<PAGE>
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 JULY 1997, or
Transition report pursuant to section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934
For the Transition period from __________ to __________.
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Commission file number 0-18163 EDGAR Filing Number 000-18163
CUSIP number 738908102 SEDAR Project Number 00004997
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POWER PLUS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(the "REGISTRANT", or the "COMPANY", or the "CORPORATION", or "POWER PLUS")
--------------------------------------------------------------------------
PROVINCE OF ALBERTA, CANADA 52-1976897
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION) IDENTIFICATION NUMBER)
7850 WOODBINE AVENUE, SUITE 201, L3R 0B9
MARKHAM, ONTARIO, CANADA (POSTAL CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
905-479-5683 905-479-8911
800-769-3733 (FAX NUMBER)
(TELEPHONE NUMBERS)
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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 24 December 1997 there were 8,060,766 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>
POWER PLUS CORPORATION FORM 10-Q
SECOND QUARTER
FISCAL YEAR END 1998
PAGE 2
FORM 10-Q INDEX
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Interim Financial Statements 3
Consolidated Statement of Changes in Financial Position
for the periods ended - 31 July 1997 and 31 July 1996
Consolidated Balance Sheet - 31 July 1997 and 31 January 1997
Consolidated Statement of Operations
for the periods ended - 31 July 1997 and 31 July 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 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
Signature 19
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
SECOND QUARTER
FISCAL YEAR END 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 24 December 1997 was C$1.00 = US$0.70
ITEM 1. INTERIM FINANCIAL STATEMENTS.
SECOND QUARTER
(period ended 31 July 1997)
FISCAL 1998
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
SIX-MONTH AND YEAR-TO-DATE
THREE MONTHS ENDED 31 JULY PERIOD ENDED 31 JULY
--------------------------------------------------------
(AMOUNTS ARE EXPRESSED IN CANADIAN DOLLARS) 1997 1996 1997 1996
--------------------------------------------------------
<S> <C> <C> <C> <C>
SALES $2,078,459 $42,113 $4,817,977 $56,895
Cost of sales 1,565,822 17,687 2,893,156 23,922
---------- ---------- ---------- ----------
Gross profit 512,637 24,426 1,924,821 32,973
EXPENSES
Operating and administration 4,078,778 834,199 7,794,044 1,304,175
Amortization 327,719 22,523 640,593 38,262
---------- ---------- ---------- ----------
(LOSS) FROM OPERATIONS (3,893,860) (832,296) (6,509,816) (1,309,464)
Deficit, beginning of period 7,826,215 26,670,824 5,210,259 26,193,656
---------- ---------- ---------- ----------
Deficit, BEFORE 31 JULY 1996 ADJUSTMENT BELOW 27,503,120 27,503,120
STATED CAPITAL REDUCTION, 31 JULY 1996 - SEE NOTE 4 26,670,824 26,670,824
---------- ----------
DEFICIT, END OF PERIOD $11,720,075 $832,296 $11,720,075 $832,296
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
EARNINGS PER SHARE $(0.51) $(0.02) $(1.10) $(0.03)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - SEE NOTE 5 7,620,730 39,761,238 5,900,493 39,586,187
</TABLE>
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
SECOND QUARTER
FISCAL YEAR END 1998
PAGE 4
CONSOLIDATED BALANCE SHEET, AS AT
<TABLE>
<CAPTION>
(AMOUNTS ARE EXPRESSED IN CANADIAN DOLLARS) 31 JULY 1997 31 January 1997
------------ ---------------
(unaudited) (audited)
ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalents $804,007 $4,341,243
Accounts receivable 297,172 202,319
Inventory 2,314,022 1,809,529
Prepaid expenses 739,142 395,849
----------- -----------
4,154,343 6,748,940
Capital assets, net 4,370,327 2,652,157
Deferred charges, net 613,943 705,120
Other assets, net 928,047 937,637
----------- -----------
$10,066,660 $11,043,854
----------- -----------
----------- -----------
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities $3,704,057 $2,715,813
Short-term notes payable - SEE NOTE 6 2,500,000 0
----------- -----------
6,204,057 2,715,813
Special Notes - SEE NOTE 7 4,880,000 4,740,000
----------- -----------
11,084,057 7,455,813
----------- -----------
SHAREHOLDERS' EQUITY
Share capital and warrants 9,302,678 7,398,300
Convertible component of Special Notes 1,400,000 1,400,000
Deficit (11,720,075) (5,210,259)
----------- -----------
(1,017,397) 3,588,041
----------- -----------
$10,066,660 $11,043,854
----------- -----------
----------- -----------
</TABLE>
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
SECOND QUARTER
FISCAL YEAR END 1998
PAGE 5
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS YEAR TO DATE
PERIOD ENDED 31 JULY
----------------------------
(AMOUNTS ARE EXPRESSED IN CANADIAN DOLLARS) 1997 1996
----------------------------
<S> <C> <C>
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
(Loss) for period $(6,509,815) $(1,309,464)
Items not affecting cash
Amortization 500,593 38,262
----------- -----------
(6,009,222) (1,271,202)
CHANGES IN NON CASH OPERATING ITEMS
Accounts receivable (94,853) (143,889)
Inventory (504,493) (112,321)
Prepaid expenses (343,293) 0
Accounts payable and accrued liabilities 988,244 89,089
----------- -----------
(5,963,617) (1,438,323)
----------- -----------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
Issue of common shares and warrants 1,904,378 2,506,000
Notes payable 2,500,000 0
Issue of Special Notes 140,000 3,050,000
----------- -----------
4,544,378 5,556,000
----------- -----------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
Purchase of capital assets (2,117,997) (178,000)
