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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
Amendment No. 1
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 0-15159
RENTRAK CORPORATION
(Exact name of registrant as specified in its charter)
Oregon 93-0780536
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7700 NE Ambassador Place, Portland, Oregon 97220
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
503-284-7581
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
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Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes No X
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock $0.001 par value 9,805,620
(Class) (Outstanding at July 30, 2004)
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Explanation of Amendment
We are filing this Amendment No. 1 on Form 10-Q/A (the "Form 10-Q/A"),
amending our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
2004, as originally filed on August 16, 2004 (the "Original 10-Q"), to clarify
in Part I, Item 4 "Controls and Procedures" management's conclusion that our
disclosure controls and procedures were ineffective at June 30, 2004 for the
reasons described in that item.
We are concurrently filing Amendment No. 1 to our Annual Report on Form
10-K for the fiscal year ended March 31, 2004, originally filed on July 14,
2004.
The following sections of this Form 10-Q/A have been revised from the
Original 10-Q:
o Part I, Item 4 - Controls and Procedures
o Part II, Item 6 - Exhibits and Reports on Form 8-K
Except as set forth above, this Form 10-Q/A continues to speak as of the date of
the filing of the Original 10-Q, August 16, 2004, and we have not updated the
disclosures contained herein to reflect any events that have occurred since that
date. For a discussion of more recent events and developments, please see our
reports filed with the SEC since August 16, 2004.
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RENTRAK CORPORATION FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - June 30, 2004
(unaudited)and March 31, 2004 *
Condensed Consolidated Statements of Operations - Three
Months Ended June 30, 2004 and 2003 (unaudited) *
Condensed Consolidated Statements of Cash Flows - Three
Months Ended June 30, 2004 and 2003 (unaudited) *
Notes to Condensed Consolidated Financial Statements (unaudited) *
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations *
Item 3. Quantitative and Qualitative Disclosures About Market Risk *
Item 4. Controls and Procedures 3
PART II - OTHER INFORMATION
Item 1. Legal Proceedings *
Item 6. Exhibits and Reports on Form 8-K 6
Signature 7
* Not included in Form 10-Q/A
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ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management has evaluated, under the supervision and with the participation
of our Chief Executive Officer and Chief Financial Officer, the effectiveness of
our disclosure controls and procedures as of the end of the period covered by
this report pursuant to Rule 13a-15(b) under the Securities Exchange Act of
1934, as amended (Exchange Act). During the period covered by this report,
management identified internal control deficiencies, as described below, that
constitute material weaknesses as defined in Statement of Auditing Standards No.
60. Certain of these internal control weaknesses may also constitute
deficiencies in our disclosure controls and procedures. Based on that evaluation
and taking into consideration those identified deficiencies, our Chief Executive
Officer and our Chief Financial Officer have concluded that, as of the end of
the period covered by this report, our disclosure controls and procedures were
ineffective in ensuring that information required to be disclosed in our
Exchange Act reports is (1) recorded, processed, summarized and reported in a
timely manner, and (2) accumulated and communicated to our management, including
our Chief Executive Officer and our Chief Financial Officer, as appropriate, to
allow timely decisions regarding required disclosure.
Management's conclusion that our disclosure controls and procedures were
ineffective as of the end of the period covered by this report is based on our
discovery of deficiencies in certain of our internal controls necessary to
development of reliable financial statements. Some of these weaknesses related
to the discovery that one of our employees had embezzled funds from us over a
period of several years by exploiting weaknesses in our internal controls
related to the segregation of duties within the accounting function. Other
weaknesses related to the discovery of accounting errors as a result of the
misinterpretation and misapplication by our internal accounting staff of certain
terms in our revenue sharing agreements with program suppliers. Our outside
auditor also advised us of certain organizational and resource deficiencies
related to our processes for monitoring, analyzing and reporting on new
accounting and reporting pronouncements, including our process for summarizing
and externally reporting financial information. These deficiencies are discussed
in more detail below, together with a description of the changes in our internal
control over financial reporting which we began implementing during our last
fiscal quarter and that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
We have reviewed the procedures and internal controls surrounding the
deficiencies described above and have taken actions and commenced the
implementation of improvements as of the date of the filing of this report, as
described below, to provide reasonable assurance that those deficiencies will
not recur. Based on the actions we have taken, our Chief Executive Officer and
Chief Financial Officer have concluded that this report fully complies with the
requirements of Section 13(a) of the Exchange Act and that the information
contained in this report fairly presents, in all material respects, our
financial condition and results of operations.
