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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(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, 1998
[ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ___________ to __________
Commission file number 001-14215
SHOWPOWER, INC.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 95-4678707
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
18128 S. Santa Fe Avenue, Ranch Dominguez, California 90221
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(310) 604-9676
---------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [ ] No
[x]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 3,421,842 shares of common
stock as of July 31, 1998
Transitional Small Business Disclosure Format Yes [ ] No [x]
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<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
SHOWPOWER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------------------ ------------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE $ 5,583,372 $ 4,234,989 $ 9,856,430 $ 6,695,664
COST OF SALES 3,251,817 2,246,461 5,704,272 3,665,803
----------- ----------- ----------- -----------
GROSS PROFIT 2,331,555 1,988,528 4,152,158 3,029,861
OPERATING EXPENSES
Selling, general and administrative 1,896,541 1,535,808 3,462,910 2,539,634
Depreciation and amortization 60,078 54,005 120,639 111,228
Stock compensation 35,579 35,579 71,158 35,579
----------- ----------- ----------- -----------
Total operating expenses 1,992,198 1,625,392 3,654,707 2,686,441
INCOME FROM OPERATIONS 339,357 363,136 497,451 343,420
----------- ----------- ----------- -----------
Interest and other expense, net (133,746) (48,206) (248,267) (85,594)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 205,611 314,930 249,184 257,826
Income tax provision
(benefit) 111,672 9,978 69,864 (7,874)
----------- ----------- ----------- -----------
INCOME BEFORE
DEFERRED TAX ADJUSTMENT 93,939 304,952 179,320 265,700
----------- ----------- ----------- -----------
Deferred taxes from
S Corporation conversion 783,906 -- 783,906 --
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (689,967) $ 304,952 $ (604,586) $ 265,700
=========== =========== =========== ===========
NET INCOME (LOSS) PER SHARE:
Basic $ (0.33) $ 0.16 $ (0.30) $ 0.17
Diluted $ (0.33) $ 0.15 $ (0.30) $ 0.17
PRO FORMA AMOUNTS:
Income before income
income taxes, as reported $ 205,611 $ 314,930 $ 249,184 $ 257,826
Pro forma income tax provision 57,325 125,257 120,228 109,861
----------- ----------- ----------- -----------
Pro forma net income $ 148,285 $ 189,673 $ 128,955 $ 147,965
=========== =========== =========== ===========
PRO FORMA NET INCOME PER SHARE:
Basic $ 0.07 $ 0.10 $ 0.06 $ 0.10
Diluted $ 0.07 $ 0.09 $ 0.06 $ 0.09
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 2,113,074 1,913,080 2,013,074 1,536,080
Diluted 2,113,074 2,009,234 2,013,074 1,584,157
Pro forma - Diluted 2,237,770 2,009,234 2,126,930 1,584,157
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SHOWPOWER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 7,733,049 $ 485,788
Accounts receivable, net 1,975,898 1,445,671
Prepaid expenses and other current assets 511,304 409,499
------------ ------------
10,220,251 2,340,958
PROPERTY AND EQUIPMENT 15,829,884 12,056,711
less: accumulated depreciation (4,713,401) (4,026,299)
------------ ------------
11,116,483 8,030,412
OTHER ASSETS, NET 1,583,648 1,353,288
------------ -------------
$ 22,920,382 $ 11,724,658
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 2,444,584 $ 2,161,620
Customer deposits 1,192,396 578,429
Current portion of notes payable and capital leases 675,344 862,578
Income taxes 127,472 226,286
Bank line of credit 121,376 119,495
------------ ------------
4,561,172 3,948,408
LONG TERM LIABILITIES:
Long term portion of notes payable and capital leases 1,892,050 2,249,529
Deferred income taxes 1,023,286 220,349
------------ ------------
2,915,336 2,469,878
STOCKHOLDERS' EQUITY:
Common stock 32,418 20,418
Additional paid-in capital 17,811,184 6,658,073
Notes receivable from stockholders (497,023) (478,944)
Cumulative foregn currency translation adjustment 11,816 16,762
Accumulated deficit (1,914,521) (909,937)
------------ ------------
15,443,874 5,306,372
------------ -------------
$ 22,920,382 $ 11,724,658
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SHOWPOWER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
---------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1998 1997
------------ ------------
<S> <C> <C>
Net income (loss) $ (604,586) $ 265,700
Adjustments to reconcile net income (loss) to cash provided by operating
activities:
Depreciation and amortization 786,402 516,432
Stock compensation expense 71,158 35,579
Gain on settlement -- (162,800)
Loss on disposal 23,790 --
Deferred income taxes 802,937 4,912
Changes in operating assets and liabilities:
