<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-22558
IWERKS ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4439361
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
4540 West Valerio Street
Burbank, California 91505-1046
(Address of principal executive offices and zip code)
(818) 841-7766
(Registrant's telephone number, including area code)
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 October 27, 1997, the Registrant had 12,160,600 shares of Common
Stock, $.001 par value, issued and outstanding.
================================================================================
<PAGE>
IWERKS ENTERTAINMENT, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
- -----------------------------
Condensed Consolidated Balance Sheets as of September 30, 1997
and June 30, 1997 3
Condensed Consolidated Statements of Operations for the Three
Months ended September 30, 1997 and 1996 5
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended September 30, 1997 and 1996 6
Notes to the Condensed Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of
- ------------------------------------------------
Financial Condition and Results of Operations 10
---------------------------------------------
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 13
- --------------------------
Item 6 - Exhibits and Reports on Form 8-K 13
- ------------------------------------------
Signatures 15
</TABLE>
2
<PAGE>
IWERKS ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(in thousands)
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
------------- --------------
(unaudited) (audited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,021 $ 3,608
Short-term investments 15,209 15,459
Trade accounts receivable, net of allowance
for doubtful accounts 4,636 5,447
Costs and estimated earnings in excess of
billings on uncompleted contracts 4,103 6,339
Inventories and other current assets 4,581 4,402
------------- --------------
Total current assets 32,550 35,255
Portable simulation theaters at cost, net of
accumulated depreciation 3,850 4,018
Property and equipment at cost, net of
accumulated depreciation 3,202 2,920
Film inventory at cost, net of amortization 4,442 3,439
Goodwill, net of amortization 15,211 15,367
Investment in joint ventures and other assets 3,408 3,530
------------- --------------
Total assets $62,663 $64,529
============= ==============
</TABLE>
See accompanying notes.
3
<PAGE>
IWERKS ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(in thousands, except share amounts)
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
-------------- -------------
(unaudited) (audited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 2,059 $ 3,435
Accrued expenses 8,073 8,793
Notes payable, current portion - 81
Billings in excess of costs and estimated
earnings on uncompleted contracts 1,966 990
Deferred revenue 298 278
Capital leases, current portion 693 739
-------------- -------------
Total current liabilities 13,089 14,316
Capital lease obligations, excluding current portion 1,694 1,827
Stockholders' equity:
Preferred stock, $.001 par value, 1,000,000
authorized, none issued and outstanding - -
Common stock, $.001 par value, 50,000,000
authorized; issued and outstanding
12,160,600 and 12,160,102, respectively 57 57
Additional paid-in capital 78,016 78,016
Accumulated deficit (30,193) (29,687)
-------------- -------------
Total stockholders' equity 47,880 48,386
-------------- -------------
Total liabilities and stockholders' equity $ 62,663 $ 64,529
============== =============
</TABLE>
See accompanying notes.
4
<PAGE>
IWERKS ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands except per share amounts)
<TABLE>
<CAPTION>
For the three months ended
September 30,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Revenue $ 8,052 $ 9,594
Cost of sales 4,789 6,236
----------- -----------
Gross profit 3,263 3,358
Merger related expenses 313 -
Selling, general and administrative expenses 3,605 3,381
----------- -----------
Loss from operations (655) (23)
Interest income 219 314
Interest expense (70) (117)
----------- -----------
Net (loss) income $ (506) $ 174
=========== ===========
Net (loss) income per common share $ (0.04) $ 0.01
=========== ===========
Weighted average shares outstanding 12,160 12,556
=========== ===========
</TABLE>
See accompanying notes.
5
<PAGE>
IWERKS ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
For the three months ended
September 30,
-----------------------------
1997 1996
---------- -----------
<S> <C> <C>
Operating Activities
Net income (loss) $ (506) $ 174
Depreciation and amortization 1,251 1,462
Changes in operating assets and liabilities 1,889 (2,542)
---------- -----------
Net cash provided (used) by operating activities 2,634 (906)
---------- -----------
Investing Activities
Investment in joint ventures (90) (322)
Investment in portable simulation theaters - (108)
Purchases of property and equipment (500) (466)
Additions to film inventory (1,621) (367)
Investment in debt securities 250 142
---------- -----------
Net cash used in investing activities (1,961) (1,121)
Financing Activities
Repayment of notes payable (81) (190)
Payments on capital leases (179) (139)
Exercise of stock options - 241
Other - 14
---------- -----------
Net cash used in financing activities (260) (74)
---------- -----------
Net increase (decrease) in cash 413 (2,101)
Cash and cash equivalents at beginning of period 3,608 12,674
---------- -----------
Cash and cash equivalents at end of period $ 4,021 $10,573
---------- -----------
Cash paid during the period for interest $ 68 $ 102
========== ===========
Cash paid during the period for income taxes $ 8 -
========== ===========
</TABLE>
See accompanying notes.
