================================================================================
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, 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 July 31, 1998
Transitional Small Business Disclosure Format Yes [ ] No [x]
================================================================================
<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 Six Months
Ended June 30, Ended June 30,
--------------------------- ----------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES $ 5,537 $ 5,583 $ 8,442 $ 9,856
COST OF SALES 3,476 3,245 5,577 5,697
---------- ---------- ---------- ----------
GROSS PROFIT 2,061 2,338 2,865 4,159
---------- ---------- ---------- ----------
OPERATING EXPENSES:
General and administrative 1,536 2,011 3,414 3,577
Depreciation and amortization 80 60 159 121
Stock compensation expense 35 35 71 71
---------- ---------- ---------- ----------
Total operating expenses 1,651 2,106 3,644 3,769
---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS 410 232 (779) 390
---------- ---------- ---------- ----------
OTHER INCOME AND (EXPENSE), NET 2 (133) 60 (248)
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES AND
MINORITY INTEREST 412 99 (719) 142
Income tax provision (benefit) 89 853 (286) 811
Minority interest 25 - 17 -
---------- ---------- ---------- ----------
NET INCOME (LOSS) 298 (754) (450) (669)
OTHER COMPREHENSIVE (LOSS) INCOME -
Foreign currency translation adjustment (57) 4 (193) (5)
---------- ---------- ---------- ----------
COMPREHENSIVE INCOME (LOSS) $ 241 $ (750) $ (643) $ (674)
========== ========== ========== ==========
NET INCOME (LOSS) PER SHARE:
Basic $ 0.09 $ (0.36) $ (0.14) $ (0.33)
Diluted $ 0.09 $ (0.36) $ (0.14) $ (0.33)
PRO FORMA AMOUNTS:
Income before income taxes, as reported $ 99 $ 142
Pro forma income tax provision 14 77
---------- ----------
Pro forma net income $ 85 $ 65
========== ==========
PRO FORMA NET INCOME PER SHARE:
Basic $ 0.04 $ 0.03
Diluted $ 0.04 $ 0.03
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 3,293,075 2,113,074 3,293,075 2,013,074
Diluted 3,394,269 2,113,074 3,293,075 2,013,074
Pro forma - Diluted 2,237,770 2,126,930
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SHOWPOWER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,620 $ 2,937
Accounts receivable, net 1,944 1,387
Other receivables 203 134
Deferred income taxes 221 225
Prepaid expenses and other current assets 597 341
-------- --------
5,585 5,024
-------- --------
PROPERTY AND EQUIPMENT 21,843 21,526
less: accumulated depreciation and amortization (6,280) (5,524)
-------- --------
15,563 16,002
-------- --------
OTHER ASSETS, NET 1,431 1,514
-------- --------
$ 22,579 $ 22,540
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank line of credit $ 139 $ 176
Current portion of long-term debt and capital lease obligations 866 718
Accounts payable and accrued expenses 2,991 2,637
-------- --------
3,996 3,531
-------- --------
LONG TERM LIABILITIES:
Long-term debt and capital lease obligations, net of current portion 2,127 1,616
Deferred income taxes 652 987
Other long-term liabilties 53 70
-------- --------
2,832 2,673
-------- --------
MINORITY INTEREST 48 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 19,717 19,645
Notes receivable from stockholders (529) (513)
Cumulative foreign currency translation adjustment (184) 9
Accumulated deficit (3,335) (2,885)
-------- --------
15,703 16,290
-------- --------
$ 22,579 $ 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>
Six Months
Ended June 30,
--------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1999 1998
-------- --------
<S> <C> <C>
Net loss $ (450) $ (669)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization 1,159 786
Stock compensation expense 71 71
(Gain) loss on disposal of property and equipment (92) 24
Deferred income taxes (291) 803
Minority interest 2 -
Changes in operating assets and liabilities:
Accounts receivable (572) (530)
Prepaid expenses and other current assets (255) (101)
Other assets 25 (237)
Accounts payable and accrued expenses 1,052 532
-------- --------
Net cash provided by operating activities 649 679
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of business - (100)
Purchases of property and equipment (1,262) (932)
Proceeds from collection of other receivables 797
-------- --------
Net cash used in investing activities (465) (1,032)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net of expenses paid - 11,455
Proceeds from issuance of long-term obligations 90 338
Net (repayment) borrowings under bank lines of credit (37) 2
Principal payments on long-term debt and capital leases (442) (3,795)
Distributions to stockholders - (400)
-------- --------
Net cash (used in) provided by financing activities (389) 7,600
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (112) -
-------- --------
NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS (317) 7,247
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,937 486
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,620 $ 7,733
======== ========
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 $ 2,772
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 $ -
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SHOWPOWER, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(In Thousands, Except Share Data)
June 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 six month periods ended June 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 three and six
month periods ended June 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 SFAS Nos. 133 and 137 will have on its financial
statements, if any.
