**UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D. C. 20549**

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**FORM 10-K**
| x | ** ** | **ANNUAL REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|---|------------|-----------------------------------------------------------------------------------------------------|

 

**For theFiscal Year Ended: March 31, 2006**

**OR**
| o | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|---|------------|---------------------------------------------------------------------------------------------------------|

 

**CommissionFile Number: 0-15159**

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**RENTRAKCORPORATION**(Exact name of registrantas 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**

# Securities registeredpursuant to Section 12(b) of the Act: **None**

Securities registered pursuant to Section 12(g) of the Act: **Common Stock, $0.001 par value**

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Indicateby check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405of the Securities Act: Yes o   No x

Indicateby check mark if the Registrant is not required to file reports pursuant to Section 13or Section 15(d) of the Act: Yes o   No x

Indicateby check mark whether the Registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theRegistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes x   No o

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the bestof Registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K, or anyamendment to this Form 10-K. o

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

| Large accelerated  filer o |   | Accelerated  filer x |   | Non-accelerated  filer o |
|---------------------------------|--------|---------------------------|--------|-------------------------------|

 

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

Theaggregate market value of the voting and non-voting common equity held bynon-affiliates, computed by reference to the last sales price ($9.50) asreported by the Nasdaq National Market System, as of the last business day ofthe Registrant’s most recently completed second fiscal quarter (September 30,2005), was $98,543,186.

The number of shares outstanding of the Registrant’s Common Stock as of June 1,2006 was 10,719,310 shares.

**Documents Incorporated by Reference**

TheRegistrant has incorporated into Part III of Form 10-K, byreference, portions of its Proxy Statement for its 2006 Annual Meeting ofShareholders.

 

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**RENTRAKCORPORATION2006 FORM 10-K ANNUAL REPORTTABLE OF CONTENTS**
|            | ** ** | ** **                                                                                                          | ** ** | ** ** | ** ** |
|------------|------------|---------------------------------------------------------------------------------------------------------------------|------------|------------|------------|
|       |       | **PART I**                                                                                                     |       |       |       |
| Item 1.    |       | Business                                                                                                            |       |       |       |
| Item 1A.   |       | Risk Factors                                                                                                        |       |       |       |
| Item 1B.   |       | Unresolved  Staff Comments                                                                                          |       |       |       |
| Item 2.    |       | Properties                                                                                                          |       |       |       |
| Item 3.    |       | Legal Proceedings                                                                                                   |       |       |       |
| Item 4.    |       | Submission  of Matters to a Vote of Security Holders                                                                |       |       |       |
|       |       | **PART II**                                                                                                    |       |       |       |
| Item 5.    |       | Market  for Registrant’s Common Equity, Related Stockholder Matters and Issuer  Purchases of Equity Securities |       |       |       |
| Item 6.    |       | Selected  Financial Data                                                                                            |       |       |       |
| Item 7.    |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                         |       |       |       |
| Item 7A.   |       | Quantitative  and Qualitative Disclosures About Market Risk                                                         |       |       |       |
| Item 8.    |       | Financial  Statements and Supplementary Data                                                                        |       |       |       |
| Item 9.    |       | Changes in and  Disagreements With Accountants on Accounting and Financial Disclosure                               |       |       |       |
| Item 9A.   |       | Controls and  Procedures                                                                                            |       |       |       |
| Item 9B.   |       | Other Information                                                                                                   |       |       |       |
|       |       | **PART III**                                                                                                   |       |       |       |
| Item 10.   |       | Directors and  Executive Officers of the Registrant                                                                 |       |       |       |
| Item 11.   |       | Executive  Compensation                                                                                             |       |       |       |
| Item 12.   |       | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters                    |       |       |       |
| Item 13.   |       | Certain  Relationships and Related Transactions                                                                     |       |       |       |
| Item 14.   |       | Principal  Accountant Fees and Services                                                                             |       |       |       |
|       |       | **PART IV**                                                                                                    |       |       |       |
| Item 15.   |       | Exhibits and  Financial Statement Schedules                                                                         |       |       |       |
| Signatures |       |                                                                                                                |       |

 

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**PART I**

**ITEM 1.**                    BUSINESS

**Forward Looking Statements**

Certain information included in thisAnnual Report on Form 10-K (including Management’s Discussion andAnalysis of Financial Condition and Results of Operations regarding revenuegrowth, gross profit margin and liquidity) constitutes forward lookingstatements that involve a number of risks and uncertainties. Forward lookingstatements may be identified by the use of forward looking words such as “may,”“will,” “expects,” “intends,” “anticipates,” “estimates” or “continues” or thenegative thereof or variations thereon or comparable terminology. Ourforward-looking statements are based on our current expectations and aresubject to numerous risks and uncertainties. As such, our actual futureresults, performance or achievements may differ materially from the resultsexpressed in, or implied by, our forward-looking statements. Please refer toItem 1A. Risk Factors in this Annual Report on Form 10-K. We assumeno future obligation to update our forward-looking statements or to provideperiodic updates or guidance.

**Where YouCan Find More Information**

We file annual, quarterly and otherreports, proxy statements and other information with the Securities andExchange Commission (“SEC”) under the Securities Exchange Act of 1934 asamended (“Exchange Act”). We also make available, free of charge on ourwebsite at www.rentrak.com, our annual report on Form 10-K,quarterly reports on Form 10-Q, current reports on Form 8-K,and amendments to those reports filed or furnished pursuant to Section 13(a) or15(d) of the Exchange Act as soon as reasonably practicable after they arefiled electronically with the SEC. You can also obtain paper copies of thesereports, without charge, by contacting Investor Relations at (503) 284-7581.

###### **Overview**

Priorto April 1, 2005, we operated in one business segment, Entertainment.Effective April 1, 2005, we implemented a new corporate structure, whichincludes separate Pay-Per-Transaction (“PPT”) and Advanced Media andInformation (“AMI”) operating divisions and, accordingly, we are now reportingcertain financial information by individual segment under this new structure.

Our PPT Division focuses on managing our businessoperations that facilitate the delivery of home entertainment content productsand related rental and sales information for that content to home video specialty stores and otherretailers, including grocery stores and convenience stores (“Retailers”),on a revenue sharing basis. Our PPTDivision generated 87%, 88% and 84% of total revenues in fiscal 2006, 2005 and2004, respectively.

Our AMI Division concentrates on the management andgrowth of our Essentials SuiteTM of business intelligence services, which are nolonger in the development stage, as well as operating our direct revenuesharing (“DRS”) services. Our Essentials SuiteTM software and services,offered primarily on a recurring subscription basis, provides uniquedata collection, management, analysis and reporting functions, resulting inbusiness intelligence information valuable to our clients. Our DRS servicescollect, track, audit and report the results of certain retailers’ directrevenue sharing activity to our suppliers under established agreements, on afee for service basis. Our AMI Division generated 11%, 11% and 9% of total revenues in fiscal2006, 2005 and 2004, respectively.

**PPT Division**

We collect, process, analyzeand report rental and sales information of digital videodiscs (“DVDs”),videocassettes (“VHSs”) and video games (collectively “Units”)subleased/sublicensed to Retailers. We lease product from various suppliers.Under our PPT System, Retailers that rent Units to consumers generally subleaseUnits and other media from Rentrak, usually for a low initial fee and share aportion of each retail rental transaction with us.

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***Pay-Per-Transaction System***

We distribute Units principallyto Retailers through our PPT System. The PPT System has various productprograms which enable Retailers to obtain Units at a significantly loweroverall cost than if they purchased the Units from traditional videodistributors.

After the Retailer is approvedfor participation in the PPT System, Units are subleased to the Retailer,generally for a low initial fee plus a percentage of revenues generated by theRetailer from rentals to consumers. We retain a portion of most fees and remitthe remainder to the appropriate motion picture studios or other licensee orowner of the rights to certain video programming content or video gamepublishers (“Program Suppliers”) that hold the distribution rights to theUnits. Due to the lower cost of “bringing Units in the door,” Retailersgenerally obtain a greater number of Units under the PPT System than they wouldif they purchased Units directly from a distributor. The intended benefit tothe Retailer is a higher volume of rental transactions, as well as a reductionin capital cost and risk. The intended benefit to the Program Supplier is anincrease in the total number of Units shipped, resulting in increased revenuesand opportunity for profit. The intended benefit to the consumer is thepotential of finding more copies of certain newly released hit titles and agreater selection of other titles at Retailers participating in the PPT System(“Participating Retailers”).

***Marketing and Relationships with Program Suppliers***

Wecurrently market our PPT System throughout the United States and Canada. Weoffer titles from a number of Program Suppliers including, but not limited to:DreamWorks, LLC; First Look Studios; Genius Products, Inc.; Lions GateFilms, Inc.; Maple Pictures Corp; MGM Home Entertainment, Inc.;Paramount Home Entertainment, Inc.; Sony Pictures Home Entertainment, Inc.;Twentieth Century Fox Home Entertainment, Inc.; and Warner Brothers,including Warner Home Video, Inc., HBO, New Line Cinema, TNT and LightyearEntertainment. Our arrangements with our Program Suppliers are of varyingduration, scope and formality. In some cases, we have obtained Units pursuantto contracts or arrangements with Program Suppliers on a title-by-title basisand in other cases the contracts or arrangements provide that all titlesreleased for distribution by such Program Supplier will be provided to us forthe PPT System. Many of our agreements with Program Suppliers may be terminatedupon relatively short notice. Therefore, there is no assurance that any of theProgram Suppliers will continue to distribute Units through the PPT System,continue to have available for distribution titles which we can distribute on aprofitable basis, or continue to remain in business. Even if titles areotherwise available from Program Suppliers, there is no assurance that theywill be made available on terms acceptable to us. During the last three years,we have not experienced any material difficulty acquiring suitable Units forour markets on acceptable terms and conditions from Program Suppliers.

During fiscal 2006, 2005 and 2004, we had severalProgram Suppliers that supplied product in excess of 10% of our total revenuesas follows:

|                    | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------------|------------|----------|------------|----------|------------|----------|------------|
| Program Supplier 1 |       | 24       | %          | 36       | %          | 20       | %          |
| Program Supplier 2 |       | 16       | %          | 4        | %          | 5        | %          |
| Program Supplier 3 |       | 14       | %          | 13       | %          | 10       | %          |
| Program Supplier 4 |       | 5        | %          | 6        | %          | 13       | %          |
| Program Supplier 5 |       | n/a      |       | 1        | %          | 13       | %          |

 

There were no other Program Suppliers who provided product thatgenerated 10% or more of our total revenues for the years ended March 31,2006, 2005 or 2004. Although management does not believe that our relationshipswith significant current Program Suppliers will be terminated in the near term,a loss of any of these suppliers could have a material adverse effect on ourfinancial condition, results of operations and liquidity.

Certain ProgramSuppliers have requested, and we have provided, financial or performance commitments,including advances or guarantees, as a condition of obtaining certain titles.We determine whether to provide such commitments on a case-by-case basis,depending upon the Program Supplier’s success with such titles prior to homevideo distribution and our assessment of expected success in home rentaldistribution. 

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We currently have suchguarantees with four Program Suppliers totaling approximately $2.7 million forfiscal 2007.

***SignificantCustomers***

We had one PPT customer that accounted for 19% and 14% of our totalrevenues in fiscal 2005 and 2004, respectively. The agreement with this PPTcustomer expired in September 2004. There were no other customers thataccounted for 10% or more of our total revenue in fiscal 2006, 2005 or 2004.

***Distribution of Cassettes, DVDs and VideoGames***

Our proprietaryRentrak Profit Maker Software (the “RPM Software”) and Video RetailerEssentials Software (the “VRE Software”) allow Participating Retailers to orderUnits through their Point of Sale (“POS”) system and provide the ParticipatingRetailers with substantial information regarding all offered titles. Orderingoccurs via a networked computer interface (RPM Software) or over the Internet(VRE Software). To further assist the Participating Retailers in ordering, wealso produce a monthly product catalog (“Ontrak”).

To be competitive,Participating Retailers must be able to rent their Units on the “street date”announced by the Program Supplier for the title. We contract with a third-partyfulfillment provider to distribute our Units via both ground and overnight aircourier to assure continued delivery to Participating Retailers on or prior tothe street date. The handling and freight costs of such distribution wereapproximately 3.8% of our cost of sales in fiscal 2006.

***Computer Operations***

To participate in our PPTSystem, Participating Retailers must install Rentrak-approved computer softwareand hardware to process all of their rental and sale transactions. Our RPMSoftware resides on the Participating Retailer’s POS computer system andtransmits a record of PPT transactions to us over a telecommunications network.The RPM Software also assists the Participating Retailer in ordering newlyreleased titles and in managing its inventory of Units.

Our information systemprocesses these transactions and prepares reports for Program Suppliers andParticipating Retailers. In addition, it determines variations from statisticalnorms for potential audit action. Our information system also transmitsinformation on new titles and confirms orders made via the RPM Software at theParticipating Retailer location.

***Auditing of Participating Retailers***

From time to time, we auditParticipating Retailers in order to verify that they are reporting all rentalsand sales of Units on a consistent, accurate and timely basis. Severaldifferent types of exception reports are produced weekly. These reports aredesigned to identify any Participating Retailers whose PPT business activityvaries from our statistical norms. Depending upon the results of our analysisof these reports, we may conduct an in-store audit. Audits may be performedwith or without notice and any refusal to allow such an audit can be cause forimmediate termination from the PPT System. If audit violations are found, the ParticipatingRetailer is subject to fines, audit fees, immediate removal from the PPT Systemand/or repossession of all leased Units.

***Seasonality***

We believe that the home videoindustry is somewhat seasonal because Program Suppliers tend to introduce theatricalhit titles for movies at two periods of the year, early summer and Christmas.Since the release of movies to home video usually follows the theatricalrelease by approximately four to five months (although significant variationsoccur on certain titles), the seasonal peaks of movies for home video alsogenerally occur in early summer and at Christmas. We believe our volume ofrental transactions and resulting revenues and earnings reflect, in part, thisseasonal pattern. However, changes in Program Suppliers’ titles 

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available to ParticipatingRetailers and us may obscure any seasonal effect.

***Competition***

The PPT Division continues to be affected bythe changing dynamics in the home video and game rental market. This market ishighly competitive, rapidly changing and influenced greatly by consumerspending patterns and behaviors. The end consumer has a wide variety of choicesfrom which to select their entertainment content. Some examples include rentingUnits of product from our Participating Retailers, ordering product direct viaonline subscriptions and/or online distributors, subscribing to at-home moviechannels, purchasing and owning the Unit directly or selecting an at-home “pay-per-view”option. Our PPT system focuses on the traditional “brick and mortar” retailerserviced by a distributor on a wholesale basis: for example, a Retailerpurchases Units from a distributor and then offers the Units for rental or saleto the general public. As described in greater detail above, our PPT Systemoffers Participating Retailers an alternative method of obtaining Units.Accordingly, we face intense competition from all of the traditionaldistributors, including Ingram Entertainment, Inc., Video ProductDistributors, Inc. and Entertainment One. These and other traditionaldistributors have extensive distribution networks, long-standing relationshipswith Program Suppliers and Retailers, and, in some cases, significantly greaterfinancial resources than us.

In the past,certain traditional distributors offered Units to Retailers on a revenuesharing basis. To our knowledge, only one does so today on a very limitedbasis. This distributor executed a licensing agreement with SuperComm, Inc.(“SuperComm”), now a wholly-owned subsidiary of Sony Pictures Home Entertainment, Inc.(“Sony”), to market product on revenue sharing terms. Domestically, SuperCommalso processes data for Sony’s direct relationships with Blockbuster, MovieGallery and several other Retailers. 

We also facedirect competition from the Program Suppliers. All major Program Suppliers sellUnits directly to major Retailers, including Blockbuster, the world’s largestchain of home video specialty stores, and to online movie rental subscriptionservices, such as Netflix. We believe many of the major Program Suppliers havedirect revenue sharing arrangements with Blockbuster and Movie Gallery, theworld’s second largest chain of home video specialty stores, includingHollywood Entertainment. We also believe that certain Program Suppliers haveexecuted direct revenue sharing agreements with several other large Retailersand online movie rental subscription services. We do not believe that theProgram Suppliers have executed direct revenue sharing agreements with othersmaller Retailers, but there can be no assurance that they will not do so inthe future.

We also competewith businesses that use alternative distribution methods to provide videoentertainment directly to consumers, such as the following: (1) onlinemovie rental subscription services (2) direct broadcast satellitetransmission systems; (3) traditional cable television systems; (4) pay-per-viewcable television systems; (5) video-on-demand, or VOD; and (6) deliveryof programming via the Internet. Technological improvements in any of thesedistribution methods as well as lower pricing models may make these optionsmore attractive to consumers and thereby materially diminish the demand forUnit rentals. Such a consequence could have a material adverse effect on ourresults of operations and financial condition.

***Formovies.com***

Formovies.com is a website designed by us anddedicated to assist consumers in finding a local video store where they canrent and/or purchase the video products they want. Consumers can find aparticular movie of their choice by searching on various attributes of thattitle. Once found, they can then determine the closest video store that carriesthat product.

**AMI Division**

The AMI Division concentrates on expanding the customerbase of our Essentials SuiteTM of business intelligence services offeredprimarily on a recurring subscription basis, as well as operating our DirectRevenue Sharing (“DRS”) services.

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***Essentials SuiteTM***

Currently included in theEssentials SuiteTM are the following:

·                  Box OfficeEssentialsTM for reporting domesticand international gross receipt theatrical ticket sales; and

·                  HomeVideo EssentialsTM for reporting VHS,DVD and game rentals across the U.S. and Canada.

***BoxOffice EssentialsTM***

Box OfficeEssentialsTM primarily reportsdomestic and international theatrical gross receipt ticket sales to motionpicture studios and movie theater owners (“BOE clients”). Through Box OfficeEssentialsTM, Rentrak provides BOEclients with access to box office performance data pertaining to specificmotion pictures and movie theater circuits, both real-time and historical. Datais currently collected for virtually all movie theaters in North America, Guamand Puerto Rico and is primarily obtained via electronic connectivity totheater box offices. BOE clients include Buena Vista, Twentieth Century Fox,New Line Cinema, Paramount Pictures, Sony, Universal and Warner Bros.

Box OfficeEssentials continues to expand internationally. The international customer basewill initially focus on the international distributor community, much as thedomestic service successfully targeted motion picture studios in Hollywood,California. In order to successfully implement our current expansion plan, wewill require more information technology resources to support the compilationof data content from various territories throughout the world as well as ourdata processing center located in our Portland office.

Our primarycompetitor is Nielsen EDI, which is a service of Nielsen Entertainment and partof VNU Media Measurement & Information. A principal difference betweenour products and our competitor’s is our use of technology to drive contentacquisition and real-time data polling from content providers. Since the marketin which we operate is comprised of a small number of major customers, clientrelations and retention are critical. Our competitor has significantly greaterfinancial resources than us, brand name recognition and long-standingrelationships with our BOE clients. These factors may enable our competition tosurpass our technological advancements, which could have a material adverseeffect on our ability to grow this line of business as well as on our resultsof operations and financial condition.

***HomeVideo Essentials*****TM**

HomeVideo EssentialsTM measuresDVD, VHS and video game rentals from both retailers and online channels acrossNorth America at the point-of-sale (POS). Home Video EssentialsTM covers approximately 70% of the videospecialty retailers within the United States and 90% within Canadianterritories. Clients have 24/7 web-access to current weekly market andtitle-level projection data on consumer spending and activity. Additionally,our systems capture historical data dating back to 2001.

Clients of HomeVideo EssentialsTM include all thehome entertainment divisions of the major and mini-major Hollywood studios suchas Warner Home Video, Buena Vista Home Entertainment, Paramount/DreamWorks HomeEntertainment, Universal Studios Home Entertainment, Sony Pictures HomeEntertainment, 20th Century Fox Home Entertainment, New Line CinemaHome Entertainment and Lions Gate Entertainment. Microsoft Corporation is aclient with respect to video game data.

Duringthe past fiscal year, Home Video EssentialsTM expanded its service by creating a newvertical service offering, which provides primary, custom and syndicatedresearch on the U.S. home video rental market. This new research service hasallowed the Home Video EssentialsTMclient base to expand into New York by providing data to Wall Street analysts;clients include JPMorgan, Citigroup, UBS and Wachovia Securities.

HomeVideo EssentialsTM issuccessfully branded, having its weekly information published in VideoBusiness, Daily Variety, Home Media Retailing, Billboard Magazine, USA Today,New York Times online and Entertainment Weekly.

Ourprimary competitors are Adams Media Research (“AMR”) and Home Media RetailingResearch (“HMRR”). AMR models its data based upon Home Video EssentialsTM data published in Video Business, 

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oneof the home video industry’s leading trade magazines. The industry’s othertrade magazine, Home Media Retailing, publishes its own data on the rentalmarket obtained from its in-house research department, HMRR. A principaldifference between our services and those of our competitors is our use ofreal-time data polling from content providers. Our competitors may havesignificantly greater financial resources than us. This factor may enable ourcompetition to surpass our technological advancements, which could have amaterial adverse effect on our ability to grow this line of business, as wellas a similar effect on our results of operations and financial condition.

***DRS***

Our DRS service is tailored to meet the needs of majorstudios (20th Century Fox Home Entertainment, Paramount Pictures HomeEntertainment, Warner Home Video, etc.) and major independent program suppliers(Lions Gate Films, Genius Products, etc.) (collectively “DRS clients”) whoprovide home entertainment content directly to large brick-and-mortar andonline retailers (Blockbuster Entertainment, Movie Gallery, Netflix, etc.)(collectively “DRS retailers”) on a revenue sharing basis. For each DRSclient, we collect, process, audit, summarize and report the number of rentaland previously viewed sales transactions and corresponding retail revenuegenerated on each title distributed to each DRS retailer on a revenue sharingbasis. Additionally, Rentrak conducts periodic physical audits of DRS retailersto insure all DRS inventory is utilized in a manner consistent with the termsof its revenue sharing arrangement with our DRS client.