6
<PAGE>
IWERKS ENTERTAINMENT, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Note 1 - Introduction
- ---------------------
The accompanying condensed consolidated financial statements of Iwerks
Entertainment, Inc. (the "Company") have been prepared without audit pursuant to
the rules and regulations of the Securities and Exchange Commission ("SEC").
Certain information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures made are adequate to make information
presented not misleading. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly the
financial position of the Company as of September 30, 1997 and the results of
its operations for the three months ended September 30, 1997 and 1996 and the
cash flows for the three months ended September 30, 1997 and 1996 have been
included. The results of operations for interim periods are not necessarily
indicative of the results which may be realized for the full year. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's latest Annual Report on Form 10-K as filed
with the SEC.
Note 2 - Income Taxes
- ---------------------
At June 30, 1997, the Company had available federal and state tax net
operating loss carryforwards of approximately $18,650,000 and $7,720,000,
respectively expiring through 2012. As a result of these net operating losses,
the Company's effective tax rate was negligible and consequently no income tax
provision or benefit was recorded in either quarter presented.
7
<PAGE>
Note 3 - Depreciation and Amortization
- --------------------------------------
Depreciation expense and amortization expense for goodwill and other is
computed using the straight line method over the estimated useful lives of the
assets. Film costs are amortized using the individual film forecast method.
<TABLE>
<CAPTION>
Three Month ended September 30,
-------------------------------
1997 1996
---------- ----------
<S> <C> <C>
Depreciation on fixed assets $ 218,000 $ 280,000
Depreciation on touring equipment 168,000 367,000
Amortization of film 618,000 584,000
Amortization of goodwill and other 247,000 231,000
---------- ----------
Total depreciation and amortization $1,251,000 $1,462,000
========== ==========
</TABLE>
Depreciation and amortization included in cost of sales was $796,000 and
$964,000 for the quarter ended September 30, 1997 and 1996, respectively.
Note 4 - Net (Loss) Income Per Common Share:
- -------------------------------------------
The net (loss) income per share for the three month periods ended September
30, 1997 and 1996 are based on the weighted average number of common and common
equivalent shares outstanding during the period. Common equivalent shares
consisting of outstanding stock options and warrants have been included in the
calculation to the extent they are dilutive. Fully diluted amounts for the
three months ended September 30, 1997 and 1996 do not materially differ from the
amounts presented herein.
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, Earnings Per Share, which is effective for annual and interim
financial statements issued for periods ending after December 15, 1997 and early
adoption is not permitted. When adopted, the statement will require restatement
of prior years' earnings per share ("EPS"). SFAS No. 128 was issued to simplify
the standards for calculating EPS previously found in APB No. 15, Earnings Per
Share. SFAS 128 replaces the presentation of primary EPS with a presentation of
basic EPS. The new rules also require dual presentation of basic and diluted
EPS on the face of the statement of operations for companies with a complex
capital structure. For the Company, basic EPS will exclude the dilutive effects
of stock options and warrants. Diluted EPS for the Company will reflect all
potential dilutive securities. Under the provisions of FAS 128, basic and
diluted EPS would have been the same as the amounts reported herein.
8
<PAGE>
Note 5 - Litigation
- -------------------
There are no material legal proceedings to which the Company is a defendant
other than ordinary routine litigation in the course of business. In the
opinion of management, resolution of these matters will not have a material
adverse impact on the Company's financial position or results of operations.
Note 6 - Proposed Merger with Showscan Entertainment, Inc.
- ---------------------------------------------------------
On August 5, 1997, Iwerks and Showscan Entertainment, Inc. (Showscan)
announced that they signed a definitive agreement to merge. The combined
company will bring together the two largest ride simulation companies and will
be the largest provider of ride simulation entertainment attractions and
software in the world.
The transaction calls for each share of Showscan Common Stock to be
converted into 0.85 of a share of Iwerks' Common Stock. Outstanding Showscan
Preferred Stock will be exchanged for Iwerks' Common Stock at the 0.85 ratio on
an as converted basis. Iwerks expects to issue approximately 5.62 million
shares of Iwerks' Common Stock in the merger (plus shares issuable upon exercise
of outstanding Showscan options, warrants and 8% Notes) resulting in an
estimated transaction value of approximately $21.8 million at November 7, 1997
(based on closing price of Iwerks' Common Stock on the NASDAQ National Market of
$3.875 per share) and $27.4 million at August 4, 1997 (the day prior to the
merger announcement and based upon a closing price of Iwerks' Common Stock on
The NASDAQ National Market on August 4, 1997 of $4.875 per share). The
transaction will be accounted for as a pooling of interests, after which
Showscan will become a wholly owned subsidiary of the Company.