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>
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 United and
States Kingdom Brazil Eliminations Consolidated
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE THREE MONTHS ENDED JUNE 30
1999
Revenues $ 3,589 $ 1,215 $ 996 $ (263) $ 5,537
Operating income $ 88 $ 20 $ 324 $ (22) $ 410
Other income and (expense) 2
--------
Income before income taxes and minority interest $ 412
========
Intersegment revenues $ 203 $ 60 $ - $ (263) $ -
Total assets $ 17,693 $ 3,847 $ 1,402 $ (363) $ 22,579
1998
Revenues $ 4,471 $ 1,087 $ - $ 25 $ 5,583
Operating income (loss) $ 238 $ 119 $ (102) $ (23) $ 232
Other income and (expense) (133)
--------
Income before income taxes $ 99
========
Intersegment revenues $ - $ (25) $ - $ 25 $ -
Total assets $ 19,347 $ 3,672 $ - $ (44) $ 22,975
FOR THE SIX MONTHS ENDED JUNE 30
1999
Revenues $ 5,790 $ 1,781 $ 1,301 $ (430) $ 8,442
Operating income (loss) $ (621) $ (324) $ 208 $ (42) $ (779)
Other income and (expense) 60
--------
Loss before income taxes and minority interest $ (719)
========
Intersegment revenues $ 367 $ 63 $ - $ (430) $ -
1998
Revenues $ 8,486 $ 1,437 $ - $ (67) $ 9,856
Operating income (loss) $ 741 $ (96) $ (214) $ (41) $ 390
Other income and (expense) (248)
--------
Income before income taxes $ 142
========
Intersegment revenues $ - $ 67 $ - $ (67) $ -
</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 $184 at June 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 1.77 reals to the U.S. dollar at June 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 June 30, 1999 Compared to Three Months Ended June 30, 1998
REVENUES. Revenues for the second quarter of 1999 were $5,537 as
compared to $5,583 for the same period in 1998, a decrease of $46. Services
provided in connection the 1998 World Cup games in France accounted for
approximately $1,400 of revenue in the second quarter of 1998. No comparable
event was serviced by the company in the second quarter of 1999. Operations in
Brazil generated revenues of $996 in the second quarter of 1999 and contributed
no revenues during the same period of 1998. Second quarter 1999 revenues
increased $2,632, or 91%, from first quarter 1999 revenues of $2,905.
COST OF SALES. Cost of sales increased to $3,476 for the second quarter
of 1999 from $3,245 for the same period in 1998, an increase of $231, or 7%.
Depreciation expense related to power generation and temperature control
equipment increased to $495 for the second quarter of 1999 as compared to $340
for the same period in 1998, an increase of $155. The increase in depreciation
expense, which accounts for 67% of the increase in cost of sales, was due
primarily to the expansion of temporary power and HVAC rental assets following
the Offering in June 1998. Cost of sales as a percentage of revenues increased
to 63% for the second quarter of 1999 from 58% for the same period in 1998, due
primarily to the increase in depreciation expense.
GROSS PROFIT. Gross profit decreased to $2,061 for the second quarter
of 1999 from $2,338 for the same period in 1998, a decrease of $277, or 12%.
Gross profit as a percentage of revenue was 37% of revenue in the second quarter
of 1999 and 42% of revenue in the second quarter of 1998.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expense
decreased to $1,536 for the second quarter of 1999 from $2,011 for the same
period in 1998, a decrease of $475, or 24%. 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.
INCOME (LOSS) FROM OPERATIONS. As a result of the above factors, the
income from operations was $410 for the second quarter of 1999, compared to
income from operations of $232 for the same period in 1998, an increase of $178,
or 77%.
OTHER INCOME AND (EXPENSE), NET. Other income was $2 for the second
quarter of 1999 compared to other net expense of $133 for the same period in
1998, a decrease in other net expense of $135. The decrease was due primarily to
lower interest expense in the second quarter of 1999 as compared to the same
period in 1998.
INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY INTEREST. As a result of
the above factors, income before income taxes and minority interest was $412 for
the second quarter of 1999 compared to $99 for the same period in 1998, an
increase of $313, or 316%.
INCOME TAX PROVISION (BENEFIT). The income tax provision decreased to
$89 for the second quarter of 1999 from $853 for the same period in 1998, a
decrease of $764. 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. 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. The Company
was not subject to income taxes on its U.S. operations prior to becoming a C
Corporation in June 1998.
