<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to section 13 or 15(d) of the Securities
- --- ----------
Exchange Act of 1934 for the quarterly period ended 31 OCTOBER 1998
--------------------
("Q3", "Third Quarter" or "Quarter 3 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 (I.R.S. Employer Identification
incorporation) 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)
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by (S)13 or (S)15(d) of the Securities Exchange Act of 1934 during
-------------------------------
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes 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
<TABLE>
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Consolidated Interim Financial Statements 3
Consolidated Statement of Operations
for the periods ended 31 October 1998 and 1997
Consolidated Balance Sheet as at 31 October 1998 and 31 January 1998
Consolidated Statement of Changes in Financial Position
for the periods ended 31 October 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 21
</TABLE>
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
THIRD QUARTER OF FISCAL 1999
PAGE 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
A) CORPORATE OVERVIEW
Investing is the priority for Power Plus Corporation, a public company dual
listed on The Alberta Stock Exchange in Canada and the Over-The-Counter
("OTC") Electronic Bulletin Board in the United States. The primary
activities of the Company fall into two categories: investing in operating
companies; and, carrying on business through subsidiary operating
companies. Accordingly, Power Plus Corporation is the parent of
subsidiaries that hire employees, procure merchandise for resale, purchase
or build capital assets and carry on business. Since its inception, Power
Plus Corporation has invested in specialty retail businesses operating in
Canada and the US, primarily selling batteries and battery-related
products, wireless telecommunications products and portable fashion
electronics.
The Company, commensurate with its role of an investment banker, proposed a
reorganization plan/1/ to shareholders for their approval at a meeting of
the members held on 24 July 1996 (the "1996 Reorganization Plan"). With
shareholders' approval to the proposed reorganization, new management
formulated its operating and financing plan, PLAN 2000.
In July 1996, Power Plus USA, Inc. ("PPUSA"), a wholly owned subsidiary of
the Company, commenced implementing its plan for launching the US Powerful
Stuff chain. Effective 1 September 1996, PPUSA launched its wireless
airtime rebilling business by purchasing more than 20,000 pager customers
under existing contracts and the entitlement to the related future wireless
(pager/beeper airtime) rebilling revenue from Consumer Electronics
Specialty Stores, Inc. ("CESS"), located in Sarasota, Florida. The US
retail chain grew to 44 stores and the airtime rebilling business grew by
nearly 50% over the next 18 months. Despite these accomplishments, the lack
of timely financing, in accordance with PLAN 2000, to support the ongoing
operations and growth caused PPUSA to seek protection under Chapter 11 of
the US Bankruptcy Code on 31 January 1998. The Company sold certain of
---------------
PPUSA's capital assets, including its list of pager customers, to an arm's-
length party and on 29 June 1998, and PPUSA ceased carrying on the
business.
In September 1996, the Company launched its Canadian Powerful Stuff chain
through its wholly owned subsidiary Power Plus Canada, Inc., ("PPCan")/2/.
The immediate expansion thrust was concentrated in Ontario, where the chain
grew to 18 stores, although plans foresaw the addition of several store
locations in British Columbia and Alberta. However, resulting from the same
capital constraint, on 8 May 1998 PPCan sought protection by filing a
Notice of Intention to File a Proposal to Creditors ("Proposal") under Part
---------------------------------------------------
III Division I of the Bankruptcy and Insolvency Act Canada. PPCan remained
-----------------------------
in possession of its assets. On 26 November 1998 the Company sold the
shares of PPCan and certain intellectual properties to a third party that
conducted a similar business in Canada.
- -----------------
/1/ The 1996 Reorganization Plan was conceived during Fiscal 1996 and flushed
out during Q1 and Q2 of Fiscal 1997. It 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 in excess of 1000 stores. The second was
the Financing Plan that set out the manner in which the Company proposed to
fund for this growth by raising new capital over the first three years,
until critical mass and financial self-sufficiency was achieved. The stores
operated from leased premises that ranged from 150 to 700 square feet in
major enclosed shopping malls in the US and Canada. They sold portable
energy, wireless communication products and services (beepers, cellular
phones, personal communication systems and related service contracts) and
hand-held electronic communications, entertainment, business and lifestyle
products.
