<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 30 APRIL 1998 ("Q1",
--------------------
"First Quarter" or "Quarter 1 of Fiscal 1999"), 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
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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")
<TABLE>
- ----------------------------------------------------------------------------------------------------
<S> <C>
PROVINCE OF ALBERTA, CANADA 52-1976897
(State or other jurisdiction of incorporation) (I.R.S. Employer 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)
- ----------------------------------------------------------------------------------------------------
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by (S)13 or (S)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 26 February 1999, there were 16,913,389 common shares of the Registrant's
common stock (the "Common Shares" or "Common Stock") outstanding. (See ITEM 2.
Management's Discussion and Analysis of Financial Condition and Results of
- --------------------------------------------------------------------------
Operations.)
- ----------
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
FIRST QUARTER OF FISCAL 1999
PAGE 2
FORM 10-Q
INDEX
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Interim Financial Statements 3
Consolidated Statement of Operations
for the periods ended 30 April 1998 and 1997
Consolidated Balance Sheet as at 30 April 1998 and 31
January 1998
Consolidated Statement of Changes in Financial Position
for the periods ended 30 April 1998 and 1997
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 19
Item 2. Changes in Securities 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 23
Signature 24
</TABLE>
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
FIRST QUARTER OF FISCAL 1999
PAGE 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
A) CORPORATE OVERVIEW
Investing is the priority for Power Plus Corporation, a public company dual
listed on The Alberta Stock Exchange in Canada and the Over-The-Counter
("OTC") Electronic Bulletin Board in the United States. The primary
activities of the Company fall into two categories: investing in operating
companies; and, carrying on business through subsidiary operating
companies. Accordingly, Power Plus Corporation is the parent of
subsidiaries that hire employees, procure merchandise for resale, purchase
or build capital assets and carry on business. Since its inception, Power
Plus Corporation has invested in specialty retail businesses operating in
Canada and the US, primarily selling batteries and battery-related
products, wireless telecommunications products and portable fashion
electronics.
The Company, commensurate with its role of an investment banker, proposed a
reorganization plan/1/ to shareholders for their approval at a meeting of
the members held on 24 July 1996 (the "1996 Reorganization Plan"). With
shareholders' approval to the proposed reorganization, new management
formulated its operating and financing plan, PLAN 2000.
In July 1996, Power Plus USA, Inc. ("PPUSA"), a wholly owned subsidiary of
the Company, commenced implementing its plan for launching the US Powerful
Stuff chain. Effective 1 September 1996, PPUSA launched its wireless
airtime rebilling business by purchasing more than 20,000 pager customers
under existing contracts and the entitlement to the related future wireless
(pager/beeper airtime) rebilling revenue from Consumer Electronics
Specialty Stores, Inc. ("CESS"), located in Sarasota, Florida. The US
retail chain grew to 44 stores and the airtime rebilling business grew by
nearly 50% over the next 18 months. Despite these accomplishments, the lack
of timely financing, in accordance with PLAN 2000, to support the ongoing
operations and growth caused PPUSA to seek protection under Chapter 11 of
the US Bankruptcy Code on 31 January 1998. The Company sold certain of
------------------
PPUSA's capital assets, including its list of pager customers, to an
arm's-length party and on 29 June 1998, and PPUSA ceased carrying on the
business.
In September 1996, the Company launched its Canadian Powerful Stuff chain
through its wholly owned subsidiary Power Plus Canada, Inc., ("PPCan")/2/.
The immediate expansion thrust was concentrated in Ontario, where the chain
grew to 18 stores, although plans foresaw the addition of several store
locations in British Columbia and Alberta. However, resulting from the same
capital constraint, on 8 May 1998 PPCan sought protection by filing a
Notice of Intention to File a Proposal to Creditors ("Proposal") under Part
---------------------------------------------------
III Division I of the Bankruptcy and Insolvency Act Canada. PPCan remained
-----------------------------
in possession of its assets. On 26 November 1998 the Company sold the
shares of PPCan and certain intellectual properties to a third party that
conducted a similar business in Canada.
_________________________
/1/ The 1996 Reorganization Plan was conceived during Fiscal 1996 and flushed
out during Q1 and Q2 of Fiscal 1997. It had two parts. The first was PLAN
2000, the Company's 5-year business plan prescribing how the Company
proposed to build its business to in excess of 1000 stores. The second was
the Financing Plan that set out the manner in which the Company proposed to
fund for this growth by raising new capital over the first three years,
until critical mass and financial self-sufficiency was achieved. The stores
operated from leased premises that ranged from 150 to 700 square feet in
major enclosed shopping malls in the US and Canada. They sold portable
energy, wireless communication products and services (beepers, cellular
phones, personal communication systems and related service contracts) and
hand-held electronic communications, entertainment, business and lifestyle
products.
/2/ Since its acquisition in December 1988, PPCan, formerly 385729 Alberta
Inc., had been inactive and did not commence to carry on business until
September 1996.
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
FIRST QUARTER OF FISCAL 1999
PAGE 9
All of the Company's retail operations in Canada and the US were conducted
through PPCan and PPUSA, respectively, and these subsidiaries owned all of
the capital assets employed in carrying on the retail businesses.
Accordingly, at 31 October 1998 the Company had neither ongoing retail
operations nor operating assets.
The Company is currently undergoing a reorganization, implementing its 1999
Reorganization Plan which management considers in the best interests of the
Company (for more details see ITEM 4(2) -- Submission of Matters to a Vote
-------------------------------
of Security Holders in the FORM 10K -- Fiscal 1998, representing the year
-------------------
ended 31 January 1998 as previously filed). In summary, the shareholders
resolved as to the following matters:
1. To change the name of the Company to PPC Capital Corp;
2. To authorize the consolidation of the common shares of the Company on
the basis of one (1) common share for each five (5) common shares
heretofore outstanding;
3. To authorize a reduction of the stated capital of the Company by
$20,700.000;
4. To authorize the conversion of secured debt of the Company in an amount
of up to $5,000,000 into post-consolidation common shares of the
Company at a conversion price of $0.10 per post-consolidation common
share;
5. To authorize the conversion of certain other debts of the Company in an
amount of up to $340,000 into post-consolidation common shares at a
conversion price of $0.10 per post-consolidation share; and,
6. To approve the payment of a finder's fee in the amount of $121,230 by
issuing up to 1,121,230 post-consolidation common shares at a
conversion price of $0.10 per post-consolidation common share.
Upon regulatory approval and implementation of the 1999 Reorganization
Plan, the Company intends to aggressively pursue diversified investment
opportunities targeted to maximize shareholder value.
