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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB/A
(Amendment No. 1)
(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, 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.
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(Exact name of small business issuer as specified in its charter)
DELAWARE 95-4678707
- ------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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: 3,241,842 shares of common
stock as of October 31, 1998.
Transitional Small Business Disclosure Format Yes [ ] No[X]
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<PAGE>
Showpower, Inc. hereby amends Parts I and II of its Quarterly Report on Form
10-QSB for the quarter ended September 30, 1998 to include restated financial
statements (Item 1), a revised Management's Discussion and Analysis or Plan of
Operations (Item 2), an amended Computation of Income Per Common Share (Exhibit
11) and an amended financial data schedule (Exhibit 27).
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this amended report to be signed on its behalf by the
undersigned, hereunto duly authorized.
SHOWPOWER, INC.
March 31, 1999 By: /s/ Michael W. Crabbe
---------------------------------
Michael W. Crabbe,
Vice President-Chief Financial Officer
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
SHOWPOWER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------------- --------------------------
1998 1997 1998 1997
---------- ----------- ----------- ------------
(As restated) (As restated)(As restated) (As restated)
<S> <C> <C> <C> <C>
REVENUE $6,723,495 $5,727,436 $16,579,925 $12,423,100
COST OF SALES 3,965,622 3,127,459 9,663,129 6,838,677
---------- ---------- ----------- -----------
GROSS PROFIT 2,757,873 2,599,977 6,916,796 5,584,423
OPERATING EXPENSES
Selling, general and administrative 1,750,657 1,750,836 5,327,375 4,353,018
Depreciation and amortization 55,307 52,234 175,946 163,462
Stock compensation 35,579 35,579 106,737 71,158
---------- ---------- ----------- -----------
Total operating expenses 1,841,543 1,838,649 5,610,058 4,587,638
INCOME FROM OPERATIONS 916,330 761,328 1,306,738 996,785
Interest income and (expense), net 37,726 (37,838) (210,541) (123,432)
---------- ---------- ----------- -----------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 954,056 723,490 1,096,197 873,353
Income tax provision 394,531 30,262 421,578 22,388
Minority interest 11,612 - 11,612 -
---------- ---------- ----------- -----------
INCOME BEFORE DEFERRED TAX ADJUSTMENT 547,913 693,228 663,007 850,965
Deferred taxes from S Corporation conversion - - 783,906 -
---------- ---------- ----------- -----------
NET INCOME (LOSS) 547,913 693,228 (120,899) 850,965
Other comprehensive loss
foreign currency translation adjustment (17,569) (18,763) (22,515) (10,876)
---------- ---------- ----------- -----------
COMPREHENSIVE INCOME (LOSS) $ 530,344 $ 674,465 $ (143,414) $ 840,089
========== ========== =========== ===========
NET INCOME PER SHARE:
Basic $ 0.17 $ 0.36 $ (0.05) $ 0.51
Diluted $ 0.16 $ 0.34 $ (0.05) $ 0.49
PRO FORMA AMOUNTS:
Income before income taxes and minority
interest, as reported $ 723,490 $ 1,096,197 $ 873,353
Pro forma income tax provision 283,721 471,944 350,397
Minority interest - 11,612 -
---------- ----------- -----------
Pro forma net income $ 439,769 $ 612,641 $ 522,956
========== =========== ===========
PRO FORMA NET INCOME PER SHARE:
Basic $ 0.23 $ 0.25 $ 0.31
Diluted $ 0.22 $ 0.24 $ 0.30
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 3,293,074 1,913,080 2,439,074 1,661,747
Diluted 3,443,246 2,009,503 2,561,732 1,726,029
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
SHOWPOWER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
(Unaudited)
(As restated)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,551,511 $ 485,788
Accounts receivable, net 2,640,378 1,445,671
Prepaid expenses and other current assets 290,418 409,499
----------- -----------
8,482,307 2,340,958
PROPERTY AND EQUIPMENT 18,947,099 12,056,711
Less: accumulated depreciation (5,167,037) (4,026,299)
----------- -----------
13,780,062 8,030,412
OTHER ASSETS, NET 1,590,432 1,353,288
----------- -----------
$23,852,801 $11,724,658
