<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 October 1999 ("Q3", "Third
-----------
Quarter" or "Quarter 3 of Fiscal 2000"), 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 CUSIP number 693501 10 8
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[LOGO OF 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
(State or other jurisdiction of incorporation)
7850 Woodbine Avenue, Suite 201,
Markham, Ontario, Canada L3R 0B9
(Address of principal executive offices) (Postal Code)
905-479-5683
800-769-3733 905-479-8911
(Telephone numbers) (Fax number)
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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 No X
---
As of 10 December 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>
[LOGO OF POWER PLUS CORPORATION] Form 10-Q
Third Quarter of Fiscal 2000
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 31 October 1999 and 1998
Consolidated Balance Sheet as at 31 October 1999 and 31 January 1999
Consolidated Statement of Changes in Financial Position
for the periods ended 31 October 1999 and 1998
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of 8
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signature 17
</TABLE>
<PAGE>
[LOGO OF POWER PLUS CORPORATION] Form 10-Q
Third Quarter of Fiscal 2000
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 10 December 1999 was Canadian$1.00 : US$0.67.
Item 1. Interim Financial Statements
Third Quarter
(period ended 31 October 1999)
Fiscal 2000
CONSOLIDATED STATEMENT OF OPERATIONS (unaudited)
<TABLE>
<CAPTION>
(Amounts are expressed in Canadian Dollars) Three-month period Nine-month and year-to-date periods
ended 31 October ended 31 October
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Interest revenue and sales - see Notes 1 & 5 $ 2,300 $ 30,523 $ 8,244 $ 598,315
Cost of sales 0 17,250 0 461,995
----------- ----------- ----------- -----------
Gross profit 2,300 13,273 8,244 136,320
Expenses
Operating and administration 121,603 79,596 504,841 2,193,883
Financing charges payable in stock - see Note 5 79,775 76,927 360,555 492,854
Amortization 0 0 0 127,654
----------- ----------- ----------- -----------
(Loss) from operations (201,378) (143,250) (857,150) (2,678,071)
Non-cash gain on abandonment of subsidiary -- see Note 2 0 (257,506) 0 2,641,527
----------- ----------- ----------- -----------
Profit (Loss) for period (201,378) (400,756) (857,150) (36,544)
Deficit, beginning of period - see Note 3 4,803,171 23,871,785 4,145,098 24,235,997
----------- ----------- ----------- -----------
Deficit, end of period $ 5,002,248 $24,272,541 $ 5,002,248 $24,272,541
=========== =========== =========== ===========
Earnings per share ($0.01) ($0.02) $ (0.05) $ 0.00
Weighted average common shares outstanding 16,913,389 16,913,389 16,913,389 13,634,123
</TABLE>
<PAGE>
[LOGO OF POWER PLUS CORPORATION] FORM 10-Q
Third Quarter of Fiscal 2000
Page 4
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS (unaudited)
(Amounts are expressed in Canadian Dollars)
31 October 1999 31 January 1999
--------------- ---------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 173,344 $ 567,614
Accounts and note receivable - see Note 4 37,319 488,270
Prepaid expenses 0 14,400
----------- -----------
$ 210,663 $ 1,070,284
=========== ===========
Liabilities
Current accounts payable and accrued liabilities $ 44,192 $ 210,206
----------- -----------
Long-term liabilities
Non-cash accrued liabilities and interest payable - see Note 5 859,264 619,939
10% Convertible debentures payable - see Note 5 3,191,000 3,191,000
----------- -----------
4,050,264 3,810,939
----------- -----------
4,109,456 4,021,145
----------- -----------
Shareholders' (deficiency)
Share capital - see Note 6
Authorized at no par value:
An unlimited number of common shares
An unlimited number of preferred shares
Issued: 16,913,389 common shares (1998 - 16,913,389) 1,118,456 1,118,456
Deficit - see Note 3 (5,002,248) (4,069,317)
----------- -----------
(3,883,792) (2,950,861)
----------- -----------
$ 210,663 $ 1,070,284
=========== ===========
</TABLE>
<PAGE>
[LOGO OF POWER PLUS CORPORATION] FORM 10-Q
Third Quarter of Fiscal 2000
Page 5
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION (unaudited)
(Amounts are expressed in Canadian Dollars) Nine-month and year-to-date