Accounts receivable (530,227) (276,183)
Prepaid expenses and other current assets (101,805) (110,360)
Other assets (237,279) 29,702
Accounts payable and accrued expenses (101,361) 54,126
Customer deposits 613,967 438,889
Income taxes (98,814) (13,282)
------------ ------------
Net cash provided by operating activities 624,182 782,715
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquired businesses, net of cash acquired (100,000) (2,105,361)
Purchases of property and equipment (877,455) (673,588)
Other -- 8,832
------------ ------------
Net cash used in investing activities (977,455) (2,770,117)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net of expenses paid 11,455,253 2,042,730
Proceeds from issuance of long term debt 338,400 674,726
Borrowings under bank lines of credit 1,881 53,883
Principal payments on long term debt and capital leases (3,795,002) (188,625)
Distributions to stockholders (399,998) (249,987)
------------ ------------
Net cash provided by financing activities 7,600,534 2,332,727
NET INCREASE IN CASH AND EQUIVALENTS 7,247,261 345,325
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 485,788 186,380
------------ ------------
CASH AND EQUIVALENTS, END OF PERIOD $ 7,733,049 $ 531,705
============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Acquisition of business through issuance of debt $ 140,344 $ --
Purchase of property and equipment through
issuance of notes payable $ 2,771,545 $ --
Repayment of stockholder notes through issuance
of long term debt $ -- $ 1,326,524
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SHOWPOWER, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
June 30, 1998
Basis of Presentation
The accompanying unaudited consolidated financial statements include
the accounts of Showpower, Inc. and its consolidated subsidiaries (collectively,
the "Company"). The Company provides temporary power generation and temperature
control rental equipment and support services on a worldwide basis for
entertainment, corporate and special events.
The consolidated financial statements included herein have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC). In management's opinion, these financial statements include
all adjustments necessary for a fair presentation of the results of operations
for the interim periods presented. Pursuant to SEC rules and regulations,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted from these statements. For this reason, the
accompanying consolidated financial statements and notes thereto should be read
in conjunction with the financial statements and notes thereto filed as part of
the Company's Registration Statement on Form SB-2 (File No. 333-50595).
The results for the three month and six month periods ended June 30,
1998 are not necessarily indicative of the results to be expected for the entire
year.
The Company completed its initial public offering (the "Offering") of
1,200,000 shares of Common Stock for $11.00 per share on June 16, 1998. The
Company received net proceeds of $11,081,952, after deduction of underwriting
discounts, commissions and Offering-related expenses. At June 30, 1998, $373,301
of accrued expenses of the Offering had not yet been paid. On July 2, 1998 the
Company sold an additional 180,000 shares of Common Stock at $11.00 to the
underwriters of the Offering pursuant to the exercise of their over-allotment
option. The Company received additional net proceeds of $1,782,700.
S Corporation Conversion
The Offering resulted in termination of the Company's S Corporation
status. As a result, after June 16, 1998, the Company began paying income taxes
at the corporate level. The pro forma income tax provision in the consolidated
statements of operations is based upon an assumed 40% federal and state income
tax rate for the Company's U.S. operations.
Deferred Income Taxes
In connection with the conversion of the Company's S Corporation status
to C Corporation status, the Company is required by FASB No. 109 to record
deferred tax liabilities and deferred tax assets. Such change in tax status
resulted in a net charge to earnings of $783,906 in the second quarter of 1998,
when the conversion to C Corporation status took place. This one-time charge is
a result of differences in the accounting and tax treatment of certain of the
Company's assets and liabilities and is reflected as an increase in deferred
income tax liabilities.
Stockholder Distribution
A distribution in the amount of $400,000 was declared by the Board of
Directors, effective June 16, 1998 and paid to the Company's S Corporation
stockholders on June 30, 1998. At such time in 1999 that the Company finally
determines the 1998 S Corporation earnings taxable to S Corporation
stockholders, the Company will distribute an additional amount, if necessary,
such that total distributions to S Corporation stockholders will aggregate
approximately 48% of 1998 earnings taxable to S Corporation stockholders.
