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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934
For the quarterly period ended 31 OCTOBER 1996, or
Transition report pursuant to section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934
For the Transition period from __________ to __________.
COMMISSION FILE NUMBER 0-18163
POWER PLUS CORPORATION
(the "Registrant", or the "Company", or "Power Plus")
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FORMERLY BATTERY ONE, INC.
PROVINCE OF ALBERTA, CANADA
(STATE OR OTHER JURISDICTION OF INCORPORATION)
7850 WOODBINE AVENUE, SUITE 201,
MARKHAM, ONTARIO, CANADA L3R 0B9
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (POSTAL CODE)
905-479-5683
800-769-3733 905-479-8911
(TELEPHONE NUMBERS) (FAX NUMBER)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or Section 15(d) of the SECURITIES EXCHANGE ACT OF
1934 during the preceding 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
------- ---
As of 29 November 1996 there were 2,238,281 POST-CONSOLIDATION common shares of
the Registrant's Common Stock outstanding. (Please refer to Item 2. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
concerning the reorganization and consolidation of the Company's stock on the
basis of 20 to 1.)
<PAGE>
FORM 10-Q
Third Quarter
Fiscal Year End 1997
Page 2
FORM 10-Q INDEX
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Interim Financial Statements 3
Consolidated Statement of Changes in Financial
Position - Nine months year to date period
ended 31 October 1996 and 31 October 1995
Consolidated Balance Sheet - 31 October 1996 and 31
January 1996
Consolidated Statement of Operations - Three and Nine
Months periods ended 31 October 1996 and 31 October 1995
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of 7
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signature 16
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FORM 10-Q
Third Quarter
Fiscal Year End 1997
Page 3
PART I - FINANCIAL INFORMATION
The Company prepares its consolidated financial statements in Canadian Dollars.
In this report all references to "$" are to Canadian Dollars, unless otherwise
noted.
EXCHANGE RATES
Based on the noon buying rates for cable transfers in New York City, certified
for customs purposes by the Federal Reserve Bank of New York, the exchange rate
on 29 November 1996 was C$1.00 = US$0.74.
ITEM 1. INTERIM FINANCIAL STATEMENTS.
THIRD QUARTER
(period ended 31 October 1996)
FISCAL 1997
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION (UNAUDITED)
(AMOUNTS ARE EXPRESSED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
NINE MONTH YEAR TO DATE PERIOD ENDED 31 OCTOBER
-----------------------------------------------
1996 1995
---- ----
<S> <C> <C>
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
(Loss) for period $(2,645,864) $(3,593,297)
Items not affecting cash
Amortization 53,572 162,116
------------- -------------
(2,592,292) (3,431,181)
CHANGES IN NON CASH OPERATING ITEMS
Accounts receivable (153,151) 131,551
Inventory (981,176) 1,414,847
Prepaid expenses 0 (8,930)
Accounts payable and accrued liabilities 1,416,062 274,593
------------- -------------
(2,310,557) (1,619,120)
------------- -------------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
Issue of common shares and warrants - SEE NOTE 4 2,454,217 234,100
Notes payable 0 1,055,743
Issue of Special Notes - SEE NOTE 5 6,000,000 0
------------- -------------
8,454,217 1,289,843
------------- -------------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
Purchase of capital assets (1,979,864) (22,779)
Increase in deferred charges (46,469) 0
Purchase of other assets (388,500) (641)
------------- -------------
(2,414,833) (23,420)
------------- -------------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS DURING PERIOD 3,728,827 (352,697)
Cash and cash equivalents, beginning of period 1,288 330,254
------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $3,730,115 $(22,443)
------------- -------------
------------- -------------
</TABLE>
<PAGE>
FORM 10-Q
Third Quarter
Fiscal Year End 1997
Page 4
CONSOLIDATED BALANCE SHEET, AS AT
(AMOUNTS ARE EXPRESSED IN CANADIAN DOLLARS)
31 OCTOBER1996 31 January 1996
-------------- ---------------
(unaudited) (audited)
ASSETS
Current Assets
Cash and cash equivalents $3,730,115 $1,288
Accounts receivable 217,152 64,001
Inventory 981,176 0
Prepaid expenses 66,229 19,760
----------- ------------
4,994,672 85,049
Capital assets, net 1,979,864 0
Deferred charges, net 169,899 244,986
Goodwill 388,500 0
Other assets, net 21,515 0
----------- ------------
$7,554,450 $330,035
----------- ------------
----------- ------------
LIABILITIES
Accounts payable and accrued liabilities $1,923,270 $507,208
Special Notes - SEE NOTE 5 6,000,000 0
----------- ------------
7,923,270 507,208
----------- ------------
SHAREHOLDERS' EQUITY / (DEFICIENCY) - SEE
NOTE 6
Share capital and warrants 1,799,876 26,016,484
Deficit 2,168,696 26,193,657
----------- ------------
(368,820) (177,173)
----------- ------------
$7,554,450 $330,035
----------- ------------
----------- ------------
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTH YEAR TO DATE
THREE MONTHS ENDED 31 OCTOBER PERIOD ENDED 31 OCTOBER
----------------------------- -----------------------
(AMOUNTS ARE EXPRESSED IN CANADIAN DOLLARS)
<S> <C> <C> <C> <C>
1996 1995 1996 1995
---- ---- ---- ----
SALES $846,966 $1,128,357 $903,861 $4,875,665
Cost of Sales 483,881 646,750 507,803 2,240,713
---------- ----------- ---------- -----------
