<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to section 13 or 15(d) of the Securities
---
Exchange Act of 1934 for the quarterly period ended 31 JULY 1998
("Q2", "Second Quarter" or "Quarter 2 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")
-----------------------------------------------------------------------
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)
-----------------------------------------------------------------------
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
SECOND QUARTER OF FISCAL 1999
PAGE 2
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Interim Financial Statements 3
Consolidated Statement of Operations
for the periods ended 31 July 1998 and 1997
Consolidated Balance Sheet as at 31 July 1998 and 31 January
1998
Consolidated Statement of Changes in Financial Position
for the periods ended 31 July 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 19
Signature 20
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
SECOND 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
SECOND QUARTER
(period ended 31 July 1998)
FISCAL 1999
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(Amounts are expressed in Canadian Dollars) SIX-MONTH AND YEAR-TO-DATE
THREE MONTHS ENDED 31 JULY PERIOD ENDED 31 JULY
--------------------------------------------------------------
1998 1997 1998 1997
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 98,046 $ 2,078,459 $ 567,793 $ 4,817,977
Cost of sales 115,358 1,565,822 444,745 2,893,156
----------- ----------- ----------- -----------
Gross profit (17,312) 512,637 123,047 1,924,821
Expenses
Operating and administration (427,582) 4,078,778 1,623,752 7,794,044
Asset write-down -- see Notes 2 & 8
Financing charges payable in stock -- see Note 4
Amortization
490,485 0 490,485 0
164,700 0 415,878 0
63,915 327,719 127,753 640,593
----------- ----------- ----------- -----------
(LOSS) FROM OPERATIONS (308,831) (3,893,860) (2,534,821) (6,509,816)
----------- -----------
Non-cash gain from abandonment of subsidiary -- 2,899,033 2,899,033
see Notes 2 & 8 ----------- -----------
Profit (Loss) for period 2,590,202 (3,893,860) 364,212 (6,509,816)
Deficit, beginning of period 26,461,987 7,826,215 24,235,997 5,210,259
----------- ----------- ----------- -----------
DEFICIT, END OF PERIOD $23,871,785 $11,720,075 $23,871,785 $11,720,075
=========== =========== =========== ===========
EARNINGS PER SHARE $ 0.19 $ (0.51) $ 0.03 $ (1.10)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 13,518,719 7,620,730 10,917,315 5,900,493
</TABLE>
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
SECOND QUARTER OF FISCAL 1999
PAGE 4
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
------------------------------------------
(Amounts are expressed in Canadian Dollars) 31 JULY 1998 31 January 1998
------------------------------------------
(unaudited) (audited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 209,347 $ 147,590
Accounts receivable 44,011 342,842
Inventory 34,529 756,375
Prepaid expenses 25,810 68,907
------------ ------------
313,697 1,315,714
Capital assets, net 261,125 1,288,846
Deferred charges, net 0 253,680
Other assets, net 0 546,328
------------ ------------
$ 574,822 $ 3,404,568
============ ============
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities $ 569,075 $ 4,972,867
------------ ------------
Long-term Liabilities
Accrued interest payable on long-term debt on maturity -- 251,699 762,944
see Note 4
Special Notes -- see Note 7 0 5,020,000
10% Bridge Loan Notes payable -- see Notes 4 & 5 0 4,081,250
10% Promissory Notes -- see Notes 4 & 6 2,900,000 1,900,000
------------ ------------
3,151,699 11,764,194
------------ ------------
3,720,774 16,737,060
------------ ------------
SHAREHOLDERS' EQUITY
Share capital -- see Notes 4, 5 & 7 20,725,833 9,577,678
Convertible component of Special Notes -- see Note 7 0 1,400,000
Deficit (23,871,784) (24,310,170)
------------ ------------
(3,145,951) (13,332,493)
------------ ------------
$ 574,822 $ 3,404,568
============ ============
</TABLE>
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
SECOND QUARTER OF FISCAL 1999
PAGE 5
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION (UNAUDITED)
(Amounts are expressed in Canadian Dollars)
Six-month and year-to-date
period ended 31 July
-------------------------------------------
1998 1997
-------------------------------------------
<S> <C> <C>
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
(LOSS) FROM OPERATIONS $ (2,534,821) $ (6,509,815)
ITEMS NOT AFFECTING CASH
Asset write-down -- see Notes 2 & 8 490,485 0
Financing charges payable in stock -- see Note 4 415,878 0
Amortization 127,753 500,593
------------ ------------
(1,500,705) (6,009,222)
Changes in non cash operating items (190,538) 45,605
------------ ------------
(1,691,243) (5,963,617)
------------ ------------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
Issue of common shares and warrants 0 1,904,378
10% Bridge Loan Notes payable -- see Notes 4 & 5 0 2,500,000
10% Promissory Notes -- see Notes 4 & 6 1,000,000 0
Special Notes -- see Note 7 0 140,000
------------ ------------
1,000,000 4,544,378
------------ ------------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
(Purchase) of capital assets 0 (2,117,997)
Sale of assets -- see Notes 2 & 8 753,000 0
------------ ------------
753,000 (2,117,997)
------------ ------------
INCREASE (DECREASE) IN CASH DURING PERIOD 61,757 (3,537,236)
CASH, BEGINNING OF PERIOD 147,590 4,341,243
------------ ------------
CASH, END OF PERIOD $ 209,347 $ 804,007
============ ============
</TABLE>
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
SECOND QUARTER OF FISCAL 1999
PAGE 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 1: The Consolidated Financial Statements are for the three-month and
year-to-date period ended 31 July 1998 pertaining to the current
fiscal year ending 31 January 1999 ("Fiscal 1999"), and the three-
month and year-to-date period ended 31 July 1997 pertaining to the
fiscal year ended 31 January 1998 ("Fiscal 1998"), and 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. The insolvency of PPUSA and
-----------------------------
PPCan results from the Company's inability to continue funding
start-up operations, pending attaining critical mass and
profitability.