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 second quarter of 1999 was $298,
as compared to net loss of $754 for the same period in 1998, an increase in net
earnings of $1,052. Net income for the
<PAGE>
second quarter of 1999 increased from pro forma net income of $85 for the same
period in 1998, an increase in net pro forma earnings of $213. 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, 1999 Compared to Six Months Ended June 30, 1998
REVENUES. Revenues for the first six months of 1999 decreased to $8,442
from $9,856 for the same period in 1998, a decrease of $1,414 or 14%, 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 decreased to $5,577 for the first six
months of 1999 from $5,697 for the same period in 1998, a decrease of $120, or
2% due to the decrease in revenues. Cost of sales as a percentage of revenues
increased to 66% for the first six months of 1999 from 58% for the same period
in 1998, due principally to a slight increase in personnel and travel costs in
the first quarter of 1999. In the first quarter of 1999, the Company maintained
personnel and certain other expenses at levels in excess of those required by
business conditions in the quarter to ensure the availability of resources the
Company expected to be necessary during the traditional summer peak season and
for other anticipated projects. Personnel and travel costs were 28% of revenues
in the first six months of 1999 as compared to 24% for the same period in 1998.
Depreciation expense increased to $1,000 for the first six months of 1999 as
compared to $666 for the same period in 1998, an increase of $334, which was
offset by reduction in equipment rental expense in the first quarter of 1999,
but not in the second quarter of 1999, as compared to the same periods of 1998.
GROSS PROFIT. Gross profit decreased to $2,865 for the first six months
of 1999 from $4,159 for the same period in 1998, a decrease of $1,294, or 31%.
Gross profit as a percentage of revenue was 34% of revenue in the first six
months of 1999 and 42% of revenue in the first six months of 1998.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expense
decreased to $3,414 for the first six months of 1999 from $3,577 for the same
period in 1998, a decrease of $163, or 5%. The decrease was primarily due to
second quarter 1999 reduction of $475 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.
INCOME (LOSS) FROM OPERATIONS. As a result of the above factors, the
loss from operations was $779 for the first six months of 1999, compared to
income from operations of $390 for the same period in 1998, a decrease in
earnings of $1,169.
OTHER INCOME AND (EXPENSE), NET. Other income was $60 for the first six
months of 1999 compared to other net expense of $248 for the same period in
1998, an increase in other income of $308. The increase in other income was due
primarily to the first quarter 1999 gain on sale of property and equipment of
$100, as well as from lower interest expense in the first six months of 1999 as
compared to the first six months of 1998.
<PAGE>
INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY INTEREST. As a result of
the above factors, the income (loss) before income taxes and minority interest
was ($719) for the first six months of 1999 compared to $142 for the same period
in 1998, a decrease in earnings of $861.
INCOME TAX PROVISION (BENEFIT). The income tax benefit was $286 for the
first six months of 1999 as compared to an income tax provision of $811 for the
same period in 1998, a decrease in income tax expense of $1,097. The decrease is
due primarily to the decrease in earnings in the first six months of 1999 and
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. 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 loss for the first six months of 1999 was $450,
as compared to net loss of $669 for the same period in 1998. Net loss for the
first six months of 1999 increased from pro forma net income of $65 for the same
period in 1998, a decrease in net pro forma earnings of $515. 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 June 30, 1999 there were no borrowings outstanding
under the Facility. At June 30, 1999 the Company's U.K. subsidiary, had maximum
available borrowings under a separate bank line of credit in the amount $231,
bearing interest based on the bank's reference rate plus 2.5%, with a term
through December 20, 1999.
The Company has a financing commitment for asset-based borrowing
totaling $1,359 for certain 1999 capital expenditure commitments. The borrowings
will 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 will be 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 June 30, 1999, no borrowings were outstanding under the
commitment, which expires October 31, 1999.
Capital expenditures (including assets acquired through exchange,
capital leases and long-term debt) were $2,842 and $3,704 for the six months
ended June 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 for the first six months of 1999
and 1998 totaled $649 and $679, respectively. Cash used in operations for the
first six months of 1998 reflected the use of Offering proceeds to improve the
Company's working capital position and to prepay certain costs in order to
obtain pricing advantage. The absence of similar cash requirements in 1999
resulted in approximately the same cash used in operations for the first six
months of 1999 and 1998, despite lower earnings for the first six months of
1999.
<PAGE>
Cash used in investing activities for the first six months of 1999 and
1998 totaled $465 and $1,032, respectively. The decrease of $567 resulted
primarily from cash collected on the equipment sale receivable of $797,
partially offset by an increase of $310 in 1999 capital expenditures acquired
for cash as compared to 1998. The Company reduced capital expenditures financed
through capital leases and long-term debt in the first six months of 1999 as
compared to the same period in 1998.