Our only direct competitor is SuperComm, Inc., asmall subsidiary of Sony Pictures Home Entertainment (“SPHE”). SuperComm wasoriginally founded in 1991 as a third-party revenue sharing provider to thesupermarket segment of the home entertainment business. It was later sold toSPHE, which now relies on it for the services (collection, auditing, analysis,configuring and reporting of data) it requires to manage its DRS relationships.We do not believe that SuperComm provides DRS services to any homeentertainment content providers other than SPHE.

There are a numberof risks that may adversely affect the size and profitability of our DRSbusiness. First and foremost, our business is dependent on the studios/ProgramSuppliers maintaining DRS relationships with the largest brick-and-mortar andonline retailers. Should content providers end their DRS relationships, theywould have no need for our DRS service. Secondly, our current DRS clients coulddecide to invest the resources necessary to recreate the services we provide,and therefore eliminate us as a third-party service provider. Thirdly, SPHEcould decide to invest significant resources to improve SuperComm’s serviceoffering, and take away one or more of our DRS clients. Lastly, should theoverall size of the home entertainment rental market contract significantly,and/or the large brick-and-mortar and online retailers’ share of the overallrental market decline significantly, the amount of data we process and audit onbehalf of our DRS clients would also be reduced, which would result in acorresponding decrease in our DRS revenues.

**Other Division**

The Other Division includes revenue and expenses relating to productsand/or services which are still in early stages, as well as corporate expensesand other expenses which are not allocated to a specific division. Included inthe Other Division as of March 31, 2006 were the following:

·                  OnDemand EssentialsTM that measures viewership of on demandcontent in the cable and broadband industries;

·                  Retail EssentialsTM for use by studios, game publishers andretailers for reporting DVD, VHS and video game sales across North America; and

·                  SupplyChain EssentialsTM for use byRetailers for supply chain management. It provides real-time, Web-based accessto inventory, order entry, supplier communications, and shipment and trackingactivity.

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***On Demand EssentialsTM***

OnDemand EssentialsTM is the first of a new line of patentpending products designed to measure and report anonymous video ondemand (“VOD”) usage data. Participating distributors in the service representover 53% of VOD enabled homes and over 70% of all on demand content. We haveagreements with and collect data from the following operators: Comcast,Insight, Cablevision, Charter and Bresnan Communications. We have begun testingdata sources from a sixth distributor and are now working to add data from thesecond tier cable multiple system operators (“MSOs”).

Our OnDemand EssentialsTM Content Provider site is a transactionaltracking and uniform, flexible reporting system that enables users to view andanalyze on-demand content across all cable MSOs with whom we have agreements inplace. As of April 2006, we had a total of 29 clients for the service,including cable networks and studios distributing on demand content to cablecompanies.

To date, we are the onlyservice measuring VOD at the transaction level. Nielsen Media Research hasannounced plans to track VOD; however, we believe their model will continue tobe a sampling model in comparison to our transactional model.

In March 2006, weintroduced a new module, AdEssentials Tracker. This service is designed totrack advertising on demand. Over the next twelve to eighteen months, we expectto launch two additional modules.

During the first quarter of fiscal 2007, we plan to moveOnDemand EssentialsTM to the AMIDivision.

***RetailEssentialsTM***

Retail EssentialsTMprimarily reports North American national consumer sales estimations of DVDs,VHSs and Universal Media Disks (“UMDs”) to motion picture studios and retailers(“RE clients”). Through Retail EssentialsTM, we provide RE clients with accessto national consumer sales estimates at the industry level, by format and at thetitle level. Data is collected from thousands of retail locations in NorthAmerica via weekly data feeds and projected nationally. Prospective clients forRetail EssentialsTM include motion picture studios, talent agencies, productioncompanies and others.

Retail EssentialsTMhas been in development for two years and is expected to commercially launch inthe summer of 2006. Additionally, we expect to move Retail EssentialsTM to theAMI Division during the first quarter of fiscal 2007.

***Supply Chain EssentialsTM***

SupplyChain EssentialsTM (“SCE”) is supply chain managementsoftware developed by Rentrak which allows clients to manage the flow ofproducts and funds at every point in the supply chain until the product reachesthe consumer. We host the software for customers’ access under an applicationservice provider’s model and license its use. A typical client for SCE is anycompany that receives orders (business to business or business to consumer),maintains warehouses and issues purchase orders to vendors.

Companieslike SAP, Oracle, Manhattan Associates, High Jump and Red Prairie already offerlogistics and supply chain software. To various degrees, these types ofsoftware solutions require specialized personnel and IT infrastructure with arelatively high initial investment, making the solution cost prohibitive forsmaller to mid-sized companies. Since we host our software, our clientsgenerally pay a monthly service fee which is significantly lower than ourcompetitors’ pricing and makes our offering more attractive to a broader rangeof customers. Furthermore, our software provides web presence to traditionalretail companies, known as “brick and mortar” companies, as well as integrationto their existing software infrastructure.

Weare targeting our potential clients though both direct sales and strategicalliances with established logistics and supply chain entities. Our solution isdeveloped in house and it does not depend on any third party code. It supportsvarious databases and it integrates with the clients’ existing software. Additionally,our solution can be customized to meet the clients’ needs without losingnecessary functionality.

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During the first quarter of fiscal 2007, we plan to moveSupply Chain Management Essentials to the AMI Division.

**Trademarks, Copyrights and Proprietary Rights**

We have registeredour “RENTRAK,” “PPT,” “Pay Per Transaction,” “Entertainment Essentials,” “BoxOffice Essentials,” “Home Video Essentials,” “Supply Chain Essentials,” “OnDemand Essentials,” “Video Game Essentials,” “ForMovies,” “ForMovies.com,” “DigiTrak,”“Ontrak,” “Fastrak,” “RPM,” “Videolink+,” “Active Home Video,” “Movie Wizard,” “GottaHave It Guarantee” and other marks under federal trademark laws. We haveapplied and obtained registered status in several foreign countries for many ofour trademarks. We have filed applications to register additional marks in the “Essentials”trademark family. Our trademark registrations will remain valid for anunlimited period, as long as we continue using the trademarks in commerce or aslong as we intend to resume use of the mark during any period of non-use. Weclaim a copyright on our RPM Software and consider it to be proprietary. Wehave also filed notice and claim a copyright on our Essentials software. Ourcopyright in our software will last for at least 95 years from the first saleor licensing of the software. Our trademarks, copyrights, and other proprietaryrights give us the power to prevent competitors from competing with usunfairly. We believe that our intellectual property is important to ourmarketing efforts and the competitive value of our services and we intend totake appropriate action to halt any infringement and protect against improperusage.

**Employees**

As of March 31, 2006,including all subsidiaries, we employed 201 full-time employees and 32part-time employees. We consider our relations with our employees to be good.

**Financial Information About Industry Segments**

See Note 16 of Notes to theConsolidated Financial Statements for information regarding our businesssegments and revenue by product line.

**Geographic Information**

All of our revenues aregenerated within the United States and Canada, with Canada accounting for lessthan 10% of total revenues. All of our long-lived assets are located within theUnited States.

**ITEM 1A.**           RISK FACTORS

# ***If our efforts to attract, retain and grow our base ofretailers participating in our PPT system are not successful, our operationsmay be adversely affected.***

The success of ourPPT Division depends on traditional “brick and mortar” retailers activelyparticipating in our PPT System. Declines in the numbers of ParticipatingRetailers and the volumes of Units leased by Participating Retailers from uscould ultimately lead to reductions in revenue and have an adverse impact onour results of operations, financial condition and cash flows.

# ***Our Participating Retailers could establish relationshipswith Program Suppliers and enter into direct revenue sharing agreements.***

If ourParticipating Retailers formed direct revenue sharing relationships withProgram Suppliers, the need for our PPT system would be greatly reduced, whichcould have an adverse impact on our business, financial condition andliquidity.

9

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***Ifthe financial stability of our Participating Retailers and their performance oftheir obligations under our PPT System declines, our results of operations,financial condition and cash flows may be adversely impacted.***

Our ultimatesuccess is highly dependent on the successful operations of our ParticipatingRetailers. If their business declines due to changes in customer behavior,competition, management issues or other factors, they may be unable to meettheir financial obligations to us. This could negatively affect our results ofoperations, financial condition and cash flows.

***Aloss of a significant Program Supplier, our ability to retain our base ofParticipating Suppliers along with the quality and volumes of content theyprovide, and adverse changes in terms of our revenue sharing agreements withProgram Suppliers could result in a decline in revenues and results ofoperations and have an adverse impact on our financial condition.***

We rely on ourProgram Suppliers for Units we sublease to Participating Retailers. A decreasein the number of Program Suppliers participating in our system, a decline inthe financial stability of our Program Suppliers and/or a decline in thequality and volume of the content they produce could result in a reduction inoverall Units available to Participating Retailers. Additionally, many of ouragreements with Program Suppliers may be terminated upon relatively shortnotice. Therefore, there is no assurance that any of the Program Suppliers willcontinue to distribute Units through the PPT System, continue to have titlesavailable which we can distribute on a profitable basis, or continue to remainin business. Even if titles are otherwise available from Program Suppliers,there is no assurance that they will be made available on terms acceptable tous. A loss of any of our significant suppliers or a change in any one of theabove conditions could have a material adverse effect on our financialcondition, results of operations and liquidity.

# ***If our efforts to attract, retain and grow our base ofclients who subscribe to our EssentialsTM services are not successful, we maynot be able to expand those lines and our operations may be adversely affected.***

The success of ourAMI Division depends on effective marketing, sales and customer relations inregards to existing services as well as our clients’ acceptance of futureenhancements and new services. If we are unable to retain existing clientsand/or secure new clients, our operating costs may exceed our revenues, whichcould have an adverse impact on our results of operations, financial conditionand liquidity.

***Wemay be unable to obtain requisite data and other content to source our systemswhich provide our EssentialsTM services.***

Our EssentialsTM**services rely on data which is collected from a widevariety of sources. Once received, the data must be reviewed, processed and, attimes, converted to our required file format. If we are unable to obtainquality data feeds and/or process that data timely, we may not be able to meetthe needs of our clients. Thus, we could lose clients, which would have anadverse impact on our ability to grow our EssentialsTM**linesof business, which could have an adverse impact on our results of operations,financial condition and liquidity.

***OurEssentialsTM services are highly dependent on Information Technology resources.***

If we are unableto attract, hire and retain high quality information technology personnel atreasonable rates, we may not be able to timely meet the needs of existingclients and may not be able to enhance existing services or develop new linesof business. This could have an adverse effect on our results of operations,financial condition and liquidity.

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***OurDRS business is dependent on the studios maintaining direct revenue sharingrelationships with the largest brick-and-mortar and online retailers.***

We currentlycollect, process, audit, summarize and report transactional data relating torental and sales activity of Units at very large traditional and onlineretailers who have revenue sharing agreements directly with major studios. Achange in these relationships or declines in general in the overall size of thehome entertainment rental market could potentially reduce the need for ourservices and the quantity of data we process, which would result in acorresponding reduction in our DRS revenues, our results of operations,financial condition and liquidity.

***Weface intense competition in the markets in which we operate.***

Some of ourcompetitors have extensive distribution networks, long-standing relationshipswith our suppliers and customers, stronger brand name recognition andsignificantly greater financial resources than us. These factors may enable ourcompetition to have increased bargaining and purchasing power relating toresources which could enable them to operate in a more cost effective mannerand/or to surpass our technological advancements. This could have a materialadverse effect on our results of operations, financial condition and ourability to grow our lines of business.

# ***Our business is greatly influenced by 1) technologicaladvancements, 2) consumer behaviors and demand and 3) changes in theindustries in which we operate.***

The markets in which our divisions operate arehighly competitive, rapidly changing and influenced greatly by consumerspending patterns and behaviors. The end consumer has a wide variety of choicesfrom which to select their entertainment content. Some examples include rentingUnits of product from our Participating Retailers, ordering product directlyvia online subscriptions and/or online distributors, subscribing to at-homemovie channels, purchasing and owning the Unit directly or selecting an at-home“pay-per-view” option. Our systems primarily rely on the end consumer choosingto obtain Units from traditional “brick and mortar” retailers. Technologicaladvancements, changes in distribution methods as well as lower pricing modelsmay make other options more attractive to consumers and thereby materiallydiminish the demand for obtaining Units via traditional retailers. Such aconsequence could have a material adverse effect on our results of operationsand financial condition.

***Ourservices are highly dependent on the effective and efficient usage oftechnology and our overall information management infrastructure.***

If we are unableto acquire, establish and maintain our information management systems to ensureaccurate, reliable and timely data processed in an efficient and cost effectivemanner, we may not be able to meet the needs of existing clients or ourshareholders and may not be able to enhance existing services or develop newlines of business. This could have an adverse effect on our business andlong-term growth.

***Theloss of our executive officers and key employees could have an adverse impacton our business and development initiatives.***

We believe that thedevelopment of our business has been, and will continue to be, dependent oncertain key executives and employees of Rentrak. The loss of any of theseindividuals could have a material adverse effect upon our business anddevelopment, and there can be no assurance that adequate replacements could befound in the event of their unavailability.

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**ITEM 1B.**           UNRESOLVED STAFFCOMMENTS

None.

**ITEM 2.**                    PROPERTIES

Wemaintain our headquarters in Portland, Oregon where we lease 48,800 square feetof office space. The lease for this space expires on December 31, 2016. Duringfiscal 2007, we expect to renovate our headquarter offices and will expand ouroccupancy to approximately 55,500 square feet. We also maintain an office inLos Angeles, California where we lease 4,000 square feet of space utilized forour Box Office Essentials business. The lease for this space expires in July 2009.We anticipate that these spaces will be adequate for our business needs for theforeseeable future.

**ITEM 3.**                    PROCEEDINGS

We may from time to time be a party to legal proceedings and claims thatarise in the ordinary course of our business. In the opinion of management, theamount of any ultimate liability with respect to these potential actions is notexpected to materially affect our financial condition or results of operations.We currently have no material outstanding litigation.

**ITEM 4.**                    SUBMISSION OFMATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to avote of our security holders during the fourth quarter of the fiscal yearcovered by this report.

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**PART II**

**ITEM 5.**                    MARKET FORREGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITYSECURITIES

**Stock Price and Dividends**

Our common stock, $.001 parvalue, is traded on the Nasdaq National Market, where its prices are quotedunder the symbol “RENT.” As of June 1, 2006 there were approximately 246holders of record of our common stock.

Thefollowing table sets forth the reported high and low sales prices of our commonstock for each of the quarters in the last two fiscal years as regularly quotedon the Nasdaq National Market System:

| Fiscal 2006 | ** ** | **High** | ** ** | **Low** | ** ** |
|------------------|------------|----------|------------|---------|------------|
| Quarter 1        |       | $        | 11.09      |    | $          | 8.30 |   |
| Quarter 2        |       | 10.00    |       | 8.20    |       |
| Quarter 3        |       | 9.89     |       | 7.83    |       |
| Quarter 4        |       | 11.45    |       | 8.98    |       |
|                  |            |          |            |         |            |  |  |

 

| Fiscal 2005 | ** ** | **High** | ** ** | **Low** | ** ** |
|------------------|------------|----------|------------|---------|------------|
| Quarter 1        |       | $        | 10.18      |    | $          | 8.10 |   |
| Quarter 2        |       | 9.80     |       | 8.38    |       |
| Quarter 3        |       | 13.24    |       | 8.75    |       |
| Quarter 4        |       | 12.64    |       | 9.86    |       |
|                  |            |          |            |         |            |  |  |

 

Holders of our common stock areentitled to receive dividends if, as, and when declared by the Board ofDirectors out of funds legally available therefor, subject to the dividend andliquidation rights of any preferred stock that may be issued.

No cash dividends have beenpaid or declared during the last seven fiscal years. The present policy of theBoard of Directors is to retain earnings to provide funds for operation andexpansion of our business. We do not intend to pay cash dividends in the foreseeablefuture.

Informationregarding securities authorized for issuance under equity compensation plans isincluded in Item 12.

**Issuer Purchases of Equity Securities**

In January 2006,our board of directors adopted a share repurchase program authorizing thepurchase of up to 1,000,000 shares of our common stock. Through March 31,2006, no shares had been repurchased under this plan and 1,000,000 sharesremained available for purchase.

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**ITEM 6.**                    SELECTEDFINANCIAL DATA
| ** **                                                                                                                       | ** ** | **Year Ended March 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|
| **(In thousands, except per share amounts)**                                                            | ** ** | **2006**                                | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| **Statement of Operations Data**                                                                                                 |       |                                    |       |   |   |   | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Revenues:**                                                                                                                    |       |                                    |       |   |   |   |   |   |   |   |   |
| PPT Division                                                                                                                     |       | $                                       | 81,301     |   | $ | 86,806 |   | $ | 65,958 |   | $ | 67,067 |   | $ | 76,517 |   |
| AMI Division                                                                                                                     |       | 10,697                                  |       | 11,174 |   | 7,090 |   | 3,397 |   | 3,957 |   |
| Other Division(1)                                                                                                                |       | 1,396                                   |       | 558 |   | 5,084 |   | 15,420 |   | 15,547 |   |
| Total revenues                                                                                                                   |       | 93,394                                  |       | 98,538 |   | 78,132 |   | 85,884 |   | 96,021 |   |
| **Operating expenses:**                                                                                                          |       |                                    |       |   |   |   |   |   |   |   |   |
| Cost of sales                                                                                                                    |       | 65,287                                  |       | 69,882 |   | 60,090 |   | 71,347 |   | 71,913 |   |
| Selling and  administrative expense                                                                                              |       | 22,065                                  |       | 20,046 |   | 16,357 |   | 14,434 |   | 17,266 |   |
| Net loss (gain)  from litigation settlements                                                                                     |       | —                                  |       | 225 |   | — |   | (362 | ) | (1,563 | ) |
| Asset impairment                                                                                                                 |       | —                                  |       | 27 |   | — |   | 844 |   | 424 |   |
| Total operating  expenses                                                                                                        |       | 87,352                                  |       | 90,180 |   | 76,447 |   | 86,263 |   | 88,040 |   |
| Income (loss)  from continuing operations                                                                                        |       | 6,042                                   |       | 8,358 |   | 1,685 |   | (379 | ) | 7,981 |   |
| Other income(2)                                                                                                                  |       | 1,014                                   |       | 322 |   | 233 |   | 179 |   | 7,913 |   |
| Income (loss)  from continuing operations before income tax (provision) benefit and loss from discontinued  operations |       | 7,056                                   |       | 8,680 |   | 1,918 |   | (200 | ) | 15,894 |   |
| Income tax  (provision) benefit                                                                                                  |       | (2,590                                  | )          | (3,437 | ) | (479 | ) | 56 |   | (6,040 | ) |
| Income (loss)  from continuing operations                                                                                        |       | 4,466                                   |       | 5,243 |   | 1,439 |   | (144 | ) | 9,854 |   |
| Loss from  discontinued operations                                                                                               |       | —                                  |       | — |   | (129 | ) | (583 | ) | (792 | ) |
| Net income  (loss)                                                                                                               |       | $                                       | 4,466      |   | $ | 5,243 |   | $ | 1,310 |   | $ | (727 | ) | $ | 9,062 |   |
| Basic income (loss)  per share from continuing operations                                                                        |       | $                                       | 0.42       |   | $ | 0.52 |   | $ | 0.15 |   | $ | (0.02 | ) | $ | 0.95 |   |
| Basic loss per share  from discontinued operations                                                                               |       | —                                  |       | — |   | (0.01 | ) | (0.06 | ) | (0.08 | ) |
| Basic net income (loss)  per share                                                                                               |       | $                                       | 0.42       |   | $ | 0.52 |   | $ | 0.14 |   | $ | (0.08 | ) | $ | 0.87 |   |
| Diluted income  (loss) per share from continuing operations                                                                      |       | $                                       | 0.40       |   | $ | 0.49 |   | $ | 0.14 |   | $ | (0.02 | ) | $ | 0.93 |   |
| Diluted loss per share  from discontinued operations                                                                             |       | —                                  |       | — |   | (0.01 | ) | (0.06 | ) | (0.07 | ) |
| Diluted net income  (loss) per share                                                                                             |       | $                                       | 0.40       |   | $ | 0.49 |   | $ | 0.13 |   | $ | (0.08 | ) | $ | 0.85 |   |
| Shares used in  per share calculations:                                                                                          |       |                                    |       |   |   |   |   |   |   |   |   |
| Basic                                                                                                                            |       | 10,575                                  |       | 10,081 |   | 9,600 |   | 9,641 |   | 10,415 |   |
| Diluted                                                                                                                          |       | 11,047                                  |       | 10,592 |   | 10,119 |   | 9,641 |   | 10,613 |   |

 
| ** **                | ** ** | **March 31,** | ** ** |
|---------------------------|------------|--------------------|------------|
| ** **                | ** ** | **2006**           | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| **Balance Sheet Data**    |       |               |       |   |   |   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Working capital           |       | $                  | 30,907     |   | $ | 25,802 |   | $ | 14,633 |   | $ | 11,485 |   | $ | 12,515 |   |
| Total assets              |       | 54,328             |       | 45,083 |   | 36,203 |   | 31,488 |   | 40,094 |   |
| Long-term  liabilities    |       | —             |       | 51 |   | 235 |   | 668 |   | 496 |   |
| Stockholders’ equity |       | 35,481             |       | 29,933 |   | 18,796 |   | 16,047 |   | 18,116 |   |
|                           |            |                    |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)             Other Divisionrevenue in fiscal 2004, 2003 and 2002 primarily represents revenue from ourfulfillment center, 3PF.com, which was sold in fiscal 2004.

(2)             Otherincome in fiscal 2002 includes an $8.0 million gain related to Rentrak Japantransactions, including the sale of our entire interest in Rentrak Japan stockin fiscal 2002.

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**ITEM 7.**                    MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

**Business Trends**

EffectiveApril 1, 2005, we implemented a new corporate structure, which includesseparate Pay-Per-Transaction (“PPT”) and Advanced Media and Information (“AMI”)operating divisions and, accordingly, we are now reporting certain financialinformation by individual segment under this new structure.