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 2,281,543 $ 2,161,620
Customer deposits 46,120 578,429
Current portion of notes payable and capital leases 751,878 862,578
Income taxes 193,613 226,286
Bank line of credit - 119,495
----------- -----------
3,273,154 3,948,408
LONG TERM LIABILITIES:
Long term portion of notes payable and capital leases 1,757,443 2,249,529
Deferred income taxes 1,029,290 220,349
Other 39,602 -
----------- -----------
2,826,335 2,469,878
MINORITY INTEREST 50,612 -
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 34,218 20,418
Additional paid-in capital 19,609,898 6,658,073
Notes receivable from stockholders (504,829) (478,944)
Cumulative foreign currency translation adjustment (5,753) 16,762
Accumulated deficit (1,430,834) (909,937)
----------- -----------
17,702,700 5,306,372
----------- -----------
$23,852,801 $11,724,658
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
SHOWPOWER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
---------------------------
1998 1997
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES: (As restated) (As restated)
<S> <C> <C>
Net (loss) income $ (120,899) $ 850,965
Adjustments to reconcile net (loss) income to cash provided by operating
activities:
Depreciation and amortization 1,247,146 794,072
Stock compensation expense 106,737 71,158
Gain on settlement - (162,800)
Loss on disposal 23,790 -
Deferred income taxes 808,941 6,027
Changes in operating assets and liabilities:
Accounts receivable (1,194,707) (225,244)
Prepaid expenses and other current assets 119,081 (82,777)
Other assets (233,359) 36,756
Accounts payable and accrued expenses 161,737 528,991
Customer deposits (532,309) 178,537
Income taxes (32,673) 12,975
----------- -----------
Net cash provided by operating activities 353,485 2,008,660
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquired businesses, net of cash acquired (100,000) (2,105,361)
Purchases of property and equipment (3,852,267) (1,220,482)
Other (17,812) (12,248)
----------- -----------
Net cash used in investing activities (3,970,079) (3,338,091)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net of expenses paid 12,858,888 2,042,730
Proceeds from issuance of long term debt 338,400 684,218
Repayment of bank credit lines (119,495) -
Principal payments on long term debt and capital leases (3,995,478) (288,564)
Distributions to stockholders (399,998) (500,000)
----------- -----------
Net cash provided by financing activities 8,682,317 1,938,384
NET INCREASE IN CASH AND EQUIVALENTS 5,065,723 608,953
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 485,788 186,380
----------- -----------
CASH AND EQUIVALENTS, END OF PERIOD $ 5,551,511 $ 795,333
=========== ===========
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
and capital leases $ 2,913,948 $ -
Repayment of stockholder notes through issuance of long term debt $ - $ 1,326,524
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
SHOWPOWER, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
September 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 (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 Registration
Statement on Form SB-2 (File No. 333-50595).
The results for the three months and nine months ended September 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 (the "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. 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
$1,776,936.
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 was declared by the Board of Directors, effective June
16, 1998 and $399,998 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.
Showpower Brazil
The Company formed Showpower Brasil, S.A., a 90%-owned Brazilian
Corporation, to conduct business in Brazil. The Company commenced recognizing
results of operations in Brazil during the quarter ended September 30, 1998.
5
<PAGE>
New Accounting Pronouncements
In 1998, the Company adopted Statement of Finanical Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income," which establishes
standards for reporting and displaying comprehensive income and its components
in a full set of financial statements. SFAS No. 130 requires reclassification of
comparative financial statements for earlier periods, and the 1997 financial
statements have been reclassified to conform to the 1998 presentation.