While management cannot give any assurances as to the future outlook for
the Company, formal application has been made to seek the conditional
approval of The Alberta Stock Exchange for the 1999 Reorganization Plan as
approved by the shareholders. The name change and share consolidation will
not be implemented until the required regulatory approval is obtained,
which is anticipated to be during the first quarter ending 30 April 1999,
of Fiscal 2000 ending 31 January 2000. During this same period, the Company
will be proceeding to prepare and finalize its audited financial statements
for the fiscal year ended 31 January 1999 ("Fiscal 1999"), while at the
same time seeking a professional opinion/3/ as to the extent and
applicability of its substantial tax loss carry forwards. Only upon
approval and implementation of the 1999 Reorganization Plan and the
finalization of Fiscal 1999's financial statements and the tax loss
opinion, will the Company be in a position to pursue investment
opportunities. In management's opinion, the tax loss carry forwards are
expected to represent a significant asset for the Company which is
anticipated to be material in attracting a suitable candidate for purposes
of restructuring its business affairs.
In the circumstances of these reorganizational proceedings, The Alberta
Stock Exchange is conducting a review of the financial affairs of the
Company in order to ascertain as to whether the Company meets minimum
listing requirements. In the event the Company is unable to satisfy The
Alberta Stock Exchange as to compliance with minimum listing requirements
on or before 30 April 1999, the Common Shares could face a suspension from
trading. In the event of any such suspension, the Company is in no way
impaired from continuing on with its day-to-day operations in seeking out
new investment op-
__________________________
/3/ See Note 10 in the Notes to the audited Consolidated Financial Statements
-- Fiscal 1998, in the FORM 10-K -- Fiscal 1998.
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
FIRST QUARTER OF FISCAL 1999
PAGE 10
portunities. The trading in shares of Alberta issuers is typically halted
on The Alberta Stock Exchange for extended periods pending closure of
transactions by way of reverse take-over.
B) RESULTS OF OPERATIONS
1) SIGNIFICANT CHANGES IN OPERATIONS DURING FISCAL 1999
The Company's 1996 Reorganization Plan, transforming the remnants of
the former Battery One, Inc. under new management into Power Plus
Corporation, was reliant upon PLAN 2000. PLAN 2000, the Company's 5-
year business plan prescribing how the Company proposed to roll out
its Powerful Stuff specialty niche retail business throughout North
America, incorporated a detailed financing plan setting out the
framework for providing a total of $49.1 million over the initial 3-
years of PLAN 2000. The timeliness and availability of this capital,
required to be raised through the junior public capital markets in
Canada, was critical to the success of PLAN 2000. This capital was
vital to the Company's growth, but its availability was dependent upon
macroeconomic factors outside the Company's control. The goal was
critical mass, that point when adequate retail outlets were open,
operational and achieving at least annualized breakeven cash
flow -- at which time the business could be financially self-
sustaining. Beyond this, the projected cash flow from store profit
could ultimately make the Company's growth internally funded.
With the Company's biggest challenge being the availability of
capital, management could not have foreseen the adversity represented
by the devastation to the junior capital markets in Canada during
1997, afflicted with the BREX Resources mining scandal and infected by
the Asian Flu factor. For the Company, whose capital was being raised
in Canadian dollars, these debilitating market circumstances were
exacerbated at the same time by the substantial devaluation of the
Canadian currency against the US dollar, having regard to PLAN 2000's
emphasis on US expansion and the burdensome appetite for US currency.
Despite management's best efforts to act responsibly during this
period of uncertainty, these times ultimately called for strong
preservation measures. Consequently, on 31 January 1998, PPUSA sought
protection under Chapter 11 of the US Bankruptcy Code. The Company was
---------------
the largest and only secured creditor of PPUSA, which remained in
possession of its assets. With 44 stores then open, down from a peak
of 63 stores at the end of Q3 -- Fiscal 1998, the continued
prejudicial delays in completing planned financings prohibited further
expansion.
With no expectation of any short-term improvement in this crisis, the
Company subsequently announced on 8 May 1998 that PPCan had also
sought protection from creditors by filing a Proposal under the
Bankruptcy and Insolvency Act Canada. The Company was the largest and
-----------------------------
only secured creditor of PPCan. PPCan remained in possession of its
assets pending a determination as to whether the operations could be
refinanced or sold as a going concern.
Unabated, the Canadian junior capital markets only continued to
deteriorate, so the prospects of refinancing became unrealistic. As a
result, on 29 June 1998, the Company realized its security pertaining
to the indebtedness of PPUSA and foreclosed on the remaining assets of
PPUSA and sold them, including its list of pager customers, for cash
consideration of US$125,000 and the assumption of certain liabilities
in the aggregate amount of US$377,000. The remaining capital assets of
PPUSA, consisting primarily of store fixtures and leasehold
improvements, were abandoned where situated in various locations to
offset existing liabilities to landlords and PPUSA, discharged from
its Chapter 11 Petition, ceased carrying on business in the US.
On 26 November 1998, the Company sold the shares of PPCan and certain
related intellectual properties to an arm's-length third party that
conducts a similar business in Canada. The sale was made pursuant to a
share purchase agreement dated 30 October 1998, between the Company,
as
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
FIRST QUARTER OF FISCAL 1999
PAGE 11
vendor, and Battery Plus Inc. ("BPI"), as purchaser. On 11 September
1998, the creditors of PPCan accepted the offer made to them under the
Proposal and the required court approval was subsequently obtained by
order dated 7 October 1998, satisfying certain pre-conditions to the
sale to BPI. As a result of the Proposal and the completion of the
sale to BPI, all claims of the creditors of PPCan as compromised were
fully satisfied. As a condition of the sale, BPI advanced PPCan
approximately $637,000 to pay the Proposal Trustee and thus enable it
to fund its obligations to the creditors in accordance with the terms
of the Proposal, including payment of certain administrative and
operating costs incurred post-Notice.
In connection with the sale of PPCan, the Company sold, transferred
and assigned PPCan's secured debt, in recognition of the repayment by
PPCan of a portion of the indebtedness, and its right, title and
interest to the proprietary names, marks and styles "Powerful Stuff"
and "Powerful Connections" for cash consideration of $100,000.
All of the Company's retail operations in Canada and the US were
conducted through PPCan and PPUSA and all of the capital assets
employed in carrying on the retail business were owned by them.
Accordingly, and as reported herein, the Company as of the date hereof
no longer has any retail operations nor operating assets.
Therefore, the business results for both the quarter and year-to-date
periods for Fiscal 1999 are anomalous to PLAN 2000 and not comparable
to the past. Accordingly, comparisons, in-depth discussion and
analysis are rendered meaningless and unwarranted. Notwithstanding,
the following limited discussion and analysis should be read in
conjunction with the audited Annual Consolidated Financial Statements
and the Notes thereto contained in the SEC FORM 10K -- Fiscal 1998
filing, representing the year ended 31 January 1998.
