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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/x/ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 1995 or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________ to __________
Commission file number 0-15939
SHOWSCAN ENTERTAINMENT INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-3940004
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3939 LANDMARK STREET
CULVER CITY, CALIFORNIA 90232
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 558-0150
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES /x/ NO / /
As of August 1, 1995, the Registrant had 5,248,859 shares of Common Stock,
$.001 par value, issued and outstanding.
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This report contains 14 consecutively numbered pages.
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SHOWSCAN ENTERTAINMENT INC.
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of June 30, 1995
and March 31, 1995 3
Condensed Consolidated Statements of Operations for the Three
Months Ended June 30, 1995 and 1994 5
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended June 30, 1995 and 1994 6
Notes to the Condensed Consolidated Financial Statements 8
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
Signatures 13
</TABLE>
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PART I. - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
SHOWSCAN ENTERTAINMENT INC.
Condensed Consolidated Balance Sheets
(Dollars in Thousands Except Share Information)
<TABLE>
<CAPTION>
June 30, March 31,
1995 1995
--------------- ---------------
(unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,671 $ 6,791
Accounts receivable (net of allowances) 4,246 2,943
Unbilled receivables on uncompleted equipment
contracts 1,861 870
Equipment sales inventory (Note 2) 1,350 2,142
Prepaid expenses and other current assets 187 110
--------- ---------
Total current assets 10,315 12,856
Film library (net of amortization) 1,674 1,394
Equipment and leasehold improvements, less
accumulated depreciation and amortization 1,636 1,728
Investment in owned and operated theatres (Note 3) 3,851 2,494
Patents and other intellectual properties (net of
amortization) 2,096 2,204
Other assets, including note receivable
from affiliated company 1,266 1,296
--------- ---------
Total assets $ 20,838 $ 21,972
========= =========
</TABLE>
Note: The balance sheet at March 31, 1995 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes to unaudited condensed consolidated financial statements.
(continued)
3
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SHOWSCAN ENTERTAINMENT INC.
Condensed Consolidated Balance Sheets (continued)
(Dollars in Thousands Except Share Information)
<TABLE>
<CAPTION>
June 30, March 31,
1995 1995
---------------- ----------------
(unaudited) (Note)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 505 $ 322
Customer advances on uncompleted
equipment contracts 3,510 2,929
Accrued expenses and other current liabilities 2,772 1,609
Subordinated note payable - 3,121
---------- ----------
Total current liabilities 6,787 7,981
---------- ----------
Stockholders' equity:
Series A Convertible Preferred Stock, $.001 par value;
150,000 shares authorized, issued and outstanding - -
Series C Convertible Preferred Stock, $.001 par value;
100,000 shares authorized; 49,000 shares issued and
outstanding - -
Common stock, $.001 par value; 20,000,000 shares
authorized; 5,248,859 and 5,242,859 shares issued and
outstanding, respectively 5 5
Additional paid-in capital 42,443 42,498
Accumulated deficit (28,397) (28,512)
---------- ----------
Total stockholders' equity 14,051 13,991
---------- ----------
Total liabilities and stockholders' equity $ 20,838 $ 21,972
========== ==========
</TABLE>
Note: The balance sheet at March 31, 1995 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes to unaudited condensed consolidated financial statements.
4
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SHOWSCAN ENTERTAINMENT INC.
Condensed Consolidated Statements of Operations
(Dollars in Thousands Except Per Share Information)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1995 1994
--------------------------------------
(Unaudited)
<S> <C> <C>
Revenues:
Film rentals and royalties, net $ 1,920 $ 1,197
Equipment sales and related services 2,218 3,002
---------- ----------
4,138 4,199
Cost of revenues 1,957 2,500
---------- ----------
Gross Profit 2,181 1,699
Costs and expenses:
General and administrative expenses 1,771 1,390
Depreciation and amortization 244 253
---------- ----------
2,015 1,643
---------- ----------
Operating income 166 56
Other income (expense):
Equity in operations of owned and operated
theatres (39) -
Other income, including interest of $21 (1995)
and $25 (1994) 29 30
Interest and other expense (36) (29)
---------- ----------
(46) 1
---------- ----------
Net income before taxes 120 57
Provision for income taxes 5 -
--------- ----------
Net income $ 115 $ 57
========= ==========
Net income per common share (Note 4) $ .02 $ .01
========= ==========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
5
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SHOWSCAN ENTERTAINMENT INC.