Purchase of deferred assets 0 (539,087)
Purchase of other assets 0 (82,500)
----------- -----------
(2,117,997) (799,587)
----------- -----------
INCREASE (DECREASE) DURING PERIOD (3,537,236) 3,318,090
Cash and cash equivalents, beginning of period 4,341,243 1,288
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $804,007 $3,319,378
----------- -----------
----------- -----------
</TABLE>
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
SECOND QUARTER
FISCAL YEAR END 1998
PAGE 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1: The Consolidated Financial Statements are for the three-month and
six-month year-to-date periods ended 31 July 1997 pertaining to the
current fiscal year ending 31 January 1998 ("Fiscal 1998"), and the
three-month and six-month year-to-date periods ended 31 July 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 31
July 1997 and the Consolidated Statements of Operations and Changes in
Financial Position for the three-month and six-month year-to-date
periods ended 31 July 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 31 July 1997 and the Consolidated
Statements of Operations and Changes in Financial Position for the
three-month and six-month year-to-date periods ended 31 July 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.
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 Opening Deficit of $7,826,215 reported for the period ended 31
July 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.
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
SECOND QUARTER
FISCAL YEAR END 1998
PAGE 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) -- continued
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 January
1998, with interest accruing thereon at 10% per annum, payable in
arrears on repayment. The short-term noteholders have agreed that,
subject to shareholder and regulatory approval, the payment of any and
all debts and sums of money due and owing under the short-term notes
shall be paid in full and converted into common shares of the Company
on the basis of a conversion price of $1.25 per common share.
A Special Meeting of common shareholders has been called for 30
January 1998 for the purpose of, amongst other matters, approving this
conversion of indebtedness into common shares with force and effect as
of 31 January 1998. The result of such approval, representing some 3.5
million shares in additional dilution, would eliminate this
indebtedness prior to the end of the current annual fiscal period and
the Company's obligations to pay future interest.
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 terms of
the Special Notes provide that they 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.
Notwithstanding the original terms of the Special Notes and underlying
Debentures, the Special Note holders have agreed that, subject to
shareholder and regulatory approval, the payment of any and all debts
and sums of money due and owing under the Special Notes shall be paid
in full and converted into common shares of the Company on the basis
of a conversion price of $1.25 per common share. A Special Meeting of
common shareholders has been called for 30 January 1998 for the
purpose of, amongst other matters, approving this conversion of
indebtedness into common shares with force and effect as of 31 January
1998. The result of such approval, representing some 5.0 million
shares in additional dilution, would eliminate this indebtedness prior
to the end of the current annual fiscal period and the Company's
obligations to pay future interest.
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 $4,880,000. Amortization for this Quarter amounted
to $70,000.
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
SECOND QUARTER
FISCAL YEAR END 1998
PAGE 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
1.) CORPORATE OVERVIEW
This interim financial report covers the three-month and six-month year-to-date
periods ended 31 July 1997, the Second Quarter of Fiscal 1998. The Company's
business plan and operating strategy for the future positions POWERFUL STUFF to
be: The Retail Leader in Innovative Portable Lifestyle Communication and
Entertainment Technology. In working to establish its distinctive retail
identity, POWERFUL STUFF seeks to be the first in the retail marketplace to
capture 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. The Company'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, each spending
$3,000 a year on average. 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 Company projects, subject to availability of financing, 1000+ compact
POWERFUL STUFF stores, of which approximately 75% are planned to be kiosks
averaging 150 sq. ft., and 25% inline stores averaging 500 sq. ft. With the
average store of 300 sq. ft. initially projected at annualized sales of
$400,000, Power Plus anticipates its business can grow to the 1000 store
threshold, representing only some 300,000 sq. ft. in the aggregate under
management, and produce $500+ million in annual sales, with the potential to
generate substantial after-tax profit.
The Company's rollout plan is founded in the clustering of POWERFUL STUFF stores
in geographic markets, developing District marketing clusters within Regions.
At maturity, the Company expects to be throughout 7 North American Regions --
the Southeast, Mid-Atlantic, Northeast, North Central, Northwest, Southwest and
South Central Regions. The typical Region is planned to be 160 stores comprised
of an average of 8 District clusters at some 20 or so stores per District. A
typical District will open with a minimum of 5 stores and grow 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 the growing
operations and performance of between 5 and 20 stores.