1998 Stock Option Plan
In May, 1998, the Company granted non-qualified stock options to
employees under the 1998 Stock Option Plan for an aggregate of 479,563 shares of
common stock. Each of such options is exercisable at $11.00 per share and has a
term of 10 years. The options vest in three equal annual installments commencing
June 19, 1998.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Overview
The following discussion should be read in conjunction with the
unaudited consolidated financial statements and notes thereto appearing
elsewhere herein. Certain statements made in this report relating to trends in
the Company's operations or financial results, as well as other statements,
including words such as "anticipate," "believe," "plan," "estimate," "expect,"
"intend," and other similar expressions, constitute forward-looking statements
under the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are subject to known and unknown risks, uncertainties
and other factors which would cause actual results to be materially different
from those contemplated by the forward-looking statements, including the
following risks and uncertainties: the unpredictable nature of the Company's
business; the Company's dependence on entertainment and related industries; the
risks of the Company's growth strategy through acquisitions and opening new
branch offices in the U.S. and elsewhere; the Company's dependence on suppliers
of power generation equipment; the Company's dependence on key management
personnel; risks of foreign operations; and risks of competition.
The Company provides temporary power generation and temperature control
rental equipment and support services on a worldwide basis for entertainment,
corporate and special events. The Company's customers include corporations,
event producers, television networks, motion picture studios, facility operators
and performers that need electric power and/or temperature control services to
support events at locations where these services are inadequate or unavailable.
In addition to rental equipment, the Company provides fully integrated,
value-added services, including planning, technical advice, customized
installations, on-site operations and support personnel. The Company's power
equipment consists of transportable, diesel-powered electricity generators
contained in acoustic enclosures and related power distribution equipment.
Temperature control equipment consists of transportable, electrically-driven
HVAC units.
The Company experiences quarterly, seasonal and annual variations in
revenue and net income (which can be material) as a result of several factors,
including the timing and scale of concert tours, broadcast events and special
events, delays in or cancellations of customers' tours and events, the presence
or absence of triennial, quadrennial and large-scale special events, as well as
changes in the Company's revenue mix and related profitability among its various
rental services offered. Accordingly, operating results in any quarter should
not be considered indicative of results for the year or any future periods. Most
of the events serviced by the Company are held outdoors in the northern
hemisphere and typically occur during the second and third quarters of the year.
More than 85% of Showpower's revenue in 1997 was denominated in U.S.
dollars. The balance of the Company's revenue was primarily denominated in
British pounds sterling, as a result of the Company's acquisition of its United
Kingdom subsidiary, Templine Ltd. ("Templine") in March, 1997. The Company
anticipates that foreign currency denominated revenue will become a more
significant part of the Company's total revenue as it opens additional branch
offices outside of the United States.
Fluctuations in currency exchange rates result in fluctuations in
reported results of operations and financial position of the Company for
business conducted in currencies other than the U.S. dollar. For transactions
denominated in currencies other than the U.S. dollar, the Company's results of
operations are converted at average rates of exchange during the reporting
period and balance sheet amounts are translated at exchange rates at the balance
sheet date.
Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997
REVENUE. Revenue increased to $5,583,372 for the second quarter of 1998
from $4,234,989 for the same period in 1997, an increase of $1,348,383, or 32%,
due primarily to services provided in connection with the 1998 World Cup in
France ("World Cup"), which continued through mid-July 1998. Revenue related to
the World Cup games and other special events revenue accounted for increased
revenue of approximately $2,025,000, offset by a decrease in revenue from
concert touring of approximately $969,000 in the second quarter of 1998 over the
corresponding period in 1997. The decrease in concert touring revenue resulted
primarily from second quarter 1997 tours with U2, KISS and Michael Jackson that
had come to an end by the second quarter of 1998. Services for a special touring
event, which began in the fourth quarter of 1997, resulted in revenue of
$597,000 in the second quarter of 1998 and is expected to result in revenue
continuing into, and concluding in, the third quarter of 1998.
<PAGE>
COST OF SALES. Cost of sales increased to $3,251,821 for the second
quarter of 1998 from $2,246,461 for the same period in 1997, an increase of
$1,005,360, or 45%. Cost of sales as a percentage of revenue was 58% of revenue
in the second quarter of 1998 and 53% of revenue in the second quarter of 1997.