Internal Control Over Financial Reporting
Investigation and Recovery Efforts Regarding Misappropriated Funds
In March 2004, we learned that an employee may have engaged in fraudulent
activity and we hired an outside firm to investigate the matter. See Note 6 of
Notes to Condensed Consolidated Financial Statements under the heading
Investigation and Recovery Efforts Regarding Misappropriated Funds for further
discussion.
We have reviewed the internal controls, including the accounting, financial
reporting and disclosure controls surrounding this fraud, and have made
improvements to such controls to help ensure against this type of activity in
the future. Management has recently hired a new controller who will lead our
efforts to improve our overall internal accounting controls. In particular, we
have implemented, or are in the process of implementing, the following
additional procedures and controls with respect to this embezzlement matter:
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o All checks, upon receipt, are restrictively endorsed.
o No employee, beyond the person(s) assigned to open and distribute the
mail, is authorized to handle the mail in any manner.
o Only copies of checks are distributed for account coding.
o The income tax receivable account will be reconciled so that the
receivable and payable for each tax jurisdiction can be tracked.
o A miscellaneous cash receipts log has been established with copies of
supporting documentation. The cash receipt transactions are reconciled
to the bank statements during the bank reconciliation process by staff
independent of the cash receipts function.
o Segregation of duties within Finance and Accounting has been reviewed
and necessary adjustments have been made, given our staffing size and
composition.
o All bank statements will be given to the Chief Financial Officer or
Controller, who will independently review the information prior to its
use by appropriate accounting staff.
o All bank reconciliations will be reviewed monthly by the Chief
Financial Officer or Controller and evidenced in writing.
o All prepared journal entries will be reviewed by the Controller prior
to entry in the accounting system.
Misinterpretation and Misapplication of Certain Terms in Revenue Sharing
Agreements with Program Suppliers
In May and June 2004, we discovered errors in our accounting as a result of the
misinterpretation and misapplication of certain terms in some of our revenue
sharing agreements with Program Suppliers. These errors resulted in the
restatement of our previously issued financial statements for fiscal 2000
through fiscal 2003. See Note 2 of Notes to Condensed Consolidated Financial
Statements for a further description of the restatements.
We have implemented, or are in the process of implementing, the following
additional procedures and controls to date with respect to these restatement
matters:
o All revenue-sharing agreement Program Supplier contract liability
accounts are being comprehensively analyzed and reconciled; these
functions will be performed on a monthly basis. The analyses and
reconciliations will be reviewed and approved by the Controller and/or
Chief Financial Officer, and evidenced in writing.
o All revenue-sharing agreement Program Supplier guarantees are being
comprehensively analyzed; these functions will be performed on a
monthly basis. The analyses will be reviewed and approved by the
Controller and/or Chief Financial Officer, and evidenced in writing.
Organizational Deficiencies Related to the External Financial Reporting Process
Certain organizational and resource deficiencies have been identified related to
our processes for monitoring, analyzing and reporting on new accounting and
reporting pronouncements. This includes our process for summarizing and external
reporting of financial information.
We have implemented, or are in the process of implementing, the following
procedures and controls with respect to this matter:
o We have hired a new controller with assigned responsibilities to
include: (i) the on-going research and identification of new
accounting and reporting pronouncements; and (ii) the on-going
research and identification of our external financial reporting
responsibilities to assure our compliance with all professional and
regulatory reporting and disclosure requirements.
o We are assessing and evaluating the application of all new
pronouncements in a timely manner to determine the correct accounting
and reporting treatment. We will provide our independent auditors with
the conclusions of our assessment and evaluation of these
pronouncements when complete.
o We are implementing a process to ensure that we research, identify and
apply all external reporting and disclosure requirements in our
external financial reporting.
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Summary
Our independent auditors advised the audit committee of our board of directors
that these internal control deficiencies described above constitute material
weaknesses as defined in Statement of Auditing Standards No. 60. Certain of
these internal control weaknesses may constitute deficiencies in our disclosure
controls and procedures.
Other than as discussed in the preceding paragraphs, there have been no changes
in our internal control over financial reporting that occurred during our last
fiscal quarter that has materially affected or is reasonably likely to
materially affect our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed with this Form 10-Q/A and this list is intended
to constitute the exhibit index:
31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a).
31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a).
(b) Reports on Form 8-K
We furnished one report on Form 8-K during the quarter ended June 30, 2004 as
follows:
o Dated June 29, 2004 and furnished June 30, 2004, pursuant to Items 9
and 12 of Form 8-K, regarding the filing of Form 12b-25 and the
announcement of financial results for the fiscal year ended March 31,
2004.
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SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Amendment No. 1 to its
quarterly report on Form 10-Q/A to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: December 15, 2004 RENTRAK CORPORATION
By:/s/ Mark L. Thoenes
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Mark L. Thoenes
Senior Vice President and
Chief Financial Officer