UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2007
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
	EXCHANGE ACT OF 1934
	For the transition period from to

Commission file number: 0-15159

RENTRAK CORPORATION

(Exact name of registrant as specified in its charter)

Oregon

93-0780536

(State or other jurisdiction of incorporation

or organization)

(I.R.S. Employer Identification No.)

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 o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act:

Large accelerated filer o

Accelerated filer x

Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

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		10,669,227
(Class)		(Outstanding at February 4, 2008)

RENTRAK CORPORATION

FORM 10-Q

INDEX


PART I - FINANCIAL INFORMATION		Page

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets — December 31, 2007 and March 31, 2007 (unaudited)	2

	Condensed Consolidated Income Statements - Three and Nine Months Ended December 31, 2007 and 2006 (unaudited)	3

	Condensed Consolidated Statements of Cash Flows - Nine Months Ended December 31, 2007 and 2006 (unaudited)	4

	Condensed Consolidated Statements of Stockholders’ Equity — Years Ended March 31, 2006 and 2007 and Nine Months Ended December 31, 2007 (unaudited)	5

	Notes to Condensed Consolidated Financial Statements (unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21

Item 4.	Controls and Procedures	21

PART II - OTHER INFORMATION

Item 1A.	Risk Factors	22

Item 6.	Exhibits	22

Signatures		23

Rentrak Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except per share amounts)

	December 31,			March 31,
	2007			2007
Assets
Current Assets:
Cash and cash equivalents	$	22,110		$	11,351
Marketable securities	12,388			22,105
Accounts receivable, net of allowances for doubtful accounts of $488 and $596	17,730			19,577		(1)
Note receivable	396			385
Advances to program suppliers, net of program supplier reserves of $13 and $23	89			166
Taxes receivable and prepaid taxes	345			32		(1)
Deferred income tax assets	77			77
Other current assets	973			574
Total Current Assets	54,108			54,267		(1)

Property and Equipment, net of accumulated depreciation of $7,357 and $6,325	5,876			5,097
Long-term deferred tax asset	260			—
Other Assets	641			652
Total Assets	$	60,885		$	60,016	(1)

Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable	$	10,986		$	13,707
Accrued liabilities	424			455
Deferred rent, current portion	90			90
Accrued compensation	1,117			1,631
Deferred revenue	776			460
Total Current Liabilities	13,393			16,343		(1)

Deferred Rent, long-term portion	1,004			1,050
Deferred Income Tax Liabilities	—			333
Taxes payable, long term	1,571			—
Notes Payable	962			955
Total Liabilities	16,930			18,681		(1)

Commitments and Contingencies	—			—

Stockholders’ Equity:
Preferred stock, $0.001 par value; 10,000 shares authorized; none issued	—			—
Common stock, $0.001 par value; 30,000 shares authorized; shares issued and outstanding: 10,769 and 10,724	11			11
Capital in excess of par value	48,925			48,155
Accumulated other comprehensive income	406			132
Accumulated deficit	(5,387		)	(6,963		)(1)
Total Stockholders’ Equity	43,955			41,335		(1)
Total Liabilities and Stockholders’ Equity	$	60,885		$	60,016	(1)

(1) Amount revised. See Note 8 of Notes to Condensed Consolidated Financial Statements.

See accompanying Notes to Condensed Cosolidated Financial Statements.

Rentrak Corporation and Subsidiaries

Condensed Consolidated Income Statements

(Unaudited)

(In thousands, except per share amounts)

	For the Three Months Ended December 31,										For the Nine Months Ended December 31,
	2007				2006						2007				2006
Revenue	$	23,875			$	26,663				(1)	$	70,890			$	77,609		(1)
Cost of sales	16,937				19,329						47,827				53,359
Gross margin	6,938				7,334						23,063				24,250

Selling and administrative	6,319				6,333						19,036				18,239
Income from operations	619				1,001					(1)	4,027				6,011			(1)

Other income (expense):
Interest income	399				420						1,216				1,115
Interest expense	(3			)	(3					)	(7			)	(5			)
	396				417						1,209				1,110

Income before income taxes	1,015				1,418					(1)	5,236				7,121			(1)
Provision for income taxes	468				603					(1)	2,331				2,809			(1)
Net income	$		547		$				815	(1)	$		2,905		$		4,312	(1)

Basic net income per share	$		0.05		$			0.08			$		0.27		$		0.41

Diluted net income per share	$		0.05		$		0.07			(1)	$		0.26		$		0.39

Shares used in per share calculations:
Basic	10,757				10,666						10,747				10,639
Diluted	11,280				11,249						11,263				11,179

(1) Amount revised. See Note 8 of Notes to Condensed Consolidated Financial Statements.

See accompanying Notes to Condensed Cosolidated Financial Statements.