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

Our AMI Division concentrates on the management andgrowth of our Essentials SuiteTM ofbusiness intelligence services, which are no longer in the development stage,as well as operating our direct revenue sharing (“DRS”) services. OurEssentials SuiteTM software andservices, offered on a recurringsubscription basis, provide unique data collection, management, analysisand reporting functions, resulting in business intelligence informationvaluable to our clients. Our DRS services collect, track, audit and report the results toour suppliers under established agreements on a fee for service basis.

*The PPT Division*

The financial results from thePPT Division continue to be affected by the changing dynamics in the home videoand game rental market. This market is highly competitive and influencedgreatly by consumer spending patterns and behaviors. The end consumer has awide variety of choices from which to select their entertainment content. Someexamples include renting Units of product from our Participating Retailers,ordering product direct via online subscriptions and/or online distributors,subscribing to at-home movie channels, purchasing and owning the unit directlyor selecting an at-home “pay-per-view” option. Our PPT system focuses on thetraditional “brick and mortar” retailer. We believe that our systemsuccessfully addresses the many choices available to consumers and enables ourParticipating Retailers the opportunity to stock their stores with a widerselection of titles and a greater supply of popular box office releases. Mostof our arrangements are structured so that most Participating Retailers payminimal upfront fees and lower per transaction fees in exchange for orderingall Units offered by a particular Program Supplier (referred to as “output”programs). Since these programs usually result in more overall Units rented,our Retailers’ revenue and the corresponding share with the studios haveincreased. These programs are, in part, an economic response to the changingdynamics of the home video rental market. We expect the growth of these outputprograms to continue, and believe that they will be financially beneficial forthe Participating Retailers, Program Suppliers and us.

Our base of ParticipatingRetailers continues to be strong. We had one Participating Retailer thataccounted for $19.1 million, or approximately 19%, of total revenues in fiscal2005 and $11.0 million, or approximately 14%, of total revenues in fiscal 2004.Our agreement with this Participating Retailer expired in September 2004and we have not received, nor do we expect to receive, any appreciable revenuefrom this Participating Retailer in fiscal 2006 or future periods. We areimplementing strategies to obtain new Participating Retailers and ProgramSuppliers in an effort to further stabilize and grow our overall PPT revenueand earnings streams.

We continue to be in goodstanding with all of our Program Suppliers and we make on-going efforts toenhance those business relationships through improvement of current servicesoffered and the development of new service offerings. We are also continually seekingto develop business relationships with new Program Suppliers. In September 2003,we entered into a combined DVD/VHS revenue sharing program with one of theworld’s largest studios that has resulted in their becoming our largest ProgramSupplier representing 24%, 36% and 20% of our total revenues in fiscal 2006,2005 and 2004, respectively. The

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percentage decrease in totalrevenues related to this Program Supplier was primarily due to the loss of themajor Participating Retailer noted above. Also, in November, 2005, based on oursuccessful involvement with another major studio in Canada, we entered into arevenue sharing agreement which extends product offerings to ParticipatingRetailers in the United States. This agreement was effective for titlesreleased beginning in January 2006. This will allow our U.S. ParticipatingRetailers access to the large volume of high quality entertainment that thismajor studio has continued to deliver year after year. Additional ProgramSuppliers represented 16%, 14% and 5% of our total revenues in fiscal 2006. Asis typical of our agreements with Program Suppliers, our relationships withthese Program Suppliers may be terminated without cause upon thirty days’written notice by either party.

*AMI and Other Divisions*

We are also allocatingsignificant resources towards our business intelligence service offerings, boththose services that are currently operational as well as those that are invarious stages of development. Our suite of business intelligence services hasbeen well received in the various targeted markets to date, as our offeringsfit well with the needs identified by those market participants. Our Box Office Essentialsä and Home VideoEssentialsä business intelligenceservice offerings, which are fully operational and no longer in significantstages of development, saw revenue increases of 8.2% and 35.7%, respectively,during fiscal 2006 compared to fiscal 2005. We intend to continue to invest inour existing, as well as new, business intelligence services in the near-termas we expand the markets we serve and our service lines, which likely willlower our earnings. Longer-term, we believe these services will providesignificant future revenue and earnings streams and contribute to our overallsuccess.

**Sources of Revenue**

Revenue by segment includes the following:

*PPT Division*

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

·                  transaction fees generated when retailers rentUnits to consumers; additionally, certain arrangements include guaranteedminimum revenues from our customers. We recognize the guaranteed minimumrevenue on the street date in accordance with Statement of Position 00-2, “Accounting by Producers orDistributors of Films,” (“SOP 00-2”) provided all other revenuerecognition criteria are met;

·                  sell-through fees generated when retailers sellUnits to consumers;

·                  buy-out fees generated when retailers purchaseUnits at the end of the lease term;

·                  communication fees when retailers’ point-of-salesystems are connected to our information system; and

·                  charges for Internet services provided by oursubsidiary, Formovies.com.

*AMI Division*

·                  direct revenue sharing fees from data tracking andreporting services provided to Program Suppliers (“DRS”);

·                  revenues from Box Office EssentialsTM and

·                  revenues from Home Video EssentialsTM.

*Other Division*

·                  OnDemand EssentialsTM;

·                  Supply Chain EssentialsTM;

·                  Retail EssentialsTM; and

·                  revenue relating to other products and/or serviceswhich are still in the development stage.

**Sale of3PF.COM**

In June 2003,we signed a definitive agreement to sell substantially all of the assets of 3PFat the Wilmington, Ohio operation for $0.8 million. The agreement covered allequipment and leasehold improvements at 3PF’s leased distribution facility inWilmington, Ohio, as well as a portion of its working capital. As part of theagreement, 3PF, as lessee, and Rentrak, as guarantor, were released from the 

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lease. The cashpurchase price of $0.8 million was approximately equal to the net book value ofthe assets sold. We completed this asset sale transaction effective July 1,2003, and received the cash purchase price in full. The operations of 3PF havenot been reported as discontinued operations in accordance with FASB Statement No. 144,“Accounting for the Impairment or Disposal of Long-Lived Assets,” because cashflows related to our fulfillment activities have not been completelyeliminated.

During the salenegotiations, we received notification from 3PF’s largest customer, servicedexclusively from the leased distribution facility in Columbus, Ohio, that itdid not intend to renew its fulfillment service contract upon the scheduledexpiration at July 31, 2003. The Columbus, Ohio distribution facility wasused exclusively to service this customer. Due to the timing of thenotification, we were not able to include the Columbus, Ohio distributionfacility lease in the asset sale transaction. We completed the termination ofthe lease obligation for the Columbus, Ohio distribution facility, effective December 1,2003, for a cost of $0.7 million, which was included as a component of cost ofsales in our statement of operations. This lease termination included theassignment of the sublease 3PF had in place with its former largest customerfor approximately 194,000 square feet of this facility. 

**Investigation and Recovery Efforts Regarding Misappropriated Funds**

In March 2004,we learned that an employee may have engaged in fraudulent activity and wehired an outside firm to investigate the matter. The employee admitted to embezzlingfunds from us. It was determined that the employee had been embezzling fundsfrom 1998 through 2003, in amounts totaling approximately $0.6 million. Theinvestigation of this matter is complete. Other than $62,000 in underreportedsales taxes, the embezzlement funds were materially expensed in the year suchfunds were embezzled. We secured certain assets belonging to this employee,which, in conjunction with insurance proceeds, provided us with recoveries ofapproximately $0.4 million in fiscal 2005, and were recorded as a reduction ofselling and administrative expense. We incurred a total of approximately $0.2million of legal and other professional fees related to this matter, which wereexpensed in fiscal 2005.

**Results of Operations**
| ** **                                                                                                  | ** ** | **Year Ended March 31,(1)** | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                                  | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| **(Dollars in thousands)**                                                                        | ** ** | **Dollars**                                | ** ** | **% of  revenues** | ** ** | **Dollars** | ** ** | **% of  revenues** | ** ** | **Dollars** | ** ** | **% of  revenues** | ** ** |
| Revenues:                                                                                                   |       |                                       |       |   |   |   |   |   |   |   |   |   |   |
| PPT Division                                                                                                |       | $                                          | 81,301     |   | 87.1 | % | $ | 86,806 |   | 88.1 | % | $ | 65,958 |   | 84.4 | % |
| AMI Division                                                                                                |       | 10,697                                     |       | 11.5 |   | 11,174 |   | 11.3 |   | 7,090 |   | 9.1 |   |
| Other Division                                                                                              |       | 1,396                                      |       | 1.5 |   | 558 |   | 0.6 |   | 5,084 |   | 6.5 |   |
|                                                                                                        |       | 93,394                                     |       | 100.0 |   | 98,538 |   | 100.0 |   | 78,132 |   | 100.0 |   |
| Operating  expenses:                                                                                        |       |                                       |       |   |   |   |   |   |   |   |   |   |   |
| Cost of sales                                                                                               |       | 65,287                                     |       | 69.9 |   | 69,882 |   | 70.9 |   | 60,090 |   | 76.9 |   |
| Selling and administrative                                                                                  |       | 22,065                                     |       | 23.6 |   | 20,046 |   | 20.3 |   | 16,357 |   | 20.9 |   |
| Net loss on litigation settlement                                                                           |       | —                                     |       | — |   | 225 |   | 0.2 |   | — |   | — |   |
| Asset impairment                                                                                            |       | —                                     |       | — |   | 27 |   | — |   | — |   | — |   |
|                                                                                                        |       | 87,352                                     |       | 93.5 |   | 90,180 |   | 91.5 |   | 76,447 |   | 97.8 |   |
| Income from  operations                                                                                     |       | 6,042                                      |       | 6.5 |   | 8,358 |   | 8.5 |   | 1,685 |   | 2.2 |   |
| Other income (expense):                                                                                     |       |                                       |       |   |   |   |   |   |   |   |   |   |   |
| Interest income                                                                                             |       | 1,016                                      |       | 1.1 |   | 333 |   | 0.3 |   | 244 |   | 0.3 |   |
| Interest expense                                                                                            |       | (2                                         | )          | — |   | (11 | ) | — |   | (11 | ) | — |   |
|                                                                                                        |       | 1,014                                      |       | 1.1 |   | 322 |   | 0.3 |   | 233 |   | 0.3 |   |
| Income from  continuing operations before income tax provision and loss from discontinued  operations  |       | 7,056                                      |       | 7.6 |   | 8,680 |   | 8.8 |   | 1,918 |   | 2.5 |   |
| Income tax  provision                                                                                       |       | 2,590                                      |       | 2.8 |   | 3,437 |   | 3.5 |   | 479 |   | 0.6 |   |
| Income from  continuing operations before loss from discontinued operations                                 |       | 4,466                                      |       | 4.8 |   | 5,243 |   | 5.3 |   | 1,439 |   | 1.8 |   |
| Loss from  discontinued operations, net of tax                                                              |       | —                                     |       | — |   | — |   | — |   | (129 | ) | (0.2 | ) |
| Net income                                                                                                  |       | $                                          | 4,466      |   | 4.8 | % | $ | 5,243 |   | 5.3 | % | $ | 1,310 |   | 1.7 | % |

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(1)             Percentagesmay not add due to rounding.

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Certain results of operations information by segmentwas as follows:
| ** **                           | ** ** | **Year Ended March 31,(1)** | ** ** |
|--------------------------------------|------------|--------------------------------------------|------------|
| ** **                           | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| **(Dollars in thousands)** | ** ** | **Dollars**                                | ** ** | **% of  segment  revenues** | ** ** | **Dollars** | ** ** | **% of  segment  revenues** | ** ** | **Dollars** | ** ** | **% of  segment  revenues** | ** ** |
| **PPT  Division**                    | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues                             |       | $                                          | 81,301     |   | 100.0 | % | $ | 86,806 |   | 100.0 | % | $ | 65,958 |   | 100.0 | % |
| Cost of sales                        |       | 63,714                                     |       | 78.4 |   | 68,848 |   | 79.3 |   | 54,023 |   | 81.9 |   |
| Gross margin                         |       | $                                          | 17,587     |   | 21.6 | % | $ | 17,958 |   | 20.7 | % | $ | 11,935 |   | 18.1 | % |
|                                 |       |                                       |       |   |   |   |   |   |   |   |   |   |   |
| **AMI  Division**                    | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues                             |       | $                                          | 10,697     |   | 100.0 | % | $ | 11,174 |   | 100.0 | % | $ | 7,090 |   | 100.0 | % |
| Cost of sales                        |       | 1,096                                      |       | 10.2 |   | 1,034 |   | 9.2 |   | 834 |   | 11.8 |   |
| Gross margin                         |       | $                                          | 9,601      |   | 89.8 | % | $ | 10,140 |   | 90.8 | % | $ | 6,256 |   | 88.2 | % |
|                                 |       |                                       |       |   |   |   |   |   |   |   |   |   |   |
| **Other  Division**                  | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues                             |       | $                                          | 1,396      |   | 100.0 | % | $ | 558 |   | 100.0 | % | $ | 5,084 |   | 100.0 | % |
| Cost of sales                        |       | 477                                        |       | 34.2 |   | - |   | - |   | 5,233 |   | 102.9 |   |
| Gross margin                         |       | $                                          | 919        |   | 65.8 | % | $ | 558 |   | 100.0 | % | $ | (149 | ) | (2.9 | )% |

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(1)             Percentagesmay not add due to rounding.

***Revenue***

Revenue decreased$5.1 million, or 5.2% to $93.4 million in fiscal 2006 compared to $98.5 millionin fiscal 2005 and increased $20.4 million, or 26.1%, in fiscal 2005 comparedto $78.1 million in fiscal 2004.

The decrease inrevenue in fiscal 2006 compared to fiscal 2005 was primarily due to decreasesin transaction fees and sell-through fees, partially offset by increases inorder processing fees and our Essentials Suiteä of business intelligence services as describedmore fully below.

Increases intransaction processing fees and sell-through fees, as well as increases in ourEssentialsTM and DRS service offerings, contributed to the increase in revenuein fiscal 2005 compared to fiscal 2004. The increases in transaction processingand sell-through fees were due in large part to a relationship with a majorProgram Supplier beginning in September 2003. The increases were offset inpart by decreases in order processing fees, which resulted from changes to ouroutput programs as discussed below. In addition, fiscal 2005 was affected by a$4.6 million decrease in revenue related to our fulfillment business, whichceased operations as of July 31, 2003.

*PPT Division*

PPT revenuesdecreased $5.5 million, or 6.3% in fiscal 2006 compared to fiscal 2005 andincreased $20.8 million, or 31.6% in fiscal 2005 compared to fiscal 2004.Detail of our PPT Division revenue by service line was as follows (inthousands):

 
| **Year Ended March 31,** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|-----------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Order processing  fees                  |       | $        | 7,546      |     | $          | 5,015    |       | $ | 7,972 |   |
| Transaction fees                        |       | 59,062   |       | 64,335   |       | 46,398   |       |
| Sell-through  fees                      |       | 13,714   |       | 16,323   |       | 10,309   |       |
| Communication  fees                     |       | 830      |       | 977      |       | 1,066    |       |
| Other                                   |       | 149      |       | 156      |       | 213      |       |
|                                    |       | $        | 81,301     |     | $          | 86,806   |       | $ | 65,958 |   |

 

The decrease infiscal 2006 compared to fiscal 2005 was primarily due to decreases intransaction fees and sell-through fees, offset in part by increases in orderprocessing fees as discussed more fully below.

Order processingfees increased $2.5 million, or 50.5%, in fiscal 2006 compared to fiscal 2005due to a new output program with amajor supplier, which was effective April 1, 2005 and another new outputprogram that was effective in September 2005. The terms of these newagreements, and their utilization by our Participating Retailers during fiscal2006, resulted in higher order processing fees per unit 

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compared with fiscal 2005.  These fees increased to $1.13 per Unit infiscal 2006, compared to $0.64 per Unit in fiscal 2005, resulting in anincrease of $3.3 million. Partially offsetting this increase was a decrease inUnits shipped to 6.6 million Units during fiscal 2006 compared to 7.8 millionUnits in fiscal 2005, which contributed to an approximately $0.8 milliondecrease in revenue based on fiscal 2005 per Unit fees. In fiscal 2005, weshipped 1.5 million Units to a major Participating Retailer whose contractexpired in September 2004. Excluding the impact of this contract, overallUnits shipped to other Participating Retailers increased 5% in fiscal 2006compared to fiscal 2005, primarily due to the addition of the new outputprograms mentioned above.

Order processingfees decreased $3.0 million, or 37.1%, in fiscal 2005 compared to fiscal 2004due to PPT output programs and otherPPT programs under which we agreed with the Program Supplier to charge a lower,or no, order processing fee in exchange for the Participating Retailers’commitment to order an increased total number of Units of all the ProgramSuppliers’ titles.Theseoutput programs, along with a new combined VHS/DVD revenue sharing program witha major Program Supplier, contributed to a 33% increase in total Units shippedduring fiscal 2005 compared to fiscal 2004.

Transaction fees decreased $5.3 million, or 8.2%, in fiscal 2006compared to fiscal 2005. The decreasein transaction fees in fiscal 2006 compared to fiscal 2005 was primarily due tothe loss of a significant Participating Retailer whose contract expired in September 2004,partially offset by increased fees related to the new output programs discussedabove. Fees from this significant participating Retailer were $15.2 million infiscal 2005. Excluding the impact of this Participating Retailer, transactionfees from all other Participating Retailers increased $9.9 million, or 20% infiscal 2006 compared to fiscal 2005.

Transaction fees increased $17.9 million, or 38.7%, in fiscal 2005compared to fiscal 2004. The increasewas primarily due to the increased number of rental transactions at ourParticipating Retailers from our output programs. Approximately $5.1 million ofthis increase was due to a contract with one of our Participating Retailers,which represented approximately 19% of total revenues in fiscal 2005. Excludingthe impact of this Participating Retailer, transaction fees from all otherParticipating Retailers increased approximately 35% in fiscal 2005 compared tofiscal 2004.

Sell-through fees decreased $2.6 million, or 16.0%, in fiscal 2006compared to fiscal 2005. We realized an approximately $4.1 million decrease in sell-through fees due to the lossof the significant Participating Retailer mentioned above. This decrease waspartially offset by a $1.4 million, or 12% increase, due to an increase in thenumber of Units shipped to other Participating Retailers.

Sell-through fees increased $6.0 million, or 58.3%, in fiscal 2005compared to fiscal 2004 primarily due to the overall increase in Units shipped.

*AMI Division*

Revenuesfrom our AMI division decreased $0.5 million, or 4.3%, in fiscal 2006 comparedto fiscal 2005 and increased $4.1 million, or 57.6% in fiscal 2005 compared tofiscal 2004. Our EssentialsTM business intelligence service offerings, whichinclude those services that management considers fully operational and nolonger in significant stages of development, saw revenue increases of $0.5million, or 10.4%, in fiscal 2006 compared to fiscal 2005 and increases of $1.5million, or 55.2%, in fiscal 2005 compared to fiscal 2004. Revenues related toour EssentialsTM business intelligence service offerings have increasedprimarily due to our continued investment in, and marketing of, theseofferings.

Theincrease in our EssentialsTM business intelligence service offerings in fiscal2006 compared to fiscal 2005 was offset by a $0.9 million, or 13.4%, decreasein DRS revenue due to a decrease in the total number of DRS rental transactionsprocessed. This decrease resulted from a decline in the number of DRS rentaltransactions processed for one of our major studios in fiscal 2006 compared tofiscal 2005 due to a change in the relationship between the studio and one ofits direct revenue sharing customers.

DRS revenueincreased $2.6 million, or 59.1%, in fiscal 2005 compared to fiscal 2004 due toan increase in transactions during fiscal 2005 for certain studios underexisting contracts compared to fiscal 2004, as well as new studio contracts.

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*Other Division*

Revenues from our Other Division increased $0.8million, or 150%, in fiscal 2006 compared to fiscal 2005 and decreased $4.5million, or 89%, in fiscal 2005 compared to fiscal 2004. The increase in fiscal2006 compared to fiscal 2005 related primarily to revenue from OnDemand EssentialsTM, which is finalizing its development stage and is expected to be partof our AMI Division beginning in the first quarter of fiscal 2007. The decreasein fiscal 2005 compared to fiscal 2004 was due to ceasing operations of ourfulfillment center, 3PF.com, in fiscal 2004, which was included in theOther Division and represented revenues of $4.6 million in fiscal 2004.

***Cost of Sales***

Costof sales consists of order processing costs, transaction costs, sell-throughcosts, handling and freight costs, and costs associated with certain EssentialsTMbusiness intelligence service offerings. These expenditures represent thedirect costs to produce revenues. Order processing costs, transaction costs andsell through costs represent the amounts due to the Program Suppliers that holdthe distribution rights to the Units. Freight costs represent the cost to pick,pack and ship orders of Units to the Participating Retailers. A portion of theEssentialsTM business intelligence service offerings costs represent costsassociated with the operation of a call center for our Box Office EssentialsTMservices, as well as costs associated with amortizing capitalized internallydeveloped software used to provide the corresponding services and direct costsincurred to obtain, cleanse and process data, and maintain our systems.

Cost of sales decreased $4.6million, or 6.6%, to $65.3 million in fiscal 2006 compared to $69.9 million infiscal 2005 and increased $9.8 million, or 16.3%, in fiscal 2005 compared to$60.1 million in fiscal 2004. Cost of sales as a percentage of revenue was69.9% in fiscal 2006, 70.9% in fiscal 2005 and 76.9% in fiscal 2004.

The decrease in cost of salesin fiscal 2006 compared to fiscal 2005 was primarily due to the decrease inrevenues discussed above. The decrease in cost of sales as a percentage ofrevenue was primarily due to improved margins for the PPT segment, offset bylower margins in the AMI segment, as well as costs associated with revenuesfrom services which are still in the development stage and included in “Other.”The PPT segment experienced lower cost of sales as a percentage of revenueprimarily as a result of the higher order processing fees related to the newoutput programs mentioned above. The higher order processing fees per unit frommost of these new output programs generate minimal corresponding costs, whichresulted in improved margins. The higher costs for the AMI segment primarilyrelated to reduced DRS revenue as well as increased costs associated with theoperation of our call center.

