<PAGE>
POWER PLUS CORPORATION
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 30 APRIL 1997 ("QUARTER 1 OF FISCAL 1998"),
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 EDGAR Filing Number 000-18163
CUSIP number 738908102 SEDAR Project Number 00004997
POWER PLUS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(the "REGISTRANT", or the "COMPANY", or "POWER PLUS")
PROVINCE OF ALBERTA, CANADA 52-1976897
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION) IDENTIFICATION NUMBER)
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 18 July 1997 there were 7,620,730 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 10Q
FIRST QUARTER
POWER PLUS CORPORATION FISCAL YEAR 1998
PAGE 2
FORM 10-Q INDEX
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Interim Financial Statements 3
Consolidated Statement of Operations -
Three-months and year to date periods ended 30 April 1997
and 1996
Consolidated Balance Sheet - 30 April 1997 and 31 January 1997
Consolidated Statement of Changes in Financial Position -
Three-months and year to date periods ended 30 April 1997
and 1996
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of 8
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signature 17
<PAGE>
FORM 10Q
FIRST QUARTER
POWER PLUS CORPORATION FISCAL YEAR 1998
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 18 July 1997 was C$1.00 = US$1.37.
ITEM 1. INTERIM FINANCIAL STATEMENTS
FIRST QUARTER
(period ended 30 April 1997)
FISCAL 1998
CONSOLIDATED STATEMENT OF OPERATIONS, (unaudited)
<TABLE>
<CAPTION>
THREE-MONTH AND YEAR TO DATE
PERIOD ENDED 30 APRIL
----------------------------
(AMOUNTS ARE EXPRESSED IN CANADIAN DOLLARS) 1997 1996
---- ----
<S> <C> <C>
SALES $ 2,739,518 $ 14,782
Cost of Sales 1,327,332 6,235
---------- ----------
GROSS PROFIT 1,412,186 8,547
EXPENSES
Operating and administration 3,715,268 469,975
Amortization 312,874 15,739
---------- ----------
(LOSS) FOR PERIOD (2,615,956) (477,167)
DEFICIT, BEGINNING OF PERIOD - SEE NOTE 4 5,070,259 26,193,657
---------- ----------
DEFICIT, END OF PERIOD $ 7,686,215 $26,670,824
---------- ----------
---------- ----------
LOSS PER SHARE - SEE NOTE 5 $(0.46) $(0.24)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 5,722,345 1,951,432
</TABLE>
<PAGE>
FORM 10Q
FIRST QUARTER
POWER PLUS CORPORATION FISCAL YEAR 1998
PAGE 4
CONSOLIDATED BALANCE SHEET, AS AT
<TABLE>
<CAPTION>
(AMOUNTS ARE EXPRESSED IN CANADIAN DOLLARS) 30 APRIL 1997 31 January 1997
------------- ---------------
(unaudited) (audited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 1,749,493 $ 4,341,243
Accounts receivable 367,170 202,319
Inventory 2,651,929 1,809,529
Prepaid expenses 678,039 395,849
----------- -----------
5,446,631 6,748,940
Capital assets, net 3,620,755 2,652,157
Deferred charges, net 659,532 705,120
Other assets, net 898,592 937,637
----------- -----------
$10,625,510 $11,043,854
----------- -----------
----------- -----------
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities $ 2,722,177 $ 2,715,813
Short-term notes payable - SEE NOTE 6 2,000,000 0
----------- -----------
4,722,177 2,715,813
Special Notes - SEE NOTE 7 4,810,000 4,740,000
----------- -----------
9,532,177 7,455,813
----------- -----------
SHAREHOLDERS' EQUITY
Share capital and warrants 7,519,548 7,398,300
Convertible component of Special Notes 1,400,000 1,400,000
Deficit (7,826,215) (5,210,259)
----------- -----------
1,093,333 3,588,041
----------- -----------
$10,625,510 $11,043,854
----------- -----------
----------- -----------
</TABLE>
<PAGE>
FORM 10Q
FIRST QUARTER
POWER PLUS CORPORATION FISCAL YEAR 1998
PAGE 5
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION (unaudited)
<TABLE>
<CAPTION>
(AMOUNTS ARE EXPRESSED IN CANADIAN DOLLARS) THREE-MONTH AND YEAR TO DATE
PERIOD ENDED 30 APRIL
---------------------
1997 1996
---- ----
<S> <C> <C>
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
(Loss) for period $(2,615,955) $ (477,167)
Items not affecting cash
Amortization 312,874 15,739
----------- ----------
(2,303,081) (461,428)
CHANGES IN NON CASH OPERATING ITEMS
Accounts receivable (164,852) 0
Inventory (842,400) (99,993)
Prepaid expenses (282,190) 0
Accounts payable and accrued liabilities 6,364 (77,911)
----------- ----------
(3,586,159) (639,332)
----------- ----------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
Issue of common shares and warrants 121,248 2,750,000
Short-term notes payable 2,000,000 0
Issue of Special Notes 0 0
----------- ----------
2,121,248 2,750,000
----------- ----------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
Purchase of capital assets (1,126,839) (66,034)