Rentrak Corporation and Subsidiaries

Condensed Consolidated Cash Flows

(Unaudited)

(In thousands, except per share amounts)

	For the Nine Months Ended December 31,
	2007			2006
Cash flows from operating activities:
Net income	$	2,905		$	4,312	(1)
Adjustments to reconcile net income to net cash flows provided by operating activities:
Tax benefit from stock-based compensation	483			393
Depreciation and amortization	1,043			1,244
Loss on disposal of fixed assets	13			37
Adjustment to allowance for doubtful accounts	(108		)	118
Stock-based compensation	753			668
Excess tax benefits from stock-based compensation	(260		)	(151		)
Deferred income taxes	(593		)	(96		)
(Increase) decrease in:
Accounts receivable	1,955			(596		)(1)
Note receivable issued to customer	(11		)	(380		)
Advances to program suppliers	76			(114		)
Taxes receivable and prepaid taxes	(313		)	—
Other assets	(388		)	(258		)
Increase (decrease) in:
Accounts payable	(2,718		)	(2,681		)
Taxes payable	242			(830		)(1)
Accrued liabilities and compensation	(545		)	54
Deferred rent	(46		)	897
Deferred revenue and other liabilities	321			(37		)
Net cash provided by operating activities	2,809			2,580

Cash flows from investing activities:
Purchases of marketable securities	—			(7,270		)
Maturities of marketable securities	9,717			—
Purchase of property and equipment	(1,835		)	(2,846		)
Note receivable payments received	—			215
Net cash provided by (used in) investing activities	7,882			(9,901		)

Cash flows from financing activities:
Proceeds from notes payable	—			914
Proceeds from issuance of common stock	756			225
Excess tax benefits from stock-based compensation	260			151
Repurchase of common stock	(1,222		)	(1,948		)
Net cash used in financing activities	(206		)	(658		)

Effect of foreign exchange translation on cash	274			—

Increase (decrease) in cash and cash equivalents	10,759			(7,979		)

Cash and cash equivalents:
Beginning of period	11,351			15,666
End of period	$	22,110		$	7,687

Supplemental cash flow information:
Cash paid during the period for income taxes, net	$	2,512		$	3,340

Supplemental non-cash information
Common stock withheld in payment of exercise price for stock options and warrants	$	179		$	922

(1) Amount revised. See Note 8 of Notes to Condensed Consolidated Financial Statements.

See accompanying Notes to Condensed Cosolidated Financial Statements.

Rentrak Corporation and Subsidiaries

Condensed Consolidated Stockholders’ Equity

(Unaudited)

(In thousands, except per share amounts)

								Cumulative
					Capital			Other							Total
	Common Stock				In Excess			Comprehensive			Accumulated				Stockholders’
	Shares		Amount		of Par Value			Income			Deficit				Equity
Balance at March 31, 2005	10,544,913		$	10	$	46,988		$	181		$	(17,246		)	$	29,933

Net income	—		—		—			—			4,396			(1)	4,396		(1)
Common stock issued pursuant to stock plans	152,423		1		707			—			—				708
Fair value of options granted to non-employee			—		219			—			—				219
Income tax benefit from stock option exercises	—		—		155			—			—				155
Balance at March 31, 2006	10,697,336		11		48,069			181			(12,850			)(1)	35,411		(1)

Net income	—		—		—			—			5,887			(1)	5,887		(1)
Unrealized loss on foreign currency translation	—		—		—			(49		)	—				(49		)
Comprehensive income															5,838		(1)
Common stock issued pursuant to stock plans	321,359		—		465			—			—				465
Common stock used to pay for option exercises and taxes	(114,172	)	—		(131		)	—			—				(131		)
Common stock issued pursuant to warrant exercise	12,705		—		—						—				—
Deferred stock units granted to Board of Directors	—		—		358			—			—				358
Stock-based compensation expense - options	—		—		498			—			—				498
Common stock repurchased	(193,500	)	—		(1,948		)	—			—				(1,948		)
Income tax benefit from stock option and warrant exercises	—		—		844			—			—				844
Balance at March 31, 2007	10,723,728		11		48,155			132			(6,963			)(1)	41,335		(1)

Net income	—		—		—			—			2,905				2,905
Unrealized gain on foreign currency translation	—		—		—			274			—				274
Comprehensive income															3,179
Common stock issued pursuant to stock plans	154,263		—		935			—			—				935
Common stock used to pay for option exercises and taxes	(13,193	)	—		(179		)	—			—				(179		)
Common stock issued in exchange for deferred stock units	9,000		—		—			—			—				—
Deferred stock units granted to Board of Directors, net	—				511			—			—				511
Stock-based compensation expense - options	—		—		242			—			—				242
Common stock repurchased	(104,571	)	—		(1,222		)	—			—				(1,222		)
Cumulative effect of adoption of FIN 48	—		—		—			—			(1,329			)	(1,329		)
Income tax benefit from stock-based compensation	—		—		483			—			—				483
Balance at December 31, 2007	10,769,227		$	11	$	48,925		$	406		$		(5,387	)	$	43,955

(1) Amount revised. See Note 8 of Notes to Condensed Consolidated Financial Statements.