periods ended 31 October
---------------------------------------------
1999 1998
---------------------------------------------
<S> <C> <C>
Cash provided by (used in) operating activities
(Loss) for period ($857,150) $ (2,678,072)
Items not affecting cash
Asset write-down - see Note 2 0 490,485
Financing charges payable in stock - see Note 5 360,555 492,805
Amortization 0 127,753
--------------- ---------------
(496,595) (1,567,029)
Changes in non cash operating items (136,998) (317,255)
--------------- ---------------
(633,593) (1,884,284)
--------------- ---------------
Cash provided by (used in) financing activities
Non-cash accrued liabilities & interest payable - see Note 5 239,323 0
10% Convertible debenture - see Note 5 0 1,255,000
--------------- ---------------
239,323 1,255,000
--------------- ---------------
Cash provided by (used in) investing activities
Sale of capital assets 0 753,000
--------------- ---------------
Increase (decrease) in cash during period (394,270) 123,716
Cash, beginning of period 567,614 147,590
--------------- ---------------
Cash, end of period $ 173,344 $ 209,347
=============== ===============
</TABLE>
<PAGE>
[LOGO OF POWER PLUS CORPORATION] FORM 10-Q
Third Quarter of Fiscal 2000
Page 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Note 1: The Consolidated Financial Statements are for the three-month and nine
months year-to-date periods ended 31 October 1999, pertaining to the
current fiscal year ending 31 January 2000 ("Fiscal 2000"), and the
corresponding period ended 31 October 1998, pertaining to the fiscal
year ended 31 January 1999 ("Fiscal 1999"). Q3 -- Fiscal 2000 interim
quarterly financial statements include the results of operations of the
Company whereas Fiscal 1999 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") only for the
period during Fiscal 1999 when they were operating under the Company's
control. Accordingly, there are no assets or liabilities of these
subsidiaries included in the balance sheets. (See Item 2 - Management
Discussion and Analysis.)
In the opinion of management, the Consolidated Balance Sheet as at 31
October 1999 and the Consolidated Statements of Operations and Changes
in Financial Position for the three-month and nine months year-to-date
periods ended 31 October 1999 and 1998, 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 October 1999 and the
Consolidated Statements of Operations and Changes in Financial Position
for the three-month and nine months year-to-date periods ended 31
October 1999 and 1998 are unaudited. The Consolidated Balance Sheet for
Fiscal 1999 was audited and reported to shareholders (see the SEC FORM
10-K Registration Statement for Fiscal 1999, as previously filed). These
interim quarterly Consolidated Financial Statements and Notes do not
contain certain information included in the Company's Audited Annual
Consolidated Financial Statements and the Notes thereto.
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 (S)50.4(1) of the Bankruptcy and Insolvency Act
-------- -----------------------------
Canada ("Proposal"). Effective 30 October 1998, the shares of PPCan were
sold to Battery Plus Inc. ("BPI"), an arms'-length party, pursuant to
the Proposal and with the approval of both creditors and the court. At
the date of sale PPCan operated six stores and, accordingly, the Company
operated no stores after the sale. The insolvency of PPUSA and sale of
PPCan resulted from the Company's inability to continue funding start-up
operations pending attaining critical mass and profitability.
Accordingly, the comparative Fiscal 1999 interim financial statements
reflected the write-down of assets, the wind-up of PPUSA's operations,
the reduction in PPCan's operations and a non-cash gain on the
abandonment of PPUSA, for a net non-cash gain of $2,678,071,
representing the effect of reversing its obligations to arm's length
creditors, and reported such other accounting adjustments that are
required to conform to generally accepted accounting principles
applicable in the circumstances. The implementation of the Proposal,
including the payment of the dividend from the fund to the creditors of
PPCan, will have no future effect on the balance sheet of the Company.
(See Item 2 -Management Discussion and Analysis.)