Restatement
Subsequent to the issuance of the Company's September 30, 1998
financial statements, management determined that accrued payroll and certain
expenses incurred on behalf of the Company by a related party were not properly
recorded in the financial statements. As a result, the unaudited consolidated
financial statements as of September 30, 1998 and for the three months and nine
months ended September 30, 1998 and 1997 have been restated from the amounts
previously reported to properly reflect compensation costs and costs incurred on
the Company's behalf by the minority stockholder in the Company's subsidiary,
Showpower Brazil, S.A. The effect of the restatement on the accompanying
financial statements is as follows:
<TABLE>
<CAPTION>
As of September 30, 1998
-------------------------------
As previously As
reported restated
------------- -----------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Accounts receivable, net $ 2,789,187 $ 2,640,378
Accounts payable
and accrued expenses $ 2,034,422 $ 2,281,543
Income taxes $ 341,567 $ 193,613
Stockholders' equity $17,940,578 $17,702,700
<CAPTION>
1998 1997
-------------------------------- ---------------------------------
As previously As As previously As
reported restated reported restated
------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
For the three months ended September 30
Cost of sales $ 3,731,982 $ 3,965,622 $ 3,075,785 $ 3,127,459
Selling, general and administrative $ 1,693,510 $ 1,750,657 $ 1,692,566 $ 1,750,836
Income from operations $ 1,207,117 $ 916,330 $ 871,272 $ 761,328
Net income $ 722,838 $ 547,913 $ 803,172 $ 693,228
Net income (loss) per share - basic $ 0.22 $ 0.17 $ 0.42 $ 0.36
Net income (loss) per share - diluted $ 0.21 $ 0.16 $ 0.40 $ 0.34
For the nine months ended September 30
Cost of sales $ 9,436,254 $ 9,663,129 $ 6,741,588 $ 6,838,677
Selling, general and administrative $ 5,156,420 $ 5,327,375 $ 4,232,200 $ 4,353,018
Income from operations $ 1,704,568 $ 1,306,738 $ 1,214,692 $ 996,785
Net income (loss) $ 118,252 $ (120,899) $ 1,068,872 $ 850,965
Net income (loss) per share - basic $ 0.05 $ (0.05) $ 0.64 $ 0.51
Net income (loss) per share - diluted $ 0.05 $ (0.05) $ 0.62 $ 0.49
</TABLE>
6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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 the Company'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
commenced recognizing results of operations in Brazil, denominated primarily in
Brazilian reals, during the quarter ended September 30, 1998. 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.
As discussed in the Notes to Unaudited Consolidated Financial
Statements, the Company restated its unaudited consolidated financial statements
as of September 30, 1998 and for the three months and nine months ended
September 30, 1998 and 1997 to properly reflect compensation costs and certain
expenses incurred on behalf of the Company by a related party.
Three Months Ended September 30, 1998 Compared to Three Months Ended
September 30, 1997
REVENUE. Revenue increased to $6,723,495 for the third quarter of 1998
from $5,727,436 for the same period in 1997, an increase of $996,059, or 17%.
The increase was due primarily to an increase of $1,479,058 in revenues related
to the Company's operations in the U.K., Brazil and the U.S. These increases
were offset by a decrease in revenue from concert touring and large special
events of approximately $483,000 in the third quarter of 1998 over the
corresponding period in 1997. The decrease in concert touring revenue resulted
primarily from third quarter 1997 tours with U2, KISS and Michael Jackson that
had come to an end by the third quarter of 1998. Services for a concert tour and
a special touring event, which began in the third and fourth quarters of 1997,
respectively, concluded and resulted in revenue of approximately $912,000 in the
third quarter of 1998.
7
<PAGE>
COST OF SALES. Cost of sales increased to $3,965,622 for the third
quarter of 1998 from $3,127,459 for the same period in 1997, an increase of
$838,163, or 27%. Cost of sales as a percentage of revenue was 59% of revenue in
the third quarter of 1998 and 55% of revenue in the third quarter of 1997.
Personnel and travel costs increased to $1,757,470 (26% of revenue) in
the third quarter of 1998 from $1,001,539 (17% of revenue) for the same period
in 1997. The increase in personnel and travel costs of $755,931, due primarily
to increased sales and short-term labor requirements in the U.K., accounted for
90% 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 $369,731 to $649,578 (10% of revenue) in the
third quarter of 1998 from $1,019,309 (18% of revenue) for the same period in
1997. Power generation and temperature control equipment depreciation increased
$180,027 to $405,433 (6% of revenue) in the third quarter of 1998 from $225,406
(4% of revenue) for the same period in 1997.
