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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 September 30, 1999
[ ] 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.)
18420 S. Santa Fe Avenue, Rancho 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 [x]
No []
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 October 31, 1999
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
(In Thousands, Except Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------------- --------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES $ 6,613 $ 6,724 $ 15,055 $ 16,580
COST OF SALES 4,366 3,966 9,943 9,663
---------- ---------- ---------- ----------
GROSS PROFIT 2,247 2,758 5,112 6,917
---------- ---------- ---------- ----------
OPERATING EXPENSES:
General and administrative 1,314 1,750 4,728 5,327
Depreciation and amortization 96 55 255 176
Stock compensation expense 73 36 144 107
---------- ---------- ---------- ----------
Total operating expenses 1,483 1,841 5,127 5,610
---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS 764 917 (15) 1,307
---------- ---------- ---------- ----------
OTHER INCOME AND (EXPENSE), NET 92 37 152 (211)
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES AND
MINORITY INTEREST 856 954 137 1,096
Income tax provision 338 394 52 1,205
Minority interest (17) 12 - 12
---------- ---------- ---------- ----------
NET INCOME (LOSS) 535 548 85 (121)
OTHER COMPREHENSIVE INCOME (LOSS) -
Foreign currency translation adjustment 1 (18) (192) (23)
---------- ---------- ---------- ----------
COMPREHENSIVE INCOME (LOSS) $ 536 $ 530 $ (107) $ (144)
========== ========== ========== ==========
NET INCOME (LOSS) PER SHARE:
Basic $ 0.16 $ 0.17 $ 0.03 $ (0.05)
Diluted $ 0.15 $ 0.16 $ 0.02 $ (0.05)
PRO FORMA AMOUNTS:
Income before income taxes, as reported $ 1,096
Pro forma income tax provision 472
Minority interest 12
----------
Pro forma net income $ 612
==========
PRO FORMA NET INCOME PER SHARE:
Basic $ 0.25
Diluted $ 0.24
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 3,293,075 3,293,075 3,293,075 2,439,075
Diluted 3,459,422 3,443,247 3,426,247 2,561,733
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SHOWPOWER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,272 $ 2,937
Accounts receivable, net 2,645 1,387
Other receivables 225 134
Deferred income taxes 224 225
Prepaid expenses and other current assets 1,269 341
-------- --------
7,635 5,024
-------- --------
PROPERTY AND EQUIPMENT 22,000 21,526
less: accumulated depreciation and amortization (6,720) (5,524)
-------- --------
15,280 16,002
-------- --------
OTHER ASSETS, NET 1,508 1,514
-------- --------
$ 24,423 $ 22,540
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank line of credit $ -- $ 176
Current portion of long-term debt and capital lease obligations 969 718
Accounts payable and accrued expenses 3,736 2,637
-------- --------
4,705 3,531
-------- --------
LONG TERM LIABILITIES:
Long-term debt and capital lease obligations, net of current portion 2,294 1,616
Deferred income taxes 1,037 987
Other long-term liabilities 55 70
-------- --------
3,386 2,673
-------- --------
MINORITY INTEREST 28 46
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock; $0.01 par value; authorized, 1,000,000 shares; none issued
or outstanding Common stock; $0.01 par value; authorized, 6,500,000 shares;
issued and outstanding,
3,421,842 shares 34 34
Additional paid-in capital 19,789 19,645
Notes receivable from stockholders (536) (513)
Cumulative foreign currency translation adjustment (183) 9
Accumulated deficit (2,800) (2,885)
-------- --------
16,304 16,290
-------- --------
$ 24,423 $ 22,540
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SHOWPOWER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
----------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1999 1998
---- ----
<S> <C> <C>
Net income (loss) $ 85 $ (121)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation and amortization 1,820 1,247
Stock compensation expense 144 107
(Gain) loss on disposal of property and equipment (197) 24
Deferred income taxes 41 809
Minority interest (17) --
Changes in operating assets and liabilities:
Accounts receivable (1,291) (1,195)
Prepaid expenses and other current assets (928) 119
Other assets 62 (233)
Accounts payable and accrued expenses 1,834 (404)
-------- --------