Note 3: 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 Company's
stated capital pursuant to (S)36 of the Business Corporations Act
-------------------------
Alberta, by an amount up to but not to exceed $20,700,000. This
reduction of stated capital was offset by a corresponding reduction of
the shareholders' deficiency. 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.
<PAGE>
[LOGO OF POWER PLUS CORPORATION] FORM 10-Q
Third Quarter of Fiscal 2000
Page 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited), continued
The Company agreed to and was approved to pay a $121,230 finder's fee in
respect of funds raised. This obligation is payable in 1,212,300 new
post-conversion common shares on the basis of $0.10 per new common share
and will be paid after the share consolidation has occurred. (See note
6, below.) Accrual of this non-cash cost of issue occurred in Q1 -
Fiscal 2000.
Note 4: Accounts and notes receivable at FYE 1999 represented the BPI secured
promissory note that arose on the sale of PPCan. It is due in equal
weekly installments and bears interest at 10% per annum.
Note 5: 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, maturing 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, was proposed and conditionally approved by shareholders,
subject to regulatory approval. 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, during Fiscal
1999 the Company abandoned the 1998 Debentures. In its place, the
Company created a debenture trust indenture (the "Debenture Trust
Indenture") dated 30 September 1998, 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. The Debentures are 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 new post-consolidation common share (see Note 6, below).
Accrued non-cash interest payable for Q3 - Fiscal 2000 in the amount of
$79,774 (to FYE 1999 the accrued non-cash amount was $319,939) is
payable in-kind at the time of repayment or by the issuance of common
shares if converted at the option of the holders.
Note 6: The Company has received both regulator and shareholder approvals to
consolidate the Company's issued and outstanding common shares. It is
the intention of the Company to complete this 1 for 5 consolidation,
from 16,913,389 Common Shares to 3,382,677 new post-consolidation common
shares, during Q4 -- Fiscal 2000.
Note 7: Uncertainty due to the Year 2000 issue arises because many computerized
systems use two digits rather than four to identify a year. Date-
sensitive systems may recognize the Year 2000 as 1900 or some other
date, resulting in errors when information using Year 2000 dates is
processed. In addition, similar problems may arise in some systems that
use certain dates in 1999 to represent something other than a date. The
effects of the Year 2000 issue may be experienced before, on or after 1
January 2000.
The Company's operations are investment banking and administration, and
it does not conduct business with customers nor is it particularly
dependent on suppliers except utilities. The Company utilizes standard
off-the-shelf widely used software provided by recognized companies that
has been updated for Y2K issues. If the Year 2000 issue is not addressed
by the Company's major suppliers and other third party business
associates, the impact on the Company's operations and financial
reporting may range from minor errors to significant systems failure
which could affect the Company's ability to conduct normal business
operations. It is not possible to be certain that all aspects of the
Year 2000 issue affecting the Company, including those related to the
efforts of suppliers or other third parties, will be fully resolved.
<PAGE>
[LOGO OF POWER PLUS CORPORATION] FORM 10-Q
Third Quarter of Fiscal 2000
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 has been the parent of
subsidiaries that hire employees, procure merchandise for resale, purchase
or build capital assets and carry on 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's earlier 1996 Reorganization Plan, PLAN 2000, was management's
5-year business plan that prescribed how the Company proposed to roll out
its Powerful Stuff specialty niche retail business throughout North
America. PLAN 2000 incorporated a detailed financing plan setting out the
framework for providing a total of $49.1 million over its initial 3 years.
The timeliness and availability of this capital, which was being 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 decline of the
Asian markets. These debilitating circumstances were exacerbated by the
substantial devaluation of the Canadian against the US Dollar, especially
critical in light of PLAN 2000's emphasis on US expansion and the
burdensome appetite for US currency but whose capital was being raised in
Canadian dollars,
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. PPUSA remained in possession of its
---------------
assets. With no expectation of any short-term improvement in this crisis,
the Company subsequently announced on 8 May 1998, that PPCan/1/ had also
sought protection from creditors by filing a Proposal under the Bankruptcy
----------
and Insolvency Act Canada. PPCan remained in possession of its assets
------------------
pending a determination as to whether the operations could be refinanced or
sold as a going concern.