See accompanying Notes to Condensed Cosolidated Financial Statements.

RENTRAK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements of Rentrak Corporation have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with the accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. The results of operations for the three and nine-month periods ended December 31, 2007 are not necessarily indicative of the results to be expected for the entire fiscal year ending March 31, 2008. The Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and footnotes thereto included in our 2007 Annual Report to Shareholders.

The Condensed Consolidated Financial Statements reflect, in the opinion of management, all material adjustments (which include only normal recurring adjustments) necessary to present fairly our financial position, results of operations and cash flows.

Certain reclassifications have been made to prior year amounts to conform to the current year presentation. See also Note 8 for information regarding the correction of prior period misstatements.

Note 2. Net Income Per Share

Basic net income per share (“EPS”) and diluted EPS are computed using the methods prescribed by Statement of Financial Accounting Standards (“SFAS”) No. 128, “Earnings per Share.” Following is a reconciliation of the shares used for the basic EPS and diluted EPS calculations (in thousands):

	Three Months Ended Dec. 31,		Nine Months Ended Dec. 31,
	2007	2006	2007	2006
Basic EPS:
Weighted average number of shares of common stock outstanding	10,757	10,666	10,747	10,639
Diluted EPS:
Effect of dilutive deferred stock units, stock options and warrants	523	583	516	540
	11,280	11,249	11,263	11,179
Options not included in diluted EPS because the exercise price of the options was greater than the average market price of the common shares for the period	—	—	—	—

Note 3. Business Segments, Significant Suppliers and Major Customers

We operate in two business segments, our Pay-Per-Transaction (“PPT”) Division and Advanced Media and Information (“AMI”) Division, and, accordingly, we report certain financial information by individual segment under this structure. The PPT Division focuses on managing our business operations that facilitate the delivery of home entertainment content products and related rental and sales information for that content to our Participating Retailers on a revenue sharing basis. The AMI Division concentrates on the management and growth of our Essentials Suite™ of business intelligence services, primarily offered on a recurring subscription basis, which are no longer in the early stages. Effective April 1, 2007, we realigned and moved our Direct Revenue Sharing (“DRS”) line of business from the AMI Division to the PPT Division. Prior period information has been reclassified to conform to the current presentation.

We did not have any revenues from our Other Division in the fiscal 2008 or fiscal 2007 periods.

Assets are not specifically identified by segment as the information is not used by the chief operating decision maker to measure the segments’ performance.

Certain information by segment was as follows (in thousands):

	PPT		AMI			Other(1)			Total
Three months ended December 31, 2007
Sales to external customers	$	21,190	$	2,685		$	—		$	23,875
Depreciation and amortization	22		189			184			395
Income (loss) from operations	2,828		344			(2,553		)	619

Three months ended December 31, 2006
Sales to external customers(2)	$	24,723	$	1,940		$	—		$	26,663
Depreciation and amortization	13		309			100			422
Income (loss) from operations(2)	4,315		(251		)	(3,063		)	1,001

Nine months ended December 31, 2007
Sales to external customers	$	63,339	$	7,551		$	—		$	70,890
Depreciation and amortization	60		516			467			1,043
Income (loss) from operations	11,241		963			(8,177		)	4,027

Nine months ended December 31, 2006
Sales to external customers(2)	$	71,981	$	5,628		$	—		$	77,609
Depreciation and amortization	36		961			247			1,244
Income (loss) from operations(2)	15,353		(709		)	(8,633		)	6,011

(1) Includes revenue and expenses relating to products and/or services which are still in early stages, as well as corporate expenses and other expenses which are not allocated to a specific segment.

(2) Amount revised. See Note 8.

Additional results of operations information by segment was as follows:

	Three Months Ended December 31, (1)
	2007				2006(2)
(Dollars in thousands)	Dollars		% of revenues		Dollars		% of revenues
PPT Division
Revenues	$	21,190	100.0	%	$	24,723	100.0	%
Cost of sales	16,395		77.4		18,774		75.9
Gross margin	$	4,795	22.6	%	$	5,949	24.1	%

AMI Division
Revenues	$	2,685	100.0	%	$	1,940	100.0	%
Cost of sales	542		20.2		555		28.6
Gross margin	$	2,143	79.8	%	$	1,385	71.4	%

	Nine Months Ended December 31, (1)
	2007				2006(2)
(Dollars in thousands)	Dollars		% of revenues		Dollars		% of revenues
PPT Division
Revenues	$	63,339	100.0	%	$	71,981	100.0	%
Cost of sales	46,408		73.3		51,725		71.9
Gross margin	$	16,931	26.7	%	$	20,256	28.1	%

AMI Division
Revenues	$	7,551	100.0	%	$	5,628	100.0	%
Cost of sales	1,419		18.8		1,634		29.0
Gross margin	$	6,132	81.2	%	$	3,994	71.0	%

(1) Percentages may not add due to rounding.

(2) Amount revised. See Note 8.

