arrive in the stores overnight at prices similar to what was provided by ground transportation. This is particularly important for special events in the sports industry (i.e., championship events, player trades. etc.) COMPUTER OPERATIONS Rentrak has developed custom point-of-sale software for TPI stores. This software ("SporTrak") has been installed in all corporate-owned stores and is planned to begin to be marketed to franchise stores late in fiscal 1996. In addition to being beneficial to the daily operations of the stores, the SporTrak software will allow TPI corporate and franchise stores and TPI's warehouse to maintain a common inventory data base, and will provide an easy and quick method to transfer inventory between stores. This, combined with Rentrak's distribution expertise, will allow a customer in any TPI store to select product from all of the other stores around the country as well as the TPI warehouse, and have the product arrive at the store or at their home the next day. INTERNATIONAL FRANCHISING Another area of potential growth in TPI's business is international franchising. In the first quarter of 1996, TPI sold master franchise agreements in Japan and Korea and generated $350,000 in international franchise fees. In signing international master franchise agreements, TPI contracts with an individual residing in the applicable country, providing rights to the trademarks and tradenames as well as training and support. TPI receives an initial franchise fee as well as a percentage of royalties on all subsequent franchises sold by the master franchisee. SEASONALITY TPI and Team Spirit's regional mall-based stores are heavily dependent on the Christmas holiday season. Approximately 35% of annual sales and the majority of the profits in mall-based stores are generated in the months of November and December. COMPETITION TPI and Team Spirit face intense competition for customers and for suitable store locations from a variety of retailers. TPI and Team Spirit compete with traditional and specialty retailers (regional chains, specialty stores, local operators and mail order companies), mass merchandisers (discount stores and department stores) and large format retailers (warehouse and superstore operators). Some of these competitors have substantially greater resources than the Company. FOREIGN OPERATIONS TPI currently has 19 franchise stores in Canada, 2 in Mexico, 1 in Japan and 1 in Germany. In addition, during the first quarter of fiscal 1996, TPI signed master franchise agreements in Korea and Japan. TRADEMARKS, COPYRIGHTS, AND PROPRIETARY RIGHTS The Company has acquired the registered marks, "The Pro Image", "The Pro Image U Shop", "The Pro Image Everything For The Sports Fan" and "The Pro Image Campus". EMPLOYEES As of March 31, 1995, TPI employed 404 employees, including its five officers. None of TPI's employees are represented by a labor union. TPI considers its relations with its employees to be good. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS See Note 14 of the Notes to the Consolidated Financial Statements. ITEM 2. PROPERTIES - ---------------------------------------- The Company currently maintains its executive offices in Portland, Oregon. RHE is located at this location. It leases a 30,000 square foot building for its executive offices. The Company's lease expires on November 30, 1997. The Company maintains its distribution facilities in Wilmington, Ohio where it leases 102,400 square feet. The Company's lease expires on June 7, 2002. Management believes its office and warehouse space is adequate and suitable for its current and foreseeable future. TPI leases it's corporate headquarters offices at Bountiful, Utah in a 11,500 square foot office building. TPI also leases an approximately 3,000 square foot office in Omaha, Nebraska where corporate store operations are headquartered. TPI's corporate stores are leased facilities located throughout the country. The average size of a TPI corporate store is approximately 2,000 square feet. ITEM 3. LEGAL PROCEEDINGS - ---------------------------------------- In February, 1991, a suit was filed against the Company alleging causes of action for breach of contract, breach of implied covenant of good faith and fiduciary duty, and violation of a state unfair business practice statute. These allegations arise out of the Company's alleged refusal to grant the plaintiff a National Video franchise. A lower court jury has awarded damages of approximately $450,000 to the plaintiff on the alleged charges, including attorney fees. The Company appealed the lower court decision; however, that decision was upheld by the appeals court. The damage award is fully reserved by the Company and the award is expected to be paid in fiscal 1996. The Company is subject to other legal proceedings and claims which arise in the ordinary course of its business. In the opinion of management, the amount of any ultimate liability with respect to these actions should not 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 STOCK AND RELATED STOCKHOLDER MATTERS - -------------------------------------------------------------------------------- The Company's common stock, $.001 par value, is traded on the NASDAQ National Market System and prices are quoted on the NASDAQ National Market Issues quotations under the symbol "RENT". Prior to the Company's public offering on November 14, 1986, there was no public market for the common stock. As of June 21, 1995 there were approximately 436 holders of record of the Company's common stock. On June 21, 1995, the closing sales price of the common stock as quoted on the NASDAQ National Market Issues was $6.25. The following table sets forth the reported high and low sales prices of the common stock for the period indicated as regularly quoted on the NASDAQ National Market Issues quotations. The over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions.
- ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- QUARTER ENDED HIGH LOW - ---------------------------------------------------------------------------- JUNE 30, 1993 $ 5.875 $ 4.50 - ---------------------------------------------------------------------------- SEPTEMBER 30, 1993 $ 7.125 $ 4.75 - ---------------------------------------------------------------------------- DECEMBER 31, 1993 $ 7.75 $ 5.125 - ---------------------------------------------------------------------------- MARCH 31, 1994 $ 7.375 $ 4.625 - ---------------------------------------------------------------------------- JUNE 30, 1994 $ 7.50 $ 4.75 - ---------------------------------------------------------------------------- SEPTEMBER 30, 1994 $ 9.375 $ 6.25 - ---------------------------------------------------------------------------- DECEMBER 31, 1994 $ 9.25 $ 6.25 - ---------------------------------------------------------------------------- MARCH 31, 1995 $ 8.75 $ 6.25 - ---------------------------------------------------------------------------- - ----------------------------------------------------------------------------
DIVIDENDS: No cash dividends have been paid or declared during the last two 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 does not intend to pay cash dividends in the foreseeable future. PAGE ______ OF ______ ITEM 6. SELECTED FINANCIAL DATA - -------------------------------------------------------------------------------
(In Thousands, Except Per Share Amounts) Year Ended March 31, ------------------------------------------------- 1991 1992 1993 1994 1995 --------- --------- --------- --------- --------- Statement of Operations Data Net revenues: Processing fees $2,699 $2,260 $2,299 $1,662 $1,114 Handling fees 10,220 11,063 12,170 13,712 18,052 Transaction fees 18,955 27,738 33,399 40,967 49,904 Sell-through 1,762 5,196 4,980 5,665 8,923 Other 306 1,165 1,287 6,775 34,173 International operations 0 0 200 116 0 --------- --------- --------- --------- --------- Total net revenues 33,942 47,422 54,335 68,897 112,166 Cost of sales 25,473 37,759 41,299 52,162 83,533 --------- --------- --------- --------- --------- Gross profit 8,469 9,663 13,036 16,735 28,633 Selling and administrative expense 7,076 10,138 15,054 16,393 26,183 Suspension of European operations 0 0 0 901 0 Other income (expense) (63) 242 499 477 3,391 --------- --------- --------- --------- --------- Income (loss) before benefit (provision) for income taxes, minority partner interests and extraordinary item 1,330 (233) (1,519) (82) 5,841 Income tax benefit (provision) (508) 0 (305) 764 (727) --------- --------- --------- --------- --------- Income (loss) before minority partner interests and extraordinary item 822 (233) (1,824) 682 5,114 Losses attributable to minority partner interests 0 0 649 131 0 Income (loss) before extraordinary item 822 (233) (1,175) 813 5,114 Extraordinary item, income tax benefit from carryforward of net operating losses 476 0 280 0 0 --------- --------- --------- --------- --------- Net income (loss) $1,298 ($233) ($895) $813 $5,114 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Net income (loss) per share - assuming issuance of all dilutive contingent shares $0.22 ($0.03) ($0.10) $0.08 $0.40 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Common shares and common share equivalents outstanding 6,252 8,552 9,306 10,162 14,317
At March 31, ------------------------------------------------- 1991 1992 1993 1994 1995 --------- --------- --------- --------- --------- Balance Sheet Data Working Capital $1,152 $18,875 $17,116 $16,155 $12,897 Total Assets 9,854 27,582 34,824 44,620 64,584 Long-term Debt 15 5 0 0 0 Stockholders' Equity 3,101 21,398 22,722 29,523 40,228
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------- RESULTS OF OPERATIONS For a more meaningful analysis, results are presented for four groups of operations: Domestic PPT Operations, which include Canadian PPT operations; International Operations, which represent Rentrak's European operations that were suspended in fiscal 1994; Pro Image, Inc. and its subsidiaries ("TPI"); and Other Domestic Subsidiaries. The following tables break out these groups for the years ended March 31, 1995, 1994 and 1993. All significant intercompany transactions have been eliminated.
DOMESTIC PPT INTERNATIONAL OTHER YEAR ENDED MARCH 31, 1995 OPERATIONS OPERATIONS TPI(1) SUBSIDIARIES CONSOLIDATED - ----------------------------------------------------------------------------------------------------------------------------------- Revenues $ 79,793,584 $ - $26,363,211 $ 6,009,436 $ 112,166,231 Cost of sales 64,447,737 - 16,840,331 2,245,260 83,533,328 Gross profit margin 15,345,847 - 9,522,880 3,764,176 28,632,903 SG&A 12,459,006 - 9,252,704 4,471,724 26,183,434 Other income (expense) 3,522,039 - (130,754) 0 3,391,285 Net income (loss) before taxes $ 6,408,880 $ - $ 139,422 $ (707,548) 5,840,754 - ----------------------------------------------------------------------------------------------------------------------------------- Income tax provision 727,231 - ---------------------------------- ----------------- Net income $ 5,113,523 - -----------------------------------------------------------------------------------------------------------------------------------
DOMESTIC PPT INTERNATIONAL OTHER YEAR ENDED MARCH 31, 1994 OPERATIONS OPERATIONS TPI(2) SUBSIDIARIES CONSOLIDATED - ----------------------------------------------------------------------------------------------------------------------------------- Revenues $62,005,968 $ 115,937 $ 3,950,705 $ 2,823,877 $ 68,896,487 Cost of sales 49,191,633 183,702 2,245,000 541,492 52,161,827 Gross profit margin 12,814,335 (67,765) 1,705,705 2,282,385 16,734,660 SG&A 10,750,036 2,357,246 1,264,924 2,920,992 17,293,198 Other income (expense) 472,393 65,083 (61,450) 740 476,766 Net income (loss) before taxes $ 2,536,692 $ (2,359,928) $ 379,331 $ (637,867) (81,772) - ----------------------------------------------------------------------------------------------------------------------------------- Income tax benefit 763,919 Minority interest 130,918 - ---------------------------------- ----------------- Net income $ 813,065 - ----------------------------------------------------------------------------------------------------------------------------------- (1) Includes Results of Operations from March 1, 1994 through February 28, 1995 (2) Includes Results of Operations from October 15, 1993 (date of acquisition) through February 28, 1994
DOMESTIC PPT INTERNATIONAL OTHER YEAR ENDED MARCH 31, 1993 OPERATIONS OPERATIONS TPI SUBSIDIARIES CONSOLIDATED - ----------------------------------------------------------------------------------------------------------------------------------- Revenues $ 52,847,386 $ 200,443 $ - $ 1,287,037 $ 54,334,866 Cost of sales 40,770,396 508,048 - 20,123 41,298,567 Gross profit margin 12,076,989 (307,604) - 1,266,914 13,036,299 SG&A 11,463,957 2,016,904 - 1,573,290 15,054,151 Other income (expense) 523,020 (2,623) - (21,438) 498,959 Net income (loss) before $ 1,136,052 $ (2,327,131) $ - $ (327,814) (1,518,893) taxes and minority interest - ----------------------------------------------------------------------------------------------------------------------------------- Income tax provision 25,000 Minority interest 648,833 - ---------------------------------- ----------------- Net income (loss) $ (895,061) - -----------------------------------------------------------------------------------------------------------------------------------
FISCAL 1995 COMPARED TO FISCAL 1994 DOMESTIC PPT OPERATIONS For the year ended March 31, 1995, total revenue from Domestic PPT Operations increased $17.8 million, or 29 percent, rising to $79.8 million from $62.0 million in the prior year. In addition to royalty payments from Rentrak Japan, total revenue includes the following fees: processing fees generated when retailers are approved for participation in the PPT system; handling fees generated when prerecorded videocassettes ("Cassettes") are distributed to retailers; transaction fees generated when retailers rent Cassettes to consumers; and sell-through fees generated when retailers sell Cassettes to consumers. The increase in total revenue and the increases described in the following paragraphs were primarily due to the growth in (i) the number of retailers approved to lease Cassettes from the Company (the "Participating Retailers"); (ii) the number of participating program suppliers ("Program Suppliers"), primarily Buena Vista; (iii) the number of titles released to the system; and (iv) the total number of Cassettes leased under the system. By fiscal year-end, the number of Participating Retailers had grown 14 percent to 3,614 from 3,176 a year earlier. As of March 31, 1995, there were 3,034 retailers located in the United States and 580 located in Canada. Total revenue and the gross profit margin are expected to grow at a modest rate over the next year. In fiscal 1995, processing-fee revenue decreased to $1.1 million from $1.7 million in fiscal 1994, a decline of $0.6 million, or 33 percent. The decrease was due to a reduction in the amount of processing fees charged. During the year, handling-fee revenue rose to $18.1 million from $13.7 million in fiscal 1994, an increase of $4.4 million, or 32 percent. Transaction-fee revenue totaled $49.9 million, an increase of $8.9 million, or 22 percent, from $41.0 million the previous year. Sell-through revenue was $8.9 million in fiscal 1995 as compared to $5.7 million in fiscal 1994, an increase of $3.2 million, or 58 percent. Royalty revenue from Rentrak Japan increased to $1.8 million during fiscal 1995. There was no royalty revenue in the prior year. Included in fiscal 1995's royalty revenue was a nonrecurring payment of $1.0 million. Cost of sales in fiscal 1995 rose to $64.4 million from $49.2 million the prior year, an increase of $15.2 million, or 31 percent. This change parallels the change in total revenues. In fiscal 1995, the gross profit margin decreased to 19 percent from 21 percent the previous year. The decrease reflects an increase in major motion picture studio product, which traditionally has a lower gross margin. Selling, general and administrative expenses were $12.5 million in fiscal 1995 compared to $10.8 million in fiscal 1994. This increase of $1.7 million, or 16 percent, was primarily due to continued efforts to assure system integrity and the strengthening of the management team. In addition, the Company incurred additional expense related to reserves on long-term investments and receivables. As a percentage of total revenue, selling, general and administrative expenses decreased to 16 percent at year-end from 17 percent the previous year. Other income increased from $0.5 million in fiscal 1994 to $3.5 million for fiscal 1995, an increase of $3.0 million. This increase was due to the sale of certain investment securities held for sale for a gain of $2.8 million. For the year ended March 31, 1995, Domestic PPT Operations recorded a pretax profit of $6.4 million, or 8 percent of total revenue, compared to a pretax profit of $2.5 million, or 4 percent of total revenue, in fiscal 1994. THE PRO IMAGE, INC. For the fiscal year ended February 28, 1995, Pro Image, Inc. ("TPI") recorded total revenue of $26.4 million, a gross margin of $9.5 million (36 percent), and a pretax profit of $0.1 million (less than 1 percent of revenue). Comparisons to the fiscal year ended February 28, 1994, are not meaningful because of the acquisition of Team Spirit, Inc. ("Team Spirit") in fiscal 1995. The Pro Image results for fiscal 1995 include those for Team Spirit from September 1994 through February 1995. TPI's net income for fiscal 1995 was negatively impacted by increased operating expenses associated with advertising, market research, promotion and store design expenses, as well as reserves for doubtful accounts and inventory. These expenses, totaling approximately $2 million, are considered to be onetime expenses that are not expected to be incurred in the coming year. In addition, TPI recorded approximately $0.7 million in amortization of goodwill associated with the acquisition of TPI and Team Spirit. Management expects TPI's revenue to increase substantially in the coming fiscal year due to the inclusion of Team Spirit for the entire year, revenue generated from new company-owned Pro Image retail stores, and franchise fees generated internationally. Revenues from domestic franchise fees and franchise royalties are expected to be flat next year. Management expects the gross margin percentage to increase due to a higher percentage of sales generated by company- owned stores. Management also expects operating expenses to decrease as a percentage of sales because overhead expenses should remain flat or decrease as revenues and store operating expenses increase. OTHER SUBSIDIARIES Other Subsidiaries are comprised of a software development company and other video retail and wholesale operations. Total revenue from Other Subsidiaries increased to $6.0 million in fiscal 1995 from $2.8 million in fiscal 1994, an increase of $3.2 million, or 113 percent. Cost of sales was $2.2 million, an increase of $1.7 million (315 percent) over the $0.5 million recorded in fiscal 1994. Selling, general and administrative expenses increased to $4.5 million in fiscal 1995 from $2.9 million in fiscal 1994, an increase of $1.6 million, or 53 percent. As a percentage of total revenue, selling, general and administrative expenses decreased to 74 percent at year-end from 103 percent a year earlier. For the year ended March 31, 1995, Other Subsidiaries recorded a pretax loss of $0.7 million, or 12 percent of total revenue. This compares with a pretax loss of $0.6 million, or 21 percent of total revenue, in fiscal 1994. Changes in revenues, cost of sales, selling and administrative costs and pretax losses were due to the start-up status of three of the entities, and to expansion efforts by the other entities. CONSOLIDATED BALANCE SHEET At March 31, 1995, total assets were $64.8 million, an increase of $20.2 million from the $44.6 million of a year earlier. A substantial portion of the increase was due to the acquisition of Team Spirit, which added approximately $10 million to total assets. Accounts receivable grew to $14.7 million at the end of fiscal 1995 from $9.4 million at the end of fiscal 1994, a $5.3 million increase. Most of this increase was due to a rise in domestic PPT revenue levels. Inventory at year-end equaled $6.3 million, up $5.5 million from $0.8 million at the end of fiscal 1994. Of this increase, approximately $3.6 million was related to the Team Spirit acquisition, and the rest was due to the opening of additional TPI company stores. As of March 31, 1995, property and equipment had increased $2.1 million to $4.9 million from $2.8 million a year earlier. Of this increase, approximately $2.1 million was related to the Team Spirit acquisition. At year- end, intangibles had risen to $11.0 million from $6.8 million at the end of fiscal year 1994, an increase of $4.2 million. Most of this amount was related to the acquisitions made by TPI. All warrants which the Company issued in fiscal 1995, have been valued by an outside valuation firm using standard warrant valuation models. The value of the warrants of $3.5 million has been recorded in the equity section and will be amortized over the associated periods to be benefited by each group of warrants. For fiscal 1995, expense associated with the warrants is $0.5 million. FISCAL 1994 COMPARED TO FISCAL 1993 DOMESTIC PPT OPERATIONS For the year ended March 31, 1994, total revenue from Domestic PPT Operations rose to $62.0 million from $52.8 million in the prior year, an advance of $9.2 million, or 17 percent. The increase in total revenue and the increases described in the following paragraphs were primarily due to the growth in (i) the number of Participating Retailers; (ii) the number of Program Suppliers, primarily Twentieth Century Fox Home Entertainment (formerly FoxVideo); (iii) the number of titles released to the system; and (iv) the total number of Cassettes leased under the system. In fiscal 1994, the number of Participating Retailers grew to 3,176 from 2,737 the prior year, for a 16 percent increase. As of March 31, 1994, there were 2,768 retailers located in the United States and 408 located in Canada. For the year, processing-fee revenue decreased to $1.7 million from $2.3 million in fiscal 1993, a decline of $0.6 million, or 28 percent. The decrease was due to a reduction in the amount of processing fees charged. Handling-fee revenue rose to $13.7 million from $12.2 million in fiscal 1993, an increase of $1.5 million, or 13 percent. Transaction-fee revenue increased to $41.0 million from $33.4 million the previous year, a $7.6 million or 23 percent improvement. Sell-through revenue grew to $5.7 million from $5.0 million in fiscal 1993, an increase of $0.7 million, or 14 percent. Cost of sales for fiscal 1994 increased to $49.2 million from $40.8 million the prior year, an increase of $8.4 million, or 21 percent. This change paralleled the change in total revenues. The gross profit margin decreased to 21 percent from 23 percent the previous year. The decrease in the gross profit margin reflects an increase in major motion picture studio product, which traditionally has a lower gross margin. Selling, general and administrative expenses decreased by $0.7 million, or 6 percent, to $10.8 million in fiscal 1994 from $11.5 million in fiscal 1993. The decrease was primarily due to a company-wide effort to control and reduce corporate operating costs. As a percentage of total revenue, selling, general and administrative expenses decreased to 17 percent from 22 percent in fiscal 1993. For the year ended March 31, 1994, Domestic PPT Operations recorded a pretax profit of $2.5 million, or 4 percent of total revenue, as compared to a pretax profit of $1.1 million, or 2 percent of total revenue, in fiscal 1993. INTERNATIONAL OPERATIONS For the year ended March 31, 1994, total revenue from International Operations decreased to $0.1 million from $0.2 million the prior year, a decline of $0.1 million, or 42 percent. The decline was due to the closure of a portion of the retail locations. Cost of sales dropped to $0.2 million from $0.5 million in fiscal 1993, a decrease of $0.3 million, or 64 percent. Selling, general and administrative expenses in fiscal 1994 increased $0.3 million, or 13 percent, to $2.3 million from $2.0 million in fiscal 1993. At year-end, International Operations recorded a pretax loss of $2.3 million, as compared to a pretax loss of $1.7 million in fiscal 1993. The Company has suspended its efforts to establish a subsidiary in German speaking Europe. As a result of this decision, in fiscal 1994 the Company took a charge of approximately $2.4 million to write down the value of the related assets and to account for operating costs and costs to suspend operations. This decision stems from the difficulties the Company had in getting sufficient product flow commitments from Program Suppliers. THE PRO IMAGE, INC. For the four and one-half months ended February 28, 1994, TPI recorded total revenues of $4.0 million, cost of sales of $2.2 million, selling and administrative expenses of $1.3 million, and a net profit of $0.4 million, or 10 percent of total revenue. The Company acquired TPI on October 15, 1993, and therefore did not have operating results from the TPI business for the year ended March 31, 1993. OTHER SUBSIDIARIES Other Subsidiaries are comprised of a software development company and other video retail and wholesale operations. For fiscal 1994, total revenue from Other Subsidiaries increased to $2.8 million from $1.3 million in fiscal 1993, an increase of $1.5 million, or 119 percent. In fiscal 1994, cost of sales increased 2,591 percent to $0.5 million from $0.02 million in fiscal 1993. Selling, general and administrative expenses increased by $1.3 million, or 86 percent, to $2.9 million in fiscal 1994 from $1.6 million in fiscal 1993. As a percentage of total revenue, selling, general and administrative expenses decreased to 103 percent in fiscal 1994 from 122 percent in the prior year. For the year ended March 31, 1994, Other Subsidiaries recorded a pretax loss of $0.6 million, or 21 percent of total revenue, as compared to a pretax loss of $0.3 million, or 25 percent of total revenue, in fiscal 1993. Changes in revenues, cost of sales, selling and administrative costs and pretax losses were due to the start-up status of three of the entities, and to expansion efforts by the other entities. CONSOLIDATED BALANCE SHEET For the year ended March 31, 1994, total assets increased to $44.6 million from $34.8 million in the prior year, an increase of $9.8 million. The increase was primarily due to the acquisition of TPI. The write-off of European assets amounted to $0.8 million, which included $0.06 million in accounts receivable, $0.09 million in other current assets, $0.5 million in property and equipment, and $0.09 million in other long-term assets. In addition to the $0.8 million write-down of assets during fiscal 1994, the Company incurred $1.4 million in European operating costs and $0.1 million in cash expenditures to finalize operations. Most of the $2.3 million in losses related to European operations in fiscal 1994 was funded through a stock offering in 1991. At year-end, intangibles had increased to $7.0 million from $1.2 million in fiscal 1993. The increase was due to goodwill arising from the acquisition of TPI. Other assets increased to $3.6 million from $2.2 million in the prior year, a $1.4 million change. The change was primarily due to an increase of $0.5 million in long-term Program Supplier advances and a $1.0 million increase in a long-term-occupancy security deposit for a domestic subsidiary. The increase in the Program Supplier advances was primarily due to the Company's entering into new agreements that had a longer term than in the past. LIQUIDITY AND CAPITAL RESOURCES At March 31, 1995, the Company had cash and other liquid investments of $10.7 million, compared to $16.2 million at March 31, 1994. At year-end, the Company's current ratio (current assets/current liabilities) declined to 1.53 from 2.07 a year earlier. This decline was primarily due to the expenditures of cash to fund the Retailer Financing Program. The Company has an agreement with a financial institution for a line of credit in the amount of $7.5 million. The agreement expires on July 25, 1995. Under this agreement, the Company is required to maintain average compensating balances of $1.5 million in its checking and money accounts. Interest is payable monthly at a rate that varies in relation to the bank's prime rate. The lender has been granted a warrant to purchase 10,000 unregistered shares of common stock of the Company at $7 per share, which exceeded market value at the date of grant. The line of credit is secured by substantially all of the Company's assets, excluding TPI's. The terms of the agreement require, among other things, a minimum amount of tangible net worth, minimum current ratio and minimum ratio of total liabilities to tangible net worth. The agreement also restricts the amount of net losses, loans and indebtedness and limits the payment of dividends on the Company's stock. There were no borrowings under the line of credit as of March 31, 1995. In April 1994, TPI entered into a $2.0 million line-of-credit arrangement with a financial institution. Interest on borrowings under this credit agreement accrue at the bank's prime rate. Borrowings are collateralized by the Company's accounts receivable and inventory, and require monthly payments of principal plus accrued interest. In January 1995, the available borrowing under this agreement was increased to the lesser of $4.0 million or the amount of the borrowing base as defined in the agreement. Interest under the revised agreement is accrued at the bank's prime rate plus 0.5 percent. There were no borrowings under the credit agreement at February 28, 1995. The credit agreement expires on July 31, 1995. 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 Rentrak's PPT distribution and information processing business in certain markets throughout the world. On June 16, 1994, the Company and CCC entered into a Second Amendment to Business Cooperation Agreement. Pursuant to this agreement, the Company will receive a royalty of 1.67 percent for all sales up to $47.9 million plus 0.5 percent of sales greater than $47.9 million in each fiscal year. In addition, the Company will receive a onetime royalty of $2.0 million payable $1.0 million in fiscal 1995 and $1.0 million no later than March 31, 1999. The payment for fiscal 1995 has been received. Rentrak Japan received additional territories in which to market PPT. In addition, the Company sold 34 shares of Rentrak Japan to CCC for 6.8 million Yen ($68,068), reducing the Company's ownership in Rentrak Japan to 25 percent from 33 1/3 percent. The term of the agreement was extended from the year 2001 to the year 2039. On July 22, 1994, the Company entered into a long-term distribution agreement with Buena Vista Pictures Distribution ("Buena Vista"). Under the terms of the agreement, substantially all rental-priced theatrical and nontheatrical titles offered under Buena Vista's various labels will be offered to retailers on the PPT system. The agreement is for a five-year term with a five-year renewal option on the part of Buena Vista, and was effective with Buena Vista's September titles. In connection with the agreement, The Walt Disney Company has received warrants from Rentrak to purchase up to 2,673,500 shares of Rentrak common stock at an exercise price of $7.13 per share subject to the meeting of certain conditions. In connection with the signing of Buena Vista, the Company issued a warrant to Twentieth Century Fox Home Entertainment (formerly FoxVideo) to acquire 423,750 shares of Rentrak common stock at an exercise price of $7.13. In August 1994, the Company acquired all of the outstanding stock of Team Spirit. Team Spirit operates 39 licensed sports apparel stores in 15 states, most of which are in the Midwest. Simultaneously with the acquisition, Rentrak transferred all of the assets of Team Spirit to TPI, and Team Spirit became a wholly owned subsidiary of TPI. The net purchase price was approximately $4.4 million and was paid via issuance of approximately 557,000 shares of common stock. At the time of purchase, Team Spirit had approximately $4 million in outstanding bank debt which was immediately paid by the Company. In October 1994, the Company acquired all of the outstanding stock of Image Makers, Inc. and Barenz-Runia, Inc. These companies were franchisees of TPI and operated seven stores in the Pacific Northwest. Simultaneously with the acquisition, the net assets of the combined companies were transferred to TPI. The combined net purchase price was approximately $0.7 million and was paid by issuance of approximately 82,000 shares of common stock. The Company intends to continue to expand its licensed sport apparel business through further acquisitions, through sales of new franchises and through the opening of new corporate stores. Working capital needed to fund the increased inventory and fixed assets associated with the increase in company-owned stores is expected to be provided by existing bank credit agreements. The Company intends to pay the purchase price for any such acquisitions in cash, shares of the Company's common stock or other securities, or a combination thereof. The Company has established a retailer financing program whereby the Company will provide, on a selective basis, financing to video retailers who the Company believes have demonstrated the probability of substantial growth in the industry. In connection with these financings, the Company typically makes a loan to and/or an equity investment in the retailer. In some cases, a warrant to purchase stock may be obtained. As part of such financing, the retailer typically agrees to cause all of its current and future retail locations to participate in the PPT system for a designated period of time. 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 failure of certain of these investments could have a material adverse impact on the Company's results of operations and financial position. The Board of Directors has authorized up to $14 million to be used in connection with the Company's retailer financing program. As of May 1995, the Company has invested in, or made commitments to loan to or invest in, various video retailers in amounts representing substantially all of the $14 million authorized. The loans, investments or commitments are to various retailers and individually range from $0.2 million to $3.0 million. As the financings are made, and periodically throughout the terms of the agreements, the Company assesses the likelihood of recoverability of the amounts invested or loaned based on the financial position of each retailer. As of March 31, 1995, the Company has invested or loaned approximately $9.2 million under the program. Because of the financial condition of a number of these retailers, the Company has reserved approximately $3.2 million of the original loan or investment amount. The Company is currently either negotiating extensions of its existing credit facilities or negotiating new credit facilities with its existing financial institutions. The Company is also considering the placement of long-term debt or the issuance of additional securities in the public market. No assurance can be given that any of the credit facilities will be extended or new ones obtained or that the Company will be able to issue either long-term debt or additional securities on terms acceptable to the Company. Subject to the foregoing, the Company believes its existing cash, cash generated from operations and available credit facilities (assuming such facilities are extended or new ones obtained) will be sufficient to meet its cash requirements for at least the next 12 months. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - -------------------------------------------- Index to Consolidated Financial Statements Item Page - ---- ---- Report of Independent Public __ Accountants Consolidated Balance Sheets as of March 31, 1995 __ and 1994 Consolidated Statements of Operations for Years __ Ended March 31, 1995, 1994 and 1993 Consolidated Statements of Stockholders' Equity __ for Years Ended March 31, 1995, 1994 and 1993 Consolidated Statements of Cash Flows for Years __ Ended March 31, 1995, 1994 and 1993 Notes to Consolidated Financial Statements __ Financial Statement Schedules 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. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE - -------------------------------------- None Report of Independent Public Accountants To the Board of Directors and Stockholders of Rentrak Corporation and Subsidiaries: We have audited the accompanying consolidated balance sheets of Rentrak Corporation and subsidiaries, as of March 31, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended March 31, 1995. 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 generally accepted auditing standards. 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Rentrak Corporation and subsidiaries as of March 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended March 31, 1995 in conformity with generally accepted accounting principles. As explained in Note 1 to the consolidated financial statements, effective April 1, 1993 and March 31, 1994, the Company changed its methods of accounting for income taxes and investment securities, respectively. 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 to financial statements is presented for the purpose of complying with the Securities and Exchange Commission's rules and are not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in our audits of the consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the consolidated financial statements taken as a whole. Portland, Oregon, May 26, 1995 RENTRAK CORPORATION AND SUBSIDIARIES ------------------------------------ CONSOLIDATED BALANCE SHEETS --------------------------- AS OF MARCH 31, 1995 AND 1994 -----------------------------