Condensed Consolidated Statements of Cash Flows
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1995 1994
-----------------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 115 $ 57
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization 244 253
Amortization of film library 200 100
Equity in operations of owned and operated theatres 39 -
Accrued interest on subordinated debt 10 27
Provision for doubtful accounts 130 -
Changes in operating assets and liabilities:
Accounts receivable (1,433) 308
Equipment sales inventory 792 145
Unbilled receivables on uncompleted equipment
contracts (991) 686
Prepaid expenses and other assets (77) (67)
Investment in owned and operated theatres (1,396) (2,149)
Accounts payable, accrued expenses and other
current liabilities 1,346 580
Customer advances on uncompleted equipment
contracts 581 (198)
------- -------
Net cash used in operating activities $ (440) $ (258)
------- -------
Cash flows from investing activities:
Purchases of equipment and leasehold improvements (44) (22)
Additions to film library (480) -
Other assets 30 (212)
------- -------
Net cash used in investing activities $ (494) $ 747
------- -------
</TABLE>
(Continued)
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SHOWSCAN ENTERTAINMENT INC.
Condensed Consolidated Statements of Cash Flows (Continued)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1995 1994
-----------------------
(Unaudited)
<S> <C> <C>
Balance forwarded $ (934) $ 489
------- -------
Cash flows from financing activities:
Payments on subordinated note payable (3,131) 12
Proceeds from exercise of stock options 30 -
Other (85) -
------- -------
Net cash provided by (used in) financing activities (3,186) 12
------- -------
Net increase (decrease) in cash and cash
equivalents (4,120) 501
Cash and cash equivalents, beginning of period 6,791 1,128
------- -------
Cash and cash equivalents, end of period $ 2,671 $ 1,629
======= =======
Supplemental disclosures of cash flow information:
Interest paid (included in subordinated note
payment above) $ 1,567 $ 0
======= =======
Income taxes paid $ 0 $ 0
======= =======
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
7
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SHOWSCAN ENTERTAINMENT INC.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Note 1--Introduction:
The accompanying unaudited condensed consolidated financial statements
of Showscan Entertainment Inc. (the "Company") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three-month period ended June 30, 1995 are not
necessarily indicative of the results that may be expected for the year ended
March 31, 1996. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended March 31, 1995.
Note 2--Equipment sales inventory:
Equipment sales inventory, consisting primarily of film exhibition and
simulation system equipment and related components, is valued at the lower of
average cost or market.
Note 3--Investments in Owned and Operated theatres:
In 1993, the Company began the development of Showscan motion
simulation attractions in which the Company has an ownership interest. In
connection therewith, the Company and affiliates of certain of its directors
entered into two ventures, the Showscan CityWalk Venture (the "CityWalk
Venture") and the Showscan Attractions Venture. In addition, General Cinema of
Framingham, Inc., a wholly owned Massachusetts subsidiary of General Cinema
Corp. of Massachusetts, entered into a venture with the Company (the "Framingham
Venture") in April 1995. Showscan Framingham, Inc., a wholly owned Delaware
subsidiary of the Company, and General Cinema of Framingham, Inc. are equal
partners in the Framingham Venture.
The CityWalk Venture's theatre opened in November 1993 at Universal
CityWalk adjacent to Universal Studios, Universal City, California. The
CityWalk Venture is 50% owned by Showscan CityWalk, Inc., a wholly-owned
subsidiary of the Company. The first Showscan Attractions Venture theatres
opened in September 1994 at Piccadilly Circus, London, England. This
twin-theatre is held by a United Kingdom corporation which is 50% owned by
Showscan Attractions, Inc., a wholly owned subsidiary of the Company. The
Framingham Venture's theatres opened, in late May 1995, at a new 14 screen movie
multiplex owned and operated by General Cinema Corp. in Framingham,
Massachusetts, a suburb of Boston.
The Company accounts for its investment in owned and operated theatres
under the equity method of accounting.
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Note 4--Net income per common share:
Earnings per common share, on a primary basis, has been determined
using 6,382,461 and 5,352,615 weighted average shares of common stock and common
stock equivalents for the three months ended June 30, 1995 and 1994,
respectively.