Revenue by service activity was as follows (in thousands):

	Three Months Ended Dec. 31,					Nine Months Ended Dec. 31,
	2007		2006			2007		2006
Order processing fees	$	2,362	$	2,590		$	5,814	$	6,823
Transaction fees	14,033		16,464		(1)	41,788		47,547		(1)
Sell-through fees	3,227		3,715			10,693		11,599
DRS fees	1,387		1,736			4,563		5,358
Essentials Suite™	2,685		1,940			7,551		5,628
Other	181		218			481		654
	$	23,875	$	26,663	(1)	$	70,890	$	77,609	(1)

(1) Amount revised. See Note 8.

During the three and nine-month periods ended December 31, 2007 and 2006, we had Program Suppliers that supplied product which generated in excess of 10% of our total revenues as follows:

	Three Months Ended Dec. 31,				Nine Months Ended Dec. 31,
	2007		2006		2007		2006
Program Supplier 1	20	%	17	%	17	%	16	%
Program Supplier 2	17	%	21	%	17	%	18	%
Program Supplier 3	16	%	17	%	17	%	14	%
Program Supplier 4	13	%	1	%	13	%	1	%
Program Supplier 5	6	%	16	%	7	%	17	%
Program Supplier 6	1	%	8	%	1	%	10	%

There were no other Program Suppliers who provided product that accounted for 10% or more of our total revenues for the three or nine-month periods ended December 31, 2007 or 2006. Our agreement with our fifth largest Program Supplier expired March 31, 2007. While we continue to receive some product from one of their divisions, the amount as a percentage of revenues has declined significantly. Also, we are no longer receiving product from our sixth largest Program Supplier as they formed an exclusive arrangement with a major retailer in the home video rental industry. Although management does not believe that the relationships with the remaining significant Program Suppliers will be terminated in the near term, a loss of any one of these suppliers could have an adverse effect on our financial condition and results of operations.

There were no customers that accounted for 10% or more of our total revenue in the three and nine-month periods ended December 31, 2007 or 2006.

Note 4. Stock-Based Compensation

We account for stock-based compensation pursuant to SFAS No. 123R, “Share-Based Payment.”

Stock option activity for the first nine months of fiscal 2008 was as follows:

	Options Outstanding		Weighted Average Exercise Price
Outstanding at March 31, 2007	1,185,664		$	6.10
Granted	—		—
Exercised	(154,263	)	6.06
Forfeited	(825	)	3.84
Outstanding at December 31, 2007	1,030,576		6.11

As of December 31, 2007, unrecognized stock-based compensation related to outstanding, but unvested options was $0.3 million, which will be recognized over the weighted average remaining vesting period of two years.

On April 2, 2007, we granted 9,000 deferred stock units (“DSUs”) to each non-employee member of our Board of Directors, for a total of 45,000 DSUs, which vest one year from the date of grant. The fair market value of our common stock on the date of grant was $15.45 per share. During the second quarter of fiscal 2008, 9,000 unvested deferred stock units previously granted were forfeited due to the retirement of a

member of the Board of Directors. Accordingly, the total value of the remaining DSUs granted was $0.6 million. As of December 31, 2007, the unrecognized compensation expense related to unvested DSUs was $0.1 million, which will be recognized over the weighted average remaining vesting period of three months.

DSU activity for the first nine months of fiscal 2008 was as follows:

	Units Outstanding		Weighted Average Grant Date Fair Value
Outstanding at March 31, 2007(1)	45,000		$	10.04
Granted	45,000		15.45
Issued	(9,000	)	10.04
Forfeited	(9,000	)	15.45
Outstanding at December 31, 2007	72,000		12.75

(1) These DSU awards vested in full on June 15, 2007, but will not be issued until the recipient ceases to be a director.

Note 5. Repurchase of Shares

During the nine-month period ended December 31, 2007, we repurchased a total of 104,571 shares of our common stock at an average price of $11.69 per share, which totaled approximately $1.2 million. The stock repurchase plan, approved by our Board of Directors in January 2006, authorizes the purchase of up to 1,000,000 shares of our common stock and does not have an expiration date. At December 31, 2007, 701,929 shares remained available for repurchase under this plan.

From January 1, 2008 through February 4, 2008, we have repurchased a total of 100,000 shares of our common stock at an average price of $11.59 per share, which totaled approximately $1.2 million. As of February 4, 2008, 601,929 shares remained available for repurchase under this plan.

Note 6. Adoption of Interpretation No. 48

In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), which is an interpretation of FASB Statement No. 109. FIN 48 clarifies the accounting for uncertainty in tax positions and applies to situations where there is uncertainty as to the timing of the deduction, the amount of the deduction, or the validity of the deduction. FIN 48 requires that we adjust our financial statements to reflect only those tax positions that are more-likely-than-not to be sustained on audit, based on the technical merits of the position. FIN 48 requires that any necessary adjustment be recorded directly to the beginning balance of retained earnings in the period of adoption and reported as a change in accounting principle, if material.