The increase in cost of salesin fiscal 2005 compared to fiscal 2004 was primarily due to the increase inrevenues discussed above. The decrease in cost of sales as a percentage ofrevenue was primarily due to ceasing fulfillment operations in July 2003,which had lower margins, as well as to the increase in revenue from ourhigher-margin EssentialsTM business service offerings as a percentage of our total revenue. Inaddition, cost of sales in fiscal 2004 included a $650,000 charge related tocosts of terminating 3PF’s Columbus, Ohio, facility lease.

***Selling and Administrative***

Sellingand administrative expenses consist primarily of compensation and benefits,development, marketing and advertising costs, legal and professional fees,communications costs, depreciation and amortization of tangible fixed assetsand software, real and personal property leases, as well as other generalcorporate expenses.

Selling and administrativeexpenses increased $2.0 million, or 10.1%, to $22.1 million in fiscal 2006compared to $20.0 million in fiscal 2005 and increased $3.7 million, or 22.6%,in fiscal 2005 compared to $16.4 million in fiscal 2004.

The increase in selling andadministrative expenses in fiscal 2006 compared to fiscal 2005 was primarilydue to a $1.4 million increase in expenditures related to our continuedinvestment in the development and marketing of our EssentialsTM business serviceofferings and a $0.3 million increase in our bonus accrual. Additionally,selling and administrative expenses in fiscal 2006 include a non-cash charge of$0.2 million related to the fair value of stock options granted to aconsultant. These increases were offset in part by lower 

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fees for Sarbanes-Oxley relatedconsulting services in fiscal 2006 compared to fiscal 2005. Additionally, infiscal 2005, we recovered $0.4 million related to an embezzlement, which wasdiscovered in March 2004. Beginning in fiscal 2007, we expect selling andadministrative expense to increase due to the implementation of Statement ofFinancial Accounting Standards No. 123R. See also Note 3 of Notes toConsolidated Financial Statements for a discussion of the statement.

The increase in selling andadministrative expenses in fiscal 2005 compared to fiscal 2004 was primarilydue to an increase of approximately $0.7 million related to our continuedinvestment in the development and marketing of our Essentialsä business serviceofferings noted above, a $0.3 million increase in fiscal 2005 for estimatedbonuses and an increase of approximately $2.1 million in corporate professionalservices related to legal fees, our corporate reorganization and Sarbanes-OxleyAct Section 404 compliance services. In addition, our bad debt expenseincreased $0.5 million in fiscal 2005 compared to fiscal 2004 due to lowerreimbursement by our Program Suppliers under our current contractualarrangements. These increases were offset by a corresponding reduction inexpenses associated with our fulfillment segment, which ceased operations in July 2003,and $0.4 million of recoveries from the embezzlement matter.

***Net Loss on Litigation Settlement***

The net loss on litigationsettlement of $0.2 million in fiscal 2005 relates to the settlement of adisagreement with a fulfillment provider which arose in connection with thesale of our 3PF.Com assets. The $0.2 million includes $0.1 million in damagesand related interest for full settlement of all the claims and thecomplete mutual release from any further obligations of either party and $0.1 million oflegal fees.

***Asset Impairment***

Asset impairment of $27,000 in fiscal 2005 relates tothe write-off of capitalized software development costs for two projects whichmanagement has determined will not be completed and placed in service.

***Interest Income***

Interest income was $1.0million, $0.3 million and $0.2 million, respectively, in fiscal 2006, 2005 and2004. The increases in interest income primarily related to higher interestrates and higher average cash balances in fiscal 2006 compared to fiscal 2005and in fiscal 2005 compared to fiscal 2004. Our average cash, cash equivalentsand short-term marketable securities balance was $25.2 million, $13.6 millionand $8.4 million for fiscal 2006, fiscal 2005 and fiscal 2004, respectively. Wealso purchased $14.8 million of low-risk marketable securities during fiscal2006, which contributed to higher yields on our invested cash. As thesesecurities matured, we reinvested the proceeds in similar securities under thisinvestment program.

***Income Taxes***

Our effective tax rate was 36.7%, 39.6%and 25.0%, respectively, in fiscal 2006, 2005 and 2004. The tax rate in fiscal2004 was positively affected primarily by the benefit of tax intangibleamortization. In addition, our effective tax rate differs from the federalstatutory tax rate primarily due to state income taxes.

***Discontinued Operations***

Discontinued operations include theoperations of BlowOut Video, which consisted of retail store operations for thesale of used Units. Due to the significant increase insell-through activity throughout the industry, the operations of BlowOut Videodid not meet our expectations, and, as a result, during fiscal 2003, weinitiated and completed a plan to discontinue the retail store operations ofBlowOut Video. The plan called for an exit from the stores by the end of fiscal2003, either through cancellation of the lease commitments and liquidation ofassets, or through sale of the stores to a third party. As of March 31,2003, all operations had ceased. In January 2004, we were notifiedby the purchaser of a portion of BlowOut Video’s operations of their intent todefault on a note receivable due to us. As such, we provided an approximate$0.2 million reserve for the remaining balance of this note receivable in thethird quarter of fiscal 2004. This reserve resulted in a reported loss, net oftax benefit, from these discontinued operations of $0.1 million, or $0.01 pershare in fiscal 2004.

***Inflation***

We believe thatthe impact of inflation was minimal on our business in fiscal 2006, 2005 and2004.

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**Liquidity and Capital Resources**

Our sources of liquidityinclude our cash, cash equivalents and marketable securities, cash expected tobe generated from future operations and our $15.0 million line of credit. Basedon our current financial projections and projected cash needs, we believe thatour available sources of liquidity will be sufficient to fund our currentoperations, the continued current development of our business intelligenceservices and other cash requirements through at least March 31, 2007.

Cash and cash equivalentsdecreased $6.3 million to $15.7 million at March 31, 2006 compared to$22.0 million at March 31, 2005. This decrease resulted primarily from$14.8 million used for the purchase of marketable securities and $2.0 millioninvested in property and equipment and internally developed software for ourbusiness intelligence service offerings, which were partially offset by $8.4million provided by operations, $0.5 million received on a note receivable,$0.8 million received on a related party note receivable and $0.7 millionreceived from the issuance of common stock. Our current ratio was 2.6:1.0 at March 31,2006 and 2.7:1.0 at March 31, 2005.

Accounts receivable, net ofallowances, increased $3.9 million to $18.3 million at March 31, 2006compared to $14.4 million at March 31, 2005, due primarily to increasedrevenues in the fourth quarter of fiscal 2006 compared to the fourth quarter offiscal 2005, as a result of increased minimum rental guarantees ofapproximately $2.3 million.

Advances to Program Suppliersdecreased $1.0 million to $0.2 million at March 31, 2006 compared to $1.2million at March 31, 2005. These amounts represent the unearned portion ofguarantees with certain Program Suppliers, offset by reserves for estimatedshortages under the guarantees. Advances to Program Suppliers decreased due tochanges in the terms of recent contracts with our Program Suppliers.

Deferred tax assets, short andlong-term, were $0.4 million at March 31, 2006 compared to $1.1 million atMarch 31, 2005. The reduction in deferred tax assets of $0.7 million wasprimarily related to the utilization of net operating loss carryforwards (“NOLs”)to offset fiscal 2006 income. The remaining deferred tax asset balanceprimarily relates to deferred revenue and various reserves not currentlydeductible for tax purposes.

Note receivable from relatedparty of $0.8 million at March 31, 2005 represented a note receivable fromour former president plus accrued interest pursuant to his January 2005separation agreement. This amount was paid in full on May 4, 2005.

Other current assets decreased$0.4 million to $0.6 million at March 31, 2006 compared to $1.0 million atMarch 31, 2005, due primarily to receiving payments on a note receivablerelating to 3PF. See Note 4 of Notes to Consolidated Financial Statements.

During fiscal 2006, we spent$2.0 million on property and equipment, including $1.4 million for thecapitalization of internally developed software for our business intelligenceservice offerings. We anticipate spending a total of approximately $3.6 millionon property and equipment in fiscal 2007, including approximately $1.6 millionfor the capitalization of internally developed software, primarily for ourbusiness intelligence service offerings. Other capital expenditures in fiscal2007 will be primarily for new computer equipment and accounting software.

Accounts payable increased $3.0million to $15.5 million at March 31, 2006 compared to $12.5 million at March 31,2005 primarily due to the timing of Program Supplier and other vendor payments. Included In accounts payable at March 31,2006 was $2.7 million related to guaranteed minimum rental payments owed toProgram Suppliers compared to $1.3 million at March 31, 2005.

Taxes payable increased $0.7million to $1.0 million at March 31, 2006 compared to $0.3 million at March 31,2005. We utilized the majority of our federal net operating loss taxcarryforwards during fiscal 2005, which resulted in a significantly loweramount to apply towards fiscal 2006.

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We currently have a securedrevolving line of credit for $15.0 million, with a maturity of December 1,2006. Interest on the line of credit is at our choice of either the bank’sprime interest rate minus 0.5 percent or LIBOR plus 2 percent. The credit lineis secured by substantially all of our assets. The line of credit includescertain financial covenants requiring: (1) a consolidated pre-tax incometo be achieved each fiscal quarter of a minimum of $1.00, and consolidatedafter-tax income not less than $1.00 on an annual basis, determined at fiscalyear end; (2) a minimum current ratio of 1.5:1.0, measured quarterly; and (3) amaximum debt-to-tangible net worth ratio of 1.5:1.0, measured quarterly. Basedupon the financial results reported as of, and for the fiscal year and quarterended March 31, 2006, we determined that we were in compliance with thefinancial covenants at March 31, 2006. At March 31, 2006, we had nooutstanding borrowings under this agreement.

**Contractual Payment Obligations**

A summary of our contractual commitments andobligations as of March 31, 2006 was as follows (in thousands):
| ** **                      | ** ** | **Payments Due By Fiscal Period** | ** ** |
|---------------------------------|------------|-------------------------------------------------------|------------|
| **Contractual Obligation** | ** ** | **Total**                                             | ** ** | **2007** | ** ** | **2008 and  2009** | ** ** | **2010 and  2011** | ** ** | **2012 and  beyond** | ** ** |
| Operating leases                |       | $                                                     | 11,386     |   | $ | 546 |   | $ | 2,285 |   | $ | 2,094 |   | $ | 6,461 |   |
| Program Supplier guarantees     |       | 2,733                                                 |       | 2,733 |   | — |   | — |   | — |   |
|                            |       | $                                                     | 14,119     |   | $ | 3,279 |   | $ | 2,285 |   | $ | 2,094 |   | $ | 6,461 |   |

 

**CriticalAccounting Policies and Estimates**

The preparation ofour financial statements requires us to make estimates and judgments thataffect the reported amounts of assets, liabilities, revenues and expenses. Ourestimates are based on historical experience and on various other assumptionsthat are believed to be reasonable under the circumstances, the results ofwhich form the basis for making judgments about the carrying values of assetsand liabilities that are not readily apparent from other sources. Following isa discussion of our critical accounting estimates. See Note 2 of Notes toConsolidated Financial Statements, *Significant AccountingPolicies*, for additional information.

***Allowance forDoubtful Accounts***

Credit limits areestablished through a process of reviewing the financial history and stabilityof each customer. We regularly evaluate the collectibility of accountsreceivable by monitoring past due balances. If it is determined that a customermay be unable to meet its financial obligations, a specific reserve isestablished based on the amount we expect to recover. An additional generalreserve is provided based on aging of accounts receivable and our historicalcollection experience. If circumstances change related to specific customers,overall aging of accounts receivable or collection experience, our estimate ofthe recoverability of accounts receivable could materially change. Ourallowance for doubtful accounts totaled $461,000 and $654,000, respectively, atMarch 31, 2006 and 2005.

***Program SupplierReserves***

Wehave entered into guarantee contracts with certain Program Suppliers providingtitles for distribution under our PPT system. These contracts guarantee theProgram Suppliers minimum payments per Unit shipped that are recoupable basedon revenue-sharing activity. In some cases, these guarantees are paid inadvance. For amounts not paid in advance, we record a liability for the grossamount of the guarantee due to the Program Supplier on the street date inaccordance with Statement of Position 00-2, “Accounting by Producers orDistributors of Films” (“SOP 00-2”). For guarantees paid in advance, theunearned portion of the guarantees is included as Advances to Program Supplierson our consolidated balance sheets. Using historical experience and year todate rental experience for each title, we estimate the projected revenue to begenerated under each guarantee. We have historically been able to reasonablyestimate shortages after 30 to 60 days of rental activity. We then establish aProgram Supplier reserve for titles that are projected to experience a shortageunder the provisions of the guarantee. The Program Supplier reserve is nettedagainst Advances to Program Suppliers on our consolidated balance 

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sheets.We continually review these factors and make adjustments to the reserves asneeded. Actual results could differ from these estimates and could have amaterial effect on the recorded Program Supplier reserves. The balance in thisreserve totaled $0.03 million and $3.2 million, respectively, at March 31,2006 and 2005.

***DeferredTaxes***

We account forincome taxes in accordance with SFAS No. 109, “Accounting for IncomeTaxes.” In accordance with SFAS No. 109, deferred tax assets arise fromthe tax benefit of amounts expensed for financial reporting purposes but notyet deducted for tax purposes and from unutilized tax credits and NOL carryforwards. We evaluate our deferred tax assets on a regular basis to determineif a valuation allowance is required. To the extent it is determined therecoverability of the deferred tax assets is unlikely, we will record avaluation allowance against deferred tax assets. As of March 31, 2006 and2005, we had a valuation allowance of $0.6 million and $0.4 million,respectively, recorded against our Canadian net operating loss carryforwards.Net deferred tax assets totaled $0.4 million and $1.1 million, respectively, asof March 31, 2006 and 2005.

**NewAccounting Pronouncements**

See Note 3 ofNotes to Consolidated Financial Statements for a discussion of the impact ofnew accounting pronouncements.

**Off-BalanceSheet Arrangements**

Other thandisclosed above under Contractual Payment Obligations, we do not have anyoff-balance sheet arrangements that have or are reasonably likely to have acurrent or future effect on our financial condition, changes in financialcondition, revenues or expenses, results of operations, liquidity, capitalexpenditures or capital resources that is material to investors.

**ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK**

We have considered the provisions of FinancialReporting Release No. 48 “Disclosure of Accounting Policies for DerivativeFinancial Instruments and Derivative Commodity Instruments, and Disclosure ofQuantitative and Qualitative Information about Market Risk Inherent inDerivative Financial Instruments, Other Financial Instruments and DerivativeCommodity Instruments.” We had no holdings of derivative financial or commodityinstruments at March 31, 2006.

A review of our other financial instrumentsand risk exposures at March 31, 2006 revealed that we had exposure tointerest rate risk related to our cash deposits and marketable securities. Weutilized sensitivity analyses to assess the potential effect of this risk andconcluded that near-term changes in interest rates should not materiallyadversely affect our financial position, results of operations or cash flows.

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**ITEM8.  FINANCIAL STATEMENTS ANDSUPPLEMENTARY DATA**

**REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

Board of Directors and StockholdersRentrak Corporation

We have audited theaccompanying consolidated balance sheets of Rentrak Corporation as of March 31,2006 and 2005, and the related consolidated statements of income, stockholders’equity, and cash flows for each of the years in the period ended March 31,2006. These financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these financialstatements based on our audits.

We conducted our auditsin accordance with the standards of the Public Company Accounting OversightBoard (United States). Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the financial statements arefree of material misstatement. An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements. Anaudit also includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financialstatement presentation. We believe that our audits provide a reasonable basisfor our opinion.

In our opinion, theconsolidated financial statements referred to above present fairly, in allmaterial respects, the financial position of Rentrak Corporation as of March 31,2006 and 2005 and the results of its consolidated operations and itsconsolidated cash flows for each of the two years in the period ended March 31,2006 in conformity with accounting principles generally accepted in the UnitedStates of America.

Our audits wereconducted for the purpose of forming an opinion on the basic consolidatedfinancial statements taken as a whole. The financial statementschedule listed in the index at Item 15 is presented for purposes ofadditional analysis and is not a required part of the basic financialstatements. This schedule has been subjected to the auditing proceduresapplied in the audit of the basic financial statements and, in our opinion, isfairly stated in all material respects in relation to the basic financial statementstaken as a whole.

We also have audited, inaccordance with the standards of the Public Company Accounting Oversight Board(United States), the effectiveness of Rentrak Corporation’s internal controlover financial reporting as of March 31, 2006, based on criteriaestablished in Internal Control — Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission and our reportdated May 26, 2006 expressed an unqualified opinion thereon.
| /s/ GRANT THORNTON LLP |   |
|------------------------|--------|
|                   |   |
| Portland, Oregon       |   |
| May 26,  2006     |   |

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**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

TheBoard of DirectorsRentrak Corporation:

We have audited the accompanying consolidatedstatements of operations, stockholders’ equity, and cash flows of RentrakCorporation for the year ended March 31, 2004. In connection with ouraudit of the consolidated financial statements, we also have audited thesupplementary information for the year ended March 31, 2004 included inSchedule II. These consolidated financial statements and the consolidatedfinancial statement schedule are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these consolidatedfinancial statements and the consolidated financial statement schedule based onour audit.

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financialstatementsreferredto above present fairly, in all material respects, the results of operationsand cash flows of Rentrak Corporation for the year ended March 31, 2004 inconformity with U.S. generally accepted accounting principles. Also in ouropinion, the related consolidated financial statement schedule, when consideredin relation to the basic consolidated financial statements taken as a whole,presents fairly, in all material respects, the information set forth therein.
| /s/ KPMG LLP       |   |
|--------------------|--------|
|               |   |
| Portland, Oregon   |
| July 9,  2004 |

 

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**RentrakCorporation and SubsidiariesConsolidated Balance Sheets(In thousands, except per share amounts)**
| ** **                                                                                                    | ** ** | **March 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|
| ** **                                                                                                    | ** ** | **2006**           | ** ** | **2005** | ** ** |
|                                                                                                          |       |               |       |   |   |
| **Assets**                                                                                                    | ** ** | ** **         | ** ** | ** ** | ** ** |
| Current Assets:                                                                                               |       |               |       |   |   |
| Cash and cash  equivalents                                                                                    |       | $                  | 15,666     |   | $ | 21,983 |   |
| Marketable securities                                                                                         |       | 14,832             |       | — |   |
| Accounts  receivable, net of allowances for doubtful accounts of $461 and $654                                |       | 18,314             |       | 14,428 |   |
| Advances to  program suppliers, net of program supplier reserves of $32 and $3,246                            |       | 225                |       | 1,185 |   |
| Income tax  receivable and prepaid taxes                                                                      |       | —             |       | 580 |   |
| Deferred income  tax assets                                                                                   |       | 110                |       | 944 |   |
| Notes receivable—related  party                                                                          |       | —             |       | 753 |   |
| Other current  assets                                                                                         |       | 607                |       | 1,028 |   |
| Total Current  Assets                                                                                         |       | 49,754             |       | 40,901 |   |
|                                                                                                          |       |               |       |   |   |
| Property and Equipment,  net of accumulated depreciation of $5,876 and $4,317                                 |       | 3,623              |       | 3,216 |   |
| Deferred Income Tax  Assets                                                                                   |       | 312                |       | 115 |   |
| Other Assets                                                                                                  |       | 639                |       | 851 |   |
| Total Assets                                                                                                  |       | $                  | 54,328     |   | $ | 45,083 |   |
|                                                                                                          |       |               |       |   |   |
| **Liabilities and Stockholders'  Equity**                                                                     | ** ** | ** **         | ** ** | ** ** | ** ** |
| Current Liabilities:                                                                                          |       |               |       |   |   |
| Accounts payable                                                                                              |       | $                  | 15,493     |   | $ | 12,470 |   |
| Taxes payable                                                                                                 |       | 972                |       | 345 |   |
| Accrued liabilities                                                                                           |       | 532                |       | 366 |   |
| Accrued  compensation                                                                                         |       | 1,366              |       | 1,539 |   |
| Deferred revenue                                                                                              |       | 484                |       | 379 |   |
| Total Current  Liabilities                                                                                    |       | 18,847             |       | 15,099 |   |
|                                                                                                          |       |               |       |   |   |
| Long-Term Obligations:                                                                                        |       |               |       |   |   |
| Lease  obligations and deferred gain                                                                          |       | —             |       | 51 |   |
|                                                                                                          |       |               |       |   |   |
| 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:

10,697 and  10,545 |       | 11                 |       | 10 |   |
| Capital in excess of  par value                                                                               |       | 48,069             |       | 46,988 |   |
| Accumulated other  comprehensive income                                                                       |       | 181                |       | 181 |   |
| Accumulated deficit                                                                                           |       | (12,780            | )          | (17,246 | ) |
| Total Stockholders'  Equity                                                                                   |       | 35,481             |       | 29,933 |   |
| Total Liabilities and  Stockholders' Equity                                                                   |       | $                  | 54,328     |   | $ | 45,083 |   |
|                                                                                                          |       |               |       |   |   |

 

See accompanyingNotes to Consolidated Financial Statements.