Despite the Company's efforts, 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 its
remaining assets and sold them, including its list of pager customers, and
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 vendor, and BPI as purchaser.
All of the Company's retail operations in Canada and the US had been
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 in the previously filed FORM 10-K Registration Statement for
Fiscal 1999, the
_______________
/1/ 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>
[LOGO OF POWER PLUS CORPORATION] FORM 10-Q
Third Quarter of Fiscal 2000
Page 9
Company no longer has any retail operations nor operating assets. The
Company is currently undergoing reorganization, implementing its 1999
Reorganization Plan. 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 up to
$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 1,212,300 post-consolidation common shares at a conversion
price of $0.10 per post-consolidation common share.
While management cannot give any assurances as to the future outlook for
the Company, conditional regulatory approval to the 1999 Reorganization
Plan was granted on 29 April 1999 and the Company will be proceeding to
implement its plan and seek a professional opinion as to the extent and
applicability of the Company's substantial tax loss carry forwards. Upon
implementation of the 1999 Reorganization Plan and finalization of the
Company's tax opinion, management intends to aggressively pursue
diversified investment opportunities targeting to maximize shareholder
value. In management's opinion, the Company's tax loss carry forwards are
expected to represent a significant asset/2/ for the Company which will be
material in attracting a suitable candidate for purposes of restructuring
its business affairs.
In the circumstances of these reorganizational proceedings and as
previously reported, The Alberta Stock Exchange conducted a review of the
financial affairs of the Company to ascertain whether the Company was
maintaining continued listing requirements. The Exchange determined that
the Company, having divested what the Exchange considered to be
substantially all of its operating assets, did not meet the continued
listing requirements and, therefore, trading of the Company's shares was
suspended at the close of business on 30 April 1999. The Company, however,
is in no way impaired from continuing with its day-to-day operations,
implementing the 1999 Reorganization Plan and seeking out new investment
opportunities. The trading in shares of Alberta issuers is typically halted
for extended periods pending closure of transactions by way of reverse
take-over. The Company has been allowed until 31 December 1999 to satisfy
The Exchange that upon implementation of its 1999 Reorganization Plan it
has resumed compliance with minimum listing requirements. Failure to comply
within this reactivation period would result in the Company's shares being
delisted from The Alberta Stock Exchange.
B) Results of Operations
1) Q3 - Fiscal 2000
In accordance with foregoing, the Company continued in its role as an
investment banker and, as previously reported, is currently seeking new
investment opportunities. During Fiscal 2000 the Company did not own any
active subsidiary companies. Conformably, the Company's interim
financial statements for the quarterly and year-to-date periods in
Fiscal 2000 report the revenue and expenses of the parent company's
activities only and, that while the Company has positive working capital
it has no long-term assets. Accordingly, comparison to prior years and
in-depth discussion and analysis are meaningless and unwarranted. In the
circumstances, therefore, these financial statements are
_______________
/2/ See Note 10 in the Notes to the audited Annual Consolidated Financial
Statements, in the FORM 10-K - Fiscal 1999.
<PAGE>
[LOGO OF POWER PLUS CORPORATION] FORM 10-Q
Third Quarter of Fiscal 2000
Page 10
not comparable to financial statements from previous periods.
Notwithstanding, the following limited discussion and analysis should be
read in conjunction with the previously filed audited Annual Consolidated
Financial Statements and the Notes thereto contained in the SEC FORM 10K -
Fiscal 1999 filing, representing the year ended 31 January 1999.
