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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) May 28, 1996
SHOWSCAN ENTERTAINMENT INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE
(State or Other Jurisdiction of Incorporation)
0-15939 95-3940004
(Commission File Number) (I.R.S. Employer Identification No.)
3939 LANDMARK STREET,
CULVER CITY, CALIFORNIA 90232
(Address of Principal Executive Offices) (Zip Code)
(310) 558-0150
(Registrant's Telephone Number, Including Area Code)
NOT APPLICABLE
(Former Name or Former Address, if Changed Since Last Report)
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ITEM 5. OTHER EVENTS.
In connection with the Litigation Reform Act of 1995, Showscan
Entertainment Inc. (the "Registrant") is hereby filing certain cautionary
information to be used in connection with written materials and/or oral
statements made by or on behalf of its employees and representatives which may
contain "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements consist of any
statement other than a recitation of historical fact and can be identified by
the use of forward-looking terminology such as "may," "expect," "anticipate,"
"estimate" or "continue" or the negative thereof or other variations thereon or
comparable terminology. The listener and/or reader is cautioned that all
forward-looking statements are necessarily speculative and there are certain
risks and uncertainties that could cause actual events or results to differ
materially from those referred to in such forward-looking statements. The
discussion below highlights some of the more important risks identified by
management but should not be assumed to be the only things that could affect
future performance. The reader and/or listener is cautioned that the Registrant
does not have a policy of updating or revising forward-looking statements and
thus he or she should not assume that silence by management over time means that
actual events are bearing out as estimated in such forward-looking statements.
Period to Period Fluctuations
The Registrant's operating results may fluctuate from period to period
for a number of reasons, including (a) the timing of sales of the Registrant's
motion simulation attractions, (b) the timing of delivery and installation of
such sales (pursuant to percentage of completion accounting) and any delays
therein caused by permitting or construction delays at the customer's site, (c)
the size, type and configuration of the attractions sold, (d) the timing of film
rental payments from existing attractions and the performance of those
attractions that pay film rental based on a percentage of box office, and (e)
the timing of sales and marketing efforts and related expenditures. Accordingly,
the Registrant's revenues and earnings in any particular period may not be
indicative of the results for any future period.
The Registrant's performance depends upon the number of motion
simulation attractions that it can sell and install. This dependence has been
lessening as the percentage of the Registrant's revenues derived from on-going
film rental has increased though there can be no assurance that this trend will
necessarily continue. The Registrant's results have followed a seasonal pattern,
with revenues tending to be stronger in the second and fourth fiscal quarters,
reflecting the buying patterns of the Registrant's customers for new motion
simulation attractions.
The Registrant's stock price, like that of other small entertainment
companies, is subject to significant volatility. The Registrant's stock is
thinly, though regularly, traded and thus small trades can significantly affect
the market price. The stock price may also be affected by (a) broader market
trends and general economic conditions unrelated to the Registrant's
performance, and (b) factors related to the Registrant but not within the
control of Registrant such as articles or statements published by securities
analysts, newspapers and others commenting on the Registrant or its stock price.
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Growth Plan
Management of the Registrant has adopted an aggressive growth plan that
includes substantial investments in its sales and marketing organizations, the
creation of new research and development programs and increased funding of
existing programs, and investments in corporate infrastructure that will be
required to support significant growth. This plan, which was implemented during
the latter half of fiscal 1996 and is planned to continue into fiscal 1997,
carries with it a number of risks, including a higher level of operating
expenses that may not be adequately covered by increased sales and the
complexities associated with managing a larger and faster growing organization.
New Product Development
The Registrant operates in a technology driven segment of the
entertainment business. As such, the Registrant must continually improve its
products to increase their entertainment value while also facing pressure to
continually reduce the price of its products to respond to competitive
pressures. Since the Registrant's main competitors, Iwerks Entertainment, Inc.
and Imax Corporation, have significantly more capital than the Registrant, the
Registrant has had to rely more on its suppliers and other third-parties to
improve the Registrant's existing products and to develop new ones. The
Registrant's future results will depend in large part on its ability to remain a
leader in its business segment.
International Operations
A significant portion of the Registrant's revenue is from sales and
film licensing outside the United States. The Registrant's results could be
negatively affected by such factors as changes in foreign currency exchange
rates, trade protection measures, policies with respect to currency and fiscal
controls, longer accounts receivable collection patterns, changes in regional or
worldwide economic or political conditions, or natural disasters. Though the
Registrant faces less direct exchange rate risks since its contracts are
denominated in US Dollars, fluctuations in exchange rates can significantly
affect the affordability of the Registrant's products and services overseas.