2) CONSIDERATION OF BUSINESS RESULTS FOR Q1 AND YEAR TO DATE PERIODS IN
FISCAL 1999 AND THE COMPARABLE PERIODS IN FISCAL 1998
The following table sets forth certain items reflected in the
Company's unaudited consolidated statement of operations expressed as
percentages of sales:
<TABLE>
<CAPTION>
Expressed as a
Percentage of Sales
(period ended 30 April)
Three months
-----------------------
1998 1997
-----------------------
<S> <C> <C>
Cost of sales 70.1% 48.5%
Operating, occupancy & administrative
expenses 503.6% 147.0%
Net loss 473.7% 95.5%
</TABLE>
The year to date cost of sales includes the impact of accounting
reserves for cost of inventory adjustments and write-down of inventory
carrying values pursuant to the closure of PPUSA and sale of PPCan,
and the sell-off of merchandise previously written down. For both the
quarter and year to date periods, the Company was unable to purchase
merchandise inventory in suitable quantities to sustain normal sales
levels. As the Company sold the merchandise inventory on hand, the
average gross profit from those sales actually increased because of
the change in the merchandise mix. However, the total sales and gross
profit amounts decreased to become insignificant by comparison to the
prior year. Declining sales meant store operating overhead became
uneconomic because both the cost of direct labor (despite management's
attention to minimize labor hours while still meeting the minimum
lease requirements for store operating hours) and store rent, which
are
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
FIRST QUARTER OF FISCAL 1999
PAGE 12
essentially fixed costs and incurred as long as a location is open,
were uneconomic and too onerous, especially in light of the decreasing
gross profit.
The sought-after reduction in Operating and Administration Expenses
was partially nullified by accounting adjustments for reserves made
primarily to PPUSA's balance sheet in concert with its Chapter 11
filing and also the professional fees, and termination and severance
pays to employees incurred therewith. A significant decrease in
operating and occupancy expenses resulted from the closure and abandon
of most store locations. Commensurate with its Chapter 11 filing at
the end of Fiscal 1998, PPUSA vacated all stores that were not located
in Florida. During Q1 and Q2 of Fiscal 1999, PPUSA abandoned capital
assets, consisting primarily of store fixtures and leasehold
improvements, where situated in various locations to offset existing
liabilities to landlords. Similarly, PPCan closed three non-performing
stores during Q1 and eight during Q2 of FY1999, the cost of which is
included in this interim financial report, to operate six stores up to
the time of its sale to BPI.
During Q2 and Q3, the Company's administrative overhead decreased
significantly because there were virtually no employees. Included in
Administration Expenses are extraordinary professional fees and
termination and severance pays to non-management employees.
In particular, these interim financial statements reflect the write-
down of PPCan assets in the amount of $490,485, the wind-up of PPUSA's
operations, the reduction in PPCan's operations, and report other
accounting adjustments that are required to conform to generally
accepted accounting principles applicable in the circumstances. In so
doing, a non-cash gain on the abandonment of PPUSA of $2,899,033 is
reported, representing the effect of reversing its indebtedness
obligations to arm's length creditors. The implementation of the
Proposal, including the payment of the dividend from the fund to the
creditors of PPCan, would have the effect of substantially reducing
the amount of accounts payable reported herein.
C) LIQUIDITY AND CAPITAL RESOURCES
See the Notes to the Consolidated Financial Statements (unaudited) included
----------------------------------------------
with these materials.
1) FINANCING ACTIVITIES INSTIGATED AND CHANGES DURING FISCAL 1999
a) On 24 April 1998, the Company completed the conversion of the $6
million, 10% fixed and floating charge secured special promissory
notes debentures, converted at $1.25 per common share, resulting
in the issuance of 5,080,767 common shares of the Company. (See
(S)2(d) -- Special Notes convertible debt financing, below.)
----------------------------------------
b) Effective 24 July 1998, the Company converted certain short-term
debt notes it had executed and delivered (the "Bridge Loan Notes")
during Fiscal 1998 evidencing an aggregate principal amount of
$4,081,250 in unsecured loans bearing interest at an annual rate
of 10%. The conversion rate was $1.25 per Common Share.
Accordingly, the Company issued 3,771,858 Common Shares as payment
in full of all obligations, including accrued interest, under the
Bridge Loan Notes.
c) As of the date hereof, there are now 16,913,389 Common Shares of
the Company currently issued and outstanding. (See the table in
(S)3 -- Summary of changes to shares and share capital and (S)5 --
----------------------------------------------
Consolidation of Share Capital, below.)
------------------------------
d) The Company has neither any share purchase warrants, nor options
to purchase shares granted to any officers, directors, employees,
advisors or consultants to the Company, which remain or are
outstanding as of the date hereof.
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
FIRST QUARTER OF FISCAL 1999
PAGE 13
e) The Company has executed promissory notes evidencing indebtedness
in the aggregate principal amount of $2,650,000 of unsecured loans
advanced to the Company as at FYE 1998 and bearing interest
payable on maturity at an annual rate of 10%. The holders of these
promissory notes have agreed that these unsecured loans will be
replaced by 10% first fixed and floating charge secured debentures
maturing 31 January 2001 with interest accruing and payable upon
maturity. The Company executed additional promissory notes on
similar terms and conditions for $466,000 subsequent to the end of
this quarter. The replacement of these unsecured loans totaling
$3,191,000 was completed during Q4 of Fiscal 1999. (See (S)6 --
Conversion of Secured Debt, below)
--------------------------
f) Interest due on the 10% Bridge Loan Notes, 10% Promissory Notes
and 10% Special Notes is payable in arrears at the time of
repayment or conversion by the issuance of common shares. The 10%
Bridge Loan Notes and 10% Special Notes plus the interest accrued
and payable thereon were converted into Common Shares.
g) Commencing in Fiscal 1996, all securities, including the Special
Notes that were converted into Common Shares, were sold by private
placement to accredited investors in Canada. These securities were
issued pursuant to the governing securities laws in the applicable
governing jurisdictions in Canada but were not registered or sold
principally in the US. Sales of the securities in the US were made
in reliance upon the exemption from registration contained in
(S)4(2) of the Securities Act of 1933, as amended.
----------------------
2) UPDATE CONCERNING FINANCINGS COMMENCED FROM 1996 FINANCING PLAN
(Please also refer to the table in (S)3 -- Summary of changes to
---------------------
shares and share capital, below. In addition, please refer to the FORM
------------------------
10-K -- Fiscal 1998 for a more detail discussion concerning changes to
and arising from the 1996 Financing Plan.)
a) 1996 SPECIAL WARRANT PRIVATE PLACEMENT FINANCING
During Fiscal 1997, according to the 1996 Reorganization Plan, the
Company completed the 1996 Special Warrant Private Placement
Financing (the "1996 Special Warrants") of $4.5 million
representing an aggregate of 2.25 million 1996 Special Warrants.