Consideration of Q3 business results for Fiscal 2000 and Fiscal 1999
The following table highlights 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 31 October)
Three months Nine months year to date
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Cost of sales n/a 56.5% n/a 78.3%
Operating, occupancy & administrative expenses 9407.1% 1356.4% 10133.3% 468.1%
Net loss before non cash gain on windup n/a 1313.0% n/a 446.4%
</TABLE>
The materiality of the operating results of the Company's subsidiaries
that operated retail businesses compared to the business results of the
parent company that operates as an investment banker, meant that
measurement, reporting and comparison of business results historically
focused on the retail operations that were materially more significant
than the Company's investing activities. The significant change between
periods reflects the significant transition of the Company's focus, as
discussed above, effected by abandoning the US subsidiary and selling the
Canadian subsidiary. The changes reported for year-to-date Fiscal 1999
reflected an unfavorable increase in cost of sales and decrease in gross
profit, which resulted principally for these reasons:
. PPUSA was operated as a discontinued business since the beginning of
Fiscal 1999 and until it ceased carrying on business in June 1998;
. during Fiscal 1999, PPCan retrenched and was operated on a pared-down
basis, pending and until its sale in November 1998;
. the negative impact of establishing accounting reserves and adjustments
to fair market values for inventory and capital assets carrying values
were included in the Fiscal 1999 accounts in anticipation of the
closure of PPUSA and sale of PPCan; and,
. the deteriorating gross profit in Fiscal 1999 and increasing diseconomy
reflected the Company's inability to purchase merchandise inventory to
sustain reasonable sales levels at the stores, in accordance with
normal industry practice.
Declining sales reported for year-to-date Fiscal 1999 meant store
operating overhead was uneconomic because both the cost of direct labor
and store rent, which were fixed costs incurred as long as a location was
open, were too onerous, especially in light of the decreasing gross
profit.
The magnitude of reduction reported for year-to-date Fiscal 1999 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 PPCan's balance sheet to
reflect the fair market value of its assets. In addition, the professional
fees for winding up PPUSA and the sale of PPCan, and termination/severance
payments to employees were incurred therewith.
Accordingly, the comparative Q3 -- Fiscal 1999 Consolidated Financial
Statements include the accounts of the Company, PPUSA and PPCan, and
report the results of the discontinued or sold operations. During Q2 and
Q3--Fiscal 1999, 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 princi-
<PAGE>
[LOGO OF POWER PLUS CORPORATION] FORM 10-Q
Third Quarter of Fiscal 2000
Page 11
ples 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.
All significant intercompany accounts and transactions between the Company
and the subsidiaries were eliminated.
No corporate income taxes were payable in Q3 -- Fiscal 2000. Management
expects the amount of accrued income tax losses, being carried forward and
available for sheltering future business income accruing from Fiscal 1999,
approximates $38 million, and is not reported in the Consolidated Balance
Sheet./3/
2) Q3 -- Fiscal 1999
The Company began Fiscal 1999 in a precarious posture. PPUSA was operating
under Chapter 11 and PPCan was seriously underfunded. As the Canadian
junior capital markets continued to deteriorate, the prospects of
refinancing the Company's subsidiaries 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. 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. PPUSA, discharged from its Chapter 11
Petition, ceased carrying on business.
On 26 November 1998, the Company sold its shares of PPCan and certain
related intellectual properties to BPI pursuant to a share purchase
agreement dated 30 October 1998. 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.
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, the Company as of
30 October 1998 no longer had any retail operations or operating assets.
C) Liquidity and Capital Resources
The FORM 10-K Registration Statement for Fiscal 1999 includes more detailed
discussion concerning changes to and arising from both the 1999
Reorganization Plan and the 1996 Reorganization 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 (see below). During Fiscal 1999, the Company converted both the
Bridge Loan Notes and Special Notes into Common Shares. As well, the Notes to
--------
the Consolidated Financial Statements (unaudited) included with these
-------------------------------------
materials include particular details pertaining to current activity. Please
also see (S)5 -- Summary of changes to shares and share capital, below.
----------------------------------------------
1) 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 con-
________________
/3/ See Footnote 2, IBID.
<PAGE>
[LOGO OF POWER PLUS CORPORATION] FORM 10-Q
Third Quarter of Fiscal 2000
Page 12
verted 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; 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. The
1996 Special Warrant financing terms provided that the Company would incur
a 10% penalty payable by the issuance of 225,000 additional 1996 Special
Warrants to the holders of the 1996 Special Warrants. The penalty was
incurred. (See (S)3 and (S)5 below for details about exercise, dilution
and funds raised.)
2) 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. 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") at an exercise price of $2.00 per unit on or
before 31 January 1997. Effective 31 January 1997, all the Exchange Rights
were converted and the Company received $4,476,562 in new capital. 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; 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. (See (S)3 & (S)5 below for more
details concerning exercise, dilution and funds raised.)