A S S E T S ----------- 1995 1994 ------------ ------------ CURRENT ASSETS: Cash and cash equivalents $10,709,405 $13,815,718 Investment securities available for sale (Notes 1 and 2) - 2,387,500 Accounts receivable, net of allowance for doubtful accounts of $642,580 and $1,224,966 14,711,439 9,352,306 Advances to program suppliers (Note 8) 2,683,710 3,915,358 Inventory (Note 1) 6,291,032 819,850 Deferred tax asset (Note 6) 915,404 - Other current assets 2,112,021 961,903 ----------- ----------- Total current assets 37,423,011 31,252,635 ----------- ----------- PROPERTY AND EQUIPMENT, net (Notes 1 and 3) 4,924,122 2,796,730 INTANGIBLES, net of accumulated amortization of $3,472,783 and $2,235,454 (Note 1) 11,011,121 6,750,109 NOTES RECEIVABLE, net (Note 4) 3,035,787 - OTHER INVESTMENTS, net (Note 4) 2,919,919 - DEFERRED TAX ASSET (Note 6) 1,926,673 - OTHER ASSETS 3,577,035 3,820,971 ----------- ----------- $64,817,668 $44,620,445 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Accounts payable $17,799,146 $10,707,701 Accrued liabilities 3,301,513 3,659,800 Accrued compensation 2,016,820 730,291 Deferred revenue (Note 1) 1,408,076 - ----------- ----------- Total current liabilities 24,525,555 15,097,792 ----------- ----------- COMMITMENTS AND CONTINGENCIES (Notes 8 and 9) STOCKHOLDERS' EQUITY (Notes 5, 7 and 10): Preferred stock, $.001 par value; Authorized: 10,000,000 shares - - Common stock, $.001 par value; Authorized: 30,000,000 and 20,000,000 shares in 1995 and 1994, respectively; Issued and outstanding: 11,277,246 shares in 1995 and 10,224,057 shares in 1994 11,277 10,224 Capital in excess of par value 44,598,939 34,272,263 Net unrealized gain (loss) on investment securities (170,747) 1,434,182 Accumulated deficit (1,080,493) (6,194,016) Less- Deferred charge - warrants (3,066,863) - ----------- ----------- 40,292,113 29,522,653 ----------- ----------- $64,817,668 $44,620,445 =========== ===========
The accompanying notes are an integral part of these balance sheets. RENTRAK CORPORATION AND SUBSIDIARIES ------------------------------------ CONSOLIDATED STATEMENTS OF OPERATIONS ------------------------------------- FOR THE YEARS ENDED MARCH 31, 1995, 1994 AND 1993 -------------------------------------------------
1995 1994 1993 ----------- ----------- ----------- REVENUES (Note 1): PPT $ 79,793,584 $62,005,968 $52,847,386 Sports apparel 26,363,211 3,950,705 - Other 6,009,436 2,939,814 1,487,480 ------------ ----------- ----------- 112,166,231 68,896,487 54,334,866 ------------ ----------- ----------- OPERATING COSTS AND EXPENSES: Cost of sales (Note 1) 83,533,328 52,161,827 41,298,567 Selling and administrative 26,183,434 16,392,635 15,054,151 Suspension of European operations (Note 11) - 900,563 - ------------ ----------- ----------- 109,716,762 69,455,025 56,352,718 ------------ ----------- ----------- Income (loss) from operations 2,449,469 (558,538) (2,017,853) ------------ ----------- ----------- OTHER INCOME (EXPENSE): Interest income 600,415 579,222 559,787 Interest expense (35,979) (3,905) (60,828) Gain on sale of investments 2,826,849 - - Other - (98,551) - ------------ ----------- ----------- 3,391,285 476,766 498,959 ------------ ----------- ----------- Income (loss) before income tax provision (benefit), minority partner interests and extraordinary item 5,840,754 (81,772) (1,518,894) INCOME TAX (PROVISION) BENEFIT (Note 6) (727,231) 763,919 (304,813) ------------ ----------- ----------- Income (loss) before minority partner interests and extraordinary item 5,113,523 682,147 (1,823,707) LOSSES ATTRIBUTABLE TO MINORITY PARTNER INTERESTS (Note 1) - 130,918 648,833 ------------ ----------- ----------- Income (loss) before extraordinary item 5,113,523 813,065 (1,174,874) EXTRAORDINARY ITEM, income tax benefit from carryforward of net operating losses (Note 6) - - 279,813 ------------ ----------- ----------- Net income (loss) $ 5,113,523 $ 813,065 $ (895,061) ============ =========== ===========
(continued) RENTRAK CORPORATION AND SUBSIDIARIES ------------------------------------ CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED) ------------------------------------------------- FOR THE YEARS ENDED MARCH 31, 1995, 1994 AND 1993 ------------------------------------------------- NET INCOME (LOSS) PER SHARE (Note 1) ------------------------------------
1995 1994 1993 ----------- ----------- ----------- EARNINGS PER COMMON SHARE AND COMMON EQUIVALENT SHARE: Income (loss) before extraordinary item $ .41 $ .08 $ (.13) Extraordinary item - - .03 ----------- ----------- ----------- Net income (loss) per share $ .41 $ .08 $ (.10) =========== =========== =========== EARNINGS PER COMMON SHARE AND COMMON EQUIVALENT SHARE - assuming issuance of all dilutive contingent shares: Income (loss) before extraordinary item $ .40 $ .08 $ (.13) Extraordinary item - - .03 ----------- ----------- ----------- Net income (loss) per share $ .40 $ .08 $ (.10) =========== =========== ===========
The accompanying notes are an integral part of these statements. RENTRAK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED MARCH 31, 1995, 1994 AND 1993
Common Stock ------------------- Capital in Number of Excess of Shares Amount Warrants Par Value ---------- -------- ----------- ------------ BALANCE AT MARCH 31, 1992 9,032,837 $ 9,033 $ - $27,500,526 Issuance of common stock 318,379 318 - 1,980,744 Issuance of common stock under employee stock option plan 123,678 124 - 154,495 Issuance of warrants - - 1,300,000 - Warrant subscription receivable - - (1,300,000) - Net loss - - - - Cumulative translation adjustment - - - - ---------- ------- ----------- ----------- BALANCE AT MARCH 31, 1993 9,474,894 9,475 - 29,635,765 Repurchase of common stock (83,963) (84) - (444,544) Issuance of common stock for acquisition 776,280 776 - 4,957,828 Issuance of common stock under employee stock option plan 56,846 57 - 123,214 Net income - - - Cumulative translation adjustment - - - - Net unrealized gain on investment securities - - - - ---------- ------- ----------- ----------- BALANCE AT MARCH 31, 1994 10,224,057 10,224 - 34,272,263 Repurchase of common stock (38,300) (38) - (189,512) Issuance of common stock 364,445 364 - 1,549,257 Issuance of common stock for acquisitions 639,561 640 - 5,110,526 Issuance of common stock under employee stock option plan 87,483 87 - 322,428 Net income - - - - Change in net unrealized gains (losses) on investment securities - - - - Issuance of warrants - - (3,533,977) 3,533,977 Amortization of warrants - - 467,114 - ---------- ------- ----------- ----------- BALANCE AT MARCH 31, 1995 11,277,246 $11,277 $(3,066,863) $44,598,939 ========== ======= =========== =========== (Accumulated Net Unrealized Deficit) Cumulative Gains (Losses) Retained Translation on Investment Earnings Adjustment Securities Total ------------ ------------ -------------- ------------ BALANCE AT MARCH 31, 1992 $(6,112,020) $ - $ - $21,397,539 Issuance of common stock - - - 1,981,062 Issuance of common stock under employee stock option plan - - - 154,619 Issuance of warrants - - - 1,300,000 Warrant subscription receivable - - - (1,300,000) Net loss (895,061) - - (895,061) Cumulative translation adjustment - 83,866 - 83,866 ----------- -------- ----------- ----------- BALANCE AT MARCH 31, 1993 (7,007,081) 83,866 - 22,722,025 Repurchase of common stock - - - (444,628) Issuance of common stock for acquisition - - - 4,958,604 Issuance of common stock under employee stock option plan - - - 123,271 Net income 813,065 - - 813,065 Cumulative translation adjustment - (83,866) - (83,866) Net unrealized gain on investment securities - - 1,434,182 1,434,182 ----------- -------- ----------- ----------- BALANCE AT MARCH 31, 1994 (6,194,016) - 1,434,182 29,522,653 Repurchase of common stock - - - (189,550) Issuance of common stock - - - 1,549,621 Issuance of common stock for acquisitions - - - 5,111,166 Issuance of common stock under employee stock option plan - - - 322,515 Net income 5,113,523 - - 5,113,523 Change in net unrealized gains (losses) on investment securities - - (1,604,929) (1,604,929) Issuance of warrants - - - - Amortization of warrants - - - 467,114 ----------- -------- ----------- ----------- BALANCE AT MARCH 31, 1995 $(1,080,493) $ - $ (170,747) $40,292,113 =========== ======== =========== ===========
The accompanying notes are an integral part of these statements. RENTRAK CORPORATION AND SUBSIDIARIES ------------------------------------ CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- FOR THE YEARS ENDED MARCH 31, 1995, 1994 AND 1993 -------------------------------------------------
1995 1994 1993 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 5,113,523 $ 813,065 $ (895,061) Adjustments to reconcile net income (loss) to net cash provided (used) by operations- Gain on investment sales (2,826,849) - - Depreciation 1,441,872 769,748 422,882 Amortization of intangibles 1,242,564 678,588 889,157 Amortization of warrants 467,114 - - Provision for doubtful accounts (582,386) (43,160) 366,568 Retailer financing program reserves 2,974,912 - - Studio advance reserves 572,300 - - Losses attributable to minority partner interests - (130,918) (648,833) Loss on asset sales - 893,116 - Deferred income taxes (2,737,426) - - Cumulative translation adjustments - (83,866) - Change in specific accounts, net of effects in 1995 and 1994 from purchase of businesses: Accounts receivable (4,726,871) 796,241 (3,725,418) Inventories (1,490,480) - - Advances to program suppliers 659,348 (1,278,411) (690,472) Other current assets (1,244,614) (958,020) (397,527) Accounts payable 4,746,922 (641,559) 5,241,300 Accrued liabilities and compensation 1,420,639 1,117,287 612,823 Deferred revenue 1,408,076 - - ------------ ------------ ------------ Net cash provided by operating activities 6,438,644 1,932,111 1,175,419 ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (1,273,080) (1,758,893) (1,576,044) Investments in retailer financing program (8,930,618) - - Cash paid for purchases of businesses, net of cash acquired - (1,342,352) - Purchases of other assets 309,849 (1,198,989) (870,749) Purchases of investments (4,400,253) (8,271,811) (41,861,363) Maturities of investments 4,400,253 19,596,118 30,537,056 Proceeds from sale of investment 2,836,849 - - Purchase of intangibles (782,620) (229,997) (476,337) ------------ ------------ ------------ Net cash provided (used) by investing activities (7,839,620) 6,794,076 (14,247,437) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Payment of debt assumed in acquisition $ (3,259,724) $ - $ (18,304) Cash received from minority partner - 50,000 729,751 Repurchase of common stock (189,550) (444,628) - Issuance of common stock 1,743,937 123,271 2,085,681 ------------ ------------ ------------ Net cash provided (used) by financing activities (1,705,337) (271,357) 2,797,128 ------------ ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,106,313) 8,454,830 (10,274,890) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 13,815,718 5,360,888 15,635,778 ------------ ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF YEAR $ 10,709,405 $ 13,815,718 $ 5,360,888 ============ ============ ============
(continued) RENTRAK CORPORATION AND SUBSIDIARIES ------------------------------------ CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) ------------------------------------------------- FOR THE YEARS ENDED MARCH 31, 1995, 1994 AND 1993 -------------------------------------------------
1995 1994 1993 ----------- ----------- ----------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for- Interest $ 35,979 $ 3,905 $ 3,939 Income taxes 3,288,189 62,127 31,029 NONCASH FINANCING AND INVESTING ACTIVITIES: Issuance of warrants 3,533,977 - - Addition to other assets through issuance of common stock 128,199 - - Addition to licensing agreements through issuance of common stock - - 50,000 Acquisition of businesses through issuance of stock 5,111,166 5,542,639 - Purchase of other assets through credits to accounts receivable - - 360,000 Increase (decrease) in net unrealized gains (losses) on investment securities through adjustments to stockholders' equity (1,604,929) 1,434,182 -
The accompanying notes are an integral part of these statements. RENTRAK CORPORATION AND SUBSIDIARIES ------------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ MARCH 31, 1995, 1994 AND 1993 ----------------------------- 1. BUSINESS OF THE COMPANIES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Rentrak Corporation (the Company) (an Oregon corporation) is principally engaged in 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. 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 Rentrak'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 will receive a royalty of 1.67 percent for all sales of up to $47,905,000, plus one-half of 1 percent (0.5%) of sales greater than $47,905,000 in each fiscal year. In addition, the Company received a one-time royalty of $2 million payable $1 million in fiscal 1995, which has been received; and $1 million no later than March 31, 1999. The payment of $1 million due on March 31, 1999 has not been recognized as revenue by the Company due to uncertainty of collection. Rentrak Japan will receive additional territories to market PPT. In addition, the Company sold 34 shares of Rentrak Japan to CCC for 6,800,000 Yen ($68,068), reducing the Company's ownership in Rentrak Japan from 33-1/3 percent to 25 percent. The term of the Agreement was extended from the year 2001 to the year 2039. In the fall of 1992, the Company initiated efforts to globalize its PPT operations by entering the European market. The Company, with its partner in Rentrak Japan, formed two jointly owned European corporations, Rentrak Europe and Videotheken Management. Rentrak Europe's purpose was to market PPT in Europe and was owned by the Company and by the Japanese partner. The Company was the majority shareholder. Videotheken Management's purpose was to develop video outlets in the German market and was owned by the Company and by the Japanese partner. The Company was the controlling shareholder. Rentrak Europe and Videotheken Management ceased operations during the quarter ended September 30, 1993, and the rights to the corporations were subsequently sold in the quarter ended December 31, 1993. The decision to cease operations stems from the difficulties the Company had in getting sufficient product flow commitments from program suppliers. However, in the future, the Company may explore opportunities to expand its PPT market in Europe as well as other foreign countries. Minority interest represents the minority shareholders' proportionate share of the equity of certain ventures. The minority shareholders' proportionate share of losses in excess of their equity in the entities is recorded in the Company's accompanying statement of operations. The Company is currently negotiating the sale of its ownership in the remaining entity to the minority partner. -2- On October 15, 1993, the Company acquired all of the outstanding shares of common stock of The Pro Image Inc., a Utah corporation (TPI), pursuant to the Stock Purchase Agreement by and among the Company, TPI and the shareholders of TPI. As of March 31, 1995, TPI franchised approximately 175 retail outlets in 45 states, Canada, Germany, Mexico and Japan. Including Team Spirit, which was acquired during the year, as discussed below, TPI also operates 54 company-owned retail stores in 19 states throughout the country. These stores sell sports-oriented products and apparel featuring products licensed by college and professional sports teams. In August 1994, the Company acquired all of the outstanding stock of Team Spirit, Inc. (Team Spirit) for a net purchase price of approximately $4.4 million, with payment made through the issuance of approximately 557,000 shares of Rentrak Common Stock (see Note 12). Team Spirit operates 39 stores in 15 states, including Nebraska, Illinois, Michigan, Iowa, Minnesota, Missouri and Kansas, which sell licensed sports apparel and gifts. Simultaneous with the acquisition, Rentrak transferred all of the assets of Team Spirit to TPI and Team Spirit became a wholly owned subsidiary of TPI. In October 1994, the Company acquired all of the outstanding stock of Image Makers, Inc. and Barenz-Runia, Inc. (see Note 12). These companies were franchisees of TPI and operated seven stores in the Pacific Northwest. Simultaneous with the acquisition, the net assets of the combined companies were contributed to TPI. The combined purchase price was approximately $686,000 and was paid by issuing approximately 82,000 shares of the Company's common stock. The above acquisitions were accounted for as purchases and the results of operations are included in the accompanying consolidated statement of operations from the date of acquisition. 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 to 50 percent are accounted for by the equity method. TPI and Team Spirit's year-ends are February 28. As there are no intervening events which materially affect the financial position or results of operations, the consolidated financial statements include TPI's balance sheet as of February 28, 1995 and 1994 and the statements of operations, stockholder's equity and cash flows for the 12-month period and 4-1/2 month period ending February 28, 1995 and 1994, respectively. Team Spirit's balance sheet as of February 28, 1995 and the statements of operations, stockholder's equity and cash flows for the six-month period ending February 28, 1995 are included in the consolidated financial statements. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. -3- INVESTMENT SECURITIES Effective March 31, 1994, the Company adopted Statement of Financial Accounting Standards No. 115 (SFAS 115), "Accounting for Certain Investments in Debt and Equity Securities," which changed the accounting for certain debt and equity securities. In accordance with SFAS 115, securities are classified as available for sale. Securities, classified as available for sale, are shown at market with an adjustment to stockholders' equity to reflect net unrealized gains and losses, net of tax. INVENTORY Inventory consists primarily of sports apparel and related finished goods merchandise. Inventory is carried at the lower of cost (first-in, first-out method) or market value. PROPERTY AND EQUIPMENT Depreciation of fixed assets, other than movie tapes, is computed on the straight-line method over estimated useful lives of three to five years. Movie tapes are depreciated ratably over their expected related revenue stream. Leasehold improvements are amortized over the lives of the underlying leases or the service lives of the improvements, whichever is shorter. INTANGIBLES During fiscal years 1995, 1994 and 1993, the Company paid cash and issued stock for approximately $11,000, $206,000 and $883,000, respectively, for licensing agreements with product and service suppliers. These agreements are being amortized on the straight-line method over one to ten years. In connection with the acquisition of TPI, the Company purchased certain intangible assets totaling $6,269,050. These assets include customer and dealer lists, a covenant not to compete, franchise agreements and goodwill. These assets are being amortized on the straight-line method over a 12-year period. In connection with the acquisitions of Team Spirit and then Image Makers, Inc. and Barenz-Runia, Inc., the Company purchased goodwill totaling approximately $4.1 million and $557,000, respectively The goodwill will be amortized on the straight-line method over a 15-year period. The Company believes the above useful lives are appropriate based on the factors influencing acquisition decisions. These factors include store location, profitability and general industry outlook. The Company reviews its intangible 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 intangibles may not be recoverable. To perform that review, the Company estimates the sum of expected future undiscounted preinterest expense net cash flows from the operating activities. If the estimated net cash flows are less than the carrying amount of intangibles, the Company will recognize an impairment loss in an amount necessary to write down intangibles to a fair value as determined from expected discounted future cash flows. -4- REVENUE RECOGNITION Under its PPT program, the Company enters into contracts to distribute video cassettes leased by retailers from video program suppliers (producers of motion pictures and licensees and distributors of home video cassettes), for a percentage of the fees charged to the retailers. The lease agreements provide for a one-time initial handling 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 handling fees as revenue when the video cassettes are shipped to the retailers and recognizes transaction fees when the video cassettes are rented to the consumers. When the Company's revenue is fixed and determinable at time of shipment of video cassettes to the retailers, deferred revenue is recorded and recognized as revenue in the statement of operations when the video cassettes are rented to the consumers. The corresponding liability to video program suppliers for their share of the fees is recorded to cost of sales when the revenue is recognized with a corresponding amount to accounts receivable. The Company also charges retailers a processing 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. Stockholders and directors, or their families, own interests in several stores participating in the PPT program. The Company realized revenues from these stores of $426,102, $422,053 and $474,073 during 1995, 1994 and 1993, respectively. TPI is entitled to a royalty of up to 4 percent of gross sales generated by franchise retail stores. TPI recognizes royalty fee revenues in the period sales are made by the franchise retail stores. TPI recognizes initial franchise fees from franchise sales as revenue when the services or conditions relating to the sale are performed or satisfied. TPI defers the portion of the initial franchise fee related to an obligation to perform future training services for the franchisee. This deferred franchise fee is recorded as revenue at the time the training is completed or the obligation expires. INCOME TAXES Effective April 1, 1993, the Company adopted 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. Prior to April 1, 1993, the Company accounted for income taxes in accordance with Accounting Principles Board Opinion No. 11. As permitted by SFAS 109, prior period financial statements have not been restated. NET INCOME (LOSS) PER SHARE At March 31, 1995, primary earnings per share are based on the weighted average number of shares outstanding and the assumed exercise of common stock equivalent options and warrants regardless of whether the market price of the common stock exceeded the exercise price of the options and warrants. The number of treasury shares assumed to be purchased with the proceeds from the exercise of the options and warrants was limited to 20 percent of the outstanding shares at period-end. Those purchases were assumed to have been made at the average market price of the Company's common stock during the year. Proceeds from exercise of the options and warrants in excess of those used to purchase treasury shares were assumed to have been invested in government securities with the resultant interest income, adjusted -5- for appropriate tax effects, added to net income for purposes of calculating earnings per share. For the 1995 primary earnings per share calculation, 13,397,951 common shares and common share equivalents were assumed outstanding and $394,249 of assumed interest income, net of tax, was added to the Company's net income for purposes of computing earnings per share. Fully diluted earnings per share at March 31, 1995 are based on the weighted average number of shares outstanding and the assumed exercise of common stock equivalent options and warrants regardless of whether the market price of the common stock exceeded the exercise price of the options and warrants. In addition, contingent warrants were assumed to have been exercised. The number of treasury shares assumed to be purchased with the proceeds from the exercise of the options and warrants was limited to 20 percent of the outstanding shares at period-end. Those purchases were assumed to have been made at the greater of the average or ending market price of the Company's common stock during the year. Proceeds from exercise of the options and warrants in excess of those used to purchase treasury shares were assumed to have been invested in government securities with the resultant interest income, adjusted for appropriate tax effects, to be added to net income for purposes of calculating earnings per share. For the 1995 fully diluted earnings per share calculation, 14,317,380 common shares and common share equivalents were assumed outstanding and $582,494 of assumed interest income, net of tax, was added to the Company's net income for purposes of computing earnings per share. Earnings per common share and common equivalent share for 1994 were computed by dividing net income by the weighted average number of shares of common stock and common stock equivalents outstanding during the year. The number of common shares was increased by the number of shares issuable on the exercise of options and warrants when the market price of the common stock exceeded the exercise price of the options and warrants. This increase in the number of common shares was reduced by the number of common shares that are assumed to have been repurchased with the proceeds from the exercise of the options and warrants. Those repurchases were assumed to have been made at the average price of the common stock during the year. Weighted average shares outstanding used in both the primary and fully diluted earnings per share calculation are 10,162,461. Loss per common share and common equivalent share for 1993 was computed based only on the weighted average number of shares of common stock actually outstanding, which was 9,305,950. FOREIGN OPERATIONS Foreign currency assets and liabilities are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. Results of operations are translated at average exchange rates during the period for revenue and expenses. Translation gains and losses resulting from fluctuations in the exchange rates are accumulated as a separate component of stockholders' equity. Translation gains or losses were not material for any period presented. RECLASSIFICATIONS Certain reclassifications have been made to the prior years' consolidated financial statements to conform with current year presentation. -6- 2. INVESTMENT SECURITIES: The carrying value and estimated fair value of securities at March 31 were as follows:
Unrealized Unrealized Cost Gross Gain Gross Loss Fair Value --------- ----------- ---------- ----------- As of March 31, 1995: Available for sale- Noncurrent: Corporate securities $389,065 $ - $(275,398) $ 113,667 ======== ========== ========= ========== As of March 31, 1994: Available for sale- Current: Corporate securities $ 10,000 $2,377,500 $ - $2,387,500 Noncurrent: Corporate securities 389,065 - (64,303) 324,762 -------- ---------- --------- ---------- $399,065 $2,377,500 $ (64,303) $2,712,262 ======== ========== ========= ==========
3. PROPERTY AND EQUIPMENT: Property and equipment, at cost, consists of:
March 31, ------------------------ 1995 1994 ------------ ------------ Furniture and fixtures $ 5,932,263 $ 4,051,866 Machinery and equipment 1,247,352 898,270 Leasehold improvements 3,666,333 866,615 ----------- ----------- 10,845,948 5,816,751 Less accumulated depreciation (5,921,826) (3,020,021) ----------- ----------- $ 4,924,122 $ 2,796,730 =========== ===========
4. RETAILER FINANCING PROGRAM: The Company has established a retailer financing program whereby on a selective basis the Company will provide financing to video retailers which the Company believes have demonstrated the prospect for substantial growth in the industry. In connection with these financings, the Company typically makes a loan and/or equity investment in the retailer. In some cases, a warrant to purchase stock may be obtained. As part of such financings, the retailer typically agrees to cause all of its current and future retail locations to participate in the PPT System for a designated period of time. 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. -7- The Board of Directors has authorized up to $14 million to be used in connection with the Company's retailer financing program. As of May 1995, the Company has invested or made oral or written commitments to loan to or invest in various video retailers in amounts totaling substantially all of the $14 million authorized. The loans, investments or commitments are to various retailers and individually range from $200,000 to $3,000,000. The investments are accounted for at cost as all investments represent less than 10 percent of the entity's equity. The notes, which have payment terms that vary according to the individual loan agreements, are due 1995 through 1999. Interest rates on the various loans range from the prime rate plus 1 percent to the prime rate plus 3 percent. 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. As of March 31, 1995, the Company has invested or loaned approximately $9.2 million under the program. Because of the financial condition of a number of these retailers, the Company has provided reserves of approximately $3.2 million of the total original loan or investment amount. Subsequent to year-end, the Company increased its ownership in one of the retailers in the above program to approximately 57 percent or a controlling interest. See Note 15. 5. LINE OF CREDIT: The Company has an agreement for a line of credit in the amount of $7,500,000 with a financial institution which expires on July 25, 1995. Under this agreement, the Company is required to maintain average compensating balances of $1,500,000 in its checking and money accounts. Interest is payable monthly at a rate that varies in relation to the bank's prime rate. The lender has been granted the option to purchase 10,000 unregistered shares of common stock of the Company at $7 per share, which exceeded market value at the date of grant. The line is secured by substantially all of the Company's assets (excluding TPI assets). The terms of the agreement require, among other things, a minimum amount of tangible net worth, minimum current ratio and minimum total liabilities to tangible net worth. The agreement also restricts the amount of net losses, loans and indebtedness and limits the payment of dividends on the Company's stock. The Company is in compliance with these covenants as of March 31, 1995. There were no borrowings on the line of credit as of March 31, 1995. In April 1994, TPI entered into a $2,000,000 line of credit arrangement with a financial institution. Interest on borrowings under this credit agreement accrue at the bank's prime rate. Borrowings are collateralized by TPI's accounts receivable and inventory and require monthly payments of principal plus accrued interest. In January 1995, the available borrowing under this agreement was increased to the lesser of $4 million or the amount of the borrowing base as defined in the agreement. Interest under the revised agreement is accrued at the bank's prime rate plus .5 percent. There were no borrowings under the credit agreement at February 28, 1995. The credit agreement expires on July 31, 1995. -8- 6. INCOME TAXES: The provision (benefit) for income taxes is as follows for the years ended March 31:
1995 1994 1993 ----------- ---------- ---------- Current tax provision Federal $ 2,221,956 $ 21,949 $ 427,005 State 367,741 91,081 25,118 ----------- ---------- --------- 2,589,697 113,030 452,123 Deferred tax benefit (1,862,466) (876,949) (147,310) ----------- --------- --------- Income tax provision (benefit) $ 727,231 $(763,919) $ 304,813 =========== ========= =========
In 1993, the income tax provision was substantially offset by the benefit from the carryforward of net operating losses (NOL) for United States purposes. This benefit has been reported as an extraordinary item in the accompanying consolidated statement of operations. The reported provision (benefit) for income taxes 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 years ended March 31:
1995 1994 1993 ----------- ----------- ---------- Provision (benefit)computed at statutory rates $ 1,985,856 $ (27,802) $ 516,424 State taxes, net of federal benefit 242,709 91,081 16,165 Utilization of foreign loss carryforwards (1,143,876) - - Change in valuation allowance (953,470) - - Purchase accounting amortization adjustments 288,657 - - Other 307,355 - - Alternative minimum tax - 49,751 (227,776) Benefit of recognition of deferred tax assets - (876,949) - ----------- --------- --------- $ 727,231 $(763,919) $ 304,813 =========== ========= =========
Prior to 1995, the Company was uncertain as to whether the foreign loss carryforwards could be utilized and therefore no deferred tax asset was established. In the current year, it has been determined that the losses can be utilized and therefore the Company has appropriately reduced 1995 taxable income. The total reduction in the valuation allowance during the year ended March 31, 1995, was $953,470. The valuation allowance as of March 31, 1994, was recorded against the portion of the NOL deferred tax asset which did not satisfy the recognition criteria set forth in SFAS 109. -9- Deferred tax assets and liabilities are comprised of the following components at March 31, 1995 and 1994:
1995 1994 ---------- ---------- Deferred tax assets: Current- Vacation accrual $ 132,060 $ 96,122 Allowance for doubtful accounts 147,502 465,487 Retailer-related accruals 203,403 - Retailer financing program reserve 122,099 - Legal settlement accrual 171,686 171,686 Net operating loss carryforward - 193,952 Other 138,654 3,235 ---------- ---------- Total current deferred tax assets 915,404 930,482 ---------- ---------- Noncurrent- Depreciation 138,969 - Retailer financing program reserve 1,351,706 - Warrant amortization 177,504 - Unrealized loss on investment securities 104,651 - Other 153,843 41,735 Acquisition amortization - 112,327 Net operating loss carryforward - 853,281 ---------- ---------- Total noncurrent deferred tax assets 1,926,673 1,007,343 Deferred tax assets valuation allowance - (953,470) ---------- ---------- Total deferred tax assets, net of valuation allowance $2,842,077 $ 984,355 ========== ========== Deferred tax liability: Current- Unrealized gain on investment securities $ - $ (879,015) Studio guarantees - (51,467) ---------- ---------- Total current deferred tax liabilities - (930,482) Noncurrent- Depreciation - (53,873) ---------- ---------- Total noncurrent deferred tax liability - (53,873) ---------- ---------- Total deferred tax liabilities $ - $ (984,355) ========== ==========
7. STOCKHOLDERS' EQUITY: On October 15, 1993, the Company acquired all of the outstanding shares of common stock of TPI and Kartoyz, Inc., pursuant to a stock purchase agreement. The aggregate consideration paid by the Company for all outstanding shares of TPI common stock and all outstanding shares of Kartoyz common stock was approximately $1.2 million in cash and 776,280 shares of common stock. In addition, the Company agreed to pay up to $650,000 based upon future TPI royalties. As of March 31, 1995, the Company has paid $200,000 under the royalty arrangement. The balance of $450,000 has been recorded in accrued liabilities. -10- On August 31, 1994, the Company acquired all of the outstanding shares of common stock of Team Spirit for a net purchase price of approximately $4.4 million, with payment made through the issuance of approximately 557,000 shares of the Company's common stock. The Company acquired net assets of approximately $300,000 and recorded goodwill of approximately $4.1 million. In October 1994, the Company acquired all of the outstanding stock of Image Makers, Inc. and Barenz-Runia, Inc. for a net purchase price of approximately $686,000, with payment made through the issuance of approximately 82,000 shares of the Company's common stock. The Company acquired net assets of approximately $129,000 and recorded goodwill of approximately $557,000. In September 1994, a program supplier exercised warrants to acquire 250,000 shares of the Company's common stock for $5.19 per share. The warrants were granted in 1991. STOCK OPTIONS AND WARRANTS Options are granted under the 1986 Stock Option and the Directors' Stock Option Plans, which are administered by the Board of Directors, at an exercise price equal to fair market value as of the date of grant. Options under the 1986 Stock Option Plan are generally exercisable over four to ten years and expire ten years after date of grant. Options under the Directors' Stock Option Plan are generally exercisable over one to five years and expire five years after date of grant. As of March 31, 1995, the Company has 1,022,266 options available to be granted and 3,873,500 shares of common stock reserved for issuance under these plans. The table below summarizes the plan's activity:
Options Outstanding ------------------------------------- Number Price of Per Aggregate Shares Share Price ---------- ------------- ------------ Balance at March 31, 1992 626,900 $ .75 - 9.53 $ 1,812,072 Granted 340,444 5.38 - 8.00 1,955,764 Issued (123,678) 1.00 - 6.25 (154,619) Canceled (6,710) 1.38 - 6.38 (29,537) --------- ------------ ----------- Balance at March 31, 1993 836,956 1.13 - 9.53 3,583,680 Granted 364,672 4.44 - 6.50 1,839,177 Issued (56,846) 1.13 - 6.25 (123,271) Canceled (162,389) 1.13 - 6.38 (887,287) --------- ------------ ----------- Balance at March 31, 1994 982,393 1.13 - 9.53 4,412,299 Granted 1,709,900 4.94 - 8.50 9,883,418 Issued (87,483) 1.13 - 6.75 (210,065) Canceled (37,467) 1.38 - 6.75 (213,209) --------- ------------ ----------- Balance at March 31, 1995 2,567,343 $1.13 - 9.53 $13,872,443 ========= ============ ===========
-11- As of March 31, 1995, 859,158 options to purchase stock were exercisable. The remaining 1,708,185 options are subject to restrictions which prohibit them from being exercised as of March 31, 1995. In connection with the secondary offering in May 1991, the Company issued to its investment banker a warrant to purchase 147,500 shares of the Company's common stock. The exercise price per share of $8.90 equaled market value at the date of grant. The warrants would have expired on May 22, 1994. However, the Board of Directors extended the expiration date to May 22, 1996. In August 1992, the Company entered into an agreement with a service supplier to use and sublease certain software on the PPT system. As part of the agreement, the Company paid a licensing fee of $188,000, sold 251,889 shares of common stock for $7 per share ($1,763,223), which approximated market value at date of transaction, and granted a warrant to purchase 251,889 shares of common stock at an exercise price of $9.50 per share, which exceeded market value at the date of grant, through August 1997. The licensing fee was capitalized in other assets and is being amortized over five years, the life of the licensing agreement. In August 1992, the Company entered into an agreement with CCC to develop Rentrak's pay-per-transaction and information processing business in certain markets throughout the world. The agreement guarantees a maximum 25 percent equity interest for CCC in any new company formed to develop PPT in these markets. As part of the agreement, CCC was issued warrants to acquire up to 1.2 million shares of the Company's common stock for $1.3 million. The warrants were to be purchased before December 31, 1993. The $1.3 million was not paid and the option to acquire the 1.2 million shares has expired by its terms. At March 31, 1993, the Company had recorded a subscription receivable for $1.3 million which is shown as an offset to the warrants in the stockholders' equity section of the balance sheet. The exercise price of these warrants did not exceed the market price of the Company's stock at the date of grant. In September 1992, the Company agreed to issue warrants to buy up to 1,000,000 shares of the Company's common stock in connection with entering into a long-term licensing agreement with a program supplier. Certain contractual arrangements must be performed by the program supplier, however, before any warrants are issued. At March 31, 1995, a warrant to purchase 600,000 shares of common stock had been issued at an exercise price of $7.14 per share which approximated market value at date of grant. In July 1994, the Company agreed to issue warrants to buy up to 2,673,750 shares of the Company's common stock in connection with entering into a long-term licensing agreement with a program supplier. Of the warrants, 1,423,750 are issuable based on the program supplier's continuing business with the Company. The remainder of the warrants are issuable upon the meeting of certain conditions by the program supplier, including the delivery of predetermined numbers of titles for inclusion in the Company's PPT program. The warrants were issued at an exercise price of $7.13 per share, which approximated market value at date of grant. As a result of the July 1994 agreement discussed above, the Company issued warrants to acquire 423,750 shares of the Company's common stock to another program supplier under a favored nations clause in the contract with that program supplier. This supplier had received a previous grant for 1,000,000 shares (see above). These warrants were also issued at an exercise price of $7.13 per share, which approximated market value at date of grant. -12- In December 1994, the Company agreed to issue warrants to buy up to 250,000 shares of the Company's common stock to certain customers. The warrants are issuable if the customers meet certain purchasing commitments established by the Company. The warrants were issued at an exercise price of $7.00 per share, which approximated market value at date of grant. All warrants which the Company agreed to issue in 1995 have been valued by an outside valuation firm using standard warrant valuation models. The value of the warrants of $3,533,977 has been recorded in the equity section and will be amortized over the associated periods to be benefited by each group of warrants. For 1995, expense associated with the warrants is $467,114. 8. COMMITMENTS: LEASES The Company leases its facilities under operating leases expiring at various dates through 2008. Rental payments over the term of the leases exceeding one year are as follows:
Year ending March 31, --------------------- 1996 $ 3,387,649 1997 2,882,406 1998 2,452,032 1999 1,983,698 2000 1,378,302 2001 and thereafter 5,264,031 ----------- $17,348,118 ===========
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 $2,357,640, $749,000 and $514,000 for the years ended March 31, 1995, 1994 and 1993, 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. Total commitments under guarantees as of March 31, 1995, are approximately $55,578,027, of which $52,065,242 had been earned. As of March 31, 1995, the Company has recorded $572,300 for potential losses under such guarantee arrangements. -13- 9. CONTINGENCIES: In February 1991, a suit was filed against the Company alleging causes of action for breach of contract, breach of implied covenant of good faith and fiduciary duty, and violation of a state unfair business practice statute. These allegations arise out of the Company's alleged refusal to grant the plaintiff a National Video franchise. A lower court jury has awarded damages of approximately $450,000 to the plaintiff on the alleged charges, including attorney fees. The Company appealed the lower court decision; however, that decision was upheld by the appeals court. The damage award is fully reserved by the Company and settlement of the case is likely to occur in 1996. The Company is subject to other legal proceedings and claims which arise in the ordinary course of its business. In the opinion of management, the amount of any ultimate liability with respect to these actions will not materially affect the financial position or results of operation of the Company. 10. RENTRAK JAPAN: As is discussed in Note 1, the Company owns a one-fourth interest in Rentrak Japan. Summarized financial data for the joint venture, after translation to U.S. currency, at March 31, 1995, 1994 and 1993, and for the years then ended is as follows:
1995 1994 1993 ----------- ----------- ----------- Current assets $39,738,319 $14,773,880 $ 5,418,142 Noncurrent assets 5,543,662 4,044,049 4,188,514 Current liabilities 41,411,744 18,585,255 7,644,229 Noncurrent liabilities 4,871,295 2,285,771 2,313,793 Shareholders' deficit (1,001,059) (2,053,097) (351,366) Net sales 88,382,895 56,082,841 34,074,869 Cost of sales 57,750,231 44,218,531 27,193,907 Net income (loss) 1,424,334 (1,589,437) (560,339)
As of March 31, 1993, the Company's investment has been written down to zero. The Company has provided no guarantee or other financial commitments for the investee which would require the recognition of additional losses in 1994 from the investee under the equity method. During 1995, no income was recognized by the Company as the Company's share of net income does not exceed the net losses not recognized during the period the equity method was suspended. 11. SUSPENSION OF EUROPEAN OPERATIONS: The write off of European assets, which was incurred in the quarter ended September 30, 1993, amounted to $789,155, composed of $56,042 in accounts receivable, $94,200 in other current assets, $549,008 in property and equipment, and $89,905 in other long-term assets. In addition to the $789,155 write down of assets in the quarter ended September 30, 1993, during the year ended March 31, 1994, the Company incurred $1.4 million in European operating costs as well as $111,408 in cash expenditures to finalize operations. During the period the equity method was suspended. -14- 12. ACQUISITIONS: On October 15, 1993, the Company acquired all of the outstanding shares of common stock of TPI pursuant to the Stock Purchase Agreement and all of the outstanding shares of Kartoyz. Kartoyz operated one retail outlet which sold licensed gifts and products related to automobiles. The Company suspended the Kartoyz operations during fiscal year 1994. The aggregate consideration paid by the Company for all outstanding shares of TPI common stock and all outstanding shares of Kartoyz common stock was approximately $1.2 million in cash and 776,280 shares of common stock at $7.14 per share. In addition, the Company agreed to pay up to $650,000 based upon future TPI royalties. As of March 31, 1995, the Company has paid $200,000 under the royalty arrangement. The balance of $450,000 has been recorded in accrued liabilities. The Company changed TPI's year-end from December 31 to February 28 subsequent to the acquisition. The change was made to more closely match TPI's year-end with the Company's year-end of March 31 and to allow sufficient time for the process of consolidating financial information. There were no intervening events which materially affect the financial position or results of operations. As such, the consolidated financial statements include TPI's balance sheet as of February 28, 1995 and 1994 and the statements of operations, stockholder's equity and cash flows for the 12 month period and 4-1/2 month period ending February 28, 1995 and 1994, respectively. Summarized unaudited consolidated pro forma financial data for the Company for the year ended March 31, 1994, which includes TPI financial data for the twelve months ended December 31, 1993, presented as if the acquisition had been consummated as of the beginning of the Company's year, is as follows: Revenues $74,008,593 Net income 878,425 Net income per share .09
The pro forma information given above does not purport to be indicative of the results that actually would have been obtained if the operations were combined during the periods presented, and is not intended to be a projection of future results or trends. In August 1994, the Company acquired all of the outstanding stock of Team Spirit. The net purchase price was approximately $4.4 million and was paid via issuance of approximately 557,000 shares of common stock. The Company acquired assets of approximately $6 million and recorded goodwill of approximately $4.1 million. At the time of purchase, Team Spirit, Inc. had approximately $2.3 million in other liabilities and approximately $3.3 million in outstanding bank debt which was immediately paid by the Company. -15- Summarized unaudited consolidated pro forma financial data for the Company for the years ended March 31, 1995 and 1994, which includes Team Spirit financial data for the twelve months ended January 31, 1995 and 1994, presented as if the acquisition had been consummated as of the beginning of the Company's year, is as follows:
1995 1994 ------------- ------------ Revenues $118,369,990 $85,667,518 Net income 4,278,548 1,150,253 Net income per share - primary .35 .11 Net income per share - assuming full dilution .34 .11
The pro forma information given above does not purport to be indicative of the results that actually would have been obtained if the operations were combined during the periods presented, and is not intended to be a projection of future results or trends. 13. EMPLOYEE BENEFIT PLANS: At January 1, 1991, the Company established an employee benefit plan (the Rentrak 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 amount of the Company's contribution is at the discretion of Board of Directors. Contributions under the 401(k) plan for the years ended March 31, 1995, 1994 and 1993 were $35,347, $25,430 and $22,360, respectively. TPI has a 401(k) savings plan (the TPI Plan) which covers all employees who are at least 21 years of age and who have completed at least 1,000 hours of service. Under the TPI Plan, employees may contribute up to 20 percent of their earnings. TPI matched the first 6 percent of employee contributions at a level of 50 percent through December 31, 1994. TPI's contributions to the Plan for the 12 month period ended February 28, 1995 were $30,029 and for the 4-1/2 month period ended February 28, 1994 were approximately $7,100. As of January 1, 1995, the TPI Plan was frozen and TPI employees began contributing to the Rentrak Plan. 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 171,536 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. Under the Plan, employees purchased 11,062 shares for aggregate proceeds of $78,449, 8,663 shares for aggregate proceeds of $51,694 and 5,995 shares for aggregate proceeds of $38,935 in 1995, 1994 and 1993, respectively. -16- 14. BUSINESS SEGMENTS, GEOGRAPHIC INFORMATION AND MAJOR CUSTOMER:
BUSINESS SEGMENTS 1995 1994 1993 ------------ ------------ ------------ Net sales: PPT $ 79,793,584 $62,005,968 $52,847,386 Sports apparel 26,363,211 3,950,705 - Other 6,009,436 2,939,814 1,487,480 ------------ ----------- ----------- $112,166,231 $68,896,487 $54,334,866 ============ =========== =========== Income (loss) from operations: PPT $ 2,886,841 $ 2,064,299 $ 613,032 Sports apparel 270,176 440,781 - Other (707,548) (3,063,618) (2,630,885) ------------ ----------- ----------- $ 2,449,469 $ (558,538) $(2,017,853) ============ =========== =========== Identifiable assets: PPT $ 39,132,490 $33,284,507 $32,802,483 Sports apparel 22,610,120 8,950,132 - Other 3,075,058 2,385,806 2,021,147 ------------ ----------- ----------- $ 64,817,668 $44,620,445 $34,823,630 ============ =========== ===========
GEOGRAPHIC INFORMATION 1995 1994 1993 ------------ ------------ ------------ Revenues from unaffiliated customers: United States $112,166,231 $68,780,550 $54,134,422 Foreign - 115,937 200,444 ------------ ----------- ----------- $112,166,231 $68,896,487 $54,334,866 ============ =========== =========== Net income (loss): United States $ 5,113,523 $ 3,092,075 $ 783,238 Foreign - (2,279,010) (1,678,299) ------------ ----------- ----------- $ 5,113,523 $ 813,065 $ (895,061) ============ =========== =========== Identifiable assets: United States $ 64,817,668 $44,620,445 $33,849,383 Foreign - - 974,247 ------------ ----------- ----------- $ 64,817,668 $44,620,445 $34,823,630 ============ =========== ===========
There were no sales or transfers between geographic areas in any of the years presented. -17- The Company has one program supplier that supplied product that generated 19 percent, a second that generated 12 percent, and a third that generated 11 percent of Rentrak revenues for the year ended March 31, 1995. The Company had one program supplier that supplied product that generated 26 percent and a second program supplier that supplied product that generated 23 percent of Rentrak revenues for the year ended March 31, 1994. The Company had one program supplier that supplied product that generated 34 percent of revenues for the year ended March 31, 1993. There were no other program suppliers who contributed more than 10 percent of sales for the years ended March 31, 1995, 1994 and 1993. 15. SUBSEQUENT EVENTS: On May 26, 1995, the Company entered into an agreement to acquire 3.2 million shares of Entertainment One, Inc. from the majority shareholder. When combined with the 669,230 shares Rentrak purchased from Entertainment One, Inc. in July 1994, Rentrak's ownership will consist of approximately 57 percent of the issued and outstanding stock of Entertainment One, or a controlling interest. Entertainment One, Inc. operates 46 video departments inside Wal Mart stores in 14 states and Canada, 8 supermarket video departments and 5 video specialty stores in Illinois. The acquisition will be accounted for as a purchase. 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 any proposal to acquire control of the Company. Under the rights plan, each shareholder will receive 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. Schedule II RENTRAK CORPORATION ------------------- VALUATION AND QUALIFYING ACCOUNTS ---------------------------------
BALANCE AT CHARGED TO CHARGED BALANCE BEGINNING COST AND TO OTHER RECOVERIES AT END OF YEAR ENDED: OF PERIOD EXPENSES ACCOUNTS (DEDUCTIONS) PERIOD - ----------------------------------------------------------------------------------------------------------------- ALLOWANCE FOR DOUBTFUL ACCOUNTS March 31, 1993 $901,558 $946,093 - ($579,525) $1,268,126 March 31, 1994 1,268,126 (687,189) - 644,029 1,224,966 March 31, 1995 1,224,966 (2,984,899) - 2,402,513 642,580 ADVANCES TO PROGRAM SUPPLIERS - RESERVE $0 $572,300 - - $572,300 March 31, 1995 INVENTORY RESERVE March 31, 1995 0 336,046 - - 336,046 OTHER CURRENT ASSETS - RETAILER FINANCING PROGRAM RESERVE March 31, 1995 0 267,937 - - 267,937 OTHER ASSETS - RETAILER FINANCING PROGRAM RESERVE March 31, 1995 0 2,974,912 - - 2,974,912
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 1995 Annual Meeting of Shareholders filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended. See "Election of Directors" Page __ and "Executive Officers" Page __. 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 1995 Annual Meeting of Shareholders filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended. See "Executive Compensation" Page __. 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 1995 Annual Meeting of Shareholders 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 Directors" Page __. 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 1995 Annual Meeting of Shareholders 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" Page __ and Certain Relationships And Transactions" Page __. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, 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: Report of Independent Public Accountants Consolidated Balance Sheets as of March 31, 1995 and 1994 Consolidated Statements of Operations for Years Ended March 31, 1995, 1994 and 1993 Consolidated Statements of Stockholders' Equity for Years Ended March 31, 1995, 1994 and 1993 Consolidated Statements of Cash Flows for Years Ended March 31, 1995, 1994, and 1993 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(3): 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 last quarter of fiscal 1995, the Company filed two reports on Form 8-K. 1. Form 8-K dated January 25, 1995 ________________________ (3) 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 F. Kim Cox, Executive V.P., or Karl D. Wetzel, V.P. Chief Accounting Officer, Rentrak Corporation, 7227 N.E. 55th Avenue, Portland, Oregon 97218 Item 5 - Other Events Item 7 - Financial Statements and Exhibits Item 5 - Other Events Item 7 - Financial Statements and Exhibits - filed March 29, 1995 2. Form 8-K dated June 5, 1995 Item 5 - Other Events Item 7 - Financial Statements, Pro Forma Financial Information and Exhibits (C) Exhibits (See Exhibit Index) 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/ Ron Berger -------------------------------------- Ron Berger, President Date June 29, 1995 ------------------------------------- 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: By /s/ Ron Berger June 29, 1995 -------------------------------------- Ron Berger, President Principal Financial Officer: By /s/ F. Kim Cox June 29, 1995 -------------------------------------- F. Kim Cox, Executive Vice President Principal Accounting Officer: By /s/ Karl D. Wetzel June 29, 1995 -------------------------------------- Karl D. Wetzel Majority of Board of Directors: By /s/ L. Barton Alexander June 29, 1995 -------------------------------------- L. Barton Alexander, Director By /s/ Ron Berger June 29, 1995 -------------------------------------- Ron Berger, Chairman By /s/ Peter Dal Bianco June 29, 1995 -------------------------------------- Peter Dal Bianco, Director By /s/ James P. Jimirro June 29, 1995 -------------------------------------- James P. Jimirro, Director By /s/ Bill LeVine June 29, 1995 -------------------------------------- Bill LeVine, Director By /s/ Muneaki Masuda June 29, 1995 -------------------------------------- Muneaki Masuda, Director By /s/ Stephen Roberts June 29, 1995 -------------------------------------- Stephen Roberts, Director 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 Page - -------------- ------- ---- 3.1 a) Amended and Restated Articles of Incorporation, dated September 3, 1986 (1) b) Articles of Amendment to Articles of Incorporation dated July 30, 1987 (19) c) Articles of Amendment to Articles of Incorporation dated September 12, 1988 (20) d) Articles of Amendment to Articles of Incorporation dated September 21, 1988 (20) e) Articles of Amendment to Articles of Incorporation dated September 3, 1991 (21) f) Articles of Amendment to Articles of Incorporation dated August 31, 1994 (22) 3.2 1995 Restated Bylaws, as amended to date (15) 4.1 Articles of Incorporation, as amended to date (incorporated by reference to Exhibit 3.1) 4.2 Articles II and V of the 1995 Restated Bylaws (incorporated by reference to Exhibit 3.2). 9 Common Stock Purchase Agreement dated December 20, 1989 (4) Executive Compensation Plans and Arrangements (10.1-10.13) 10.1 1986 Second Amended and Restated Stock Option Plan and Forms of Stock Options Agreements (18) 10.2 Stock Option Agreement with F. Kim Cox, dated October 1, 1985 (1) 10.3 Employment Agreement with Michael R. Lightbourne dated December 6, 1989 (6) 10.4 Stock Option Agreement with Ron Berger, dated April 18, 1990 (7) Exhibit Number Exhibit Page - -------------- ------- ---- 10.5 Stock Option Agreement with Ron Berger, dated December 20, 1994 10.6 Consulting Agreement with Bart Alexander, dated February 1, 1991 (8) 10.7 Employment Agreement with Ron Berger dated June 1, 1994 (16) 10.8 Agreement with F. Kim Cox dated August 7, 1991 (9) 10.9 Employment Agreement with Ed Barnick dated January 1, 1994 (16) 10.10 Rentrak Corporation Amended and Restated Directors Stock Option Plan (11) 10.11 Rentrak's 401-K Plan (12) 10.12 Employment Agreement with Jim Weiss dated October 3, 1994 10.13 Amended and Restated 1992 Employee Stock Purchase Plan of Rentrak Corporation 10.14 Lease for principal executive offices & Operating facilities of the Company, dated March 11, 1987 (2) 10.15 Asset Purchase and Sale Agreement with West Coast Video Holdings, Inc., dated June 24, 1988 (3) 10.16 Subordinated Note and Common Stock Warrant Purchase Agreement, dated March 13, 1990 (5) 10.17 Joint Development Agreement with CCC dated August 6, 1993 (13) 10.18 Business Loan Agreement with Silicon Valley Bank dated October 12, 1993 (16) 10.19 Business Loan Modification Agreement with Silicon Valley Bank dated June 6, 1994 (16) Exhibit Number Exhibit Page - -------------- ------- ---- 10.20 Stock Purchase Agreement dated as of October 15, 1993 between Rentrak Corporation, The Pro Image, Inc., and the shareholders of The Pro Image, Inc., and the Principal exhibits thereto (14) 10.21 Second Amendment to Business Cooperation Agreement between Rentrak Corporation, Culture Convenience Club Co., Ltd., and Rentrak Japan dated June 16, 1994 (16) 10.22 Stock Purchase Agreement dated as of July 31, 1994, among Rentrak Corporation, Team Spirit, Edwin D. Schoening, John M. Dixon, Daniel E. Dixon, Terrance A. Hogan and Deborah K. Hogan and the Principal exhibits thereto (17) 11 Statement of Computation of Per Share Earnings 13 Annual report to Security Holders 22 List of Subsidiaries of Registrant 24.1 Consent of Arthur Andersen, LLP - ------------------------------------------- (1) Filed in S-1 Registration Statement, File # 338511 as filed on November 14, 1986. (2) Filed as Exhibit 10.20 to Form 10-K filed on June 29, 1987. (3) Filed as Exhibit to current Report on Form 8-K filed on July 8, 1988. (4) Filed as Exhibit 34 to Form 10-K filed on June 25, 1990. (5) Report on Form 8-K filed on April 24, 1990. (6) Filed as Exhibit 10.8 to 1991 Form 10-K filed on May 6, 1991. (7) Filed as Exhibit 10.9 to 1991 Form 10-K filed on May 6, 1991. (8) Filed as Exhibit 10.10 to 1991 Form 10-K filed on May 6, 1991. (9) Filed as Exhibit 10.14 to 1992 Form 10-K filed on June 25, 1992. (10) Filed as Exhibit 10.16 to 1992 Form 10-K filed on June 25, 1992. (11) Filed as Exhibit B to 1994 Proxy Statement dated July 11, 1994. (12) Filed as Exhibit 10.1 to Form 10-K filed on June 28, 1993. (13) Filed as Exhibit 10.5 to Form 10-K filed on June 28, 1993. (14) Filed as Exhibit to Form 8-K filed on October 15, 1993. (15) Filed as Exhibit to Form 8-K filed on June 5, 1995. (16) Filed as Exhibit to 1994 Form 10-K filed on June 29, 1994. (17) Filed as Exhibit to Form 8-K filed on September 15, 1994. (18) Filed as Exhibit A to 1994 Proxy Statement dated July 11, 1994. (19) Filed on Page 4 of the 1987 Proxy Statement dated July 7, 1987. (20) Filed on Page 4 of the 1988 Proxy Statement dated August 17, 1988. (21) Filed on Page 16 of the 1991 Proxy Statement dated July 3, 1991. (22) Filed on Page 27 of the 1994 Proxy Statement dated July 11, 1994. EX-10.12 2 EXHIBIT 10.12 REVISED Exhibit 10.12 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (hereinafter referred to as the "Agreement") is made and entered into effective September 12, 1994, by and between RENTRAK HOME ENTERTAINMENT, a wholly owned subsidiary of RENTRAK CORPORATION, an Oregon corporation (hereinafter referred to as "Employer"), and James Patrick Weiss (hereinafter referred to as "Employee"). W I T N E S S E T H: WHEREAS, Employer is principally engaged in the business of distributing prerecorded video cassettes to video stores and other retailers through it innovative distribution system known as pay-per-transaction; and WHEREAS, Employer desires to employ Employee in the position of Senior Vice President, and Employee desires to be so employed. NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements herein contained, the recitals set forth hereinabove which by this reference are incorporated herein, and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereby agree as follows: SECTION 1. EMPLOYMENT 1.01 POSITION AND TITLE. Employer shall employ and engage the services of Employee, in the position of Senior Vice President, for the term of this Agreement as defined in Section 2, INFRA, pursuant to the terms and conditions set forth in this Agreement. 1.02 DUTIES AND PLACE OF EMPLOYMENT. Employee shall be responsible for, and perform duties associated with his position as Senior Vice President and other duties as may be directed by the Employer, from time to time. Employee shall: (i) devote his full business time during normal business hours to the business and affairs of Employer; (ii) use his best efforts to promote the interests of Employer; and (iii) perform faithfully and efficiently his responsibilities. Employee shall perform his duties at Employer's principal executive offices which are currently located at 7227 N.E. 55th Avenue, Portland, Oregon 97218. Subject to the terms of this Agreement, Employee shall comply promptly and faithfully with all of Employer's policies, instructions, directions, requests, rules and regulations. SECTION 2. TERM AND TERMINATION 2.01 STATED TERM. Employment shall commence on the effective date of this Agreement and shall continue until 1 Employee's employment under this Agreement is terminated pursuant to Section 2.02, Section 2.03, or Section 2.04, INFRA ("Term"). 2.02 AT WILL TERMINATION. Notwithstanding anything herein to the contrary, Employee's employment may be terminated at any time with or without reason, by Employer upon thirty (30) days written notice to Employee, or by Employee upon thirty (30) days written notice to Employer. 