The biggest challenge facing the Company, however, in its drive to achieve its
goals and objectives, is in the timing and availability of financing. With 44
stores now open, the Company had a revised target earlier this year, modified
from original plan, to be 125+ stores by the end of the fiscal year, but further
prejudicial delays in completing planned financings finally resulted in no
further expansion being possible this year. Future expansion remains contingent
upon the availability and timing of funds, the receipt of which cannot be
assured. Without future expansion, the Company cannot expect to attain critical
mass and thus break even on an annualized basis. Until then, the Company
remains dependent upon the raising of external capital -- and when the timing
and availability of financing deviates materially from the assumptions in the
Company's business plan, the overall business and sales are impacted and
adjustments must be made.
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
SECOND QUARTER
FISCAL YEAR END 1998
PAGE 9
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 new stores and the commitments made to merchandise
inventory.
The Company's original Financing Plan, forming part of its 1996 Reorganization
Plan and incorporated in its 5-year business plan, PLAN 2000, provided the
initial framework to raise up to $41.1 million in an orderly manner as needed
over the first three years of the Plan. During the first year, 1996, $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 that it had forecasted on the time-lines
projected, resulting in management finally having to abort its expansion plans
for this year.
Therefore, in an effort to satisfy the Corporation's ongoing financial needs for
general working capital and to continue the implementation of the proposed roll
out of new store and kiosk locations under the banner of the "POWERFUL STUFF"
chain of stores, the Corporation is proposing to implement, subject to
shareholder and final regulatory approval, a four-tiered revised corporate
finance plan conceived to potentially raise up to $31 million in the aggregate
over the next two years.
a. Firstly, the Corporation expects to obtain regulatory approval to
complete a private placement of up to and including 5,882,353 special
warrants (the "Special Warrants") of the Corporation having a purchase
price of $0.85 per Special Warrant, or an aggregate amount of
$5,000,000, including reasonable fiscal advisory and finders' fees and
commissions.
b. Secondly, the Corporation is seeking regulatory approval to issue a
series of $5,000,000 10% convertible first fixed and floating charge
secured debentures (the "1998 Debentures").
Pursuant to an extraordinary resolution of the holders of $6,000,000
10% convertible fixed and floating charge secured special promissory
notes (the "1996 Special Notes"), the holders of 1996 Special Notes
agreed to subordinate their rights to the payment of the Corporation's
obligations to the holders of 1998 Debentures. See "Amendment to
Terms of 1996 Special Notes".
The 1998 Debentures shall bear interest at a rate of 10% per annum,
which interest is payable semi-annually in common shares of the
Corporation at a deemed price of $0.85 per common share. The 1998
Debentures will be convertible into units at the option of the holder
at a price of $0.85 per unit. Each unit shall consist of one common
share and a share purchase warrant. Each such warrant will entitle
the holder to purchase one additional common share at a price of $0.90
within two years from the date such warrant is issued.
The Corporation shall also have a right to compel holders to convert
all or part of their 1998 Debentures, in certain specific
circumstances. See "Private Placement - First Secured Debentures".
c. Thirdly, the Corporation is seeking regulatory approval to amend the
conversion price of the 1996 Debentures underlying the 1996 Special
Notes from $2.50 per
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
SECOND QUARTER
FISCAL YEAR END 1998
PAGE 10
common share to $1.25 per common share. See "Amendment to Terms of
1996 Special Notes".
d. Fourthly, in order to ensure that the exercise price of the previously
issued and outstanding Class A Warrants, Class B Warrants, Class AA
Warrants and Class BB Warrants of the Corporation have a conversion,
price comparable to that of the 1996 Special Notes, the Corporation is
seeking regulatory approval to amend the conversion price of all such
outstanding warrants to $1.25 per common share and to extend the
period of time for exercise of such outstanding warrants. See
"Amendments to Class A Warrants, Class AA Warrants, Class B Warrants
and Class BB Warrants.".
The following table represents the potential impact on the availability of
capital to the Corporation and on the Corporation's share capital if the revised
financing plan as proposed by management is implemented.