The increase in cost of sales as a percentage of revenue was due primarily to
personnel, travel and subsistence costs related to the World Cup in the second
quarter of 1998. Personnel and travel costs increased to $1,750,742 (31% of
revenue)in the second quarter of 1998 from $1,007,715 (24% of revenue) for the
same period in 1997. The increase in personnel and travel costs of $743,027
accounted for 74% of the increase in cost of sales. As a result of 1998 capital
expenditures to purchase power generation and temperature control equipment,
short-term equipment rental costs decreased to $540,636 (10% of revenue) in the
second quarter of 1998 from $592,903 (14% of revenue) for the same period in
1997, offsetting increases in personnel and travel costs. In addition, certain
start-up costs related to the Company's Brazilian operations of approximately
$84,000, or nearly 2% of sales, are included in the second quarter of 1998 cost
of sales.
GROSS PROFIT. Gross profit increased to $2,331,551 for the second
quarter of 1998 from $1,988,528 for the same period in 1997, an increase of
$343,023, or 17%. Gross profit as a percentage of revenue was 42% of revenue in
the second quarter of 1998 and 47% of revenue in the second quarter of 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expense increased to $1,896,541 for the second quarter of 1998
from $1,535,808 for the same period in 1997, an increase of $360,733, or 23%.
The increase was due primarily to an increase in employees required to support
the growth in operations and newly opened branch offices in Fort Lauderdale and
Rio de Janeiro in 1998.
STOCK COMPENSATION EXPENSE. In March 1997, the Company made restricted
stock awards of an aggregate of 128,767 shares of common stock to certain
executive officers of the Company. The shares of common stock are restricted and
subject to forfeiture upon termination of employment. Stock compensation expense
is being recognized over the three year vesting period based on the value of the
shares at the date of grant.
INCOME FROM OPERATIONS. As a result of the above factors, operating
income decreased to $339,352 for the second quarter of 1998 from $363,136 for
the same period in 1997, a decrease of $23,784.
INTEREST AND OTHER EXPENSE, NET. Net interest and other expense
increased to $133,746 for the second quarter of 1998 from $48,206 for the same
period in 1997, an increase of $85,540, due primarily to increased borrowing in
1998 to finance capital expenditures. Through June 30, 1998, the Company has
applied approximately $4,049,000 of the net Offering proceeds to repayment of
indebtedness.
PROVISION FOR INCOME TAXES. The provision for income taxes increased to
$111,670 for the second quarter of 1998 from $9,978 for the same period in 1997.
The provision for income taxes consists of a provision for United Kingdom
corporation tax on the income of Templine and a provision for U.S. federal and
state income tax since the date of the Offering. The Company paid no income
taxes on its U.S. operations prior to becoming a C Corporation in June 1998.
INCOME BEFORE DEFERRED TAX ADJUSTMENT. Due to the above factors, the
Company had net income before deferred tax adjustment for the second quarter of
1998 of $93,936 as compared to $304,952 for the same period in 1997, a decrease
of $211,016.
DEFERRED TAXES FROM S-CORPORATION CONVERSION. In connection with the
Offering, the Company incurred a one-time non-cash charge to earnings of
$783,906 to record the deferred tax liability arising from the Company's
conversion from S Corporation to taxable C Corporation status.
NET INCOME(LOSS). Net loss for the second quarter of 1998 was $689,970
as compared to net income of $304,952 for the same period in 1997, a decrease in
net earnings of $994,922, due primarily to tax charges arising from the
Company's conversion to C Corporation status. On a pro forma basis, net income
for the second quarter of 1998 and 1997 was $148,281 and $189,673, respectively,
a decrease of $39,392. Pro forma net income reflects provisions for federal and
state income taxes as if the Company's U.S. operations had been subject to
federal and state income taxation as a C Corporation at an assumed 40% combined
federal and state income tax rate during the periods presented.
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
REVENUE. Revenue increased to $9,856,430 for the first six months of
1998 from $6,695,664 for the same period in 1997, an increase of $3,160,766, or
47%. The increase was due primarily to increases in special events, including
the World Cup, the Winter Olympics in Nagano, Japan and a full six months of
operations in 1998 from Templine, acquired in March, 1997. The first six months
of 1998 included a special touring event which accounted for approximately 37%
of the increase.