Net cash provided by operating activities 1,553 353
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of business -- (100)
Purchases of property and equipment (1,877) (3,852)
Proceeds from collection of other receivables and other 797 (18)
Proceeds from disposition of property and equipment in
connection with formation of Showpower Las Vegas LLC 250 --
-------- --------
Net cash used in investing activities (830) (3,970)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net of expenses paid -- 12,859
Proceeds from issuance of long-term obligations 576 338
Repayment of borrowings under bank lines of credit (176) (119)
Principal payments on long-term debt and capital leases (657) (3,995)
Distributions to stockholders -- (400)
-------- --------
Net cash (used in) provided by financing activities (257) 8,683
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (131) --
-------- --------
NET INCREASE IN CASH AND EQUIVALENTS 335 5,066
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,937 486
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,272 $ 5,552
======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Acquisition of business through note payable financing $ 141
Purchases of property and equipment through issuance of long-term obligations $ 252 $ 2,914
Issuance of long-term debt to extinguish trade payables $ 759
Property and equipment acquired in exchange $ 1,328
Net book value of property and equipment disposed of in exchange $ 1,974
Sale of property and equipment in exchange for other receivable $ 797
Net book value of property and equipment contributed to
Showpower Las Vegas LLC $ 145
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SHOWPOWER, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(In Thousands, Except Share Data)
September 30, 1999
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 (consisting of normal recurring charges) 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 1998 Annual Report
on Form 10-KSB (File No. 1-14215).
The results for the three and nine month periods ended September 30,
1999 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 $11,082 after deduction of underwriting
discounts, commissions and Offering-related expenses. 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 $1,777.
S Corporation Conversion
The Offering resulted in termination of the Company's S Corporation
status. As a result, after June 16, 1998, the Company became subject to U.S.
state and federal income taxes at the corporate level. The pro forma income tax
provision in the consolidated statement of operations for the nine month period
ended September 30, 1998 is based upon an assumed 40% federal and state income
tax rate for the Company's U.S. operations.
New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," and has also issued SFAS No. 137,
"Accounting for Derivatives and Hedging Instrument Activities Deferral of the
Effective Date of FASB 133 and Amendment of FASB 133." These statements are
effective for the Company's fiscal year ending December 31, 2001. SFAS Nos. 133
and 137 establish accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. Under the provisions of SFAS No. 133, an entity is required
to recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The Company is
currently evaluating the impact, if any, SFAS Nos. 133 and 137 will have on its
financial statements.
Sale and Exchange of Property and Equipment
In March 1999, the Company sold property and equipment with a net book
value of $1,974 for cash of $797 and property and equipment with a value of
$1,328. The Company recognized a gain of $100 on the sale and deferred $51,
which will be recognized as income through December 31, 1999, the
period the Company agreed to lease back certain of the equipment.
<PAGE>
Sydney 2000 Olympic Games
The Company has entered into agreements with the Sydney Organising
Committee for the Olympic Games and the Olympic Coordination Authority for the
provision of temporary power, heating, ventilation and air conditioning
equipment and support services during the Olympic Summer Games in Sydney,
Australia next year. As part of the agreements, Showpower has been designated as
the "Official Supplier of Temporary Power and Temporary HVAC to the Sydney 2000
Olympic Games." Revenues are recognized using the percentage-of-completion
method of accounting in connection with those contracts.