2.03 FOR CAUSE TERMINATION. Employee's employment may be terminated by Employer upon seven (7) days notice for "cause." Termination for "cause" is defined for purposes of this subsection as termination for: (i) material failure of Employee to substantially perform the reasonable and attainable instructions of Employer as to his duties hereunder; or (ii) an act or acts of misconduct by Employee which is determined by the Employer to be materially injurious to Employer monetarily or otherwise; or (iii) material violation by Employee of any provision of this Agreement. For purposes of this subsection, termination for "cause" shall not include any act or failure to act on Employee's part if done or omitted to be done by him in demonstrable good faith and with the reasonable belief that his act or omission was in the best interest of the Employer or pursuant to an express policy of Employer at the time of such act or omission. 2.04 DISABILITY OR DEATH. Employee's employment shall be terminable immediately upon Employee's death or disability. "Disability" is defined for purposes of this subsection as absence from Employee's full time duties with Employer as a result of Employee's incapacity due to physical or mental illness for ninety (90) days calculated on a cumulative basis over any two year period during the term of this Agreement. Nothing in this Section 2.04 is intended to violate any Oregon State law regarding parental or family leave policies or any other applicable law. SECTION 3. COMPENSATION 3.01 BASE SALARY. Commencing September 12, 1994, Employee shall be paid an annual base salary in the amount of One hundred twenty five thousand dollars ($125,000.00) ("Base Salary"). The Base Salary shall be paid to Employee in equal semi-monthly installments in arrears on the seventh (7th) and twenty- second (22nd) day of each month, commencing as of the month following the effective date of this Agreement. Should the seventh (7th) or the twenty-second (22nd) day of any month not be a business day, Employee's semi-monthly installment of the Base Salary otherwise due on such date shall be paid to Employee on the business day closest to the date such semi-monthly installment is due (i.e., if the seventh (7th) day of the month falls on a Saturday, the semi-monthly installment shall be paid on the preceding business day or if the seventh (7th) day of the month falls on a Sunday, the semi-monthly installment shall be paid on the next following business day). Employee's Base Salary may be 2 increased or decreased in the discretion of Employer during the Term of this Agreement. 3.02 BONUS COMPENSATION. Nothing herein shall preclude the Employer from authorizing the payment of additional compensation to Employee over and above the Base Salary at any time payable to him under his Agreement, whether as a bonus or otherwise. The payment of such additional compensation shall not operate as an amendment obligating Employer to make any similar payment or to pay additional compensation at any future time or for any future period, or be deemed to affect Employee's Base Salary in any manner. 3.03 STOCK OPTIONS. Upon the commencement of the Term of this Agreement, Employer shall grant Employee twenty five thousand (25,000) options for Employer's stock pursuant to that certain Incentive Stock Option Agreement, a copy of which is attached to this Agreement as Exhibit A. The option price shall be the average of the bid and ask price on the effective date of this Agreement, or the actual date employment begins, whichever is later. 3.04 BENEFITS. 3.04A VACATION AND HOLIDAY PAY. Employee shall be entitled to vacation and paid holidays as provided under Employer's then current policies and procedures. As of the effective date of this Agreement, Employee will be entitled to: (i) one (1) week of paid vacation after six months of employment and will thereafter accrue vacation time at the rate of one hundred twenty (120) hours per year; and (ii) after ninety (90) days of service, will be eligible to receive pay for Employer-paid holidays including: (i) New Years Day (ii) Memorial Day (iii) Independence Day (iv) Labor Day (v) Thanksgiving Day (vi) Friday following Thanksgiving Day (vii) Christmas Eve and (viii) Christmas Day. 3.04B INSURANCE. Employee shall be entitled to medical, life, worker's compensation, social security and state unemployment insurance benefits as provided under Employer's then current terms, policies and procedures. Employee shall not be entitled to disability insurance benefits. 3.04C TUITION REIMBURSEMENT. Employee shall be entitled to reimbursement for all tuition, enrollment fees, and books pursuant to Employers education assistance program. Employee shall comply with all Employer's 3 terms, policies and procedures regarding its education assistance program. 3.04D VEHICLE ALLOWANCE. Employee shall be entitled to reimbursement for vehicle lease payments in an amount not to exceed four hundred dollars ($400.00) per month, together with the cost of taxes, licensing, insurance, and maintenance on the leased vehicle and reimbursement for gas and oil when the vehicle is used for company business. 3.04E RELOCATION EXPENSES. Employer shall advance to Employee: (i) the cost for packing and moving Employee's household goods to Portland, Oregon in an amount not to exceed ______________________ ($_________); (ii) realtors fees associated with Employee's sale of his residence in Washington in an amount not to exceed Nine Thousand Dollars ($9,000.00); and (iii) closing costs associated with Employee's purchase of a new residence in Oregon in an amount not to exceed Seven Thousand Dollars ($7,000.00). Employee acknowledges that Employee must account to Employer for all amounts expended for the above reimbursements and that the amounts reimbursed for (ii) and (iii), above, will constitute income to Employee subject to Employee's portion of Employer withholding taxes which will, at Employee's option, be taken out of Base Salary installments due or by direct reimbursement from Employee to Employer. The amounts advanced for (i), above are considered deductible moving expenses and are not subject to withholding tax. In addition, Employer shall pay to Employee certain costs of living for a period of time not to exceed sixty (60) days to cover costs of Employee's housing associated with moving Employee and his family from Washington to the Portland, Oregon metropolitan area, together with any other expenses associated with such move. Employee shall account to Employer (within sixty (60) days) amounts expended in moving Employee and his family. Employee acknowledges that the money advanced constitutes taxable, nondeductible income to Employee, subject to Employee's portion of Employer withholding taxes which will, at Employee's option, be taken out of Base Salary installments due or by direct reimbursement from Employee to Employer. 4 3.04F MISCELLANEOUS BENEFITS. In addition to any other compensation or benefits to be received by Employee pursuant to the Term of this Agreement, Employee shall be entitled to participate in any employee benefits which Employer may from time to time provide its employees generally. SECTION 4. PAYMENTS UPON TERMINATION OF EMPLOYMENT 4.01 TERMINATION FOR CAUSE. In the event of the termination of Employee's employment by Employer for cause as defined in Section 2.03, SUPRA, or in the event of termination of Employee's employment by Employee, Employer shall pay to Employee the amount of compensation accrued pursuant to Section 3.01, SUPRA, as of the date of termination. 4.02 TERMINATION FOR DEATH OR DISABILITY. In the event of the termination of Employee's employment due to his death or disability, Employer shall pay to Employee's estate or legal representative the amount of compensation accrued pursuant to Section 3.01, SUPRA, as of the date of termination plus a lump sum severance payment equal to six months of the Base Salary. 4.03 OTHER TERMINATION. In the event of termination of Employee's employment by Employer other that as provided in Section 4.01 or 4.02, SUPRA, Employer shall pay Employee the amount of compensation accrued pursuant to Section 3.01, SUPRA, as of the date of termination plus severance payments in an amount not greater than six months of the Base Salary, payable in installments as if still employed; subject however, to Employee demonstrating that he is using his best efforts to find employment. In the event Employee does not use, or cannot demonstrate that he is using, his best efforts to obtain other employment or if Employee does use his best efforts to obtain other employment and is successful in obtaining such employment, severance payments shall cease. 4.04 CONTINUATION OF BENEFITS. Except in the event of termination of Employee's employment by Employer for cause as defined in Section 2.03, SUPRA, or in the event of termination of Employee's employment by Employee, benefits provided in Section 3.04, SUPRA, shall continue for a period equal to one hundred and eighty (180) days from the date of termination. 4.05 OTHER COMPENSATION. Except a set forth in this Section 4, no other compensation shall be due or payable to Employee upon termination of his employment. SECTION 5. PERSONAL NATURE This Agreement is personal, and is being entered into based upon the singular skill, qualifications and experience of Employee. Employee shall not assign this Agreement or any rights hereunder without the express written consent of Employer which 5 may be withheld with or without reason. Employee hereby grants to Employer the right to use Employee's name, likeness and/or biography in connection with the services performed by Employee hereunder and in connection with the advertising or exploitation of any project with respect to which Employee performs services hereunder. SECTION 6. NOTICES Any and all notices or other communications required or permitted by this Agreement or by law shall be deemed duly served and given when personally delivered to the party to whom such notice or communication is directed or, in lieu of such personal service, when deposited in the United States mail, certified, return receipt requested, first class postage prepaid, addressed as follows: EMPLOYER: Rentrak Home Entertainment --------- 7227 N.E. 55th Avenue P.O. Box 18888 Portland, Oregon 97218 Attn: Ron Berger EMPLOYEE: James Patrick Weiss -------- 6209 125th Avenue S.E. Bellevue, Washington 98006 Each party may change its address for purposes of this Section by giving written notice of such change in the manner provided for in this Section. SECTION 7. MISCELLANEOUS PROVISIONS. 7.01 ATTORNEYS' FEES. In the event that it should be become necessary for any party to bring an action, including arbitration, either at law or in equity, to enforce or interpret the terms of this Agreement, each party shall pay its own legal fees in connection with such action. 7.02 APPLICABLE LAW AND VENUE. This Agreement is executed and intended to be performed in the State of Oregon and the laws of such State shall govern its interpretation and effect. If suit is instituted by any party hereto or by any other party for any cause or matter arising from or in connection with the respective rights or obligations of the parties hereunder, the sole jurisdiction and venue for such action shall be the Circuit Court of the State of Oregon in and for the County of Multnomah. 7.03 INTEGRATION. Employee has simultaneously executed an Employee Confidentiality and Noncompetition Agreement (a copy of which is attached hereto as Exhibit B) which remains in effect and is incorporated into the terms and conditions of employment under this Agreement. Except as set forth in the preceding sentence, this Agreement constitutes the entire agreement of the parties with respect to the subject matter of this Agreement and 6 supersedes all prior agreements, negotiations, or understandings, whether oral or written, between the parties with respect thereto. 7.04 HEIRS AND ASSIGNS. Subject to any restriction on assignment contained herein, this Agreement shall be binding upon and shall inure to the benefit of the respective party's heirs, successors and assigns. 7.05 SEVERABILITY. Any provision in this Agreement which is, by competent judicial authority, declared illegal, invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such illegality, invalidity or unenforceability without invalidating the remaining provisions hereof or affecting the legality, validity or enforceability or such provision in any other jurisdiction. The parties hereto agree to negotiate in good faith to replace any illegal, invalid or unenforceable provision that, to the extent possible, will preserve the economic bargain of this Agreement, or otherwise to amend this Agreement, including the provision relating to choice of law, to achieve such result. 7.06 COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original, and the counterparts shall together constitute one and the same agreement, notwithstanding that all of the parties are not signatory to the original or the same counterpart. 7.07 CAPTIONS. The headings and captions herein are inserted solely for the purpose of convenience of reference and are not intended to govern, limit, or aid in the construction of any term or provision hereof. 7.08 EXECUTION. Each of the parties hereto shall execute, acknowledge and deliver any instrument necessary to carry out the provisions of this Agreement. 7.09 CONSTRUCTION. This Agreement has been prepared by legal counsel for Employer. Employee has been advised and by his execution hereof acknowledges, that he has the right to and should have this Agreement reviewed by his own separate legal counsel. This Agreement has been negotiated at arms' length with the benefit of or opportunity to seek legal counsel and, accordingly, shall not be construed against any of the parties. // // // // // // // // // // // 7 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. EMPLOYER: EMPLOYEE: RENTRAK HOME I acknowledge that I have read and agree ENTERTAINMENT to the foregoing Agreement including, without limitation, the provision By: allowing termination of my employment ------------------------- "at will" by Employer in Section 2.01, Ron Berger, President SUPRA. ----------------------- James Patrick Weiss 8 EX-10.13 3 EXHIBIT 10.13 AMENDED AND RESTATED 1992 EMPLOYEE STOCK PURCHASE PLAN OF RENTRAK CORPORATION SECTION 1. PURPOSE OF THE PLAN. The purpose of the Amended and Restated 1992 Employee Stock Purchase Plan (the "Plan") of Rentrak Corporation (the "Company") is to secure for the Company and its shareholders the benefits of the incentive inherent in the ownership of the Company's common stock by present and future employees of the Company and those of its wholly-owned subsidiaries selected by the Board of Directors of the Company (individually a "Subsidiary" and collectively, "Subsidiaries"). The Plan is intended to comply with the provisions of Section 423 of the Internal Revenue Code of 1986, as amended, (the "Code"), and it shall be administered, interpreted and construed in accordance with such provisions. SECTION 2. ADMINISTRATION. A. Until otherwise determined by the Board of Directors, the Plan shall be administered by the Stock Option Committee of Board of Directors of the Company (the "Committee"). Meetings of the Committee for purposes of administering the Plan shall be held at such times and places as its Chairman may determine, and the Committee shall establish its own rules for taking action. B. Among other things, subject to the express provisions of the Plan, the Committee shall have the authority to determine the eligibility of employees to participate in the Plan, which of any future subsidiaries of the Company shall participate in the Plan, and the procedures by which employees shall obtain and file an election to participate in the Plan ("Election"). A procedure for systematic payroll deductions will be established for employees who file such an Election (herein referred to as "Participating Employees") and for the proper accounting thereof. The Committee shall select an investment firm to maintain the shares purchased by Participating Employees and shall interpret the Plan, supervise its administration and take all other actions in connection therewith as it deems necessary or advisable. -1- The interpretation by the Committee of any provisions of the Plan or of any rights granted under it shall be final. No member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any rights granted thereunder. SECTION 3. SHARES RESERVED FOR THE PLAN. There shall be reserved for issuance and purchase by Participating Employees under the Plan an aggregate of Two Hundred Thousand 200,000 shares of common stock of the Company, par value $.001 per share. Shares subject to the Plan may be either authorized but unissued shares or shares that were previously issued and subsequently reacquired by the Company, including shares purchased in the open market. SECTION 4. ELIGIBLE EMPLOYEES. All present and future employees of the Company and its Subsidiaries shall be eligible to participate in the Plan; provided that each such employee (a) has been employed by the Company or a Subsidiary for at least six (6) months prior to an Election Date; (b) is customarily employed by the Company at least 20 hours per week; and (c) does not own, directly or indirectly, immediately after any Investment Date (as defined in subsection 8A herein), stock possessing five percent (5%) or more (including stock subject to outstanding options or purchase rights held by such employee) of the total combined voting power or value of all classes of stock of the Company or any of its subsidiaries. The rules set forth in Section 424(d) of that Code shall apply for purposes of calculating the foregoing percentage limitation. An "Election Date" means either January 1 or July 1 of each Plan Year so long as the Plan shall exist. SECTION 5. ELECTION TO PARTICIPATE. A. Each employee satisfying the requirements for eligibility set forth in Section 4 above may elect to participate in the Plan by filing with the Company prior to any Election Date a Notice of Election authorizing (1) specified regular payroll deductions during the Plan Year (as defined in Section 16 hereof) beginning on such Election Date, not to exceed an amount which would equal 10 percent of his Total Compensation (as defined below) during each such Plan Year, and (2) the utilization of such deductions to purchase shares of the Company's common stock pursuant to Section 8 hereof. A Notice of Election shall take effect upon the first Election Date after it is filed with the Company and shall remain in effect until revoked or modified by the -2- Participating Employee as provided in subsection 5C below. The term "Total Compensation" shall mean the total of all forms of direct remuneration paid to a Participating Employee during any Plan Year, including salary and commissions, but excluding any additional sums such as payments for overtime, bonuses, shift differential, profit sharing or Section 401(k) contributions, or reimbursement for business expenses; PROVIDED, HOWEVER, that at the time an employee first becomes eligible to participate in the Plan, he shall be entitled to make a one- time contribution to the Plan equal to 10 percent of his Total Compensation for the six month period immediately preceding the Election Date on which his participation in the Plan becomes effective. Notwithstanding anything to the contrary herein, payroll deductions must be in equal amounts of not less than Ten Dollars ($10.00) per pay period. B. The Company shall withhold from each payroll check issued to a Participating Employee the amount specified in such Employee's most recent Notice of Election, and the amount so withheld shall be credited to the Participating Employee's payroll deduction account. Amounts credited to a Participating Employee's payroll deduction account shall earn no interest and shall be held by the Company as a "debtor" of the Participating Employee and not as a "trustee." Prior to utilizing such amounts to purchase shares of the Company's common stock pursuant to Section 8 hereof, the Company may use these sums for any proper corporate purpose as determined by the Committee and the Committee shall not be obligated to segregate such amounts. C. Upon written notice to the Company, a Participating Employee may at any time revoke his Notice of Election to participate in the Plan. Unless such employee also elects in writing to withdraw the balance of his payroll deduction account not theretofore utilized to purchase shares, such balance shall thereafter be utilized to purchase shares as provided herein, notwithstanding that such employee has otherwise ceased to be a Participating Employee in the Plan. In such case, the employee may participate in the Plan during any subsequent Plan Year, provided that he files a new Notice of Election with the Company. A revocation of a Notice of Election to Participate shall be effective beginning with the first regular payroll period of the Company or Subsidiary (as the case may be) following receipt of the notice required by this subsection 5C. A Participating Employee may also modify his Notice of Election as of January 1 and July 1 of each Plan Year, to increase or decrease the amount of his payroll deduction, by filing a new Notice of Election specifying the new deduction percentage not latter than the proposed effective date of the change. D. The Committee shall establish a procedure whereby a Participating Employee, who is on a temporary leave of absence and wishes to continue his participation in the Plan through the remainder of the Plan Year, shall be permitted to make voluntary contributions to purchase shares hereunder. Such contributions shall be subject to the same terms and provisions of the Plan as payroll deductions. SECTION 6. LIMITATIONS UPON NUMBER OF SHARES WHICH AN EMPLOYEE MAY PURCHASE AND PERIOD DURING WHICH SHARES MAY BE PURCHASED. No Participating Employee shall be granted the right to purchase stock under this Plan or any other employee stock purchase plans maintained by the Company and its subsidiaries which accrues at an annual rate which exceeds the twenty five thousand dollar ($25,000) limitation contained in Section 423(b)(8) of the Code or that may be exercised after the expiration of the period set forth in Section 423(b)(7) of the Code. SECTION 7. COMPANY CONTRIBUTION TO PURCHASE PRICE. The Company shall be obligated to pay 15 percent of the purchase price of the shares purchased on behalf of Participating Employees under this Plan. To satisfy this obligation the Company shall pay to the investment firm designated by the Committee, within the time period specified in Section 8.B. below, an amount equal to 17.64705 percent of the total amount contributed by Participating Employees to the Plan under Section 5 herein as of each Investment Date (as specified in Section 8 below). SECTION 8. METHOD OF PURCHASE AND INVESTMENT ACCOUNTS. A. On the last day of March, June, September and December, (each of such dates being referred to herein as an "Investment Date"), each Participating Employee shall be deemed to have exercised an option to purchase the maximum number of shares of the Company's common stock that can be purchased under the procedures set forth in this Section 8 with the amounts then credited to such Employee's payroll deduction account. B. Within ten (10) business days after each Investment Date, the Company shall transfer both the balance in each Participating Employee's payroll deduction account and the Company's contribution as determined pursuant to Section 7 above (the "Available Funds"), to the investment firm designated by the Committee. Subject to subsections 8C and 8E below, on or before the 15th business day after each Investment Date, the investment firm shall purchase in the market on behalf of all of the Participating Employees the maximum number of whole shares of the Company's common stock that can be purchased with the Available Funds at the then prevailing market price. C. Each purchase of shares under this Section 8 shall be effective only to the extent that the total number of shares reserved for the Plan pursuant to Section 3 hereof is not exceeded. If the amount of Available Funds as of any Investment Date exceeds the amount needed to purchase all of the shares remaining under the Plan, the available shares shall be allocated among the Participating Employees in proportion to the balances standing in their payroll deduction accounts on such Investment Date. Any amounts transferred to the investment firm which are not expended to purchase shares shall be refunded to the Participating Employees and the Company in proportion to the amounts contributed by each of them. D. The shares which are purchased pursuant to this Section 8 shall be maintained by the investment firm in a separate investment account for each Participating Employee. A Participating Employee is for all purposes the beneficial owner of the shares held in his or her investment account and may sell the shares therein at any time. Certificates may be registered only in the name of the Participating Employee, or, if the Participation Employee so indicates on his Notice of Election, in the Participating Employee's name jointly with a member of the Participating Employee's family as joint tenants with the right of survivorship. All dividends paid with respect to the shares in a Participating Employee's investment account shall be paid directly to such Employee by the investment firm. E. No fractional shares shall be purchased for the account of any Participating Employee. Any portion of a Participating Employee's payroll deduction account which cannot be utilized to purchase an additional whole share of the Company's common stock shall be credited to such Employee's payroll deduction account and retained by the investment firm to purchase additional shares on future Investment Dates. SECTION 9. TITLE OF ACCOUNTS. Each account with the designated investment firm shall be in the name of the Participating Employee, or if he so indicates in his Notice of Election, in his name jointly with a member of his family as joint tenants with the right of survivorship. SECTION 10. RIGHTS AS A SHAREHOLDER. When amounts in a Participating Employee's payroll deduction account are utilized to purchase shares of common stock of the Company pursuant to Section 8 hereof, he shall have all the rights and privileges of a shareholder of the Company with respect to such shares. Neither the establishment of the Plan, the grant or the exercise of any rights to purchase shares of common stock under the Plan nor anything else in this Plan shall impose upon the Company or any Subsidiary any obligation to employ or continue to employ any employee. The right of the Company or any Subsidiary to terminate any Participating Employee shall not be diminished or affected because any rights to purchase shares of the Company's common stock have been granted to such Participating Employee. SECTION 11. RIGHTS NOT TRANSFERABLE. The rights granted under the Plan are not transferable by a Participating Employee and are exercisable only by him during his lifetime. SECTION 12. RETIREMENT, TERMINATION AND DEATH. In the event of a Participating Employee's retirement, termination of employment, or death, his participation in the Plan shall immediately cease, and the balance in his payroll deduction account not previously utilized to purchase stock shall be refunded to him. In the event of his death, such refund shall be paid to his estate. SECTION 13. BROKERAGE COMMISSIONS AND EXPENSES OF THE PLAN. No brokerage commissions or related fees shall be charged to Participating Employees in connection with the purchase of shares of the Company's common stock under the Plan. All costs and expenses incurred in administering the Plan shall be borne by the Company. Any costs and expenses incurred in connection with the sale of shares -6- purchased pursuant to this Plan shall be the responsibility of the Participating Employee. SECTION 14. AMENDMENT OR TERMINATION OF THE PLAN. At any time, the Board of Directors may amend or terminate the Plan; provided that no amendment shall take effect prior to the Election Date which immediately follows the date the amendment was adopted unless the Board of Directors specifies an earlier effective date; and provided further that no such amendment may, without timely approval of the shareholders of the Company (a) increase the maximum number of shares reserved for the Plan (as specified in Section 3 hereof), (b) change the persons or categories of employees eligible to participate in the Plan (as specified in Section 4 hereof), unless such change is occasioned by an amendment to Section 423 of the Code for which no shareholder approval is required, or (c) materially increase the benefits accruing to participants in the Plan. SECTION 15. RECAPITALIZATION, DISSOLUTION OR MERGER. A. If at any time there shall be an increase or decrease in the number of outstanding shares or common stock of the Company by reason of a recapitalization, reclassification, stock split up, combination of shares, or dividend or other distribution payable in capital stock, or in the event of any other corporate reorganization within the meaning of Section 424 or any other relevant provision of the Code, an appropriate adjustment shall be made by the Committee in the number and kind of shares reserved for the Plan. The Committee shall take appropriate action to ensure that the purchase price specified in Section 7, the number of shares subject to outstanding options and any other affected provisions of the Plan are appropriately adjusted so as not to constitute a "modification" as that term is defined in Section 424 of the Code. The adjustments made by the Committee shall be final, binding and conclusive; provided that no rights granted pursuant to the Plan shall be adjusted in a manner which causes them to fail to qualify as rights created pursuant to an Employee Stock Purchase Plan within the meaning of Section 423 of the Code. B. In the event of a dissolution or liquidation of the Company or merger, consolidation or other reorganization in which the Company is not the surviving corporation, the Plan shall terminate upon the date of approval of such dissolution, liquidation, merger, consolidation or other reorganization by the Company's shareholders. Upon such termination, all payroll deductions authorized under the Plan shall cease and any deductions which have not yet been utilized shall be returned to the Participating Employee. SECTION 16. EFFECTIVE DATE OF THE PLAN. This Amended and Restated Plan shall be effective as of January 1, 1994. A "Plan Year" shall be that 12 month period which begins on January 1 or any anniversary date thereafter, so long as the Plan shall exist. EX-10.5 4 EXHIBIT 10.5 RENTRAK CORPORATION 1986 SECOND AMENDED AND RESTATED STOCK OPTION PLAN INCENTIVE STOCK OPTION AND INCENTIVE STOCK OPTION AGREEMENT This Incentive Stock Option is granted, and this Incentive Stock Option Agreement (the "Agreement") is executed to be effective as of December 20, 1994, by Rentrak Corporation, an Oregon corporation (the "Company"), and Ron Berger (the "Optionee). RECITALS A. The Company's Board of Directors has duly adopted, and the Company's shareholders have approved, that certain 1986 Second Amended and Restated Stock Option Plan (the "Plan"), a copy of which is available for review in the Company's administrative offices. B. The Plan authorizes the Company's Board of Directors or an Administrative Committee thereof (the "Stock Option Committee") to grant Incentive Stock Options to officers and employees of the Company and any of the Company's Affiliates (as such term is defined in the Plan). C. On or about April 8, 1994, the Stock Option Committee, upon due consideration and as further inducement to the Optionee to enter into an Employment Agreement with the Company, dated June 1, 1994 (the "Employment Agreement"), designated the Optionee to receive an Incentive Stock Option under the Plan covering a total of 70,949 shares of the Common Stock of the Company and a Nonstatutory Stock Option covering a total of 929,051 shares of said Common Stock (hereinafter the "April 8th Options"), the exercisability of which were made subject to the Company's achievement of certain performance objectives established by the Stock Option Committee. The April 8th Options were granted subject to obtaining shareholder approval, which approval was obtained on December 12, 1994. D. Subsequent to the issuance of the April 8th Options the Stock Option Committee and the Optionee first learned that keying the exercisability of the April 8th Options to the satisfaction of future performance objectives subjected the Company to the risk that it would have to book substantial charges against its future income if the value of the Company's stock increased significantly during the term of said options. E. In order to avoid the adverse financial statement impact to the Company from the use of performance objectives, the Optionee has agreed to cancel the April 8th Options in consideration of the grant by the Stock Option Committee of this replacement Incentive Stock Option and a Nonstatutory Option of even date herewith covering a total of 1,000,000 shares, both bearing an exercise price equal to the fair market value of the Company's Common Stock as of the effective date of the grant of this Option. 1- Incentive Stock Option Agreement NOW, THEREFORE THE PARTIES HERETO COVENANT AND AGREE AS FOLLOWS: 1. NUMBER OF SHARES SUBJECT TO OPTION AND OPTION PRICE. The Company hereby grants to the Optionee an Incentive Stock Option (the "Option") to purchase from the Company 70,949 shares of the Common Stock of the Company at an option price of $6.375 per share. The Option is exercisable upon the terms and conditions contained herein. For the reasons stated in the Recitals hereto, Optionee agrees that the April 8th Options are hereby cancelled and that the Option granted hereby shall replace the April 8th Option. 2. ADDITIONAL TERMS OF THE OPTION. Subject to the provisions of Paragraph 3 below, the Option shall have the following terms: 2.1 The effective date of the grant of the Option is December 20, 1994. 2.2 The Option shall vest on the dates set forth below ("Vesting Dates") as to the number of shares set forth below.