Intellectual Property
The Registrant has several United States patents on various processes
and elements related to film projection and motion simulation. The most
important of these patents expire in October 2001. Though the Registrant's
patents have never been challenged and the Registrant believes that they are
valid, third parties could still challenge the patents and a court could
determine that one or more of them are invalid. Declarations of invalidity,
particularly of the Registrant's key patents, could adversely affect the
marketability of the Registrant's products and services. In addition, the
Registrant always faces the risk that new technologies could be discovered that
are superior to the Registrant's patents. See "New Product Development" above.
Competition
The Registrant faces intense competition in all of its product lines.
In the motion simulation business, the Registrant's main competitor is Iwerks
though there is an increasing number of smaller competitors. Iwerks has
substantially greater financial resources than the
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Registrant and as such may be able to both price its existing products and
services lower than the Registrant as well as produce new products. Imax is a
growing competitor of the Registrant in this segment and has dedicated
substantial resources to entering this market.
In the large screen, special format motion picture business, the
Registrant's main competitor is Imax though Iwerks is also very significant. The
15/70 format appears to be emerging as the most popular large format due
primarily to the large number of films available in that format. Imax is by far
the dominant company in this segment. The Registrant is only a recent entrant
into this market and has not yet made any sales. The Registrant will have to
invest substantial sums in order to enter the 15/70 market and thus short term
results could be adversely affected until sales can be made. See also the
discussion below regarding litigation initiated with respect to the Registrant's
entry into this market.
The Registrant also competes with other companies in the entertainment
business for the entertainment expenditures of consumers. Consumers are
presently offered a broad range of entertainment options and the entertainment
industry continues to undergo significant change and development with new
competing forms of entertainment products and services entering the market at an
increasing rate. Computer simulation, interactive and virtual reality products
are improving rapidly and could become directly competitive with the
Registrant's products. The Registrant's performance and financial condition
could be adversely affected by the introduction of new products, shifting
consumer preferences and the greater availability and acceptance of other forms
of entertainment.
Business Disruption
The Registrant's corporate headquarters, including its research and
development operations and most of its manufacturing facilities, are located in
Los Angeles, California, a region known for seismic activity. Operating results
could be materially affected by a significant earthquake or other natural
disaster.
Dependence on Major Customers
The Registrant's motion simulation business has two significant
concentrations. The first concentration involves ongoing film licenses and is
located in Japan where a single customer presently operates or is otherwise
responsible for twelve simulation attractions. The second concentration relates
to the Registrant's order backlog where United Artists Theatre Circuit and
King's Entertainment Company individually and collectively represent a
substantial portion of the outstanding equipment orders to be delivered in the
next few years. Of course, as each of these customers builds more theatres they
will then become a concentration in the area of ongoing film rental. In the
future, the Registrant plans to increase the number of customers with which it
has multi-system agreements. The Registrant's short and long term performance
could be adversely impacted if disruptions were to occur in any of these areas
of concentration such as order cancellations, license terminations or payment
problems.
Ability to Produce Additional Films
One of the primary factors considered by potential purchasers of motion
simulation attractions is the quality and extent of the films available to be
shown at the attraction. A large portion of the Registrant's competitive
advantage resides in its popular and extensive library of ride films. To
maintain this competitive edge, the Registrant must produce several new films
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each year. Film production is expensive and requires the investment of
Registrant's funds (to the extent that investors cannot be located) while
there is no assurance that the films produced will be popular. Iwerks and Imax
have each indicated that they are devoting substantial portions of their
assets to the production of new ride films. Both the short and long term
financial performance of the Registrant will be adversely affected if the
perceived quality and popularity of the Registrant's film library declines
either alone or in comparison to the films of the Registrant's competitors.
Litigation
Imax has initiated three lawsuits against the Registrant and its
supplier with respect to the Registrant's entry into the market for 15/70 format
theatres and films. In turn, the Registrant has brought an antitrust lawsuit
against Imax alleging that Imax is illegally excluding the Registrant from this
market. While the Registrant is confident that it will prevail in each of these
lawsuits, the outcome is not certain. The presence of this litigation has
already slowed the Registrant's entry into this market and a negative
determination could prevent such entry while also potentially resulting in the
payment of damages and penalties to Imax. While the litigation is in process,
the Registrant is incurring substantial legal expenses while its ability to make
sales is impeded.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
Not applicable.
(b) Pro Forma Financial Information.
Not applicable.
(c) Exhibits.
Not applicable.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SHOWSCAN ENTERTAINMENT INC.
Date: May 28, 1996 By: \s\ W. TUCKER LEMON
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W. Tucker Lemon
Vice President, General Counsel
and Secretary
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