Showpower Las Vegas
In August 1999, the Company formed a joint venture, Showpower Las
Vegas, LLC ("SPLV"), with Production Resource Group L.L.C. ("PRG"), an
international supplier of entertainment technology. SPLV provides temporary
power, electrical distribution, HVAC equipment and related services within the
state of Nevada. In connection with its formation, the Company contributed
property and equipment with a net book value of $289 to SPLV, in exchange for a
50% interest in SPLV and $250 in cash from PRG. The Company also contributed
cash of $50 to SPLV in October, 1999. The Company accounts for its investment in
SPLV using the equity method of accounting and recorded its initial investment
in SPLV in the amount of cash and 50% of the net book value of property and
equipment contributed. The Company recorded a gain of $105 as a result of the
50% interest in property and equipment relinquished in connection with this
transaction.
Stock Options
Effective July 1, 1999, the Company granted non-qualified stock options
to employees and directors under the 1998 Stock Option Plan for an aggregate of
490,000 shares of common stock. Each option has an exercise price of $4.00 per
share and has a term of 10 years. The options vest upon reaching certain
performance goals, primarily related to net income levels. Compensation expense
is recognized beginning in the period which the Company first assesses it is
probable that performance goals will be met and continuing through the period
the Company assesses the goals are most likely to be met. None of the options
granted in 1999 were vested at September 30, 1999, however, compensation expense
of $37 has been recognized for the three months ended September 30, 1999 based
on the Company's assessment of future vesting.
<PAGE>
Segment Information
The Company's operations are organized around geographic areas. All of
the Company's segments provide similar temporary power generation and
temperature control rental equipment and support services. Information about the
Company's business segments is as follows:
<TABLE>
<CAPTION>
Adjustments
United States United and
and Other Kingdom Brazil Eliminations Consolidated
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE THREE MONTHS ENDED SEPTEMBER 30
1999
Revenues $ 5,053 $ 1,644 $ 129 $ (213) $ 6,613
Operating income (loss) $ 736 $ 204 $ (230) $ 54 $ 764
Other income and (expense), net 92
--------
Income before income taxes and minority
interest $ 856
========
Intersegment revenues $ 156 $ 57 $ - $ (213) $ -
Total assets $ 19,320 $ 4,641 $ 1,087 $ (625) $ 24,423
1998
Revenues $ 4,565 $ 1,749 $ 550 $ (140) $ 6,724
Operating income (loss) $ 879 $ 245 $ (248) $ 41 $ 917
Other income and (expense), net 37
--------
Income before income taxes $ 954
========
Intersegment revenues $ - $ 140 $ - $ (140) $ -
Total assets $ 19,762 $ 3,645 $ 589 $ (143) $ 23,853
FOR THE NINE MONTHS ENDED SEPTEMBER 30
1999
Revenues $ 10,843 $ 3,425 $ 1,430 $ (643) $ 15,055
Operating income (loss) $ 115 $ (120) $ (22) $ 12 $ (15)
Other income and (expense), net 152
--------
Income before income taxes and minority
interest $ 137
========
Intersegment revenues $ 523 $ 120 $ - $ (643) $ -
1998
Revenues $ 13,051 $ 3,186 $ 550 $ (207) $ 16,580
Operating income (loss) $ 1,620 $ 149 $ (462) $ - $ 1,307
Other income and (expense), net (211)
--------
Income before income taxes $ 1,096
========
Intersegment revenues $ - $ 207 $ - $ (207) $ -
</TABLE>
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(In Thousands, Except Share Data)
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, including fluctuations in currency
exchange rates; 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.
Approximately 77% of Showpower's revenues for 1998 was denominated in
U.S. dollars, 19%, was denominated in British pounds sterling and four percent
was denominated in the Brazilian real (the "real"). 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. The results from such conversion
and changing exchange rates are recorded as a separate component of
stockholders' equity, which increased stockholders' equity by $9 at December 31,
1998, and decreased stockholders' equity by $183 at September 30, 1999. The
Company anticipates that foreign currency denominated revenues will become a
more significant part of the Company's total revenues as it expands operations
outside of the United States.
In January 1999, the Central Bank of Brazil altered its foreign
exchange policy, resulting in a devaluation of the real. The value of the real
was 1.92 reals to the U.S. dollar at September 30, 1999 and 1.21 reals to the
U.S. dollar at December 31, 1998. The effects of the devaluation and related
changes in economic conditions on the Brazilian operations cannot be predicted
with any certainty and may have a material adverse effect on the Company's
future operating results.