<TABLE>
<CAPTION>
CLASS OF SECURITIES COMMON SHARES POSSIBLE NEW TIMING
CAPITAL
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current issued common shares 8,060,766 n/a n/a
- ----------------------------------------------------------------------------------------------------------
Class A Warrants outstanding proposed @ $1.25 vs. $1.50(1) 1,815,802 $2,269,755 June 1998
- ----------------------------------------------------------------------------------------------------------
Class B Warrants outstanding proposed @ $1.25 vs. $2.00(1) 1,787,500 $2,234,375 June 1998
- ----------------------------------------------------------------------------------------------------------
Class AA Warrants outstanding proposed @ $1.25 vs. $2.50(1) 2,234,056 $2,792,570 Sept. 1998
- ----------------------------------------------------------------------------------------------------------
Class BB Warrants outstanding proposed @ $1.25 vs. $2.50(1) 2,475,000 $3,093,750 Sept. 1998
- ----------------------------------------------------------------------------------------------------------
$6.0 million Special Notes convertible into common shares
until July 31, 2001 convertible @ $1.25 vs. $2.50(4) 4,800,000
- ----------------------------------------------------------------------------------------------------------
$4.1 million Bridge Loan convertible @ $1.25(4) 3,280,000 n/a n/a
- ----------------------------------------------------------------------------------------------------------
$5.0 million convertible first secured debentures
convertible @ $0.85 into a unit consisting of a common
share and a warrant(1) 5,882,353 $5,000,000 Jan. 1998
- ----------------------------------------------------------------------------------------------------------
2 year warrants underlying the units of the 1998 Debentures
exercisable @ $0.90(1) 5,882,353 $5,294,117 Jan. 2002
- ----------------------------------------------------------------------------------------------------------
Pending $5.0 million Special Warrant private placement
financing:
a) common shares(1) 5,000,000 $4,250,000 Jan. 1998
b) share purchase warrants @ $0.90(1)(3) 5,000,000 $4,500,000 Jan. 2000
- ----------------------------------------------------------------------------------------------------------
NUMBER OF COMMON SHARES, ASSUMING FULL DILUTION(2) 47,982,536
- ----------------------------------------------------------------------------------------------------------
CAPITAL AVAILABLE, ASSUMING FULL DILUTION $ 30,978,686
- ----------------------------------------------------------------------------------------------------------
</TABLE>
NOTES:
(1) Subject to regulatory, and shareholder approval.
(2) Excludes directors and officers incentive stock options.
(3) Excludes any additional securities which may be issued as a penalty. See
"Private Placement - Special Warrants".
(4) See "Amendment to Terms of 1996 Special Notes" and see "Conversion of Short
Term Debt".
- ----------------
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
SECOND QUARTER
FISCAL YEAR END 1998
PAGE 11
Management considers the foregoing revised corporate finance plan to be in the
best interests of the Corporation. Regulatory body approval in respect of the
foregoing matters is subject to the Corporation receiving shareholder approval
with respect to each of the foregoing matters. In this regard, notice has been
given that a special meeting of holders of common shares of the Company will be
held in the Jasper Room, The Westin Hotel at 320-4th Avenue S.W., Calgary,
Alberta, at 1:00 p.m. (Calgary time), on Friday, January 30, 1998 (the "January
1998 Special Shareholder Meeting"). Accordingly, management intends to place
before the meeting for approval and adoption, with or without modification,
various resolutions confirming, ratifying and approving the foregoing revised
corporate finance plan, as discussed hereinafter in further detail. (See
"Liquidity and Capital Resources", below)
2.) 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 14 locations in the US and 30 in Canada, totaling 44. Up to the date
of this report, the Company closed 7 of its stores which were not operating to,
and were not expected to attain, Company standards. The Company anticipates
closing as many as 6 additional similar circumstance stores before the end of
this year, making the revised total units expected remaining open at year-end in
the range of 38 stores.
The Company's 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). As a complement to its store operations, 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. It is from these original 51 stores that the Company has closed and/or
expects to close the 13 stores referred to hereinbefore by the end of this
fiscal year.
On 1 February 1996, the Company announced its Reorganization Plan subdivided
into two parts: PLAN 2000, the Company's 5-year business plan which prescribed
the manner in which the Company would re-launch and build its business to in
excess of 1000 stores by the end of the Year 2000; and, the Financing Plan
described hereinbefore which prescribed how the Company proposed to 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. Arising out of adverse market conditions during this
fiscal year (the second year of PLAN 2000), resulting in the Company's inability
in the circumstances to complete fundings in accordance with the Financing Plan,
the expansion plan has been put on hold, delaying the implementation of PLAN
2000 on the time-lines originally forecast. The Company cannot project when it
will
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
SECOND QUARTER
FISCAL YEAR END 1998
PAGE 12
be in a position to proceed with Plan and its modified approach to expansion
until its financial situation improves, and no assurances can be given as to
when this might be. Until then, the Company remains dependent upon and at risk
for the raising of external capital.
The Company's shareholders also 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.
Comparison of this year's results to last year would have little relevance,
principally for two reasons: (1) the Company, until it reaches break-even, is
still effectively operating in the startup 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 its other stores during Quarter 4 of
Fiscal 1997.
Cost of sales as a percentage of total sales for Quarter 2 of Fiscal 1998 was
75% and 60% year to date. The increasing cost of sales is temporary and reflects
the management's restraint toward purchasing merchandise at this time and
remains sensitive to the availability and timing of funds, the receipt of which
cannot be assured. In the longer term, the Company's management anticipates
obtaining a 53% cost of sales.