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**RentrakCorporation and SubsidiariesConsolidated Income Statements(In thousands, except per share amounts)**
| ** **                                                               | ** ** | **For the Year Ended March 31,** | ** ** |
|--------------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                                               | ** ** | **2006**                                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                                     |       |                                                      |       |   |   |   |   |
| Revenue                                                                  |       | $                                                         | 93,394     |   | $ | 98,538 |   | $ | 78,132 |   |
|                                                                     |       |                                                      |       |   |   |   |   |
| Operating  expenses:                                                     |       |                                                      |       |   |   |   |   |
| Cost of sales                                                            |       | 65,287                                                    |       | 69,882 |   | 60,090 |   |
| Selling and administrative                                               |       | 22,065                                                    |       | 20,046 |   | 16,357 |   |
| Net loss from litigation settlements                                     |       | —                                                    |       | 225 |   | — |   |
| Asset impairment                                                         |       | —                                                    |       | 27 |   | — |   |
|                                                                     |       | 87,352                                                    |       | 90,180 |   | 76,447 |   |
| Income from  operations                                                  |       | 6,042                                                     |       | 8,358 |   | 1,685 |   |
|                                                                     |       |                                                      |       |   |   |   |   |
| Other income  (expense):                                                 |       |                                                      |       |   |   |   |   |
| Interest income                                                          |       | 1,016                                                     |       | 333 |   | 244 |   |
| Interest expense                                                         |       | (2                                                        | )          | (11 | ) | (11 | ) |
|                                                                     |       | 1,014                                                     |       | 322 |   | 233 |   |
|                                                                     |       |                                                      |       |   |   |   |   |
| Income from  continuing operations before income taxes                   |       | 7,056                                                     |       | 8,680 |   | 1,918 |   |
| Provision for  income taxes                                              |       | 2,590                                                     |       | 3,437 |   | 479 |   |
| Income from  continuing operations                                       |       | 4,466                                                     |       | 5,243 |   | 1,439 |   |
| Loss from  discontinued operations, net of tax benefit of $0, $0 and $79 |       | —                                                    |       | — |   | (129 | ) |
| Net income                                                               |       | $                                                         | 4,466      |   | $ | 5,243 |   | $ | 1,310 |   |
|                                                                     |       |                                                      |       |   |   |   |   |
| Basic income per  share from continuing operations                       |       | $                                                         | 0.42       |   | $ | 0.52 |   | $ | 0.15 |   |
| Basic loss per  share from discontinued operations                       |       | —                                                    |       | — |   | (0.01 | ) |
| Basic net income  per share                                              |       | $                                                         | 0.42       |   | $ | 0.52 |   | $ | 0.14 |   |
|                                                                     |       |                                                      |       |   |   |   |   |
| Diluted income  per share from continuing operations                     |       | $                                                         | 0.40       |   | $ | 0.49 |   | $ | 0.14 |   |
| Diluted loss per  share from discontinued operations                     |       | —                                                    |       | — |   | (0.01 | ) |
| Diluted net  income per share                                            |       | $                                                         | 0.40       |   | $ | 0.49 |   | $ | 0.13 |   |
|                                                                     |       |                                                      |       |   |   |   |   |
| Shares used in  per share calculations:                                  |       |                                                      |       |   |   |   |   |
| Basic                                                                    |       | 10,575                                                    |       | 10,081 |   | 9,600 |   |
| Diluted                                                                  |       | 11,047                                                    |       | 10,592 |   | 10,119 |   |
|                                                                     |       |                                                      |       |   |   |   |   |

 

See accompanyingNotes to Consolidated Financial Statements.

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**RentrakCorporation and SubsidiariesConsolidated Statements of Stockholders’ EquityFor the Years Ended March 31, 2006, 2005 and 2004(In thousands, except 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, 2003**                  |       | 9,471,612             |       | $                  | 9          |                       | $          | 39,655          |       | $                 | 181        |       | $          | (23,799 | ) | $ | 16,046 |   |
|                                            |       |                  |       |               |       |                       |       |            |       |              |       |       |       |
| Net income                                      |       | —                |       | —             |       | —                     |       | —          |       | 1,310             |       | 1,310      |       |
| Common stock  issued pursuant to stock plans    |       | 285,519               |       | —             |       | 1,162                      |       | —          |       | —            |       | 1,162      |       |
| Common stock used  to pay for option exercises  |       | (17,594               | )          | —             |       | (113                       | )          | —          |       | —            |       | (113       | )          |
| Income tax  benefit from stock option exercises |       | —                |       | —             |       | 390                        |       | —          |       | —            |       | 390        |       |
| **Balance  at March 31, 2004**                  |       | 9,739,537             |       | 9                  |       | 41,094                     |       | 181             |       | (22,489           | )          | 18,795     |       |
|                                            |       |                  |       |               |       |                       |       |            |       |              |       |       |       |
| Net income                                      |       | —                |       | —             |       | —                     |       | —          |       | 5,243             |       | 5,243      |       |
| Common stock  issued pursuant to stock plans    |       | 522,557               |       | 1                  |       | 2,394                      |       | —          |       | —            |       | 2,395      |       |
| Common stock used  to pay for option exercises  |       | (25,381               | )          | —             |       | (270                       | )          | —          |       | —            |       | (270       | )          |
| Issuance of  common stock                       |       | 308,200               |       | —             |       | 2,774                      |       | —          |       | —            |       | 2,774      |       |
| Income tax  benefit from stock option exercises |       | —                |       | —             |       | 996                        |       | —          |       | —            |       | 996        |       |
| **Balance  at March 31, 2005**                  |       | 10,544,913            |       | 10                 |       | 46,988                     |       | 181             |       | (17,246           | )          | 29,933     |       |
|                                            |       |                  |       |               |       |                       |       |            |       |              |       |       |       |
| Net income                                      |       | —                |       | —             |       | —                     |       | —          |       | 4,466             |       | 4,466      |       |
| 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        |       | $          | (12,780 | ) | $ | 35,481 |   |

 

See accompanyingNotes to Consolidated Financial Statements.

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**RentrakCorporation and SubsidiariesConsolidated Statements of Cash Flows(In thousands)**
| ** **                                                                                         | ** ** | **For the Year Ended March 31,** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                                                                         | ** ** | **2006**                                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Cash  flows from operating activities:**                                                         |       |                                                      |       |   |   |   |   |
| Net income                                                                                         |       | $                                                         | 4,466      |   | $ | 5,243 |   | $ | 1,310 |   |
| Adjustments to  reconcile net income to net cash flows provided by (used in) operating activities: |       |                                                      |       |   |   |   |   |
| Loss on disposal of discontinued operations                                                        |       | —                                                    |       | — |   | 129 |   |
| Gain on disposition of assets                                                                      |       | —                                                    |       | (1 | ) | (95 | ) |
| Tax benefit from stock option exercises                                                            |       | 155                                                       |       | 996 |   | 390 |   |
| Loss of occupancy deposit on lease termination                                                     |       | —                                                    |       | — |   | 400 |   |
| Depreciation and amortization                                                                      |       | 1,587                                                     |       | 1,078 |   | 875 |   |
| Amortization of discount on marketable securities                                                  |       | (181                                                      | )          | — |   | — |   |
| Abandonment of capitalized software projects                                                       |       | —                                                    |       | 27 |   | — |   |
| Adjustment to allowance for doubtful accounts                                                      |       | 1                                                         |       | 28 |   | (320 | ) |
| Deferred income taxes                                                                              |       | 637                                                       |       | 2,303 |   | (45 | ) |
| Options granted to nonemployee                                                                     |       | 179                                                       |       | — |   | — |   |
| (Increase) decrease in:                                                                            |       |                                                      |       |   |   |   |   |
| Accounts receivable                                                                                |       | (3,887                                                    | )          | 934 |   | (5,268 | ) |
| Advances to program suppliers                                                                      |       | 960                                                       |       | 3,003 |   | (2,357 | ) |
| Income taxes receivable and prepaid taxes                                                          |       | 580                                                       |       | (512 | ) | 13 |   |
| Other current assets                                                                               |       | 159                                                       |       | (625 | ) | 761 |   |
| Increase (decrease) in:                                                                            |       |                                                      |       |   |   |   |   |
| Accounts payable                                                                                   |       | 3,063                                                     |       | (2,977 | ) | 2,646 |   |
| Accrued liabilities and compensation                                                               |       | 620                                                       |       | 762 |   | (249 | ) |
| Deferred revenue and other liabilities                                                             |       | 54                                                        |       | (6 | ) | (284 | ) |
| Net cash provided by (used in) operating activities                                                |       | 8,393                                                     |       | 10,253 |   | (2,094 | ) |
|                                                                                               |       |                                                      |       |   |   |   |   |
| **Cash  flows from investing activities:**                                                         |       |                                                      |       |   |   |   |   |
| Purchase of marketable securities                                                                  |       | (14,651                                                   | )          | — |   | — |   |
| Purchase of property and equipment                                                                 |       | (1,966                                                    | )          | (1,806 | ) | (1,598 | ) |
| Proceeds from sale of assets                                                                       |       | —                                                    |       | 1 |   | — |   |
| Purchase of equity investment                                                                      |       | —                                                    |       | (475 | ) | — |   |
| Proceeds from the sale of 3PF assets                                                               |       | —                                                    |       | — |   | 800 |   |
| Note receivable payments received                                                                  |       | 486                                                       |       | 412 |   | 451 |   |
| Other assets, net                                                                                  |       | —                                                    |       | — |   | 132 |   |
| Net cash used in investing activities                                                              |       | (16,131                                                   | )          | (1,868 | ) | (215 | ) |
|                                                                                               |       |                                                      |       |   |   |   |   |
| **Cash  flows from financing activities:**                                                         |       |                                                      |       |   |   |   |   |
| Payments on capital lease obligation                                                               |       | (40                                                       | )          | (36 | ) | (68 | ) |
| Issuance of common stock                                                                           |       | 708                                                       |       | 2,124 |   | 1,049 |   |
| Issuance of common stock to non-employees                                                          |       | —                                                    |       | 2,774 |   | — |   |
| Collection of note receivable, related party                                                       |       | 753                                                       |       | — |   | — |   |
| Net cash provided by financing activities                                                          |       | 1,421                                                     |       | 4,862 |   | 981 |   |
|                                                                                               |       |                                                      |       |   |   |   |   |
| Increase  (decrease) in cash and cash equivalents                                                  |       | (6,317                                                    | )          | 13,247 |   | (1,328 | ) |
|                                                                                               |       |                                                      |       |   |   |   |   |
| **Cash  and cash equivalents:**                                                                    |       |                                                      |       |   |   |   |   |
| Beginning of year                                                                                  |       | 21,983                                                    |       | 8,736 |   | 10,064 |   |
| End of year                                                                                        |       | $                                                         | 15,666     |   | $ | 21,983 |   | $ | 8,736 |   |
|                                                                                               |       |                                                      |       |   |   |   |   |
| **Supplemental  cash flow information:**                                                           |       |                                                      |       |   |   |   |   |
| Cash paid during  the year for interest                                                            |       | $                                                         | 3          |   | $ | 11 |   | $ | 11 |   |
| Cash paid during  the year for income taxes, net of refunds received                               |       | $                                                         | 592        |   | $ | 518 |   | $ | 16 |   |
|                                                                                               |       |                                                      |       |   |   |   |   |

 

See accompanyingNotes to Consolidated Financial Statements.

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**RentrakCorporation and SubsidiariesNotes to Consolidated Financial Statements**

**Note 1. Overview**

Rentrak Corporation is locatedin Portland, Oregon and, as of April 1, 2005, has two operating divisions,the Pay-Per-Transaction (“PPT”) and Advanced Media and Information (“AMI”)divisions as well as an Other Division.

Our PPT Division focuses on managing our businessoperations that facilitate the delivery of home entertainment content products,such as DVDs, VHSs, video games, etc. (“Units”) and related rental and salesinformation to home video specialtystores and other retailers, on a revenue sharing basis. We lease product from various suppliers,typically motion picture studios (“Program Suppliers”). Under our PPT System,retailers (“Participating Retailers”) sublease that product from us and rent itto consumers. Participating Retailers then share a portion of each retailrental transaction with us and the respective studio. Since we collect, processand analyze rental and sales information at the title level, we report thatinformation to both the respective studio and the retailer.

Our AMI Division concentrates on the management andgrowth of our Essentials SuiteTM of business intelligence services, offeredprimarily on a recurring subscription basis which are no longer in thedevelopment stage, as well as operating our direct revenue sharing (“DRS”)services. Our Essentials SuiteTMsoftware and services provide unique data collection, management, analysis andreporting functions, resulting in business intelligence information valuable toour clients. OurDRS services collect, track, audit and report the results of certainretailers’ direct revenue sharing activity to our suppliers under establishedagreements on a fee for service basis.

Our Other Division includes revenue and costs relating toproducts and/or services that are still in early stages as well as corporateand administrative costs.

During fiscal 2004, we sold our subsidiary 3PF.COM, Inc. (“3PF”),which provided order processing and inventory management services to e-tailers,wholesalers and other businesses requiring just-in-time fulfillment. See Note4.

**Note 2. SignificantAccounting Policies**

***Basisof Consolidation***

The consolidated financial statements include the accounts of RentrakCorporation, its majority owned subsidiaries, and those subsidiaries in whichwe have a controlling interest after elimination of all intercompany accountsand transactions.

***ManagementEstimates***

The preparation of financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period. Actual results could differ materially from thoseestimates. We consider our most critical accounting policies to be those thatrequire the use of estimates and assumptions, specifically, accounts receivablereserves, Program Supplier guarantee reserves and judgments regardingrealization of deferred tax assets.

31

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***RevenueRecognition***

We follow SOP 00-2, “Accounting by Producers or Distributors ofFilms,” and recognize revenue when all of the following conditions are met:

·                  Persuasive evidence of an arrangementexists;

·                  The products or services have beendelivered;

·                  The license period has begun (which isreferred to as the “street date” for a product);

·                  The arrangement fee is fixed ordeterminable; and

·                  Collection of the arrangement fee isreasonably assured.

PPT agreements generally provide for an initial order processing feeand continuing transaction fees based on a percentage of rental revenues earnedby the retailers upon renting the Units to their customers. Initial orderprocessing fees cover the direct costs of accessing Units from ProgramSuppliers and handling, packaging and shipping of the Units to the retailer. Oncethe Units are shipped, we have no further obligation to provide services to theretailer.

We recognize order processing fees as revenue on the street date andrecognize transaction fees when the Units are rented to the consumers, providedall other revenue recognition criteria have been met. Certain arrangementsinclude guaranteed minimum revenues from our customers. In these arrangements,we recognize the guaranteed minimum revenue on the street date, provided allother revenue recognition criteria are met.

We recognize other services revenue, including direct revenue sharing (“DRS”)and business intelligence services revenue, ratably over the period of service.

Revenues derived from our 3PF fulfillment activities were recognizedwhen products were shipped and/or services were provided.

***Cash and CashEquivalents***

We consider all highly liquid investments purchased with a maturity ofthree months or less at acquisition to be cash equivalents. We have fundsdeposited in various financial institutions in excess of the federal fundsdeposit insurance limits.

***MarketableSecurities***

We classify our marketable securities as held-to-maturity, and,accordingly, they are reported at amortized cost with earnings included as acomponent of interest income. Dividend and interest income is recognized whenearned. Realized gains and losses are included in earnings and are derivedusing the specific identification method for determining the cost of securitiessold.

We periodically evaluatewhether declines in fair values of our investments below their cost are “other-than-temporary.”This evaluation consists of qualitative and quantitative factors regarding theseverity and duration of the unrealized loss, as well as our ability and intentto hold the investment until a forecasted recovery occurs.

***AccountsReceivable and Allowance for Doubtful Accounts***

Trade accounts receivable are recorded at the invoiced amount and donot bear interest. The allowance for doubtful accounts is our best estimate ofthe amount of probable credit losses in our existing accounts receivable.

32

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***Credit limits areestablished through a process of reviewing the financial history and stabilityof each customer. We regularly evaluate the collectibility of accountsreceivable by monitoring past due balances. If it is determined that a customermay be unable to meet its financial obligations, a specific reserve isestablished based on the amount we expect to recover. An additional generalreserve is provided based on aging of accounts receivable and our historicalcollection experience. If circumstances change related to specific customers,overall aging of accounts receivable or collection experience, our estimate ofthe recoverability of accounts receivable could materially change. We are ableto recover certain bad debts from our Program Suppliers. Such recoveries arerecorded as reductions to expense when they are fixed and determinable pursuantto the Program Supplier contract.***

During 2005, one of our customers filed a petition forrelief under Chapter 7 in the U.S. Bankruptcy Court. The balance this customerowed us on its account was approximately $588,000 and was written off in fiscal2006 and substantially recovered. This had no material impact on net income inthe current period.

***No customeraccounted for 10% or more of our accounts receivable balance as of March 31,2006 or 2005.***

***We do not haveany off-balance sheet credit exposure related to our customers.***

###### ***Fair Value of Financial Assetsand Liabilities***

Weestimate the fair value of our monetary assets and liabilities based uponcomparison of such assets and liabilities to the current market values forinstruments of a similar nature and degree of risk. Our monetary assets andliabilities include cash, marketable securities, accounts and notes receivableand accounts payable. Based on the short-term nature of these instruments, weestimate that the recorded value of all our monetary assets and liabilitiesapproximates fair value as of March 31, 2006 and 2005.

***Impairment ofLong-Lived Assets***

Pursuant to Statement of Financial AccountingStandards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal ofLong-Lived Assets,” long-lived assets, such as property, plant and equipmentand purchased intangibles subject to amortization, are required to be reviewedfor impairment annually or whenever events or changes in circumstances indicatethat the carrying amount of an asset may not be recoverable. Recoverability ofassets to be held and used is measured by a comparison of the carrying amountof an asset to estimated undiscounted future cash flows expected to begenerated by the asset. If the carrying amount of an asset exceeds itsestimated future cash flows, an impairment charge is recognized for the amountby which the carrying amount of the asset exceeds the fair value of the asset.Assets to be disposed of are reported at the lower of the carrying value orfair value less costs to sell, and depreciation ceases. In fiscal 2005, werecorded an impairment charge of $27,000 related to the write-off ofcapitalized software development costs for two projects which managementdetermined would not be completed and placed in service.

***Property andEquipment***

Depreciation of property and equipment is computed on the straight-linemethod over estimated useful lives of three to seven years for furniture and fixtures,three to ten years for equipment and three years for capitalized software.Leasehold improvements are amortized over the lives of the underlying leases orthe service lives of the improvements, whichever is shorter. Property andequipment is reviewed for impairment in accordance with SFAS No. 144 as discussed above.

***Capitalized Software***

Capitalized software, included in Property and Equipment, net, consistsof costs to purchase and develop internal-use software. This also includescosts to develop software for customer use in various services, includingtheatrical data recovery and fulfillment. Amortization of capitalized softwareis computed on a straight-line basis over 3 years. We account for capitalizedsoftware in accordance with Statement of Position (“SOP”) 98-1,*“*Accountingfor the Costs of Computer Software Developed or Obtained for Internal

33

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Use.” Capitalized software is reviewed for impairment inaccordance with SFAS No. 144 as discussed above. See Note 7.

***Income Taxes***

We account forincome taxes in accordance with SFAS No. 109, “Accounting for Income Taxes.” Under the asset and liability method specified by SFAS No. 109,deferred tax assets and liabilities are determined based on the temporarydifferences between the financial statement basis and tax basis of assets andliabilities as measured by the enacted tax rates for the years in which thetaxes are expected to be paid. We evaluate our deferred tax assets on a regularbasis to determine if a valuation allowance is required. To the extent it isdetermined the recoverability of the deferred tax assets is unlikely, we recorda valuation allowance against deferred tax assets. As of March 31, 2006and 2005, we had a valuation allowance of $0.6 million and $0.4 million,respectively, recorded against our Canadian net operating loss carryforwardsand net deferred tax assets totaled $0.4 million and $1.1 million,respectively.

***Program Supplier Reserves***

We have entered intoguarantee contracts with certain Program Suppliers providing titles for distributionunder our PPT system. These contracts guarantee the Program Suppliers minimumpayments per Unit shipped that are recoupable based on revenue-sharingactivity. In some cases, these guarantees are paid in advance. For amounts notpaid in advance, we record a liability for the gross amount of the guaranteedue to the Program Supplier on the street date in accordance with SOP 00-2.For guarantees paid in advance, the unearned portion of the guarantees isincluded as Advances to Program Suppliers on our consolidated balance sheets.Using historical experience and year to date rental experience for each title,we estimate the projected revenue to be generated under each guarantee. We havehistorically been able to reasonably estimate shortages after 30 to 60 days ofrental activity. We then establish a Program Supplier reserve for titles thatare projected to experience a shortage under the provisions of the guarantee.The Program Supplier reserve is netted against Advances to Program Suppliers onour consolidated balance sheets. We continually review these factors and makeadjustments to the reserves as needed. Actual results could differ from theseestimates and could have a material effect on the recorded Program Supplierreserves. The balance in this reserve totaled $0.03 million and $3.2 million,respectively, at March 31, 2006 and 2005.

***Foreign CurrencyTranslation***

Adjustments from translating foreign functional currency financialstatements into U.S. dollars are included in cumulative other comprehensiveincome in the consolidated statement of stockholders’ equity. Transaction gainsand losses that arise from exchange rate fluctuations on transactionsdenominated in a currency other than the local currency are included as acomponent of selling and administrative expenses in our consolidated statementsof operations.

***Earnings Per Share***

Basic net incomeper share (“EPS”) and diluted EPS are computed using the methods prescribed bySFAS No. 128, “Earnings per Share.” Following is a reconciliation of the shares used for the basic EPS anddiluted EPS calculations for fiscal 2006, 2005 and 2004 (in thousands):
| ** **                                                     | ** ** | **Year Ended March 31,** | ** ** |
|----------------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                     | ** ** | **2006**                                | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Basic EPS:**                                                 |       |                                    |       |   |   |   |   |
| Weighted average  number of shares of common stock outstanding |       | 10,575                                  |       | 10,081 |   | 9,600 |   |
| **Diluted EPS:**                                               |       |                                    |       |   |   |   |   |
| Effect of  dilutive stock options                              |       | 472                                     |       | 511 |   | 519 |   |
|                                                           |       | 11,047                                  |       | 10,592 |   | 10,119 |   |

 

Options notincluded in diluted EPS because the exercise price of the options was greaterthan the average market price of the common shares for the period were 0.2million in each of fiscal 2006, 2005 and 2004.