Increase in deferred charges 0 (340,000)
Purchase of other assets 0 (175,500)
----------- ----------
(1,126,839) (581,534)
----------- ----------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS DURING PERIOD (2,591,750) 1,529,134
Cash and cash equivalents, beginning of period 4,341,243 1,288
----------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,749,493 $1,530,422
----------- ----------
----------- ----------
</TABLE>
<PAGE>
FORM 10Q
FIRST QUARTER
POWER PLUS CORPORATION FISCAL YEAR 1998
PAGE 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 1: The Consolidated Financial Statements are for the
three-month period ended 30 April 1997 pertaining to the current
fiscal year ending 31 January 1998 ("Fiscal 1998"), and the
three-month period ended 30 April 1996 pertaining to the fiscal year
ended 31 January 1997 ("Fiscal 1997"), and include the results of
operations of Power Plus Corporation and its wholly-owned
subsidiaries Power Plus USA, Inc., Power Plus Canada, Inc. and First
Olympia Holdings Inc. (collectively, the "Company").
NOTE 2: During Fiscal 1997, management developed a reorganization
plan with the intent of rebuilding operations, including a financing
plan and statutory Plan of Arrangement (collectively, the
"Reorganization Plan"), which received the requisite approvals from
the shareholders, regulators and court and is now being implemented.
Accordingly, the comparative results of operations for last year
were presented on the basis that the Company had recommenced
operations although it only operated one store for the first half of
Fiscal 1997. (See Item 2. -- MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS herein.)
NOTE 3: In the opinion of management, the Consolidated Balance
Sheet as at 30 April 1997 and the Consolidated Statements of
Operations and Changes in Financial Position for the three-month
periods ended 30 April 1997 and 1996, include all adjustments
necessary for a fair presentation of such financial statements.
Such adjustments consisted only of normal recurring items. The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimated. Interim results are not
necessarily indicative of results for a full year.
The Consolidated Balance Sheet as at 30 April 1997, and the
Consolidated Statements of Operations and Changes in Financial
Position for the three-month periods ended 30 April 1997 and 1996
are unaudited. The Consolidated Balance Sheet for Fiscal 1997 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.
<PAGE>
FORM 10Q
FIRST QUARTER
POWER PLUS CORPORATION FISCAL YEAR 1998
PAGE 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) -- continued
NOTE 4: In accordance with the Reorganization Plan, effective 31
July 1996 the Company reduced both the stated capital amount
recorded for its Common Shares and the accumulated deficit in
earnings, each 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. (See Item 2. -- MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, herein.)
The Deficit of $7,826,215 reported for the period ended 30 April
1997 already reflects the effect of the stated capital reduction,
whereas the amount reported as at 30 April 1996 of $26,670,824 does
not. This latter amount was the amount of the stated capital
reduction.
NOTE 5: Loss per Share is based on the weighted average Common
Shares outstanding for the period. The comparative Loss per Share
and weighted average shares outstanding for last year were restated
to reflect the 20:1 reverse-split which was effective 1 November
1996.
NOTE 6: Short-term notes payable are unsecured demand notes due 31
August 1997, with interest accruing thereon at 10% per annum,
payable in arrears on repayment.
NOTE 7: The Company completed a $6 million Special Notes 5-year,
10% convertible fixed and floating charge debentures private
placement debt financing during Fiscal 1997, in accordance with the
Company's Financing Plan incorporated in its Reorganization Plan.
The Special Notes are convertible, in whole or in part, into Common
Shares of the Company at any time, at $2.50 per Common Share,
representing potential future dilution of up to 2.4 million Common
Shares, and are secured by all the assets of Power Plus Corporation.
(See Item 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, herein.)
At any time on or after the third anniversary date from the
date of issue, the Company has the right, upon reasonable notice, to
compel holders of the Special Notes to convert all or any part of
the indebtedness into Common Shares for $2.50 per Common Share,
provided that the shares have traded at a weighted average price of
$4.00 per share or greater during the preceding 10 trading days.