<PAGE>
COST OF SALES. Cost of sales increased to $5,704,276 for the first six
months of 1998 from $3,665,803 for the same period in 1997, an increase of
$2,038,473, or 56%, as a result of increased sales. Cost of sales as a
percentage of revenue was 58% in the first six months of 1998 and 55% in the
first six months of 1997. The increase in cost of sales as a percentage of
revenue was due primarily to personnel, travel and subsistence costs related to
the World Cup in the second quarter of 1998. Personnel and travel costs
increased to $2,350,262 (24% of revenue) in the first six months of 1998 from
$1,338,025 (20% of revenue) for the same period in 1997. The increase in
personnel, travel and subsistence costs of $1,012,237 accounted for 50% of the
increase. In addition, certain start-up costs related to the Company's Brazilian
operations of approximately $147,000 are included in the first six months of
1998 cost of sales.
GROSS PROFIT. Gross profit increased to $4,152,154 for the first six
months of 1998 from $3,029,861 for the same period in 1997, an increase of
$1,122,293, or 37%. Gross profit as a percentage of revenue was 42% in the first
six months of 1998 and 45% in the first six months of 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $3,462,910 for the first six months of 1998
from $2,539,634 for the same period in 1997, an increase of $923,276, or 36%.
The increase resulted primarily from an increase in employees required to
support the growth in operations, a full six months operations in 1998 from
Templine and newly opened branch locations in 1998. Selling, general and
administrative expenses decreased to 35% of revenue for the first six months of
1998 from 38% of revenue for the corresponding period in 1997, principally as a
result of increased revenue.
STOCK COMPENSATION EXPENSE. During 1997, the Company made restricted
stock awards of an aggregate of 128,767 shares of Common Stock to certain
executive officers of the Company. The shares of Common Stock are restricted and
subject to forfeiture upon termination of employment. Stock compensation expense
resulting from the restricted stock awards made in March 1997 was first
recognized in the second quarter of 1997, resulting in the increase of $35,579
in the first six months of 1998.
INCOME FROM OPERATIONS. As a result of the foregoing, operating income
increased to $497,446 in the first six months of 1998 from $343,420 for the same
period in 1997, an increase of $154,026, or 45%.
INTEREST AND OTHER EXPENSE, NET. Net interest and other expense
increased to $248,267 for the first six months of 1998 from $85,594 for the same
period in 1997, an increase of $162,673, due primarily to increased borrowings
in 1998. Through June 30, 1998, the Company has applied approximately $4,049,000
of the net proceeds of the Offering to repayment of indebtedness.
PROVISION FOR INCOME TAXES. The provision for income taxes increased to
$69,862 for the first six months of 1998 from a tax benefit of $7,874 for the
same period in 1997. The provision for income taxes consists of a provision for
United Kingdom corporation tax on the income of Templine and a provision for
U.S. federal and state income tax since the date of the Offering. The Company
paid no income taxes on its U.S. operations prior to becoming a C Corporation in
June 1998.
INCOME BEFORE DEFERRED TAX ADJUSTMENT. Due to the above factors, the
Company had net income before deferred tax adjustment for the first six months
of 1998 of $179,317 as compared to $265,700 for the same period in 1997, a
decrease of $86,383.
DEFERRED TAXES FROM S-CORPORATION CONVERSION. In connection with the
Offering, the Company incurred a one-time non-cash charge to earnings of
$783,906 to record the deferred tax liability arising from the Company's
conversion from S Corporation to taxable C Corporation status.
NET INCOME(LOSS). Net loss for the first six months of 1998 was
$604,589 as compared to net income of $265,700 for the same period in 1997, a
decrease in net earnings of $870,289, due primarily to tax charges arising from
the Company's conversion to C Corporation status. On a pro forma basis, net
income for the first six months of 1998 and 1997 was $128,951 and $147,965,
respectively. Pro forma net income reflects provisions for federal and state
income taxes as if the Company's U.S. operations had been subject to federal and
state income taxation as a C Corporation at an assumed 40% combined federal and
state income tax rate during the periods presented.
Liquidity and Capital Resources
Following the application of the net proceeds from the Offering,
working capital increased to $5,659,079 at June 30, 1998 from a working capital
deficit of $1,607,450 at December 31, 1997, an increase of $7,266,529. Such
increase is expected to reduce dependence on borrowings in the near-term to meet
working capital and capital expenditure requirements.