GROSS PROFIT 363,085 481,607 396,058 2,634,952
EXPENSES
Operating and administration 1,684,176 2,260,455 2,988,350 6,066,134
Amortization 15,310 37,274 53,572 162,116
---------- ----------- ---------- -----------
(LOSS) FOR PERIOD (1,336,401) (1,816,122) (2,645,864) (3,593,298)
DEFICIT, BEGINNING OF PERIOD 26,670,825 23,429,282 26,193,657 21,652,106
---------- ----------- ---------- -----------
DEFICIT, BEFORE ADJUSTMENT BELOW 28,007,226 - 28,839,521 -
Stated capital reduction - SEE NOTE 6 26,670,825 - 26,670,825 -
---------- ----------- ---------- -----------
DEFICIT, END OF PERIOD $1,336,401 $25,245,404 $2,168,696 $25,245,404
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
EARNINGS PER SHARE $(0.03) $(0.05) $(0.07) $(0.10)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 40,183,072 34,694,521 39,859,323 34,694,521
</TABLE>
<PAGE>
FORM 10-Q
Third Quarter
Fiscal Year End 1997
Page 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1: The Consolidated Financial Statements are for the nine month period
ended 31 October 1996, pertaining to the current fiscal year ending 31
January 1997 ("Fiscal 1997"), and include the results of operations of
Power Plus Corporation (the "Company"), formerly Battery One, Inc.,
and its two wholly-owned subsidiaries, Power Plus USA, Inc. and Power
Plus Canada, Inc. (collectively, "Power Plus"). The comparative
Consolidated Financial Statements are for the nine month period ended
31 October 1995, pertaining to the fiscal year ending 31 January 1996
("Fiscal 1996"), and include the results of operations of Power Plus
Corporation when formerly Battery One, Inc. and its then two
wholly-owned subsidiaries, Battery One-Stop International Inc. and
Batteries Etc., Inc. (the latter two being collectively, the "Former
Subsidiaries"). (See Item 2. -- MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS herein.)
NOTE 2: During Fiscal 1996, the Former Subsidiaries were assigned into
bankruptcy. All of the Company's operations, which consisted of the
sale of batteries and battery-related products to consumers through
the Former Subsidiaries' retail stores in Canada and the US, were
conducted through the Former Subsidiaries and all of its capital
assets were owned by the Former Subsidiaries. Accordingly, at 31
January 1996 and during a part of the first quarter of Fiscal 1997,
the Company had no ongoing operations nor operating assets.
In response to the Company's circumstances, management developed a
reorganization plan with the intent of re-commencing operations,
including a financing plan and statutory Plan of Arrangement
(collectively, the "Reorganization Plan"), which are now being
implemented. Accordingly, the results of operations are presented on
the basis that the Company has recommenced operations. (See Item 2.
-- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS herein.)
NOTE 3: For the period ended 31 October 1996, the consolidated balance sheet
as at 31 October 1996 and the consolidated statements of operations
and changes in financial position for the three month period and year
to date nine month period ended 31 October 1996 and 1995, in the
opinion of management, include all adjustments necessary for a fair
presentation of such financial statements. Such adjustments consisted
only of normal recurring items. Interim results are not necessarily
indicative of results for a full year.
The consolidated balance sheet as at 31 October 1996 and the
consolidated statements of operations and changes in financial
position for both the three months and year to date period ended 31
October 1996 and 1995 are unaudited. The consolidated balance sheet
for Fiscal 1996 was audited and reported in the Company's Annual
Report to Shareholders and the related annual SEC FORM 10-K report.
The consolidated financial statements and notes are presented in
accordance with the SEC's FORM 10-Q quarterly report filing
requirements, and do not contain certain information included in the
Company's annual consolidated financial statements and the notes
thereto.
Loss per share is based on the weighted average common shares
outstanding for the period.
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FORM 10-Q
Third Quarter
Fiscal Year End 1997
Page 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- continued
NOTE 4: On 1 March 1996, the Company completed a Special Warrant private
placement equity financing, in accordance with the Reorganization
Plan, comprised of up to 45 million Special Warrants representing $4.5
million. Initially, 38.5 million Special Warrants were subscribed,
representing gross proceeds of $3.85 million. Of this amount, $1.1
million had been previously received in the third quarter of Fiscal
1996, and the balance of $2.75 million was received in cash. The
remaining Special Warrants representing 6.5 million units and
additional capital of $650,000 were fully subscribed by the end of
September 1996. (See Item 2. -- MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS herein.)
NOTE 5: Effective 31 July 1996, the Company completed a Special Notes 5-year
10% convertible fixed and floating charge debentures private placement
debt financing for $6 million, in accordance with the Reorganization
Plan, which was fully subscribed by the end of September 1996. The
Special Notes are convertible into post-consolidation common shares of
the Company, at $3.00 per share, representing potential future
dilution of up to 2 million post-consolidation common shares. (See
Item 2. -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS herein.)