<PAGE>
Three Months Ended September 30, 1999 Compared to Three Months Ended September
30, 1998
REVENUES. Revenues for the third quarter of 1999 were $6,613 as
compared to $6,724 for the same period in 1998, a decrease of $111, or 2%.
Revenues from operations in Brazil decreased $421 during the third quarter of
1999 as compared to the same period in 1998, offset by increased revenues of
$310 in the third quarter of 1999, primarily in connection with the Sydney 2000
Olympic Games. Third quarter 1999 revenues increased $1,076, or 19%, from second
quarter 1999 revenues of $5,537.
COST OF SALES. Cost of sales increased to $4,366 for the third quarter
of 1999 from $3,966 for the same period in 1998, an increase of $400, or 10%.
The increase was primarily the result of increased personnel costs related to
the Sydney 2000 Olympic games, increased equipment rental expense required to
service a significant project in July and increased depreciation expense related
to power generation and temperature control equipment acquired since June 1998.
These increases were partially offset by a decrease in third quarter 1999
shipping costs as compared to the same period in 1998, due in part to more
favorable project locations in 1999. Cost of sales as a percentage of revenues
increased to 66% for the third quarter of 1999 from 59% for the same period in
1998, due primarily to the increases described above.
GROSS PROFIT. Gross profit decreased to $2,247 for the third quarter of
1999 from $2,758 for the same period in 1998, a decrease of $511, or 19%. Gross
profit as a percentage of revenue was 34% of revenue in the third quarter of
1999 and 41% of revenue in the third quarter of 1998.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expense
decreased to $1,314 for the third quarter of 1999 from $1,750 for the same
period in 1998, a decrease of $436, or 25%. The decrease is due primarily to
reduction of personnel and other costs from 1998 levels.
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. Effective July 1, 1999, the Company granted
non-qualified stock options to employees and directors under the 1998 Stock
Option Plan for an aggregate of 490,000 shares of common stock. The options vest
upon reaching certain performance goals, primarily related to net income levels.
Compensation expense is recognized beginning in the period which the Company
first assesses it is probable that performance goals will be met and continuing
through the period the Company assesses the goals are most likely to be met.
Compensation expense of $37 has been recognized for the three months ended
September 30, 1999 based on the Company's assessment of future vesting.
INCOME FROM OPERATIONS. As a result of the above factors, income from
operations was $764 for the third quarter of 1999, compared to $917 for the same
period in 1998, a decrease of $153, or 17%.
OTHER INCOME AND (EXPENSE), NET. Other income was $92 for the third
quarter of 1999 compared to $37 for the same period in 1998, an increase of $55.
The increase was due primarily to the $105 gain recognized in connection with
the formation of SPLV in the third quarter of 1999.
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST. As a result of the
above factors, income before income taxes and minority interest was $856 for the
third quarter of 1999 compared to $954 for the same period in 1998, a decrease
of $98, or 10%.
INCOME TAX PROVISION. The income tax provision decreased to $338 for
the third quarter of 1999 from $394 for the same period in 1998, a decrease of
$56, due primarily to the decrease in earnings.
MINORITY INTEREST. Minority interest represents the 10% minority
shareholder interest in earnings or loss of the Company's subsidiary, Showpower
Brasil, S.A.
<PAGE>
NET INCOME. Net income for the third quarter of 1999 was $535, as
compared to $548 for the same period in 1998, a decrease in net income of $13.
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30,
1998
REVENUES. Revenues for the first nine months of 1999 decreased to
$15,055 from $16,580 for the same period in 1998, a decrease of $1,525 or 9%, Of
the $1,525 decrease, $1,368, or 90% was due primarily to a decrease in special
events and concert touring in the first quarter of 1999. The first quarter of
1998 included concert tours with the Rolling Stones and U2, the Winter Olympics
in Nagano, Japan and a special touring event in Asia. No comparable events were
serviced by the Company in the first quarter of 1999, resulting in a decrease in
first quarter 1999 revenue as compared to the first quarter of 1998.