<PAGE>
The Company currently has two asset-based financing commitments
totaling $6,500,000. Borrowings under a commitment with Caterpillar Financial
Services Corporation ("CAT Financial") of $3,199,001 were repaid with proceeds
of the Offering, resulting in availability of $3,500,000 at June 30, 1998. The
other financing commitment with Charter Financial, Inc. ("Charter") bears
interest at a rate determined by the lender at the funding date, with monthly
principal and interest payments payable over a four-year term, with 20% of the
principal amount due in 2002, the end of the term. Prepayment prior to maturity
may be made at an amount equal to the sum of future principal and interest
payments, discounted at an annual rate of 6%. At June 30, 1998, the Company had
outstanding borrowings under this commitment aggregating $2,687,000 and there
was additional availability of approximately $313,000. The borrowings are
secured by power generation and temperature control equipment.
The Company has a $2,000,000 line of credit facility from a bank (the
"Facility"). Under the Facility, funds in excess of $750,000 are available
subject to an accounts receivable borrowing base formula. Interest is payable
monthly at the lender's prime rate (8.5% at June 30, 1998) plus .75%, or, at the
Company's option, the London Interbank Offered Rate (LIBOR), plus 2.75%. The
term of the Facility is through May 1, 1999. The Facility includes customary
negative covenants such as restriction on the Company's ability to incur debt,
make acquisitions, pay dividends, make investments or sell assets. Also, the
Facility includes financial covenants regarding the Company's tangible net
worth, ratio of cash and accounts receivable to current liabilities, ratio of
liabilities to tangible net worth and cash flow to fixed charges ratio. The
Company's U.K. subsidiary, Templine, also has a line of credit with a bank in
the amount of 85,000 British pounds sterling at June 30, 1998, bearing interest
based on the bank's reference rate with a term through December 1, 1999. At June
30, 1998, borrowings under the two bank lines of credit totaled approximately
$121,000. The Company repaid bank borrowings of $850,000 with a portion of the
net proceeds of the Offering.
Capital expenditures (including assets acquired through capital lease
and note payable financing) were $3,649,000 and $673,588 for the six months
ended June 30, 1998 and 1997, respectively, consisting primarily of power
generation, distribution and temperature control equipment.
The Company intends to use approximately $7,000,000 of the net proceeds
of the Offering and exercise of the over-allotment option to acquire or
construct power generation and temperature control equipment. The Company
intends to finance the opening of new branch offices and possible future
acquisitions with internally generated funds, future issuance of Common Stock or
preferred stock, and additional borrowings, if available.
Cash provided by operating activities for the first six months of 1998
and 1997 totaled $624,182 and $782,715, respectively. The decrease of $158,533,
resulted primarily from the use of Offering proceeds to improve the Company's
working capital position and to prepay certain costs in order to obtain pricing
advantage.
Cash used in investing activities for the first six months of 1998 and
1997 totaled $977,455 and $2,770,117, respectively. The decrease of $1,792,662
resulted primarily from the acquisition of Templine in 1997.
Cash provided by financing activities for the first six months of 1998
and 1997 totaled $7,600,534 and $2,332,727, respectively. The Company completed
the Offering of 1,200,000 shares of Common Stock for $11.00 per share on June
16, 1998. The net proceeds of the Offering totaled $11,455,253, after deduction
of underwriting discounts, commissions and offering-related expenses paid
through June 30, 1998. As of June 30, 1998, the Company repaid indebtedness to
CAT Financial of $3,199,001 and bank borrowings of $850,000 with a portion of
the proceeds of the Offering. On July 2, 1998 the Company sold 180,000
additional shares of Common Stock at $11.00 to the underwriters of the Offering
pursuant to the exercise of their over-allotment option. The Company received
additional net proceeds of $1,782,700. In 1997, the Company issued 754,000
shares of Common Stock for cash of $2,042,730.
The Company believes that cash flows from operations, the net proceeds
of the Offering and available credit facilities are sufficient to meet operating
needs and capital spending requirements and reasonably foreseeable expansion for
at least the next 12 months.