The cumulative effect of applying FIN 48 has been recorded as an increase of $1.3 million to our Accumulated Deficit and a corresponding increase to the long-term portion of Taxes Payable as it is not likely that this amount will be paid in the next twelve months. We also began including income tax related interest and penalties expense in our provision for income taxes on our Condensed Consolidated Income Statements, in accordance with paragraph 19 of FIN 48. The amount of related interest and penalties expense for the three and nine-month periods ended December 31, 2007 was approximately $12,000 and $42,000, respectively, net of tax benefits.

As of April 1, 2007, the total amount of unrecognized tax benefits was $1.7 million. This amount includes cumulative penalties and interest as of the date of adoption of $0.3 million. Unrecognized tax benefits decreased by $0.1 million in the three and nine-month periods ended December 31, 2007 and totaled $1.6 million at December 31, 2007. All unrecognized tax benefits would affect the effective tax rate if recognized.

We file federal income tax returns, Canadian income tax returns and State of Oregon income tax returns, as well as multiple other state and local jurisdiction tax returns and have open tax periods in each of the jurisdictions for the years ended March 31, 2000 through March 31, 2007. A potential reduction to the

unrecognized tax benefits of approximately $0.4 million, before interest, relating to deductions for certain reserves and amortizable assets, may occur in the next twelve months as a result of a lapse of the applicable statute of limitations. We will continue to accrue interest related to these unrecognized tax positions during the next twelve months.

Note 7. Line of Credit Amendment

On December 1, 2007, the expiration date on our revolving line of credit agreement with Wells Fargo Bank was amended from December 1, 2007 to December 1, 2008.

Note 8: Correction of Prior Period Misstatements

During the third quarter of fiscal 2008, we discovered an error in our process relating to the accrual for guaranteed minimum revenues from our customers which caused revenues and the related income tax expense to be overstated in the prior eight fiscal quarters by $576,000 and $240,000, respectively. Accordingly, our accumulated deficit through the second quarter of fiscal 2008 was understated by $336,000. This error had no impact on previously reported cash flows from operating, financing or investing activities and is considered to be immaterial to the previously reported results of operations as well as our financial position. Since the cumulative impact of this error would be material to the results of the current quarter ended December 31, 2007, we applied the guidance of Staff Accounting Bulletin No. 108 (“SAB 108”). This guidance requires that the prior period financial statements be corrected, even though such revision previously was, and continues to be, immaterial to the prior period financial statements.

The following table represents the impact of the misstatement on our income statements and balance sheets for all of the prior periods (in thousands except per share amounts):

				Income Tax			Net			Basic			Diluted
	Revenue			Provision			Income			EPS(1)			EPS(1)
FY06 Q3	$	36		$	13		$	23		$	0.00		$	0.00
FY06 Q4	75			28			47			0.00			0.00
FY06	$	111		$	41		$	70		$	0.01		$	0.01

FY07 Q1	$	53		$	22		$	31		$	0.00		$	0.00
FY07 Q2	(15		)	(6		)	(9		)	(0.00		)	(0.00		)
FY07 Q3	94			40			54			0.01			0.00
FY07 Q4	145			60			85			0.01			0.01
FY07	$	277		$	116		$	161		$	0.01		$	0.01

FY08 Q1	$	99		$	44		$	55		$	0.01		$	0.00
FY08 Q2	89			39			50			0.00			0.00
FY08	$	188		$	83		$	105		$	0.01		$	0.01

Cumulative	$	576		$	240		$	336

	Accounts		Taxes		Accumulated
	Receivable		Payable		Deficit
FY 2006	$	111	$	41	$	70
FY 2007	$	388	$	157	$	231
6 months ended Sept. 30, 2007	$	576	$	240	$	336

(1) Amounts may not add due to rounding.

Based on SAB 108, the prior period balance sheet and income statement amounts have been corrected to include these adjustments, as follows (in thousands, except per share amounts):

	Accounts Receivable							Taxes Payable/(Receivable)								Accumulated Deficit
	Reported		Adjusted			Revised		Reported		Adjusted			Revised			Reported			Adjusted			Revised
FY 2006	$	18,314	$	(111	)	$	18,203	$	972	$	(41	)	$	931		$	(12,780	)	$	(70	)	$	(12,850	)
FY 2007	$	19,965	$	(388	)	$	19,577	$	125	$	(157	)	$	(32	)	$	(6,732	)	$	(231	)	$	(6,963	)
6 months ended Sept. 30, 2007	$	17,066	$	(576	)	$	16,490	$	336	$	(240	)	$	96		$	(5,598	)	$	(336	)	$	(5,934	)

	Revenues							Income Tax Provision							Net Income
	Reported		Adjusted			Revised		Reported		Adjusted			Revised		Reported		Adjusted			Revised
3 months ended Dec. 31, 2006	$	26,757	$	(94	)	$	26,663	$	643	$	(40	)	$	603	$	869	$	(54	)	$	815
9 months ended Dec. 31, 2006	$	77,741	$	(132	)	$	77,609	$	2,865	$	(56	)	$	2,809	$	4,388	$	(76	)	$	4,312

The following statement of cash flow information for the nine months ended December 31, 2006 has been corrected as follows:

Change in Accounts Receivable
Reported			Adjusted		Revised
$	(728	)	$	132	$	(596	)

	Change in Accrued Liabilities and Compensation
	Reported			Adjusted			Revised
Taxes payable(1)	$	(774	)	$	(56	)	$	(830	)
Accrued liabilities and compensation(1)	54			—			54
Total	$	(720	)	$	(56	)	$	(776	)

Net Cash Provided by Operating Activities
Reported		Adjusted		Revised
$	2,580	$	—	$	2,580

(1) These line items were not reported separately for the nine months ended December 31, 2006.