COST OF SALES. Cost of sales increased to $9,943 for the first nine
months of 1999 from $9,663 for the same period in 1998, an increase of $280, or
3%. The increase was primarily the result of increased depreciation, personnel
and certain other costs, partially offset by a decrease in equipment rental and
shipping costs. The decrease in equipment rental and shipping resulted from
lower revenues as well as more favorable project locations in 1999.
Depreciation expense increased to $1,565 for the first nine months of
1999 as compared to $1,071 for the same period in 1998, an increase of $494,
which was partially offset by reduction in equipment rental expense in the first
quarter of 1999, but not in the second and third quarters of 1999, as compared
to the same periods of 1998. The Company maintained personnel and certain other
expenses at levels in excess of those required by business conditions in the
first quarter to ensure the availability of resources necessary for the
traditional summer peak season and other anticipated projects. Personnel and
certain other costs also increased in the third quarter of 1999 related to the
Sydney 2000 Olympic games. Cost of sales as a percentage of revenues increased
to 66% for the first nine months of 1999 from 58% for the same period in 1998,
due principally to the factors described above.
GROSS PROFIT. Gross profit decreased to $5,112 for the first nine
months of 1999 from $6,917 for the same period in 1998, a decrease of $1,805, or
26%. Gross profit as a percentage of revenue was 34% of revenue in the first
nine months of 1999 and 42% of revenue in the first nine months of 1998.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expense
decreased to $4,728 for the first nine months of 1999 from $5,327 for the same
period in 1998, a decrease of $599, or 11%. The decrease was primarily due to
second and third quarter 1999 reduction of $911 in personnel and other costs
from 1998 levels, offsetting an increase in first quarter 1999 general and
administrative expense over the first quarter of 1998 of $312. The first quarter
1999 increase in general and administrative expense resulted primarily from
operations in Brazil, allowance for certain doubtful accounts, professional
fees, financing-related costs, insurance and facilities costs, as well as costs
associated with a planned acquisition of a generator rental company in
Australia, which the Company elected not to consummate.
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. Effective July 1, 1999, the Company granted
non-qualified stock options to employees and directors under the 1998 Stock
Option Plan for an aggregate of 490,000 shares of common stock. The options vest
upon reaching certain performance goals, primarily related to net income levels.
Compensation expense is recognized beginning in the period which the Company
first assesses it is probable that performance goals will be met and continuing
through the period the Company assesses the goals are most likely to be met.
Compensation expense of $37 has been recognized for the nine months ended
September 30, 1999 based on the Company's assessment of future vesting.
INCOME (LOSS) FROM OPERATIONS. As a result of the above factors, the
loss from operations was $15 for the first nine months of 1999, compared to
income from operations of $1,307 for the same period in 1998, a decrease in
earnings of $1,322.
<PAGE>
OTHER INCOME AND (EXPENSE), NET. Other income was $152 for the first
nine months of 1999 compared to other net expense of $211 for the same period in
1998, an increase in other income of $363. The increase in other income was due
primarily to the first quarter 1999 gain on sale of property and equipment of
$100 and the $105 gain recognized in connection with the formation of SPLV in
the third quarter of 1999.
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST. As a result of the
above factors, income before income taxes and minority interest was $137 for the
first nine months of 1999 compared to $1,096 for the same period in 1998, a
decrease in earnings of $959.
INCOME TAX PROVISION. The income tax provision was $52 for the first
nine months of 1999 as compared to $1,205 for the same period in 1998, a
decrease in income tax expense of $1,153. The decrease is due primarily to the
one-time charge in the second quarter of 1998 of $784 to record the deferred tax
liability arising from the Company's conversion to taxable C Corporation status,
as well as the decrease in earnings in the first nine months of 1999. The income
tax provision reflects income tax expense related to foreign subsidiaries and
U.S. federal and state income tax expense since the date of the Offering.