NOTE 6: In accordance with the Reorganization Plan, the shareholder approval
received at the Annual Meeting on 24 July 1996 and pursuant to the
related court approval to the Plan of Arrangement received 25 July
1996, the Company reduced both the stated capital amount for the
common shares of the Company and the accumulated deficit in earnings
by $26,670,825. Management is of the opinion that, after making the
adjustment, the balance sheet better represents the financial
repositioning of the Company resulting from the reorganization and
restructuring, and the appropriate current financial condition of the
Company as it proceeds to implement its 5-year business plan. (See
Item 2. -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS herein.)
<PAGE>
FORM 10-Q
Third Quarter
Fiscal Year End 1997
Page 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
By the last quarter of Fiscal 1996 (the year ended 31 January 1996), it had
become apparent to management that on the basis of the Company's share
capitalization, and considering the continued unprofitability of Batteries Etc.,
Inc. ("Etc.") (the wholly-owned subsidiary of the Company which formerly
operated the business in the US), notwithstanding its best efforts, the Company
regrettably was not able to complete the financing of its turnaround program on
the basis contemplated. The poor performance of Etc. resulted from a number of
unproductive stores situated in secondary locations committed to by prior
management, which were subsidized by Battery One-Stop International Inc.
("BOSI") (the wholly-owned subsidiary of the Company which formerly operated the
business in Canada), to its serious detriment. (Etc. and BOSI are referred to
collectively as the "Former Subsidiaries".)
In December, 1995 BOSI made a voluntary assignment into bankruptcy pursuant to
the CANADIAN BANKRUPTCY AND INSOLVENCY ACT. In December 1995, Etc. made a
voluntary petition seeking protection under Chapter 11 of the US BANKRUPTCY
CODE, which in January 1996 was then converted to a Chapter 7 filing. The
Company is the largest creditor of the Former Subsidiaries.
The Company is not directly nor indirectly liable for any debt or liability of
the Former Subsidiaries and has no outstanding guarantees or undertakings with
respect to any third party claim against the Former Subsidiaries.
All of the Company's operations, which consisted of the sale of batteries and
battery-related products to consumers via Company-owned retail stores in Canada
and the US, were conducted through the Former Subsidiaries and all of its
capital assets were owned by the Former Subsidiaries. Accordingly, at 31
January 1996 the Company had no ongoing operations nor operating assets.
The Consolidated Statements of Operations included with these materials reflect
that during the first two quarters of Fiscal 1997 the Company acquired assets,
operated one store in Canada for most of this six month period, and opened its
first US store in Pittsburgh Airport AirMall, in late-July 1996. During the
third quarter of Fiscal 1997, Power Plus opened a number of locations and
acquired a chain of 13 retail locations in Florida, bringing the current number
of locations opened in total to 32. As discussed in more detail below, the
Company expects to have 53 stores open by Christmas and a total of 59 open by
the end of the Fiscal Year.
Accordingly, the historical financial statements for the prior period included
with these materials have little relevance to the Company's operations at
present.
On 1 February 1996, the Company announced its Reorganization Plan which, as
discussed in earlier filings, is subdivided into two parts: PLAN 2000, the
Company's 5-year business plan prescribing how the Company proposes to build its
business to in excess of 1000 stores by the end of the Year 2000; and, the
Financing Plan which sets out the manner in which the Company proposes to
finance PLAN 2000's requirements.
The Reorganization Plan and the related Plan of Arrangement proposed by new
management were approved by the Company's shareholders at the annual and special
meeting held on 24 July 1996.
Among other matters, shareholders approved as part of the Reorganization Plan,
the Company's proposal to: change its name; reduce its stated capital by all or
virtually all of the accumulated deficit; and, reorganize and consolidate its
capitalization on the basis of twenty (20) pre-consolidation shares for one (1)
post-consolidation share and an exchange right, that is to 2,238,281
post-consolidation shares from the existing 44,765,613 pre-consolidation shares.
Final court and regulatory approval as required was obtained, and the
reorganization and consolidation (20:1 reverse-split) occurred effective 1
November 1996.
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FORM 10-Q
Third Quarter
Fiscal Year End 1997
Page 8
The Company is now implementing its 5-year Business Plan -- PLAN 2000 --
designed to make POWERFUL STUFF a category leader in its markets.
POWER PLUS, in implementing its PLAN 2000, is selling through Company-owned
POWERFUL STUFF stores expected to be all across North America, wireless
communication products and services (beepers/pagers, cellular phones, Personal
Communication Systems ("PCS") and related service contracts), together with
batteries and battery-powered products (portable electronics, watches,
accessories, etc.), the latter being the foundation of the business in the
past. PLAN 2000 anticipates growth to over 1000 stores and over $500 million
(US$370 million) in sales over a 5-year period and provides the architecture
for developing a branded distribution and communications network. With
offices now in both Florida (operating) and Toronto (corporate and operating),
the Company expects approximately 85% of its POWERFUL STUFF stores to be in
the US.
As of 30 November 1996, the Company has 24 locations open in the US and 8 in
Canada, totaling 32. The Company expects to open another 21 locations before
Christmas and thereby have a total of 53 locations open during the peak
Christmas selling season. By fiscal year end, the Company expects to have
opened 41 locations in the US and 18 in Canada for an aggregate of 59 locations,
against PLAN 2000's target of 40.