/2/ Since its acquisition in December 1988, PPCan, formerly 385729 Alberta
Inc., had been inactive and did not commence to carry on business until
September 1996.
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
THIRD QUARTER OF FISCAL 1999
PAGE 9
All of the Company's retail operations in Canada and the US were conducted
through PPCan and PPUSA, respectively, and these subsidiaries owned all of
the capital assets employed in carrying on the retail businesses.
Accordingly, at 31 October 1998 the Company had neither ongoing retail
operations nor operating assets.
The Company is currently undergoing a reorganization, implementing its 1999
Reorganization Plan which management considers in the best interests of the
Company (for more details see ITEM 4(2) -- Submission of Matters to a Vote
-------------------------------
of Security Holders in the FORM 10K - Fiscal 1998, representing the year
-------------------
ended 31 January 1998 as previously filed). In summary, the shareholders
resolved as to the following matters:
1. To change the name of the Company to PPC Capital Corp;
2. To authorize the consolidation of the common shares of the Company
on the basis of one (1) common share for each five (5) common
shares heretofore outstanding;
3. To authorize a reduction of the stated capital of the Company by
$20,700.000;
4. To authorize the conversion of secured debt of the Company in an
amount of up to $5,000,000 into post-consolidation common shares
of the Company at a conversion price of $0.10 per post-
consolidation common share ;
5. To authorize the conversion of certain other debts of the Company
in an amount of up to $340,000 into post-consolidation common
shares at a conversion price of $0.10 per post-consolidation
share; and,
6. To approve the payment of a finder's fee in the amount of $121,230
by issuing up to 1,121,230 post-consolidation common shares at a
conversion price of $0.10 per post-consolidation common share.
Upon regulatory approval and implementation of the 1999 Reorganization
Plan, the Company intends to aggressively pursue diversified investment
opportunities targeted to maximize shareholder value.
While management cannot give any assurances as to the future outlook for
the Company, formal application has been made to seek the conditional
approval of The Alberta Stock Exchange for the 1999 Reorganization Plan as
approved by the shareholders. The name change and share consolidation will
not be implemented until the required regulatory approval is obtained,
which is anticipated to be during the first quarter ending 30 April 1999,
of Fiscal 2000 ending 31 January 2000. During this same period, the Company
will be proceeding to prepare and finalize its audited financial statements
for the fiscal year ended 31 January 1999 ("Fiscal 1999"), while at the
same time seeking a professional opinion/3/ as to the extent and
applicability of its substantial tax loss carry forwards. Only upon
approval and implementation of the 1999 Reorganization Plan and the
finalization of Fiscal 1999's financial statements and the tax loss
opinion, will the Company be in a position to pursue investment
opportunities. In management's opinion, the tax loss carry forwards are
expected to represent a significant asset for the Company which is
anticipated to be material in attracting a suitable candidate for purposes
of restructuring its business affairs.
In the circumstances of these reorganizational proceedings, The Alberta
Stock Exchange is conducting a review of the financial affairs of the
Company in order to ascertain as to whether the Company meets minimum
listing requirements. In the event the Company is unable to satisfy The
Alberta Stock Exchange as to compliance with minimum listing requirements
on or before 30 April 1999, the Common Shares could face a suspension from
trading. In the event of any such suspension, the Company is in no way
impaired from continuing on with its day-to-day operations in seeking out
new investment op
- ------------------
/3/ See Note 10 in the Notes to the audited Consolidated Financial Statements -
Fiscal 1998, in the FORM 10-K - Fiscal 1998.
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
THIRD 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
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
THIRD QUARTER OF FISCAL 1999
PAGE 11
made pursuant to a share purchase agreement dated 30 October 1998,
between the Company, as 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 Q3 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 October)
---------------------------------------------------
Three months Nine months year to date
---------------------------------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Cost of sales 56.5% 77.6% 77.3% 63.0%
Operating, occupancy & administrative expenses 1356.4% 272.4% 29.0% 198.4%
Net loss including windup and sale 1313.0% 250.0% 6.1% 162.7%
</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
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.
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
THIRD QUARTER OF FISCAL 1999
PAGE 12
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 and Q3, the Company's administrative overhead decreased
significantly because there were virtually no employees. Included in
Administration Expenses are extraordinary professional fees and
termination and severance pays to non-management employees.