Operating and administration expenses incurred this year are not comparable to
Fiscal 1997, principally because, pursuant to the bankruptcies of the
Subsidiaries, the Company was initially focused on reorganizing, restructuring
and planning for the future. In the long-term, the Company's administration will
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 largely flow to the bottom-line.
The amount of amortization for the period increased, in comparison to the
corresponding periods ending 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.
3.) LIQUIDITY AND CAPITAL RESOURCES
See Note 4 of the NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
included with there materials.
The Company's proposed revised corporate finance plan described hereinbefore has
been conceived to potentially raise up to $31 million in the aggregate over the
next two years. While no assurances can be given as to its completion, the
overview table appearing hereinbefore under the heading entitled "Corporate
Overview", represents the potential impact on the availability of capital to the
Company and on the Company's share capital should the revised financing plan as
proposed by management be approved and implemented in its entirety. The revised
financing plan, subject to shareholder and regulatory approval, incorporates the
following elements.
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
SECOND QUARTER
FISCAL YEAR END 1998
PAGE 13
a). PRIVATE PLACEMENT - SPECIAL WARRANTS
Management intends to place before the January 1998 Special Shareholders
Meeting, for approval, confirmation and adoption, with or without
modification, an ordinary resolution ratifying the offer and sale of up to
5,000,000 special warrants (the "Special Warrants") of the Corporation at a
purchase price of $0.85 per Special Warrant for aggregate gross proceeds of
up to $4,250,000, including reasonable fees, commissions and expenses.
Subject to shareholder approval, each Special Warrant shall entitle the
holder to acquire one (1) common share and one (1) common share purchase
warrant (the "regular warrant") at no additional cost during the period
commencing on the date of issuance and ending on the earlier of six (6)
business days after the date upon which a receipt for a final prospectus
relating to the common shares and regular warrants issuable upon exercise
of the Special Warrants (collectively, the "Underlying Securities") or an
appropriate exemption order is granted that permits the common shares and
regular warrants to be freely tradeable, or the date that is one (1) year
following the date of issuance of the Special Warrants. Any Special
Warrant that is not exercised prior to the aforesaid exercise date shall be
deemed to be exercised without any further action on the part of the holder
on such date. Each regular warrant will entitle the holder thereof to
purchase one (1) common share of the Corporation at a purchase price of
$0.90 on or before two (2) years after the date of issuance of the Special
Warrants.
The holders of Special Warrants shall be entitled to receive 1.1 common
shares and 1.1 regular warrants without payment of further consideration if
the Corporation at any time is unable to file and qualify a final
prospectus in regard to the Underlying Securities on or before the date
that is 180 days after the date of closing of the proposed private
placement of Special Warrants. Accordingly, it is possible that an
additional 1,000,000 common shares may be issued pursuant to this
provision.
Under the terms of the proposed financing, the Special Warrants are not
convertible into the Underlying Securities until such financing has
received shareholder approval. In addition, the Corporation has obtained
regulatory approval to complete this private placement, subject to, INTER
ALIA, receipt of shareholder approval.
b). PRIVATE PLACEMENT - FIRST SECURED DEBENTURES
Management of the Corporation has made application to The Alberta Stock
Exchange for approval to complete a private placement of a series of first
secured fixed and floating charge 10% convertible debentures ("1998
Debentures") in the maximum principal amount of up to $5,000,000. The 1998
Debentures will mature on January 31, 2000, shall bear interest at a rate
of 10% per annum, payable semi-annually in common shares having deemed
price of $0.85 each, and are secured by way of a first fixed and floating
charge against all of the assets of the Corporation. The 1998 Debentures
shall be convertible, in whole or in part, at the option of the holder,
into units of the Corporation at a conversion price of $0.85 per unit (a
"Unit") for a total of 5,882,353 Units. Each Unit will consist of one
common share and one share purchase warrant. Each share purchase warrant
shall be convertible into one common share of the Corporation at an
exercise price of $0.90 per common share, expiring two years after the date
of conversion. The
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
SECOND QUARTER
FISCAL YEAR END 1998
PAGE 14
total number of common shares of the Corporation reserved for issuance upon
conversion of the 1998 Debentures and share purchase warrants shall be
11,764,706 common shares. Subject to the conditional approval of The
Alberta Stock Exchange and shareholder approval, it is the intention of the
Corporation to complete this private placement as soon as possible. [In
view of the fact that the possible aggregate issuance of common shares
issuable upon conversion of such debentures represents over twenty-five
(25%) percent of the corporation currently issued and outstanding share
total, shareholder approval is required by The Alberta Stock Exchange.
Funds raised from this private placement will be used for general corporate
purposes. This private placement will not affect a change of control of
the Corporation.
