<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended December 31, 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 February 10, 1996, the Registrant had 5,480,324 shares of Common
Stock, $.001 par value, issued and outstanding.
================================================================================
This report contains 16 consecutively numbered pages.
<PAGE> 2
SHOWSCAN ENTERTAINMENT INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of December 31, 1995
and March 31, 1995 3
Condensed Consolidated Statements of Operations for the Three
Months and Nine Months Ended December 31, 1995 and 1994 5
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended December 31, 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 15
Signatures 16
</TABLE>
2
<PAGE> 3
PART I. - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
SHOWSCAN ENTERTAINMENT INC.
Condensed Consolidated Balance Sheets
(Dollars in Thousands Except Share Information)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1995
------- -------
(unaudited) (Note)
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,504 $ 6,791
Accounts receivable (net of allowances) 2,393 2,943
Unbilled receivables on uncompleted
equipment contracts 1,092 870
Equipment sales inventory (Note 2) 1,469 2,142
Prepaid expenses and other current assets 315 110
------- -------
Total current assets 12,773 12,856
Film library (net of amortization) 1,412 1,394
Equipment and leasehold improvements (net
of depreciation and amortization) 1,427 1,728
Owned and operated theatres (Note 3) 4,546 2,494
Patents and other intellectual properties (net of
amortization) 1,879 2,204
Other assets, including note receivable
from affiliated company 1,775 1,296
------- -------
Total assets $23,812 $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
<PAGE> 4
SHOWSCAN ENTERTAINMENT INC.
Condensed Consolidated Balance Sheets (continued)
(Dollars in Thousands Except Share Information)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1995
-------- --------
(unaudited) (Note)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 247 $ 322
Customer advances on uncompleted
equipment contracts 2,156 2,929
Accrued expenses and other current liabilities 1,695 1,609
Subordinated note payable -- 3,121
-------- --------
Total current liabilities 4,098 7,981
-------- --------
8% convertible notes (Note 4) 6,930 --
Stockholders' equity:
Series A Convertible Preferred Stock, $.001 par
value; 150,000 shares authorized, none and 150,000
shares issued and outstanding, respectively -- --
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; 5,426,412 and 5,242,859 shares issued and
outstanding, respectively 5 5
Additional paid-in capital 42,531 42,498
Accumulated deficit (29,752) (28,512)
-------- --------
Total stockholders' equity 12,784 13,991
-------- --------
Total liabilities and stockholders' equity $ 23,812 $ 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
<PAGE> 5
SHOWSCAN ENTERTAINMENT INC.
Condensed Consolidated Statements of Operations
(Dollars in Thousands Except Per Share Information)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1995 1994 1995 1994
------------------------ ------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Film rentals and royalties, net $ 852 $ 966 $ 3,955 $ 3,099
Equipment sales and related services 1,138 1,928 5,899 8,053
-------- -------- -------- --------
1,990 2,894 9,854 11,152
Costs of revenues 844 1,398 4,818 6,737
-------- -------- -------- --------
Gross profit 1,146 1,496 5,036 4,415
Costs and expenses:
General and administrative expenses 1,678 1,367 5,340 4,235
Depreciation and amortization 239 277 727 782
-------- -------- -------- --------
1,917 1,644 6,067 5,017
-------- -------- -------- --------
Operating loss (771) (148) (1,031) (602)
Other income (expense):
Equity in net operations of owned and
operated theatres (77) (52) (190) (95)
Other income, including interest of
$115, $50, $211, $121, respectively 137 50 235 307
Interest and other expenses (159) (33) (254) (92)
-------- -------- -------- --------
(99) (35) (209) 120
-------- -------- -------- --------
Net loss $ (870) $ (183) $ (1,240) $ (482)
======== ======== ======== ========
Net loss per common share (Note 5) $ (.16) $ (.03) $ (.23) $ (.10)
======== ======== ======== ========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
5
<PAGE> 6
SHOWSCAN ENTERTAINMENT INC.