Each 1996 Special Warrant was converted at no additional
consideration into one Common Share on 31 January 1997 plus one
Class B Warrant. This warrant consisted of two entitlements:
firstly, entitling holders to acquire up to an aggregate of 2.25
million Common Shares at an exercise of $2.00 per share on or
before 30 September 1997, representing additional potential future
capital to the Company in the aggregate of up to $4.5 million;
and, secondly, and subject to the exercise of the Class B Warrant,
a collateral Class BB Warrant, entitling holders to acquire up to
an aggregate of a further 2.25 million Common Shares at an
exercise purchase price of $2.50 per share on or before 1 March
1998, representing additional potential future capital in the
aggregate of up to $5.6 million. (See 2(c) -- Approval of
-----------
Amendment to Certain Terms of Class A, Class AA, Class B and Class
------------------------------------------------------------------
BB Warrants, below.)
-----------
The 1996 Special Warrant financing terms provided that the Company
would incur a 10% penalty payable by the issuance of additional
1996 Special Warrants to the holders of the 1996 Special Warrants,
that is a further 225,000 1996 Special Warrants on a pre-
consolidation basis in prescribed circumstances, representing
dilution of 225,000 Common Shares. The Company was unable to meet
such obligations and the penalty was therefore incurred. The
entitlements attached to the penalty 1996 Special Warrants are the
same as the 1996 Special Warrants.
Holders of the penalty 1996 Special Warrants were not required to
pay to receive the common shares included therein, but the Class B
and BB Warrants attached thereto included the same exercise price,
that is $2.00 per Common Share for the Class B Warrant and $2.50
per Com-
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
FIRST QUARTER OF FISCAL 1999
PAGE 14
mon for the Class BB Warrant. (See 2(c) -- Approval of Amendment
---------------------
to Certain Terms of Class A, Class AA, Class B and Class BB
-----------------------------------------------------------
Warrants, below.)
--------
b) FISCAL 1997 SHARE CAPITAL REORGANIZATION & CONSOLIDATION AND
EXCHANGE RIGHTS ENTITLEMENTS
The reorganization and consolidation of the Company's outstanding
share capital, according to the 1996 Reorganization Plan, occurred
pursuant to a Plan of Arrangement under (S)86 of the Business
Corporations Act Alberta, which had received shareholder, court
and regulatory approval. In general terms, the Company reorganized
and consolidated all of its issued old shares (of which 44,765,613
pre-consolidation shares/4/ had been issued and outstanding as of
1 November 1996) on the basis of every 20 old shares before
consolidation being reorganized and consolidated into one
consolidated Common Share (that is 2,238,281 post-consolidated
Common Shares) and one Exchange Right. Under the terms of this
consolidation, each consolidated Common Share had attached to it
one exchange entitlement (the "Exchange Rights") to purchase one
unit of the Company's equity (the "Exchange Rights Units") on or
by 31 January 1997.
The Exchange Rights entitled holders to purchase up to an
aggregate of 2,238,281 Exchange Rights Units of the Company at an
exercise price of $2.00 per unit on or before 31 January 1997,
representing additional capital to the Company up to an aggregate
of $4,476,562 in Fiscal 1997. (Please also refer to the table in
(S)3 -- Summary of changes to shares and share capital, below for
----------------------------------------------
more details concerning the exercise of Rights Entitlements and
capital raised.)
Each Exchange Rights Unit consisted of one Common Share plus one
purchase warrant, hereinafter referred to as the Class A Warrants.
The Class A Warrants consisted of two entitlements: firstly,
entitling holders to purchase 2,238,281 Common Shares of the
Company at an exercise price of $2.00 per share, on or before 30
September 1997, representing additional potential future capital
to the Company up to an aggregate of $4.5 million; and, secondly,
conditional upon the exercise of the Class A Warrant, a collateral
warrant, the Class AA Warrant, that entitled holders to purchase
up to an aggregate of a further 2,238,281 Common Shares of the
Company at an exercise price of $2.50 per share on or before 1
March 1998, representing additional potential future capital to
the Company in the amount of up to an aggregate of $5.6 million.
(See 2(c) -- Approval of Amendment to Certain Terms of Class A,
-------------------------------------------------
Class AA, Class B and Class BB Warrants, below.)
---------------------------------------
Effective 31 January 1997, all the Exchange Rights were converted
into 2,238,281 Common Shares and the Company received $4,476,562
in new capital. (Please also refer to the table in (S)3 -- Summary
-------
of changes to shares and share capital, below.)
--------------------------------------
c) APPROVAL OF AMENDMENT TO CERTAIN TERMS OF CLASS A, CLASS AA, CLASS
B & CLASS BB WARRANTS
The Company obtained shareholder approval on 30 January 1998 to
amend the conversion price of all outstanding warrants to $1.25
per common share and to extend the period of time for exercise of
such outstanding warrants as follows:
i) extend the Class A Warrant Exercise Date and Class B Warrant
Exercise Date until 30 June 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 30 September 1998; and
__________________________
/4/ All references in this FORM 10-K are to Common Shares outstanding
post-consolidation.
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
FIRST QUARTER OF FISCAL 1999
PAGE 15
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.
All other terms and conditions remained the same.
However, despite these amendments and the best efforts of
management, because of the ongoing degeneration of the junior
capital markets no additional warrants were exercised and no
additional capital was raised. Accordingly, all entitlements
attributed to these warrants expired 30 September 1998.
d) SPECIAL NOTES CONVERTIBLE DEBT FINANCING
In March 1996, according to the 1996 Reorganization Plan, the
Company received approval for a $6 million 5-year 10% Special Note
private placement offering which was subsequently increased by $5
million in June 1997 to become $11 million 10% Special Notes.
During Fiscal 1997, the Company completed $6 million placement in
two closings. Each $1,000 principal amount of Special Notes was
converted into an equivalent principal amount of 5-year 10%
convertible fixed and floating secured debentures. Such debentures
were fully secured by all the assets of Power Plus Corporation. On
24 April 1998, the Company converted the $6 million Special Notes,
plus accrued and unpaid interest thereon, into 5,080,765 Common
Shares at $1.25 per Common Share. (See (S)3 -- Summary of changes
------------------
to shares and share capital, below.)
---------------------------
e) 1997 SPECIAL WARRANT PRIVATE PLACEMENT FINANCING
The Company received regulatory approval for a 1997 Special
Warrant Private Placement Financing of $3 million represented by
1,714,286 - 1997 Special Warrants having a purchase price of $1.75
per 1997 Special Warrant, representing additional potential future
capital to the Company of $3 million, and which is expected to
close in August 1997. Each 1997 Special Warrant was convertible
into one Common Share plus one share purchase warrant entitling
the holder to purchase, for up to one year after date of issue,
one additional Common Share for $2.00, representing additional
potential dilution of 1,714,286 Common Shares and future capital
to the Company in the amount of up to $3.4 million. The 1997
Special Warrants represent potential dilution of up to 3,428,570
Common Shares and up to $6.4 million in additional capital on a
fully diluted basis. As of the date hereof, as a result of market
conditions this financing was aborted.
f) FUTURE POTENTIAL FUNDING FROM THE FINANCING PLAN
All financing in accordance with the 1996 Reorganization Plan
concluded on 30 September 1998, commensurate with the expiring of
the entitlements formerly attached to Warrants. During Fiscal
1999, the Company converted both the Bridge Loan Notes and Special
Notes into Common Shares. No additional financing will be
concluded in regard to the 1996 Reorganization Plan.