PERCENTAGE ANNUAL CUMULATIVE ---------- ------ ---------- DATE VESTED SHARES VESTED SHARES VESTED ---- ------ ------------- ------------- March 31, 1995 20% 14,190 14,190 March 31, 1996 20% 14,190 28,380 March 31, 1997 20% 14,190 42,570 March 31, 1998 20% 14,190 56,760 March 31, 1999 20% 14,189 70,949
2.3 Notwithstanding anything to the contrary in paragraph 2.2 above, in the event the employment of the Optionee is terminated by the Company pursuant to Section 5.4 of the Employment Agreement, this Option shall immediately vest as to any Option shares that have not previously vested in accordance with paragraph 2.2 above ("Unvested Shares"). 2.4 The Option shall expire on the earlier of April 7, 2004, or the applicable date specified below (the "Expiration Date"). a) Six (6) months following the effective date of the termination of the Optionee's employment by the Company on account of the Optionee's disability (within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the "Code"); b) One (1) year following the termination of the Optionee's employment by the Company on account of the Optionee's death; c) Thirty (30) days following the effective date of the termination of the Optionee's employment by the Company for any reason other than disability (as defined in paragraph (a) above) or death; d) The date of any sale, transfer or hypothecation, or any attempted sale, transfer or hypothecation in violation of Section 8 of the Plan which provides that an Option shall not be transferable or exercisable by any person other than the Optionee, except as provided in paragraphs (d)(1), (d)(2), and (d)(3), below: 2- Incentive Stock Option Agreement 1) In the event of the death of the Optionee, any Options held by the Optionee shall pass to the person or persons entitled thereto pursuant to the Will of the Optionee or the applicable laws of descent and distribution (a "Qualified Successor"). Any right under the Option which the Optionee could have exercised immediately prior to the date of his death shall, subject to the terms of this paragraph 2.4 and paragraphs 2.6 and 2.7 below, be exercisable by his Qualified Successor for a period of one (1) year following his death. 2) In the event of the death of the Optionee following termination of his employment on account of disability, but prior to the expiration of the six (6) month period specified in paragraph 2.4 (a) above, this Option shall pass to and be exercisable by the Qualified Successor of the Optionee in the manner specified above for a period of one (1) year following the original termination of his employment. 3) In the event a guardian or conservator (a "Guardian") is appointed for the Optionee as the result of the termination of the Optionee's employment by the Company on account of Optionee's disability (as defined above) any Option held by the Optionee, which could have been exercised immediately prior to such termination of the employment, shall, subject to this paragraph 2.4 and paragraphs 2.6 and 2.7 below, be exercisable by the Guardian of the Optionee for a period of six (6) months following such termination of employment. 4) Options held by a Qualified Successor or a Guardian shall continue to vest to the extent provided in paragraph 2.7 herein. 5) In the event that two or more persons constitute the Qualified Successor or the Guardian of the Optionee, all rights of the Qualified Successor or Guardian shall be exercisable, if at all, by the unanimous agreement of these persons. 2.5 To the extent vested, the Option may be exercised in whole or in part at any time and from time to time prior to the Expiration Date. 2.6 The Option must be exercised, if at all, as to a whole number of shares. In addition, the Option may be exercised for not less than ten (10) shares at any time, unless the total number of shares purchasable under the Option at that time is less than ten (10), in which case the Option may be exercised for that lesser number of shares. 2.7 If, because of death or disability, the Optionee is no longer employed as an officer or employee of the Company, this Option shall continue to vest in accordance with the schedule set forth in paragraph 2.2 above during the period prior to termination of the Option as provided herein. If the Optionee no longer is employed as an officer or employee of the Company for any reason other than death, disability or a termination pursuant to Section 5.4 of the Employment Agreement, the vesting of the Option shall cease and the Option granted hereunder shall be limited to those shares which were immediately exercisable by the Optionee as of the effective date of such termination. 3- Incentive Stock Option Agreement 3. ADJUSTMENTS TO AND/OR CANCELLATIONS OF THE OPTION. 3.1 If there is a material alteration in the capital structure of the Company on account of a reorganization, merger, recapitalization, exchange of shares, stock split, reverse stock split, stock dividend, or otherwise, the Stock Option Committee shall make such adjustments to the Plan and to the Options then outstanding under the Plan as the Stock Option Committee determines to be appropriate and equitable under the circumstances. Such adjustments may include, without limitation, (a) a change in the number or kind of shares of stock of the Company covered by the Options and/or (b) a change in the Option Price payable per share; provided, however, that the aggregate Option Price applicable to the unexercised portion of existing Options shall not be altered, it being intended that any adjustments made with respect to these Options shall apply only to the price per share and the number of shares subject thereto. For purposes of this Section, neither (i) the issuance of additional shares of stock of the Company in exchange for adequate consideration (including services), nor (ii) the conversion of outstanding preferred shares of the Company into Common Stock, shall be deemed a material alteration of the capital structure of the Company. In the event the Stock Option Committee shall determine that the nature of a material alteration in the capital structure of the Company is such that it is not practical or feasible to make appropriate adjustments to the Plan or to this Option, such event shall be deemed a Terminating Event subject to paragraph 3.2 below. 3.2 In the event of (a) the dissolution or liquidation of the Company, (b) a reorganization, merger, or consolidation of the Company with one or more corporations as a result of which the Company will not be a surviving corporation, (c) the sale of all or substantially all of the assets of the Company, (d) a sale or other transfer or m ore than eighty percent (80%) of the then outstanding shares of Common Stock of the Company, or (e) a material change in the capital structure of the Company that is subject to this Section in accordance with the last sentence of Section 3.1 above (any of such events is herein referred to as a "Terminating Event"), the Stock Option Committee shall determine whether a provision will be made in connection with the Terminating Event for an appropriate assumption of this Option or for substitution of appropriate new options covering stock of a successor corporation employing the Optionee or stock of an affiliate of such successor employer corporation. If the Stock Option Committee determines that such an appropriate assumption or substitution will be made, the Stock Option Committee shall give notice of the determination to the Optionee and the provisions of such assumption or substitution, and any adjustments made (i) to the number and kind of shares subject to the Option outstanding under the Plan (or to options issued in substitution therefor), (ii) to the Option price and/or (iii) to the terms and conditions of this Option, which determination shall be binding upon the Optionee. If the Stock Option Committee determines that no assumption or substitution will be made, the Stock Option Committee shall give notice of this determination to the Optionee, whereupon the Optionee shall have the right for a period of thirty (30) days following the notice to exercise in full or in part any unexercised or unexpired Option then held by him, without regarding to any vesting provision to which the Option may have otherwise been subject pursuant to paragraph 2.2 above. Upon the expiration of this thirty (30) day period, this Option shall expire to the extent not earlier exercised, and the Plan shall terminate. 4. EXERCISE OF THE OPTION. The Option shall be exercised, if at all, by (a) delivering to the Company a written notice in the form of the document attached as Exhibit A specifying the number of shares of Common Stock for which exercise is made, (b) tendering full payment of the option price, as required by Section 7 of the Plan, for the shares for which exercise is made, and (c) tendering to the Company full payment of any amounts the Company determines must be withheld 4- Incentive Stock Option Agreement for tax purposes from the Optionee as a result of the exercise of the Option and the issuance of the shares. 5. TRANSFERABILITY OF THE OPTION. Except as provided in paragraph 2.4 above and Section 8 of the Plan, the Option shall not be transferable or exercisable by any person other than the Optionee. 6. WARRANTIES, REPRESENTATIONS AND ACKNOWLEDGEMENTS OF THE OPTIONEE. By executing this Agreement, the Optionee accepts the Option and agrees to be bound by all of the terms of this Agreement and the Plan. In addition, the Optionee acknowledges that exercise of the Option and the sale of the shares of Common Stock acquired upon exercise thereof may have tax implications for which the Optionee should seek individual advice by his or her own tax counselor or advisor. 7. INDEMNIFICATION BY THE OPTIONEE. The Optionee agrees that, in the event of a claim against the Company resulting from a breach by the Optionee of the representations, warranties or provisions contained in this Agreement, the Optionee will indemnify and hold the Company harmless from any loss or damage, including attorney's fees or other legal expenses, incurred in the defense or payment of any such claim against the Company. 8. NO RIGHT TO CONTINUED RELATIONSHIP. Nothing herein shall confer upon the Optionee the right to continue as an officer or employee of the Company, nor affect any right which the Company may have to terminate its relationship (whether or not for cause) with the Optionee. 9. RIGHTS AS SHAREHOLDER. The Optionee shall have no rights as a shareholder of the Company, including, without limitation, any rights to dividends or other rights for which the record date is prior to the date the certificate representing the shares acquired upon exercise of the Option is issued, on account of the Option or on account of shares of Common Stock of the Company which will be acquired upon exercise of the Option (but with respect to which no certificates have been delivered to the Optionee). 10. FURTHER ASSURANCES. The Optionee agrees from time to time to execute such additional documents as the Company may reasonably require in order to effect the purposes of the Plan and this Agreement. 11. BINDING EFFECT. This Agreement shall be binding upon the Optionee and the optionee's heirs, successors and assigns, including, without limitation, the Qualified Successor or Guardian of the Optionee (as those terms are defined in paragraph 2.4(d) above). 12. WAIVERS/MODIFICATIONS. No waivers, alterations or modifications of this Agreement shall be valid unless in writing and duly executed by the party against whom enforcement of such waiver, alteration or modification is sought. The failure of any party to enforce any of its rights against the other party for breach of any of the terms of this Agreement shall not be construed a waiver of such rights as to any continued or subsequent breach. 13. MODIFICATION AND TERMINATION. The rights of the Optionee hereunder are subject to modification and termination in certain events as provided in the Plan. 14. RESTRICTION ON SALE OF SHARES. Optionee represents and agrees that upon his exercise of the Option, in whole or in part, unless there is in effect at the time under the Securities Act of 1933, as amended, a registration statement relating to the shares acquired, such shares will 5- Incentive Stock Option Agreement be acquired for his own account, for investment purposes only and not with a view toward the distribution or public offering thereof nor with any present intention of reselling or distributing the shares at any particular future time, and that upon exercise thereof he will furnish to the Company a written statement to such effect, satisfactory to the Company in form and substance. Optionee agrees that any certificates issued upon exercise of this Option may bear a legend indicating that their transferability is restricted in accordance with applicable state or federal securities law. Any person or persons entitled to the Option under circumstances in which Optionee would be required to furnish such a written statement shall furnish to the Company a written statement to the same effect, satisfactory to the Company in form and substance. 15. PLAN GOVERNS. This Agreement and the Option evidenced hereby are made and granted pursuant to the Plan and are in all respects limited by and subject to the express terms and provisions of that Plan, as it may be amended from time to time and construed by the Committee. 16. NOTICES. All notices to the Company shall be addressed to the members of the Stock Option Committee with a copy to the Secretary of the Company at the principal office of the Company at 7227 N.E. 55th Avenue, Portland, Oregon 97218, and all notices to Optionee shall be addressed to Optionee at the address of Optionee on file with the Company or its Affiliates, or to such other address as either may designate to the other in writing. A notice shall be deemed to be duly given upon the earlier of receipt by the addressee or three days following deposit of such notice in a properly addressed sealed envelope, postage prepaid, with the United States Postal Service. In lieu of giving notice by mail as provided above, written notice under this Agreement may be given by personal delivery to Optionee or to the Chairman of the Board of Directors of the Company (as the case may be). 17. SALE OR OTHER DISPOSITION. Optionee hereby agrees that if Optionee disposes (whether by sale, exchange, gift or otherwise) of any of the shares acquired by exercise of this Option within two years of the grant date or within one year after the transfer of such shares to Optionee upon exercise of this Option, then Optionee shall notify the Company of such disposition in writing within thirty (30) days from the date of such disposition. Said written notice shall state the date of such disposition, and the type and amount of the consideration received for such share or shares by Optionee in connection therewith. In the event of any such disposition, the Company shall have the right to require Optionee to immediately pay the Company the amount of taxes (if any) which the Company is required to withhold under federal and/or state law in order to obtain the benefit of any deduction that would otherwise be available as a result of the granting or exercise of the subject Option or the disposition of the subject shares. 18. GOVERNING LAW. This Agreement shall be governed by the laws of the State of Oregon. 6- Incentive Stock Option Agreement IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. RENTRAK CORPORATION By /s/ Bill LeVine --------------------------- Bill LeVine Member, Stock Option Committee By /s/ James Jimirro --------------------------- James Jimirro Member, Stock Option Committee OPTIONEE: By /s/ Ron Berger --------------------------- Ron Berger 7- Incentive Stock Option Agreement EXHIBIT A NOTICE OF EXERCISE OF INCENTIVE OPTION To: RENTRAK CORPORATION 7227 N.E. 55th Avenue Post Office Box 18888 Portland, Oregon 97218 The undersigned exercises the option to purchase _____________ shares of common stock of Rentrak Corporation (the "Company") granted to the undersigned pursuant to the terms of the Company's 1986 Second Amended and Restated Stock Option Plan (the "Plan") and the Incentive Stock Option and Incentive Stock Option Agreement effective as of December 20, 1994. Accompanying this notice is: [select one] (1) ____ cash, certified check or cashier's check in the amount of $_________, or (2) a certificate representing ____ shares of Common Stock of the Company valued at $____________ per share (the fair market price of those shares on the day preceding the date hereof) representing the option price of $____________ per share plus the amount the Company has determined must be withheld for tax purposes; or (3) ____________ I hereby request to exercise this option through a cashless transaction and have provided the name and address of my broker below. I understand that if I elect to pursue a cashless transaction, Rentrak Corporation will request and authorize the stock transfer company to issue the certificate(s) in the name of my broker to facilitate completion of the transaction. Date:_________________________ BROKER OPTIONEE - ------------------------------ ------------------------------ Address: Address: - ------------------------------ ------------------------------ - ------------------------------ ------------------------------ - ------------------------------ ------------------------------ 8- Incentive Stock Option Agreement RENTRAK CORPORATION 1986 SECOND AMENDED AND RESTATED STOCK OPTION PLAN NONSTATUTORY STOCK OPTION AND NONSTATUTORY STOCK OPTION AGREEMENT This Nonstatutory Stock Option is granted, and this Nonstatutory Stock Option Agreement (the "Agreement") is executed to be effective as of December 20, 1994, by Rentrak Corporation, an Oregon corporation (the "Company"), and Ron Berger (the "Optionee). RECITALS A. The Company's Board of Directors has duly adopted, and the Company's shareholders have approved, that certain 1986 Second Amended and Restated Stock Option Plan (the "Plan"), a copy of which is available for review in the Company's administrative offices. B. The Plan authorizes the Company's Board of Directors or an Administrative Committee thereof (the "Stock Option Committee") to grant Incentive Stock Options to officers and employees of the Company and any of the Company's Affiliates (as such term is defined in the Plan). C. On or about April 8, 1994, the Stock Option Committee, upon due consideration and as further inducement to the Optionee to enter into an Employment Agreement with the Company, dated June 1, 1994 (the "Employment Agreement"), designated the Optionee to receive an Incentive Stock Option under the Plan covering a total of 70,949 shares of the Common Stock of the Company and a Nonstatutory Stock Option covering a total of 929,051 shares of said Common Stock (hereinafter the "April 8th Options"), the exercisability of which were made subject to the Company's achievement of certain performance objectives established by the Stock Option Committee. The April 8th Options were granted subject to obtaining shareholder approval, which approval was obtained on December 12, 1994. D. Subsequent to the issuance of the April 8th Options the Stock Option Committee and the Optionee first learned that keying the exercisability of the April 8th Options to the satisfaction of future performance objectives subjected the Company to the risk that it would have to book substantial charges against its future income if the value of the Company's stock increased significantly during the term of said options. E. In order to avoid the adverse financial statement impact to the Company from the use of performance objectives, the Optionee has agreed to cancel the April 8th Options in consideration of the grant by the Stock Option Committee of this replacement Nonstatutory Option and an Incentive Stock Option of even date herewith covering a total of 1,000,000 shares, both bearing an exercise price equal to the fair market value of the Company's Common Stock as of the effective date of the grant of this Option. 1 - Nonstatutory Stock Option Agreement NOW, THEREFORE THE PARTIES HERETO COVENANT AND AGREE AS FOLLOWS: 1. NUMBER OF SHARES SUBJECT TO OPTION AND OPTION PRICE. The Company hereby grants to the Optionee an Nonstatutory Stock Option (the "Option") to purchase from the Company 929,051 shares of the Common Stock of the Company at an option price of $6.375 per share. The Option is exercisable upon the terms and conditions contained herein. For the reasons stated in the Recitals hereto, Optionee agrees that the April 8th Options are hereby cancelled and that the Option granted hereby shall replace the April 8th Option. 2. ADDITIONAL TERMS OF THE OPTION. Subject to the provisions of Paragraph 3 below, the Option shall have the following terms: 2.1 The effective date of the grant of the Option is December 20, 1994. 2.2 The Option shall vest on the dates set forth below ("Vesting Dates") as to the number of shares set forth below.
Percentage Annual Cumulative ---------- ------ ---------- Date Vested Shares Vested Shares Vested ---- ------ ------------- ------------- March 31, 1995 20% 185,810 185,810 March 31, 1996 20% 185,810 371,620 March 31, 1997 20% 185,810 557,430 March 31, 1998 20% 185,810 743,240 March 31, 1999 20% 185,811 929,051
2.3 Notwithstanding anything to the contrary in Section 2.2 above, in the event the employment of the Optionee is terminated by the Company pursuant to Section 5.4 of the Employment Agreement, this Option shall immediately vest as to any Option shares that have not previously vested in accordance with Section 2.2 above ("Unvested Shares". 2.4 The Option shall expire on the earlier of April 7, 2004, or the applicable date specified below (the "Expiration Date"). a) Six (6) months following the effective date of the termination of the Optionee's employment by the Company on account of the Optionee's disability (within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the "Code"); b) One (1) year following the termination of the Optionee's employment by the Company on account of the Optionee's death; c) Thirty (30) days following the effective date of the termination of the Optionee's employment by the Company for any reason other than disability (as defined in paragraph (a) above) or death; d) The date of any sale, transfer or hypothecation, or any attempted sale, transfer or hypothecation in violation of Section 8 of the Plan which provides that an Option shall not be transferable or exercisable by any person other than the Optionee, except as provided in paragraphs (d)(1), (d)(2), and (d)(3), below: 2 - Nonstatutory Stock Option Agreement 1) In the event of the death of the Optionee, any Options held by the Optionee shall pass to the person or persons entitled thereto pursuant to the Will of the Optionee or the applicable laws of descent and distribution (a "Qualified Successor"). Any right under the Option which the Optionee could have exercised immediately prior to the date of his death shall, subject to the terms of this Paragraph 2.4, be exercisable by the Qualified Successor for a period of one (1) year following his death. 2) In the event of the death of the Optionee following termination of his employment on account of disability but prior to the expiration of the six (6) month period specified above, this Option shall pass to and be exercisable by the Qualified Successor of the Optionee in the manner specified above for a period of one (1) year following the original termination of his employment. 3) In the event a guardian or conservator (a "Guardian") is appointed for the Optionee as the result of the termination of the Optionee's employment by the Company on account of Optionee's disability (as defined above) any Option held by the Optionee, which could have been exercised immediately prior to such termination of the employment, shall, subject to this Section 2.4, be exercisable by the Guardian of the Optionee for a period of six (6) months following such termination of employment. 4) Options held by a Qualified Successor or a Guardian shall continue to vest to the extent provided in Section 2.7 herein. 5) In the event that two or more persons constitute the Qualified Successor or the Guardian of the Optionee, all rights of the Qualified Successor or Guardian shall be exercisable, if at all, by the unanimous agreement of these persons. 2.5 To the extent vested, the Option may be exercised in whole or in part at any time and from time to time prior to the Expiration Date. 2.6 The Option must be exercised, if at all, as to a whole number of shares. In addition, the Option may be exercised for not less than ten (10) shares at any time, unless the total number of shares purchasable under the Option at that time is less than ten (10), in which case the Option may be exercised for that lesser number of shares. 2.7 If, because of death or disability, the Optionee is no longer employed as an officer or employee of the Company, this Option shall continue to vest in accordance with the schedule set forth in Paragraph 2.2 above during the period prior to termination of the Option as provided herein. If, for any reason other than death or disability, the Optionee no longer is employed as an officer or employee, the vesting of the Option shall cease and the Option granted hereunder shall be limited to those shares which were immediately exercisable by the Optionee as of the date of the effective date of such termination. 3. ADJUSTMENTS TO AND/OR CANCELLATION OF THE OPTION. 3.1 If there is a material alteration in the capital structure of the Company on account of a reorganization, merger, recapitalization, exchange of shares, stock split, reverse stock split, stock dividend, or otherwise, the Stock Option Committee shall make such adjustments to the Plan and to the Options then outstanding under the Plan as the Stock Option Committee 3 - Nonstatutory Stock Option Agreement determines to be appropriate and equitable under the circumstances. Such adjustments may include, without limitation, (a) a change in the number or kind of shares of stock of the Company covered by the Options and/or (b) a change in the Option Price payable per share; provided, however, that the aggregate Option Price applicable to the unexercised portion of existing Options shall not be altered, it being intended that any adjustments made with respect to these Options shall apply only to the price per share and the number of shares subject thereto. For purposes of this Section, neither (i) the issuance of additional shares of stock of the Company in exchange for adequate consideration (including services), nor (ii) the conversation of outstanding preferred shares of the Company into Common Stock, shall be deemed a material alteration of the capital structure of the Company. In the event the Stock Option Committee shall determine that the nature of a material alteration in the capital structure of the Company is such that it is not practical or feasible to make appropriate adjustments to the Plan or to this Option, such event shall be deemed a Termination Event as defined below. 3.2 In the event of (a) the dissolution or liquidation of the Company, (b) a reorganization, merger, or consolidation of the Company with one or more corporations as a result of which the Company will not be a surviving corporation, (c) the sale of all or substantially all of the assets of the Company, (d) a sale or other transfer or m ore than eighty percent (80%) of the then outstanding shares of Common Stock of the Company, or (e) a material change in the capital structure of the Company that is subject to this Section in accordance with the last sentence of Section 3.1 above (any of such events is herein referred to as a "Terminating Event"), the Stock Option Committee shall determine whether a provision will be made in connection with the Terminating Event for an appropriate assumption of this Option for stock or for substitution of appropriate new options covering stock of a successor corporation employing the Optionee under this Plan and Agreement or stock of an affiliate of such successor employer corporation. If the Stock Option Committee determines that such an appropriate assumption or substitution will be made, the Stock Option Committee shall give notice of the determination to the Optionee and the provisions of such assumption or substitution, and any adjustments made (i) to the number and kind of shares subject to the Option outstanding under the Plan (or to options issued in substitution therefor), (ii) to the Option price and/or (iii) to the terms and conditions of this Option, shall be binding upon the Optionee. If the Stock Option Committee determines that no assumption or substitution will be made, the Stock Option Committee shall give notice of this determination to the Optionee, whereupon the Optionee shall have the right for a period of thirty (30) days following the notice to exercise in full or in part any unexercised or unexpired Option then held by him or her, without regarding to any contingent vesting provision to which the Option may have otherwise been subject pursuant to Paragraph 2.2 above. Upon the expiration of this thirty (30) day period, this Option shall expire to the extent not earlier exercised, and the Plan shall terminate. 4. EXERCISE OF THE OPTION. The Option shall be exercised, if at all, by (a) delivering to the Company a written notice in the form of the document attached as Exhibit A specifying the number of shares of Common Stock for which exercise is made, (b) tendering full payment of the option price, as required by Section 7 of the Plan, for the shares for which exercise is made, and (c) tendering to the Company full payment of any amounts the Company determines must be withheld for tax purposes from the Optionee as a result of the exercise of the Option and the issuance of the shares. 5. TRANSFERABILITY OF THE OPTION. Except as provided in Section 2.4 above and Paragraph 8 of the Plan, the Option shall not be transferable or exercisable by any person other than the Optionee. 4 - Nonstatutory Stock Option Agreement 6. WARRANTIES, REPRESENTATIONS AND ACKNOWLEDGEMENTS OF THE OPTIONEE. By executing this Agreement, the Optionee accepts the Option and agrees to be bound by all of the terms of the Option, this Agreement and the Plan. In addition, the Optionee acknowledges that exercise of the Option and the sale of the shares of Common Stock acquired upon exercise thereof may have tax implications for which the Optionee should seek individual advice by his or her own tax counselor or advisor. 7. INDEMNIFICATION BY THE OPTIONEE. The Optionee agrees that, in the event of a claim against the Company resulting from a breach by the Optionee of the representations, warranties or provisions contained in this Agreement, the Optionee will indemnify and hold the Company harmless from any loss or damage, including attorney's fees or other legal expenses, incurred in the defense or payment of any such claim against the Company. 8. NO RIGHT TO CONTINUED RELATIONSHIP. Nothing herein shall confer upon the Optionee the right to continue as an officer or employee of the Company, nor affect any right which the Company may have to terminate its relationship (whether or not for cause) with the Optionee. 9. RIGHTS AS SHAREHOLDER. The Optionee shall have no rights as a shareholder of the Company, including, without limitation, any rights to dividends or other rights for which the record date is prior to the date the certificate representing the shares acquired upon exercise of the Option is issued, on account of the Option or on account of shares of Common Stock of the Company which will be acquired upon exercise of the Option (but with respect to which no certificates have been delivered to the Optionee). 10. FURTHER ASSURANCES. The Optionee agrees from time to time to execute such additional documents as the Company may reasonably require in order to effect the purposes of the Plan and this Agreement. 11. BINDING EFFECT. This Agreement shall be binding upon the Optionee and the optionee's heirs, successors and assigns, including, without limitation, the Qualified Successor or Guardian of the Optionee (as those terms are defined in Section 2.4(d) above). 12. WAIVERS/MODIFICATIONS. No waivers, alterations or modifications of this Agreement shall be valid unless in writing and duly executed by the party against whom enforcement of such waiver, alteration or modification is sought. The failure of any party to enforce any of its rights against the other party for breach of any of the terms of this Agreement shall not be construed a waiver of such rights as to any continued or subsequent breach. 13. MODIFICATION AND TERMINATION. The rights of the Optionee hereunder are subject to modification and termination in certain events as provided in the Plan. 14. RESTRICTION ON SALE OF SHARES. Optionee represents and agrees that upon his exercise of the Option, in whole or in part, unless there is in effect at the time under the Securities Act of 1933, as amended, a registration statement relating to the shares acquired, such shares will be acquired for his or her own account, for investment purposes only and not with a view toward the distribution or public offering thereof nor with any present intention of reselling or distributing the shares at any particular future time, and that upon exercise thereof he or she will furnish to the Company a written statement to such effect, satisfactory to the Company in form and substance. Optionee agrees that any certificates issued upon exercise of this Option may bear a legend indicating that their transferability is restricted in accordance with applicable state or federal securities law. Any person or persons entitled to the Option under circumstances in which 5 - Nonstatutory Stock Option Agreement Optionee would be required to furnish such a written statement shall furnish to the Company a written statement to the same effect, satisfactory to the Company in form and substance. 15. PLAN GOVERNS. This Agreement and the Option evidenced hereby are made and granted pursuant to the Plan and are in all respects limited by and subject to the express terms and provisions of that Plan, as it may be amended from time to time and construed by the Committee. 16. NOTICES. All notices to the Company shall be addressed to the members of the Stock Option Committee with a copy to the Secretary of the Company at the principal office of the Company at 7227 N.E. 55th Avenue, Portland, Oregon 97218, and all notices to Optionee shall be addressed to Optionee at the address of Optionee on file with the Company or its Affiliates, or to such other address as either may designate to the other in writing. A notice shall be deemed to be duly given upon the earlier of receipt by the addressee or three days following deposit of such notice in a properly addressed sealed envelope, postage prepaid, with the United States Postal Service. In lieu of giving notice by mail as provided above, written notice under this Agreement may be given by personal delivery to Optionee or to the Chairman of the Board of Directors of the Company (as the case may be). 17. SALE OR OTHER DISPOSITION. Optionee hereby agrees that if Optionee disposes (whether by sale, exchange, gift or otherwise) of any of the shares acquired by exercise of this Option within two years of the grant date or within one year after the transfer of such shares to Optionee upon exercise of this Option, then Optionee shall notify the Company of such disposition in writing within thirty (30) days from the date of such disposition. Said written notice shall state the date of such disposition, and the type and amount of the consideration received for such share or shares by Optionee in connection therewith. In the event of any such disposition, the Company shall have the right to require Optionee to immediately pay the Company the amount of taxes (if any) which the Company is required to withhold under federal and/or state law as a result of the granting or exercise of the subject option in the disposition of the subject shares. 18. GOVERNING LAW. This Agreement shall be governed by the laws of the State of Oregon. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. RENTRAK CORPORATION By /s/ Bill LeVine -------------------------- Bill LeVine Member, Stock Option Committee By /s/ James Jimirro ---------------------------- James Jimirro Member, Stock Option Committee OPTIONEE: By /s/ Ron Berger -------------------------- Ron Berger EXHIBIT A NOTICE OF EXERCISE OF NONSTATUTORY OPTION To: RENTRAK CORPORATION 7227 N.E. 55th Avenue Post Office Box 18888 Portland, Oregon 97218 The undersigned exercises the option to purchase _____________ shares of common stock of Rentrak Corporation (the "Company") granted to the undersigned pursuant to the terms of the Company's 1986 Second Amended and Restated Stock Option Plan (the "Plan") and the Nonstatutory Stock Option and Nonstatutory Stock Option Agreement effective as of April 8, 1994. Accompanying this notice is: [select one] (1) ____ cash, certified check or cashier's check in the amount of $_________, or (2) a certificate representing ____ shares of Common Stock of the Company valued at $____________ per share (the fair market price of those shares on the day preceding the date hereof) representing the option price of $____________ per share plus the amount the Company has determined must be withheld for tax purposes; or (3) ____________ I hereby request to exercise this option through a cashless transaction and have provided the name and address of my broker below. I understand that if I elect to pursue a cashless transaction, Rentrak Corporation will request and authorize the stock transfer company to issue the certificate(s) in the name of my broker to facilitate completion of the transaction. Date: -------------------- BROKER OPTIONEE _________________________ _________________________ Address: Address: _________________________ _________________________ _________________________ _________________________ _________________________ _________________________ EX-11 5 EXHIBIT 11 Exhibit 11 RENTRAK CORPORATION COMPUTATION OF NET INCOME (LOSS) PER SHARE