Condensed Consolidated Statements of Cash Flows
(Dollars in Thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
1995 1994
----------------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,240) $ (482)
Adjustments to reconcile net loss
to net cash provided by (used in) operating activities:
Depreciation and amortization 727 782
Amortization of film library 519 377
Equity in net operations of owned and operated theatres 190 95
Accrued interest on subordinated debt 196 89
Changes in operating assets and liabilities:
Accounts receivable (net of allowances) 550 215
Equipment sales inventory 673 (158)
Unbilled receivables on uncompleted equipment
contracts (222) 635
Prepaid expenses and other assets (205) (37)
Owned and operated theatres (2,242) (2,650)
Accounts payable, accrued expenses and other
current liabilities (175) (289)
Customer advances on uncompleted equipment
contracts (773) (1,082)
------- -------
Net cash used in operating activities $(2,002) $(2,505)
------- -------
Cash flows from investing activities:
Purchase of short term investments -- (2,632)
Purchases of equipment and leasehold improvements (101) (94)
Additions to film library (537) (533)
Other assets 58 33
------- -------
Net cash used in investing activities $ (580) $(3,226)
------- -------
</TABLE>
(Continued)
6
<PAGE> 7
SHOWSCAN ENTERTAINMENT INC.
Condensed Consolidated Statements of Cash Flows (Continued)
(Dollars in Thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
1995 1994
----------------------
(Unaudited)
<S> <C> <C>
Balance forwarded $(2,582) $(5,731)
------- -------
Cash flows from financing activities:
Payments on subordinated note payable (3,131) --
Principal payment on royalty obligations -- (101)
Proceeds from issuance of 8% convertible notes
(net of expenses) 6,458 --
Proceeds from issuance of preferred stock and
warrants (net of expenses) -- 2,312
Proceeds from issuance of common stock (net
of expenses) -- 4,094
Proceeds from exercise of stock options 30 12
Other (62) --
------- -------
Net cash provided by financing activities 3,295 6,317
------- -------
Net increase in cash and cash equivalents 713 586
Cash and cash equivalents, beginning of period 6,791 1,128
------- -------
Cash and cash equivalents, end of period $ 7,504 $ 1,714
======= =======
Supplemental disclosures of cash flow information:
Interest paid (included in subordinated note
payment above) $ 1,567 $ --
======= =======
Income taxes paid $ -- $ --
======= =======
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
7
<PAGE> 8
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 and nine-month period ended
December 31, 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--Owned and Operated theatres:
The Company retains an ownership interest, ranging from 25% to 50%, in
selected Showscan simulation theatre attractions ("Showscan Attractions")
through various financing arrangements. The Company currently operates and/or
has an ownership interest in Showscan Attractions at Universal CityWalk in Los
Angeles (November 1993), Trocadero in London (September 1994), Framingham,
Massachusetts (May 1995) and Osaka, Japan (August 1995). Additionally, the
Company is in construction of an owned and operated theatre in San Antonio,
Texas which is scheduled to open in March, 1996. The Company accounts for its
net ownership position under the equity method of accounting.
Note 4--8% Convertible Notes:
On September 1, 1995, the Company completed a private placement of
$7,000,000 in secured convertible notes through a European financial
institution, Banca del Gottardo. The notes have a four-year maturity and an 8%
interest rate. Interest payments are scheduled to be made semi-annually
commencing March 1, 1996. The notes are secured by specific assets of the
Company, although the collateral excludes the Company's film library and the
capital stock of its subsidiaries, which includes its owned and operated
theatres. The notes are convertible at the option of the holder into 1,217,391
shares of the Company's common stock, $.001 par value per share (the "Common
Stock"), at a conversion price of $5.75 per share (the closing price on the
Nasdaq National Market on the transaction closing date of August 14, 1995). In
connection with this debt placement, $542,000 of costs were incurred and will be
amortized over the life of the debt. In December 1995, holders exercised the
option to convert $70,000 in face amount of notes into 12,173 shares of Common
8
<PAGE> 9
Stock. Subsequently, an additional $250,000 and $60,000 were converted into
43,478 shares and 10,434 shares, respectively, of Common Stock in January and
February, 1996, respectively.
Note 5--Loss per common share:
Loss per common share for the three months ended December 31, 1995 and
December 31, 1994 has been determined by using 5,418,341 and 5,242,859 weighted
average shares of Common Stock, respectively. For the nine months ended December
31, 1995 and December 31, 1994, the weighted average shares of Common Stock to
determine loss per common share were 5,304,612 and 5,011,655, respectively. The
impact of Common Stock equivalents and potentially dilutive instruments, such as
the assumed conversion of Series C Convertible Preferred Stock and the assumed
conversion of the 8% Convertible Notes due September 1, 1999 has not been
included, as such items are anti-dilutive for all periods presented.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview:
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 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 fluctuate quarterly
within any fiscal year. Such quarterly fluctuations are a function of various
factors, including the timing of delivery and installation of Showscan
Attractions to independent owners and operators (pursuant to
percentage-of-completion accounting), the specific configuration of the Showscan
Attractions sold, the timing of film library license periods and renewals
thereof, and the timing of sales and marketing efforts and related expenditures.