Failing conversion by holders of the Special Notes in the
circumstances of such notice, the Company has the right to repay the
whole or any part of the Special Notes, on a PRO RATA basis.
In the opinion of management, the convertible feature of the
Special Notes had an assignable fair value of $1.4 million at the
date of issuance, which amount has been classified as a component of
shareholders' equity. Correspondingly, the liability component of
the Special Notes, which had an assignable fair value of $4.6
million at the date of issuance and the difference between this
amount and their face value is being amortized on a straight-line
basis over their term, is currently $4,810,000. Amortization for
this Quarter amounted to $70,000.
<PAGE>
FORM 10Q
FIRST QUARTER
POWER PLUS CORPORATION FISCAL YEAR 1998
PAGE 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION & RESULTS
OF OPERATIONS
CORPORATE OVERVIEW
Now in its second year of implementing PLAN 2000 with 55 POWERFUL STUFF
stores currently open, the Company has additional locations planned for the
US in Michigan, Ohio, Missouri, Oregon and Washington, as well as Alabama,
Florida, North Carolina and Pennsylvania, and for Canada in Ontario, Alberta
and British Columbia. These planned store openings meet the Company's
revised goal to be +125 POWERFUL STUFF stores open by November of this year
- -- in anticipation and preparation for the strategic Christmas season.
> BUILDING FOR POWERFUL STUFF'S FUTURE
Power Plus' 5-year business plan, PLAN 2000, provides the blueprint for
growth to +1000 stores over 5 years, prescribing opening an average of 295
stores in each of calendar 1998, 1999 and 2000 -- the last 3 years of PLAN
2000. Now into its second year of implementation, PLAN 2000 is the
foundation for the Company's business and operating strategy for the future,
positioning POWERFUL STUFF as: THE RETAIL LEADER IN INNOVATIVE PORTABLE
LIFESTYLE COMMUNICATION AND ENTERTAINMENT TECHNOLOGY. In establishing its
distinctive retail identity, the Company believes POWERFUL STUFF is the first
in the retail marketplace to target the lucrative and untapped ELECTRONICS
LIFESTYLE youth market ... the 15 - 25 year olds who define the trends and
want the neatest, coolest, hottest stuff. POWERFUL STUFF's marketing strategy
is to position stores primarily in major regional malls, in sync with where
the primary core customer, the 15 - 25 year old, and the secondary customer,
the 25 - 30 year old, spend their time and disposable income. POWERFUL
STUFF'S core customer group, teenagers, is growing nearly twice as fast as
the general population and is expected to number some 30 million in the US by
the Year 2005 -- teens hanging out in malls and each spending, on average,
$3,000 a year. Teens make nearly 40% more trips to the malls than other
shoppers, spend more time in malls than other age groups, and spend an
average of $38.55 per trip to the mall.
The biggest challenge, however, now facing the Company in its drive to
achieve its goals and objectives as set out in PLAN 2000, is in the timing
and availability of financing. When 125 POWERFUL STUFF stores are opened and
operating to plan, the Company can expect to attain critical mass and break
even on an annualized basis. Until then, the Company remains dependent upon
and at risk for the raising of external capital -- and when the timing and
availability of financings deviates materially from the assumptions in PLAN
2000, the overall business and sales are adversely impacted and adjustments
must be made. Accordingly, management must be flexible and act responsibly
during this period, and be responsive to those matters which it controls,
including the pace and timing of the rollout of stores and its purchase
commitments to merchandise inventory. In the short-term, the Company can
quickly conserve cash by adjusting merchandise purchases, resulting in the
potential for temporary sales declines within the existing store base.
The Company's original Financing Plan, forming part of its 1996 Reorganization
Plan, provided the initial framework to raise up to $42 million in an orderly
manner as needed over the first
<PAGE>
FORM 10Q
FIRST QUARTER
POWER PLUS CORPORATION FISCAL YEAR 1998
PAGE 9
three years of PLAN 2000. During Fiscal 1997, $15.4 million was received as
expected, but later than planned. This year, faced with unforeseen adverse
junior capital markets, the Company has encountered difficulty raising all of
the capital it had forecasted on the time lines projected. After adjusting
the rollout of stores as required, management modified the Financing Plan.