Note 9. New Accounting Pronouncements

SFAS No. 141R and SFAS No. 160

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations,” and SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements.” SFAS Nos. 141R and 160 require most identifiable assets, liabilities, noncontrolling interests and goodwill acquired in a business combination to be recorded at “full fair value” and require noncontrolling interests (previously referred to as minority interests) to be reported as a component of equity, which changes the accounting for transactions with noncontrolling interest holders. Both statements are effective for periods beginning on or after December 15, 2008 and earlier adoption is prohibited. SFAS No. 141R will be applied to business combinations occurring after the effective date and SFAS No. 160 will be applied prospectively to all noncontrolling interests, including any that arose before the effective date. We are currently evaluating what impact, if any, the adoption of SFAS Nos. 141R and 160 will have on our financial position or results of operations. We believe that the impact, if any, will be immaterial.

EITF 07-3

In June 2007, the Emerging Issues Task Force (“EITF”) issued EITF 07-3, “Accounting for Advance Payments for Goods or Services to Be Used in Future Research and Development Activities,” which states that non-refundable advance payments for services that will be consumed or performed in a future period in conducting research and development activities on behalf of the company should be recorded as an asset when the advance payment is made and then recognized as an expense when the research and development activities are performed. EITF 07-3 is applicable prospectively to new contractual arrangements entered into in fiscal years beginning after December 15, 2007. We do not expect the adoption of EITF 07-3 to have a material effect on our financial position or results of operations.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements

Certain information included in this Quarterly Report on Form 10-Q (including Management’s Discussion and Analysis of Financial Condition and Results of Operations regarding revenue growth, gross profit margin and liquidity) constitute forward looking statements that involve a number of risks and uncertainties. Forward looking statements may be identified by the use of forward looking words such as “may,” “will,” “expects,” “intends,” “anticipates,” “estimates” or “continues” or the negative thereof or variations thereon or comparable terminology. The following factors are among the factors that could cause actual results to differ materially from the forward looking statements: our ability to retain and grow our customer base of retailers participating in the Pay-Per-Transaction system (the “PPT System”) (“Participating Retailers”) and customers for our business intelligence software and services; the financial stability of the Participating Retailers and their performance of their obligations under our PPT System; business conditions and growth in the video industry and general economic conditions, both domestic and international; customer demand for movies in various media formats; competitive factors, including increased competition, expansion of revenue sharing programs other than the PPT System by motion picture studios or other licensees or owners of the rights to certain video programming content (“Program Suppliers”) and new technology; the continued availability of digital videodiscs (“DVDs”) and videocassettes (“Cassettes”) (collectively “Units”) leased/licensed to home video specialty stores and other retailers from Program Suppliers; the loss of significant Program Suppliers; our ability to successfully develop and market new services, including our business intelligence services, to create new revenue streams; and the development of similar business intelligence services by competitors with substantially greater financial and marketing resources than our company. This Quarterly Report on Form 10-Q further describes some of these factors. In addition, some of the important factors that could cause actual results to differ from our expectations are discussed in Item 1A to our fiscal 2007 Form 10-K, which was filed with the Securities and Exchange Commission on June 13, 2007. These risk factors have not significantly changed since the filing of the fiscal 2007 Form 10-K.

Business Trends

Our corporate structure includes separate Pay-Per-Transaction (“PPT”) and Advanced Media and Information (“AMI”) operating divisions and, accordingly, we report certain financial information by individual segment under this structure.

Our PPT Division focuses on managing our business operations that facilitate the delivery of home entertainment content products (DVDs, VHS tapes, etc.) and related rental and sales information for the content to home video specialty stores and other retailers, on a revenue sharing basis. We lease product from various suppliers, typically motion picture studios. Under our PPT System, retailers sublease that product from us and rent it to consumers. Retailers then share a portion of each retail rental transaction with us and we share a portion of revenue with the studio. Since we collect, process and analyze rental and sales information at the title level, we report that information to both the studio and the respective retailers.

Effective April 1, 2007, we moved our Direct Revenue Sharing (“DRS”) line of business from the AMI Division to the PPT Division. Prior period information has been reclassified to conform to the current presentation. Our DRS services collect, track, audit and report the results of DRS retailers, such as

Blockbuster Entertainment, Movie Gallery and Netflix, to the respective suppliers under established agreements on a fee for service basis.