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***Stock-Based Compensation***

We account forstock-based compensation utilizing the intrinsic value method in accordancewith the provisions of Accounting Principles Board Opinion No. 25, “Accountingfor Stock Issued to Employees,” as interpreted by FASB Interpretation No. 44,“Accounting for Certain Transactions Involving Stock Compensation.”  Pursuant to SFAS No. 148 “Accounting forStock-Based Compensation — Transition and Disclosure,” we have computed, forpro forma disclosure purposes, the impact on net income and net income pershare as if we had accounted for our stock-based compensation plans inaccordance with the fair value method prescribed by SFAS No. 123 “Accountingfor Stock-Based Compensation” as follows (in thousands, except per shareamounts):
| **Year Ended March 31,**                                                                                                                 | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Net income, as  reported                                                                                                                                |       | $        | 4,466      |     | $          | 5,243    |       | $ | 1,310 |   |
| Deduct — total  stock-based employee compensation expense determined under the fair value  based method for all awards, net of related tax effects |       | (824     | )          | (860     | )          | (872     | )          |
| Net income, pro  forma                                                                                                                                  |       | $        | 3,642      |     | $          | 4,383    |       | $ | 438 |   |
|                                                                                                                                                    |       |     |       |     |       |     |       |
| Net income per  share — basic, as reported                                                                                                         |       | $        | 0.42       |     | $          | 0.52     |       | $ | 0.14 |   |
|                                                                                                                                                    |       |     |       |     |       |     |       |
| Net income per  share — basic, pro forma                                                                                                           |       | $        | 0.34       |     | $          | 0.43     |       | $ | 0.05 |   |
|                                                                                                                                                    |       |     |       |     |       |     |       |
| Net income per  share — diluted, as reported                                                                                                       |       | $        | 0.40       |     | $          | 0.49     |       | $ | 0.13 |   |
|                                                                                                                                                    |       |     |       |     |       |     |       |
| Net income per share —  diluted, pro forma                                                                                                         |       | $        | 0.33       |     | $          | 0.41     |       | $ | 0.04 |   |

 

To determine thefair value of stock-based awards granted, we used the Black-Scholes optionpricing model and the following weighted average assumptions:
| **Year Ended March 31,** | ** ** | **2006**        | ** ** | **2005**      | ** ** | **2004**      | ** ** |
|-----------------------------------------|------------|-----------------|------------|---------------|------------|---------------|------------|
| Risk-free  interest rate                |       | 4.16% - 4.49%   |       | 4.17% - 4.58% |       | 3.09% - 4.62% |       |
| Expected  dividend yield                |       | 0%              |       | 0%            |       | 0%            |       |
| Expected lives                          |       | 6 - 9 years     |       | 5 - 10 years  |       | 5 - 10 years  |       |
| Expected volatility                     |       | 64.87% - 70.08% |       | 73.09%        |       | 75.54%        |       |

 

Using theBlack-Scholes methodology, the total value of stock awards and options grantedduring fiscal 2006, 2005 and 2004 was approximately $1.0 million, $1.2 million and$1.4 million, respectively, which is amortized on a pro forma basis over thevesting period of the options, typically one to four years. The weightedaverage fair value of stock awards and options granted during fiscal 2006, 2005and 2004 was $7.01 per share, $6.75 per share and $5.33 per share,respectively.

See Note 3 for adiscussion of SFAS No. 123R, “Share-Based Payment,” which requirescompanies to recognize in their statement of operations the grant-date fairvalue of stock options and other equity-based compensation issued to employees.

***AdvertisingExpense***

Advertising costs are expensed as incurred. Expenses incurred totaled approximately $1.2 million, $1.4 million and $1.5 million, respectively, in fiscal 2006, 2005 and 2004. Reimbursements received for direct and indirect expenses totaled approximately $1.3 million, $1.3 million and $1.5 million, respectively, in fiscal 2006, 2005 and 2004.

The advertising reimbursements from Program Suppliers are contractually provided to us to offset expenses incurred in maintaining ongoing marketing programs utilized by our Participating Retailers. A significant amount of these reimbursements are passed through to our Participating Retailers as we reimburse them for their direct expense of local advertising, such as newspaper or radio ads. In addition, 

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the reimbursements offset expenses paid by us to third-party vendors in maintaining programs that indirectly assist Participating Retailers in these marketing efforts. These reimbursements are based on contractual agreements. Contractual terms fluctuate by Program Supplier and the amount of reimbursement tends to be based on the performance of individual movie titles.

Reimbursements provided by a Program Supplier can be “accountable” or “unaccountable.” The Program Supplier provides accountable amounts only to the extent that we provide documentary evidence of the funds paid either to our Participating Retailers directly or paid to third parties. Accountable reimbursements are recorded as a reduction of the same income statement line item, selling and administrative expenses, in which the costs are recorded, which typically occurs in the same accounting period. Unaccountable reimbursements are normally calculated and awarded on a fixed amount per unit of product shipped and do not require substantiation that any payments were made to promote marketing efforts. Unaccountable reimbursements are recognized when units of their associated product are shipped, which is when a majority of the direct or indirect marketing effort and the corresponding expense is incurred, which typically occurs within the same reporting period. Unaccountable reimbursements are classified as reductions to cost of sales on the statement of operations in accordance with Emerging Issues Task Force 02-16, “Accounting by a Reseller for Cash Consideration Received from a Vendor.”

***Comprehensive Income***

Comprehensive income includes charges or credits to equity that are notthe result of transactions with shareholders. Components of our comprehensive incomeconsist of the changes in our cumulative translation adjustment. There was noactivity from our foreign operations for the fiscal years ended March 31,2006, 2005 or 2004 affecting our cumulative translation adjustments.

***Reclassifications***

Certain reclassifications have been made to prior year amounts toconform to the current year presentation.

**Note 3. NewAccounting Pronouncements**

***SFAS No. 123R***

In December 2004, the FASB issued SFAS No. 123R,“Share-Based Payment,” which requires companies to recognize in their statementof operations the grant-date fair value of stock options and other equity-basedcompensation issued to employees. SFAS No. 123R is effective for annualperiods beginning after June 15, 2005. Accordingly, we adopted SFAS No. 123Rin the first quarter of fiscal 2007. We have evaluated the provisions of SFAS No. 123Rand expect that the adoption will have a material impact on our consolidatedresults of operations and earnings per share, as the stock-based compensationexpense will be charged directly against our reported earnings. We estimatethat approximately $1.5 million will be recorded as additional compensationexpense beginning with the quarter ending June 30, 2006 through thequarter ending December 31, 2009, for all options which are outstanding asof March 31, 2006, but which were not yet vested. We will adopt SFAS No. 123Rin the first quarter of fiscal 2007 using the modified prospective transitionmethod and will continue to value stock-based compensation utilizing the Black-Scholesvaluation model. Alternative valuation methods included the Hull-White latticemodel. The adoption of SFAS No. 123R will not have any effect on our cashflows or liquidity as stock-based compensation is a non-cash expense.

***SFAS No. 154***

In May 2005, theFASB issued SFAS No. 154, “Accounting Changes and Error Corrections: areplacement of APB Opinion No. 20 and FASB Statement No. 3,” whichrequires companies to apply most voluntary accounting changes retrospectivelyto prior financial statements. SFAS No. 154 is effective for accountingchanges and corrections of errors made in fiscal years beginning after December 15,2005. Any future voluntary accounting changes made by us will be accounted forunder SFAS No. 154 and will be applied retrospectively.

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***FSP115-1***

In November 2005,the FASB issued Staff Position (“FSP”) 115-1, “The Meaning ofOther-Than-Temporary Impairment and Its Application to Certain Investments.”FSP 115-1 addresses the determination as to when an investment isconsidered impaired, whether that impairment is other-than-temporary and themeasurement of an impairment loss. FSP 115-1 also includes accountingconsiderations subsequent to the recognition of an other-than-temporaryimpairment and requires certain disclosures about unrealized losses that havenot been recognized as other-than temporary impairments. FSP 115-1 amendsSFAS No. 115, “Accounting for Certain Investments in Debt and EquitySecurities,” and SFAS No. 124, “Accounting for Certain Investments Held byNot-for-Profit Organizations,” and Accounting Principles Board Opinion No. 18,“The Equity Method of Accounting for Investments in Common Stock.” We do nothave any investments with other-than-temporary impairments and, accordingly,the adoption of FSP 115-1 did not have any effect on our results ofoperations, financial condition or liquidity.

**Note 4. 3PF**

InJune 2002, 3PF, a former 100% owned subsidiary, entered into an agreementto sublease approximately 194,000 square feet of its distribution facility inColumbus, Ohio to its largest customer. The sublease required monthly rentpayments to 3PF under amounts, terms and conditions similar to 3PF’s masterlease for this facility. Additionally in June 2002, in conjunction withthe facility sublease, 3PF entered into a financing lease with this customerfor the existing equipment within this distribution facility and the associatedcosts for additional equipment to configure the layout to the customer’sspecifications. The lease for the equipment resulted in a note receivable inthe amount of $1.8 million, payable to 3PF in monthly installments. Most of thepayments on this note receivable have been received as scheduled. As of March 31,2006, there was $0.2 million outstanding on this note receivable, all of whichwas included with other current assets on our consolidated balance sheet.

In June 2003, we announced we had signed adefinitive agreement to sell substantially all of the assets of 3PF at theWilmington, Ohio operation, effective July 1, 2003. The operations of 3PFhave not been reported as discontinued operations in accordance with SFAS No. 144,“Accounting for the Impairment or Disposal of Long-Lived Assets,” because cashflows related to our fulfillment activities have not been completelyeliminated. The agreement covered all equipment and leasehold improvements at3PF’s leased distribution facility in Wilmington, Ohio, as well as a portion ofits working capital. As part of the agreement, 3PF as lessee and Rentrak asguarantor have been released from the lease. The cash purchase price of $0.8million, approximately equal to the net book value of the assets sold, wasreceived in full.

During the salenegotiations, we received notification from 3PF’s largest customer, servicedexclusively from the leased distribution facility in Columbus, Ohio, that itdid not intend to renew its fulfillment service contract upon the scheduledexpiration at July 31, 2003. The Columbus, Ohio distribution facility wasused exclusively to service this customer. Due to the timing of this notification,we were not able to include the Columbus, Ohio distribution facility lease inthe asset sale transaction. We completed the termination of the leaseobligation for the Columbus, Ohio distribution facility, effective December 1,2003, for a cost of $650,000, which is included as a component of cost of salesin our consolidated statement of operations. This lease termination includedthe assignment of the sublease 3PF had in place with its former largestcustomer for approximately 194,000 square feet of this facility. 

**Note 5. DiscontinuedOperations**

Due to the significant increase in sell throughactivity throughout the industry, the operations of BlowOut Video did not meetour expectations. As a result, during fiscal 2003, we initiated and completed aplan to discontinue the retail store operations of BlowOut Video. The plancalled for an exit from the stores by the end of fiscal 2003, either throughcancellation of the lease commitments and liquidation of assets, or throughsale of the stores to a third party. As of March 31, 2003, all operationshad ceased.

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InJanuary 2004, we were notified by the purchaser of a portion of BlowOutVideo’s operations of their intent to default on a note receivable due to us. Assuch, we provided an approximate $0.2 million reserve for the remaining balanceof this note receivable in the three-month period ended December 31, 2003.This reserve resulted in a reported loss, net of tax benefit, from thesediscontinued operations of $0.1 million, or $0.01 per share, in fiscal 2004.

**Note 6. MarketableSecurities**

Marketable securities, all of which wereclassified as “held-to-maturity,” consisted of the following (in thousands):
| ** **                        | ** ** | **March 31,** | ** ** |
|-----------------------------------|------------|--------------------|------------|
| ** **                        | ** ** | **2006**           | ** ** | **2005** | ** ** |
| Corporate debt  securities        |       |               |       |   |   |
| Amortized cost                    |       | $                  | 14,832     |   | $ | — |   |
| Gross unrecognized holding gains  |       | 2                  |       | — |   |
| Gross unrecognized holding losses |       | (16                | )          | — |   |
| Aggregate fair  value             |       | $                  | 14,818     |   | $ | — |   |

 

Allof the above securities mature at various dates through September 2006.

**Note 7. Propertyand Equipment**

Property and equipment consisted of the following (inthousands):
| ** **                                      | ** ** | **March 31,** | ** ** |
|-------------------------------------------------|------------|--------------------|------------|
| ** **                                      | ** ** | **2006**           | ** ** | **2005** | ** ** |
| Furniture,  fixtures and computer equipment     |       | $                  | 4,228      |   | $ | 3,644 |   |
| Leasehold  improvements                         |       | 640                |       | 606 |   |
| Capitalized  software(1)                        |       | 4,631              |       | 3,283 |   |
|                                            |       | 9,499              |       | 7,533 |   |
| Less accumulated  depreciation and amortization |       | (5,876             | )          | (4,317 | ) |
|                                            |       | $                  | 3,623      |   | $ | 3,216 |   |

----

(1)          Includes $1.4 million and$1.7 million of capitalized costs associated with software projects which arestill in the application development stage as of March 31, 2006 and 2005,respectively, and, as such, are not being amortized.

As discussed in Note 2, in fiscal 2005, we recorded an impairmentcharge of $0.03 million related to the write-off of capitalized softwaredevelopment costs for two projects which management has determined will not becompleted and placed in service.

Amortization expense related to capitalized software was $1.0 million,$0.5 million and $0.3 million for the years ended March 31, 2006, 2005,and 2004, respectively. Accumulated amortization related to capitalized softwarewas $1.9 million and $0.9 million at March 31, 2006 and 2005, respectively.Amortization expense related to capitalized software no longer in theapplication development stage over the next five fiscal years as of March 31,2006 is as follows (in thousands):
| 2007   |   | $      | 728    |   |
|--------|--------|--------|--------|--------|
| 2008   |   | 473    |   |
| 2009   |   | 67     |   |
| 2010   |   | — |   |
| 2011   |   | — |   |
|   |   | $      | 1,268  |   |

 

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** **

**Note 8. SecuritiesPurchase Agreement**

In November 2004,we entered into a securities purchase agreement to purchase common stock of,and a professional services agreement to receive software development andsupport services from, a privately held company that develops and providesinformation technology solutions for clients in various entertainment industrymarket segments. During fiscal 2005, we paid $25,000 under the professionalservices agreement and, during fiscal 2006, we made a final payment of $25,000under this agreement.

The purchase ofthe securities for $0.5 million was comprised of two elements. The firstelement, which totaled $0.4 million, was paid upon execution of the agreementin November 2004 and the second, which totaled $0.1 million, was paid in March 2005upon completion by the investee of additional software development. Ourpurchase of the common stock represents 4% of the outstanding stock of thiscompany. This investment is carried at historical cost as a component of otherassets on our consolidated balance sheet and will be evaluated quarterly forimpairment. No impairment has been recorded as of March 31, 2006.

**Note 9. Line ofCredit**

We currently have a secured $15.0 million revolving line of credit withWells Fargo Bank, National Association (the “Line of Credit”), which expires December 1,2006. The interest rate on the Line of Credit is calculated at our choice of (a) thebank’s prime interest rate minus 0.5 percent or (b) LIBOR plus2 percent. Certain financial covenants apply as follows: (1) consolidatedpre-tax income must be at least $1.00 for each fiscal quarter, and consolidatedafter-tax income must be at least $1.00 on an annual basis, determined atfiscal year end; (2) our current ratio must be at least 1.5:1.0, measuredquarterly; and (3) our debt-to-tangible net worth ratio must not exceed1.5:1.0, measured quarterly. As of, and through, March 31, 2006, we werein compliance with these covenants. No amounts were outstanding under the Lineof Credit at March 31, 2006.

**Note 10. RelatedParty Transaction**

In February 2005, pursuant to his separation agreement, we loaned Mr. F.Kim Cox, our former President and Secretary, $0.8 million to assist him withexercising a portion of his vested options to purchase shares of our commonstock. The loan bore interest at 2.78% per annum and was repaid in full,including accrued interest, in May 2005.

In addition, we entered into a consulting agreement with Mr. Coxon January 25, 2005 whereby he is assisting us with strategic planning andproduct development issues. Pursuant to the agreement, we will pay Mr. Cox$25,000 per month from February 2005 through March 2007. We paid Mr. Coxa total of $300,000 and $62,000 pursuant to this agreement in fiscal 2006 and2005, respectively.

**Note 11. IncomeTaxes**

Income from continuing operations before income taxesconsisted of the following (in thousands):
| ** ** | ** ** | **Year Ended March 31,** | ** ** |
|------------|------------|-----------------------------------------|------------|
| ** ** | ** ** | **2006**                                | ** ** | **2005** | ** ** | **2004** | ** ** |
| U.S.       |       | $                                       | 7,056      |   | 8,459 |   | $ | 1,686 |   |
| Non-U.S.   |       | —                                  |       | 221 |   | 232 |   |
|       |       | $                                       | 7,056      |   | 8,680 |   | $ | 1,918 |   |

 

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The provision for income taxes from continuingoperations was as follows (in thousands):
| ** **              | ** ** | **Year Ended March 31,** | ** ** |
|-------------------------|------------|-----------------------------------------|------------|
| ** **              | ** ** | **2006**                                | ** ** | **2005** | ** ** | **2004** | ** ** |
| Current tax provision:  |       |                                    |       |   |   |   |   |
| Federal                 |       | $                                       | 1,674      |   | $ | 59 |   | $ | — |   |
| State                   |       | 279                                     |       | 210 |   | 40 |   |
|                    |       | 1,953                                   |       | 269 |   | 40 |   |
| Deferred tax  provision |       | 637                                     |       | 3,168 |   | 439 |   |
|                    |       | $                                       | 2,590      |   | $ | 3,437 |   | $ | 479 |   |

 

The reported provision for income taxes fromcontinuing operations differs from the amount computed by applying the statutoryfederal income tax rate of 34% to income before provision for income taxesas follows (in thousands):
| ** **                             | ** ** | **Year Ended March 31,** | ** ** |
|----------------------------------------|------------|-----------------------------------------|------------|
| ** **                             | ** ** | **2006**                                | ** ** | **2005** | ** ** | **2004** | ** ** |
| Provision  computed at statutory rates |       | $                                       | 2,399      |   | $ | 2,951 |   | $ | 652 |   |
| State taxes, net  of federal benefit   |       | 273                                     |       | 561 |   | 77 |   |
| Amortization of  intangibles           |       | (144                                    | )          | (122 | ) | (122 | ) |
| Change in  valuation allowance         |       | 35                                      |       | 104 |   | (79 | ) |
| Other                                  |       | 27                                      |       | (57 | ) | (49 | ) |
|                                   |       | $                                       | 2,590      |   | $ | 3,437 |   | $ | 479 |   |

 

Deferred tax assets are comprised of the followingcomponents (in thousands):
| ** **                                   | ** ** | **March 31,** | ** ** |
|----------------------------------------------|------------|--------------------|------------|
| ** **                                   | ** ** | **2006**           | ** ** | **2005** | ** ** |
| Current deferred taxes:                      |       |               |       |   |   |
| Net operating loss carryforwards             |       | $                  | —     |   | $ | 865 |   |
| Deferred revenue                             |       | 168                |       | 95 |   |
| Deferred gain                                |       | 20                 |       | 30 |   |
| Alternative minimum tax credits              |       | —             |       | 59 |   |
| Other                                        |       | (78                | )          | (105 | ) |
| Total current deferred taxes                 |       | 110                |       | 944 |   |
|                                         |       |               |       |   |   |
| Non-current deferred  taxes:                 |       |               |       |   |   |
| Depreciation                                 |       | 161                |       | 24 |   |
| Stock-based compensation                     |       | 72                 |       | — |   |
| Deferred gain                                |       | —             |       | 14 |   |
| Net operating and capital loss carryforwards |       | 624                |       | 403 |   |
| Other                                        |       | 79                 |       | 77 |   |
| Total non-current deferred taxes             |       | 936                |       | 518 |   |
| Valuation allowance                          |       | (624               | )          | (403 | ) |
| Net non-current  deferred taxes              |       | 312                |       | 115 |   |
| Net deferred taxes                           |       | $                  | 422        |   | $ | 1,059 |   |

 

Total deferred tax assets were $0.5 million and $1.2 million,respectively, at March 31, 2006 and 2005 and total deferred taxliabilities were $0.1 million and $0.1 million, respectively. The increase(decrease) to our valuation allowance was $0.2 million, $0.1 million and $(0.1)million in fiscal 2006, 2005 and 2004, respectively.

As of March 31, 2006, we have net operating loss carryforwards inCanada totaling $1.3 million, the tax benefit of which has been fully reserved,which expire through 2012. Additionally, we have state net operating andcapital loss carryforwards totaling $3.3 million, the tax benefit of which hasalso been fully reserved.

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In assessing the realizability of deferred tax assets, we considerwhether it is more likely than not that some portion or all of the deferred taxassets will not be realized. The ultimate realization of deferred tax assets isdependent upon the generation of future taxable income during the periods inwhich those temporary differences become deductible. We consider the scheduledreversal of deferred tax liabilities, projected future taxable income and taxplanning strategies in making this assessment. Based on these assessments andconsiderations, we have provided a valuation allowance against our Canadian netoperating loss carryforwards due to expected revenue and income levels from ourCanadian operations in the near term. We also provided a valuation allowanceagainst certain of our state net operating loss and capital loss carryforwardsdue to the lack of expected operating income and capital gains in the near termin those jurisdictions. We anticipate that all other deferred tax assets willbe realized based on future estimated taxable income and have, therefore, notrecorded a valuation allowance against them.

**Note 12. Stockholders’Equity**

***Sale of Common Stock***

On December 21, 2004, we sold 308,200 shares of our common stockto Mr. Mark Cuban in a privately-negotiated, arms-length transaction for$9.00 per share. Total proceeds were $2.8 million. In addition to the 308,200shares purchased from us, Mr. Cuban purchased an additional 191,800 sharesof our common stock at $9.00 per share from eight of our executive officers.All 500,000 shares purchased by Mr. Cuban were restricted securities andsubject to a one-year holding period pursuant to Rule 144 under theSecurities Act of 1933. Mr. Cuban currently has demand registration rightsin the event that he is not able to sell the shares pursuant to Rule 144.