MINORITY INTEREST. Minority interest represents the 10% minority
shareholder interest in earnings or loss of the Company's subsidiary, Showpower
Brasil, S.A.
NET INCOME (LOSS). Net income for the first nine months of 1999 was
$85, as compared to net loss of $121 for the same period in 1998. Net income for
the first nine months of 1999 decreased from pro forma net income of $612 for
the same period in 1998, a decrease in net pro forma earnings of $527. 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
The Company has a $2,000 line of credit facility (the "Facility") from
a bank. Interest under the Facility is payable monthly at the lender's prime
rate plus .875%, or, at the Company's option, LIBOR plus 3%. The Facility has a
term through April 2000. The Facility includes customary negative covenants,
such as restrictions on the Company's ability to incur debt, make acquisitions,
pay dividends, make investments or sell assets, as well as 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 current portion of long term debt obligations. The Company is
also required to maintain a specified level of cash and cash equivalents under
the terms of the Facility. At September 30, 1999 the Company's U.K. subsidiary,
had a separate bank line of credit in the amount of $207, bearing interest based
on the bank's reference rate plus 3%, with a term through February 28, 2000. At
September 30, 1999 there were no bank borrowings outstanding.
The Company has a financing commitment for asset-based borrowing
totaling $1,359 for certain 1999 capital expenditure commitments. The borrowings
bear a rate of interest to be determined by the lender at the funding date, with
monthly principal and interest payments over a four-year term, and 20% of the
principal amount due at the end of the term. Borrowings are secured by equipment
and a bank standby letter of credit equal to 50% of the borrowed amount. The
standby letter of credit balance will be reduced as certain levels revenue, net
income and other conditions are met for the years ended December 31, 1999 and
2000. At September 30, 1999, borrowing of $485 was outstanding under the
commitment. The Company expects to borrow the remaining amount available under
the commitment in the fourth quarter of 1999. The Company has another financing
commitment for certain asset-based borrowing totaling $3,500. Borrowings under
the second commitment will bear a rate of interest to be determined by the
lender at the funding date, with monthly principal and interest payments over of
up to a six-year term. At September 30, 1999 no borrowings were outstanding
under the $3,500 commitment, which expires April 30, 2000.
The Company has entered into agreements with the Sydney Organising
Committee for the Olympic Games (SOCOG) and the Olympic Coordination Authority
(OCA) for the provision of temporary
<PAGE>
power, heating, ventilation and air conditioning equipment and support services
during the Olympic Summer Games in Sydney, Australia next year. As part of the
agreements, Showpower has been designated as the "Official Supplier of Temporary
Power and Temporary HVAC to the Sydney 2000 Olympic Games." Revenues from the
contracts commenced in the third quarter of 1999, will become increasingly
significant to the Company in future periods, and will continue through the
fourth quarter of 2000.
As of September 30, 1999, the Company had outstanding standby letters
of credit and surety bonds in the amount of $1,489 in favor of SOCOG, OCA or
financial institutions to guarantee performance on service and equipment rental
contracts or financial obligations.
In August 1999, the Company formed a joint venture, Showpower Las
Vegas, LLC ("SPLV"), with Production Resource Group L.L.C. ("PRG"), an
international supplier of entertainment technology. SPLV provides temporary
power, electrical distribution, HVAC equipment and related services within the
state of Nevada. In connection with its formation, the Company contributed
property and equipment with a net book value of $289 to SPLV, in exchange for a
50% interest in SPLV and $250 in cash from PRG. The Company also contributed
cash of $50 to SPLV in October, 1999. The Company accounts for its investment in
SPLV using the equity method of accounting and recorded its initial investment
in SPLV in the amount of cash and 50% of the net book value of property and
equipment contributed. The Company recorded a gain of $105 as a result of the
50% interest in property and equipment relinquished in connection with this
transaction.