For the Year Ended March 31, 1995 ------------------------------ FULLY PRIMARY DILUTED ------------------------------ Weighted average number of shares of common stock outstanding 10,721,558 10,721,558 Dilutive effect of exercise of stock options 2,356,734 2,356,734 Dilutive effect of exercise of stock warrants 2,500,197 3,419,626 Less: purchase of treasury shares, up to 20% of shares outstanding at period end (2,180,538) (2,180,538) ------------------------------ Weighted average number of shares of common stock and common stock equivalents 13,397,951 14,317,380 ------------------------------ ------------------------------ Net Income $5,113,523 $5,113,523 Plus: Interest income from investments assumed purchased with proceeds from exercise of stock options and warrants in excess of proceeds used to purchase treasury stock 394,249 582,494 ------------------------------ Net Income for purposes of computing earnings per share $5,507,772 $5,696,017 ------------------------------ ------------------------------ Net Income per Share $0.41 $0.40 ------------------------------ ------------------------------
EX-13 6 EXHIBIT 13 Exhibit 13 Rentrak Corporation and Subsidiaries (Cover Design - PPT marquee) 1995 Annual Report to Shareholders About Rentrak Headquartered in Portland, Oregon, Rentrak is a leader in electronic transaction processing. Rentrak's core Pay-Per-Transaction-TM- (PPT-R-) division is the world's largest nontraditional distributor of videocassettes. Currently, about 5,000 outlets systemwide stock cassettes leased through Rentrak from more than 100 studios and other suppliers of prerecorded video tapes.* Rentrak collects a fee every time a retailer acquires a tape through PPT and every time a PPT videocassette is rented to a customer. Participating retailers, including over half of the top 10 video chains in the country, use Rentrak's PPT system to help them bring in enough copies of popular movies to satisfy their customers.** Leading movie studios, including Disney and Twentieth Century Fox Home Entertainment, participate in PPT because Rentrak helps them make more money on their titles. Rentrak applies the same information processing and distribution strengths to its second largest business, Pro Image, Inc., the largest independent chain of licensed sports apparel stores. Rentrak bought Pro Image two years ago and has successfully expanded the chain to 229 outlets in the United States and abroad. A third business, Streamlined Solutions, Inc., takes Rentrak's expertise in information systems, custom software development, warehouse management, electronic ordering and just-in-time distribution and applies it to other retail and franchise organizations as a provider of outsourced business services. About The Cover The PPT system, which resembles theatrical distribution, encourages studios to lower their cost of goods in return for a share of the rental revenues generated by retailers. * Approximately 1,200 of the retailers participate in the PPT system through Rentrak Japan Corporation, a 25-percent-owned joint venture of the Company. ** Source: Video Store magazine, "Top 100," December 1994. FINANCIAL HIGHLIGHTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
YEAR ENDED MARCH 31, 1995 1994 1993 1992 1991 - -------------------------------------------------------------------------------- FOR THE YEAR Revenues $112,166 $68,897 $54,335 $47,422 $33,942 Net income (loss) 5,114 813 (895) (233) 1,298 Net income (loss) per share 0.40 0.08 (0.10) (0.03) 0.22 AT YEAR END Working capital $12,898 $16,155 $17,116 $18,875 $ 1,152 Total assets 64,818 44,620 34,824 27,582 9,854 Long-term debt -- -- -- 5 15 Stockholders' equity 40,292 29,523 22,722 21,398 3,101
The bottom half of the page includes four graphs. The graphs are for the years 1991, 1992, 1993, 1994 and 1995. From left to right the graphs have the following headings: Revenues, Net income (loss), Total assets, and Working Capital. The graphic results are reflective of the numbers included in the table above. To our Shareholders: Rentrak had a memorable and gratifying fiscal 1995. Revenues were up 63 percent, climbing to a record $112.2 million from $68.9 million the previous year. Net income was $5.1 million, or $.40 per share -- a huge increase over the $813,065, or $.08 per share, reported for fiscal 1994. Rentrak Home Entertainment, our primary business, was particularly successful last year. The heart of this business, our Pay-Per-Transaction-TM- (PPT-R-) videocassette distribution system, generated some 70 percent of our revenue. In fact, it would be hard to overstate the momentum PPT gained in fiscal 1995. An agreement to carry all of Disney's Buena Vista Home Video titles was the most dramatic evidence of our progress. Our second largest business, Pro Image, Inc., had a productive year as well. Pro Image acquired the Team Spirit retail chain, becoming the largest licensed sports apparel chain in the country. RENTRAK HOME ENTERTAINMENT DISNEY JOINS PPT Our Rentrak Home Entertainment business is charged with expanding the PPT system, primarily by adding more video stores and videocassette suppliers (such as film studios). Our system allows retailers to lease, rather than buy, videocassettes from movie studios and other suppliers through Rentrak. The retailer's initial cost to bring a cassette in through PPT is about $8, compared to about $67 through nonleasing types of distribution. Each time the cassette is rented, the retailer shares the rental fee with the studio or supplier, and Rentrak earns a portion of this fee. By helping a store to bring in more copies of more popular movies, our distribution system helps retailers satisfy their customers, which is crucial for their success. For the year, revenues for the division increased 29 percent to $79.8 million from $62.0 million the prior year. Net income before taxes jumped 153 percent to $6.4 million from $2.5 million in fiscal 1994. During fiscal 1995, Rentrak Home Entertainment added a new major supplier, attracted more key retailers to the system and developed new product formats for PPT. These were some of the highlights of the year: * We announced a five-year contract to distribute all rental-priced video titles from the Buena Vista Home Video labels. These labels include Touchstone Home Video, Hollywood Pictures Home Video, Miramax Home Entertainment and Walt Disney Pictures. Buena Vista, which is owned by Disney, is the top supplier in the video industry. The agreement has stimulated more retailer interest in PPT. * We added 438 stores to the PPT system, bringing the total to 3,614 from 3,176 last year, a 14 percent rise. We signed long-term agreements with high-volume U.S. chains - including Hollywood Entertainment, the fourth largest retailer (and one of the fastest growing chains) and Palmer Video, the eighth largest retailer. By year-end, over half of the top 10 U.S. retailers were using PPT.(i) * During fiscal 1995, the largest franchised video chain in Canada - Jumbo Video - successfully tested PPT in some of its stores. In the current fiscal year, Jumbo signed an agreement adding more than 50 percent of its existing stores, and all new stores, to our program. * To attract the new stores, we lowered our processing fee and initiated a direct response marketing program that was less costly than previous marketing methods (such as seminars). We developed this strategy to take advantage of the industry's better understanding and acceptance of revenue sharing. Our goal in North America for fiscal 1996 is to add 600 stores. * We made steady progress in rolling PPT out to video departments within supermarkets. At year-end, we were supplying PPT product to over 400 supermarkets. * We expanded the PPT system by adding new product lines. In fiscal 1995, we offered retailers cartridge-based video games for the Sega Genesis-TM- and Nintendo-R- platforms on nonleasing terms. We also developed a program to lease CD-ROM titles through the PPT system, since most personal computers sold today have integrated CD-ROM drives. We believe this market will develop slowly and then accelerate in 1996. * We began beta testing a major enhancement to our proprietary software that will help us attract even more large chains to PPT. The upgraded software runs on the Windows-R- operating system and will allow chain operators to analyze buys, track inventory, watch trends and run accounting reports for all of their locations at one time, from a central location. RENTRAK JAPAN DRAMATIC GROWTH AT RENTRAK JAPAN The Company owns a 25 percent stake in Rentrak Japan. Rentrak Japan's revenues soared 58 percent to $88.4 million (U.S. dollars) from $56.1 million in fiscal 1994. After three years of operating losses, Rentrak Japan achieved net income of $1.4 million. Rentrak Japan is expanding rapidly and had 1,122 participating retailers at year-end. During fiscal 1995, the Company signed a longer-term agreement with Rentrak Japan. Under the new agreement, which expires in 2039, the Company received royalty revenue totaling $1.8 million in fiscal 1995 (including a onetime payment of $1.0 million). PRO IMAGE, INC. PRO IMAGE TAKES THE LEAD Pro Image, Inc., which we acquired two years ago, is performing as planned. It is now the largest independent chain of licensed sports apparel stores. At year-end, Pro Image had 229 outlets, including 54 corporate outlets. Thirty-nine of the corporate stores were added through our acquisition of the Team Spirit chain. With outlets in 45 states, Canada, Mexico, Puerto Rico, Germany and Japan, Pro Image is now a leader in an industry that is expected to reach $9 billion in sales by 1997.(ii) Pro Image aggressively upgraded its business with investments in more efficient computer and distribution systems, updated store designs and a TV/print advertising campaign. These investments totaled approximately $2 million. Pro Image was profitable despite these expenses, flat sales throughout the retail apparel industry and unusually poor sales of licensed sports apparel (attributable in part to the baseball and hockey strikes). For the fiscal year ended February 28, 1995, Pro Image recorded total revenue of $26.4 million and a pretax profit of $139,422. Without the charges described above, profit would have been 8 percent of total revenue. Pro Image will continue to open new stores, make further acquisitions that add value to the business and expand aggressively internationally. We will consolidate the administrative, buying and distribution functions of the acquired entities to drive costs down and efficiencies up. In the first quarter of the current fiscal year, a new point-of-sale system was installed at each corporate store. The new system links the stores through e-mail, processes layaways and returns, automates inventory control and allows faster sales transactions. ENTERTAINMENT SUBSIDIARIES SMALLER BUSINESSES WITH GROWTH POTENTIAL The Company owns a number of subsidiaries closely related to our video rental business. As a group, these subsidiaries had revenues of $6.0 million and a loss of $707,548 for the year. The loss was primarily due to start-up and expansion costs. Revenues continued to grow from our Blowout Video chain, which offers competitively priced new and used cassettes primarily to the tourist trade in New York and Seattle. Revenues were up 272 percent to $3.8 million. At year-end, we were looking at an additional site in Pittsburgh. Our Supermarket Video, Inc. (SVI) subsidiary, which operates video departments within leading grocery chains, is expanding as well. Supermarkets are the fastest growing segment of the video rental industry, and video is one of the fastest growing segments of the supermarket industry.(iii) It is therefore important and opportune that we expand our SVI operations. By recently purchasing a majority interest in Entertainment One, we have assumed management of the video departments of 46 Wal-Mart Supercenters. Wal-Mart, the largest retailer in the nation, is expected to generate more sales by the year 2000 than the five largest supermarket chains in the nation combined.(iv) SYSTEMS SUBSIDIARY CAPITALIZING ON OUR EXPERTISE We continue to market our existing software development, warehousing, distribution and field audit capabilities through Streamlined Solutions, Inc. (SSI). By the end of fiscal 1995, SSI had signed its first revenue-producing contract with a chain of dry cleaning stores. SSI is currently negotiating contracts with several other retail chains and franchise organizations. Ultimately, we expect SSI to produce a significant revenue stream, delivering a piece of the rapidly growing market for outsourced business services. LOOKING FORWARD MORE GROWTH, HIGHER EARNINGS EXPECTED The home video rental industry is strong and growing. The major players are implementing ambitious expansions, and industry revenues are projected to hit $19 billion by the year 2004.(v) The concept of revenue sharing recently made trade headlines when Blockbuster Video was reported to be approaching film studios with its own revenue-sharing proposal. One Blockbuster official was quoted as saying that revenue sharing would "pump up profits as well as customer satisfaction." We, of course, already knew that, but this high-profile validation of revenue sharing has stirred up key retailer interest. We believe it will motivate additional stores to join Rentrak's PPT system. However, we do not take anything for granted. We will continue to focus sharply on our customers' needs while aggressively pursuing retailers and suppliers that are not in the system. Fiscal 1995 was a very successful year. Next year should be even more successful as we hold costs down, as PPT revenues continue to grow and as Pro Image and our other subsidiaries come into their own. Thank you for your continuing confidence in our bright future. Ron Berger Chairman, President and Chief Executive Officer Captions: Photo of Ron Berger, first page of letter to shareholders Caption: Ron Berger, Chairman, President and Chief Executive Officer i Video Store magazine, "Top 100," December 1994 ii EPM Communications iii Supermarket News, March 27, 1995 iv Discount Store News, April 17, 1995 v Video Store magazine, May 22, 1995 SELECTED FINANCIAL DATA IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
YEAR ENDED MARCH 31, 1995 1994 1993 1992 1991 - --------------------------------------------------------------------------------------------------------------------------------- STATEMENT OF OPERATIONS DATA Net revenues: Processing fees $ 1,114 $ 1,662 $ 2,299 $ 2,260 $ 2,699 Handling fees 18,052 13,712 12,170 11,063 10,220 Transaction fees 49,904 40,967 33,399 27,738 18,955 Sell-through fees 8,923 5,665 4,980 5,196 1,762 Other 34,173 6,775 1,287 1,165 306 International operations -- 116 200 -- -- - --------------------------------------------------------------------------------------------------------------------------------- Total net revenues 112,166 68,897 54,335 47,422 33,942 Cost of sales 83,533 52,162 41,299 37,759 25,473 - --------------------------------------------------------------------------------------------------------------------------------- Gross profit 28,633 16,735 13,036 9,663 8,469 SG&A 26,183 16,393 15,054 10,138 7,076 Suspension of European operations -- 901 -- -- -- Other income (expense) 3,391 477 499 242 (63) - --------------------------------------------------------------------------------------------------------------------------------- Income (loss) before provision for income taxes, minority partner interests and extraordinary item 5,841 (82) (1,519) (233) 1,330 Income tax benefit (provision) (727) 764 (305) -- (508) - --------------------------------------------------------------------------------------------------------------------------------- Income (loss) before minority partner interests and extraordinary item 5,114 682 (1,824) (233) 822 Losses attributable to minority partner interests -- 131 649 -- -- Income (loss) before extraordinary item 5,114 813 (1,175) (233) 822 Extraordinary item, income tax benefit from carryforward of net operating losses -- -- 280 -- 476 - --------------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 5,114 $ 813 $ (895) $ (233) $ 1,298 - --------------------------------------------------------------------------------------------------------------------------------- Net income (loss) per share $ 0.40 $ 0.08 $ (0.10) $(0.03) $0.22 - --------------------------------------------------------------------------------------------------------------------------------- Weighted average shares outstanding 14,517 10,162 9,306 8,552 6,252 AT MARCH 31, 1995 1994 1993 1992 1991 - --------------------------------------------------------------------------------------------------------------------------------- BALANCE SHEET DATA Working capital $12,898 $16,155 $17,116 $18,875 $ 1,152 Total assets 64,818 44,620 34,824 27,582 9,854 Long-term debt -- -- -- 5 15 Stockholders' equity 40,292 29,523 22,722 21,398 3,101
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS For a more meaningful analysis, results are presented for four groups of operations: Domestic PPT Operations, which include Canadian PPT operations; International Operations, which represent Rentrak's European operations that were suspended in fiscal 1994; Pro Image, Inc. and its subsidiaries ("TPI"); and Other Domestic Subsidiaries. The following tables break out these groups for the years ended March 31, 1995, 1994 and 1993. All significant intercompany transactions have been eliminated.
DOMESTIC PPT INTERNATIONAL OTHER YEAR ENDED MARCH 31, 1995 OPERATIONS OPERATIONS TPI(1) SUBSIDIARIES CONSOLIDATED - --------------------------------------------------------------------------------------------------------------------------------- Revenues $ 79,793,584 $ - $26,363,211 $ 6,009,436 $ 112,166,231 Cost of sales 64,447,737 - 16,840,331 2,245,260 83,533,328 Gross profit margin 15,345,847 - 9,522,880 3,764,176 28,632,903 SG&A 12,459,006 - 9,252,704 4,471,724 26,183,434 Other income (expense) 3,522,039 - (130,754) 0 3,391,285 Net income (loss) before taxes $ 6,408,880 $ - $ 139,422 $ (707,548) 5,840,754 - --------------------------------------------------------------------------------------------------------------------------------- Income tax provision 727,231 - -------------------------------- ------------------------- Net income $ 5,113,523 - ---------------------------------------------------------------------------------------------------------------------------------
DOMESTIC PPT INTERNATIONAL OTHER YEAR ENDED MARCH 31, 1994 OPERATIONS OPERATIONS TPI(2) SUBSIDIARIES CONSOLIDATED - --------------------------------------------------------------------------------------------------------------------------------- Revenues $ 62,005,968 $ 115,937 $ 3,950,705 $ 2,823,877 $ 68,896,487 Cost of sales 49,191,633 183,702 2,245,000 541,492 52,161,827 Gross profit margin 12,814,335 (67,765) 1,705,705 2,282,385 16,734,660 SG&A 10,750,036 2,357,246 1,264,924 2,920,992 17,293,198 Other income (expense) 472,393 65,083 (61,450) 740 476,766 Net income (loss) before taxes $ 2,536,692 $ (2,359,928) $ 379,331 $ (637,867) (81,772) - --------------------------------------------------------------------------------------------------------------------------------- Income tax benefit 763,919 Minority interest 130,918 - -------------------------------- ------------------------- Net income $ 813,065 - --------------------------------------------------------------------------------------------------------------------------------- ------------------------------- (1) Includes Results of Operations from March 1, 1994 through February 28, 1995 (2) Includes Results of Operations from October 15, 1993 (date of acquisition) through February 28, 1994
9
DOMESTIC PPT INTERNATIONAL OTHER YEAR ENDED MARCH 31, 1993 OPERATIONS OPERATIONS TPI SUBSIDIARIES CONSOLIDATED - --------------------------------------------------------------------------------------------------------------------------------- Revenues $ 52,847,386 $ 200,443 $ - $ 1,287,037 $ 54,334,866 Cost of sales 40,770,396 508,048 - 20,123 41,298,567 Gross profit margin 12,076,989 (307,604) - 1,266,914 13,036,299 SG&A 11,463,957 2,016,904 - 1,573,290 15,054,151 Other income (expense) 523,020 (2,623) - (21,438) 498,959 Net income (loss) before $ 1,136,052 $ (2,327,131) $ - $ (327,814) (1,518,893) taxes and minority interest - --------------------------------------------------------------------------------------------------------------------------------- Income tax provision 25,000 Minority interest 648,833 - ------------------------------ -------------------------- Net income (loss) $ (895,061) - ---------------------------------------------------------------------------------------------------------------------------------
FISCAL 1995 COMPARED TO FISCAL 1994 DOMESTIC PPT OPERATIONS For the year ended March 31, 1995, total revenue from Domestic PPT Operations increased $17.8 million, or 29 percent, rising to $79.8 million from $62.0 million in the prior year. In addition to royalty payments from Rentrak Japan, total revenue includes the following fees: processing fees generated when retailers are approved for participation in the PPT system; handling fees generated when prerecorded videocassettes ("Cassettes") are distributed to retailers; transaction fees generated when retailers rent Cassettes to consumers; and sell-through fees generated when retailers sell Cassettes to consumers. The increase in total revenue and the increases described in the following paragraphs were primarily due to the growth in (i) the number of retailers approved to lease Cassettes from the Company (the "Participating Retailers"); (ii) the number of participating program suppliers ("Program Suppliers"), primarily Buena Vista; (iii) the number of titles released to the system; and (iv) the total number of Cassettes leased under the system. By fiscal year-end, the number of Participating Retailers had grown 14 percent to 3,614 from 3,176 a year earlier. As of March 31, 1995, there were 3,034 retailers located in the United States and 580 located in Canada. Total revenue and the gross profit margin are expected to grow at a modest rate over the next year. In fiscal 1995, processing-fee revenue decreased to $1.1 million from $1.7 million in fiscal 1994, a decline of $0.6 million, or 33 percent. The decrease was due to a reduction in the amount of processing fees charged. During the year, handling-fee revenue rose to $18.1 million from $13.7 million in fiscal 1994, an increase of $4.4 million, or 32 percent. Transaction-fee revenue totaled $49.9 million, an increase of $8.9 million, or 22 percent, from $41.0 million the previous year. Sell-through revenue was $8.9 million in fiscal 1995 as compared to $5.7 million in fiscal 1994, an increase of $3.2 million, or 58 percent. Royalty revenue from Rentrak Japan increased to $1.8 million during fiscal 1995. There was no royalty revenue in the prior year. Included in fiscal 1995's royalty revenue was a nonrecurring payment of $1.0 million. Cost of sales in fiscal 1995 rose to $64.4 million from $49.2 million the prior year, an increase of $15.2 million, or 31 percent. This change parallels the change in total revenues. In fiscal 1995, the gross profit margin 10 decreased to 19 percent from 21 percent the previous year. The decrease reflects an increase in major motion picture studio product, which traditionally has a lower gross margin. Selling, general and administrative expenses were $12.5 million in fiscal 1995 compared to $10.8 million in fiscal 1994. This increase of $1.7 million, or 16 percent, was primarily due to continued efforts to assure system integrity and the strengthening of the management team. In addition, the Company incurred additional expense related to reserves on long-term investments and receivables. As a percentage of total revenue, selling, general and administrative expenses decreased to 16 percent at year-end from 17 percent the previous year. Other income increased from $0.5 million in fiscal 1994 to $3.5 million for fiscal 1995, an increase of $3.0 million. This increase was due to the sale of certain investment securities held for sale for a gain of $2.8 million. For the year ended March 31, 1995, Domestic PPT Operations recorded a pretax profit of $6.4 million, or 8 percent of total revenue, compared to a pretax profit of $2.5 million, or 4 percent of total revenue, in fiscal 1994. PRO IMAGE, INC. For the fiscal year ended February 28, 1995, Pro Image, Inc. ("TPI") recorded total revenue of $26.4 million, a gross margin of $9.5 million (36 percent), and a pretax profit of $0.1 million (less than 1 percent of revenue). Comparisons to the fiscal year ended February 28, 1994, are not meaningful because of the acquisition of Team Spirit, Inc. ("Team Spirit") in fiscal 1995. The Pro Image results for fiscal 1995 include those for Team Spirit from September 1994 through February 1995. TPI's net income for fiscal 1995 was negatively impacted by increased operating expenses associated with advertising, market research, promotion and store design expenses, as well as reserves for doubtful accounts and inventory. These expenses, totaling approximately $2 million, are considered to be onetime expenses that are not expected to be incurred in the coming year. In addition, TPI recorded approximately $0.7 million in amortization of goodwill associated with the acquisition of TPI and Team Spirit. Management expects TPI's revenue to increase substantially in the coming fiscal year due to the inclusion of Team Spirit for the entire year, revenue generated from new company-owned Pro Image retail stores, and franchise fees generated internationally. Revenues from domestic franchise fees and franchise royalties are expected to be flat next year. Management expects the gross margin percentage to increase due to a higher percentage of sales generated by company- owned stores. Management also expects operating expenses to decrease as a percentage of sales because overhead expenses should remain flat or decrease as revenues and store operating expenses increase. OTHER SUBSIDIARIES Other Subsidiaries are comprised of a software development company and other video retail and wholesale operations. Total revenue from Other Subsidiaries increased to $6.0 million in fiscal 1995 from $2.8 million in fiscal 1994, an increase of $3.2 million, or 113 percent. Cost of sales was $2.2 million, an increase of $1.7 million (315 percent) over the $0.5 million recorded in fiscal 1994. Selling, general and administrative expenses increased to $4.5 million in fiscal 1995 from $2.9 million in fiscal 1994, an increase of $1.6 million, or 53 percent. As a percentage of total revenue, selling, general and administrative expenses decreased to 74 percent at year-end from 103 percent a year earlier. For the year ended March 31, 1995, Other Subsidiaries recorded a pretax loss of $0.7 million, or 12 percent of total revenue. This compares with a pretax loss of $0.6 million, or 21 percent of total revenue, in fiscal 1994. 11 Changes in revenues, cost of sales, selling and administrative costs and pretax losses were due to the start-up status of three of the entities, and to expansion efforts by the other entities. CONSOLIDATED BALANCE SHEET At March 31, 1995, total assets were $64.8 million, an increase of $20.2 million from the $44.6 million of a year earlier. A substantial portion of the increase was due to the acquisition of Team Spirit, which added approximately $10 million to total assets. Accounts receivable grew to $14.7 million at the end of fiscal 1995 from $9.4 million at the end of fiscal 1994, a $5.3 million increase. Most of this increase was due to a rise in domestic PPT revenue levels. Inventory at year-end equaled $6.3 million, up $5.5 million from $0.8 million at the end of fiscal 1994. Of this increase, approximately $3.6 million was related to the Team Spirit acquisition, and the rest was due to the opening of additional TPI company stores. As of March 31, 1995, property and equipment had increased $2.1 million to $4.9 million from $2.8 million a year earlier. Of this increase, approximately $2.1 million was related to the Team Spirit acquisition. At year- end, intangibles had risen to $11.0 million from $6.8 million at the end of fiscal year 1994, an increase of $4.2 million. Most of this amount was related to the acquisitions made by TPI. All warrants which the Company issued in fiscal 1995, have been valued by an outside valuation firm using standard warrant valuation models. The value of the warrants of $3.5 million has been recorded in the equity section and will be amortized over the associated periods to be benefited by each group of warrants. For fiscal 1995, expense associated with the warrants is $0.5 million. FISCAL 1994 COMPARED TO FISCAL 1993 DOMESTIC PPT OPERATIONS For the year ended March 31, 1994, total revenue from Domestic PPT Operations rose to $62.0 million from $52.8 million in the prior year, an advance of $9.2 million, or 17 percent. The increase in total revenue and the increases described in the following paragraphs were primarily due to the growth in (i) the number of Participating Retailers; (ii) the number of Program Suppliers, primarily Twentieth Century Fox Home Entertainment (formerly FoxVideo); (iii) the number of titles released to the system; and (iv) the total number of Cassettes leased under the system. In fiscal 1994, the number of Participating Retailers grew to 3,176 from 2,737 the prior year, for a 16 percent increase. As of March 31, 1994, there were 2,768 retailers located in the United States and 408 located in Canada. For the year, processing-fee revenue decreased to $1.7 million from $2.3 million in fiscal 1993, a decline of $0.6 million, or 28 percent. The decrease was due to a reduction in the amount of processing fees charged. Handling-fee revenue rose to $13.7 million from $12.2 million in fiscal 1993, an increase of $1.5 million, or 13 percent. Transaction-fee revenue increased to $41.0 million from $33.4 million the previous year, a $7.6 million or 23 percent improvement. Sell-through revenue grew to $5.7 million from $5.0 million in fiscal 1993, an increase of $0.7 million, or 14 percent. Cost of sales for fiscal 1994 increased to $49.2 million from $40.8 million the prior year, an increase of $8.4 million, or 21 percent. This change paralleled the change in total revenues. The gross profit margin decreased to 21 percent from 23 percent the previous year. The decrease in the gross profit margin reflects an increase in major motion picture studio product, which traditionally has a lower gross margin. 