At any time after January 31, 1998 and before January 31, 2000, the
maturity date, the Corporation may, by written notice, require holders of
1998 Debentures to convert all or any part of the principal amount of their
1998 Debentures into Units of the Corporation at a conversion price of
$0.85, provided that any common shares issued upon such conversion will
first have been qualified under a prospectus as free-trading shares and
provided further that the weighted average trading price of the common
shares over the ten (10) trading days prior to the date on which the
Corporation gave notice (the "Conversion Notice") to the holders of 1998
Debentures of its intention to require such holders to convert their 1998
Debentures, is at least $1.70 per common share on any stock exchange in
Canada on which the common shares are listed for trading. If a holder of
1998 Debentures has not converted their 1998 Debentures within 20 days of
receipt of the Conversion Notice, the Corporation may, at any time
thereafter, pre-pay all or part of the 1998 Debentures to which the
Conversion Notice applies, together with interest thereon, and cancel any
such 1998 Debentures so paid on a pro-rata basis.
Management intends to place before the January 1998 Special Shareholders
Meeting, for approval, confirmation and adoption, with or without
modification, an ordinary resolution ratifying the offer and sale of the
1998 Debentures.
c). AMENDMENT TO TERMS OF 1996 SPECIAL NOTES
Pursuant to the 1996 Special Note Trust Indenture the Corporation created,
allotted and issued a series of $6,000,000 10% convertible fixed and
floating charge secured special promissory notes (herein referred to as the
"1996 Special Notes"). Upon exercise, each $1,000 of principal amount of
1996 Special Notes entitles the holder to acquire for no further
consideration, $1,000 in principal amount of 10% convertible fixed and
floating charge secured debentures (herein referred to as the "1996
Debentures"). The holders of the 1996 Debentures have the right at any
time, and from time to time, during the term of the 1996 Debentures to
convert all or part of the principal amount of the 1996 Debentures into
common shares in the capital of the Corporation at a conversion price of
$2.50 per common share and upon the terms and conditions set forth in the
1996 Debentures. The 1996 Debentures are secured against the assets of the
Corporation and rank pari passu with one another.
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
SECOND QUARTER
FISCAL YEAR END 1998
PAGE 15
Management intends to place before the January 1998 Special Shareholders
Meeting for approval, confirmation and adoption, with or without
modification, a resolution to amend the 1996 Special Note Trust Indenture
and the debenture trust indenture, dated as of August 8, 1996 and effective
as of July 31, 1996 ("1996 Debenture Trust Indenture") by way of
supplemental indentures so that the conversion price of the 1996 Debentures
will be reduced from $2.50 per common share to $1.25 per common share. As
a result, the total number of common shares reserved for conversion of the
1996 Special Notes and the underlying 1996 Debentures would be increased
from 2,400,000 to 4,800,000 common shares. Due to the proposed creation of
the 1998 Debentures which will have a first charge on the assets of the
Corporation, management proposes that the 1996 Special Notes and 1996
Debentures be subordinated to the 1998 Debentures. By an extraordinary
resolution dated effective November 24, 1997, the holders of the 1996
Special Notes resolved that the payment of any and all debts and sums of
money now or hereafter due and owing by the Corporation under the 1996
Special Note Trust Indenture, the 1996 Special Notes and the 1996
Debentures, shall be subordinated in all respects to the payment by the
Corporation of its obligations to the holders of 1998 Debentures and that
any security securing the 1996 Special Note Indenture, the 1996 Special
Notes and the 1996 Debentures shall rank after the rights and security of
the holders of 1998 Debentures. It was also resolved by the holders of
1996 Special Notes that the conversion price of the 1996 Debentures be
reduced to $1.25 per common share. In all other respects the 1998
Debentures and the 1996 Debentures will be confirmed and ratified in all
respects.
d). AMENDMENTS TO CLASS A WARRANTS, CLASS AA WARRANTS, CLASS B WARRANTS AND
CLASS BB WARRANTS
Pursuant to a Plan of Arrangement which was approved by the shareholders of
the Corporation at an annual and special meeting held on July 24, 1996,
the Corporation reorganized and consolidated its share capital on the basis
of twenty (20) previously issued common shares being reorganized and
consolidated into one (1) consolidated common share and one (1) exchange
right ("Exchange Right"). Each Exchange Right entitled the holder thereof
to purchase one exchange unit ("Exchange Unit") of the Corporation at a
purchase price of $2.00 per unit (equivalent of $0.10 per unit on a
pre-consolidation basis), exercisable by the holders thereof until 90 days
following their date of issue.
Each Exchange Unit consisted of one (1) post-consolidation common share of
the Corporation and one (1) share purchase warrant ("Class A Warrant").
Each Class A Warrant entitles the holder thereof to purchase one
post-consolidation common share of the Corporation at an exercise price of
$2.00 per common share and one (1) common share purchase warrant for no
consideration ("Class AA Warrant"), on or before November 15, 1997 (the
"Class A Warrant Exercise Date"). The Class A Warrant Exercise Date was
originally March 1, 1997 and was extended to November 15, 1997 by
resolution of the board of directors. Each Class AA Warrant entitles the
holder thereof to purchase one (1) post-consolidation common share of the
Corporation, at a purchase price of $2.50 per common share on or before
March 1, 1998 (the "Class AA Warrant Exercise Date").