In particular, these interim financial statements reflect the write-
down of PPCan assets in the amount of $490,485, the wind-up of PPUSA's
operations, the reduction in PPCan's operations, and report other
accounting adjustments that are required to conform to generally
accepted accounting principles applicable in the circumstances. In so
doing, a non-cash gain on the abandonment of PPUSA of $2,899,033 is
reported, representing the effect of reversing its indebtedness
obligations to arm's length creditors. The implementation of the
Proposal, including the payment of the dividend from the fund to the
creditors of PPCan, would have the effect of substantially reducing the
amount of accounts payable reported herein.
C) LIQUIDITY AND CAPITAL RESOURCES
See the Notes to the Consolidated Financial Statements (unaudited)
----------------------------------------------
included with these materials.
1)FINANCING ACTIVITIES INSTIGATED AND CHANGES DURING FISCAL 1999
a) On 24 April 1998, the Company completed the conversion of the $6
million, 10% fixed and floating charge secured special promissory
notes debentures, converted at $1.25 per common share, resulting in
the issuance of 5,080,767 common shares of the Company. (See (S)2(d)
-- Special Notes convertible debt financing, below.)
----------------------------------------
b) Effective 24 July 1998, the Company converted certain short-term debt
notes it had executed and delivered (the "Bridge Loan Notes") during
Fiscal 1998 evidencing an aggregate principal amount of $4,081,250 in
unsecured loans bearing interest at an annual rate of 10%. The
conversion rate was $1.25 per Common Share. Accordingly, the Company
issued 3,771,858 Common Shares as payment in full of all obligations,
including accrued interest, under the Bridge Loan Notes.
c) As of the date hereof, there are now 16,913,389 Common Shares of the
Company currently issued and outstanding. (See the table in (S)3 --
Summary of changes to shares and share capital and ss.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.
e) The Company has executed promissory notes evidencing indebtedness in
the aggregate principal amount of $3,155,000 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 pay-
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
THIRD QUARTER OF FISCAL 1999
PAGE 13
able upon maturity. The Company executed additional promissory notes
on similar terms and conditions for $36,000 subsequent to the period
end. This replacement of these unsecured loans totaling $3,191,000 was
completed during Q4 of Fiscal 1999. (See (S)6 - Conversion of Secured
---------------------
Debt, below)
----
f) Interest due on the 10% Bridge Loan Notes, 10% Promissory Notes and
10% Special Notes is payable in arrears at the time of repayment or
conversion by the issuance of common shares. The 10% Bridge Loan Notes
and 10% Special Notes plus the interest accrued and payable thereon
were converted into Common Shares.
g) Commencing in Fiscal 1996, all securities, including the Special Notes
that were converted into Common Shares, were sold by private placement
to accredited investors in Canada. These securities were issued
pursuant to the governing securities laws in the applicable governing
jurisdictions in Canada but were not registered or sold principally in
the US. Sales of the securities in the US were made in reliance upon
the exemption from registration contained in (S)4(2) of the
Securities Act of 1933, as amended.
----------------------
2) UPDATE CONCERNING FINANCINGS COMMENCED FROM 1996 FINANCING PLAN
(Please also refer to the table in (S)3 -- Summary of changes to shares
----------------------------
and share capital, below. In addition, please refer to the FORM 10-K -
-----------------
Fiscal 1998 for a more detail discussion concerning changes to and
arising from the 1996 Financing Plan.)
a) 1996 SPECIAL WARRANT PRIVATE PLACEMENT FINANCING
During Fiscal 1997, according to the 1996 Reorganization Plan, the
Company completed the 1996 Special Warrant Private Placement Financing
(the "1996 Special Warrants") of $4.5 million representing an
aggregate of 2.25 million 1996 Special Warrants.
Each 1996 Special Warrant was converted at no additional consideration
into one Common Share on 31 January 1997 plus one Class B Warrant.