NOTE 3: In the opinion of management, the Consolidated Balance Sheet as at
31 July 1998 and the Consolidated Statements of Operations and
Changes in Financial Position for the three-month and year-to-date
periods ended 31 July 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 31 July 1998 and the
Consolidated Statements of Operations and Changes in Financial
Position for the three-month and year-to-date periods ended 31
July 1998 and 1997 are unaudited. The Consolidated Balance Sheet
for Fiscal 1998 was audited and reported to shareholders. 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 payable 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 and the interest accrued
and payable thereon were converted into common shares. (See Notes
5 and 7 below.)
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. Effective 24 July 1998, the Bridge Loan
Notes together with interest thereon and bonus were converted into
3,771,858 common shares on the basis of a conversion price of
$1.25 per common share.
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
SECOND QUARTER OF FISCAL 1999
PAGE 7
NOTE 6: The Company has executed promissory notes evidencing indebtedness
in the aggregate principal amount of $2,900,000 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 Q3 of Fiscal
1999. The Company executed additional promissory notes on similar
terms and conditions for $180,000 subsequent to the period ended
31 July 1998.
NOTE 7: The Company completed a $6 million 10% convertible fixed and
floating charge Special Notes private placement debt financing
during Fiscal 1997. Effective 4 March 1998, the Special Notes were
converted into 5,080,767 common shares on the basis of a
conversion price of $1.25 per common share.
NOTE 8: On 29 June 1998, the Company realized on its security pertaining
to PPUSA's indebtedness and foreclosed on the remaining assets of
PPUSA. With the operations of PPUSA ceased, the Company sold
certain of PPUSA's capital assets, including its list of pager
customers, to an arm's length party for cash consideration of
US$125,000 and the assumption of certain liabilities. The
remaining capital assets of PPUSA, consisting primarily of store
fixtures and leasehold improvements, were abandoned where situated
at various locations to offset existing liabilities to landlords.
Accordingly, PPUSA no longer carries on business in the United
States.
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. The Company is the secured creditor of PPCan. The
---
Proposal was approved at the meeting of creditors held on 11
September 1998, and court approval of the Proposal is pending. The
Proposal highlighted that:
a) PPCan continues to operate the business as a going concern;
and,
b) the Company and PPCan entered into a Letter of Intent with an
arm's length party concerning the proposed sale of PPCan. In
accordance with the Letter, the purchasing party proposes to
acquire all the issued and outstanding shares of PPCan (the
"PPCan Sale"). The PPCan Sale is subject to a definitive
agreement being finalized, satisfaction of ongoing due
diligence and court approval of the Proposal. The Company has
agreed to postpone up to $435,000 of PPCan's secured
indebtedness for the benefit of the creditors of the Proposal.
PPCan proposes to cause this amount to be paid into a fund to
be managed by its Trustee for the benefit of its creditors,
subject to the funds being available from the PPCan Sale.
Accordingly, these interim financial statements reflect the write-
down of 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
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.
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
SECOND 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 plan1 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 has two parts. The first was PLAN
2000, the Company's 5-year business plan prescribing how the Company
proposed to build its business to 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 U.S. 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 1998, 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
SECOND 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 opinion3 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
SECOND 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
SECOND 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 Q2 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 31 July)
----------------------------------------------------
Three months Six months year to date
----------------------------------------------------
1998 1997 1998 1997
----------------------------------------------------
<S> <C> <C> <C> <C>
Cost of sales 117.7% 75.3% 78.3% 60.0%
Operating, occupancy & administrative
expenses 297.3% 212.0% 468.1% 175.1%
Net loss before non cash gain on windup 315.0% 187.3% 446.4% 135.1%
</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
SECOND 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, and PPCan in accordance with the
terms of the sale. 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, 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
SECOND QUARTER OF FISCAL 1999
PAGE 13
e) The Company has executed promissory notes evidencing indebtedness
in the aggregate principal amount of $2,900,000 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 $216,000 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
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
SECOND 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 shares4 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 10K are to Common Shares outstanding
post-consolidation
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
SECOND 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 $6.4 million in additional capital on a
fully diluted basis. As of the date hereof, as a result of market
conditions this financing was aborted.
f) FUTURE POTENTIAL FUNDING FROM THE FINANCING PLAN
All financing in accordance with the 1996 Reorganization Plan
concluded on 30 September 1998, commensurate with the expiring of
the entitlements formerly attached to Warrants. During Fiscal
1999, the Company converted both the Bridge Loan Notes and Special
Notes into Common Shares. No additional financing will be
concluded in regard to the 1996 Reorganization Plan.