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
FIRST QUARTER OF FISCAL 1999
PAGE 16
3) SUMMARY OF CHANGES TO SHARES AND SHARE CAPITAL
The table depicts the changes to share capital following from the 1996
Reorganization Plan and to the date hereof.
<TABLE>
<CAPTION>
SHARES CAPITAL TIMING
---------- ------- --------
----------------------------------------------------------------------------------------------------------------------
($ amounts are expressed in Canadian Dollars in millions; assumes COMPLETED
maximum dilution) -------
----------------------------------------------------------------------------------------------------------------------
<S> <C> <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 2,238,281 $ 0.0 FY 1997
----------------------------------------------------------------------------------------------------------------------
b.) Capital raised from Exchange Right Units that included Class A & AA
Warrants:
----------------------------------------------------------------------------------------------------------------------
i) Exchange Rights Unit converted into 1 Common Share at $2.00 & 1
A Warrant 2,238,281 $ 4.5 FY 1997
----------------------------------------------------------------------------------------------------------------------
ii) Class A Warrants exercised to purchase 1 Common Share @ $2.00
and receive 1 Class AA Warrant (Balance of Class A Warrants
expired unexercised.) 197,456 $ 0.4 FY 1998
----------------------------------------------------------------------------------------------------------------------
iii) Class AA Warrants exercised to purchase 1 Common Share @ $2.50
(Balance of Class AA Warrants expired unexercised.) 4,246 $ 0.0 FY 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 FY 1997
----------------------------------------------------------------------------------------------------------------------
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 of
Class B Warrants 2,250,000 $ 4.5 FY 1997
----------------------------------------------------------------------------------------------------------------------
b.) Class B Warrants exercised to purchase one Common Share at $2.00
and receive one Class BB Warrant. (Balance of Class B Warrants
and all Class BB Warrants issued expired unexercised.) 687,500 $ 1.3 FY 1998
----------------------------------------------------------------------------------------------------------------------
c.) Penalty Special Warrants to receive 225,000 Common Shares at no
cost and 255,000 Class B Penalty Warrants. (Exercised Class B
Warrants included above.) 225,000 $ 0.0 FY 1997
----------------------------------------------------------------------------------------------------------------------
iii CONVERSIONS OF DEBTS INTO COMMON SHARES at $1.25 per share
----------------------------------------------------------------------------------------------------------------------
a.) $6 million - Special Notes (see (S)2(d) - Special
Notes convertible debt financing, above) 5,080,767 $ 6.0 FY 1999
----------------------------------------------------------------------------------------------------------------------
b.) $4.1 million -- Bridge Loan Notes (see (S)1)(b) - Financing
activities instigated and changes during Fiscal 1999, above) 3,771,858 $ 4.1 FY 1999
----------------------------------------------------------------------------------------------------------------------
v NUMBER OF SHARES, FULLY DILUTED (1) / CASH CAPITAL RAISED 16,913,389 22.0
========== =======
----------------------------------------------------------------------------------------------------------------------
vi CONVERTIBLE INDEBTEDNESS - FUTURE POTENTIAL DILUTION
----------------------------------------------------------------------------------------------------------------------
a.) $3 million - Secured Debt (see (S)6 - Conversion of Secured Debt, below) FY 2000
----------------------------------------------------------------------------------------------------------------------
(1) At the meeting of shareholders of the Company held on 30 January 1998, the shareholders of the Company approved
the consolidation of the Company's issued and outstanding Common Shares on a ratio of 1 new common share for up
to each 5 common shares outstanding. Subject to the approval of The Alberta Stock Exchange, it is the intention
of the Company to complete this consolidation as soon as possible, with the result that the 16,913,389 Common
Shares outstanding as at the record date would become 3,382,677 common shares.
----------------------------------------------------------------------------------------------------------------------
</TABLE>
4) STATED CAPITAL REDUCTION
As proposed in the 1999 Reorganization Plan, the Company's shareholders
approved at the annual general and special shareholder meeting held on
21 January 1999 a special resolution effective 31 January 1999
authorizing the reduction in the stated capital of the Company pursuant
to
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
FIRST QUARTER OF FISCAL 1999
PAGE 17
(S)36 of the Business Corporations Act Alberta, by reducing the stated
-------------------------
capital of the Common Shares by an amount up to but not to exceed
$20,700,000. This reduction of stated capital of the Common Shares
would result in the reduction of the shareholders' deficiency by the
same amount. It is management's opinion, after making the adjustment,
that the balance sheet will more accurately represent the financial
repositioning of the Company resulting from the reorganization and
restructuring, and the appropriate current financial condition of the
Company.
In accordance with the Plan of Arrangement incorporated in the 1996
Reorganization Plan, the Company reduced both the stated capital amount
for the Common Shares and the accumulated deficit by $26,670,825,
effective 31 July 1996.
A reduction of the stated capital will have no immediate tax
consequences to a holder of Common Shares. The reduction of stated
capital might have an effect, in certain circumstances, if the Company
is wound up or makes a distribution to its shareholders, or when the
Company redeems, cancels or acquires its Common Shares. As a general
rule, upon such transactions, the holder of Common Shares will be
deemed to have received a dividend to the extent that the amount paid
or distributed exceeds these stated capital of its Common Shares.
5) CONSOLIDATION OF SHARE CAPITAL
At the special meeting of shareholders of the Company held on 30
January 1998, the shareholders of the Company approved a resolution
approving the consolidation of the Company's issued and outstanding
common shares on a ratio of one new common share for up to each five
common shares outstanding. In accordance with the 1999 Reorganization
Plan, as approved at the 21 January 1999 meeting of the shareholders,
and the approval of The Alberta Stock Exchange, it is the intention of
the Company to complete this consolidation from the 16,913,389 common
shares outstanding to 3,382,677 post-consolidation common shares during
the first quarter ending 30 April 1999 of Fiscal 2000 ending 31 January
2000.
6) CONVERSION OF SECURED DEBT
i) At the special meeting of shareholders held on 30 January 1998,
the Company's shareholders approved, subject to regulatory
approval, the private placement of a series of first secured and
fixed and floating charge 10% convertible debentures ("1998
Debentures") in the maximum principal amount of up to $5,000,000.
The 1998 Debentures were proposed to mature on 31 January 2000,
bearing interest at a rate of 10% per annum, payable semi-annually
in common shares having a deemed price of $0.85 each, and secured
by way of a first fixed and floating charge against all the assets
of the Company. The 1998 Debentures were proposed to be
convertible, in whole or in part, at the option of the holder,
into units of the Company at a conversion price of $0.85 per unit,
each unit to consist of one common share and one share purchase
warrant. Pending proceeding with the 1998 Debentures, the Company,
in the interim, executed promissory notes evidencing indebtedness
in the aggregate principal amount of $3,191,000 of unsecured loans
advanced to the Company and bearing interest on maturity at an
annual rate of 10% (the "Unsecured Loan Notes"). As a result of
market conditions, the Company abandoned the 1998 Debentures.