This warrant consisted of two entitlements: firstly, entitling holders
to acquire up to an aggregate of 2.25 million Common Shares at an
exercise of $2.00 per share on or before 30 September 1997,
representing additional potential future capital to the Company in the
aggregate of up to $4.5 million; and, secondly, and subject to the
exercise of the Class B Warrant, a collateral Class BB Warrant,
entitling holders to acquire up to an aggregate of a further 2.25
million Common Shares at an exercise purchase price of $2.50 per share
on or before 1 March 1998, representing additional potential future
capital in the aggregate of up to $5.6 million. (See 2(c) -- Approval
--------
of Amendment to Certain Terms of Class A, Class AA, Class B and Class
---------------------------------------------------------------------
BB Warrants, below.)
-----------
The 1996 Special Warrant financing terms provided that the Company
would incur a 10% penalty payable by the issuance of additional 1996
Special Warrants to the holders of the 1996 Special Warrants, that is
a further 225,000 1996 Special Warrants on a pre-consolidation basis
in prescribed circumstances, representing dilution of 225,000 Common
Shares. The Company was unable to meet such obligations and the
penalty was therefore incurred. The entitlements attached to the
penalty 1996 Special Warrants are the same as the 1996 Special
Warrants.
Holders of the penalty 1996 Special Warrants were not required to pay
to receive the common shares included therein, but the Class B and BB
Warrants attached thereto included the same exercise price, that is
$2.00 per Common Share for the Class B Warrant and $2.50 per Common
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
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
THIRD QUARTER OF FISCAL 1999
PAGE 14
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
------------------
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
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
- ----------------
/4/ All references in this FORM 10K are to Common Shares outstanding post-
consolidation
<PAGE>
FORM 10-Q
POWER PLUS CORPORATION THIRD QUARTER OF FISCAL 1999
PAGE 15
additional capital was raised. Accordingly, all entitlements
attributed to these warrants expired 30 September 1998. d)
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 $6.4 million in additional
capital on a fully diluted basis. As of the date hereof, as a result
of market conditions this financing was aborted.
f) Future potential funding from the Financing Plan All financing in
accordance with the 1996 Reorganization Plan concluded on 30 September
1998, commensurate with the expiring of the entitlements formerly
attached to Warrants. During Fiscal 1999, the Company converted both
the Bridge Loan Notes and Special Notes into Common Shares. No
additional financing will be concluded in regard to the 1996
Reorganization Plan.
<PAGE>
FORM 10-Q
POWER PLUS CORPORATION THIRD QUARTER OF FISCAL 1999
PAGE 16
3) SUMMARY OF CHANGES TO SHARES AND SHARE CAPITAL
The table depicts the changes to share capital following from the 1996
Reorganization Plan and to the date hereof.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
SHARES CAPITAL TIMING
------ ------- ------
- --------------------------------------------------------------------------------------------------------------------------------
($ 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 equivalent 2,250,000 $4.5 FY 1997
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
- --------------------------------------------------------------------------------------------------------------------------------
</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, with the result that the 16,913,389 Common Shares
outstanding as at the record date would become 3,382,677 common
shares.
-----------------------------------------------------------------------
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 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 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>
FORM 10-Q
POWER PLUS CORPORATION THIRD 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>
FORM 10-Q
POWER PLUS CORPORATION THIRD 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>
FORM 10-Q
POWER PLUS CORPORATION THIRD QUARTER OF FISCAL 1999
PAGE 19
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The following summarizes, to the best of management's knowledge,
potential, pending or known legal proceedings and litigation, arising
primarily from transactions between third parties and one or both of
PPUSA and PPCan, in all considered ordinary routine litigation
incidental to the business.
a) CDA Industries Inc., a Canadian company and manufacturer and
supplier of store fixtures, commenced an action in the Ontario
Court against the Company for the payment of alleged unpaid
amounts due from either or both PPCan and PPUSA. The Company has
disputed this claim considering it without merit and will
vigorously defend it as required and advised.
b) PageMart Canada Limited, a Canadian company and former supplier of
airtime to PPCan was sued by PPCan in the Ontario Court for
non-performance. PageMart countersued the Company in response,
alleging it was owed certain amounts for services rendered by it
to PPCan and for breach of contract. The Company has disputed
PageMart's claim considering it without merit, and will vigorously
defend it as required and advised.
c) Management is informed of claims that may have been made against
PPUSA in the United States, after PPUSA ceased carrying on
business, by landlords pertaining to store premises leased by
PPUSA. The details of these claims are undetermined as of the date
hereof, and there is the possibility that collateral claims may
have been made against the Company. The Company has retained US
counsel to advise management and will take all steps necessary and
required.