On the basis of this revised Plan, the structure is now in place to raise up
to an additional $33.7 million over the next two years as follows:
<TABLE>
<CAPTION>
$-millions
----------
<S> <C> <C>
* 1996 Equity Financing Class A Warrants @ $2.00 $5.0 September '97
* 1996 Financing Class B Warrants @ $2.00 $5.0 September '97
* 1996 Financing Class AA Warrants @ $2.50 $6.2 March '98
* 1996 Financing Class BB Warrants @ $2.50 $6.1 March '98
* 1997 Additional Convertible Debt @ $2.50 $5.0 August '97
* 1997 Equity Financing Common Shares @ $1.75 $3.0 August '97
* 1997 Equity Financing Purchase Options @ $2.00 $3.4 August '98
-----
Capital Available Up To $33.7
-----
-----
</TABLE>
Subject to the availability of these funds and the timing of their receipt,
management estimates that the Company will be able to finance its future
growth from internally generated cash flow at approximately the 600-store
threshold, making the Company self-financing by the end of Fiscal 1999
according to PLAN 2000. (For additional details on the Company's Financing
Plan, see RESULTS OF OPERATIONS and LIQUIDITY AND CAPITAL RESOURCES, below.)
The Company's rollout plan is based upon the concept of clustering POWERFUL
STUFF stores in geographic markets, developing District marketing clusters
within Regions. At the maturity of PLAN 2000, POWERFUL STUFF expects to be
throughout 7 North American Regions -- the Southeast, Mid-Atlantic,
Northeast, North Central, Northwest, Southwest and South Central Regions. By
the Year 2000, the typical Region is planned to be 160 stores comprised of
an average of 8 District cluster of about 20 stores per District. A typical
District will open with a minimum of 5 stores and grow up to 20. A District
Manager -- a retailing expert responsible for a profit center that may
produce more than $7 million in annual sales -- can then be responsible for
growing the operations and performance of 5 growing up to 20 stores.
Clustering stores within media areas creates a viable opportunity to
advertise effectively and economically.
> POWERFUL STUFF'S NICHE
POWERFUL STUFF is a new specialty retailing concept launched through Power
Plus Corporation. Power Plus' mission is: to be the first to offer the
latest in portable electronic solutions for personal communication and
entertainment needs -- products and services responsive to consumer demand
for personal freedom while staying connected. With Power Plus' Corporate
Office established in Toronto, Canada, and its North American Operations
Office in Sarasota, Florida, the Company is developing a broad network of
Company-owned POWERFUL STUFF stores across North America. This is POWERFUL
STUFF'S branded distribution channel, focused on portable lifestyle
communications, wearable fashion electronics and palm-top business
technology, to meet the expanding demand for wireless communication products
and services (beepers/pagers, cellular phones, Personal Communications
Systems (PCS) and related service contracts), together with portable
electronics (the latest in hand-held electronic
<PAGE>
FORM 10Q
FIRST QUARTER
POWER PLUS CORPORATION FISCAL YEAR 1998
PAGE 10
communications, entertainment, business and lifestyle products). Power Plus
has combined these distinct merchandising segments into a single retail store
- -- POWERFUL STUFF! The pagers/beepers and cell phones featured at POWERFUL
STUFF stores are a source of significant per transaction revenue,
contributing additional strong secondary margins through accessory and
airtime sales plus activation fees, and generating recurring revenues from
customer airtime and service renewals for POWERFUL CONNECTIONS. The fashion
electronics and palm-top business technology segments of the business, plus
accessories and batteries, also contribute complementary revenues.
With approximately 85% of the Company's stores targeted for the US,
management expects the Company's POWERFUL CONNECTIONS can become a major
reseller of wireless paging communications services in North America through
POWERFUL STUFF stores. Resellers buy wireless services from carriers at a
discount and provide a high volume of new customers through their own
distribution channel. This represents significant recurring income potential
for the Company -- Power Plus' airtime royalty income stream.
> NEW GENERATION POWERFUL STUFF STORE
In partnership with the award-winning North American retail design group,
Michel Dubuc Concept, Power Plus has created its new generation store which
puts a bold and unique twist on the traditional electronics niche. POWERFUL
STUFF stores combine design elements which have mass appeal across age,
gender and ethnic boundaries, addressing today's retailers' need to ensure
market longevity and flexibility. From the elliptical lines encircling the
brand name and the bold lifestyle posters, to the graphic computer circuit
boards on the walls, this futuristic hi-tech design with its rich colors and
textures has redefined what it means to sell electronic products.