Subsequently, the Company created a debenture trust indenture (the
"Debenture Trust Indenture") dated 30 September 1998 with Elliott
& Associates, Inc., providing for the issuance of a series of 10%
fixed and floating charge secured debentures in the principal sum
not to exceed $5,000,000, due 31 January 2000 (the "Debentures"),
and pledged all present and future debts, liabilities and
obligations of the Company under the Debenture Trust Indenture.
The Unsecured Loan Notes, by agreement with their holders, were
replaced by the Debentures during Q4 -- Fiscal 1999. Management
considered it desirable to provide for the convertibility of the
Debentures, including all principal amounts advanced thereunder
and interest accruing thereon, into Common Shares of the Company
on the basis that
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
FIRST QUARTER OF FISCAL 1999
PAGE 18
the Debentures will be convertible, in whole or in part, on or
before maturity, at the option of the holders, into common shares
of the Company at a conversion price equal to $0.10 per post-
consolidation common share (see ss.5 -- Consolidation of Share
----------------------
Capital, above). In view of the fact that the possible aggregate
-------
issuance of Common Shares issuable upon conversion of the
Debentures represents over 25% of the Company's Common Shares
currently issued and outstanding, shareholder approval was
obtained at the 21 January 1999 meeting of the shareholders and
the required approval of The Alberta Stock Exchange is pending as
of the date hereof.
ii) At the special meeting of shareholders held on 30 January 1998,
the Company's shareholders approved, subject to regulatory
approval, the implementation of a four-tiered revised corporate
finance plan, including reasonable fiscal advisory and finder's
fees and commissions. The Company and Roxborough Holdings Limited
(the "Finder") agreed to a finder's fee arrangement (the "Finder's
Fee Agreement") in respect of funds raised through the efforts of
the Finder, pursuant to which the Company is obligated to pay the
Finder a fee equal to 10% of the first $300,000 of funds raised,
and thereafter 7.5% of funds raised between $300,000 and
$1,000,000, and 5% of funds raised over $1,000,000. To date the
Finder arranged funds of $3,191,000, pursuant to which the Company
is obligated to pay the Finder a fee of $121,230 (the "Finder's
Fee"). Management obtained the approval of the shareholders at the
meeting of shareholders held on 21 January 1999, subject to
regulatory approval, to pay the Finder's Fee in full by converting
it into post-consolidation common shares of the Company on the
basis of a conversion price of $0.10 per post-consolidation share,
or 1,121,230 post-consolidation common (see (S).5 -- Consolidation
-------------
of Share Capital, above).
----------------
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
FIRST QUARTER OF FISCAL 1999
PAGE 19
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The following summarizes, to the best of management's knowledge,
potential, pending or known legal proceedings and litigation, arising
primarily from transactions between third parties and one or both of
PPUSA and PPCan, in all considered ordinary routine litigation
incidental to the business.
a) CDA Industries Inc., a Canadian company and manufacturer and
supplier of store fixtures, commenced an action in the Ontario
Court against the Company for the payment of alleged unpaid amounts
due from either or both PPCan and PPUSA. The Company has disputed
this claim considering it without merit and will vigorously defend
it as required and advised.
b) PageMart Canada Limited, a Canadian company and former supplier of
airtime to PPCan was sued by PPCan in the Ontario Court for non-
performance. PageMart countersued the Company in response, alleging
it was owed certain amounts for services rendered by it to PPCan
and for breach of contract. The Company has disputed PageMart's
claim considering it without merit, and will vigorously defend it
as required and advised.
c) Management is informed of claims that may have been made against
PPUSA in the United States, after PPUSA ceased carrying on
business, by landlords pertaining to store premises leased by
PPUSA. The details of these claims are undetermined as of the date
hereof, and there is the possibility that collateral claims may
have been made against the Company. The Company has retained US
counsel to advise management and will take all steps necessary and
required.
In management's opinion, and to the best of its knowledge, none of
these potential, pending or known routine legal proceedings are
expected to have any material impact on future operating results or the
financial condition of the Company.
ITEM 2. CHANGES IN SECURITIES.
(See PART I, Item 2. -- Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations, herein).
---------------------------------------------
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
On May 8, 1998, the Company announced that its wholly-owned Canadian
operating subsidiary, Power Plus Canada, Inc., sought protection,
filing effective May 8, 1998, a Notice of Intention to make a proposal
to creditors under Part III Division I of the Bankruptcy and Insolvency
-------------------------
Act. Power Plus Canada, Inc. remains in possession of its assets.
---
Management considers this protective measure in the Company's best
interests to protect its assets through reorganization.
On April 24, 1998, the Company announced the completion of the
conversion of its $6 million, 10% fixed and floating charge secured
special promissory notes debentures, converted at $1.25
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
FIRST QUARTER OF FISCAL 1999
PAGE 20
per common share, resulting in the issuance of 5,080,765 common shares
of the Corporation. The Corporation's issued share capitalization was
thereby increased from 8,060,766 common shares to 13,141,531 common
shares.
On February 4, 1998, the Company announced its Revised Corporate
Finance Plan. The Company reported in Fiscal 1998's Third Quarter
Report representing the nine- month period ended 31 October, 1997, that
the biggest challenge it faced in its drive to achieve its goals and
objectives was in the timing and availability of financing in difficult
capital markets exacerbated by the debilitating devaluation of the
Canadian currency. With 44 stores then open, and an imperiled plan
(already once modified from original plan), targeting to be 125+ stores
by the end of Fiscal 1998 (ended 31 January 1998), the continued
prejudicial delays in completing planned financings finally resulted in
no further expansion being possible.
The continuation of operations and future expansion remains contingent
upon the availability and timing of funds. Without 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. In the circumstances, management is of the
opinion that it 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 general and administration expenses and 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. During the second year of Plan, 1997, the Company,
confronted with the unforeseen adverse junior capital markets,
encountered difficulty raising the capital that it had forecasted on
the time-lines projected, resulting now in management finally having to
reorganize its financial affairs.
Accordingly, in an effort to satisfy the Company's ongoing financial
needs for general working capital, and to resume the implementation of
the proposed roll out of new store and kiosk locations under the banner
of the "Powerful Stuff" chain of stores, the Company proposed and
obtained shareholder approval to its modified reorganization plan at a
special meeting held on January 30, 1998. Management considered its
four-tiered revised corporate finance plan, conceived to potentially
raise up to $31 million in the aggregate over the next two years (and
subject to final regulatory approval), to be in the best interests of
the Company.
1) Firstly, the Company obtained shareholder and regulatory approval
to complete a private placement of up to and including 5,882,353
special warrants (the "Special Warrants") having a purchase price
of $0.85 per Special Warrant, or an aggregate amount of $5,000,000.