GROSS PROFIT. Gross profit increased to $2,757,873 for the third
quarter of 1998 from $2,599,977 for the same period in 1997, an increase of
$157,896, or 6%. Gross profit as a percentage of revenue was 41% of revenue in
the third quarter of 1998 and 45% of revenue in the third quarter of 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expense of $1,750,657 for the third quarter of 1998 approximated
the amount for same period in 1997. As a result of overall growth in operations
and operations in Brazil which commenced in 1998, selling, general and
administrative expense increased $213,776 in the third quarter of 1998 from the
same period in 1997. The third quarter 1998 increase in selling, general and
administrative expense was offset by a reduction in accrued incentive
compensation expense, resulting primarily from planned changes in the Company's
discretionary incentive compensation program and reduction of accrued expenses.
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 increased to $916,330 for the third quarter of 1998 from $761,328 for the
same period in 1997, an increase of $155,002, or 20%.
INTEREST INCOME AND (EXPENSE), NET. Net interest income increased to
$37,726 for the third quarter of 1998 from net interest expense of $37,838 for
the same period in 1997, an increase of $75,564, due primarily to interest
earnings from proceeds of the Offering offset by interest expense. Through
September 30, 1998, the Company has applied approximately $4,049,000 of the net
Offering proceeds to repayment of indebtedness.
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST. As a result of the
above factors, income before income taxes and minority interest increased to
$954,056 for the third quarter of 1998 from $723,490 for the same period in
1997, an increase of $230,566, or 32%.
PROVISION FOR INCOME TAXES. The provision for income taxes increased to
$394,531 for the third quarter of 1998 from $30,262 for the same period in 1997,
an increase of $364,269. The provision for income taxes consists of a provision
for income taxes on earnings of foreign subsidiaries 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.
MINORITY INTEREST. Minority interest represents the 10% minority
shareholder interest in earnings of the Company's subsidiary, Showpower Brasil,
SA.
NET INCOME. Net income for the third quarter of 1998 was $547,913 as
compared to $693,228 for the same period in 1997, a decrease in net earnings of
$145,315. Net income for the third quarter of 1998 increased from pro forma net
income of $439,769 for the same period in 1997, an increase of $108,144, or 25%.
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.
Nine Months Ended September 30, 1998 Compared to Nine Months Ended
September 30, 1997
REVENUE. Revenue increased to $16,579,925 for the first nine months of
1998 from $12,423,100 for the same period in 1997, an increase of $4,156,825, or
33%. The increase was due primarily to increases in special events, including
the 1998 World Cup, the Winter Olympics in Nagano, Japan and a full nine months
of operations in 1998 from Templine, acquired in March, 1997. Revenue from
operations in the U.K. and Brazil accounted for approximately 34% and 13% of the
increase, respectively. The first nine months of 1998 included a special touring
event which accounted for approximately 37% of the increase.
8
<PAGE>
COST OF SALES. Cost of sales increased to $9,663,129 for the first nine
months of 1998 from $6,838,677 for the same period in 1997, an increase of
$2,824,452, or 41%, as a result of increased sales. Cost of sales as a
percentage of revenue was 58% in the first nine months of 1998 and 55% in the
first nine 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 and increased short-term labor costs
in the U.K. in the third quarter of 1998. Personnel and travel costs increased
to $4,155,397 (25% of revenue) in the first nine months of 1998 from $2,384,979
(19% of revenue) for the same period in 1997. The increase in personnel, travel
and subsistence costs of $1,770,418 accounted for 63% of the increase.
As a result of 1998 capital expenditures to purchase power generation
and temperature control equipment, short-term equipment rental costs decreased
to 12% of revenue for the first nine months of 1998 from 15% of revenue for the
same period in 1997.