The primary earnings per share calculation uses weighted average shares
of common stock and common stock equivalents, which in this case assumes the
conversion of the Company's Series A Convertible Preferred Stock and Series C
Convertible Preferred Stock. The assumed conversion of the Company's
outstanding warrants and options is not reflected in this calculation because of
their anti-dilutive nature.
Income per common share for the quarter ended June 30, 1994 is computed
using the "modified treasury stock method," which assumes the exercise of all
outstanding warrants and options and the use of the proceeds thereof to acquire
up to 20% of the outstanding Common Stock of the Company. Excess proceeds not
utilized for the assumed purchase of such shares are assumed to reduce the
outstanding balance of the subordinated note payable and increase net income for
the hypothetical interest expense savings ($13,000). Earnings per common share
for the quarter ended June 30, 1994 also gives effect to the accretion ($42,000)
recorded on the Company's then-outstanding Series B Preferred Stock.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations:
The principal sources of Showscan Entertainment Inc.'s (the "Company")
revenues are the licensing of the Showscan film library and technologies, the
sale and installation of projectors, screens, sound systems and other equipment
used to exhibit Showscan films, and the sale of motion bases and other equipment
used in most of the Company's motion simulation theatre attractions ("Showscan
Attractions"). The Company does not believe that inflation has had a material
impact on the Company's net revenues or on its results of operations for the
three most recent fiscal years.
The Company's revenues and results of operations can fluctuate from
quarter to quarter within any fiscal year. Such fluctuations are a function of
various factors, including the timing of delivery and installation of Showscan
Attractions to third party owners and operators (pursuant to percentage of
completion accounting), the specific configuration of the Showscan Attractions
sold, the timing of film library license periods, the owned and operated theatre
gross box office seasonality, and the timing of sales and marketing efforts and
related expenditures. The Company believes that as its installed base of
Showscan Attractions continues to expand, these seasonality factors will slowly
diminish.
Comparison of the three months ended June 30, 1995 and 1994:
Revenues for the three-month period ended June 30, 1995 (the "1996
First Quarter") remained relatively unchanged in absolute terms from revenues
for the three-month period ended June 30, 1994 (the "1995 First Quarter"). The
increase in film rentals and royalty of $723,000 was offset by the decrease in
equipment sales and related services.
Film rentals and royalties increased by 60% to $1.9 million in the 1996
First Quarter. Approximately half of this increase was due to the increase in
the installed base of operating Showscan Attractions while the remainder of the
increase was the result of a specific-site license agreement. Revenues from film
rentals and royalties are expected to increase annually in the future as the
installed base of Showscan Attractions increases.
Revenues from equipment sales and related services for the 1996 First
Quarter decreased to $2.2 million from $3.0 million in the corresponding prior
year period. The decrease in the number of Showscan Attraction orders in the
fourth quarter of the fiscal year ended March 31, 1995 and the 1996 First
Quarter as compared to the corresponding prior year periods resulted in the
decrease in revenues. The Company recognizes equipment sales under the
percentage-of-completion method of accounting, generally measured by the
percentage that the labor cost incurred to date bears to the estimated total
labor cost of each contract; accordingly, the recognition of revenue for such
sales is affected during the current and future quarters by (i) the timing of
such sales, (ii) the schedule of the build out of the Showscan Attractions and
(iii) the shipment and installation of the equipment and related services.
10
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Cost of revenues were 47% of revenues in the 1996 First Quarter as
compared to 60% in the 1995 First Quarter. The resulting increase in gross
profit was principally the result of the significant increase in film rentals
and royalties, as the cost of revenues on equipment sales and related services
remained constant at 79% in the 1996 First Quarter and 80% in the 1995 First
Quarter. The cost of the Company's film library is being amortized using the
individual film forecast method which is based on estimated future revenues, as
revised quarterly. Amortization expense of the film library for the 1996 First
Quarter and the 1995 First Quarter was $200,000 and $100,000, respectively. The
increase in amortization was related primarily to the additions to the Company's
film library in the fiscal year ended March 31, 1995 and the corresponding
amortization of such films.
General and administrative expenses of $1,771,000 for the 1996 First
Quarter represented a 27% increase over the prior year period. The increase is
primarily attributable to the hiring of additional personnel for (i) the current
and anticipated sales needs, (ii) the enhancement of existing product lines and
(iii) the development of new product lines.