2) Secondly, the Company obtained shareholder and regulatory approval
to issue a series of $5,000,000, 10% convertible first fixed and
floating charge secured debentures (the "1998 Debentures").
The 1998 Debentures shall bear interest at a rate of 10% per annum,
which interest is payable semi-annually in common shares of the
Company 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
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
FIRST QUARTER OF FISCAL 1999
PAGE 21
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 Company shall also have a right to compel holders to convert
all or part of their 1998 Debentures in certain specific
circumstances.
3) Thirdly, the Company obtained shareholder and creditor approval to
convert existing long-term and short-term debt in the principal
amount of $10,081,500 into common shares at a conversion price of
$1.25 per common share.
a) Conversion of 1996 Special Notes
Pursuant to the 1996 Special Note Indenture, the Company
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"). Whereas the 1996 Special Notes were convertible at
$2.50 per common share, the Company obtained approval to reduce
the conversion price from $2.50 per common share to $1.25 per
common share. The holders of the 1996 Special Notes have
resolved by extraordinary resolution to convert the 1996
Special Notes to common shares upon receipt of shareholder and
regulatory approval. Accordingly, the 1996 Special Notes,
together with all accrued interest thereon, are to be converted
into common shares with effect as of January 31, 1998.
b) Conversion of Short Term Debt
The Company 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 Company
and bearing interest at an annual rate of 10%, pending
implementation of a bona fide reorganization of the financial
affairs of the company. The Bridge Loan Note holders have
agreed that the payment of any and all debts and sums of money
due and owing by the Company to them 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 upon receipt of
shareholder and regulatory approval. The Company obtained
shareholder approval to this conversion, therefore the Bridge
Loan Notes plus accrued interest charges, are to be converted
into common shares with effect as of January 31, 1998.
4) 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 and the Bridge Loan Notes, the Company obtained
shareholder 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 as
follows:
a) extend the Class A Warrant Exercise Date and Class B Warrant
Exercise Date until Tuesday, June 30, 1998;
b) 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;
c) extend the Class AA Warrant Exercise Date and the Class BB
Warrant Exercise Date to September 30, 1998; and
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
FIRST QUARTER OF FISCAL 1999
PAGE 22
d) 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.
The following table represents the potential impact on the
availability of capital to the Company and on the Company's share
capital were the revised corporate finance plan to be implemented
in its entirety.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Common Possible New
Class of Securities Shares Capital Timing
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current issued common shares 8,060,766 N/A N/A
-----------------------------------------------------------------------------------------------------
Class A Warrants outstanding proposed @ $1.25 vs. $ 1,815,802 $ 2,269,755 June 1998
-----------------------------------------------------------------------------------------------------
Class B Warrants outstanding proposed @ $1.25
vs. $2.00 1,787,500 $ 2,234,375 June 1998
-----------------------------------------------------------------------------------------------------
Class AA Warrants outstanding proposed @ $1.25
vs. $2.50 2,234,056 $ 2,792,570 Sept. 1998
-----------------------------------------------------------------------------------------------------
Class BB Warrants outstanding proposed @ $1.25
vs. $2.50 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 4,800,000 N/A N/A
-----------------------------------------------------------------------------------------------------
$4.1 million Bridge Loan convertible @ $1.25 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 5,882,353 $ 5,000,000 Jan. 1998
-----------------------------------------------------------------------------------------------------
2 year warrants underlying the units of the
1998 Debentures exercisable @ $0.90 5,882,353 $ 5,294,117 Jan. 2002
-----------------------------------------------------------------------------------------------------
Pending $5.0 million Special Warrant private
placement financing:
a) common shares 5,000,000 $ 4,250,000 Jan. 1998
b) share purchase warrants @ $0.90 5,000,000 $ 4,500,000 Jan. 2000
-----------------------------------------------------------------------------------------------------
Number of common shares, assuming full dilution 47,982,536
-----------------------------------------------------------------------------------------------------
Capital available, assuming full dilution $30,978,686
-----------------------------------------------------------------------------------------------------
</TABLE>
For further details on the revised corporate finance plan, see the 30
January 1998 Special Meeting Management Information Circular via the
SEDAR and EDGAR electronic filing systems, or contact the Company's
offices for copies.
The revised corporate finance plan was incapable of being implemented
due to unforeseen capital market conditions. For a discussion of these
developments to the date hereof, see herein Item 2(A) - Management's
------------------------
Discussion and Analysis of Financial Condition and Results of
-------------------------------------------------------------
Operations; Corporate Overview
------------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a.) Exhibits
Exhibit 27 -- Financial data schedule
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
FIRST QUARTER OF FISCAL 1999
PAGE 23
b.) Reports on Form 8-K
None
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
FIRST QUARTER OF FISCAL 1999
PAGE 24
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
-------------------------------
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
POWER PLUS CORPORATION
Date: 26 February 1999 /S/ R. BRUCE FREEMAN
------------------------------------------
R. Bruce Freeman
Vice Chairman and Chief Financial Officer
(Duly authorized officer of the Registrant
and its chief financial officer)
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
FIRST QUARTER OF FISCAL 1999
PAGE 3
PART I - FINANCIAL INFORMATION
The Company prepares its consolidated financial statements in Canadian Dollars.