In management's opinion, and to the best of its knowledge, none of
these potential, pending or known routine legal proceedings are
expected to have any material impact on future operating results or the
financial condition of the Company.
ITEM 2. CHANGES IN SECURITIES.
(See PART I, Item 2. -- Management's Discussion and Analysis of
Financial Condition and Results of Operations, herein).
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
On November 27, 1998, the Company announced the completion of the sale
of the Company's wholly-owned Canadian operating subsidiary, Power Plus
Canada, Inc., for an undisclosed sum to Battery Plus Inc. of
Mississauga, Ontario. The Company previously announced on May 8, 1998,
that Power Plus Canada, Inc. had sought protection, filing a Notice of
Intention to make a proposal to creditors under Part III Division I of
the Bankruptcy and Insolvency Act. On September 11, 1998, the creditors
of Power Plus Canada, Inc. accepted the proposal made and the required
court approval was subsequently obtained by order dated October 7,
1998, satisfying certain pre-conditions to the Company's sale of Power
Plus Canada, Inc. completed November 27, 1998. As a result, all claims
of the creditors of Power Plus Canada, Inc. as compromised will now be
fully satisfied.
<PAGE>
FORM 10-Q
POWER PLUS CORPORATION THIRD QUARTER OF FISCAL 1999
PAGE 20
The Company also previously announced on February 4, 1998, that its
wholly-owned US operating subsidiary, Power Plus USA, Inc., had sought
protection, filing a Chapter 11 Voluntary Petition under the United
------
States Bankruptcy Code. Pursuant to these proceedings, the Company has
----------------------
sold the assets of Power Plus USA, Inc. for an undisclosed sum.
The Company has set a meeting of shareholders to be held on January 21,
1999, to consider, amongst other matters, reorganizational proceedings
which management considers in the best interests of the Company,
including a name change to "PPC Capital Corp." Upon approval and
implementation of reorganizational proceedings, the Company will
aggressively pursue diversified investment opportunities targeted to
maximize shareholder value.
As part of its reorganizational proceedings, the Company, effective
July 24, 1998, completed the conversion of certain promissory notes it
had executed and delivered (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%, the
conversion being at $1.25 per common share. The Company, therefore,
issued 3,771,858 common shares as payment in full of all obligations
under the Bridge Loan Notes. The Company also previously announced on
April 24, 1998, that it had completed the conversion of its $6 million,
10% fixed and floating charge secured special promissory notes
debentures, converted at $1.25 per common share, resulting in the
issuance of 5,080,765 common shares of the Corporation. As a result,
16,913,395 common shares of the Company are issued and outstanding as
of November 27, 1998. The Company has no classes of share purchase
warrants remaining outstanding and there are no options to purchase
shares granted to any officers, directors, employees, advisors or
consultants to the Corporation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a.) Exhibits
Exhibit 27 -- Financial data schedule
b.) Reports on Form 8-K
None
<PAGE>
FORM 10-Q
POWER PLUS CORPORATION THIRD QUARTER OF FISCAL 1999
PAGE 21
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
-------------------------------
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
POWER PLUS CORPORATION
Date: 26 February 1999 /S/ R. BRUCE FREEMAN
----------------------------------
R. Bruce Freeman
Vice Chairman and Chief Financial Officer
(Duly authorized officer of the Registrant
and its chief financial officer)
<PAGE>
FORM 10-Q
POWER PLUS CORPORATION THIRD QUARTER OF FISCAL 1999
PAGE 3
PART 1-FINANCIAL INFORMATION
The Company prepares its consolidated financial statements in Canadian Dollars.