- - PLAN 2000 - OVERVIEW
POWERFUL STUFF is a new business opportunity the Company has launched -- a
restructuring, refinancing and repositioning of Battery One, Inc., renamed POWER
PLUS CORPORATION effective 31 July 1996.
POWERFUL STUFF is a branded retail marketing and distribution network for
wireless communications products and services, plus batteries and related
products and services -- portable energy -- the latest in hand-held electronic
communications, entertainment, business and lifestyle products with the
batteries to power them. POWERFUL STUFF is the specialty retail business of
POWER PLUS.
To launch this new business opportunity, the former Battery One, Inc., a
publicly traded Canadian company listed on The Alberta Stock Exchange (Symbol:
PPC; formerly BTB) and on NASDAQ's OTC Bulletin Board (Symbol: PPCO; formerly
BATT), has been reorganized during 1996 as POWER PLUS CORPORATION. The
Company's Reorganization Plan incorporates a related $42 million Financing Plan
over 3 years providing the capital needed to rapidly increase the number of
POWERFUL STUFF stores to a critical mass to quickly achive economies of scale
and operating efficiencies.
An initial Special Warrants private placement equity offering, representing up
to a maximum of $4.5 million, raised $2.8 million in net new capital through its
first closings in March and April 1996. The remaining equity units representing
$650,000 were fully subscribed by the end of September 1996, completing this
financing.
A Special Notes 5-year 10% convertible secured debentures private placement debt
offering, representing up to a maximum of $6.0 million, raised $3.05 million
through its initial closing in July 1996. The remaining Special Notes,
representing $2.95 million, were fully subscribed by the end of September 1996,
completing this financing.
The comprehensive 3-year Financing Plan supporting PLAN 2000 has been structured
as follows:
- - March to September 1996 - $4.5 million Special Warrants private placement
equity offering completed and fully subscribed;
- - July to September 1996 - $6.0 million Special Notes 5-year 10% convertible
secured debentures private placement debt offering completed and fully
subscribed;
- - January 1997- $5.0 million rights offering;
- - April 1997 - $12.5 million rights offering; and,
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FORM 10-Q
Third Quarter
Fiscal Year End 1997
Page 9
- - March 1998 - $14.2 million rights offering.
Having these phased capital resources from this Financing Plan positions POWER
PLUS to execute PLAN 2000.
On 1 February 1996, the Company announced its Reorganization Plan proposing:
- - Changing the Company's name to POWER PLUS CORPORATION;
- - Reorganizing and consolidating the outstanding share capital on the basis
of every twenty (20) shares before consolidation being reorganized and
consolidated into one (1) consolidated share plus an exchange right;
- - Raising additional capital funds of up to $42 million in the aggregate;
- - Consolidating corporate headquarters into offices in Toronto, Canada;
- - Establishing new divisional operations in the US and Canada;
- - Putting new management in place; and,
- - Launching the Company's retail chains and distribution channels.
POWER PLUS has combined two merchandising segments -- wireless communication
products and services, PLUS batteries, battery-powered products and services --
into a single retail store - POWERFUL STUFF. The pagers (beepers) and
accessories generate higher average per transaction revenues, earn strong
secondary margins through air-time and activation sales, and generate recurring
revenues from customer subscriber fees and renewals. The complementary battery
segment of the business contributes revenues and incremental margins necessary
to grow POWERFUL STUFF stores to the point where a customer base is built and
recurring sales are produced by paging and cellular services. In addition, the
battery business provides particularly high margins from specialty batteries and
installation services, plus strong positioning for the sale of innovative
battery-powered products.
POWER PLUS CANADA
On 8 March 1996, the Company closed a purchase transaction with the Trustee
responsible for the realization of the assets BOSI whereby it acquired the
inventory, furniture and equipment, kiosks, and certain lease entitlements and
proprietary interests of its former Canadian subsidiary.
The Canadian POWERFUL STUFF chain relaunched in July 1996 through its wholly-
owned Canadian subsidiary POWER PLUS CANADA, INC., with a location in Toronto's
Square One Mall. Since then 7 new locations have been opened in Ontario.
Additional locations are currently being negotiated with major landlords (i.e.,
Cadillac Fairview, Cambridge and Markborough). The immediate expansion thrust
is expected to be concentrated primarily in Ontario, with a total of 18
locations planned by year end. Several store locations in British Columbia,
Alberta, and Manitoba are under consideration for 1997's expansion base.
Business options for further expansion into Quebec, Saskatchewan and the Eastern
Provinces are anticipated to be considered once the business has been firmly
established in the Canadian Provinces initially targeted.
POWER PLUS USA
On 17 May 1996, POWER PLUS USA, INC., the Company's wholly-owned US subsidiary,
acquired the strategic Pittsburgh Airport AirMall location lease, formerly held
by Etc., upon approval of the Western District of New York Bankruptcy Court.
The US POWERFUL STUFF chain launched in July, commencing in the Northeast US
(Pittsburgh) and Southeast US markets (Florida, Georgia, Mississippi, North
Carolina and Tennessee), based upon two acquisitions providing the foundation
for this launch:
- - the acquisition of the former US operating subsidiary's Pittsburgh Airport
AirMall location; and,
- - the acquisition of 13 retail locations in Florida in September.