By bringing a fashion dimension to the store design, POWERFUL STUFF has
created a new portable electronic lifestyle niche in the marketplace. This is
a store that doesn't just grab the attention of today's consumers, but one
that genuinely appeals to their emotions, senses and mind. POWERFUL STUFF
stores are not only dramatic but are fun places to go. Unlike some novelty
stores, the design doesn't engulf the product but brings it to life. All of
the palm-top products are presented in 3 easy to shop lifestyle concepts
within the store: FUN TECH - presented on the whimsical hi-tech computer
graphic wall; COMMUNICATIONS TECH - presented against a colorful street map
illustrating the prominence of communications in our lives; and BUSINESS TECH
- - presented in sleek, energetic and futuristic cases for the discerning and
hurried business customer.
POWERFUL STUFF stores grasp the basic premise of retail mass appeal by
creating a compelling design that humanizes technology, thereby connecting
with consumers again and again because the Company understands their purchase
will have more memorable appeal, and will take on more significance, when it
is purchased at a POWERFUL STUFF store.
<PAGE>
FORM 10Q
FIRST QUARTER
POWER PLUS CORPORATION FISCAL YEAR 1998
PAGE 11
RESULTS OF OPERATIONS
Power Plus Corporation, through its wholly-owned subsidiaries Power Plus USA,
Inc., Power Plus Canada, Inc. and First Olympia Holdings Inc., currently
operates 55 retail stores under the trade name POWERFUL STUFF projected to
grow to 125 stores this year. As of 18 July 1997, the Company has 36
locations open in the US and 19 in Canada, totaling 55. The stores,
operating from leased premises ranging from 150 to 700 square feet in major
enclosed shopping malls in the US and Canada, sell wireless communication
products and services (beepers, cellular phones, personal communication
systems and related service contracts), and portable electronics (hand-held
electronic communications, entertainment, business and lifestyle products).
Through POWERFUL CONNECTIONS the Company is establishing its wireless airtime
and service reselling business, and building a substantial and valued
customer list comprised of the Company's airtime users.
The Consolidated Financial Statements included with these materials reflect
that during the first two quarters of Fiscal 1997, the Company operated only
one store in Canada and opened its first US store in July 1996. During
Quarters 3 and 4 of Fiscal 1997 Power Plus opened 36 new locations and
acquired a chain of 13 retail locations in Florida, bringing the number of
locations opened in total to 51, against PLAN 2000's target of 40, by the end
of Fiscal 1997.
On 1 February 1996, the Company announced its Reorganization Plan which is
subdivided into two parts: PLAN 2000, the Company's 5-year business plan
prescribing the manner in which the Company would relaunch and build its
business to in excess of 1000 stores by the end of the Year 2000; and, the
Financing Plan which prescribed how the Company would finance PLAN 2000's
funding requirements. The Reorganization Plan, which incorporated a related
Plan of Arrangement, was approved by the Company's shareholders at Fiscal
1996's Annual and Special Meeting of Common Shareholders held on 24 July
1996. The regulatory and court approval of the Plan of Arrangement was
obtained immediately thereafter.
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; reorganize and consolidate its
capitalization on the basis of 20 pre-consolidation shares for 1
post-consolidation share plus 1 exchange right -- that is to 2,238,281
post-consolidation shares from then record date number of 44,765,613
pre-consolidation shares; and, refinance in accordance with the Financing
Plan.
The Company's Reorganization Plan incorporated a related 3-year Financing
Plan, formerly approximately $41.1 million, but recently increased to $49.1
million. The Company had received $15.4 million as of the end of Fiscal 1997,
providing the capital needed to fund the first year implementation of PLAN
2000 and the related store rollout program designed to achieve critical mass
expeditiously, and economies of scale and operating efficiencies. (See below.)
Comparison of this year's results to last year would have little relevance,
principally for two reasons: (1) the Company expects to reach 125 stores by
year end Fiscal 1998 but, until then, it is still operating in start up mode
and below critical mass; and, (2) the comparative Consolidated Statements of
Operations reflect that during the first two quarters of Fiscal 1997 the
Company acquired assets, operated only one store in Canada for most of the
first six-month period, opened its first US store in late July 1996, and
added most of the 51 stores during Quarter 4 of Fiscal 1997.