GROSS PROFIT. Gross profit increased to $6,916,796 for the first nine
months of 1998 from $5,584,423 for the same period in 1997, an increase of
$1,332,373, or 24%. Gross profit as a percentage of revenue was 42% in the first
nine months of 1998 and 45% in the first nine months of 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $5,327,375 for the first nine months of
1998 from $4,353,018 for the same period in 1997, an increase of $974,357, or
22%. As a result of an increase in employees required to support the growth in
operations, a full nine months operations in 1998 from Templine and newly opened
branch locations in 1998, selling, general and administrative expenses increased
$1,257,148. The 1998 increase in selling, general and administrative expense was
offset by a reduction in accrued incentive compensation expense, resulting
primarily from planned changes in the Company's discretionary incentive
compensation program. Selling, general and administrative expenses decreased to
32% of revenue for the first nine months of 1998 from 35% 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 nine months of 1998 compared to the same period in 1997.
INCOME FROM OPERATIONS. As a result of the foregoing, operating income
increased to $1,306,738 in the first nine months of 1998 from $996,785 for the
same period in 1997, an increase of $309,953, or 31%.
INTEREST INCOME AND (EXPENSE), NET. Net interest expense increased to
$210,541 for the first nine months of 1998 from $123,432 for the same period in
1997, an increase of $87,109, due primarily to increased borrowings in the first
six months of 1998, offset by interest earnings from proceeds of the Offering.
Through September 30, 1998, the Company has applied approximately $4,049,000 of
the net proceeds of the Offering to repayment of indebtedness.
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST. As a result of the
above factors, income before income taxes and minority interest increased to
$1,096,197 for the third quarter of 1998 from $873,353 for the same period in
1997, an increase of $222,844, or 26%.
PROVISION FOR INCOME TAXES. The provision for income taxes increased to
$421,578 for the first nine months of 1998 from $22,388 for the same period in
1997. The provision for income taxes consists of a provision for income taxes on
earnings of foreign subsidiaries 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.
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 in the second quarter of 1998 to record the net deferred income tax
liability arising from the Company's conversion from S Corporation to taxable C
Corporation status.
NET INCOME (LOSS). Net loss for the first nine months of 1998 was
$120,899 as compared to net income of $850,965 for the same period in 1997, a
decrease in earnings of $971,864, 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 nine months of 1998 and 1997 was $612,641 and $522,956,
respectively, an increase of $89,685, or 17%. 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.
9
<PAGE>
Liquidity and Capital Resources
Following the application of the net proceeds from the Offering,
working capital increased to $5,209,153 at September 30, 1998 from a working
capital deficit of $1,607,450 at December 31, 1997, an increase of $6,816,603.
The Company currently has two asset-based financing commitments
totaling $6,500,000. All outstanding borrowings under a commitment with
Caterpillar Financial Services Corporation ("CAT Financial") in the amount of
$3,199,001 were repaid with proceeds of the Offering. The entire amount of the
commitment of $3,500,000 was available at September 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 September 30, 1998, borrowings of
$2,068,522 from Charter were outstanding and the Company had 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, availability of funds in excess of $750,000 is
subject to an accounts receivable borrowing base formula and interest is payable
monthly at the lender's prime rate (8.0% at June 30, 1998) plus .75%, or, at the
Company's option, the London Interbank Offered Rate (LIBOR), plus 2.75%. The
line of credit term is through May 1, 1999. The Company has a commitment for a
$7,000,000 line of credit facility which will replace the Facility (the "New
Facility"). Interest under the New Facility will be payable monthly at the
lender's prime rate, or, at the Company's option, LIBOR plus 2.125%. The New
Facility will have a two year term and contains an option to convert $3,000,000
of borrowings to four year term loans bearing interest at the lender's prime
rate plus 0.25%, or, at the Company's option, LIBOR plus 2.25%. Both the New
Facility and existing Facility include customary negative covenants such as
restriction 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 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 bearing interest based on the bank's reference rate with a term through
January 31, 1999. The Company repaid bank borrowings of $850,000 with a portion
of the net proceeds of the Offering. At September 30, 1998, no amounts were
outstanding under any of the above credit lines.
Capital expenditures (including assets acquired through capital lease
and note payable financing) were $6,766,215 and $1,220,482 for the nine months
ended September 30, 1998 and 1997, respectively, consisting primarily of power
generation, distribution and temperature control equipment.