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
SECOND QUARTER
FISCAL YEAR END 1998
PAGE 16
On March 1, 1996, the Corporation completed a private placement of
49,500,000 special warrants (pre-consolidation) each of which was
exercisable into one (1) common share of the Corporation and one (1)
regular warrant ("Class B Warrant") Each Class B Warrant entitles the
holder thereof to acquire, on or before November 15, 1997 (the Class B
Warrant Exercise Date"), one (1) common share of the Corporation for a
price of $2.00 and one (1) share purchase warrant ("Class BB Warrant") at
no additional cost. Each Class BB Warrant entitles the holder thereof to
acquire, on or before March 1, 1998 ( the Class BB Warrant Exercise Date"),
one (1) common share of the Corporation at a price of $2.50.
Management has determined that it is appropriate, subject to regulatory
and shareholder approval, to:
(i) extend the Class A Warrant Exercise Date and Class B Warrant
Exercise Date until Tuesday, June 30, 1998;
(ii) reduce the exercise price of the Class A Warrants and the Class
B Warrants from $2.00 per common share to $1.25 per common
share;
(iii) extend the Class AA Warrant Exercise Date and the Class BB
Warrant Exercise Date to September 30, 1998; and
(iv) reduce the exercise price of the Class AA Warrants and the Class
BB Warrants from $2.00 per common share to $1.25 per common
share.
At the January 1998 Special Shareholders Meeting, management of the
Corporation will seek approval of the shareholders to amend the Class A
Warrants, the Class B Warrants, the Class AA Warrants and the Class BB
Warrants by extending their respective expiry dates and reducing their
respective exercise prices as set out below.
<TABLE>
<CAPTION>
WARRANT WARRANTS PROPOSED PROPOSED
CLASS OUTSTANDING EXPIRY DATE EXERCISE AVAILABLE CAPITAL
PRICE
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A 1,815,802 June 30, 1998 $1.25 $ 2,269,752.50
Class B 1,787,500 June 30, 1998 $1.25 $ 2,234,375.00
Class AA 2,234,056 Sept. 30, 1998 $1.25 $ 2,792,570.00
Class BB 2,475,000 Sept. 30, 1998 $1.25 $ 3,093,750.00
-------------------------------------------------------------------------------
TOTAL 8,312,379 $10,390,447.50
</TABLE>
As of the date of this report, the following numbers and classes of
Warrants, as defined below, have been exercised at the following
exercise prices.
<TABLE>
<CAPTION>
A B C D
WARRANT CLASS,ORIGINAL TOTAL PROCEEDS TOTAL PROCEEDS IF DIFFERENCE
EXERCISE PRICE AND FROM EXERCISE AT EXERCISED AT NEW BETWEEN B AND C
NUMBER(1) ORIGINAL PRICE PRICE ($1.25)
-------------------------------------------------------------------------------
<S> <C> <C> <C>
78,046 Class A at $2.50 $195,115.00 $97,557.50 $97,557.50
344,433 Class at $2.00 $688,886.00 $430,541.25 $258,334.75
</TABLE>
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
SECOND QUARTER
FISCAL YEAR END 1998
PAGE 17
<TABLE>
<S> <C> <C> <C>
4,225 Class AA at $3.00 $12,675.00 $5,281.25 $7,393.75
687,500 Class B at $2.00 $1,375,000.00 $859,375.00 $515,625.00
TOTAL $2,271,676.00 $1,392,755.00 $878,921.00
</TABLE>
NOTE 1: No Class BB Warrants have been exercised to date.
If the resolution reducing the exercise prices of the Class A Warrants,
Class B Warrants, Class AA Warrants and Class BB Warrants as described
herein is approved, and the board of directors elects to implement such
amendments, the Corporation will be required to reimburse to those
holders of Class A Warrants, Class B Warrants, Class AA Warrants and
Class BB Warrants (herein collectively referred to as the "Warrants")
who have previously exercised all or part of their Warrants in the
aggregate amounts set forth above under column D, being the difference
between the price paid by each such warrantholder upon the exercise of
the applicable Warrant and the price that such warrantholder would have
paid based on the reduced exercise price of $1.25 per common share.