Equipment sales will likely continue to experience quarterly fluctuations as
they are substantially dependent on customers' varying ordering, delivery and
installation requirements.
The Company believes that as its installed base of Showscan Attractions
continues to expand, these seasonality factors will gradually diminish.
Comparison of the nine months ended December 31, 1995 and 1994:
Revenues for the nine-month period ended December 31, 1995 (the "Nine
Month Period") decreased by $1,298,000 or 12% from revenues for the nine-month
period ended December 31, 1994. The increase in film rentals and royalties of
$856,000 was offset by the decrease in equipment sales and related services of
$2,154,000.
Film rentals and royalties increased by 28% to $3.96 million for the
Nine Month Period. The increase was due primarily to the increase in the
installed base of operating Showscan Attractions and $685,000 of revenues
recognized from two specific customer agreements, which revenues constitute all
of the revenues to be received with respect to such agreements. Revenues from
film rentals and royalties are based on new license agreements as well as
renewals of existing agreements and results can fluctuate from quarter to
quarter, with such fluctuations being a result of the seasonality in the way
that licensing agreements are entered into and how the license agreements
themselves are structured. On an annual basis, film rentals and royalties should
increase over time as the number of operating Showscan Attractions increases.
Revenues from equipment sales and related services for the Nine Month
Period decreased to $5.9 million from $8.1 million in the nine-month period
ended December 31, 1994. The decrease can be attributed to a decrease in the
number of Showscan Attractions ordered during the Nine Month Period as compared
to the corresponding prior year period. The number of Showscan Attractions
ordered decreased from six in the nine-month period ended December 31, 1994 to
two in the Nine Month Period. Furthermore, during the three-month period ended
December 31, 1995 ("1996 Third
10
<PAGE> 11
Quarter"), the order, delivery and installation dates of three Showscan
Attractions were delayed from the 1996 Third Quarter to the three-month period
ended March 31, 1996 ("1996 Fourth Quarter"). Accordingly, there was no revenue
recognized from these sales in the 1996 Third Quarter; however, future quarters
will be positively impacted. Equipment sales and related services includes
$360,000 of revenues recognized as a result of the expiration under a customer
agreement of a required installation period for a particular site. Additionally,
the Company has recently announced a new product line called "ShowMax," a
complete 15/70 giant screen theatre package that includes state-of-the-art
rolling loop projectors, screens, sound systems, synchronization, show control
and theatre design. The Company anticipates that the ShowMax product line will
have a positive impact on sales in future quarters.
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. This results in a disparity in the comparison of
equipment sales revenues over different time periods, as Showscan records
revenues under this method rather than on the date that the sale agreement is
signed. The actual signing of a Showscan Attraction sale precedes its delivery
and installation by an average of six to seven months. Accordingly, the
recognition of revenue for equipment sales during the current and future
quarters is affected by (i) the timing of such sales, (ii) the schedule of the
build out of the Showscan Attractions and (iii) the shipment, delivery and
installation of the equipment and related services.
Cost of revenues were 49% of revenues in the Nine Month Period as
compared to 60% in the nine-month period ended December 31, 1994. The resulting
increase in gross profit from 40% to 51% was principally the result of the
increase in film rentals and royalties, as the cost of revenues on equipment
sales and related services remained fairly constant at 82% of revenues in the
Nine Month Period and 84% in the nine-month period ended December 31, 1994. 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 Nine Month Period and the
nine-month period ended December 31, 1994 was $519,000 and $377,000,
respectively. The increase in amortization was due primarily to the addition of
new films to the Company's film library during the past twelve months and the
corresponding amortization of such films.
General and administrative expenses of $5,340,000 for the Nine Month
Period represented a 26% increase over the $4,235,000 reported in the nine-month
period ended December 31, 1994. This increase was primarily a result of the
Company's hiring of additional personnel to meet the anticipated levels of
Showscan Attractions sales. During the Nine Month Period, Company management
also made a decision to enhance the quality of existing product lines and to
develop new product lines, both of which involved the continuing employment and
hiring of key personnel in the Company's engineering and technology departments,
even in light of the delay in Showscan Attraction orders. The Company believes
that there is a cost savings by performing such projects in-house, versus
contracting with outside vendors.