Capital expenditures (including assets acquired through exchange,
capital leases and long-term debt) were $3,457 and $6,766 for the nine months
ended September 30, 1999 and 1998, respectively, consisting primarily of power
generation, distribution and temperature control equipment. The Company has
commitments to acquire property and equipment of approximately $989 throughout
the remainder of 1999. In March 1999 the Company sold property and equipment
with a net book value of $1,974 for cash of $797 and property and equipment with
a value of $1,328. The Company recognized a gain of $100 on the sale and
deferred $51, which will be recognized as income through December 31, 1999, the
period the Company agreed to lease back certain of the equipment.
Cash provided by operating activities increased to $1,553 for the first
nine months of 1999 from $353 for the comparable period in 1998, an increase of
$1,200, due primarily to an increase in cash from customer deposits. Cash from
customer deposits increased $549 for the first nine months of 1999. For the
first nine months of 1998, customer deposits decreased $532 as a result of
deposits received in 1997 for projects completed during the first nine months of
1998. As a result of the increase in customer deposits for the first nine months
of 1999 and the decrease in customer deposits for the same period in 1998, cash
flows from operations increased $1,081 for the first nine months of 1999 as
compared to the same period in 1998. This increase accounted for 90% of the
increase in cash provided by operating activities.
Cash used in investing activities for the first nine months of 1999 and
1998 totaled $830 and $3,970, respectively. The decrease of $3,140 resulted
primarily from a decrease in 1999 capital from the 1998 use of Offering proceeds
to acquire equipment, offset by 1999 cash proceeds from sale of equipment and
transfer of assets to SPLV.
Cash (used in) provided by financing activities for the first nine
months of 1999 and 1998 totaled ($257) and $8,683, respectively. Cash provided
by financing activities in the first nine months of 1998 included proceeds from
the Offering and the use of proceeds to repay debt. Cash used in financing
activities for the first nine months of 1999 consists primarily of long term
debt and capital lease obligation repayments, offset by proceeds from
asset-based financing.
The Company believes that cash flows from operations 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.
Year 2000 Compliance
THE YEAR 2000 PROBLEM. Many information technology ("IT") hardware and
software systems ("IT Systems") and non-IT systems containing embedded
technology, such as microcontrollers and microchip processors ("Non-IT
Systems"), can only process dates with six digits (e.g., 06/26/98), instead
<PAGE>
of eight digits (e.g., 06/26/1998). This limitation may cause IT Systems and
Non-IT Systems to experience problems processing information with dates after
December 31, 1999 (e.g., 01/01/00 could be processed as 01/01/2000 or
01/01/1900) or with other dates, such as September 9, 1999, which was
traditionally used as a default date by computer programmers. These problems may
cause IT Systems and Non-IT Systems to suffer miscalculations, malfunctions, or
disruption. These problems are commonly referred to as "Year 2000" or "Y2K"
problems.
THE COMPANY'S STATE OF READINESS. Based on representations of third
parties, the Company believes computer software applications on which the
Company relies for accounting, management and operating information are recent
releases of, or can be readily upgraded to, Year 2000 compliant, commercially
available applications.
The Company has substantially completed its Year 2000 assessment as it
relates to Non-IT Systems and third parties with whom it has a material
relationship. The Company has received communications from its significant third
party vendors and service providers stating they are generally on target to
become Year 2000 compliant in 1999, if they have not already done so. There can
be no assurance that these third party vendors and service providers will
complete their own Year 2000 compliance projects in a timely manner and that
failure to do so would not have an adverse impact on the Company's business.
Third parties with whom the Company has a material relationship consist of
accounting and office software vendors, banks, a transfer agent, and payroll
service and telephone systems providers, among others. The Company is not aware
of any such third party for which alternate sources of supply are unavailable.
The Company plans to replace or upgrade any applications or Non-IT Systems that
are not Year 2000 compliant during the fourth quarter of 1999.