In this report all references to "$" 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
<TABLE>
<CAPTION>
THIRD QUARTER
(period ended 31 October 1998)
FISCAL 1999
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(Amounts are expressed in Canadian Dollars) NINE-MONTH AND YEAR-TO-DATE
THREE MONTHS ENDED 31 OCTOBER PERIOD ENDED 31 OCTOBER
------------------------------------------------------------------
1998 1997 1998 1997
------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES $ 30,523 $ 1,519,355 $ 598,315 $ 6,337,332
Cost of sales 17,250 1,179,666 461,995 4,072,820
------------ ------------ ------------ ------------
GROSS PROFIT 13,273 339,689 136,320 2,264,512
EXPENSES
Operating and administration 79,596 3,789,733 2,193,883 11,583,778
Asset write-down -- see Notes 2 & 8 0 0 490,485 0
Financing charges payable in stock -- see Note 4 76,927 0 492,805 0
Amortization 0 348,846 127,753 989,439
------------ ------------ ------------ ------------
(LOSS) FROM OPERATIONS (143,251) (3,798,890) (2,678,122) (10,308,705)
Non-cash gain/(loss) from abandonment and sale
of subsidiaries - see Notes 2 & 8 (257,506) 0 2,641,527 0
------------ ------------ ------------ ------------
PROFIT (LOSS) FROM OPERATIONS (400,756) (3,798,890) (36,544) (10,308,705)
Deficit, beginning of period 23,871,785 11,733,967 24,235,997 5,224,152
------------ ------------ ------------ ------------
DEFICIT, END OF PERIOD $ 24,372,591 $ 15,532,857 $ 24,372,591 $ 15,532,857
============ ============ ============ ============
EARNINGS PER SHARE $ (0.02) $ (0.48) $ 0.00 $ (1.62)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 16,913,389 7,843,248 13,634,123 6,271,164
</TABLE>
<PAGE>
FORM 10-Q
POWER PLUS CORPORATION THIRD QUARTER OF FISCAL 1999
PAGE 4
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
(Amounts are expressed in Canadian Dollars) ---------------------------------------------------------
31 October 1998 31 January 1998
---------------------------------------------------------
(unaudited) (audited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $209,473 $147,590
Accounts receivable 1,210,455 342,842
Inventory 65,348 756,375
Prepaid expenses 24,260 68,907
------------ ------------
1,509,536 1,315,714
Capital assets, net 311,125 1,288,846
Deferred charges, net 0 253,680
Other assets, net 0 546,328
------------ ------------
$1,820,661 $3,404,568
============ ============
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities $1,983,743 $4,972,867
------------ ------------
Long-term Liabilities
Accrued interest payable on long-term debt on maturity -- see Note 4 228,626 762,944
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 3,155,000 1,900,000
------------ ------------
3,383,626 11,764,194
------------ ------------
5,367,369 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 (24,272,541) (24,310,170)
------------ ------------
(3,546,708) (13,332,493)
$1,820,661 $3,404,568
============ ============
</TABLE>
<PAGE>
FORM 10-Q
POWER PLUS CORPORATION THIRD QUARTER OF FISCAL 1999
PAGE 5
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION (UNAUDITED)
(Amounts are expressed in Canadian Dollars) NINE-MONTH AND YEAR-TO-DATE
PERIOD ENDED 31 OCTOBER
-------------------------------------------
1998 1997
-------------------------------------------
<S> <C> <C>
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
(LOSS) FROM OPERATIONS $ (2,678,072) $(10,308,705)
ITEMS NOT AFFECTING CASH
Asset write-down -- see Notes 2 & 8 490,485 0
Financing charges payable in stock -- see Note 4 492,805 0
Amortization 127,753 779,439
------------ ------------
(1,567,029) (9,529,266)
------------
CHANGES IN NON CASH OPERATING ITEMS (317,255) 1,046,401
------------ ------------
(1,884,284) (8,482,865)
------------ ------------
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 4,356,398
10% Promissory Notes -- see Notes 4 & 6 1,255,000 0
Special Notes -- see Note 7 0 210,000
------------ ------------
1,255,000 6,470,776
------------ ------------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
(Purchase) of capital assets 0 (1,793,795)
Sale of assets -- see Notes 2 & 8 753,000 0
------------ ------------
753,000 (2,117,997)
------------ ------------
INCREASE (DECREASE) IN CASH DURING PERIOD 123,716 (3,805,884)
CASH, BEGINNING OF PERIOD 147,590 4,341,243
------------ ------------
CASH, END OF PERIOD $ 209,473 $ 535,359
============ ============
</TABLE>
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
THIRD 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 October 1998 pertaining to the
current fiscal year ending 31 January 1999 ("Fiscal 1999"), and
the three-month and year-to-date period ended 31 October 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 (S).50.4(1) of the
Bankruptcy and Insolvency Act Canada. 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. (See Item 2 - Management Discussion and Analysis.)