12 Selling, general and administrative expenses decreased by $0.7 million, or 6 percent, to $10.8 million in fiscal 1994 from $11.5 million in fiscal 1993. The decrease was primarily due to a company-wide effort to control and reduce corporate operating costs. As a percentage of total revenue, selling, general and administrative expenses decreased to 17 percent from 22 percent in fiscal 1993. For the year ended March 31, 1994, Domestic PPT Operations recorded a pretax profit of $2.5 million, or 4 percent of total revenue, as compared to a pretax profit of $1.1 million, or 2 percent of total revenue, in fiscal 1993. INTERNATIONAL OPERATIONS For the year ended March 31, 1994, total revenue from International Operations decreased to $0.1 million from $0.2 million the prior year, a decline of $0.1 million, or 42 percent. The decline was due to the closure of a portion of the retail locations. Cost of sales dropped to $0.2 million from $0.5 million in fiscal 1993, a decrease of $0.3 million, or 64 percent. Selling, general and administrative expenses in fiscal 1994 increased $0.3 million, or 13 percent, to $2.3 million from $2.0 million in fiscal 1993. At year-end, International Operations recorded a pretax loss of $2.3 million, as compared to a pretax loss of $1.7 million in fiscal 1993. The Company has suspended its efforts to establish a subsidiary in German speaking Europe. As a result of this decision, in fiscal 1994 the Company took a charge of approximately $2.4 million to write down the value of the related assets and to account for operating costs and costs to suspend operations. This decision stems from the difficulties the Company had in getting sufficient product flow commitments from Program Suppliers. THE PRO IMAGE, INC. For the four and one-half months ended February 28, 1994, TPI recorded total revenues of $4.0 million, cost of sales of $2.2 million, selling and administrative expenses of $1.3 million, and a net profit of $0.4 million, or 10 percent of total revenue. The Company acquired TPI on October 15, 1993, and therefore did not have operating results from the TPI business for the year ended March 31, 1993. OTHER SUBSIDIARIES Other Subsidiaries are comprised of a software development company and other video retail and wholesale operations. For fiscal 1994, total revenue from Other Subsidiaries increased to $2.8 million from $1.3 million in fiscal 1993, an increase of $1.5 million, or 119 percent. In fiscal 1994, cost of sales increased 2,591 percent to $0.5 million from $0.02 million in fiscal 1993. Selling, general and administrative expenses increased by $1.3 million, or 86 percent, to $2.9 million in fiscal 1994 from $1.6 million in fiscal 1993. As a percentage of total revenue, selling, general and administrative expenses decreased to 103 percent in fiscal 1994 from 122 percent in the prior year. For the year ended March 31, 1994, Other Subsidiaries recorded a pretax loss of $0.6 million, or 21 percent of total revenue, as compared to a pretax loss of $0.3 million, or 25 percent of total revenue, in fiscal 1993. Changes in revenues, cost of sales, selling and administrative costs and pretax losses were due to the start-up status of three of the entities, and to expansion efforts by the other entities. CONSOLIDATED BALANCE SHEET For the year ended March 31, 1994, total assets increased to $44.6 million from $34.8 13 million in the prior year, an increase of $9.8 million. The increase was primarily due to the acquisition of TPI. The write-off of European assets amounted to $0.8 million, which included $0.06 million in accounts receivable, $0.09 million in other current assets, $0.5 million in property and equipment, and $0.09 million in other long-term assets. In addition to the $0.8 million write-down of assets during fiscal 1994, the Company incurred $1.4 million in European operating costs and $0.1 million in cash expenditures to finalize operations. Most of the $2.3 million in losses related to European operations in fiscal 1994 was funded through a stock offering in 1991. At year-end, intangibles had increased to $7.0 million from $1.2 million in fiscal 1993. The increase was due to goodwill arising from the acquisition of TPI. Other assets increased to $3.6 million from $2.2 million in the prior year, a $1.4 million change. The change was primarily due to an increase of $0.5 million in long-term Program Supplier advances and a $1.0 million increase in a long-term-occupancy security deposit for a domestic subsidiary. The increase in the Program Supplier advances was primarily due to the Company's entering into new agreements that had a longer term than in the past. LIQUIDITY AND CAPITAL RESOURCES At March 31, 1995, the Company had cash and other liquid investments of $10.7 million, compared to $16.2 million at March 31, 1994. At year-end, the Company's current ratio (current assets/current liabilities) declined to 1.53 from 2.07 a year earlier. This decline was primarily due to the expenditures of cash to fund the Retailer Financing Program. The Company has an agreement with a financial institution for a line of credit in the amount of $7.5 million. The agreement expires on July 25, 1995. Under this agreement, the Company is required to maintain average compensating balances of $1.5 million in its checking and money accounts. Interest is payable monthly at a rate that varies in relation to the bank's prime rate. The lender has been granted a warrant to purchase 10,000 unregistered shares of common stock of the Company at $7 per share, which exceeded market value at the date of grant. The line of credit is secured by substantially all of the Company's assets, excluding TPI's. The terms of the agreement require, among other things, a minimum amount of tangible net worth, minimum current ratio and minimum ratio of total liabilities to tangible net worth. The agreement also restricts the amount of net losses, loans and indebtedness and limits the payment of dividends on the Company's stock. There were no borrowings under the line of credit as of March 31, 1995. In April 1994, TPI entered into a $2.0 million line-of-credit arrangement with a financial institution. Interest on borrowings under this credit agreement accrue at the bank's prime rate. Borrowings are collateralized by the Company's accounts receivable and inventory, and require monthly payments of principal plus accrued interest. In January 1995, the available borrowing under this agreement was increased to the lesser of $4.0 million or the amount of the borrowing base as defined in the agreement. Interest under the revised agreement is accrued at the bank's prime rate plus 0.5 percent. There were no borrowings under the credit agreement at February 28, 1995. The credit agreement expires on July 31, 1995. 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 Rentrak's PPT distribution and information processing business in certain markets throughout the world. On June 16, 1994, the Company and CCC entered into a Second Amendment to Business Cooperation Agreement. Pursuant to this agreement, the Company will 14 receive a royalty of 1.67 percent for all sales up to $47.9 million plus 0.5 percent of sales greater than $47.9 million in each fiscal year. In addition, the Company will receive a onetime royalty of $2.0 million payable $1.0 million in fiscal 1995 and $1.0 million no later than March 31, 1999. The payment for fiscal 1995 has been received. Rentrak Japan received additional territories in which to market PPT. In addition, the Company sold 34 shares of Rentrak Japan to CCC for 6.8 million Yen ($68,068), reducing the Company's ownership in Rentrak Japan to 25 percent from 33 1/3 percent. The term of the agreement was extended from the year 2001 to the year 2039. On July 22, 1994, the Company entered into a long-term distribution agreement with Buena Vista Pictures Distribution ("Buena Vista"). Under the terms of the agreement, substantially all rental-priced theatrical and nontheatrical titles offered under Buena Vista's various labels will be offered to retailers on the PPT system. The agreement is for a five-year term with a five-year renewal option on the part of Buena Vista, and was effective with Buena Vista's September titles. In connection with the agreement, The Walt Disney Company has received warrants from Rentrak to purchase up to 2,673,500 shares of Rentrak common stock at an exercise price of $7.13 per share subject to the meeting of certain conditions. In connection with the signing of Buena Vista, the Company issued a warrant to Twentieth Century Fox Home Entertainment (formerly FoxVideo) to acquire 423,750 shares of Rentrak common stock at an exercise price of $7.13. In August 1994, the Company acquired all of the outstanding stock of Team Spirit. Team Spirit operates 39 licensed sports apparel stores in 15 states, most of which are in the Midwest. Simultaneously with the acquisition, Rentrak transferred all of the assets of Team Spirit to TPI, and Team Spirit became a wholly owned subsidiary of TPI. The net purchase price was approximately $4.4 million and was paid via issuance of approximately 557,000 shares of common stock. At the time of purchase, Team Spirit had approximately $4 million in outstanding bank debt which was immediately paid by the Company. In October 1994, the Company acquired all of the outstanding stock of Image Makers, Inc. and Barenz-Runia, Inc. These companies were franchisees of TPI and operated seven stores in the Pacific Northwest. Simultaneously with the acquisition, the net assets of the combined companies were transferred to TPI. The combined net purchase price was approximately $0.7 million and was paid by issuance of approximately 82,000 shares of common stock. The Company intends to continue to expand its licensed sport apparel business through further acquisitions, through sales of new franchises and through the opening of new corporate stores. Working capital needed to fund the increased inventory and fixed assets associated with the increase in company-owned stores is expected to be provided by existing bank credit agreements. The Company intends to pay the purchase price for any such acquisitions in cash, shares of the Company's common stock or other securities, or a combination thereof. The Company has established a retailer financing program whereby the Company will provide, on a selective basis, financing to video retailers who the Company believes have demonstrated the probability of substantial growth in the industry. In connection with these financings, the Company typically makes a loan to and/or an equity investment in the retailer. In some cases, a warrant to purchase stock may be obtained. As part of such financing, the retailer typically agrees to cause all of its current and future retail locations to participate in the PPT system for a designated period of time. 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 failure of certain of these investments could have a material adverse impact on the Company's results of operations and financial position. The Board of Directors has authorized up to $14 million to be used in connection with the Company's retailer financing program. As of May 1995, the Company has invested in, or made commitments to loan to or invest in, various video retailers in amounts representing 15 substantially all of the $14 million authorized. The loans, investments or commitments are to various retailers and individually range from $0.2 million to $3.0 million. As the financings are made, and periodically throughout the terms of the agreements, the Company assesses the likelihood of recoverability of the amounts invested or loaned based on the financial position of each retailer. As of March 31, 1995, the Company has invested or loaned approximately $9.2 million under the program. Because of the financial condition of a number of these retailers, the Company has reserved approximately $3.2 million of the original loan or investment amount. The Company is currently either negotiating extensions of its existing credit facilities or negotiating new credit facilities with its existing financial institutions. The Company is also considering the placement of long-term debt or the issuance of additional securities in the public market. No assurance can be given that any of the credit facilities will be extended or new ones obtained or that the Company will be able to issue either long-term debt or additional securities on terms acceptable to the Company. Subject to the foregoing, the Company believes its existing cash, cash generated from operations and available credit facilities (assuming such facilities are extended or new ones obtained) will be sufficient to meet its cash requirements for at least the next 12 months. 16 RENTRAK CORPORATION AND SUBSIDIARIES ------------------------------------ CONSOLIDATED STATEMENTS OF OPERATIONS ------------------------------------- FOR THE YEARS ENDED MARCH 31, 1995, 1994 AND 1993 -------------------------------------------------
1995 1994 1993 ----------- ----------- ----------- REVENUES (Note 1): PPT $ 79,793,584 $62,005,968 $52,847,386 Sports apparel 26,363,211 3,950,705 - Other 6,009,436 2,939,814 1,487,480 ------------ ----------- ----------- 112,166,231 68,896,487 54,334,866 ------------ ----------- ----------- OPERATING COSTS AND EXPENSES: Cost of sales (Note 1) 83,533,328 52,161,827 41,298,567 Selling and administrative 26,183,434 16,392,635 15,054,151 Suspension of European operations (Note 11) - 900,563 - ------------ ----------- ----------- 109,716,762 69,455,025 56,352,718 ------------ ----------- ----------- Income (loss) from operations 2,449,469 (558,538) (2,017,853) ------------ ----------- ----------- OTHER INCOME (EXPENSE): Interest income 600,415 579,222 559,787 Interest expense (35,979) (3,905) (60,828) Gain on sale of investments 2,826,849 - - Other - (98,551) - ------------ ----------- ----------- 3,391,285 476,766 498,959 ------------ ----------- ----------- Income (loss) before income tax provision (benefit), minority partner interests and extraordinary item 5,840,754 (81,772) (1,518,894) INCOME TAX (PROVISION) BENEFIT (Note 6) (727,231) 763,919 (304,813) ------------ ----------- ----------- Income (loss) before minority partner interests and extraordinary item 5,113,523 682,147 (1,823,707) LOSSES ATTRIBUTABLE TO MINORITY PARTNER INTERESTS (Note 1) - 130,918 648,833 ------------ ----------- ----------- Income (loss) before extraordinary item 5,113,523 813,065 (1,174,874) EXTRAORDINARY ITEM, income tax benefit from carryforward of net operating losses (Note 6) - - 279,813 ------------ ----------- ----------- Net income (loss) $ 5,113,523 $ 813,065 $ (895,061) ============ =========== ===========
(continued) RENTRAK CORPORATION AND SUBSIDIARIES ------------------------------------ CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED) ------------------------------------------------- FOR THE YEARS ENDED MARCH 31, 1995, 1994 AND 1993 ------------------------------------------------- NET INCOME (LOSS) PER SHARE (Note 1) ------------------------------------
1995 1994 1993 ----------- ----------- ----------- EARNINGS PER COMMON SHARE AND COMMON EQUIVALENT SHARE: Income (loss) before extraordinary item $ .41 $ .08 $ (.13) Extraordinary item - - .03 ----------- ----------- ----------- Net income (loss) per share $ .41 $ .08 $ (.10) =========== =========== =========== EARNINGS PER COMMON SHARE AND COMMON EQUIVALENT SHARE - assuming issuance of all dilutive contingent shares: Income (loss) before extraordinary item $ .40 $ .08 $ (.13) Extraordinary item - - .03 ----------- ----------- ----------- Net income (loss) per share $ .40 $ .08 $ (.10) =========== =========== ===========
The accompanying notes are an integral part of these statements. RENTRAK CORPORATION AND SUBSIDIARIES ------------------------------------ CONSOLIDATED BALANCE SHEETS --------------------------- AS OF MARCH 31, 1995 AND 1994 -----------------------------
A S S E T S ----------- 1995 1994 CURRENT ASSETS: ------------ ------------ Cash and cash equivalents $10,709,405 $13,815,718 Investment securities available for sale (Notes 1 and 2) - 2,387,500 Accounts receivable, net of allowance for doubtful accounts of $642,580 and $1,224,966 14,711,439 9,352,306 Advances to program suppliers (Note 8) 2,683,710 3,915,358 Inventory (Note 1) 6,291,032 819,850 Deferred tax asset (Note 6) 915,404 - Other current assets 2,112,021 961,903 ----------- ----------- Total current assets 37,423,011 31,252,635 ----------- ----------- PROPERTY AND EQUIPMENT, net (Notes 1 and 3) 4,924,122 2,796,730 INTANGIBLES, net of accumulated amortization of $3,472,783 and $2,235,454 (Note 1) 11,011,121 6,750,109 NOTES RECEIVABLE, net (Note 4) 3,035,787 - OTHER INVESTMENTS, net (Note 4) 2,919,919 - DEFERRED TAX ASSET (Note 6) 1,926,673 - OTHER ASSETS 3,577,035 3,820,971 ----------- ----------- $64,817,668 $44,620,445 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Accounts payable $17,799,146 $10,707,701 Accrued liabilities 3,301,513 3,659,800 Accrued compensation 2,016,820 730,291 Deferred revenue (Note 1) 1,408,076 - ----------- ----------- Total current liabilities 24,525,555 15,097,792 ----------- ----------- COMMITMENTS AND CONTINGENCIES (Notes 8 and 9) STOCKHOLDERS' EQUITY (Notes 5, 7 and 10): Preferred stock, $.001 par value; Authorized: 10,000,000 shares - - Common stock, $.001 par value; Authorized: 30,000,000 and 20,000,000 shares in 1995 and 1994, respectively; Issued and outstanding: 11,277,246 shares in 1995 and 10,224,057 shares in 1994 11,277 10,224 Capital in excess of par value 44,598,939 34,272,263 Net unrealized gain (loss) on investment securities (170,747) 1,434,182 Accumulated deficit (1,080,493) (6,194,016) Less- Deferred charge - warrants (3,066,863) - ----------- ----------- 40,292,113 29,522,653 ----------- ----------- $64,817,668 $44,620,445 =========== ===========
The accompanying notes are an integral part of these balance sheets. RENTRAK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED MARCH 31, 1995, 1994 AND 1993
Common Stock ------------------- Capital in Number of Excess of Shares Amount Warrants Par Value ---------- -------- ----------- ------------ BALANCE AT MARCH 31, 1992 9,032,837 $ 9,033 $ - $27,500,526 Issuance of common stock 318,379 318 - 1,980,744 Issuance of common stock under employee stock option plan 123,678 124 - 154,495 Issuance of warrants - - 1,300,000 - Warrant subscription receivable - - (1,300,000) - Net loss - - - - Cumulative translation adjustment - - - - ---------- ------- ----------- ----------- BALANCE AT MARCH 31, 1993 9,474,894 9,475 - 29,635,765 Repurchase of common stock (83,963) (84) - (444,544) Issuance of common stock for acquisition 776,280 776 - 4,957,828 Issuance of common stock under employee stock option plan 56,846 57 - 123,214 Net income - - - Cumulative translation adjustment - - - - Net unrealized gain on investment securities - - - - ---------- ------- ----------- ----------- BALANCE AT MARCH 31, 1994 10,224,057 10,224 - 34,272,263 Repurchase of common stock (38,300) (38) - (189,512) Issuance of common stock 364,445 364 - 1,549,257 Issuance of common stock for acquisitions 639,561 640 - 5,110,526 Issuance of common stock under employee stock option plan 87,483 87 - 322,428 Net income - - - - Change in net unrealized gains (losses) on investment securities - - - - Issuance of warrants - - (3,533,977) 3,533,977 Amortization of warrants - - 467,114 - ---------- ------- ----------- ----------- BALANCE AT MARCH 31, 1995 11,277,246 $11,277 $(3,066,863) $44,598,939 ========== ======= =========== =========== (Accumulated Net Unrealized Deficit) Cumulative Gains (Losses) Retained Translation on Investment Earnings Adjustment Securities Total ------------ ------------ -------------- ------------ BALANCE AT MARCH 31, 1992 $(6,112,020) $ - $ - $21,397,539 Issuance of common stock - - - 1,981,062 Issuance of common stock under employee stock option plan - - - 154,619 Issuance of warrants - - - 1,300,000 Warrant subscription receivable - - - (1,300,000) Net loss (895,061) - - (895,061) Cumulative translation adjustment - 83,866 - 83,866 ----------- -------- ----------- ----------- BALANCE AT MARCH 31, 1993 (7,007,081) 83,866 - 22,722,025 Repurchase of common stock - - - (444,628) Issuance of common stock for acquisition - - - 4,958,604 Issuance of common stock under employee stock option plan - - - 123,271 Net income 813,065 - - 813,065 Cumulative translation adjustment - (83,866) - (83,866) Net unrealized gain on investment securities - - 1,434,182 1,434,182 ----------- -------- ----------- ----------- BALANCE AT MARCH 31, 1994 (6,194,016) - 1,434,182 29,522,653 Repurchase of common stock - - - (189,550) Issuance of common stock - - - 1,549,621 Issuance of common stock for acquisitions - - - 5,111,166 Issuance of common stock under employee stock option plan - - - 322,515 Net income 5,113,523 - - 5,113,523 Change in net unrealized gains (losses) on investment securities - - (1,604,929) (1,604,929) Issuance of warrants - - - - Amortization of warrants - - - 467,114 ----------- -------- ----------- ----------- BALANCE AT MARCH 31, 1995 $(1,080,493) $ - $ (170,747) $40,292,113 =========== ======== =========== ===========
The accompanying notes are an integral part of these statements. RENTRAK CORPORATION AND SUBSIDIARIES ------------------------------------ CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- FOR THE YEARS ENDED MARCH 31, 1995, 1994 AND 1993 -------------------------------------------------
1995 1994 1993 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 5,113,523 $ 813,065 $ (895,061) Adjustments to reconcile net income (loss) to net cash provided (used) by operations- Gain on investment sales (2,826,849) - - Depreciation 1,441,872 769,748 422,882 Amortization of intangibles 1,242,564 678,588 889,157 Amortization of warrants 467,114 - - Provision for doubtful accounts (582,386) (43,160) 366,568 Retailer financing program reserves 2,974,912 - - Studio advance reserves 572,300 - - Losses attributable to minority partner interests - (130,918) (648,833) Loss on asset sales - 893,116 - Deferred income taxes (2,737,426) - - Cumulative translation adjustments - (83,866) - Change in specific accounts, net of effects in 1995 and 1994 from purchase of businesses: Accounts receivable (4,726,871) 796,241 (3,725,418) Inventories (1,490,480) - - Advances to program suppliers 659,348 (1,278,411) (690,472) Other current assets (1,244,614) (958,020) (397,527) Accounts payable 4,746,922 (641,559) 5,241,300 Accrued liabilities and compensation 1,420,639 1,117,287 612,823 Deferred revenue 1,408,076 - - ------------ ------------ ------------ Net cash provided by operating activities 6,438,644 1,932,111 1,175,419 ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (1,273,080) (1,758,893) (1,576,044) Investments in retailer financing program (8,930,618) - - Cash paid for purchases of businesses, net of cash acquired - (1,342,352) - Purchases of other assets 309,849 (1,198,989) (870,749) Purchases of investments (4,400,253) (8,271,811) (41,861,363) Maturities of investments 4,400,253 19,596,118 30,537,056 Proceeds from sale of investment 2,836,849 - - Purchase of intangibles (782,620) (229,997) (476,337) ------------ ------------ ------------ Net cash provided (used) by investing activities (7,839,620) 6,794,076 (14,247,437) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Payment of debt assumed in acquisition $ (3,259,724) $ - $ (18,304) Cash received from minority partner - 50,000 729,751 Repurchase of common stock (189,550) (444,628) - Issuance of common stock 1,743,937 123,271 2,085,681 ------------ ------------ ------------ Net cash provided (used) by financing activities (1,705,337) (271,357) 2,797,128 ------------ ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,106,313) 8,454,830 (10,274,890) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 13,815,718 5,360,888 15,635,778 ------------ ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF YEAR $ 10,709,405 $ 13,815,718 $ 5,360,888 ============ ============ ============
(continued) RENTRAK CORPORATION AND SUBSIDIARIES ------------------------------------ CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) ------------------------------------------------- FOR THE YEARS ENDED MARCH 31, 1995, 1994 AND 1993 -------------------------------------------------
1995 1994 1993 ----------- ----------- ----------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for- Interest $ 35,979 $ 3,905 $ 3,939 Income taxes 3,288,189 62,127 31,029 NONCASH FINANCING AND INVESTING ACTIVITIES: Issuance of warrants 3,533,977 - - Addition to other assets through issuance of common stock 128,199 - - Addition to licensing agreements through issuance of common stock - - 50,000 Acquisition of businesses through issuance of stock 5,111,166 5,542,639 - Purchase of other assets through credits to accounts receivable - - 360,000 Increase (decrease) in net unrealized gains (losses) on investment securities through adjustments to stockholders' equity (1,604,929) 1,434,182 -
The accompanying notes are an integral part of these statements. RENTRAK CORPORATION AND SUBSIDIARIES ------------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ MARCH 31, 1995, 1994 AND 1993 ----------------------------- 1. BUSINESS OF THE COMPANIES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Rentrak Corporation (the Company) (an Oregon corporation) is principally engaged in 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. 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 Rentrak'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 will receive a royalty of 1.67 percent for all sales of up to $47,905,000, plus one-half of 1 percent (0.5%) of sales greater than $47,905,000 in each fiscal year. In addition, the Company received a one-time royalty of $2 million payable $1 million in fiscal 1995, which has been received; and $1 million no later than March 31, 1999. The payment of $1 million due on March 31, 1999 has not been recognized as revenue by the Company due to uncertainty of collection. Rentrak Japan will receive additional territories to market PPT. In addition, the Company sold 34 shares of Rentrak Japan to CCC for 6,800,000 Yen ($68,068), reducing the Company's ownership in Rentrak Japan from 33-1/3 percent to 25 percent. The term of the Agreement was extended from the year 2001 to the year 2039. In the fall of 1992, the Company initiated efforts to globalize its PPT operations by entering the European market. The Company, with its partner in Rentrak Japan, formed two jointly owned European corporations, Rentrak Europe and Videotheken Management. Rentrak Europe's purpose was to market PPT in Europe and was owned by the Company and by the Japanese partner. The Company was the majority shareholder. Videotheken Management's purpose was to develop video outlets in the German market and was owned by the Company and by the Japanese partner. The Company was the controlling shareholder. Rentrak Europe and Videotheken Management ceased operations during the quarter ended September 30, 1993, and the rights to the corporations were subsequently sold in the quarter ended December 31, 1993. The decision to cease operations stems from the difficulties the Company had in getting sufficient product flow commitments from program suppliers. However, in the future, the Company may explore opportunities to expand its PPT market in Europe as well as other foreign countries. Minority interest represents the minority shareholders' proportionate share of the equity of certain ventures. The minority shareholders' proportionate share of losses in excess of their equity in the entities is recorded in the Company's accompanying statement of operations. The Company is currently negotiating the sale of its ownership in the remaining entity to the minority partner. -2- On October 15, 1993, the Company acquired all of the outstanding shares of common stock of The Pro Image Inc., a Utah corporation (TPI), pursuant to the Stock Purchase Agreement by and among the Company, TPI and the shareholders of TPI. As of March 31, 1995, TPI franchised approximately 175 retail outlets in 45 states, Canada, Germany, Mexico and Japan. Including Team Spirit, which was acquired during the year, as discussed below, TPI also operates 54 company-owned retail stores in 19 states throughout the country. These stores sell sports-oriented products and apparel featuring products licensed by college and professional sports teams. In August 1994, the Company acquired all of the outstanding stock of Team Spirit, Inc. (Team Spirit) for a net purchase price of approximately $4.4 million, with payment made through the issuance of approximately 557,000 shares of Rentrak Common Stock (see Note 12). Team Spirit operates 39 stores in 15 states, including Nebraska, Illinois, Michigan, Iowa, Minnesota, Missouri and Kansas, which sell licensed sports apparel and gifts. Simultaneous with the acquisition, Rentrak transferred all of the assets of Team Spirit to TPI and Team Spirit became a wholly owned subsidiary of TPI. In October 1994, the Company acquired all of the outstanding stock of Image Makers, Inc. and Barenz-Runia, Inc. (see Note 12). These companies were franchisees of TPI and operated seven stores in the Pacific Northwest. Simultaneous with the acquisition, the net assets of the combined companies were contributed to TPI. The combined purchase price was approximately $686,000 and was paid by issuing approximately 82,000 shares of the Company's common stock. The above acquisitions were accounted for as purchases and the results of operations are included in the accompanying consolidated statement of operations from the date of acquisition. 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 to 50 percent are accounted for by the equity method. TPI and Team Spirit's year-ends are February 28. As there are no intervening events which materially affect the financial position or results of operations, the consolidated financial statements include TPI's balance sheet as of February 28, 1995 and 1994 and the statements of operations, stockholder's equity and cash flows for the 12-month period and 4-1/2 month period ending February 28, 1995 and 1994, respectively. Team Spirit's balance sheet as of February 28, 1995 and the statements of operations, stockholder's equity and cash flows for the six-month period ending February 28, 1995 are included in the consolidated financial statements. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. -3- INVESTMENT SECURITIES Effective March 31, 1994, the Company adopted Statement of Financial Accounting Standards No. 115 (SFAS 115), "Accounting for Certain Investments in Debt and Equity Securities," which changed the accounting for certain debt and equity securities. In accordance with SFAS 115, securities are classified as available for sale. Securities, classified as available for sale, are shown at market with an adjustment to stockholders' equity to reflect net unrealized gains and losses, net of tax. INVENTORY Inventory consists primarily of sports apparel and related finished goods merchandise. Inventory is carried at the lower of cost (first-in, first-out method) or market value. PROPERTY AND EQUIPMENT Depreciation of fixed assets, other than movie tapes, is computed on the straight-line method over estimated useful lives of three to five years. Movie tapes are depreciated ratably over their expected related revenue stream. Leasehold improvements are amortized over the lives of the underlying leases or the service lives of the improvements, whichever is shorter. INTANGIBLES During fiscal years 1995, 1994 and 1993, the Company paid cash and issued stock for approximately $11,000, $206,000 and $883,000, respectively, for licensing agreements with product and service suppliers. These agreements are being amortized on the straight-line method over one to ten years. In connection with the acquisition of TPI, the Company purchased certain intangible assets totaling $6,269,050. These assets include customer and dealer lists, a covenant not to compete, franchise agreements and goodwill. These assets are being amortized on the straight-line method over a 12-year period. In connection with the acquisitions of Team Spirit and then Image Makers, Inc. and Barenz-Runia, Inc., the Company purchased goodwill totaling approximately $4.1 million and $557,000, respectively The goodwill will be amortized on the straight-line method over a 15-year period. The Company believes the above useful lives are appropriate based on the factors influencing acquisition decisions. These factors include store location, profitability and general industry outlook. The Company reviews its intangible 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 intangibles may not be recoverable. To perform that review, the Company estimates the sum of expected future undiscounted preinterest expense net cash flows from the operating activities. If the estimated net cash flows are less than the carrying amount of intangibles, the Company will recognize an impairment loss in an amount necessary to write down intangibles to a fair value as determined from expected discounted future cash flows. -4- REVENUE RECOGNITION Under its PPT program, the Company enters into contracts to distribute video cassettes leased by retailers from video program suppliers (producers of motion pictures and licensees and distributors of home video cassettes), for a percentage of the fees charged to the retailers. The lease agreements provide for a one-time initial handling 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 handling fees as revenue when the video cassettes are shipped to the retailers and recognizes transaction fees when the video cassettes are rented to the consumers. When the Company's revenue is fixed and determinable at time of shipment of video cassettes to the retailers, deferred revenue is recorded and recognized as revenue in the statement of operations when the video cassettes are rented to the consumers. The corresponding liability to video program suppliers for their share of the fees is recorded to cost of sales when the revenue is recognized with a corresponding amount to accounts receivable. The Company also charges retailers a processing 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. Stockholders and directors, or their families, own interests in several stores participating in the PPT program. The Company realized revenues from these stores of $426,102, $422,053 and $474,073 during 1995, 1994 and 1993, respectively. TPI is entitled to a royalty of up to 4 percent of gross sales generated by franchise retail stores. TPI recognizes royalty fee revenues in the period sales are made by the franchise retail stores. TPI recognizes initial franchise fees from franchise sales as revenue when the services or conditions relating to the sale are performed or satisfied. TPI defers the portion of the initial franchise fee related to an obligation to perform future training services for the franchisee. This deferred franchise fee is recorded as revenue at the time the training is completed or the obligation expires. INCOME TAXES Effective April 1, 1993, the Company adopted 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. Prior to April 1, 1993, the Company accounted for income taxes in accordance with Accounting Principles Board Opinion No. 11. As permitted by SFAS 109, prior period financial statements have not been restated. NET INCOME (LOSS) PER SHARE At March 31, 1995, primary earnings per share are based on the weighted average number of shares outstanding and the assumed exercise of common stock equivalent options and warrants regardless of whether the market price of the common stock exceeded the exercise price of the options and warrants. The number of treasury shares assumed to be purchased with the proceeds from the exercise of the options and warrants was limited to 20 percent of the outstanding shares at period-end. Those purchases were assumed to have been made at the average market price of the Company's common stock during the year. Proceeds from exercise of the options and warrants in excess of those used to purchase treasury shares were assumed to have been invested in government securities with the resultant interest income, adjusted -5- for appropriate tax effects, added to net income for purposes of calculating earnings per share. For the 1995 primary earnings per share calculation, 13,397,951 common shares and common share equivalents were assumed outstanding and $394,249 of assumed interest income, net of tax, was added to the Company's net income for purposes of computing earnings per share. Fully diluted earnings per share at March 31, 1995 are based on the weighted average number of shares outstanding and the assumed exercise of common stock equivalent options and warrants regardless of whether the market price of the common stock exceeded the exercise price of the options and warrants. In addition, contingent warrants were assumed to have been exercised. The number of treasury shares assumed to be purchased with the proceeds from the exercise of the options and warrants was limited to 20 percent of the outstanding shares at period-end. Those purchases were assumed to have been made at the greater of the average or ending market price of the Company's common stock during the year. Proceeds from exercise of the options and warrants in excess of those used to purchase treasury shares were assumed to have been invested in government securities with the resultant interest income, adjusted for appropriate tax effects, to be added to net income for purposes of calculating earnings per share. For the 1995 fully diluted earnings per share calculation, 14,317,380 common shares and common share equivalents were assumed outstanding and $582,494 of assumed interest income, net of tax, was added to the Company's net income for purposes of computing earnings per share. Earnings per common share and common equivalent share for 1994 were computed by dividing net income by the weighted average number of shares of common stock and common stock equivalents outstanding during the year. The number of common shares was increased by the number of shares issuable on the exercise of options and warrants when the market price of the common stock exceeded the exercise price of the options and warrants. This increase in the number of common shares was reduced by the number of common shares that are assumed to have been repurchased with the proceeds from the exercise of the options and warrants. Those repurchases were assumed to have been made at the average price of the common stock during the year. Weighted average shares outstanding used in both the primary and fully diluted earnings per share calculation are 10,162,461. Loss per common share and common equivalent share for 1993 was computed based only on the weighted average number of shares of common stock actually outstanding, which was 9,305,950. FOREIGN OPERATIONS Foreign currency assets and liabilities are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. Results of operations are translated at average exchange rates during the period for revenue and expenses. Translation gains and losses resulting from fluctuations in the exchange rates are accumulated as a separate component of stockholders' equity. Translation gains or losses were not material for any period presented. RECLASSIFICATIONS Certain reclassifications have been made to the prior years' consolidated financial statements to conform with current year presentation. -6- 2. INVESTMENT SECURITIES: The carrying value and estimated fair value of securities at March 31 were as follows:
Unrealized Unrealized Cost Gross Gain Gross Loss Fair Value --------- ----------- ---------- ----------- As of March 31, 1995: Available for sale- Noncurrent: Corporate securities $389,065 $ - $(275,398) $ 113,667 ======== ========== ========= ========== As of March 31, 1994: Available for sale- Current: Corporate securities $ 10,000 $2,377,500 $ - $2,387,500 Noncurrent: Corporate securities 389,065 - (64,303) 324,762 -------- ---------- --------- ---------- $399,065 $2,377,500 $ (64,303) $2,712,262 ======== ========== ========= ==========
3. PROPERTY AND EQUIPMENT: Property and equipment, at cost, consists of:
March 31, ------------------------ 1995 1994 ------------ ------------ Furniture and fixtures $ 5,932,263 $ 4,051,866 Machinery and equipment 1,247,352 898,270 Leasehold improvements 3,666,333 866,615 ----------- ----------- 10,845,948 5,816,751 Less accumulated depreciation (5,921,826) (3,020,021) ----------- ----------- $ 4,924,122 $ 2,796,730 =========== ===========
4. RETAILER FINANCING PROGRAM: The Company has established a retailer financing program whereby on a selective basis the Company will provide financing to video retailers which the Company believes have demonstrated the prospect for substantial growth in the industry. In connection with these financings, the Company typically makes a loan and/or equity investment in the retailer. In some cases, a warrant to purchase stock may be obtained. As part of such financings, the retailer typically agrees to cause all of its current and future retail locations to participate in the PPT System for a designated period of time. 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. -7- The Board of Directors has authorized up to $14 million to be used in connection with the Company's retailer financing program. As of May 1995, the Company has invested or made oral or written commitments to loan to or invest in various video retailers in amounts totaling substantially all of the $14 million authorized. The loans, investments or commitments are to various retailers and individually range from $200,000 to $3,000,000. The investments are accounted for at cost as all investments represent less than 10 percent of the entity's equity. The notes, which have payment terms that vary according to the individual loan agreements, are due 1995 through 1999. Interest rates on the various loans range from the prime rate plus 1 percent to the prime rate plus 3 percent. 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. As of March 31, 1995, the Company has invested or loaned approximately $9.2 million under the program. Because of the financial condition of a number of these retailers, the Company has provided reserves of approximately $3.2 million of the total original loan or investment amount. Subsequent to year-end, the Company increased its ownership in one of the retailers in the above program to approximately 57 percent or a controlling interest. See Note 15. 5. LINE OF CREDIT: The Company has an agreement for a line of credit in the amount of $7,500,000 with a financial institution which expires on July 25, 1995. Under this agreement, the Company is required to maintain average compensating balances of $1,500,000 in its checking and money accounts. Interest is payable monthly at a rate that varies in relation to the bank's prime rate. The lender has been granted the option to purchase 10,000 unregistered shares of common stock of the Company at $7 per share, which exceeded market value at the date of grant. The line is secured by substantially all of the Company's assets (excluding TPI assets). The terms of the agreement require, among other things, a minimum amount of tangible net worth, minimum current ratio and minimum total liabilities to tangible net worth. The agreement also restricts the amount of net losses, loans and indebtedness and limits the payment of dividends on the Company's stock. The Company is in compliance with these covenants as of March 31, 1995. There were no borrowings on the line of credit as of March 31, 1995. In April 1994, TPI entered into a $2,000,000 line of credit arrangement with a financial institution. Interest on borrowings under this credit agreement accrue at the bank's prime rate. Borrowings are collateralized by TPI's accounts receivable and inventory and require monthly payments of principal plus accrued interest. In January 1995, the available borrowing under this agreement was increased to the lesser of $4 million or the amount of the borrowing base as defined in the agreement. Interest under the revised agreement is accrued at the bank's prime rate plus .5 percent. There were no borrowings under the credit agreement at February 28, 1995. The credit agreement expires on July 31, 1995. -8- 6. INCOME TAXES: The provision (benefit) for income taxes is as follows for the years ended March 31:
1995 1994 1993 ----------- ---------- ---------- Current tax provision Federal $ 2,221,956 $ 21,949 $ 427,005 State 367,741 91,081 25,118 ----------- ---------- --------- 2,589,697 113,030 452,123 Deferred tax benefit (1,862,466) (876,949) (147,310) ----------- --------- --------- Income tax provision (benefit) $ 727,231 $(763,919) $ 304,813 =========== ========= =========
In 1993, the income tax provision was substantially offset by the benefit from the carryforward of net operating losses (NOL) for United States purposes. This benefit has been reported as an extraordinary item in the accompanying consolidated statement of operations. The reported provision (benefit) for income taxes 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 years ended March 31:
1995 1994 1993 ----------- ----------- ---------- Provision (benefit)computed at statutory rates $ 1,985,856 $ (27,802) $ 516,424 State taxes, net of federal benefit 242,709 91,081 16,165 Utilization of foreign loss carryforwards (1,143,876) - - Change in valuation allowance (953,470) - - Purchase accounting amortization adjustments 288,657 - - Other 307,355 - - Alternative minimum tax - 49,751 (227,776) Benefit of recognition of deferred tax assets - (876,949) - ----------- --------- --------- $ 727,231 $(763,919) $ 304,813 =========== ========= =========
Prior to 1995, the Company was uncertain as to whether the foreign loss carryforwards could be utilized and therefore no deferred tax asset was established. In the current year, it has been determined that the losses can be utilized and therefore the Company has appropriately reduced 1995 taxable income. The total reduction in the valuation allowance during the year ended March 31, 1995, was $953,470. The valuation allowance as of March 31, 1994, was recorded against the portion of the NOL deferred tax asset which did not satisfy the recognition criteria set forth in SFAS 109. -9- Deferred tax assets and liabilities are comprised of the following components at March 31, 1995 and 1994:
1995 1994 ---------- ---------- Deferred tax assets: Current- Vacation accrual $ 132,060 $ 96,122 Allowance for doubtful accounts 147,502 465,487 Retailer-related accruals 203,403 - Retailer financing program reserve 122,099 - Legal settlement accrual 171,686 171,686 Net operating loss carryforward - 193,952 Other 138,654 3,235 ---------- ---------- Total current deferred tax assets 915,404 930,482 ---------- ---------- Noncurrent- Depreciation 138,969 - Retailer financing program reserve 1,351,706 - Warrant amortization 177,504 - Unrealized loss on investment securities 104,651 - Other 153,843 41,735 Acquisition amortization - 112,327 Net operating loss carryforward - 853,281 ---------- ---------- Total noncurrent deferred tax assets 1,926,673 1,007,343 Deferred tax assets valuation allowance - (953,470) ---------- ---------- Total deferred tax assets, net of valuation allowance $2,842,077 $ 984,355 ========== ========== Deferred tax liability: Current- Unrealized gain on investment securities $ - $ (879,015) Studio guarantees - (51,467) ---------- ---------- Total current deferred tax liabilities - (930,482) Noncurrent- Depreciation - (53,873) ---------- ---------- Total noncurrent deferred tax liability - (53,873) ---------- ---------- Total deferred tax liabilities $ - $ (984,355) ========== ==========
7. STOCKHOLDERS' EQUITY: On October 15, 1993, the Company acquired all of the outstanding shares of common stock of TPI and Kartoyz, Inc., pursuant to a stock purchase agreement. The aggregate consideration paid by the Company for all outstanding shares of TPI common stock and all outstanding shares of Kartoyz common stock was approximately $1.2 million in cash and 776,280 shares of common stock. In addition, the Company agreed to pay up to $650,000 based upon future TPI royalties. As of March 31, 1995, the Company has paid $200,000 under the royalty arrangement. The balance of $450,000 has been recorded in accrued liabilities. -10- On August 31, 1994, the Company acquired all of the outstanding shares of common stock of Team Spirit for a net purchase price of approximately $4.4 million, with payment made through the issuance of approximately 557,000 shares of the Company's common stock. The Company acquired net assets of approximately $300,000 and recorded goodwill of approximately $4.1 million. In October 1994, the Company acquired all of the outstanding stock of Image Makers, Inc. and Barenz-Runia, Inc. for a net purchase price of approximately $686,000, with payment made through the issuance of approximately 82,000 shares of the Company's common stock. The Company acquired net assets of approximately $129,000 and recorded goodwill of approximately $557,000. In September 1994, a program supplier exercised warrants to acquire 250,000 shares of the Company's common stock for $5.19 per share. The warrants were granted in 1991. STOCK OPTIONS AND WARRANTS Options are granted under the 1986 Stock Option and the Directors' Stock Option Plans, which are administered by the Board of Directors, at an exercise price equal to fair market value as of the date of grant. Options under the 1986 Stock Option Plan are generally exercisable over four to ten years and expire ten years after date of grant. Options under the Directors' Stock Option Plan are generally exercisable over one to five years and expire five years after date of grant. As of March 31, 1995, the Company has 1,022,266 options available to be granted and 3,873,500 shares of common stock reserved for issuance under these plans. The table below summarizes the plan's activity:
Options Outstanding ------------------------------------- Number Price of Per Aggregate Shares Share Price ---------- ------------- ------------ Balance at March 31, 1992 626,900 $ .75 - 9.53 $ 1,812,072 Granted 340,444 5.38 - 8.00 1,955,764 Issued (123,678) 1.00 - 6.25 (154,619) Canceled (6,710) 1.38 - 6.38 (29,537) --------- ------------ ----------- Balance at March 31, 1993 836,956 1.13 - 9.53 3,583,680 Granted 364,672 4.44 - 6.50 1,839,177 Issued (56,846) 1.13 - 6.25 (123,271) Canceled (162,389) 1.13 - 6.38 (887,287) --------- ------------ ----------- Balance at March 31, 1994 982,393 1.13 - 9.53 4,412,299 Granted 1,709,900 4.94 - 8.50 9,883,418 Issued (87,483) 1.13 - 6.75 (210,065) Canceled (37,467) 1.38 - 6.75 (213,209) --------- ------------ ----------- Balance at March 31, 1995 2,567,343 $1.13 - 9.53 $13,872,443 ========= ============ ===========
-11- As of March 31, 1995, 859,158 options to purchase stock were exercisable. The remaining 1,708,185 options are subject to restrictions which prohibit them from being exercised as of March 31, 1995. In connection with the secondary offering in May 1991, the Company issued to its investment banker a warrant to purchase 147,500 shares of the Company's common stock. The exercise price per share of $8.90 equaled market value at the date of grant. The warrants would have expired on May 22, 1994. However, the Board of Directors extended the expiration date to May 22, 1996. In August 1992, the Company entered into an agreement with a service supplier to use and sublease certain software on the PPT system. As part of the agreement, the Company paid a licensing fee of $188,000, sold 251,889 shares of common stock for $7 per share ($1,763,223), which approximated market value at date of transaction, and granted a warrant to purchase 251,889 shares of common stock at an exercise price of $9.50 per share, which exceeded market value at the date of grant, through August 1997. The licensing fee was capitalized in other assets and is being amortized over five years, the life of the licensing agreement. In August 1992, the Company entered into an agreement with CCC to develop Rentrak's pay-per-transaction and information processing business in certain markets throughout the world. The agreement guarantees a maximum 25 percent equity interest for CCC in any new company formed to develop PPT in these markets. As part of the agreement, CCC was issued warrants to acquire up to 1.2 million shares of the Company's common stock for $1.3 million. The warrants were to be purchased before December 31, 1993. The $1.3 million was not paid and the option to acquire the 1.2 million shares has expired by its terms. At March 31, 1993, the Company had recorded a subscription receivable for $1.3 million which is shown as an offset to the warrants in the stockholders' equity section of the balance sheet. The exercise price of these warrants did not exceed the market price of the Company's stock at the date of grant. In September 1992, the Company agreed to issue warrants to buy up to 1,000,000 shares of the Company's common stock in connection with entering into a long-term licensing agreement with a program supplier. Certain contractual arrangements must be performed by the program supplier, however, before any warrants are issued. At March 31, 1995, a warrant to purchase 600,000 shares of common stock had been issued at an exercise price of $7.14 per share which approximated market value at date of grant. In July 1994, the Company agreed to issue warrants to buy up to 2,673,750 shares of the Company's common stock in connection with entering into a long-term licensing agreement with a program supplier. Of the warrants, 1,423,750 are issuable based on the program supplier's continuing business with the Company. The remainder of the warrants are issuable upon the meeting of certain conditions by the program supplier, including the delivery of predetermined numbers of titles for inclusion in the Company's PPT program. The warrants were issued at an exercise price of $7.13 per share, which approximated market value at date of grant. As a result of the July 1994 agreement discussed above, the Company issued warrants to acquire 423,750 shares of the Company's common stock to another program supplier under a favored nations clause in the contract with that program supplier. This supplier had received a previous grant for 1,000,000 shares (see above). These warrants were also issued at an exercise price of $7.13 per share, which approximated market value at date of grant. -12- In December 1994, the Company agreed to issue warrants to buy up to 250,000 shares of the Company's common stock to certain customers. The warrants are issuable if the customers meet certain purchasing commitments established by the Company. The warrants were issued at an exercise price of $7.00 per share, which approximated market value at date of grant. All warrants which the Company agreed to issue in 1995 have been valued by an outside valuation firm using standard warrant valuation models. The value of the warrants of $3,533,977 has been recorded in the equity section and will be amortized over the associated periods to be benefited by each group of warrants. For 1995, expense associated with the warrants is $467,114. 8. COMMITMENTS: LEASES The Company leases its facilities under operating leases expiring at various dates through 2008. Rental payments over the term of the leases exceeding one year are as follows:
Year ending March 31, --------------------- 1996 $ 3,387,649 1997 2,882,406 1998 2,452,032 1999 1,983,698 2000 1,378,302 2001 and thereafter 5,264,031 ----------- $17,348,118 ===========
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 $2,357,640, $749,000 and $514,000 for the years ended March 31, 1995, 1994 and 1993, 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. Total commitments under guarantees as of March 31, 1995, are approximately $55,578,027, of which $52,065,242 had been earned. As of March 31, 1995, the Company has recorded $572,300 for potential losses under such guarantee arrangements. -13- 9. CONTINGENCIES: In February 1991, a suit was filed against the Company alleging causes of action for breach of contract, breach of implied covenant of good faith and fiduciary duty, and violation of a state unfair business practice statute. These allegations arise out of the Company's alleged refusal to grant the plaintiff a National Video franchise. A lower court jury has awarded damages of approximately $450,000 to the plaintiff on the alleged charges, including attorney fees. The Company appealed the lower court decision; however, that decision was upheld by the appeals court. The damage award is fully reserved by the Company and settlement of the case is likely to occur in 1996. The Company is subject to other legal proceedings and claims which arise in the ordinary course of its business. In the opinion of management, the amount of any ultimate liability with respect to these actions will not materially affect the financial position or results of operation of the Company. 10. RENTRAK JAPAN: As is discussed in Note 1, the Company owns a one-fourth interest in Rentrak Japan. Summarized financial data for the joint venture, after translation to U.S. currency, at March 31, 1995, 1994 and 1993, and for the years then ended is as follows:
1995 1994 1993 ----------- ----------- ----------- Current assets $39,738,319 $14,773,880 $ 5,418,142 Noncurrent assets 5,543,662 4,044,049 4,188,514 Current liabilities 41,411,744 18,585,255 7,644,229 Noncurrent liabilities 4,871,295 2,285,771 2,313,793 Shareholders' deficit (1,001,059) (2,053,097) (351,366) Net sales 88,382,895 56,082,841 34,074,869 Cost of sales 57,750,231 44,218,531 27,193,907 Net income (loss) 1,424,334 (1,589,437) (560,339)
As of March 31, 1993, the Company's investment has been written down to zero. The Company has provided no guarantee or other financial commitments for the investee which would require the recognition of additional losses in 1994 from the investee under the equity method. During 1995, no income was recognized by the Company as the Company's share of net income does not exceed the net losses not recognized during the period the equity method was suspended. 11. SUSPENSION OF EUROPEAN OPERATIONS: The write off of European assets, which was incurred in the quarter ended September 30, 1993, amounted to $789,155, composed of $56,042 in accounts receivable, $94,200 in other current assets, $549,008 in property and equipment, and $89,905 in other long-term assets. In addition to the $789,155 write down of assets in the quarter ended September 30, 1993, during the year ended March 31, 1994, the Company incurred $1.4 million in European operating costs as well as $111,408 in cash expenditures to finalize operations. During the period the equity method was suspended. -14- 12. ACQUISITIONS: On October 15, 1993, the Company acquired all of the outstanding shares of common stock of TPI pursuant to the Stock Purchase Agreement and all of the outstanding shares of Kartoyz. Kartoyz operated one retail outlet which sold licensed gifts and products related to automobiles. The Company suspended the Kartoyz operations during fiscal year 1994. The aggregate consideration paid by the Company for all outstanding shares of TPI common stock and all outstanding shares of Kartoyz common stock was approximately $1.2 million in cash and 776,280 shares of common stock at $7.14 per share. In addition, the Company agreed to pay up to $650,000 based upon future TPI royalties. As of March 31, 1995, the Company has paid $200,000 under the royalty arrangement. The balance of $450,000 has been recorded in accrued liabilities. The Company changed TPI's year-end from December 31 to February 28 subsequent to the acquisition. The change was made to more closely match TPI's year-end with the Company's year-end of March 31 and to allow sufficient time for the process of consolidating financial information. There were no intervening events which materially affect the financial position or results of operations. As such, the consolidated financial statements include TPI's balance sheet as of February 28, 1995 and 1994 and the statements of operations, stockholder's equity and cash flows for the 12 month period and 4-1/2 month period ending February 28, 1995 and 1994, respectively. Summarized unaudited consolidated pro forma financial data for the Company for the year ended March 31, 1994, which includes TPI financial data for the twelve months ended December 31, 1993, presented as if the acquisition had been consummated as of the beginning of the Company's year, is as follows:
Revenues $74,008,593 Net income 878,425 Net income per share .09
The pro forma information given above does not purport to be indicative of the results that actually would have been obtained if the operations were combined during the periods presented, and is not intended to be a projection of future results or trends. In August 1994, the Company acquired all of the outstanding stock of Team Spirit. The net purchase price was approximately $4.4 million and was paid via issuance of approximately 557,000 shares of common stock. The Company acquired assets of approximately $6 million and recorded goodwill of approximately $4.1 million. At the time of purchase, Team Spirit, Inc. had approximately $2.3 million in other liabilities and approximately $3.3 million in outstanding bank debt which was immediately paid by the Company. -15- Summarized unaudited consolidated pro forma financial data for the Company for the years ended March 31, 1995 and 1994, which includes Team Spirit financial data for the twelve months ended January 31, 1995 and 1994, presented as if the acquisition had been consummated as of the beginning of the Company's year, is as follows:
1995 1994 ------------- ------------ Revenues $118,369,990 $85,667,518 Net income 4,278,548 1,150,253 Net income per share - primary .35 .11 Net income per share - assuming full dilution .34 .11
The pro forma information given above does not purport to be indicative of the results that actually would have been obtained if the operations were combined during the periods presented, and is not intended to be a projection of future results or trends. 13. EMPLOYEE BENEFIT PLANS: At January 1, 1991, the Company established an employee benefit plan (the Rentrak 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 amount of the Company's contribution is at the discretion of Board of Directors. Contributions under the 401(k) plan for the years ended March 31, 1995, 1994 and 1993 were $35,347, $25,430 and $22,360, respectively. TPI has a 401(k) savings plan (the TPI Plan) which covers all employees who are at least 21 years of age and who have completed at least 1,000 hours of service. Under the TPI Plan, employees may contribute up to 20 percent of their earnings. TPI matched the first 6 percent of employee contributions at a level of 50 percent through December 31, 1994. TPI's contributions to the Plan for the 12 month period ended February 28, 1995 were $30,029 and for the 4-1/2 month period ended February 28, 1994 were approximately $7,100. As of January 1, 1995, the TPI Plan was frozen and TPI employees began contributing to the Rentrak Plan. 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 171,536 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. Under the Plan, employees purchased 11,062 shares for aggregate proceeds of $78,449, 8,663 shares for aggregate proceeds of $51,694 and 5,995 shares for aggregate proceeds of $38,935 in 1995, 1994 and 1993, respectively. -16- 14. BUSINESS SEGMENTS, GEOGRAPHIC INFORMATION AND MAJOR CUSTOMER:
BUSINESS SEGMENTS 1995 1994 1993 ------------ ------------ ------------ Net sales: PPT $ 79,793,584 $62,005,968 $52,847,386 Sports apparel 26,363,211 3,950,705 - Other 6,009,436 2,939,814 1,487,480 ------------ ----------- ----------- $112,166,231 $68,896,487 $54,334,866 ============ =========== =========== Income (loss) from operations: PPT $ 2,886,841 $ 2,064,299 $ 613,032 Sports apparel 270,176 440,781 - Other (707,548) (3,063,618) (2,630,885) ------------ ----------- ----------- $ 2,449,469 $ (558,538) $(2,017,853) ============ =========== =========== Identifiable assets: PPT $ 39,132,490 $33,284,507 $32,802,483 Sports apparel 22,610,120 8,950,132 - Other 3,075,058 2,385,806 2,021,147 ------------ ----------- ----------- $ 64,817,668 $44,620,445 $34,823,630 ============ =========== ===========
GEOGRAPHIC INFORMATION 1995 1994 1993 ------------ ------------ ------------ Revenues from unaffiliated customers: United States $112,166,231 $68,780,550 $54,134,422 Foreign - 115,937 200,444 ------------ ----------- ----------- $112,166,231 $68,896,487 $54,334,866 ============ =========== =========== Net income (loss): United States $ 5,113,523 $ 3,092,075 $ 783,238 Foreign - (2,279,010) (1,678,299) ------------ ----------- ----------- $ 5,113,523 $ 813,065 $ (895,061) ============ =========== =========== Identifiable assets: United States $ 64,817,668 $44,620,445 $33,849,383 Foreign - - 974,247 ------------ ----------- ----------- $ 64,817,668 $44,620,445 $34,823,630 ============ =========== ===========
There were no sales or transfers between geographic areas in any of the years presented. -17- The Company has one program supplier that supplied product that generated 19 percent, a second that generated 12 percent, and a third that generated 11 percent of Rentrak revenues for the year ended March 31, 1995. The Company had one program supplier that supplied product that generated 26 percent and a second program supplier that supplied product that generated 23 percent of Rentrak revenues for the year ended March 31, 1994. The Company had one program supplier that supplied product that generated 34 percent of revenues for the year ended March 31, 1993. There were no other program suppliers who contributed more than 10 percent of sales for the years ended March 31, 1995, 1994 and 1993. 15. SUBSEQUENT EVENTS: On May 26, 1995, the Company entered into an agreement to acquire 3.2 million shares of Entertainment One, Inc. from the majority shareholder. When combined with the 669,230 shares Rentrak purchased from Entertainment One, Inc. in July 1994, Rentrak's ownership will consist of approximately 57 percent of the issued and outstanding stock of Entertainment One, or a controlling interest. Entertainment One, Inc. operates 46 video departments inside Wal Mart stores in 14 states and Canada, 8 supermarket video departments and 5 video specialty stores in Illinois. The acquisition will be accounted for as a purchase. 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 any proposal to acquire control of the Company. Under the rights plan, each shareholder will receive 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. ARTHUR ANDERSEN LLP Report of Independent Public Accountants To the Board of Directors and Stockholders of Rentrak Corporation and Subsidiaries: We have audited the accompanying consolidated balance sheets of Rentrak Corporation and subsidiaries, as of March 31, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended March 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 1995 in conformity with generally accepted accounting principles. As explained in Note 1 to the consolidated financial statements, effective April 1, 1993 and March 31, 1994, the Company changed its methods of accounting for income taxes and investment securities, respectively. /s/ Arthur Andersen LLP Portland, Oregon, May 26, 1995 DIRECTORS, OFFICERS AND SHAREHOLDER INFORMATION BOARD OF DIRECTORS L. BARTON ALEXANDER VENTURE CONSULTANT RON BERGER CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER AND PRESIDENT, RENTRAK CORPORATION PETER DAL BIANCO PRESIDENT, PAMLEY ENTERPRISES, LTD. JAMES P. JIMIRRO PRESIDENT, J2 COMMUNICATIONS BILL LEVINE PRESIDENT, LEVINE ENTERPRISES MUNEAKI MASUDA CHAIRMAN AND PRESIDENT, CULTURE CONVENIENCE CLUB CO., LTD. STEPHEN ROBERTS PRESIDENT, THE S. ROBERTS COMPANY CORPORATE OFFICERS RENTRAK CORPORATION RON BERGER CHAIRMAN, CHIEF EXECUTIVE OFFICER AND PRESIDENT F. KIM COX EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER SIGNIFICANT OPERTING DIVISIONS RENTRAK HOME ENTERTAINMENT ED BARNICK VICE PRESIDENT, DISTRIBUTION MARTY GRAHAM VICE PRESIDENT, PRODUCT DEVELOPMENT MICHAEL R. LIGHTBOURNE SR. VICE PRESIDENT, MARKETING CHRIS ROBERTS VICE PRESIDENT, SALES JAMES P. WEISS SR. VICE PRESIDENT, OPERATIONS KARL D. WETZEL VICE PRESIDENT, FINANCE AND CHIEF FINANCIAL OFFICER AMIR YAZDANI VICE PRESIDENT, INFORMATION SYSTEMS PRO IMAGE, INC. BRIAN CARMACK PRESIDENT DAN DIXON VICE PRESIDENT, OPERATIONS, TEAM SPIRIT JOHN DIXON VICE PRESIDENT, MERCHANDISING, TEAM SPIRIT GREG NICHOLS VICE PRESIDENT, FRANCHISE OPERATIONS KARIN OWENS VICE PRESIDENT, MARKETING DAVID E. RILEY VICE PRESIDENT, MERCHANDISING DAN E. STRONG CHIEF FINANCIAL OFFICER SHAREHOLDER INFORMATION ANNUAL MEETING The Company's Annual Shareholder's Meeting will be held on Au- gust 28, 1995 at 8:00 a.m., PDT at the Heathman Hotel, 1001 S.W. Broadway, Port- land, OR 97205. FORM 10-K The Company's Annual Report filed with the Securities and Exchange Commission may be obtained free of charge by writing Mr. F. Kim Cox, Executive Vice President and Chief Financial Officer at the corporate headquarters ad- dress, 7227 N.E. 55th Avenue, Portland, OR 97218. PUBLIC INFORMATION Financial analysts, stockbrokers, interested investors and financial media desiring information about the Company should contact Mr. F. Kim Cox at the corporate headquarters, or call Rentrak Cor- poration, Investor Relations, at (503) 284-7581, extension 722. MARKET PRICE OF COMMON STOCK The Company's common stock, $.001 par value, is traded on the NASDAQ National Market System, and prices are quoted on the NASDAQ National Market Issues quotations under the symbol "RENT." Prior to the Com- pany's public offering on November 14, 1986, there was no public market for the common stock. As of March 31, 1995, there were approximately 436 holders of record of the Company's common stock. On March 31, 1995, the closing sales price of the common stock as quoted by the NASDAQ National Market Issues was $6.50. The following table sets forth the reported high and lows sales prices of the common stock for the period indicated as regularly quoted on the NASDAQ National Market Issues quotations. The over-the-counter market quotations reflect inter-dealer prices, without retail markup, markdown or commissions and may not necessarily represent actual transactions.
QUARTER ENDED HIGH LOW - ----------------------------------------------------- June 30, 1993 $ 5.875 $ 4.50 September 30, 1993 7.125 4.75 December 31, 1993 7.75 5.125 March 31, 1994 7.375 4.625 June 30, 1994 7.50 4.75 September 30, 1994 9.375 6.25 December 31, 1994 9.25 6.25 March 31, 1995 8.75 6.25
No cash dividends have been paid or declared. 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 does not intend to pay cash dividends in the foreseeable future. STOCK TRANSFER AGENT U.S. STOCK TRANSFER CORPORATION 1745 Gardena Avenue Glendale, California 91204 (818) 502-1404 AUDITORS ARTHUR ANDERSEN, LLP Portland, Oregon LEGAL COUNSEL GARVEY, SCHUBERT & BARER Portland, Oregon PPT-Registered Trademark-, Rentrak-Registered Trademark-, Pay-Per-Transaction-SM-, and Pro Image-SM- are registered trademarks of Rentrak Corporation -C-1995, All rights reserved. Sega-TM- is a trademark of Sega of America, Inc. Nintendo-Registered Trademark- is a trademark of Nintendo of America, Inc. Windows-Registered Trademark- is a registered trademark of Microsoft Corp. RENTRAK-R- The People behind PPT-TM- RENTRAK CORPORATION 7227 NORTHEAST 55TH AVENUE P.O. BOX 18888 PORTLAND, OREGON 97218 INVESTOR RELATIONS (503) 284-7581, EXT 722 EX-22 7 EXHIBIT 22 Exhibit 22 Subsidiaries of Registrant / / Dover Aggregates, Inc., a Delaware corporation doing business as BlowOut Video. / / The Pro Image Inc., a Utah Corporation doing business as Pro Image and Team Spirit. / / Streamlined Solutions, Inc., an Oregon corporation doing business as Streamlined Solutions, Inc. and Streamlined Information Systems. / / SVI, Inc., a Delaware corporation doing business as Supermarket Video Management, Inc. / / BlowOut Video, Inc., an Oregon corporation, doing business as BlowOut Video. / / Mortco Inc., an Oregon corporation. EX-24.1 8 EXHIBIT 24.1 Exhibit 24.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our reports included in this Form 10-K, into the Company's previously filed Registration Statements: (1) Registration Statement File number 33-40472 on Form S-8 of the 1986 Stock Option Plan, the 1985 Stock Incentive Plan, the 1985 Key Employee Incentive Stock Option Plan and the Individual Written Compensation Plan dated May 10, 1991, (2) Registration Statement File number 33-44865 on Form S-8 of the 1986 Restated and Amended Stock Option Plan and Directors' Stock Option Plan dated January 8, 1992, (3) Registration Statement on Form S-8 of the 1992 Employee Stock Purchase Plan dated June 16, 1992, (4) Registration Statement File Number 33-86548 on Form S-3 dated November 21, 1994. Portland, Oregon, June 26, 1995 EX-27 9 EXHIBIT 27
5 12-MOS MAR-31-1995 MAR-31-1995 10,709,405 0 15,354,019 642,580 6,291,032 37,423,011 10,845,948 5,921,826 64,817,668 24,525,555 0 11,277 0 0 40,280,836 64,817,668 112,166,231 112,166,231 83,533,328 109,716,762 0 0 35,979 5,840,754 727,231 5,113,523 0 0 0 5,113,523 .41 .40
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