Depreciation and amortization remained relatively unchanged during the
Nine Month Period from the nine-month period ended December 31, 1994.
11
<PAGE> 12
The Company develops, through various financing arrangements, Showscan
Attractions in which the Company has an ownership interest and accounts for its
net ownership position using the equity method of accounting. The equity loss of
$190,000 on the net operations of owned and operated theatres for the Nine Month
Period increased by $95,000 or 100% from the nine-month period ended December
31, 1994 and is primarily the result of the following factors: (i) expenses
incurred in connection with the acquisition and development of future owned and
operated theatre locations, (ii) operating losses, including initial start-up
and marketing expenses at the Framingham theatres (opened in late May 1995), and
(iii) the combined operating profits of the owned and operated Showscan
Attractions at CityWalk, the Trocadero in London, and Osaka. Showscan earns film
rental and royalties and management fees from owned and operated theatres which
is recorded separately in the accompanying condensed consolidated statements of
operations, thereby inherently increasing the operating expenses at the specific
owned and operated theatres.
The Company's net loss increased in the Nine Month Period to $1,240,000
from $482,000 in the nine-month period ended December 31, 1994. The decrease in
equipment sales and related services combined with the increase in general and
administrative expenses were the primary factors for the decrease in
performance.
Comparison of the three months ended December 31, 1995 and 1994:
Revenues for the 1996 Third Quarter decreased $904,000 or 31% from
revenues for the three-month period ended December 31, 1994 (the "1995 Third
Quarter").
Film rentals and royalties decreased by 12% to $852,000 in the 1996
Third Quarter due to a fluctuation in license renewals.
Revenues from equipment sales and related services for the 1996 Third
Quarter decreased to $1.1 million from $1.9 million in the 1995 Third Quarter.
The decrease in the number of Showscan Attraction orders in the 1996 Third
Quarter and the preceding two quarters as compared to the corresponding prior
year periods and the delay in order, shipment, delivery and installation dates
of three Showscan Attractions from the 1996 Third Quarter to the 1996 Fourth
Quarter resulted in the decrease in revenues. Please see the analysis of
equipment sales and related services for the Nine Month Period set forth above,
for a broader explanation.
Cost of revenues was 42 % of revenues in the 1996 Third Quarter as
compared to 48% in the 1995 Third Quarter. The cost of revenues on equipment
sales and related services was steady at 74% in the 1996 Third Quarter and 73%
in the 1995 Third 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 of the film library for the
1996 Third Quarter and the 1995 Third Quarter was $160,000 and $110,000,
respectively. The increase in amortization was due primarily to the addition of
new films to the Company's film library during the past twelve months and the
corresponding amortization of such films.
General and administrative expenses of $1,678,000 for the 1996 Third
Quarter represented a 23% increase over the 1995 Third Quarter. The increase is
primarily attributable to the Company's hiring of additional personnel to meet
the anticipated levels of Showscan Attractions sales, to enhance
12
<PAGE> 13
the Company's existing product lines and to develop new product lines. Please
see the analysis of general and administrative expenses for the Nine Month
Period set forth above, for a broader explanation.
Depreciation and amortization remained relatively unchanged in the 1996
Third Quarter from the 1995 Third Quarter.
A significant portion of the $77,000 loss on the net operations of
owned and operated theatres in the 1996 Third Quarter is the result of expenses
incurred in connection with the acquisition and development of future owned and
operated theatres. This expense plus operating losses, including initial
start-up and marketing expenses, at the Framingham theatres, was offset by the
combined operating profits from the Showscan Attractions at CityWalk, the
Trocadero in London and in Osaka. Please see the analysis of owned and operated
theatre operations for the Nine Month Period set forth above, for a broader
explanation.
The Company's net loss increased in the 1996 Third Quarter to $870,000
from $183,000 in the 1995 Third Quarter. The decrease in equipment sales and
related services, combined with the increase in general and administrative
expenses were the primary factors for the decrease in performance.
Liquidity and Capital Resources:
At December 31, 1995, the Company's working capital increased to
$8,675,000 from $4,875,000 at March 31, 1995. The increase in working capital
was primarily due to the completion of a financing transaction (as more fully
described below) which was partially offset by the Company's payment of a
subordinated note payable and the funding of its ownership interests in the
Showscan Attractions in Framingham and Osaka.