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FORM 10-Q
Third Quarter
Fiscal Year End 1997
Page 10
THE NORTHEAST US MARKET
The US operations commenced with the opening of the Pittsburgh Airport AirMall
store, ideally situated in the largest airport shopping center in North America.
This provides POWERFUL STUFF with a flagship store in one of the premier US
transportation centers and the foundation for expansion in this market. Three
new locations opened during the Third Quarter in the Pittsburgh area and one or
two more are planned for 1997.
THE SOUTHEAST US MARKET
The Southeast expansion is a blend of new POWERFUL STUFF stores being opened,
combined with the 13 retail locations acquired in Florida.
On 17 June 1996, POWER PLUS USA, INC. agreed to purchase the assets and business
of PORTRONICS, a specialty US retailer, from CONSUMER ELECTRONICS SPECIALTY
STORES, INC. ("CESS"), located in Sarasota, Florida. The acquisition, which
closed effective 1 September 1996, includes 10 leased stores in Florida,
inventories, two rented warehouse/retail facilities and pager repair facilities,
one office/retail location and CESS's proprietary interests. This strategic
acquisition made the operations and assets of Portronics an integral part of the
Company. The 13 Portronics retail locations are expected to generate more than
US$3.5 million in annual revenues for the Company from the sale of pagers - or
BEEPERS as they have more commonly become known - cellular telephones plus
related paging and cellular services, and other wireless communication products.
In the Southeast there are currently 22 stores open, including the acquired
Portronics stores, with another 15 opening by year end. The Southeast
market has expanded to include new locations in Georgia, North Carolina,
Alabama, Tennessee and Mississippi.
An integral component of the assets purchased from CESS included over 20,000
existing pager customers under contract and the related future rebilling
revenue, thus positioning the Company strategically into the wireless rebilling
business -- the Wireless Division. POWERFUL STUFF expects to become a leader in
the retail sales and service of paging and other wireless services by
establishing its POWERFUL CONNECTIONS Wireless Division as a reseller business
in both the US and Canada.
While the reseller distribution channel is established in the US, it is brand
new to Canada. Cantel and Bell Mobility do not currently have resellers; they
sell direct and use agents and retailers. The major new entrants to the paging
business in Canada, PageMart and PageNet, are both in the process of setting up
reseller programs in Canada based on the models used by their parent companies
in the US (major carriers for Portronics). Anticipated changes in CRTC
regulations are expected to open the wireless market to resellers in Canada in
the future.
The distribution chain for paging and cellular services starts with the carriers
or air-time providers that own regional and national networks. Telephone
companies control some air-time providers and often partner with the leading
independents to offer expanded coverage and service. Most paging carriers have
large direct sales forces selling primarily to businesses, but they rely on
indirect retail channels and resellers for small business and consumer sales.
Resellers buy wireless services from carriers at deep discounts with agreements
to provide high volumes of new customers through their own distribution. The
reseller's major advantage (and costs) are in marketing to and servicing the
customer. Resellers, by being a party to the customer contract, create an
ongoing relationship. The reseller sends its own bills to customers, collects
the payments, provides customer service and pays the carriers. To the
customers, the reseller is the phone or paging company. Over the long-term, a
reseller generally has greater profit potential than a sales agent or general
retailer who simply receive a one-time activation fee from the carrier.
For paging services, the monthly service bill is usually fixed and relatively
low. With up-front and properly timed payment schedules for customers, there is
usually limited or no risk for carrying
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FORM 10-Q
Third Quarter
Fiscal Year End 1997
Page 11
receivables for the reseller. A typical paging customer might remain active for
an average of 2 years, producing lifetime revenues of $150 to $175 against $24
in airtime cost.
Cellular reselling is similar to that of paging reselling, although different
carriers are usually involved. There is, however, a major difference. Common
to most cellular customers, the revenue is variable, usually paid after the fact
thereby creating an accounts receivable ranging from $60 to $100 per customer.
The carrier may also require a deposit for new customers. Therefore, in addition
to the cost of funding marketing/sales efforts, the reseller must be able to
finance, manage and collect receivables. Once the customer is on the books, the
cellular reseller should be able to earn $10 to $15 per month for each active
customer. Satisfied cellular customers typically remain active with a carrier
for 5 years or more.
The reseller-retailer has the advantage of being able to combine equipment sales
with service sales to maximize company margins where the retail margin on the
equipment alone is limited. However, the cellular reseller does not have to
rely totally on new, first-time buyers. With approximately 40 million cellular
customers in the US, the Company aims to capitalize on the significant
opportunity available by obtaining customers owning their own equipment to
switch to a new wireless service provider. Providing easy access to high quality
service at low rates is critical to switching and keeping these customers.
In addition to the Portronics acquisition and the introduction of the Company's
Wireless Division, on 12 August 1996 the Company announced its agreement in
principle to enter into a joint venture with C-Con Acquisition Company Inc. of
Florida (the "Cell Connection JV"), to resell cellular telephone services
through POWER PLUS' POWERFUL STUFF retail stores. The cellular market is
expanding rapidly -- a 40% annual increase in revenues last year in the US. The
number of cell sites in the US increased by 2,918 in the last half of 1995 and
the new PCS digital services are just beginning to expand the market further.