***Share Repurchase Program***

In January 2006,our board of directors adopted a share repurchase program authorizing thepurchase of up to 1.0 million shares of our common stock. Shares may berepurchased from time to time in both open market and privately negotiatedpurchases in such amounts as our authorized officer, Paul Rosenbaum, Chairman,President and Chief Executive Officer, deems appropriate. The timing and actualnumber of shares repurchased will depend on a variety of factors, includingprice, corporate and regulatory requirements and other market conditions.Through March 31, 2006, no shares had been repurchased under this plan.

***Stock Options***

At ourannual meeting of shareholders, which was held on August 25, 2005, ourshareholders approved the Rentrak Corporation 2005 Stock Incentive Plan (the “2005Plan”). The 2005 Plan replaces the 1997 Non-Officer Employee Stock Option Planand the 1997 Equity Participation Plan (the “Prior Plans”).

Underthe 2005 Plan, we may grant incentive or nonqualified stock options, stockappreciation rights, restricted stock or units with time-based vesting,performance shares with vesting tied to performance goals and otherequity-based awards to eligible participants, including our officers, other keyemployees, our non-employee directors and certain consultants. Up to a total of1.0 million shares of our common stock may be issued pursuant to awards grantedunder the 2005 Plan, subject to adjustment for changes in capitalization. Inaddition, shares covered by outstanding stock options under the Prior Plansthat are cancelled, terminate or otherwise expire without being exercised willbecome available for grants of new awards under the 2005 Plan.

As of August 25,2005, there were approximately 1.6 million shares subject to outstandingoptions under the Prior Plans. No further awards will be made under the PriorPlans.

In February, 2006, we granted options to purchase 25,000 shares ofour common stock to a consultant. These options vest immediately andexpire in ten years. We recorded these options in accordance with EmergingIssues Task Force (“EITF”) 00-18, “Accounting Recognition for CertainTransactions involving Equity Instruments Granted to Other Than Employees.” Pursuantto the provisions of EITF 00-18, we 

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recognized expense of $0.2 million, which was included in sellingand administrative expense, and deferred $0.04 million, which will berecognized over the remaining term of the contract.

As of March 31, 2006, options covering 893,000 shares of ourcommon stock remained available for grant under our 2005 Plan and 2,467,798shares of our common stock were reserved for issuance pursuant to the 2005 Planand the Prior Plans combined.

Our option plans are administered by the Compensation Committee of ourBoard, which determines the terms and conditions of options issued under theplans. Generally, options granted under the plans vest over periods of one tofour years and expire ten years after the date of grant.

The table below summarizes the plans’ activity (sharesin thousands):
| ** **                                     | ** ** | **Options Outstanding** | ** ** |
|------------------------------------------------|------------|------------------------------|------------|
| ** **                                     | ** ** | **Number of  Shares**   | ** ** | **Weighted  Average  Exercise Price** | ** ** |
| **Balance  at March 31, 2003**            |       | 1,983                        |       | $ | 4.35 |   |
| Granted -  option price = fair market value    |       | 178                          |       | 7.62 |   |
| Granted -  option price > fair market value |       | 80                           |       | 6.89 |   |
| Exercised                                      |       | (285                         | )          | 4.07 |   |
| Canceled                                       |       | (40                          | )          | 4.31 |   |
| **Balance  at March 31, 2004**            |       | 1,916                        |       | 4.86 |   |
| Granted -  option price = fair market value    |       | 183                          |       | 10.15 |   |
| Exercised                                      |       | (523                         | )          | 4.58 |   |
| Canceled                                       |       | (5                           | )          | 3.98 |   |
| **Balance  at March 31, 2005**            |       | 1,571                        |       | 5.58 |   |
| Granted -  option price = fair market value    |       | 167                          |       | 10.21 |   |
| Exercised                                      |       | (152                         | )          | 4.64 |   |
| Canceled                                       |       | (11                          | )          | 7.15 |   |
| **Balance at March 31, 2006**             |       | 1,575                        |       | $ | 6.17 |   |

 

The following table summarizes information about stockoptions outstanding at March 31, 2006:
| **Options Outstanding**    | ** ** | **Options Exercisable**              | ** ** |
|---------------------------------|------------|-------------------------------------------|------------|
| **Range  of  Exercise  Prices** | ** ** | **Number  Outstanding  at 03/31/06** | ** ** | **Weighted  Average  Remaining  Contractual  Life (years)** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Number of  Shares  Exercisable  at 03/31/06** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
| $0.00 - $3.25                   |       | 247,550                                   |       | 4.98 |   | $ | 3.07 |   | 247,550 |   | $ | 3.07 |   |
| $3.26 - $4.00                   |       | 285,323                                   |       | 5.18 |   | 3.57 |   | 271,393 |   | 3.55 |   |
| $4.01 - $5.25                   |       | 103,800                                   |       | 5.50 |   | 4.97 |   | 85,050 |   | 4.96 |   |
| $5.26 - $6.00                   |       | 365,000                                   |       | 1.49 |   | 5.72 |   | 298,750 |   | 5.70 |   |
| $6.01 - $7.50                   |       | 102,500                                   |       | 7.09 |   | 6.88 |   | 87,500 |   | 6.88 |   |
| $7.51 - $9.00                   |       | 85,625                                    |       | 7.86 |   | 8.45 |   | 52,250 |   | 8.65 |   |
| $9.01 - $11.00                  |       | 360,000                                   |       | 7.63 |   | 10.08 |   | 121,875 |   | 9.79 |   |
| $11.01 - $11.15                 |       | 25,000                                    |       | 9.86 |   | 11.15 |   | 25,000 |   | 11.15 |   |
| $0.00 - $11.15                  |       | 1,574,798                                 |       | 5.22 |   | 6.17 |   | 1,189,368 |   | 5.36 |   |
|                                 |            |                                           |            |  |  |  |  |  |  |  |  |  |  |

 

Options to purchase 1,119,817 and 1,270,201 shares of common stock wereexercisable at March 31, 2005 and 2004, respectively, at weighted averageexercise prices of $4.79 and $4.33, respectively.

42

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***EmployeeStock Purchase Plan***

During fiscal 2004 we terminated our Employee Stock Purchase Plan (thePlan), which allowed for the purchase of up to 200,000 shares of our commonstock. Prior to its termination, all employees meeting certain eligibilitycriteria were granted the opportunity to purchase common stock, under certainlimitations, at 85% of market value. Payment was made through payrolldeductions. All shares purchased by employees under the Plan in fiscal 2004were purchased by us on the open market. During fiscal 2004, 467 shares werepurchased by employees under the Plan for a total of $3,631.

***Warrants***

As of March 31, 2006 and 2005, we had warrants outstanding topurchase 30,000 shares of our common stock with a purchase price of $7.50 pershare and an expiration date of May 16, 2009, which were issued to aninvestment banking firm in May 2002 as partial consideration for financialadvisory services in connection with strategic opportunities or financingtransactions of potential interest to us.

***Shareholders’Rights Plan***

In May 1995, our Board of Directors approved a shareholders’rights plan designed to ensure that all of our shareholders receive fair andequal treatment in the event of certain proposals to acquire control ofRentrak. Under the rights plan, each shareholder received a dividend of oneright for each share of our outstanding common stock, entitling the holders topurchase common stock having a market value equal to twice the exercise price.The rights become exercisable after any person or group acquires 15% or more ofour outstanding common stock, or announces a tender offer which would result inthe offeror becoming the beneficial owner of 15% or more of ouroutstanding common stock. Prior to the time that a person or group acquiresbeneficial ownership of 15% or more of our outstanding common stock, theBoard of Directors, at their discretion, may waive this provision with respectto any transaction or may terminate the rights plan. This rights plan expired May 18,2005.

In May 2005, we entered into a new rights plan to replace theexpired rights plan. The terms of the new rights plan are similar to those ofthe previous rights plan. The new rights plan expires May 18, 2015.

**Note 13. Commitments**

***Leases***

***Welease certain facilities under operating leases expiring at various datesthrough 2016. Minimum lease payments over the terms of the leases exceeding oneyear are as follows:***
| **Year Ending March 31,** | ** ** | **Operating  Leases** | ** ** |
|------------------------------------------|------------|-----------------------|------------|
| 2007                                     |       | $                     | 546        |   |
| 2008                                     |       | 1,140                 |       |
| 2009                                     |       | 1,145                 |       |
| 2010                                     |       | 1,067                 |       |
| 2011                                     |       | 1,027                 |       |
| Thereafter                               |       | 6,461                 |       |
| Total minimum lease  payments            |       | $                     | 11,386     |   |

 

The leases require us to pay for taxes, insurance and maintenance. Rentexpense under operating leases is recognized on a straight-line basis over theterms of the leases and was approximately $1.0 million, $1.0 million, and $1.9million in fiscal 2006, 2005 and 2004, respectively.

43

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**Note 14. Contingencies**

***General***

We may, from time to time, be a party to legal proceedings and claimsthat arise in the ordinary course of our business. In the opinion ofmanagement, the amount of any ultimate liability with respect to these actionsis not expected to materially affect our financial condition or results ofoperations. We currently have no material outstanding litigation.

**Note 15. 401(k) Plan**

We have an employee benefit plan pursuant to Section 401(k) ofthe Internal Revenue Code (the “401(k) Plan”) for certain qualifiedemployees. Contributions made to the 401(k) Plan are based onpercentages of employees’ salaries. The total amount of our contribution is atthe discretion of our Board of Directors. Contributions under the 401(k) Planfor calendar 2004 and 2003 were approximately $81,000 and $74,000,respectively. Our plan year ends on December 31. As of March 31,2006, we have accrued $74,000 for anticipated contributions related to the planyear ended December 31, 2005 and $19,000 relating to the plan year ending December 31,2006.

**Note 16. BusinessSegments, Significant Suppliers, Product Lines and Major Customer**

Duringfiscal 2005 and 2004, we operated in one business segment, Entertainment.Effective April 1, 2005, we implemented a new corporate structure, whichincludes separate Pay-Per-Transaction (“PPT”) and Advanced Media andInformation (“AMI”) operating divisions and, accordingly, we are now reportingcertain financial information by individual segment under this new structure. The PPT Division focuses on managing our businessoperations that facilitate the delivery of home entertainment content productsand related rental and sales information for that content to our ParticipatingRetailers on a revenue sharing basis. The AMI Division concentrates on themanagement and growth of our Essentials SuiteTM of business intelligenceservices, primarily offered on a recurring subscription basis which are nolonger in the early stages, as well as operating our direct revenue sharing (“DRS”)services.

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

Certain information by segment was as follows (inthousands):
| ** **                             | ** ** | **PPT**    | ** ** | **AMI**    | ** ** | **Other(1)** | ** ** | **Total**  | ** ** |
|----------------------------------------|------------|------------|------------|------------|------------|--------------|------------|------------|------------|
| **Year Ended March 31, 2006**     | ** ** | ** ** | ** ** | ** ** | ** ** | ** **   | ** ** | ** ** | ** ** |
| Sales to external  customers           |       | $          | 81,301     |       | $          | 10,697       |       | $          | 1,396      |   | $ | 93,394 |   |
| Depreciation and  amortization         |       | 42         |       | 896        |       | 649          |       | 1,587      |       |
| Income (loss) from  operations         |       | 12,086     |       | 4,873      |       | (10,917      | )          | 6,042      |       |
| **Year  Ended March 31, 2005(2)** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **   | ** ** | ** ** | ** ** |
| Sales to external  customers           |       | $          | 86,806     |       | $          | 11,174       |       | $          | 558        |   | $ | 98,538 |   |
| **Year  Ended March 31, 2004(2)** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **   | ** ** | ** ** | ** ** |
| Sales to external customers            |       | $          | 65,958     |       | $          | 7,090        |       | $          | 5,084      |   | $ | 78,132 |   |

----

(1)             Includes revenue andexpenses 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 aspecific segment.

(2)             Thedepreciation and amortization and operating income (loss) segment informationfor fiscal 2005 and 2004 is not included as it would be impracticable to do so.

44

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Additional results of operationsinformation by segment was as follows:
| ** **                           | ** ** | **Year Ended March 31,(1)** | ** ** |
|--------------------------------------|------------|--------------------------------------------|------------|
| ** **                           | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| **(Dollars in thousands)** | ** ** | **Dollars**                                | ** ** | **% of  segment  revenues** | ** ** | **Dollars** | ** ** | **% of  segment  revenues** | ** ** | **Dollars** | ** ** | **% of  segment  revenues** | ** ** |
| **PPT Division**                     | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues                             |       | $                                          | 81,301     |   | 100.0 | % | $ | 86,806 |   | 100.0 | % | $ | 65,958 |   | 100.0 | % |
| Cost of sales                        |       | 63,714                                     |       | 78.4 |   | 68,848 |   | 79.3 |   | 54,023 |   | 81.9 |   |
| Gross margin                         |       | $                                          | 17,587     |   | 21.6 | % | $ | 17,958 |   | 20.7 | % | $ | 11,935 |   | 18.1 | % |
| **AMI  Division**                    | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues                             |       | $                                          | 10,697     |   | 100.0 | % | $ | 11,174 |   | 100.0 | % | $ | 7,090 |   | 100.0 | % |
| Cost of sales                        |       | 1,096                                      |       | 10.2 |   | 1,034 |   | 9.2 |   | 834 |   | 11.8 |   |
| Gross margin                         |       | $                                          | 9,601      |   | 89.8 | % | $ | 10,140 |   | 90.8 | % | $ | 6,256 |   | 88.2 | % |
| **Other  Division**                  | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues                             |       | $                                          | 1,396      |   | 100.0 | % | $ | 558 |   | 100.0 | % | $ | 5,084 |   | 100.0 | % |
| Cost of sales                        |       | 477                                        |       | 34.2 |   | — |   | — |   | 5,233 |   | 102.9 |   |
| Gross margin                         |       | $                                          | 919        |   | 65.8 | % | $ | 558 |   | 100.0 | % | $ | (149 | ) | (2.9 | )% |

----

(1)             Percentagesmay not add due to rounding.

Revenue by service activity was as follows (inthousands):
| ** **             | ** ** | **Year Ended March 31,** | ** ** |
|------------------------|------------|-----------------------------------------|------------|
| ** **             | ** ** | **2006**                                | ** ** | **2005** | ** ** | **2004** | ** ** |
| Order processing  fees |       | $                                       | 7,546      |   | $ | 5,015 |   | $ | 7,972 |   |
| Transaction fees       |       | 59,062                                  |       | 64,335 |   | 46,398 |   |
| Sell-through  fees     |       | 13,714                                  |       | 16,323 |   | 10,309 |   |
| Communication  fees    |       | 830                                     |       | 977 |   | 1,066 |   |
| Fulfillment            |       | —                                  |       | — |   | 4,624 |   |
| Other                  |       | 12,242                                  |       | 11,888 |   | 7,763 |   |
|                   |       | $                                       | 93,394     |   | $ | 98,538 |   | $ | 78,132 |   |

 

During fiscal 2006, 2005 and 2004, we had severalProgram Suppliers that supplied product in excess of 10% of our total revenuesas follows:
| ** **          | ** ** | **Year Ended March 31,** | ** ** |
|---------------------|------------|-----------------------------------------|------------|
| ** **          | ** ** | **2006**                                | ** ** | **2005** | ** ** | **2004** | ** ** |
| Program Supplier  1 |       | 24                                      | %          | 36 | % | 20 | % |
| Program Supplier  2 |       | 16                                      | %          | 4 | % | 5 | % |
| Program Supplier  3 |       | 14                                      | %          | 13 | % | 10 | % |
| Program Supplier  4 |       | 5                                       | %          | 6 | % | 13 | % |
| Program Supplier 5  |       | n/a                                     |       | 1 | % | 13 | % |

 

No other Program Supplier represented 10% or more of our total revenuein fiscal 2006, 2005 or 2004. Although management does not believe that therelationships with the significant Program Suppliers will be terminated in thenear term, a loss of any one of these suppliers could have an adverse effect onour financial condition and results of operations.

We had one PPT customer that accounted for 19% and 14% of our total revenuein fiscal 2005 and fiscal 2004, respectively. The agreement with this PPTcustomer expired in September 2004. There were no other customers thataccounted for 10% or more of our total revenue in fiscal 2006, 2005 and 2004.

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**QUARTERLYFINANCIAL DATA**

Unauditedquarterly financial data**for each ofthe eight quarters in the two-year period ended March 31, 2006 was asfollows (in thousands, except per share amounts):
| ** **                    | ** ** | **1**st Quarter | ** ** | **2**nd Quarter | ** ** | **3**rd Quarter | ** ** | **4**th Quarter | ** ** |
|-------------------------------|------------|----------------------|------------|----------------------|------------|----------------------|------------|----------------------|------------|
| **2006**                      | ** ** | ** **           | ** ** | ** **           | ** ** | ** **           | ** ** | ** **           | ** ** |
| Revenue                       |       | $                    | 20,882     |                 | $          | 20,164               |       | $                    | 23,957     |   | $ | 28,391 |   |
| Income from  operations       |       | 877                  |       | 1,485                |       | 1,489                |       | 2,191                |       |
| Net income                    |       | 656                  |       | 1,104                |       | 1,126                |       | 1,580                |       |
| Basic net income  per share   |       | 0.06                 |       | 0.10                 |       | 0.11                 |       | 0.15                 |       |
| Diluted net  income per share |       | 0.06                 |       | 0.10                 |       | 0.10                 |       | 0.14                 |       |
| **2005**                      | ** ** | ** **           | ** ** | ** **           | ** ** | ** **           | ** ** | ** **           | ** ** |
| Revenue                       |       | $                    | 25,333     |                 | $          | 26,998               |       | $                    | 22,821     |   | $ | 23,386 |   |
| Income from  operations(1)    |       | 2,125                |       | 2,799                |       | 2,188                |       | 1,246                |       |
| Net income(1)                 |       | 1,385                |       | 1,811                |       | 1,287                |       | 760                  |       |
| Basic net income  per share   |       | 0.14                 |       | 0.18                 |       | 0.13                 |       | 0.07                 |       |
| Diluted net income per  share |       | 0.13                 |       | 0.17                 |       | 0.12                 |       | 0.07                 |       |

----

(1)             Incomefrom operations and net income in the fourth quarter of fiscal 2005 are lowerthan the first three quarters of fiscal 2005 due primarily to costs related toSarbanes-Oxley compliance and our reorganization efforts. In addition, thefourth quarter of fiscal 2005 includes a $0.2 million loss related to alitigation settlement.

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**Rentrak Corporation**Valuation and Qualifying AccountsSchedule II(In thousands)
| ** **                                                        | ** ** | **Balance at  Beginning  of Period** | ** ** | **Additions  (Reductions)  to Reserve** | ** ** | **Write-Offs  Charged  Against  Reserves** | ** ** | **Recoveries** | ** ** | **Balance  at End of  Period** | ** ** |
|-------------------------------------------------------------------|------------|------------------------------------------------|------------|----------------------------------------------|------------|--------------------------------------------|------------|----------------|------------|------------------------------------------|------------|
| **Allowance  for doubtful accounts**                              | ** ** | ** **                                     | ** ** | ** **                                   | ** ** | ** **                                 | ** ** | ** **     | ** ** | ** **                               | ** ** |
| Fiscal 2004                                                       |       | $                                              | 748        |                                         | $          | (320                                       | )          | $              | (10        | )                                        | $          | 421 |   | $ | 839 |   |
| Fiscal 2005                                                       |       | 839                                            |       | 28                                           |       | (604                                       | )          | 391            |       | 654                                      |       |
| Fiscal 2006                                                       |       | 654                                            |       | 1                                            |       | (849                                       | )          | 655            |       | 461                                      |       |
| **Program Suppliers reserve**                                     | ** ** | ** **                                     | ** ** | ** **                                   | ** ** | ** **                                 | ** ** | ** **     | ** ** | ** **                               | ** ** |
| Fiscal 2004                                                       |       | $                                              | 3,714      |                                         | $          | 2,059                                      |       | $              | (1,215     | )                                        | $          | (37 | ) | $ | 4,521 |   |
| Fiscal 2005                                                       |       | 4,521                                          |       | 593                                          |       | (1,828                                     | )          | (40            | )          | 3,246                                    |       |
| Fiscal 2006                                                       |       | 3,246                                          |       | 108                                          |       | (3,320                                     | )          | (2             | )          | 32                                       |       |
| **Other current assets—retailer financing program  reserve** | ** ** | ** **                                     | ** ** | ** **                                   | ** ** | ** **                                 | ** ** | ** **     | ** ** | ** **                               | ** ** |
| Fiscal 2004                                                       |       | $                                              | 838        |                                         | $          | —                                     |       | $              | —     |                                     | $          | — |   | $ | 838 |   |
| Fiscal 2005                                                       |       | 838                                            |       | —                                       |       | (838                                       | )          | —         |       | —                                   |       |
| Fiscal 2006                                                       |       | —                                         |       | —                                       |       | —                                     |       | —         |       | —                                   |       |
| **Other assets—retailer financing program reserve**          | ** ** | ** **                                     | ** ** | ** **                                   | ** ** | ** **                                 | ** ** | ** **     | ** ** | ** **                               | ** ** |
| Fiscal 2004                                                       |       | $                                              | 5,692      |                                         | $          | —                                     |       | $              | (31        | )                                        | $          | — |   | $ | 5,661 |   |
| Fiscal 2005                                                       |       | 5,661                                          |       | —                                       |       | (5,642                                     | )          | (19            | )          | —                                   |       |
| Fiscal 2006                                                       |       | —                                         |       | —                                       |       | —                                     |       | —         |       | —                                   |       |
| **Valuation allowance on deferred tax assets**                    |       |                                           |       |                                         |       |                                       |       |           |       |                                     |       |
| Fiscal 2004                                                       |       | $                                              | 378        |                                         | $          | (79                                        | )          | $              | —     |                                     | $          | — |   | $ | 299 |   |
| Fiscal 2005                                                       |       | 299                                            |       | 104                                          |       | —                                     |       | —         |       | 403                                      |       |
| Fiscal 2006                                                       |       | 403                                            |       | 221                                          |       | —                                     |       | —         |       | 624                                      |       |

 

47

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**ITEM 9.**                    CHANGES IN ANDDISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

**ITEM 9A.**           CONTROLS AND PROCEDURES

**Disclosure Controls and Procedures**

Our management hasevaluated, under the supervision and with the participation of our ChiefExecutive Officer and Chief Financial Officer, the effectiveness of ourdisclosure controls and procedures as of the end of the period covered by thisreport pursuant to Rule 13a-15(b) under the Securities ExchangeAct of 1934, as amended (Exchange Act). Based on that evaluation our ChiefExecutive Officer and our Chief Financial Officer have concluded that, as ofthe end of the period covered by this report, our disclosure controls andprocedures were effective in ensuring that information required to be disclosedin our Exchange Act reports is (1) recorded, processed, summarized andreported in a timely manner, and (2) accumulated and communicated to ourmanagement, including our Chief Executive Officer and our Chief FinancialOfficer, as appropriate, to allow timely decisions regarding requireddisclosure.