The Company intends to use a total of 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. Through
September 30, 1998, the Company has applied approximately $3.0 million of the
proceeds to equipment purchases or construction and at September 30, 1998 has
commitments for approximately $2.5 million in additional equipment purchases.
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 nine months of 1998
and 1997 totaled $353,485 and $2,008,660, respectively. The decrease of
$1,655,175 in cash flow from operations resulted primarily from an increase in
accounts receivable and decrease in customer deposits. These decreases in cash
from operating activities are primarily due to increased total revenues, the
decrease in concert touring revenues, as well as the conclusion of a concert
tour and a special touring event in the third quarter of 1998.
Cash used in investing activities for the first nine months of 1998 and
1997 totaled $3,970,079 and $3,338,091, respectively. The increase of $631,988
resulted primarily from increased capital expenditures in 1998 from application
of the Offering proceeds, offset by the effect of the Templine acquisition in
1997.
Cash provided by financing activities for the first nine months of 1998
and 1997 totaled $8,682,317 and $1,938,384, respectively. The Company completed
the Offering of 1,200,000 shares of Common Stock for $11.00 per share on June
16, 1998. 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 net proceeds from the sale of shares totaled
$12,858,888, after deduction of underwriting discounts, commissions and
offering-related expenses. 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.
10
<PAGE>
Year 2000 Compliance
Many information technology ("IT") hardware and software systems ("IT
Systems") and non-IT systems containing embedded technology, such as
microcontollers 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 disruptions. These problems are
commonly referred to as "Year 2000" or "Y2K" problems.
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. 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 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 plans to survey key vendors to insure they are Year 2000 compliant. The
Company is unaware of any key vendors who are not compliant; however, such
survey has not been undertaken. 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.
To 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 $100,000.
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.
11
Exhibit 11
AMENDED
SHOWPOWER, INC. AND SUBSIDIARIES
COMPUTATION OF INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------- -------------------------
1998 1997 1998 1997
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income (loss) $ 547,913 $ 693,228 $ (120,899) $ 850,965
Weighted average
shares outstanding 3,293,074 1,913,080 2,439,074 1,661,747
Dilutive effect after application
of treasury stock method
Restricted shares 111,656 96,423 105,809 64,282
Employee stock options 38,516 - 16,849 -
Shares used in calculating
diluted income per share 3,443,246 2,009,503 2,561,732 1,726,029
Basic net income (loss) per share $ 0.17 $ 0.36 $ (0.05) $ 0.51
Diluted net income (loss) per share $ 0.16 $ 0.34 $ (0.05) $ 0.49
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SHOWPOWER, INC. FOR THE NINE MONTHS AND THREE MONTHS
ENDED SEPTEMBER 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000828360
<NAME> SHOWPOWER, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollar
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JAN-01-1998 JUL-01-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<EXCHANGE-RATE> 1.000 1.000
<CASH> 5,551,511 5,551,511
<SECURITIES> 0 0
<RECEIVABLES> 2,640,378 2,640,378
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 8,482,307 8,482,307
<PP&E> 18,947,099 18,947,099
<DEPRECIATION> (5,167,037) (5,167,037)
<TOTAL-ASSETS> 23,852,801 23,852,801
<CURRENT-LIABILITIES> 3,273,154 3,273,154
<BONDS> 1,757,443 1,757,443
0 0
0 0
<COMMON> 19,644,116 19,644,116
<OTHER-SE> (1,941,416) (1,941,416)
<TOTAL-LIABILITY-AND-EQUITY> 23,852,801 23,852,801
<SALES> 16,579,925 6,723,495
<TOTAL-REVENUES> 16,579,925 6,723,495
<CGS> 9,663,129 3,965,622
<TOTAL-COSTS> 5,610,058 1,841,543
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 210,541 (37,726)
<INCOME-PRETAX> 1,096,197 954,056
<INCOME-TAX> 1,205,484 394,531
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (120,899) 547,913
<EPS-PRIMARY> (0.05) 0.17
<EPS-DILUTED> (0.05) 0.16
</TABLE>