Notwithstanding the approval of the shareholders of the Corporation, the
board of directors of the Corporation may in their sole discretion
revoke the resolution relating to amendment of the exercise price of
the Warrants and/or the extension of the exercise date of the Warrants
before it is acted upon without further approval of the shareholders of
the Corporation. The extent to which the board of directors shall
implement the following resolution will be dependent on, inter alia,
the ability of the Corporation, in the sole opinion of the board of
directors, to reimburse the amounts as set forth above to previous
holders of Warrants who have already exercised all or part of their
Warrants. If it is determined by the board of directors, in their sole
discretion, that the Corporation is unable or unwilling to reimburse
such amounts, it will not proceed with the following resolution, in
which event the terms and the conditions of the Warrants shall remain
as is, without amendment, or the board of directors may extend the
expiry dates only.
e). CONVERSION OF SHORT TERM DEBT
The Corporation executed and delivered certain promissory notes (the
"Bridge Loan Notes") evidencing an aggregate principal amount of $4,081,500
in unsecured loans advanced to the Corporation and bearing interest at an
annual rate of 10% pending implementation of a bona fide reorganization of
the financial affairs of the Corporation. As a term of the Bridge Loan
Notes, the Corporation obtained regulatory approval of The Alberta Stock
Exchange to reserve 180,000 common shares for issuance to the Bridge Loan
Note holders as bonus shares. The Bridge Loan Note holders have agreed
that the payment of any and all debts and sums of money due and owing by
the Corporation to the Bridge Loan Note holders shall be paid in full and
converted into common shares of the Corporation upon the basis of a
conversion price of $1.25 per common share. The conversion of the Bridge
Loan Notes shall be subject to regulatory approval.
Management intends to place before the January 1998 Special Shareholders
Meeting for approval, confirmation and adoption, with or without
modification, a
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
SECOND QUARTER
FISCAL YEAR END 1998
PAGE 18
resolution to convert the Bridge Loan Notes to shares of the Company upon
the basis of a conversion price of $1.25 per common share.
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
SECOND QUARTER
FISCAL YEAR END 1998
PAGE 19
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Plan of Arrangement. (See Part I, Item 2. -- MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, herein)
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The annual and special meeting of the Company's shareholders was
held 12 September 1997. In total, 1,356,539 common shares were
represented either in person or by proxy, representing over 25% of
the total number of 7,620,730 common shares eligible to vote.
i.) The shareholders of the Company elected to receive the
annual report of the board of directors and the consolidated
audited financial statements of the Company for the fiscal
year ended 31 January 1997, voting as follows:
Number of Number of Number of
common shares common shares common shares
voted for voted against votes withheld
--------- ------------- --------------
1,349,823 121 6,395
ii.) The shareholders of the Company also elected to fix a board
of seven directors, voting as follows:
Number of Number of Number of
common shares common shares common shares
voted for voted against votes withheld
--------- ------------- --------------
1,347,059 6,775 2,505
iii.) The election as directors for the nominees named in the
management information circular accompanying this instrument
of proxy for terms of office set out in accordance with the
management information circular, voting as follows:
Number of Number of Number of
common shares common shares common shares
voted for voted against votes withheld
--------- ------------- --------------
1,339,145 3,804 13,390
iv.) The appointment of BDO Dunwoody, Chartered Accountants,
Toronto, Ontario, as auditor of the Company for the ensuing
year at a remuneration to be fixed by the directors, voting
as follows:
Number of Number of Number of
common shares common shares common shares
voted for voted against votes withheld
--------- ------------- --------------
1,348,150 8,164 25
v.) The shareholders of the Company also approved and adopted,
with or without modification, the ordinary resolution as
more particularly set for in the management information
circular accompanying this instrument of proxy relating to
the granting of certain stock options, voting as follows:
Number of Number of Number of
common shares common shares common shares
voted for voted against votes withheld
--------- ------------- --------------
1,002,941 14,571 338,581
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
SECOND QUARTER
FISCAL YEAR END 1998
PAGE 20
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a.) Exhibits
Exhibit 27 -- Financial data schedule
b.) Reports on Form 8-K
None
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: 24 December 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
<CURRENCY> CANADIAN
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JUL-31-1997
<EXCHANGE-RATE> 0.70
<CASH> 804,007
<SECURITIES> 0
<RECEIVABLES> 297,172
<ALLOWANCES> 0
<INVENTORY> 2,314,022
<CURRENT-ASSETS> 4,154,343
<PP&E> 4,789,306
<DEPRECIATION> 418,979
<TOTAL-ASSETS> 10,066,660
<CURRENT-LIABILITIES> 3,704,057
<BONDS> 7,380,000<F1>
0
0
<COMMON> 9,302,678
<OTHER-SE> 1,400,000<F2>
<TOTAL-LIABILITY-AND-EQUITY> 10,066,660
<SALES> 4,817,977
<TOTAL-REVENUES> 4,817,977
<CGS> 2,893,156
<TOTAL-COSTS> 2,893,156
<OTHER-EXPENSES> 7,919,638
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 515,000
<INCOME-PRETAX> (6,509,815)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,509,815)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,509,815)
<EPS-PRIMARY> (1.10)
<EPS-DILUTED> (1.10)
<FN>
<F1>of this amount, $4.9 million is convertible debenture (face amount $6.0
million) which will be converted into common stock effective 31 January 1998,
subject to shareholder approval.
<F2>Amount of equity value arizing from convertible feature of L-T Debt.
</FN>
</TABLE>