Depreciation and amortization remained relatively unchanged in the 1996
First Quarter from the corresponding prior year period.
The Company develops Showscan Attractions in which the Company has an
ownership interest, and accounts for such investments under the equity method of
accounting. The loss of $39,000 on investment in owned and operated theatres is
primarily the result of (i) $29,000 of operating losses at the new Framingham
theatres (opened in late May 1995) which includes initial start-up and marketing
expenses (ii) site acquisition costs of $33,000 (for future owned and operated
theatre locations) incurred through the Showscan Attractions Venture, offset by
(iii) the combined operating profits from the Showscan CityWalk Venture and the
CineMania U.K. Ltd. Venture.
The Company's net income increased in the current period to $115,000
from $57,000 in the corresponding prior year period. The increase in film
rentals and royalties was the primary factor for the increased performance.
Liquidity and Capital Resources:
At June 30, 1995, the Company's working capital decreased to $3,528,000
from $4,875,000 at March 31, 1995. The decrease in working capital was
primarily the result of funding provided by the Company in connection with the
establishment of the Showscan Attractions in Framingham, Massachusetts.
Cash and cash equivalents at June 30, 1995 decreased by $4,120,000 from
March 31, 1995 primarily due to (i) the payment of $3,131,000 under a
subordinated note payable to Mr. Douglas Trumbull, the inventor of the Showscan
process and (ii) the funding of the Framingham Attractions as described above.
Accounts receivables, unbilled receivables on uncompleted equipment contracts
and equipment sales inventory increased by a combined 25%, while accounts
payable, customer advances on uncompleted equipment contracts and accrued
expenses and other current liabilities increased by 40%. These changes are
primarily attributable to the timing of the
11
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Company's Showscan Attractions sales and the specific contract terms of such
sales, which contract terms generally affect the timing of collections,
shipments to customers and related payment to vendors.
Net cash used in the Company's investing activities was $494,000.
Substantially all of this amount was attributable to additions to the Company's
film library.
Net cash used in financing activities was $3,186,000, of which,
$3,131,000 was attributable to the payment of the subordinated note as
described above.
During the fiscal year ended March 31, 1995, the Company revised its
business focus and strategy. The Company's current operations are not expected
to generate sufficient cash to fully implement its revised business strategy.
In order to obtain the necessary capital, the revised strategy calls for the
Company to generate additional funds through one or more of the following
means: the sales of securities; the incurrence of indebtedness; and/or the
formation of additional strategic alliances, joint ventures or similar
arrangements. The Company is actively pursuing additional financing
alternatives; however, there can be no assurance that the Company will be able
to obtain any of the above financing alternatives. If the Company is unable to
generate sufficient funds from operations or is unable to raise additional
capital through any of the aforementioned alternatives, the Company will need
to curtail its revised business strategy, specifically with regards to the
timing of new film productions and the number of new owned & operated theatres.
12
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized, in the City of Culver
City, State of California on the 11th day of August, 1995.
Showscan Entertainment Inc.
---------------------------
(Registrant)
By /s/ DENNIS POPE
--------------------------------------
Dennis Pope
Executive Vice President
- Chief Financial Officer
(Authorized Officer and Principal
Financial Officer)
By /s/ GREGORY W. BETZ
--------------------------------------
Gregory W. Betz
Vice President - Director of Finance
(Authorized Officer and Principal
Accounting Officer)
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED STATEMENTS OF EARNINGS AND CONSOLIDATED BALANCE SHEETS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 2,671
<SECURITIES> 0
<RECEIVABLES> 4,376
<ALLOWANCES> 130
<INVENTORY> 1,350
<CURRENT-ASSETS> 10,315
<PP&E> 6,680
<DEPRECIATION> 5,043
<TOTAL-ASSETS> 20,838
<CURRENT-LIABILITIES> 6,787
<BONDS> 0
<COMMON> 5
0
0
<OTHER-SE> 14,046
<TOTAL-LIABILITY-AND-EQUITY> 20,838
<SALES> 2,218
<TOTAL-REVENUES> 4,138
<CGS> 1,957
<TOTAL-COSTS> 2,015
<OTHER-EXPENSES> 46
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 120
<INCOME-TAX> 5
<INCOME-CONTINUING> 115
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 115
<EPS-PRIMARY> .02
<EPS-DILUTED> 0
</TABLE>