In this report all references to "$" 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 26 February 1999 was C$1.00 = US$0.6623
ITEM 1. INTERIM FINANCIAL STATEMENTS
FIRST QUARTER
(period ended 30 April 1998)
FISCAL 1999
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(Amounts are expressed in Canadian Dollars)
<TABLE>
<CAPTION>
THREE-MONTH AND YEAR-TO-DATE
PERIOD ENDED 30 APRIL
----------------------------
1998 1997
----------------------------
<S> <C> <C>
SALES $ 469,747 $ 2,739,518
Cost of sales 329,387 1,327,332
------------ ------------
Gross profit 140,360 1,412,186
EXPENSES
Operating and administration 1,823,276 3,715,268
Asset write-down -- see Note 2 227,143 0
Financing charges payable in stock -- see Note 4 251,178 0
Amortization 63,838 312,874
------------ ------------
(LOSS) FROM OPERATIONS (2,225,075) (2,615,956)
Deficit, beginning of period 24,320,142 5,070,259
------------ ------------
DEFICIT, END OF PERIOD $ 26,545,217 $ 7,686,215
============ ============
EARNINGS PER SHARE $ (0.21) $ (0.46)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 10,601,150 5,722,345
</TABLE>
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
FIRST QUARTER OF FISCAL 1999
PAGE 4
CONSOLIDATED BALANCE SHEET
(Amounts are expressed in Canadian Dollars)
<TABLE>
<CAPTION>
30 APRIL 1998 31 January 1998
------------- ---------------
(unaudited) (audited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 203,806 $ 147,590
Accounts receivable 147,306 342,842
Inventory 417,932 756,375
Prepaid expenses 95,200 68,907
------------ ------------
864,244 1,315,714
Capital assets, net 1,044,736 1,288,846
Deferred charges, net 0 253,680
Other assets, net 548,000 546,328
------------ ------------
$ 2,456,981 $ 3,404,568
============ ============
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities $ 5,324,752 $ 4,972,867
Accrued interest payable on debt -- see Note 4 775,788 762,944
10% Bridge loan notes payable -- see Notes 4 & 5 4,081,250 4,081,250
10% Convertible promissory notes -- see Notes 4 & 6 2,650,000 1,900,000
------------ ------------
12,831,790 11,717,060
Special Notes -- see Note 7 0 5,020,000
------------ ------------
12,831,790 16,737,060
------------ ------------
SHAREHOLDERS' EQUITY
Share capital and warrants -- see Note 7 16,170,408 9,577,678
Convertible component of Special Notes -- see Note 7 0 1,400,000
Deficit (26,545,217) (24,310,170)
------------ ------------
(10,374,810) (13,332,493)
------------ ------------
$ 2,456,981 $ 3,404,568
============ ============
</TABLE>
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
FIRST QUARTER OF FISCAL 1999
PAGE 5
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION (UNAUDITED)
(Amounts are expressed in Canadian Dollars)
<TABLE>
<CAPTION>
THREE-MONTH AND YEAR-TO-DATE
PERIOD ENDED 30 APRIL
---------------------------------
1998 1997
---------------------------------
<S> <C> <C>
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
(Loss) for period $(2,225,075) $(2,615,955)
Items not affecting cash
Asset write-down -- see Note 2 227,143
Financing charges payable in stock -- see Note 4 251,178 0
Amortization 63,838 312,874
----------- -----------
(1,682,916) (2,303,081)
CHANGES IN NON CASH OPERATING ITEMS
Accounts receivable 195,536 (164,852)
Inventory 338,443 (842,400)
Prepaid expenses (26,294) (282,190)
Accounts payable and accrued liabilities 351,886 6,364
Accrued interest payable on debt 12,844 0
10% Convertible promissory notes 750,000 0
----------- -----------
(60,501) (3,586,159)
----------- -----------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
Issue of common shares and warrants 5,192,730 121,248
Notes payable 0 2,000,000
Special Notes -- see Note 7 (5,020,000) 0
----------- -----------
172,730 2,121,248
----------- -----------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
Purchase of capital assets 56,013 (1,126,839)
----------- -----------
INCREASE (DECREASE) IN CASH DURING PERIOD 56,216 (2,591,750)
CASH, BEGINNING OF PERIOD 147,590 4,341,243
----------- -----------
CASH, END OF PERIOD $ 203,806 $ 1,749,493
=========== ===========
</TABLE>
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
FIRST QUARTER OF FISCAL 1999
PAGE 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1: The Consolidated Financial Statements are for the three-month year-to-
date period ended 30 April 1998, pertaining to the current fiscal year
ending 31 January 1999 ("Fiscal 1999"), and the corresponding period
ended 30 April 1997 pertaining to the fiscal year ended 31 January
1998 ("Fiscal 1998"). These statements include the results of
operations of Power Plus Corporation and its wholly owned subsidiaries
Power Plus USA, Inc. ("PPUSA") and Power Plus Canada, Inc. ("PPCan"),
(collectively, the "Company").
NOTE 2: On 31 January 1998, PPUSA made a voluntary assignment under Chapter 11
of the US Bankruptcy code and, on 29 June 1998, certain assets of
PPUSA were sold. On 8 May 1998, PPCan filed a Notice of Intention to
----------------------
Make a Proposal pursuant to [_]50.4(1) of the Bankruptcy and
--------------- --------------
Insolvency Act Canada. (See Item 2 -- Management Discussion and
--------------
Analysis.)
NOTE 3: In the opinion of management, the Consolidated Balance Sheet as at 30
April 1998 and the Consolidated Statements of Operations and Changes
in Financial Position for the three-month year-to-date periods ended
30 April 1998 and 1997, 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 1998 and the
Consolidated Statements of Operations and Changes in Financial
Position for the three-month year-to-date periods ended 30 April 1998
and 1997 are unaudited. The Consolidated Balance Sheet for Fiscal 1998
was audited and reported to shareholders (please refer to the FORM 10-
K for Fiscal 1998). These interim quarterly Consolidated Financial
Statements and notes do not contain certain information included in
the Company's annual consolidated financial statements and the notes
thereto.
NOTE 4: Interest due on the 10% Bridge Loan Notes, 10% Convertible Promissory
Notes and 10% Special Notes is payable in arrears in kind at the time
of repayment or conversion by the issuance of common shares.
NOTE 5: During Fiscal 1998, the Company 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
Company and bearing interest at an annual rate of 10%, pending
implementation of a bona fide reorganization of the financial affairs
of the Company. As a term of the Bridge Loan Notes, the Company
obtained regulatory approval 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 Company to the Bridge Loan Note
holders shall be paid in full and converted into common shares upon
the basis of a conversion price of $1.25 per Common Share. The pending
conversion of the Bridge Loan Notes is expected to occur during July
1998.
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
FIRST QUARTER OF FISCAL 1999
PAGE 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) -- continued
NOTE 6: The Company has executed promissory notes evidencing indebtedness in
the aggregate principal amount of $2,650,000 of unsecured loans
advanced to the Company and bearing interest payable on maturity at an
annual rate of 10%. The holders of these promissory notes have agreed
that these unsecured loans will be replaced by 10% first fixed and
floating charge secured debentures maturing 31 January 2001 with
interest accruing and payable upon maturity. This replacement is
expected to be completed during Q4 of Fiscal 1999. The Company
executed additional promissory notes on similar terms and conditions
for $250,000 subsequent to the period ended 30 April 1998.
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. On 4 March 1998, the Special Notes
were converted into 5,080,767 common shares.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO (UNAUDITED), AS DEFINED AND
INCLUDED IN THIS FILING ON PAGES 3 THROUGH 7, FOR THE NINE MONTH PERIOD ENDED 30
APRIL 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> CANADIAN DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> APR-30-1998
<EXCHANGE-RATE> 0.6623
<CASH> 203,806
<SECURITIES> 0
<RECEIVABLES> 147,306
<ALLOWANCES> 0
<INVENTORY> 417,932
<CURRENT-ASSETS> 95,200
<PP&E> 1,108,564
<DEPRECIATION> 63,838
<TOTAL-ASSETS> 2,456,881
<CURRENT-LIABILITIES> 12,831,790
<BONDS> 0
0
0
<COMMON> 16,170,408
<OTHER-SE> (26,545,217)
<TOTAL-LIABILITY-AND-EQUITY> 2,456,981
<SALES> 469,747
<TOTAL-REVENUES> 469,747
<CGS> 329,387
<TOTAL-COSTS> 329,387
<OTHER-EXPENSES> 1,823,276
<LOSS-PROVISION> 227,143
<INTEREST-EXPENSE> 251,178
<INCOME-PRETAX> (2,225,075)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,225,075)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