The Wireless Division is expected to increase store revenues and provide a
competitive advantage in the cellular arena. The arrangement complements the
paging reseller program being implemented, pending the purchase of Portronics.
POWER PLUS and C-Con are already working together to offer cellular services
through Portronics' Florida stores where paging (beeping) and cellular products
are a synergistic fit, along with the specialty batteries and battery-powered
products offered in POWERFUL STUFF stores.
C-Con resells cellular services provided by the GTE network in the
Tampa/Sarasota area and its contract with GTE covers additional geographic areas
throughout the US where GTE offers cellular services. POWERFUL STUFF stores is
expected to be the primary retail outlets in C-Con's markets, with POWER PLUS
providing the marketing for the Cell Connection JV, while C-Con provides back
office operations and customer billing. C-Con Chairman Bill Healey and
President Peter Lazzari are expected to actively participate in the management
of the Cell Connection JV.
Under the proposed terms of the Cell Connection JV, secured financing of up to
$750,000 is to be provided by POWER PLUS to the Cell Connection JV for customer
marketing and working capital, as well as up to $250,000 to C-Con directly to
accelerate its internal expansion of service capabilities and market coverage.
POWER PLUS also has the option to purchase up to 20% of the equity of C-Con for
nominal consideration upon satisfaction of certain defined conditions.
Subject to finalizing a definitive joint venture agreement, and due diligence,
financing, and regulatory approval, the Cell Connection JV would be expected to
begin operations during the first half of next year.
RESULTS OF OPERATIONS
<PAGE>
FORM 10-Q
Third Quarter
Fiscal Year End 1997
Page 12
As reported above, at 31 January 1996 the Company had no ongoing operations nor
operating assets.
The Consolidated Statements of Operations included in this material reflect that
during the first two quarters of Fiscal 1997 the Company acquired assets,
operated one store in Canada for most of the first six month period and opened
its first US store in late-July 1996 (compared to a total of approximately 40
stores in Canada and the US last year at this time) and recently acquired 13
more locations effective 1 September 1996 and added 17 other locations otherwise
during the Third Quarter. For this reason, the historical financial statements
for the prior period included in this report have little relevance to the
Company's operations at present.
The following table sets forth certain items reflected in the Company's
consolidated statement of operations expressed as percentages of sales:
EXPRESSED AS A PERCENTAGE OF SALES
----------------------------------
(all periods ending 31 October)
THREE MONTHS NINE MONTHS
------------ -----------
1996 1995 1996 1995
---- ---- ---- ----
Cost of sales 57.1% 57.3% 56.2% 46.0%
Operating and administration N/A 200.3% N/A 124.4%
Amortization N/A 3.3% N/A 3.3%
Cost of sales as a percentage of total sales for the period reported as herein,
was 57.1% reflecting that management was able to maintain comparable costs of
merchandise, as a percentage of total sales, compared to the same period last
year.
Operating and administration expenses incurred this year are not comparable to
Fiscal 1996, principally because, pursuant to the bankruptcies of the Former
Subsidiaries, the Company was initially focused on reorganizing, restructuring
and planning for the future. Fiscal 1996 expenses were more in the normal
course of operating a retail chain. In the long-term, the Company's
administration is expected to be structured so that a number of new stores can
be added without a significant increase in administrative overhead, thus trading
on the overhead leverage. This means profits from new locations can to a
greater extent flow to the bottom-line.
The amount of amortization for the period declined in comparison to the
corresponding periods ending in Fiscal 1996 because the Company had fewer
assets. It is noteworthy that for the nine months to date in Fiscal 1997,
amortization mostly results from amounts amortized for capitalized deferred
charges and other assets.
LIQUIDITY AND CAPITAL RESOURCES
See Notes 4 & 5 of the NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) included with these materials.
Subsequent to the period being reported on herein, effective 1 November 1996,
and in accordance with shareholder, court and regulatory approval of the
Reorganization Plan, the Company's 44,765,613 issued and outstanding common
shares were reorganized and consolidated on the basis of one new common share
and one Exchange Right for each twenty old common shares. Each Exchange Right
entitles the holder to purchase up to three additional post-consolidation common
shares of the Company as follows:
<PAGE>
FORM 10-Q
Third Quarter
Fiscal Year End 1997
Page 13
i.) Each Exchange Right shall entitle the holder to purchase, for
$2.00, one post-consolidation common share and one Class "A"
share purchase warrant, representing potential future dilution of
up to 2,238,281 common shares upon the exercise of the Exchange
Rights, and up to $4,476,562 in new capital to the Company. The
Exchange Rights expire on 31 January 1997 and the Class "A"
warrants expire on 30 April 1997.
ii.) Each Class "A" share purchase warrant shall entitle the holder to
purchase until 30 April 1997, for $2.50, one post-consolidation
common share and one Class "AA" share purchase warrant,
representing potential future dilution of up to 2,238,281 common
shares upon the exercise of the Class "A" warrants, and up to
$5,595,702 in new capital to the Company. The Class "AA"
warrants expire on 1 March 1998.
iii.) Each Class "AA" share purchase warrant shall entitle the holder
to purchase until 1 March 1998, for $3.00, one post-consolidation
common share, representing potential future dilution of up to
2,238,281 common shares, and up to $6,714,843 in new capital to
the Company.