Completion of the Merger is subject to approval by the stockholders of the
Company and Showscan, as well as other customary closing conditions. If
shareholder approval is not obtained or other closing conditions are not
satisfied or if the parties mutually agree to terminate or modify the terms of
the merger agreement, the transaction may not be consummated pursuant to the
existing terms of the merger agreement, or at all. The stockholders meetings
are expected to occur in December 1997.
Note 7 - New Accounting Pronouncements
- --------------------------------------
In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive
Income. The Statement establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. The Statement applies to all enterprises that provide a
full set of general purpose financial statements. The Statement becomes
effective for all financial statements for fiscal years beginning after December
15, 1997, with earlier application permitted. Further, in June 1997, the FASB
issued Statement No. 131, Disclosures about Segments of an Enterprise and
Related Information. The Statement changes the way public
9
<PAGE>
companies report segment information in annual financial statements and also
requires those companies to report selected segment information in interim
financial reports to shareholders. The Statement becomes effective for all
financial statements for fiscal years beginning after December 15, 1997, with
earlier adoption permitted. The Company has reviewed those Statements and does
not believe that they will have a material impact on its financial statements
and related disclosures.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
- ---------------------
For the three months ended September 30, 1997 Iwerks Entertainment, Inc.
(the "Company") recorded revenues of $8,052,000 compared to $9,594,000 for the
same period last year. For the three months ended September 30, 1997, the
Company recorded a net loss of $(506,000) or $ (.04) per share compared to net
income of $174,000 or $.01 per share for the same period last year.
Revenues
- --------
The Company derives its revenues primarily from the sale and service of
hardware systems ("Hardware Sales and Service"), the operation of 16 mobile
simulation theatres along with, to a lesser extent, the participation through
joint ventures of fixed site theatres ("Owned and Operated") and the licensing
of films ("Film licensing"). The following table presents summary information
regarding revenues (amounts in thousands):
<TABLE>
<CAPTION>
Three Months ended September 30,
--------------------------------
1997 1996
------ ------
<S> <C> <C>
Hardware Sales & Service $3,588 $5,116
Owned and Operated 3,179 3,331
Film Licensing 1,228 1,104
Film Production and other 57 43
------ ------
Total $8,052 $9,594
====== ======
</TABLE>
Hardware sales and service revenue decreased by approximately $1.5 million
as compared to the same period last year due to a decrease in simulation
hardware sales of approximately $1.7 million partially offset by an increase in
large format hardware sales of approximately $0.2 million. The Company
announced that five new large format hardware contracts were signed during the
three months ended September 30, 1997 totaling almost $9 million. The revenue
from these recently signed large format contracts will be recognized in future
periods through fiscal 2001. The Company has experienced a decline in the
signing of new sales contracts in Asia, which may adversely impact
10
<PAGE>
simulation hardware revenue in future periods. Management believes this decline
is primarily due to the recent devaluation of Asian currencies as compared to
the U.S. dollar. All Company sales are contracted in U.S. dollars which puts
customers at risk for long term contracts.
The Owned and Operated (O&O) revenue includes sponsorship, contract and
admission revenues from the Company's fleet of 16 mobile simulation theaters
(Reactors), as well as revenues generated from the operations of joint ventures.
The decrease in O & O revenue resulted from fewer sponsorship days in the three
months ended September 30, 1997 compared with the first fiscal quarter of last
year. The Company is actively seeking additional sponsors and evaluating other
alternatives regarding Reactor operations. During the quarter ended September
30, 1997, the Company retained a sales and marketing firm to generate
sponsorship revenue. If the Company is unable to obtain additional sponsors,
O & O revenues will be adversely affected in future periods. As O & O revenues
have historically been seasonal, a decline in admission revenues in the second
and third fiscal quarters is expected compared with the first fiscal quarter.
Film licensing revenue increased as a result of the increasing base of
installed theaters that license the Company's film software.
Cost of sales and Gross Profit
The overall gross profit margin percentages for the three months ended
September 30, 1997 and 1996 were 40.5% and 35.0%, respectively. The increase in
the gross profit margin was primarily due to an increase in hardware sales gross
profit margins, particularly in the large format segment. The Company's costs
associated with large format theatres have decreased due to the Company
producing more 8 perforation 70 millimeter (8/70) format theatres as opposed to
15 perforation 70 millimeter format theatres in the current year as compared to
the prior year. The Company typically has higher margins on 8/70 theatres.