<PAGE>
FORM 10Q
FIRST QUARTER
POWER PLUS CORPORATION FISCAL YEAR 1998
PAGE 12
The following table sets forth certain items reflected in the Company's
Consolidated Statement of Operations expressed as percentages of sales:
<TABLE>
<CAPTION>
EXPRESSED AS A
PERCENTAGE OF SALES
(periods ended 30 April)
THREE MONTHS
------------
1997 1996
---- ----
<S> <C> <C>
Cost of sales 48.4% 42.2%
Operating and administration N/A 200.3%
Amortization N/A 3.3%
</TABLE>
Cost of sales as a percentage of total sales for Quarter 1 of Fiscal 1997 was
48.4%, compared to 42.2% for the same period last year. Last year's result
reflected the advantage of selling merchandise purchased below normal market
from a trustee in bankruptcy and sold through the only store operated by the
Company. In the long-term, management's goal is for cost of sales to be
approximately 52% of sales.
Operating and administration expenses incurred this period are not comparable
to Fiscal 1997, principally because the Company was focused on reorganizing,
restructuring and planning for the future. In the long-term, the Company's
administration cost are expected to be structured so that a number of new
stores can be added without a significant increase in overhead costs, thus
leveraging the largely fixed overhead. This means that profits from new
locations can, to a greater extent, flow to the bottom-line. Management
anticipates administrative overhead will come more into line with industry
standards during Fiscal 1999.
The amount of amortization for the period increased, in comparison to the
corresponding period in Fiscal 1997, because the Company is amortizing
capital assets being employed in the business that were acquired during
Fiscal 1997, and certain intangible assets (deferred costs of issuing Special
Notes and deferred issuing costs of Special Warrants). In addition, the
Company is amortizing the discount on the Special Notes at the rate of
$70,000 per quarter.
LIQUIDITY AND CAPITAL RESOURCES
See Note 4 of the NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
included with these materials.
On 30 June 1997 Power Plus announced it had modified its $41.1 million Financing
Plan to provide for raising an additional $8 million in new capital for this
year's expansion and operations, for a revised total of $49.1 million. This
additional $8 million complements the remaining $8.5 million potentially
available through the exercise of the Class A and B Warrants currently
outstanding, representing a potential aggregate financing of up to $16.5
million, net of amounts already received, to fund this year's continuing rollout
of POWERFUL STUFF stores throughout North America. As of 18 July 1997, 422,443
Class A Warrants (of a total available of 2,238,281) and 4,225 Class AA Warrants
(of a total available of 2,238,281) have been exercised providing gross proceeds
of approximately $855,000. As well, 550,000 Class B Warrants (of a total
available of 2,250,000) have been exercised providing gross proceeds of
<PAGE>
FORM 10Q
FIRST QUARTER
POWER PLUS CORPORATION FISCAL YEAR 1998
PAGE 13
$1.1 million and none of the 2,250,000 Class BB Warrants have been exercised.
Class A, AA and B Warrants exercised to date represent aggregate gross
proceeds of $1.9 million.
1 - $3 MILLION NEW SPECIAL WARRANT FINANCING OFFERING
The Company has recently obtained conditional regulatory approval to
a Special Warrant Private Placement Financing (the "1997 Special Warrants
Offering") of $3 million comprised of 1,714,286 Special Warrants, each
having a purchase price of $1.75. Each Special Warrant is convertible
into 1 Common Share plus 1 share purchase warrant entitling the holder to
purchase, for up to one year period thereafter, 1 additional Common Share
for $2.00, representing up to $3.4 million in potential additional
capital. The Company, therefore, could issue up to 3,428,572 Common
Shares over the next year for aggregate proceeds of up to $6.4 million
pursuant to this 1997 Special Warrants Offering.
Management anticipates completing this 1997 Special Warrants Offering
during August 1997, although since it is a best efforts financing no
assurances can be given either as to the timing or the amount to be
completed.
2 - $5 MILLION ADDITIONAL CONVERTIBLE DEBT FINANCING OFFERING
The Company initially received approval for a $6 million, 5-year 10%
Special Note private placement financing offering. The Company has
recently obtained conditional regulatory approval to increase this
Offering by $5 million, making it now up to $11 million, in the
aggregate, with the same terms and conditions. During Fiscal 1997, the
Company completed the $6 million placement in two closings. 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, currently representing potential future dilution of up to 2.4
million Common Shares. This convertible debt is fully secured by all the
assets of Power Plus Corporation.
At any time on or after the third anniversary date of the issuance of the
Special Notes, the Company has the right, upon reasonable notice, to
compel holders to convert all or any part of the indebtedness into Common
Shares at $2.50 per Common Share, on the condition that the Common Shares
have traded at a weighted average price of $4.00 per Common Share or
greater during the preceding 10 trading days. Failing conversion by
holders in the circumstances of such notice, the Company has the right to
repay the whole or any part of the indebtedness, on a PRO RATA basis.