Our AMI Division concentrates on the management and growth of our Essentials Suite™ of business intelligence services. Our Essentials Suite™ software and services, offered on a recurring subscription basis, provide unique data collection, management, analysis and reporting functions, resulting in business intelligence information valuable to our clients.

The PPT Division

The financial results from the PPT Division continue to be affected by the changing dynamics in the home video rental market. This market is highly competitive and influenced greatly by consumer spending patterns and behaviors. The end consumer has a wide variety of choices from which to select their entertainment content. Some examples include renting Units of product from our Participating Retailers or other Retailers, purchasing previously viewed Units from our Participating Retailers or other Retailers, ordering product via online subscriptions and/or online distributors, subscribing to at-home movie channels, purchasing and owning the Unit directly, or selecting an at-home “pay-per-view” or “on-demand” option. Our PPT system focuses on the traditional “brick and mortar” retailer. We believe that our system successfully addresses the many choices available to consumers and affords our Participating Retailers the opportunity to stock their stores with a wider selection of titles and a greater supply of popular box office releases. Most of our arrangements are structured so that the Participating Retailers pay minimal upfront fees and lower per transaction fees in exchange for ordering Units of all titles offered by a particular Program Supplier (referred to as “output” programs). Since these programs usually result in more overall Units rented, our Participating Retailers’ revenue and the corresponding share with the studios have increased. These programs are, in part, an economic response to the changing dynamics of the home video rental market. We expect the growth of these output programs to continue, and believe that they will be financially beneficial for the Participating Retailers, Program Suppliers and us.

Our base of Participating Retailers continues to be strong and we are implementing strategies to obtain new Participating Retailers and Program Suppliers, as well as assist in the growth of our current Participating Retailers, in an effort to further stabilize and grow our overall PPT revenue and earnings streams.

Our agreement with our fifth largest Program Supplier expired March 31, 2007. While we continue to receive some new product from a division of that Program Supplier, the amounts are significantly less due to the loss of the other divisions. Also, we are no longer receiving product from our sixth largest Program Supplier as they formed an exclusive arrangement with a major retailer in the home video rental industry. We continue to be in good standing with our remaining Program Suppliers and we make on-going efforts to enhance those business relationships through improvement of current services offered and the development of new service offerings. We are also continually seeking to develop business relationships with new Program Suppliers. In November 2005, based on our successful involvement with a major studio in Canada, we entered into a revenue sharing agreement with that studio’s U.S. operator, which extends product offerings to Participating Retailers in the U.S. This agreement was effective for titles released beginning in January 2006, giving our U.S. Participating Retailers access to the large volume of high quality entertainment that this major studio has been delivering for years, and yielding 17% of our total revenues in the first nine months of fiscal 2008. Also, in October 2006, we began offering product from a major studio to our U.S. Participating Retailers yielding 13% of our total revenues in the first nine months of fiscal 2008. Two additional Program Suppliers each represented 17% of our total revenues in the first nine months of fiscal 2008. As is typical of our agreements with Program Suppliers, most of our relationships with these Program Suppliers may be terminated without cause upon thirty days’ written notice by either party.

AMI and Other Divisions

We are also allocating significant resources towards our business intelligence service offerings, both those services that are currently operational as well as those that are in various stages of development. Our suite of business intelligence services has been well received in the various targeted markets to date, as our offerings fit well with the needs identified by those market participants. Our Essentialsä business intelligence service offerings which are fully operational and no longer in significant stages of development, realized a revenue increase of 34% during the first nine months of fiscal 2008 compared to the first nine months of

fiscal 2007. We intend to continue to invest in our existing, as well as new, business intelligence services in the near-term as we expand the markets we serve and our service lines, which likely will lower our earnings. Longer-term, we believe these services will provide significant future revenue and earnings streams and contribute to our overall success.

Sources of Revenue

Revenue by segment includes the following:

PPT Division

· order processing fees generated when Units are ordered by and distributed to retailers;

· transaction fees generated when retailers rent Units to consumers; additionally, certain arrangements include guaranteed minimum revenues from our customers; we recognize the guaranteed minimum revenue on the street (release) date in accordance with Statement of Position 00-2, “Accounting by Producers or Distributors of Films,” (“SOP 00-2”) provided all other revenue recognition criteria are met;

· sell-through fees generated when retailers sell previously-viewed rental Units to consumers;

· buy-out fees generated when retailers purchase Units at the end of the lease term; and

· DRS fees from data tracking and reporting services provided to Program Suppliers.

AMI Division

· revenues from Box Office Essentialsä;

· revenues from Home Entertainment Essentialsä;

· revenues from Supply Chain Essentialsä; and

· revenues from OnDemand Essentialsä.

Other Division

· revenue relating to other products and/or services which are still in the development stage, including AdEssentialsä, which will capture census-level data regarding viewing patterns of on-demand advertising for reporting to marketers and advertising agencies.