<PAGE>
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is involved from time to time in various routine legal
proceedings incidental to its business. The Company is not engaged in any legal
proceeding that is expected to have an adverse effect on the results of
operations or financial position of the Company.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In the Offering, the Company sold 1,200,000 shares its Common Stock, $.01 par
value on June 16, 1998, pursuant to a Registration Statement on Form SB-2
(Commission File No. 333-50595; which has been declared effective June 16,
1998). The Offering was made through a syndicate of underwriters, the
representative of which was Prime Charter Ltd. The shares were offered and sold
by the underwriters at an initial public offering price of $11.00 per share,
resulting in aggregate gross offering proceeds of $13,200,000. On July 2, 1998
the Company sold 180,000 additional shares of Common Stock at $11.00 to the
underwriters of the Offering pursuant to the exercise of their over-allotment
option. The Company incurred offering expenses in connection with the Offering
as follows:
Underwriting discounts and commissions $ 924,000
Expenses paid to or for underwriters 580,764
Other expenses 653,284
----------
Total expenses $2,118,048
==========
Through June 30, 1998, the Company has applied approximately $4,049,000 of the
$11,081,952 in net offering proceeds to repayment of indebtedness. The Company
intends to use approximately $7,000,000 of the net proceeds of the Offering and
exercise of the over-allotment option to acquire or construct power generation
and temperature control equipment.
Neither the above application of the net offering proceeds nor expenses of the
Offering (except for reimbursement of travel-related expenses) were paid either
directly or indirectly to directors, officers of the Company or its associates,
or to persons owning more than 10% of any class of equity security of the
Company or to any affiliates of the Company.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
Item 5. OTHER INFORMATION
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
11 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SHOWPOWER, INC.
Date August 14, 1998 /s/ John J. Campion
----------------------------------------
John J. Campion, Chief Executive Officer
Date August 14, 1998 /s/ Michael W. Crabbe
----------------------------------------
Michael W. Crabbe, Vice President -
Chief Financial Officer
EXHIBIT 11
SHOWPOWER, INC. AND SUBSIDIARIES
COMPUTATION OF INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------------------------ ----------------------------------
1998 1997 1998 1997
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net income (loss) $ (689,967) $ 304,952 $ (604,586) $ 265,700
Weighted average
shares outstanding 2,113,074 1,913,080 2,013,074 1,536,080
Dilutive effect after application
of treasury stock method
Restricted shares -- 96,154 -- 48,077
Employee stock options -- -- -- --
Shares used in calculating
diluted income per share 2,113,074 2,009,234 2,013,074 1,584,157
Basic net income per share $ (0.33) $ 0.16 $ (0.30) $ 0.17
Diluted net income per share $ (0.33) $ 0.15 $ (0.30) $ 0.17
PRO FORMA:
Pro forma net income $ 148,285 $ 189,673 $ 128,955 $ 147,965
Weighted average
shares outstanding 2,113,074 1,913,080 2,013,074 1,536,080
Dilutive effect after application
of treasury stock method
Restricted shares 106,251 96,154 104,634 48,077
Employee stock options 18,445 -- 9,222 --
Shares used in calculating
diluted income per share 2,237,770 2,009,234 2,126,930 1,584,157
Basic net income per share $ 0.07 $ 0.10 $ 0.06 $ 0.10
Diluted net income per share $ 0.07 $ 0.09 $ 0.06 $ 0.09
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SHOWPOWER, INC. FOR THE SIX MONTHS AND THREE MONTHS
ENDED JUNE 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000828360
<NAME> Showpower
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> Dec-31-1998 Dec-31-1998
<PERIOD-START> Jan-1-1998 Apr-1-1998
<PERIOD-END> Jun-30-1998 Jun-30-1998
<EXCHANGE-RATE> 1.000 1.000
<CASH> 7,733,049 7,733,049
<SECURITIES> 0 0
<RECEIVABLES> 1,975,898 1,975,898
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 10,220,251 10,220,251
<PP&E> 15,829,884 15,829,884
<DEPRECIATION> (4,713,401) (4,713,401)
<TOTAL-ASSETS> 22,920,382 22,920,382
<CURRENT-LIABILITIES> 4,561,172 4,561,172
<BONDS> 1,892,050 1,892,050
0 0
0 0
<COMMON> 17,643,602 17,843,602
<OTHER-SE> (2,399,728) (2,399,728)
<TOTAL-LIABILITY-AND-EQUITY> 22,920,382 22,920,382
<SALES> 9,856,430 5,583,372
<TOTAL-REVENUES> 9,856,420 5,583,372
<CGS> 5,704,272 3,251,817
<TOTAL-COSTS> 3,654,707 1,992,198
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 248,267 133,746
<INCOME-PRETAX> 249,184 205,611
<INCOME-TAX> 853,770 895,578
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (604,586) (689,967)
<EPS-PRIMARY> (0.30) (0.33)
<EPS-DILUTED> (0.30) (0.33)
</TABLE>