**Changesin Internal Controls**

During our fiscal year ended March 31,2005, we determined that our internal control over financial reporting wasineffective based on an audit finding related to a data error, which wasdiscovered in a spreadsheet used to determine amounts payable to ProgramSuppliers that resulted in a material adjustment to our net incomefor the fiscal period ended March 31, 2005. This error resulted from afailure in a manual detective control that was applied to the financial datafor Program Supplier contracts input into the spreadsheets that calculate costof sales.

During the first quarterof our fiscal year ended March 31, 2006, we enhanced this control byrequiring a redundant independent review by our Chief Financial Officer orController in every instance this periodic control is performed by theresponsible employee.

# There have been noother changes in our internal control over financial reporting that occurredduring our last fiscal year that have materially affected or are reasonablylikely to materially affect our internal control over financial reporting.

**Management’sReport on Internal Control Over Financial Reporting**

Our management isresponsible for establishing and maintaining adequate internal control overfinancial reporting, as such term is defined in Exchange Act Rules 13a -15(f). Under the supervision and with the participation of our management,including our principal executive officer and principal financial officer, weconducted an evaluation of the effectiveness of our internal control overfinancial reporting based on the framework in *InternalControl—Integrated Framework**issued by the Committee ofSponsoring Organizations of the Treadway Commission (COSO).* Based onour evaluation under the framework in *InternalControl—Integrated Framework**issued by the Committeeof Sponsoring Organizations of the Treadway Commission (COSO)*, ourmanagement concluded that our internal control over financial reporting waseffective as of March 31, 2006.

Our independentregistered public accounting firm, Grant Thornton LLP, has audited ourmanagement’s assessment of the effectiveness of our internal control overfinancial reporting as of March 31, 2006, as stated in their reportappearing below.

48

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**REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

Board of Directors and Shareholders’Rentrak Corporation

We have audited management’s assessment, included inthe accompanying Management’s Report on Internal Controls Over FinancialReporting in Item 9A, that Rentrak Corporation maintained effective internalcontrol over financial reporting as of March 31, 2006, based on criteria established in*Internal Control—Integrated Framework*issuedby the Committee of Sponsoring Organizations of the Treadway Commission (COSO).Rentrak Corporation’s management is responsible for maintaining effectiveinternal control over financial reporting and for its assessment of theeffectiveness of internal control over financial reporting. Our responsibilityis to express an opinion on management’s assessment and an opinion on theeffectiveness of the company’s internal control over financial reporting basedon our audit.

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting wasmaintained in all material respects. Our audit included obtaining anunderstanding of internal control over financial reporting, evaluating management’sassessment, testing and evaluating the design and operating effectiveness ofinternal control, and performing such other procedures as we considerednecessary in the circumstances. We believe that our audit provides a reasonablebasis for our opinions.

A company’s internal control over financial reportingis a process designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles. A company’sinternal control over financial reporting includes those policies andprocedures that (1) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions and dispositionsof the assets of the company; (2) provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financialstatements in accordance with generally accepted accounting principles, andthat receipts and expenditures of the company are being made only in accordancewith authorizations of management and directors of the company; and (3) providereasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use, or disposition of the company’s assets that could have amaterial effect on the financial statements.

Because of its inherent limitations, internal controlover financial reporting may not prevent or detect misstatements. Also,projections of any evaluation of effectiveness to future periods are subject tothe risk that controls may become inadequate because of changes in conditions,or that the degree of compliance with the policies or procedures maydeteriorate.

In our opinion, management’s assessment that RentrakCorporation maintained effective internal control over financial reporting asof March 31, 2006, is fairly stated, in all material respects, based on criteria established in*Internal Control—Integrated Framework*issuedby the Committee of Sponsoring Organizations of the Treadway Commission (COSO).Also in our opinion, Rentrak Corporation maintained, in all material respects,effective internal control over financial reporting as of March 31, 2006,based on criteria established in*Internal Control—Integrated Framework*issuedby the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with thestandards of the Public Company Accounting Oversight Board (United States), theconsolidated balance sheet of Rentrak Corporation as of March 31, 2006,and the related consolidated statements of income, stockholders’ equity, andcash flows for the year then ended and our report dated May 26, 2006expressed an unqualified opinion**onthose financial statements.
| /s/ GRANT THORNTON LLP |   |
|------------------------|--------|
| Portland, Oregon       |   |
| May 26,  2006     |   |

** **

49

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**ITEM 9B.**           OTHER INFORMATION

None.

**PART III**

**ITEM 10.**             DIRECTORS ANDEXECUTIVE OFFICERS OF THE REGISTRANT

Pursuant to General InstructionG(3) to Form 10-K, the information called for by this item isincorporated by reference from our definitive Proxy Statement for our 2006Annual Meeting of Shareholders to be filed with the Securities and ExchangeCommission pursuant to Regulation 14A under the Securities Exchange Act of1934, as amended. See “Election of Directors,” “Committees and Meetings of theBoard—Audit Committee,” “Code of Ethics,” “Executive Officers” and “Section 16(a) BeneficialOwnership Reporting Compliance.”

**ITEM 11.**             EXECUTIVECOMPENSATION

Pursuant to General InstructionG(3) to Form 10-K, the information called for by this item isincorporated by reference from our definitive Proxy Statement for our 2006Annual Meeting of Shareholders to be filed with the Securities and ExchangeCommission pursuant to Regulation 14A under the Securities Exchange Act of1934, as amended. See “Executive Compensation.”

**ITEM 12.**             SECURITY OWNERSHIP OFCERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Thefollowing table sets forth information, as of March 31, 2006, about sharesof our common stock that may be issued upon the exercise of options grantedunder our equity compensation plans and arrangements.

**Equity Compensation Plan Information**
| **Plan Category(1)**                                  | ** ** | **Number of  securities to be  issued upon  exercise of  outstanding  options, warrants  and rights** | ** ** | **Weighted average  exercise price of  outstanding  options, warrants  and rights** | ** ** | **Number of securities  remaining available for  future issuance under  equity compensation  plans (excluding  securities reflected in  first column)** | ** ** |
|------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Equity compensation plans approved by  shareholders(2)     |       | 1,472,050                                                                                                                                |       | $                                                                                                            | 6.29       |                                                                                                                                                                                                           | 893,000    |   |
| Equity compensation plans not approved by  shareholders(3) |       | 132,748                                                                                                                                  |       | 5.20                                                                                                         |       | —                                                                                                                                                                                                         |       |
| Total                                                      |       | 1,604,798                                                                                                                                |       | $                                                                                                            | 6.20       |                                                                                                                                                                                                           | 893,000    |   |

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(1)          See Note 12of Notes to Consolidated Financial Statements for a description of thesignificant terms of the outstanding options.

(2)          Equitycompensation plans approved by shareholders include the 2005 Stock IncentivePlan and the 1997 Equity Participation Plan, as amended.

(3)          Equitycompensation plans or arrangements approved by our board of directors, but notsubmitted for shareholder approval include (i) the 1997 Non-OfficerEmployee Stock Option Plan and (ii) warrants to purchase 30,000 shares ofcommon stock with a purchase price of $7.50 per share and an expiration date ofMay 16, 2009, issued to an investment banking firm as partialconsideration for financial advisory services in connection with strategicopportunities or financing transactions of potential interest to us.

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Pursuant to General InstructionG(3) to Form 10-K, additional information called for by thisitem is incorporated by reference from our definitive Proxy Statement for our2006 Annual Meeting of Shareholders to be filed with the Securities andExchange Commission pursuant to Regulation 14A under the Securities ExchangeAct of 1934, as amended. See “Security Ownership of Certain Beneficial Ownersand Management.”

**ITEM 13.**             CERTAIN RELATIONSHIPSAND RELATED TRANSACTIONS

Pursuant to General InstructionG(3) to Form 10-K, the information called for by this item isincorporated by reference from our definitive Proxy Statement for our 2006Annual Meeting of Shareholders to be filed with the Securities and ExchangeCommission pursuant to Regulation 14A under the Securities Exchange Act of1934, as amended.

**ITEM 14.**             PRINCIPAL ACCOUNTANTFEES AND SERVICES

Pursuant to General InstructionG(3) to Form 10-K, the information called for by this item isincorporated by reference from our definitive Proxy Statement for our 2006Annual Meeting of Shareholders to be filed with the Securities and ExchangeCommission pursuant to Regulation 14A under the Securities Exchange Act of1934, as amended. See “Matters Relating to Our Auditors.”

**PART IV**

**ITEM 15.**             EXHIBITS ANDFINANCIAL STATEMENT SCHEDULES

**FinancialStatements and Schedules**

TheConsolidated Financial Statements, together with the reports thereon of ourindependent registered public accounting firms, are included on the pages indicatedbelow:
|                                                                                                              | ** ** | ** ** | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|------------|------------|
| Report of Grant Thornton LLP, Independent Registered  Public Accounting Firm                                 |       |       |       |
| Report of KPMG LLP, Independent Registered Public  Accounting Firm                                           |       |       |       |
| Consolidated  Balance Sheets as of March 31, 2006 and 2005                                              |       |       |       |
| Consolidated Income Statements for the years ended  March 31, 2006, 2005 and 2004                       |       |       |       |
| Consolidated Statements of Stockholders’ Equity for  the years ended March 31, 2006, 2005 and 2004 |       |       |       |
| Consolidated Statements of Cash Flows for the years  ended March 31, 2006, 2005 and 2004                |       |       |       |
| Notes to Consolidated Financial Statements                                                                   |       |       |       |
| The following  schedule is filed herewith:                                                                   |       |       |       |
| Schedule  II    Valuation and Qualifying Accounts                                             |       |       |       |

 

Schedules not included havebeen omitted because they are not applicable or the required information isshown in the financial statements or notes thereto.

**Exhibits**

The exhibits required to befiled pursuant to Item 601 of Regulation S-K are listed in the Exhibit Index,which immediately follows the signature page of this report.

51

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**SIGNATURES**

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the Registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.
| Date: June 12, 2006 | RENTRAK CORPORATION                  |
|--------------------------|--------------------------------------|
|                     | By:                                  | /s/ Paul A. Rosenbaum |
|                     | Paul A. Rosenbaum                    |
|                     | Chairman of the Board, President and |
|                     | Chief Executive Officer              |
|                     | (Principal Executive Officer)        |

 

Pursuant to the requirements ofthe Securities Exchange Act of 1934, this report has been signed below by thefollowing persons on behalf of the Registrant and in the capacities indicatedon June 12, 2006.

PrincipalFinancial and Accounting Officer:
| By:                         | /s/ Mark L. Thoenes |   |
|-----------------------------|---------------------|--------|
| Mark L. Thoenes             |
| Executive Vice President    |
| and Chief Financial Officer |

 

Majority of Directors:
| By:    | /s/ Judith G. Allen            |   |
|--------|--------------------------------|--------|
|   | Judith G. Allen, Director      |   |
| By:    | /s/ Cecil D. Andrus            |   |
|   | Cecil D. Andrus, Director      |   |
| By:    | /s/ George H. Kuper            |   |
|   | George H. Kuper, Director      |   |
| By:    | /s/ Ralph R. Shaw              |   |
|   | Ralph R. Shaw, Director        |   |
| By:    | /s/ Stanford C.  Stoddard      |   |
|   | Stanford C. Stoddard, Director |   |

 

52

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**EXHIBIT INDEX**

Thefollowing exhibits are filed herewith or, if followed by a number inparentheses, are incorporated herein by reference from the correspondingexhibit filed in the report or registration statement identified in thefootnotes following this index:
| Exhibit  Number | ** ** | **Exhibit Description**                                                                                                                              |
|-----------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1             |       | Restated Articles of Incorporation of Rentrak  Corporation as filed on June 10, 2005. (23)                                                           |
| 3.2             |       | 1995 Restated Bylaws, as amended to date. (1)                                                                                                             |
| 10.1            | *          | Summary of compensation arrangements for  non-employee directors of Rentrak Corporation.                                                                  |
| 10.2            | *          | Employment Agreement with Christopher E. Roberts  dated November 1, 2002. (2)**                                                                      |
| 10.3            | *          | The 1997 Equity Participation Plan of Rentrak  Corporation, as amended. (3)                                                                               |
| 10.4            | *          | Form of Non-Qualified Stock Option Agreement  under 1997 Equity Participation Plan. (4)                                                              |
| 10.5            | *          | Form of Incentive Stock Option Agreement under  1997 Equity Participation Plan. (5)                                                                  |
| 10.6            | *          | The 1997 Non-Officer Employee Stock Option Plan of  Rentrak Corporation. (13)                                                                             |
| 10.7            | *          | Amendment to the 1997 Non-Officer Employee Stock  Option Plan of Rentrak Corporation. (14)                                                                |
| 10.8            | *          | Second Amendment to the 1997 Non-Officer Employee  Stock Option Plan of Rentrak Corporation. (15)                                                         |
| 10.9            | *          | Third Amendment to the 1997 Non-Officer Employee  Stock Option Plan of Rentrak Corporation. (16)                                                          |
| 10.10           | *          | Rentrak Corporation 2005 Stock Incentive Plan. (29)                                                                                                       |
| 10.11           | *          | Form of Award Agreement for Non-Qualified Stock  Option under 2005 Stock Incentive Plan. (30)                                                        |
| 10.12           |       | Credit Agreement with Wells Fargo Bank, National  Association (“Wells Fargo Bank”) dated July 15, 2002. (24)                               |
| 10.13           |       | First Amendment, dated July 1, 2003, to Credit  Agreement with Wells Fargo Bank, dated July 15, 2002. (25)                                      |
| 10.14           |       | Fourth Amendment, dated February 11, 2005, to  Credit Agreement with Wells Fargo Bank, dated July 15, 2002. (26)                                |
| 10.15           |       | Fifth Amendment to Credit Agreement, dated  December 1, 2005, to Credit Agreement with Wells Fargo Bank, dated  July 15, 2002. (27)             |
| 10.16           |       | Revolving Line of Credit Note, dated  December 1, 2005. (28)                                                                                         |
| 10.17           | *          | Employment Agreement with Mark L. Thoenes dated  January 1, 2006. (6)                                                                           |
| 10.18           | *          | Employment Agreement with Timothy J. Erwin dated  January 1, 2006. (7)                                                                               |
| 10.19           |       | Rights Agreement dated as of May 18, 2005,  between Rentrak Corporation and U.S. Stock Transfer Corporation. (8)                                     |
| 10.20           | *          | Incentive Stock Option Agreement with Paul A.  Rosenbaum dated March 30, 2001. (9)                                                              |
| 10.21           | *          | Non-Qualified Stock Option Agreement with  Paul A. Rosenbaum dated March 30, 2001. (10)                                                         |
| 10.22           | *          | Incentive Stock Option Agreement with Paul A.  Rosenbaum dated February 9, 2005. (33)                                                           |
| 10.23           | *          | Non-Qualified Stock Option Agreement with  Paul A. Rosenbaum dated February 9, 2005. (34)                                                       |
| 10.24           | *          | Employment Agreement with Amir Yazdani dated  July 1, 2001. (11)                                                                                     |
| 10.25           | *          | Employment Agreement with Paul A. Rosenbaum  dated October 1, 2001. (12)                                                                        |
| 10.26           | *          | Employment Agreement between Rentrak Corporation and  Allan McLennan entered into as of October 1, 2005. (31)                                        |
| 10.27           | *          | Employment Agreement between Rentrak Corporation and  Marty Graham dated as of January 1, 2006. (32)                                                 |
| 10.28           | *          | Employment Agreement with Ronald Giambra dated  July 1, 2002. (17)                                                                                   |
| 10.29           | *          | Amendment, dated June 1, 2003, to Employment  Agreement dated July 1, 2002, between Ronald Giambra and Rentrak  Corporation. (18)               |
| 10.30           | *          | Amendment No. 2 dated February 10, 2005 to  Employment Agreement dated July 1, 2002, between Ronald Giambra and  Rentrak Corporation. (21) |
| 10.31           | *          | Employment Agreement between Kenneth M. Papagan and  Rentrak Corporation dated January 1, 2004. (19)                                                 |
| 10.32           | *          | Employment Agreement between Cathy Hetzel and  Rentrak Corporation dated March 17, 2004. (20)                                                        |
| 21              |       | List of Subsidiaries of Registrant. (22)                                                                                                                  |
| 23.1            |       | Consent of GRANT THORNTON LLP, independent  registered public accounting firm.                                                                            |
| 23.2            |       | Consent of KPMG LLP, independent registered public  accounting firm.                                                                                      |
| 31.1            |       | Certification of Chief Executive Officer pursuant to  Rule 13a-14(a).                                                                                |

 

E-1

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| Exhibit  Number | ** ** | **Exhibit Description**                                                       |
|-----------------|------------|------------------------------------------------------------------------------------|
| 31.2            |       | Certification of Chief Financial Officer pursuant to  Rule 13a-14(a).         |
| 32.1            |       | Certification of Chief Executive Officer pursuant to  18 U.S.C. Section 1350. |
| 32.2            |       | Certification of Chief Financial Officer pursuant to  18 U.S.C. Section 1350. |
| 99.1            |       | Description of Capital Stock of Rentrak Corporation.  (35)                         |

----

*                    ManagementContract or Compensatory Plan or Arrangement.

**             Portionsomitted pursuant to a request for confidentiality treatment filed with theSecurities and Exchange Commission.
| 1.  |   | Filed as Exhibit 3.1 to Form 10-Q  filed on February 14, 2001.    |
|-----|--------|----------------------------------------------------------------------------------|
| 2.  |   | Filed as Exhibit 10.4 to Form 10-Q  filed on February 14, 2003.   |
| 3.  |   | Filed as Exhibit 10.10 to 2002 Form 10-K  filed on June 28, 2002. |
| 4.  |   | Filed as Exhibit 10.8 to 2003 Form 10-K  filed on June 26, 2003.  |
| 5.  |   | Filed as Exhibit 10.9 to 2003 Form 10-K  filed on June 26, 2003.  |
| 6.  |   | Filed as Exhibit 10.1 to Form 8-K  filed on June 1, 2006.         |
| 7.  |   | Filed as Exhibit 10.2 to Form 8-K  filed on June 1, 2006.         |
| 8.  |   | Filed as Exhibit 4.1 to Form 8-K  filed on May 18, 2005.          |
| 9.  |   | Filed as Exhibit 10.30 to 2001 Form 10-K  filed on June 29, 2001. |
| 10. |   | Filed as Exhibit 10.31 to 2001 Form 10-K  filed on June 29, 2001. |
| 11. |   | Filed as Exhibit 10.1 to Form 10-Q  filed on November 13, 2001.   |
| 12. |   | Filed as Exhibit 10.1 to Form 10-Q  filed on February 14, 2002.   |
| 13. |   | Filed as Exhibit 4.1 to Form S-8  filed on June 5, 1997.          |
| 14. |   | Filed as Exhibit 4.1 to Form S-8  filed on October 29, 1997.      |
| 15. |   | Filed as Exhibit 10.31 to 2002 From 10-K  filed on June 28, 2002.      |
| 16. |   | Filed as Exhibit 10.1 to Form 10-Q  filed on November 13, 2002.   |
| 17. |   | Filed as Exhibit 10.5 to Form 10-Q  filed on February 14, 2003.   |
| 18. |   | Filed as Exhibit 10.27 to Form 10-K  filed on July 14, 2004.      |
| 19. |   | Filed as Exhibit 10.28 to Form 10-K  filed on July 14, 2004.      |
| 20. |   | Filed as Exhibit 10.29 to Form 10-K  filed on July 14, 2004.      |
| 21. |   | Filed as Exhibit 10.1 to Form 8-K  filed on February 15, 2005.    |
| 22. |   | Filed as Exhibit 21 to Form 10-K  filed on July 14, 2004.         |
| 23. |   | Filed as Exhibit 3.1 to Form 10-K  filed on June 13, 2005.        |
| 24. |   | Filed as Exhibit 10.7 to Form 10-K  filed on June 13, 2005.       |
| 25. |   | Filed as Exhibit 10.8 to Form 10-K  filed on June 13, 2005.       |
| 26. |   | Filed as Exhibit 10.11 to Form 10-K  filed on June 13, 2005.      |
| 27. |   | Filed as Exhibit 10.1 to Form 10-Q  filed on February 7, 2006.    |
| 28. |   | Filed as Exhibit 10.2 to Form 10-Q  filed on February 7, 2006.    |
| 29. |   | Filed as Exhibit 10.1 to Form 8-K  filed on August 31, 2005.      |
| 30. |   | Filed as Exhibit 10.1 to Form 10-Q  filed on November 8, 2005.    |
| 31. |   | Filed as Exhibit 10.1 to Form 8-K  filed on October 7, 2005.      |
| 32. |   | Filed as Exhibit 10.1 to Form 8-K  filed on March 14, 2006.       |
| 33. |   | Filed as Exhibit 10.17 to Form 10-K  filed on June 13, 2005.      |
| 34. |   | Filed as Exhibit 10.18 to Form 10-K  filed on June 13, 2005.      |
| 35. |   | Filed as Exhibit 99.1 to Form 8-K  filed on May 18, 2005.         |

 

E-2

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