Results of Operations

	Three Months Ended December 31,(1)
	2007					2006(2)
(Dollars in Thousands)	Dollars			% of revenues		Dollars			% of revenues
Revenues:
PPT	$	21,190		88.8	%	$	24,723		92.7	%
AMI	2,685			11.2		1,940			7.3
	23,875			100.0		26,663			100.0
Cost of sales	16,937			70.9		19,329			72.5
Gross margin	6,938			29.1		7,334			27.5
Selling and administrative	6,319			26.5		6,333			23.8
Income from operations	619			2.6		1,001			3.8
Other income (expense):
Interest income	399			1.7		420			1.6
Interest expense	(3		)	—		(3		)	—
	396			1.7		417			1.6
Income before income tax provision	1,015			4.3		1,418			5.3
Income tax provision	468			2.0		603			2.3
Net income	$	547		2.3	%	$	815		3.1	%

	Nine Months Ended December 31,(1)
	2007					2006(2)
(Dollars in Thousands)	Dollars			% of revenues		Dollars			% of revenues
Revenues:
PPT	$	63,339		89.3	%	$	71,981		92.7	%
AMI	7,551			10.7		5,628			7.3
	70,890			100.0		77,609			100.0
Cost of sales	47,827			67.5		53,359			68.8
Gross margin	23,063			32.5		24,250			31.2
Selling and administrative	19,036			26.9		18,239			23.5
Income from operations	4,027			5.7		6,011			7.7
Other income (expense):
Interest income	1,216			1.7		1,115			1.4
Interest expense	(7		)	—		(5		)	—
	1,209			1.7		1,110			1.4
Income before income tax provision	5,236			7.4		7,121			9.2
Income tax provision	2,331			3.3		2,809			3.6
Net income	$	2,905		4.1	%	$	4,312		5.6	%

(1)	Percentages may not add due to rounding.
(2)	Amounts revised. See Note 8 of Notes to Condensed Consolidated Financial Statements.

Certain information by segment was as follows (in thousands):

	PPT		AMI			Other(1)			Total
Three months ended December 31, 2007
Sales to external customers	$	21,190	$	2,685		$	—		$	23,875
Depreciation and amortization	22		189			184			395
Income (loss) from operations	2,828		344			(2,553		)	619

Three months ended December 31, 2006
Sales to external customers(2)	$	24,723	$	1,940		$	—		$	26,663
Depreciation and amortization	13		309			100			422
Income (loss) from operations(2)	4,315		(251		)	(3,063		)	1,001

Nine months ended December 31, 2007
Sales to external customers	$	63,339	$	7,551		$	—		$	70,890
Depreciation and amortization	60		516			467			1,043
Income (loss) from operations	11,241		963			(8,177		)	4,027

Nine months ended December 31, 2006
Sales to external customers(2)	$	71,981	$	5,628		$	—		$	77,609
Depreciation and amortization	36		961			247			1,244
Income (loss) from operations(2)	15,353		(709		)	(8,633		)	6,011

(1)	Includes revenue and expenses relating to products and/or services which are still in early stages, as well as corporate expenses and other expenses which are not allocated to a specific segment.
(2)	Amount revised. See Note 8 of Notes to Condensed Consolidated Financial Statements.

Additional results of operations information by segment was as follows:

	Three Months Ended December 31, (1)
	2007				2006(2)
(Dollars in thousands)	Dollars		% of revenues		Dollars		% of revenues
PPT Division
Revenues	$	21,190	100.0	%	$	24,723	100.0	%
Cost of sales	16,395		77.4		18,774		75.9
Gross margin	$	4,795	22.6	%	$	5,949	24.1	%

AMI Division
Revenues	$	2,685	100.0	%	$	1,940	100.0	%
Cost of sales	542		20.2		555		28.6
Gross margin	$	2,143	79.8	%	$	1,385	71.4	%

	Nine Months Ended December 31, (1)
	2007				2006(2)
(Dollars in thousands)	Dollars		% of revenues		Dollars		% of revenues
PPT Division
Revenues	$	63,339	100.0	%	$	71,981	100.0	%
Cost of sales	46,408		73.3		51,725		71.9
Gross margin	$	16,931	26.7	%	$	20,256	28.1	%

AMI Division
Revenues	$	7,551	100.0	%	$	5,628	100.0	%
Cost of sales	1,419		18.8		1,634		29.0
Gross margin	$	6,132	81.2	%	$	3,994	71.0	%

(1)	Percentages may not add due to rounding.
(2)	Amounts revised. See Note 8 of Notes to Condensed Consolidated Financial Statements.

Revenue by service activity was as follows (in thousands):

	Three Months Ended Dec. 31,					Nine Months Ended Dec. 31,
	2007		2006			2007		2006
Order processing fees	$	2,362	$	2,590		$	5,814	$	6,823
Transaction fees	14,033		16,464		(1)	41,788		47,547		(1)
Sell-through fees	3,227		3,715			10,693		11,599
DRS fees	1,387