NOTE 3: In the opinion of management, the Consolidated Balance Sheet as at 31
October 1998 and the Consolidated Statements of Operations and
Changes in Financial Position for the three-month and year-to-date
periods ended 31 October 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 October 1998 and the
Consolidated Statements of Operations and Changes in Financial
Position for the three-month and year-to-date periods ended 31
October 1998 and 1997 are unaudited. The Consolidated Balance
Sheet for Fiscal 1998 was audited and reported to shareholders
(please refer to the FORM 10-K for Fiscal 1998). These interim
quarterly Consolidated Financial Statements and notes do not
contain certain information included in the Company's annual
consolidated financial statements and the notes thereto.
NOTE 4: Interest 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
THIRD QUARTER OF FISCAL 1999
PAGE 7
NOTE 6: Up to the end of the period, the Company has executed
promissory notes evidencing indebtedness in the aggregate
principal amount of $3,155,000 of unsecured loans advanced to the
Company and bearing interest payable on maturity at an annual rate
of 10%. The Company executed additional promissory notes on
similar terms and conditions for $36,000 subsequent to the period
ended 31 October 1998. The holders agreed to the replacement of
these unsecured loans totaling $3,191,000, during Quarter 4 of
Fiscal 1999, by 10% first fixed and floating charge secured
debentures maturing 31 January 2000 with interest accruing and
payable upon maturity.
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,
together with interest thereon, were converted into 5,080,767
common shares on the basis of a conversion price of $1.25 per
common share.
NOTE 8: a) 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, consisted primarily of store fixtures and
leasehold improvements, were abandoned where situated at various
locations to offset existing liabilities to landlords. Accordingly,
PPUSA, now discharged from its Chapter 11 Petition, no longer
carries on business in the US.
b) 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
on 7 October 1998. Pursuant to a closing date of the sale,
PPCan continued to operate the business as a going concern.
c) On 26 November 1998, the Company completed the sale of PPCan
pursuant to a share purchase agreement dated 30 October 1998
between the Company and Battery Plus Inc, an arm's length
party. As a result, all claims of the creditors of PPCan as
compromised are now fully satisfied.
Accordingly, these interim financial statements reflect the write-down
of PPCan's 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, after netting certain adjustments pertaining to the
implementation of PPCan's Proposal with a gain on the abandonment of
PPUSA, representing the effect of reversing its obligations to arm's
length creditors, a non-cash gain of $2,641,527 is reported. The
implementation of the Proposal, including the payment of the dividend
from the fund to the creditors of PPCan, will have the effect of
substantially reducing the amount of accounts payable reported herein.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO (UNAUDITED), AS DEFINED AND
INCLUDED IN THIS FILING ON PAGES 3 THROUGH 7, FOR THE NINE MONTH PERIOD ENDED 31
OCTOBER 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> CANADIAN DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> OCT-31-1998
<EXCHANGE-RATE> 0.6623
<CASH> 209,473
<SECURITIES> 0
<RECEIVABLES> 1,210,455
<ALLOWANCES> 0
<INVENTORY> 65,348
<CURRENT-ASSETS> 1,509,536
<PP&E> 438,878
<DEPRECIATION> 127,753
<TOTAL-ASSETS> 1,820,661
<CURRENT-LIABILITIES> 1,983,743
<BONDS> 3,383,626
0
0
<COMMON> 20,725,833
<OTHER-SE> (24,272,541)
<TOTAL-LIABILITY-AND-EQUITY> 1,820,661
<SALES> 598,315
<TOTAL-REVENUES> 598,315
<CGS> 461,995
<TOTAL-COSTS> 461,995
<OTHER-EXPENSES> 2,193,833
<LOSS-PROVISION> 490,485
<INTEREST-EXPENSE> 492,805
<INCOME-PRETAX> (2,678,122)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 2,641,527
<CHANGES> 0
<NET-INCOME> (36,544)
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