At the effective date of consolidation on 1 November 1996, there were 44,765,613
pre-consolidation common shares issued and outstanding. Post-consolidation,
this resulted in 2,238,281 common shares issued and outstanding and 2,238,281
Exchange Rights, as well as 2,250,000 Special Warrants. There is no change to
the stated capital amount for the common shares resulting from this
reorganization and consolidation of the Company's capitalization.
<PAGE>
FORM 10-Q
Third Quarter
Fiscal Year End 1997
Page 14
Subject to the successful implementation of the Company's Reorganization Plan
and the completion of the related Financing Plan, the Company's proposed
re-capitalization structure, exclusive of allowable management incentive options
reserves, would then be estimated as follows:
<TABLE>
<CAPTION>
($ AMOUNTS ARE EXPRESSED IN CANADIAN MILLIONS) POST-CONSOLIDATION
---------------------------------------
CAPITAL
SHARES RAISED EST. TIMING
------ ------- -----------
<S> <C> <C> <C>
i CONSOLIDATING CURRENT SHARE CAPITALIZATION
(from 44,765,613 shares):
a.) 20:1 post-consolidation number of shares 2,238,281 $0.0
b.) 20:1 consolidation of Exchange Right Units:
i) Exchange Rights Units shares at $2.00 2,238,281 $4.0 Jan. 1997
ii) Class A Warrants to purchase shares at $2.50 2,238,281 $6.0 Apr. 1997
iii) Class AA Warrants to purchase shares at $3.00 2,238,281 $7.0 Mar. 1998
iv) Agent's Option shares at $2.00 225,000 $1.0 Dec. 1996
v) Agent's Option Class A Warrants to purchase
shares at $2.50 225,000 $1.0 Mar. 1997
vi) Agent's Option Class B Warrants to purchase
shares at $3.00 225,000 $1.0 Mar. 1998
ii CONSOLIDATING SPECIAL WARRANT PRIVATE PLACEMENT
FINANCING
(from 45 million pre-consolidation units and assuming
maximum offering):
a.) 20:1 post-consolidation Special Warrant shares
net new capital, at $2.00 2,250,000 $3.4(1) Mar. 1996
b.) 20:1 Class B Warrants to purchase shares at $2.50 2,250,000 $6.0 Apr. 1997
c.) 20:1 Class BB Warrants to purchase shares at
$3.00 2,250,000 $7.0 Mar. 1998
d.) 20:1 Penalty Special Warrants to purchase
shares at zero cost 225,000 $0.0 Jan. 1997
e.) 20:1 Class B Penalty Warrants to purchase
shares at $2.50 225,000 $1.0 Apr. 1997
f). 20:1 Class BB Penalty Warrants to purchase
shares at $3.00 225,000 $0.8 Mar. 1998
iii CONVERTIBLE SPECIAL NOTES:
$6 million Debentures convertible into post-
consolidation shares at $2.50 per share 2,400,000 $6.0 1996/1999
----------------------------
iv POST-CONSOLIDATION REORGANIZATION PLAN
Number of Shares, fully diluted (2) 19,453,124
----------
----------
v POST-CONSOLIDATION REORGANIZATION PLAN
Capital Availability assuming full dilution $42.7
-----
-----
</TABLE>
(1) This amount represents $4.5 million gross proceeds minus $1.1 million
received in Fiscal 1996.
(2) This amount does not include allowable management incentive options
reserves.
<PAGE>
FORM 10-Q
Third Quarter
Fiscal Year End 1997
Page 15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
See Part I, Item 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS with regard to the
current status of the Plan of Arrangement.
ITEM 2. CHANGES IN SECURITIES.
See Part I, Item 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS with regard to the
consolidation of the Registrant's stock.
During the quarter ended 31 October 1996, the Registrant completed it
private placement of Special Notes and Special Warrants.
As to the Special Notes, the Registrant had an initial closing of
$3.05 million in July 1996. The remaining $2.95 million were closed
before the end of September 1996. The Special Notes are comprised of
10% convertible fixed and floating charge secured notes. Each $1,000
principal amount of Special Notes may be converted into an equivalent
principal amount of 5-year 10% convertible fixed and floating secured
debentures. Such debentures may be converted into Common Shares for
$2.50 per share (post-consolidation) at any time by the holders and by
the Registrant after three years if the Common Shares have traded at a
weighted average price of $4.00 per share (post-conversion) during the
10 trading days prior to the compelled conversion.
As to the Special Warrants, the Registrant had closing in March and
April 1996 for $2.8 million. At the end of September 1996, the
Registrant closed on $650,000. Each Special Warrant was sold at a
price of $2.00 (post-consolidation) per Special Warrant. Each Special
Warrant is exchangeable into one exercisable at $2.50
(post-consolidation) to purchase on Common Share and one Class BB
common share purchase warrant. Each Class BB Warrant is exercisable
at $3.00 (post-conversion) to purchase on Common Share.