3) Approval of Amendment to Certain Terms of the Class A, AA, B and 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.
All other terms and conditions remained the same. However, despite 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.
4) Special Notes convertible debt financing
In March 1996, in accordance with 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 a $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 that were fully secured by all the assets of the Company.
On 24 April 1998, the Company converted the $6 million Special Notes, plus
accrued and unpaid interest thereon, into 5,080,767 Common Shares at $1.25
per Common Share. (See (S)5 -- Summary of changes to shares and share
--------------------------------------
capital, below.)
-------
_________________
/4/ All references in this FORM 10K are to Common Shares outstanding post-
consolidation that occurred during Fiscal 1997.
<PAGE>
[LOGO OF POWER PLUS CORPORATION] FORM 10-Q
Third Quarter of Fiscal 2000
Page 13
5) Summary of changes to shares and share capital
The table depicts the changes to share capital following from the 1996
Reorganization Plan and to the date hereof.
<TABLE>
<CAPTION>
Shares Capital Timing
---------- ---------- ----------
($ amounts are expressed in Canadian Dollars in millions; assumes maximum dilution) Completed
---------
<S> <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 Class 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 (Balance @ $2.50
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.)
iii Conversions of Debts into Common Shares at $1.25 per share 225,000 $ 0.0 FY 1997
a.) $6 million - Special Notes (see (S)3(b)(v) - Special Notes convertible debt
financing, above) 5,080,767 $ 6.0 FY 1999
b.) $4.1 million -- Bridge Loan Notes (see (S)3(a)(ii) - Financing actions 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)3(b)(I) - Conversion of Secured Debt, below) FY 2000
</TABLE>
(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 during Fiscal 2000, with the result that the 16,913,389
Common Shares outstanding as at the record date would become
3,382,677 common shares.
6) 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 (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 also reduced
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.
<PAGE>
[LOGO OF POWER PLUS CORPORATION] FORM 10-Q
Third Quarter of Fiscal 2000
Page 14
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.
7) 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 as approved by 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 Q3 -- Fiscal 2000.
8) 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,
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 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 (S)7 --
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. The required
approval of The Alberta Stock Exchange was granted on 29 April 1999.
ii) At the special meeting of shareholders held on 30 January 1998, the
Company's shareholders approved 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 has accrued
<PAGE>
[LOGO OF POWER PLUS CORPORATION] FORM 10-Q
Third Quarter of Fiscal 2000
Page 15
that will 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, and subsequent 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 1,212,300
post-consolidation common (see (S)7 -- Consolidation of Share
----------------------
Capital, above). The accrual of the non-cash cost of issue was made
-------
in Q1 -Fiscal 2000.
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.
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.
<PAGE>
[LOGO OF POWER PLUS CORPORATION] FORM 10-Q
Third Quarter of Fiscal 2000
Page 16
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.
Not applicable.
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.
None
Item 6. Exhibits and Reports on Form 8-K.
a.) Exhibits
Exhibit 27 -- Financial data schedule
b.) Reports on Form 8-K
None
<PAGE>
[LOGO OF POWER PLUS CORPORATION] FORM 10-Q
Third Quarter of Fiscal 2000
Page 17
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
-------------------------------
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Power Plus Corporation
Date: 13 December 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)
<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 9-month period ended 31
October 1999 and is qualified in its entirety by reference to such Financial
Statements.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> CANADIAN DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> OCT-31-1999
<EXCHANGE-RATE> 0.67
<CASH> 173,344
<SECURITIES> 0
<RECEIVABLES> 37,319
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 210,663
<CURRENT-LIABILITIES> 44,192
<BONDS> 4,050,264
0
0
<COMMON> 1,118,456
<OTHER-SE> (5,002,248)
<TOTAL-LIABILITY-AND-EQUITY> 210,663
<SALES> 8,244
<TOTAL-REVENUES> 8,244
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 504,841
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 360,555
<INCOME-PRETAX> (857,150)
<INCOME-TAX> 0
<INCOME-CONTINUING> (857,150)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (857,150)
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