Interest is payable on the Special Notes semi-annually, on the 31st days
of January and July, respectively. Interest accrued on the Special Notes
during Quarter 1 of Fiscal 1998 was $150,000.
The $5 million increase to the Special Notes financing represents the
potential of additional dilution of up to 2 million Common Shares,
thereby making it 4.4 million Common Shares in the aggregate. Management
anticipates completing the private placement of this additional $5
million Special Notes during August 1997 but since this is a best efforts
financing, again, no assurances can be given as to its completion.
<PAGE>
FORM 10Q
FIRST QUARTER
POWER PLUS CORPORATION FISCAL YEAR 1998
PAGE 14
3 - EXPIRY DATE OF OUTSTANDING SHARE PURCHASE WARRANTS EXTENDED
The Company has obtained regulatory approval to a three-month extension
of the expiry date of its outstanding Class A Warrants and Class B
Warrants, from 30 June 1997 to 30 September 1997.
Each of the 1,988,958 Class A share purchase warrants remaining
outstanding entitles holders to purchase 1 Common Share for $2.00 and
receive 1 Class AA Warrant. The exercise of the outstanding Class A
Warrants could provide the Company with up to $4 million on or before 30
September 1997. Each Class AA share purchase warrant expiring 1 March
1998 entitles the holder to purchase 1 additional Common Share for $2.50.
The exercise of the 2,234,056 Class AA Warrants remaining outstanding
could provide the Company with up to a further $5.6 million by 1 March
1998. To date, 422,443 Class A and 4,225 Class AA Warrants have been
exercised, providing approximately $855,000 additional capital.
Each of the 2,250,000 Class B Warrants remaining outstanding similarly
entitles holders to purchase 1 Common Share for $2.00 and receive 1 Class
BB Warrant. The exercise of the Class B Warrants could provide the
Company with up to $4.5 million on or before 30 September 1997. Each
Class BB Warrant expiring 1 March 1998 entitles the holder to purchase 1
additional Common Share for $2.50. The exercise of the 2,475,000 Class
BB Warrants remaining outstanding could provide the Company with up to a
further $5 million by 1 March 1998. To date, 550,000 Class B Warrants
have been exercised, providing $1.1 million additional capital and none
of the available Class BB have been exercised.
4 - SUMMARY OF CHANGES TO SHARES AND SHARE CAPITAL
The following table presents the potential impact on share capitalization
from the realization of the Financing Plan, as currently revised, as of
18 July 1997, reflecting transactions completed in Fiscal 1997. The
table sets out those components of the Financing Plan already fully
completed and the estimated timing applicable to other components. The
information is presented on a fully diluted basis and does not account
for the portions of the Class A, AA and B Warrants exercised to date.
While no assurances can be given that any or all of the future events
will be completed in full in accordance with the estimated timing, as set
out in the Financing Plan, if all elements were completed and exercised
in full prior to their respective expiry dates, as the case may be, then
the number of Common Shares and the fully diluted share capital,
exclusive of allowable management incentive options reserves, would be as
follows:
<PAGE>
FORM 10Q
FIRST QUARTER
POWER PLUS CORPORATION FISCAL YEAR 1998
PAGE 15
<TABLE>
<CAPTION>
TIMING
($ AMOUNTS ARE EXPRESSED IN CANADIAN DOLLARS IN MILLIONS; --------------------
ASSUMES MAXIMUM DILUTION) SHARES CAPITAL COMPLETED ESTIMATED
---------- ------- --------- ---------
<S> <C> <C> <C> <C>
i CONSOLIDATED, BEGINNING SHARE CAPITALIZATION
(FROM 44,765,613 SHARES ON 20:1 BASIS):
a.) Post-consolidation number of Common Shares and equivalent number of
Exchange Rights Units
2,238,281 $ 0.0 Nov. 1996
b.) Potential dilution and capital raised from Exchange Right Units and included
Class A & AA Warrants:
i) One Exchange Rights Unit to receive one Common Share at $2.00 and
one Class A Warrant 2,238,281 $ 4.5 Jan. 1997