Cash (used in) provided by financing activities for the first six
months of 1999 and 1998 totaled ($389) and $7,600, respectively. Cash provided
by financing activities in the first six months of 1998 included proceeds from
the Offering and the use of proceeds to repay debt. Cash used in financing
activities for the first six months of 1999 consists primarily of repayment of
long term debt and capital lease obligations.
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 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. While the
Company has no present assurance that all of its IT Systems, Non-IT Systems,
vendors and service providers are Year 2000 compliant, management believes the
potential risk and any associated cost resulting from the Year 2000 problem will
not be material to the Company's results of operations or financial condition.
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 is in the process of determining which, if
any, of those applications are not Year 2000 compliant.
The Company is continuing its Year 2000 assessment as it relates to
Non-IT Systems and third parties with whom it has a material relationship. The
Company has initiated the process of surveying key vendors to insure they are
Year 2000 compliant, which to date has consisted of requests of vendors to
describe their state of readiness. The Company is unaware of any key vendors who
are not compliant; however, such survey is not yet complete. The Company is
unable to ascertain when this process will be complete, as it has no control
over the responsiveness of such third parties. 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 complete
its assessment by the third quarter of 1999 and replace or upgrade any
applications or Non-IT Systems that are not Year 2000 compliant by 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.
<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
On May 27, 1999, the Annual Meeting of Stockholders was held in Rancho
Dominguez, California. The stockholders were asked to elect three directors to
serve until 2002. The vote was as follows:
<TABLE>
<CAPTION>
Against or Abstentions
For Withheld or broker non-votes
------------- ------------- -------------------
<S> <C> <C>
David C. Bernstein 2,198,255 130,141 --
Robert E. Masterson 2,198,255 26,130 104,011
Jeffrey B. Stone 2,198,255 130,141 --
</TABLE>
The terms of office of Vincent A. Carrino, Eric C. Jackson, Joseph A.
Ades and John J. Campion continued after the meeting.
The stockholders were also asked to approve a proposed amendment to the
Company's 1998 Stock Option and Incentive Plan. The vote was as follows:
<TABLE>
<CAPTION>
Against or Abstentions
For Withheld or broker non-votes
------------- ------------- -------------------
<S> <C> <C>
1,121,286 210,228 6,650
</TABLE>
Item 5. OTHER INFORMATION
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 First Amendment to Showpower, Inc. 1998 Stock
Option and Incentive Plan, incorporated
herein by reference to exhibit 4.3(b) to the
registration statement on form S-8 filed June
3, 1999 (file no. 333-79889)
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: August 13, 1999 _______________________________________
John J. Campion, Chief Executive Officer
/s/ MICHAEL W. CRABBE
Dated: August 13, 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 Six Months
Ended June 30, Ended June 30,
--------------------------- -------------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income (loss) $ 298 $ (754) $ (450) $ (669)
Weighted average
shares outstanding 3,293,075 2,113,074 3,293,075 2,013,074
Dilutive effect after application
of treasury stock method
Restricted shares 101,194 - - -
Shares used in calculating
diluted income per share 3,394,269 2,113,074 $3,293,075 2,013,074
Basic net income (loss) per share $ 0.09 $ (0.36) $ (0.14) $ (0.33)
Diluted net income (loss) per share $ 0.09 $ (0.36) $ (0.14) $ (0.33)
</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 six months
ended June 30, 1999, and is qualified in its entirely by reference to such
financial information.
</LEGEND>
<CIK> 0000828360
<NAME> Showpower, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JAN-31-1998 APR-01-1999
<PERIOD-END> JUN-30-1999 JUN-30-1999
<EXCHANGE-RATE> 1.000 1.000
<CASH> 2,620 2,620
<SECURITIES> 0 0
<RECEIVABLES> 1,944 1,944
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 5,585 5,585
<PP&E> 21,843 21,843
<DEPRECIATION> (6,280) (6,280)
<TOTAL-ASSETS> 22,579 22,579
<CURRENT-LIABILITIES> 3,996 3,996
<BONDS> 2,127 2,127
0 0
0 0
<COMMON> 19,751 19,751
<OTHER-SE> (4,048) (4,048)
<TOTAL-LIABILITY-AND-EQUITY> 22,579 22,579
<SALES> 8,442 5,537
<TOTAL-REVENUES> 8,442 5,537
<CGS> 5,577 3,476
<TOTAL-COSTS> 3,644 1,651
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (60) (2)
<INCOME-PRETAX> (719) 412
<INCOME-TAX> (286) 89
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (450) 298
<EPS-BASIC> (0.14) 0.09
<EPS-DILUTED> (0.14) 0.09
</TABLE>