The Company does not separately identify costs that are specifically
attributable to resolving the Year 2000 issue. Such costs to date consist
primarily of internal resources devoted to assessing the Company's state of
readiness and are not significant. Based on the Company's assessment to date,
the Company does not expect the future costs related to the resolution of this
matter to exceed $100.
To date, the Company has not identified any information technology
assets under the control of the Company that represent a material risk of not
being Year 2000 ready or for which a suitable alternative cannot be implemented.
Accordingly, the Company does not have a contingency plan with respect to the
Year 2000 issue if the information systems assessment and upgrades are not
completed or are delayed beyond the end of 1999.
On September 14, 1999, the U.S. State Department released certain
country-specific Year 2000 information. The State Department Consular release
for Brazil contained the following:
Brazil is working to minimize the impact of Y2K and is also
cooperating with the international community on Y2K issues. Efforts in
major public agencies and private firms in Brazil are apparent,
especially in the private sector. However, many local governments and
small/medium sized businesses are lagging. Brazil appears to be
generally prepared to deal with the Y2K problem. Nonetheless, at the
present time it appears that there is a risk for potentially moderate
but largely isolated disruptions in telecommunications, electricity,
the health sector, and possibly financial services.
The Company is unable to predict the severity or duration of Year
2000-related disruptions generally in the U.S., Brazil or other countries in
which the Company conducts business and the extent to which such disruptions
might adversely affect the Company.
<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 a material adverse effect on the results of
operations, financial position or cash flows of the Company.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
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.
/s/ JOHN J. CAMPION
Dated: November 15, 1999 ----------------------------------------
John J. Campion, Chief Executive Officer
/s/ MICHAEL W. CRABBE
Dated: November 15, 1999 ----------------------------------------
Michael W. Crabbe, Vice President -
Chief Financial Officer
Exhibit 11
SHOWPOWER, INC. AND SUBSIDIARIES
COMPUTATION OF INCOME PER COMMON SHARE
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------------- ---------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income (loss) $ 535 $ 548 $ 85 $ (121)
Weighted average
shares outstanding 3,293,075 3,293,075 3,293,075 2,439,075
Dilutive effect after application
of treasury stock method
Restricted shares 111,969 111,656 114,847 105,809
Employee stock options 54,378 38,516 18,325 16,849
Shares used in calculating
diluted income per share 3,459,422 3,443,247 3,426,247 2,561,733
Basic net income (loss) per share $ 0.16 $ 0.17 $ 0.03 $ (0.05)
Diluted net income (loss) per share $ 0.15 $ 0.16 $ 0.02 $ (0.05)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Showpower, Inc. for the three months and nine months
ended September 30, 1999, and is qualified in its entirely by reference to such
financial information.
</LEGEND>
<CIK> 828360
<NAME> pqqhe@v2
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JAN-01-1998 JUL-01-1999
<PERIOD-END> SEP-30-1999 SEP-30-1999
<EXCHANGE-RATE> 1 1
<CASH> 3,272 3,272
<SECURITIES> 0 0
<RECEIVABLES> 2,645 2,645
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 7,635 7,635
<PP&E> 22,000 22,000
<DEPRECIATION> (6,720) (6,720)
<TOTAL-ASSETS> 24,423 24,423
<CURRENT-LIABILITIES> 4,705 4,705
<BONDS> 2,294 2,294
0 0
0 0
<COMMON> 19,824 19,824
<OTHER-SE> (3,520) (3,520)
<TOTAL-LIABILITY-AND-EQUITY> 24,423 24,423
<SALES> 15,055 6,613
<TOTAL-REVENUES> 15,055 6,613
<CGS> 9,943 4,366
<TOTAL-COSTS> 5,127 1,483
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (152) (92)
<INCOME-PRETAX> 137 856
<INCOME-TAX> 52 338
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 85 535
<EPS-BASIC> 0.03 0.16
<EPS-DILUTED> 0.02 0.15
</TABLE>