ii) One Class A Warrant to purchase one Common Share at $2.00 and receive
one Class AA Warrant (note: 30,525 Class A Warrants were exercised
prior to Fiscal 1997 year end.) 2,238,281 $ 4.5 Sep. 1997
iii) One Class AA Warrant to purchase one Common Share at $2.50 (note:
1,475 Class AA Warrants exercised prior to Fiscal 1997 year end.) 2,238,281 $ 5.6 Mar. 1998
iv) Agent's Option to purchase 225,000 Common Shares at $2.00 and receive
equal number of Agent's Option Class A Warrants 225,000 $ 0.5 Dec. 1996
v) Agent's Option Class A Warrants to purchase up to 225,000 Common
Shares at $2.00 and receive equal number of Agent's Option Class AA
Warrants 225,000 $ 0.5 Mar. 1997
vi) Agent's Option Class AA Warrants to purchase up to 225,000 Common
Shares at $2.50 225,000 $ 0.6 Mar. 1998
ii 1996 SPECIAL WARRANT PRIVATE PLACEMENT FINANCING
a.) Special Warrants for $2.00 that were exchanged during first quarter of
Fiscal 1998 for Common Shares and an equivalent number off Class B Warrants 2,250,000 $ 4.5 Mar. 1996
b.) One Class B Warrant to purchase one Common Share at $2.00 and receive one
Class BB Warrant 2,250,000 $ 5.6 Sep. 1997
c.) One Class BB Warrant to purchase one Common Share at $2.50 2,250,000 $ 5.6 Mar. 1998
d.) Penalty Special Warrants to receive 225,000 Common Shares at no cost and
255,000 Class B Penalty Warrants 225,000 $ 0.0 Jan. 1997
e.) Class B Penalty Warrants to purchase up to 225,000 Common Shares at $2.00
and receive equal number of Class BB Penalty Warrants 225,000 $ 0.5 Sep. 1997
f.) Class BB Penalty Warrants to purchase up to 225,000 Common Shares at $2.50 225,000 $ 0.6 Mar. 1998
iii SPECIAL NOTES: CONVERTIBLE INTO COMMON SHARES AT $2.50 PER SHARE
a.) $6 million - first and second tranche 2,400,000 $ 6.0 Sep. 1996
b.) $5 million - third tranche 2,000,000 $ 5.0 Aug. 1997
iv 1997 SPECIAL WARRANT PRIVATE PLACEMENT FINANCING
a.) Special Warrants purchase warrants for $1.75 to purchase Common Shares 1,714,285 $ 3.0 Aug. 1997
b.) Special Warrants share purchase warrants to purchase Common Shares
for $2.00 1,714,285 $ 3.4 Aug. 1998
----------- -------
v NUMBER OF SHARES, FULLY DILUTED (1)
24,881,694
----------- -------
----------- -------
vi CAPITAL AVAILABLE, ASSUMING FULL DILUTION
$49.1
Less amounts already received:
during Fiscal 1997 $14.3
during Fiscal 1996 $ 1.1
-------
vii POTENTIAL CAPITAL DERIVED FROM EXISTING FINANCING INSTRUMENTS
$33.7
-------
-------
</TABLE>
(1) Excludes amount of allowable management incentive options. There are no such
options issued.
<PAGE>
FORM 10Q
FIRST QUARTER
POWER PLUS CORPORATION FISCAL YEAR 1998
PAGE 16
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 2. CHANGES IN SECURITIES.
See Part 1 - Item 2. -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 10Q
FIRST QUARTER
POWER PLUS CORPORATION FISCAL YEAR 1998
PAGE 17
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: 11 August 1997 /s/ R Bruce Freeman
---------------------------------------
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 QUARTER 1 OF FISCAL 1998 PERIOD ENDED 30 APRIL 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CURRENCY> CANADIAN
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> APR-30-1997
<EXCHANGE-RATE> 1.37
<CASH> 1,749,493
<SECURITIES> 0
<RECEIVABLES> 367,170
<ALLOWANCES> 0
<INVENTORY> 2,651,929
<CURRENT-ASSETS> 5,446,631
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,625,510
<CURRENT-LIABILITIES> 4,722,177
<BONDS> 4,810,000<F1>
0
0
<COMMON> 7,519,548
<OTHER-SE> 1,400,000<F2>
<TOTAL-LIABILITY-AND-EQUITY> 10,625,510
<SALES> 2,739,518
<TOTAL-REVENUES> 2,738,518
<CGS> 1,327,332
<TOTAL-COSTS> 1,327,332
<OTHER-EXPENSES> 3,565,268
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 220,000
<INCOME-PRETAX> (2,615,956)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,615,956)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,615,956)
<EPS-PRIMARY> (.46)
<EPS-DILUTED> (.46)
<FN>
<F1>FACE AMOUNT IS $6-MILLION.
<F2>AMOUNT OF EQUITY VALUE ARISING FROM CONVERTIBLE FEATURE OF L-T DEBT.
</FN>
</TABLE>