Merger related expenses
On August 5, 1997, Iwerks and Showscan announced an agreement to merge (see
note 6 of Notes to Condensed Consolidated Financial Statements). The
transaction will be accounted for as a pooling of interest, consequently all
transaction related costs are to be expensed in the period incurred. During the
quarter ended September 30, 1997 the Company incurred $313,000 of transaction
expenses. The Company expects to incur additional transaction costs in future
periods (regardless of whether the merger is consummated). If the merger is
consummated, total transaction costs including $541,000 incurred through
September 30, 1997, could exceed $6.5 million. Because a significant portion of
these costs are expected to be incurred prior to December 31, 1997 the Company
expects to record a loss in the second quarter. If the merger is not
consummated, the Company expects to recognize transaction costs in the second
quarter of approximately $1.0 million.
11
<PAGE>
Selling, general and administrative expenses
Selling, general and administrative expenses include, among other things,
personnel costs, trade shows and other promotional expenses, sales commissions,
travel expenses, public relation costs, outside consulting and professional
fees, depreciation on fixed assets, amortization of goodwill, departmental
administrative costs and research and development costs.
Selling, general and administrative expenses for the quarter ended
September 30, 1997 and 1996 were $3,605,000 and $3,381,000, respectively. The
$224,000 increase resulted primarily from increases in research and development
costs and insurance related costs.
Interest income and expense
Interest income for the three months ended September 30, 1997 and 1996 was
$219,000 and $314,000, respectively, and is derived from the Company's
investments, primarily in U.S. Treasury Notes. The decrease in interest income
resulted primarily from the decrease in the invested balances in the comparable
periods.
Interest expense for the three months ended September 30, 1997 and 1996
was $70,000 and $117,000, respectively, and is primarily lease financing costs
on portable simulation theaters.
Liquidity and capital resources
The Company's operating activities for the three months ended September 30,
1997 generated positive cash flow of $2,634,000. This was mainly due to the net
loss of $506,000 offset by non-cash charges of $1,251,000 for depreciation and
amortization along with changes in operating assets and liabilities of
$1,889,000. Investing activities for the three months ended September 30, 1997
consisted primarily of investments in film inventory and purchases of property
and equipment partially offset by investments in debt securities. Cash used in
financing activities consisted primarily of payments for notes payable and
capital leases.
At September 30, 1997, the Company had cash and short-term investments of
approximately $19.2 million. In addition, the Company maintains a bank line of
credit in the amount of $5 million. At September 30, 1997 and 1996, there were
no amounts outstanding on the line of credit. The Company anticipates that its
investment activities, financing activities, along with the proposed merger
related costs will use cash and expects that its cash balance will decline in
Fiscal 1998. If the proposed merger with Showscan is consummated, it is
anticipated that the transaction fees associated with the merger after September
30, 1997, which affect cash, would be approximately $5.5 million which would be
offset by any cash received from Showscan as a result of the merger. However,
with
12
<PAGE>
the existing cash balances and short-term investments in debt securities on hand
at September 30, 1997, the Company believes that it has adequate liquidity to
meet its cash requirements for at least the next twelve months, after which time
it may be required to raise additional cash through the sale of equity or debt
securities. In addition, to the extent the Company experiences growth in the
future, or its cash flow from operations is less than anticipated, the Company
may be required to obtain additional sources of cash.
Outlook and Risk Factors
With the exception of the historical information, the matters discussed
above include forward-looking statements that involve risks and uncertainties.
Among the important factors that could cause actual results to differ materially
from those indicated in the forward-looking statements include consummation of
the Showscan merger, the successful integration of the two companies, the level
of revenue, costs of sales and the ability of the Company to maintain pricing at
a level to maintain gross profit margins, the level of selling, general and
administrative costs, the performance by the Company under its existing purchase
contracts and the ability to obtain new contracts, the success of the Company's
film software, the success of the Company's owned and operating strategy, the
effects of competition, the success of the Company's product development
strategy, current trends in the global economy, the ability of the Company to
find additional sponsors for its Reactors or alternative sources of revenue, the
ability of the Company to identify and successfully negotiate arrangements with
joint venture and other strategic partners, the effects of technological
developments, general economic conditions and acts of God and other events
outside the control of the Company.