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
SECOND QUARTER OF FISCAL 1999
PAGE 16
3) SUMMARY OF CHANGES TO SHARES AND SHARE CAPITAL
The table depicts the changes to share capital following from the 1996
Reorganization Plan and to the date hereof.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
SHARES CAPITAL TIMING
------ ------- ------
---------------------------------------------------------------------------------------------------------------
($ amounts are expressed in Canadian Dollars in millions; COMPLETED
assumes maximum dilution) ---------
---------------------------------------------------------------------------------------------------------------
<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 & 2,238,281 $4.5 FY 1997
1 Class A Warrant
---------------------------------------------------------------------------------------------------------------
ii) Class A Warrants exercised to purchase 1 Common Share @
$2.00 and receive 1 Class AA Warrant (Balance of Class A 197,456 $0.4 FY 1998
Warrants expired unexercised.)
---------------------------------------------------------------------------------------------------------------
iii) Class AA Warrants exercised to purchase 1 Common Share @ 4,246 $0.0 FY 1998
$2.50 (Balance of Class AA Warrants expired unexercised.)
---------------------------------------------------------------------------------------------------------------
iv) Agent's Option to purchase 225,000 Common Shares at $2.00 225,000 $0.5 FY 1997
and receive equal number of Agent's Option Class A Warrants
---------------------------------------------------------------------------------------------------------------
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 2,250,000 $4.5 FY 1997
equivalent number of Class B Warrants
---------------------------------------------------------------------------------------------------------------
b.) Class B Warrants exercised to purchase one Common Share at $2.00
and receive one Class BB Warrant. (Balance of Class B Warrants 687,500 $1.3 FY 1998
and all Class BB Warrants issued expired unexercised.)
---------------------------------------------------------------------------------------------------------------
c.) Penalty Special Warrants to receive 225,000 Common Shares at no
cost and 255,000 Class B Penalty Warrants. (Exercised Class B 225,000 $0.0 FY 1997
Warrants included above.)
---------------------------------------------------------------------------------------------------------------
iii CONVERSIONS OF DEBTS INTO COMMON SHARES at $1.25 per share
---------------------------------------------------------------------------------------------------------------
a.) $6 million - Special Notes (see(S)2(d) - Special Notes 5,080,767 $6.0 FY 1999
convertible debt financing, above)
---------------------------------------------------------------------------------------------------------------
b.) $4.1 million -- Bridge Loan Notes (see(S)1)(b) - Financing 3,771,858 $4.1 FY 1999
--------- ----
activities instigated and changes during Fiscal 1999, above)
---------------------------------------------------------------------------------------------------------------
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 (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 accu-
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
SECOND QUARTER OF FISCAL 1999
PAGE 17
rately 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 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)5 -- Consolidation of Share Capital, above). In view of
------------------------------
the fact that the possible aggregate issuance of Common
Shares issuable upon conversion of the
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
SECOND QUARTER OF FISCAL 1999
PAGE 18
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
SECOND 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.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a.) Exhibits
Exhibit 27 -- Financial data schedule
b.) Reports on Form 8-K
None
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
SECOND QUARTER OF FISCAL 1999
PAGE 20
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)
<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 SIX MONTH PERIOD ENDED 31
JULY 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> CANADIAN DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JUL-31-1998
<EXCHANGE-RATE> 0.6623
<CASH> 209,347
<SECURITIES> 0
<RECEIVABLES> 44,011
<ALLOWANCES> 0
<INVENTORY> 34,529
<CURRENT-ASSETS> 313,697
<PP&E> 261,125
<DEPRECIATION> 127,753
<TOTAL-ASSETS> 574,822
<CURRENT-LIABILITIES> 569,075
<BONDS> 3,151,699
0
0
<COMMON> 20,725,833
<OTHER-SE> (23,871,784)
<TOTAL-LIABILITY-AND-EQUITY> 574,822
<SALES> 567,793
<TOTAL-REVENUES> 567,793
<CGS> 444,745
<TOTAL-COSTS> 444,745
<OTHER-EXPENSES> 1,623,752
<LOSS-PROVISION> 490,485
<INTEREST-EXPENSE> 415,878
<INCOME-PRETAX> (2,534,821)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 2,899,033
<CHANGES> 0
<NET-INCOME> 364,212
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>