C.M. Oliver & Company Limited (the "Fiscal Agent") acted as agent for
the Registrant in connection with the placements of the Special Notes
and Special Warrants and received a placement commission equal to 8%
of the gross proceeds plus prescribed warrants from the sale of the
securities. The securities were sold primarily in Canada to
ACCREDITED INVESTORS. A few sales were made to US investors. (See
below)
Sales of the securities in the US were made in reliance upon the
exemption form registration contained in Section 4(2) of the
SECURITIES ACT OF 1933, as amended. The offering was limited only to
ACCREDITED INVESTORS known to the Fiscal Agent. The closing in
September 1996 involved sales of the Special Notes to six purchasers
(two of which were US residents) and sales of the Special Warrants to
four purchasers (one of which was a US resident). All of the US
purchasers were insurance companies.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
i.) Exhibits
Exhibit 27 -- Financial data schedule
ii.) Reports on Form 8-K
None
<PAGE>
FORM 10-Q
Third Quarter
Fiscal Year End 1997
Page 16
SIGNATURE
Pursuant to the requirements of the SECURITIES EXCHANGE ACT OF 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
POWER PLUS CORPORATION
Date: 1 December 1996
-----------------------
R. Bruce Freeman
Vice Chairman and Chief Financial
Officer
(Duly authorized officer of the
Registrant and its chief financial
officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM POWER PLUS
CORPORATION FOR THE THIRD QUARTER OF FISCAL 1997 ENDED 31 OCTOBER 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CURRENCY> CANADIAN
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> OCT-31-1996
<EXCHANGE-RATE> 0.74
<CASH> 3,730,115
<SECURITIES> 0
<RECEIVABLES> 217,152
<ALLOWANCES> 0
<INVENTORY> 981,176
<CURRENT-ASSETS> 4,994,672
<PP&E> 2,033,436
<DEPRECIATION> 53,572
<TOTAL-ASSETS> 7,554,450
<CURRENT-LIABILITIES> 1,923,270
<BONDS> 6,000,000<F3>
0
0
<COMMON> 1,799,876<F1><F2><F4>
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,554,450<F5>
<SALES> 903,861
<TOTAL-REVENUES> 903,861
<CGS> 507,803
<TOTAL-COSTS> 507,803
<OTHER-EXPENSES> 2,939,990
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 101,932
<INCOME-PRETAX> (2,645,864)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,645,864)
<DISCONTINUED> 0<F6>
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,645,864)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> 0
<FN>
<F1>The financial statements for the current period ended 31 October 1996 include
the results of operations of Power Plus Corporation (formerly Battery One,
Inc.) and its two wholly-owned subsidiaries, Power Plus USA, Inc. and Power
Plus Canada, Inc. (collectively, the "Company"). During the previous fiscal
year ended 31 January 1996, the Battery One, Inc.'s wholly-owned subsidiaries,
Battery One-Stop International Inc. and Batteries Etc., Inc. (collectively, the
"Former Subsidiaries"), were assigned into bankruptcy. All of the Company's
operations, which consisted of the sale of batteries and battery-related
products to consumers via Company-owned retail stores in Canada and the US,
were conducted through the Former Subsidiaries and all of its capital assets
were owned by the Former Subsidiaries. Accordingly, at 31 January 1996 and
during a part of the first quarter of Fiscal 1997, the Company had no ongoing
operations nor operating assets. The Company has begun building the business.
Complete information concerning the expansion plan, called PLAN 2000, is
detailed in the FORM 10-Q.
<F2>The Company is not directly nor indirectly liable for any debt or liability of
the Former Subsidiaries.
<F3>Bonds includes amounts received by the Company effective 31 July 1996 from a
Special Notes 5-year 10% convertible fixed and floating charge debentures
private placement debt financing for $6 million. Complete information
concerning the capital reorganization is included in the FORM 10-Q.
<F4>Common Stock includes amounts received by the Company from a Secial Warrant
private placement equity financing, comprised of 45 million Special Warrants
representing $4.5 million. Initially, 38.5 million Special Warrants were
subscribed for, representing gross proceeds of $3.85 million. Of this amount,
$1.1 million had been previously received in the third quarter of Fiscal 1996,
and the balance, completing the financing, was received in cash during the
period being reported upon herein. Complete information concerning the capital
reorganization is included in the FORM 10-Q.
<F5>Common Stock and Other Stockholders' Equity reflect the stated capital
reduction implemented in accordance with shareholder approval received at the
annual meeting on 24 July 1996 and pursuant to the related court approval
received 25 July 1996. The Company reduced both the stated capital amount for
the common stock of the Company and the accumulated deficit in earnings by
$26,670,824. Management is of the opinion that, after making the adjustment,
the balance sheet better represents the financial repositioning of the Company,
resulting from the reorganization and restructuring, and the appropriate
current financial condition of the Company as it proceeds to implement its
5-year business plan. Complete information concerning the capital
reorganization is included in the FORM 10-Q.
<F6>The Company has incurred losses of approximately $15 million for Canadian
income tax purposes. These losses have not been recognized for accounting
purposes. The loss carry-forwards expire from 1996 to 2003. Losses from
subsidiaries are excluded from the foregoing.
</FN>
</TABLE>