Cash and cash equivalents at December 31, 1995 increased by $713,000
from March 31, 1995. The increase in cash from the financing transaction was
primarily offset by (i) the final payment in April, 1995 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 Company's ownership interests in the
Showscan Attractions in Framingham and Osaka. Accounts receivables, unbilled
receivables on uncompleted equipment contracts and equipment sales inventory
decreased by a combined 17%, while accounts payable, customer advances on
uncompleted equipment contracts and accrued expenses and other current
liabilities increased by 16%. These changes are primarily attributable to
variations in the timing of Showscan Attractions sales and the specific contract
terms of such sales, which terms generally affect the timing of collections,
shipments, deliveries to customers, installations and the related payments to
vendors.
Net cash used in the Company's investing activities was $580,000 for
the Nine Month Period. Substantially all of this amount was attributable to the
additions made to the Company's film library and the purchase of equipment.
Net cash provided by financing activities was $3,295,000 for the Nine
Month Period. During such period, the Company made in April, 1995 a payment of
$3,131,000 under a subordinated note
13
<PAGE> 14
payable to Douglas Trumbull. Additionally, on September 1, 1995, the Company
completed a $7,000,000 ($6,458,000 net of expenses) private placement of
convertible notes through Banca del Gottardo, a European financial institution.
The Company issued secured convertible notes with a conversion price of $5.75
per share (the closing price on the Nasdaq National Market on August 14, 1995,
the transaction closing date). The notes are convertible at the option of the
holder into 1,217,391 shares of Common Stock. In December, 1995, $70,000 in face
amount of the notes was converted into 12,173 shares of Common Stock.
Subsequently, an additional $250,000 and $60,000 were converted into 43,478
shares and 10,434 shares, respectively, of Common Stock in January and February,
1996, respectively. The notes have a four year maturity, bear interest at 8
percent per annum with a semi-annual interest payment schedule commencing March
1, 1996 and are secured by specific assets of the Company, although the security
excludes the Company's film library and the capital stock of its subsidiaries,
which includes its owned and operated theatres. In addition to the above
transactions, on September 30, 1995 the Company converted all of its outstanding
Series A Convertible Preferred Stock into 165,380 shares of Common Stock. Each
share of Series A Convertible Preferred Stock had a liquidation value of $4.00
and was converted into shares of Common Stock at a conversion rate of 1.1025
shares of Common Stock for each share of preferred stock.
The Company believes that its working capital will be sufficient to
fund the costs of operations for the next twelve months. The Company's business
strategy includes new film productions, new product development and new product
lines, enhancement of existing product lines and possible site acquisitions for
additional owned and operated theatres. The Company plans to pursue further
financing alternatives by one or more of the following means: the selling of
securities, obtaining a line of credit from a banking institution, and/or
forming strategic alliances or joint ventures. There can be no assurance that
the Company will be able to obtain any of the aforementioned financing
alternatives.
14
<PAGE> 15
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On September 1, 1995, the Company completed a $7,000,000 private
placement of convertible notes through Banca del Gottardo, a European financial
institution. The Company issued secured convertible notes with a conversion
price of $5.75 per share (the closing price on the Nasdaq National Market on
August 14, 1995, the transaction closing date). The notes are convertible into
1,217,391 shares of Common Stock. The notes have a four year maturity, bear
interest at 8 percent with a semi-annual payment schedule and are secured by
specific assets of the Company although the security excludes the Company's film
library and the capital stock of its subsidiaries.
In December 1995, holders exercised the option to convert $70,000 in
face amount of the notes into 12,173 shares of Common Stock. Subsequently, an
additional $250,000 and $60,000 were converted into 43,478 shares and 10,434
shares, respectively, of Common Stock in January and February, 1996,
respectively.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
15
<PAGE> 16
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 12th day of February, 1996.
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)
16
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 7504
<SECURITIES> 0
<RECEIVABLES> 3749
<ALLOWANCES> 264
<INVENTORY> 1784
<CURRENT-ASSETS> 12773
<PP&E> 15844
<DEPRECIATION> 4805
<TOTAL-ASSETS> 23812
<CURRENT-LIABILITIES> 4098
<BONDS> 6930
0
0
<COMMON> 5
<OTHER-SE> 12779
<TOTAL-LIABILITY-AND-EQUITY> 23812
<SALES> 1138
<TOTAL-REVENUES> 1990
<CGS> 844
<TOTAL-COSTS> 1917
<OTHER-EXPENSES> 99
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (870)
<INCOME-TAX> 0
<INCOME-CONTINUING> (870)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (870)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> 0
</TABLE>
