<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 1999 ("Q2",
--------------------
"Second Quarter" or "Quarter 2 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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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)
------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by ss.13 or ss.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 31 August 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 APPEARS HERE] FORM 10-Q
Second Quarter of Fiscal 2000
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 1999 and 1998
Consolidated Balance Sheet as at 31 July 1999 and 31 January 1999
Consolidated Statement of Changes in Financial Position
for the periods ended 31 July 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
<PAGE>
[LOGO OF POWER PLUS CORPORATION APPEARS HERE] FORM 10-Q
Second 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 31 August 1999 was Canadian$1.00 : US$0.67.
Item 1. Interim Financial Statements
Second Quarter
(period ended 31 July 1999)
Fiscal 2000
CONSOLIDATED STATEMENT OF OPERATIONS (unaudited)
(Amounts are expressed in Canadian Dollars)
<TABLE>
<CAPTION>
Three-month and year-to-date Six-month and year-to-date
period ended 31 July period ended 31 July
-------------------------------------------------------------------
1999 1998 1999 1998
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest revenue and sales - see Notes 1 & 5 $ 2,460 $ 98,046 $ 8,405 $ 567,793
Cost of sales 0 115,358 0 444,745
---------- ----------- ---------- -----------
Gross profit 2,460 (17,312) 8,405 123,048
Expenses
Operating and administration 213,589 (427,582) 385,698 1,623,752
Asset write-down - see Note 2 0 490,485 0 490,485
Financing charges payable in stock - see Note 5 79,774 164,700 280,780 415,878
Amortization 0 63,915 0 127,753
---------- ----------- ----------- -----------
(Loss) from operations (290,903) (308,831) (658,073) (2,534,821)
Non-cash gain on abandonment of subsidiary -- see Note 2 0 2,899,033 0 2,899,033
---------- ----------- ---------- -----------
Profit (Loss) for period (290,903) 2,590,202 (658,073) 364,212
Deficit, beginning of period - see Note 3 4,512,268 26,461,987 4,145,098 24,235,997
---------- ----------- ---------- -----------
Deficit, end of period $4,803,171 $23,871,785 $4,803,171 $23,871,785
========== ============ ========== ===========
Earnings per share ($0.02) $0.19 $(0.04) $0.03
Weighted average common shares outstanding 16,913,389 13,518,719 16,913,389 10,917,315
</TABLE>
<PAGE>
[LOGO OF POWER PLUS CORPORATION APPEARS HERE] FORM 10-Q
Second Quarter of Fiscal 2000
Page 4
CONSOLIDATED BALANCE SHEETS (unaudited)
(Amounts are expressed in Canadian Dollars)
<TABLE>
<CAPTION>
31 July 1999 31 January 1999
------------ ---------------
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 310,011 $ 567,614
Accounts and note receivable - see Note 4 34,955 488,270
Prepaid expenses 0 14,400
------------ ------------
$ 344,966 $ 1,070,284
============ ============
Liabilities
Current accounts payable and accrued liabilities $ 59,192 $ 210,206
------------ ------------
Long-term liabilities
Non-cash accrued liabilities and interest payable - see Note 5 779,489 619,939
10% Convertible debentures payable - see Note 5 3,191,000 3,191,000
------------ ------------
3,970,489 3,810,939
------------ ------------
4,029,681 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 (4,803,171) (4,069,317)
------------ ------------
(3,684,715) (2,950,861)
------------ ------------
$ 344,966 $ 1,070,284
============ ============
</TABLE>
<PAGE>
[LOGO OF POWER PLUS CORPORATION APPEARS HERE] FORM 10-Q
Second Quarter of Fiscal 2000
Page 5
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION (unaudited)
(Amounts are expressed in Canadian Dollars)
<TABLE>
<CAPTION>
Six-month and year-to-date
Period ended 31 July
---------------------------------------------------
1999 1998
---------------------------------------------------
Cash provided by (used in) operating activities
<S> <C> <C>
(Loss) for period $ (658,073) $(2,534,821)
Items not affecting cash
Asset write-down - see Note 2 0 490,485
Financing charges payable in stock - see Note 5 280,780 415,878
Amortization 0 127,753
---------- -----------
(377,293) (1,500,705)
Changes in non cash operating items (39,858) (190,538)
---------- -----------
(417,151) (1,691,243)
---------- -----------
Cash provided by (used in) financing activities
Non-cash accrued liabilities & interest payable - see Note 5 159,548 0
10% Convertible debenture - see Note 5 0 1,000,000
---------- -----------
159,548 1,000,000
---------- -----------
Cash provided by (used in) investing activities
Sale of capital assets 0 753,000
---------- -----------
Increase (decrease) in cash during period (257,603) 61,757
Cash, beginning of period 567,614 147,590
---------- -----------
Cash, end of period $ 310,011 $ 209,347
========== ===========
</TABLE>
<PAGE>
[LOGO OF POWER PLUS CORPORATION APPEARS HERE] FORM 10-Q
Second Quarter of Fiscal 2000
Page 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Note 1: The Consolidated Financial Statements are for the three-month and six
months year-to-date periods ended 31 July 1999, pertaining to the
current fiscal year ending 31 January 2000 ("Fiscal 2000"), and the
corresponding period ended 31 July 1998, pertaining to the fiscal year
ended 31 January 1999 ("Fiscal 1999"). Q2 -- 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
July 1999 and the Consolidated Statements of Operations and Changes in
Financial Position for the three-month and six months year-to-date
periods ended 31 July 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 July 1999 and the Consolidated
Statements of Operations and Changes in Financial Position for the
three-month and six months year-to-date periods ended 31 July 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 in the amount of $490,485, the wind-
up of PPUSA's operations, the reduction in PPCan's operations and a non-