PART II - OTHER INFORMATION
Item 1. Legal proceedings
The Company is a party to various actions arising in the ordinary course of
business which, in the opinion of management, will not have a material adverse
impact on the Company's financial condition; however, there can be no assurance
that the Company will not become a party to other lawsuits in the future, and
such lawsuits could potentially have a material adverse effect on the Company's
financial condition and results of operations.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
11.1 Earnings per share
15.1 Auditors consent regarding unaudited Interim Financial Information
13
<PAGE>
27.1 Schedule of financial data
99.1 Independent Accountants' Review Report
(b) Reports on Form 8-K filed during the quarter ended September 30, 1997:
Reports on Form 8-K were filed August 7, 1997 with respect to events
occurring on July 15, 1997 relating to a Shareholders Rights Agreement Amendment
and on August 5, 1997 relating to two press releases announcing the proposed
Showscan merger and announcing fourth quarter and fiscal 1997 results.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this report to be signed on its
behalf by the undersigned thereunto duly authorized, in the city of Burbank,
State of California on the 11 day of November, 1997.
Iwerks Entertainment, Inc.
(Registrant)
By: /s/ Bruce C. Hinckley
------------------------------
Executive Vice President
Chief Financial Officer
(Principal Finance Officer)
By: /s/ Jeffrey M. Dahl
------------------------------
Vice President / Controller
(Principal Accounting Officer)
15
<PAGE>
Exhibit 11.1
IWERKS ENTERTAINMENT, INC.
Earnings Per Share
(in thousands except per share amounts)
<TABLE>
<CAPTION>
For the three months ended
September 30,
1997 1996
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
Weighted average number of shares outstanding 12,160,184 11,635,208
Common equivalent shares:
Options and warrants * 920,804
----------- -----------
12,160,184 12,556,012
=========== ===========
Net (loss) income $ (506,000) $ 174,000
=========== ===========
Net (loss) income per share $ (.04) $ .01
=========== ===========
</TABLE>
* These common equivalent shares were antidilutive.
<PAGE>
Exhibit 15.1
November 3, 1997
The Board of Directors
Iwerks Entertainment, Inc.
We are aware of the incorporation by reference in the Registration Statement
(Form S-8 No. 33-77816) pertaining to the Employees' incentive stock options and
other stock option and warrant agreements of Iwerks Entertainment, Inc. of our
report dated October 29, 1997 relating to the unaudited condensed consolidated
interim financial statements of Iwerks Entertainment, Inc. that are included in
its Form 10-Q for the quarter ended September 30, 1997.
/s/ Ernst & Young LLP
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE ACCOMPANYING
FINANCIAL STATEMENTS 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> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,021
<SECURITIES> 15,209
<RECEIVABLES> 5,764
<ALLOWANCES> 1,128
<INVENTORY> 3,868
<CURRENT-ASSETS> 32,550<F1>
<PP&E> 37,289<F2>
<DEPRECIATION> (25,795)<F3>
<TOTAL-ASSETS> 62,663
<CURRENT-LIABILITIES> 13,089
<BONDS> 1,694<F4>
0
0
<COMMON> 78,073
<OTHER-SE> (30,193)<F5>
<TOTAL-LIABILITY-AND-EQUITY> 62,663
<SALES> 8,052
<TOTAL-REVENUES> 8,271<F6>
<CGS> 4,789
<TOTAL-COSTS> 4,789
<OTHER-EXPENSES> 3,918
<LOSS-PROVISION> 30
<INTEREST-EXPENSE> 70
<INCOME-PRETAX> (506)
<INCOME-TAX> 0
<INCOME-CONTINUING> (506)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (506)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
<FN>
<F1>Includes Costs and estimated earnings in excess of billings on uncompleted
contracts of $4,103 and other current assets of $713.
<F2>Includes portable simulation theaters of $8,345 and film inventory of $18,465.
<F3>Includes portable simulation theaters of $4,495 and film inventory of $14,023.
<F4>Includes the non-current portions of capital leases.
<F5>Accumulated deficit.
<F6>Includes interest income of $219.
</FN>
</TABLE>
<PAGE>
EXHIBIT 99.1
Independent Accountants' Review Report
The Board of Directors
Iwerks Entertainment, Inc.
We have reviewed the accompanying unaudited condensed consolidated balance sheet
of Iwerks Entertainment, Inc. and subsidiaries as of September 30, 1997, and the
related unaudited condensed consolidated statements of operations for the three-
month periods ended September 30, 1997 and 1996, and the unaudited condensed
consolidated statements of cash flows for the three-month periods ended
September 30, 1997 and 1996. These financial statements are the responsibility
of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, which will be
performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Iwerks Entertainment, Inc. as of
June 30, 1997, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the year then ended not presented
herein and in our report dated August 5, 1997 we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of June 30, 1997 is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
October 29, 1997
/s/ Ernst & Young LLP
