Iwerks Places Turnaround Bets on New Leadership : Entertainment technology: The appointments underscore firm’s quest for profitability by returning to core business--specialty movie theaters and rides for theme parks.

Iwerks Entertainment Inc., unprofitable for the past eight quarters, has named a new executive vice president and chief financial officer, the latest moves in an ongoing corporate overhaul.

Francis Phalen, 55, most recently senior vice president and chief financial officer of Aura Systems Inc., a high-tech firm based in El Segundo, replaced G. Edward Smith, who served as interim chief financial officer since December, after the resignation of Deborah Miao. Smith will continue as a consultant to Iwerks, the company said.

Phalen’s appointment is the second major executive change in recent weeks. In May, the Burbank-based designer of specialty theaters and virtual reality technology said it would promote Chief Operating Officer Roy Wright to chief executive on July 1. Wright will also add the title of president, a vacant post. Company co-founder Stanley Kinsey relinquishes the chief executive title but will remain as chairman.

Wright said his objective is to restore the company to profitability in 1996. Iwerks’ restructuring comes amid higher research and development costs and greater competition from companies such as Showscan Corp. and Imax Corp.

Key to Iwerks’ recovery strategy is a return to the company’s core business--developing motion simulation rides and giant screen movies for theme parks.

This back-to-basics approach means Iwerks is shelving--at least for now--plans for further expansion of its Cinetropolis entertainment centers. Iwerks had been planning to develop a chain of urban complexes that put theaters with big, 360-degree screens, moving seats and digital sound under the same roof with theme restaurants and specialty retail stores. But Iwerks has found few investors willing to shell out the $12 million to $18 million each center would cost to build.

Iwerks won’t say it’s dumping Cinetropolis, but it’s clearly giving it a secondary role to more pressing concerns. “We haven’t abandoned Cinetropolis, but we don’t think we should pursue it aggressively until we become profitable,” Phalen said. Iwerks will re-examine the Cinetropolis concept later, he added.

Keith Benjamin, an entertainment analyst with Robertson Stephens & Co. in San Francisco, the firm that underwrote Iwerks’ $44-million public stock offering in 1993, hopes for better days ahead. “The company has had a pretty difficult time as a public company . . . but with the focus back on its core business, they should be doing well,” he said.

Benjamin said Iwerks’ plans for Cinetropolis were too ambitious. In addition, previous management stubbornly held to its commitment to Cinetropolis long after it became apparent that the strategy wasn’t working. “They clearly went in the wrong direction,” Benjamin said.

At present, there are two Cinetropolis complexes, one at the Mashantucket Pequot tribe’s Foxwoods casino in Ledyard, Conn., and another in Chiryu, Japan.

While Iwerks may have stumbled with its expansion into so-called location-based entertainment centers, other major entertainment-industry players see such complexes as an emerging trend and are forging ahead.

For instance, Sony Retail Entertainment, an arm of Sony Corp., plans to open a number of shopping/entertainment centers around the country.

Construction of an elaborate facility in San Francisco will start this fall, the first since Sony struck a three-year agreement with Imax to build such complexes.

For the third quarter ended March 31, Iwerks reported an $8.6-million loss or 85 cents a share, nearly 10 times greater than the $892,000 or 10-cent-per-share loss it reported in the same period a year before. A significant chunk of that loss, $5.6 million, stemmed from a write-down on the value of some of its film software created for Cinetropolis.

Revenues for the quarter rose slightly, to $10.83 million from $10.01 million a year ago.

In February, in an attempt to trim losses, Iwerks laid off 21 employees, or 10% of its work force. Those cuts came three months after an earlier round of layoffs in which 35 workers were let go. The company is also relocating its Sarasota, Fla. manufacturing operation to Burbank, another move to reduce costs.

Phalen said there won’t be any more substantial layoffs but acknowledged that there may be some additional “fine tuning.” At the same time, Iwerks may do some hiring for key spots, he said.

As Iwerks’ losses have escalated, the company’s stock has tumbled. Initially, Iwerks stock was one of 1993’s hottest, opening at 18 and soaring to 37 a few weeks later in Nasdaq trading. But during the past year the price has collapsed. On Monday, Iwerks stock closed at 3.

Wright insists that the stock will right itself once the company improves its performance. “The major thing the world needs to know,” he said, “is that all of the things that have caused the losses, acquisition expenses and the costs associated with developing new products, are the same things that will help the company go forward.”