cash gain on the abandonment of PPUSA of $2,899,033, 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 APPEARS HERE] FORM 10-Q
Second 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 of $74,955 represent the BPI secured
promissory note that arose on the sale of PPCan. It is due in equal
weekly installments through July 1999 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 Q2 - Fiscal 2000 in the amount
of $79,774 (to 31 January 1999 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 Q3 -- 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 which
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 APPEARS HERE] FORM 10-Q
Second 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 APPEARS HERE] FORM 10-Q
Second 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 over the next three months, 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) Q2 - 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 analy
________________________
/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 APPEARS HERE] FORM 10-Q
Second Quarter of Fiscal 2000
Page 10
sis are meaningless and unwarranted. In the circumstances, therefore, these
financial statements are 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 Q2 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 July)
---------------------------------------------------------------
Three months Six months year to date
1999 1998 1999 1998
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Cost of sales n/a 117.7% n/a 78.3%
Operating, occupancy & administrative expenses 7053.6% 297.3% 4113.0% 468.1%
Net loss before non cash gain on windup 10195.1% 315.0% 7353.6% 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 Q1 & Q2 -- 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 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 Q1 & Q2 -- 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 Q1 & Q2 -- 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, Q2 -- Fiscal 1999 Consolidated Financial Statements include
the accounts of the Company, PPUSA and PPCan, and report the results of the
discontinued and sold operations. All significant intercompany accounts and
transactions between the Company and the subsidiaries were eliminated.
<PAGE>
[LOGO OF POWER PLUS CORPORATION APPEARS HERE] FORM 10-Q
Second Quarter of Fiscal 2000
Page 11
No corporate income taxes were payable in Q2 -- 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 $22 million, and is not reported in the Consolidated Balance
Sheet./3/
2) Q2 -- 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 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; 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.)
_________________________
/3/ See Footnote 2, IBID.
<PAGE>
[LOGO OF POWER PLUS CORPORATION APPEARS HERE] FORM 10-Q
Second Quarter of Fiscal 2000
Page 12
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 $1.25
per Common Share. (See (S)5 -- Summary of changes to shares and share
--------------------------------------
capital, below.)
-------
______________________
/4/ All references in this FORM 10K are to Common Shares outstanding post-
consolidation that occurred during Fiscal 1997.
<PAGE>
[LOGO OF POWER PLUS CORPORATION APPEARS HERE] FORM 10-Q
Second Quarter of Fiscal 2000
Page 13
5) Summary of changes to shares and share capital
The table depicts the changes to share capital following from the 1996
Reorganization Plan and to the date hereof.
<TABLE>
<CAPTION>
Shares Capital Timing
------ ------- ------
Completed
---------
($ amounts are expressed in Canadian Dollars in millions; 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 & 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 @ $2.50 (Balance of Class AA
Warrants expired unexercised.) 4,246 $0.0 FY 1998
iv) Agent's Option to purchase 225,000 Common Shares at $2.00 and receive equal number
of Agent's Option Class A Warrants 225,000 $0.5 FY 1997
ii 1996 Special Warrant Private Placement Financing
a.) Special Warrants for $2.00 that were exchanged during first quarter of Fiscal 1998 for
Common Shares and an equivalent number of Class B Warrants 2,250,000 $4.5 FY 1997
b.) Class B Warrants exercised to purchase one Common Share at $2.00 and receive one Class
BB Warrant. (Balance of Class B Warrants and all Class BB Warrants issued expired
unexercised.) 687,500 $1.3 FY 1998
c.) Penalty Special Warrants to receive 225,000 Common Shares at no cost and 255,000
Class B Penalty Warrants. (Exercised Class B Warrants included above.) 225,000 $0.0 FY 1997
iii Conversions of Debts into Common Shares at $1.25 per share
a.) $6 million - Special Notes (see (S).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 (ss).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 APPEARS HERE] FORM 10-Q
Second 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 APPEARS HERE] FORM 10-Q
Second 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 APPEARS HERE] FORM 10-Q
Second 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 APPEARS HERE] FORM 10-Q
Second 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: 1 September 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 6-MONTH PERIOD ENDED 31
JULY 1999 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-31-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> JUL-31-1999
<EXCHANGE-RATE> 0.67
<CASH> 310,011
<SECURITIES> 0
<RECEIVABLES> 34,955
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 344,966
<DEPRECIATION> 0
<TOTAL-ASSETS> 344,966
<CURRENT-LIABILITIES> 59,192
<BONDS> 3,970,489
0
0
<COMMON> 1,118,456
<OTHER-SE> (4,803,171)
<TOTAL-LIABILITY-AND-EQUITY> 344,966
<SALES> 8,405
<TOTAL-REVENUES> 8,405
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 385,698
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 280,780
<INCOME-PRETAX> (658,073)
<INCOME-TAX> 0
<INCOME-CONTINUING> (658,073)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (658,073)
<EPS-BASIC> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
