<PAGE>
SECURITIES AND EXCHANGE COMMISION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT pursuant to(S)13 OR (S)15(d) OF THE SECURITIES EXCHANGE ACT
- ----- ---------------------------
OF 1934 (fee required) for the 12-month fiscal year ended 31 January 1999
-------
("Fiscal 1999").
----------------------------------------------------------------------
Commission file number 0-18163 CUSIP number 693501 10 8
----------------------------------------------------------------------
Power Plus Corporation
(Exact Name of Registrant as Specified in its Charter)
(the "Registrant", or the "Company", or "Power Plus")
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
<S> <C>
Province of Alberta, Canada
(State or other jurisdiction of inCompany) (I.R.S. Employer Identification Number)
-----------------------------------------------------------------------------------------------
7850 Woodbine Avenue, Suite 201,
Markham, Ontario, Canada L3R 0B9
(Address of principal executive offices) (Postal Code)
-----------------------------------------------------------------------------------------------
905-479-5683
800-769-3733 905-479-8911
(Telephone numbers) (Fax number)
-----------------------------------------------------------------------------------------------
</TABLE>
Securities registered pursuant to Section 12(b) of the Act: None
<TABLE>
<S> <C>
Securities registered pursuant to Section 12(g) of the Act: Common Stock, no par value
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ____
As of 23 April 1999, the aggregate market value of the voting stock of the
registrant held by non-affiliates was approximately $213,100 based upon the
closing price of the shares on The Alberta Stock Exchange of $0.015 per share.
As of such date, 16,913,389 common shares of the Registrant's common stock (the
"Common Shares" or "Common Stock") were outstanding.
Documents Incorporated by Reference: None.
Basis of Presentation
The Company prepares its consolidated financial statements in Canadian dollars.
In this report all references to "$" 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 23 April 1999 was C$1 = US$0.67. For additional information on exchange rates
see ITEM 6 -- Selected Financial Data - Exchange Rates.
----------------------------------------
<PAGE>
Power Plus Corporation FORM 10-K
Fiscal Year End 1999
Page 3
PART I
ITEM 1 -- BUSINESS
Investing is the priority for Power Plus Corporation, a public company dual
listed on The Alberta Stock Exchange in Canada/1/ 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
business./2/ 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.
Background and History
Power Plus Corporation was incorporated under the Business Corporations Act,
-------------------------
Alberta (Canada) on 15 December 1986 under the name "Caio Capital Company."
Prior to 1 May 1988, the Company had not conducted any significant operations.
On 1 May 1988 the Company acquired all of the issued and outstanding shares of
Battery One-Stop International Inc., ("BOSI") a private company incorporated
under the Business Corporations Act Canada on 6 March 1985, and changed its name
-------------------------
to "Battery One-Stop Inc." BOSI continued to develop the specialty retail
business of marketing and selling batteries and certain battery-powered products
in Canada and the Company commenced doing business in the US through a
subsidiary during Fiscal 1990. However, this business was unsuccessful and was
discontinued late in Fiscal 1992.
In November 1992, the Company formed two US wholly owned subsidiaries. First
Olympia Holdings Inc., a US limited liability company, has never been active in
carrying on a business. The second, Batteries Etc., Inc. ("Etc.") was
incorporated for the purpose of operating a US specialty retail business of
marketing and selling batteries and certain battery-powered products. On 8
November 1994 the Company changed its name to Battery One, Inc. and its fiscal
reporting period to end on 31 January/3/ instead of 30 April. During this time,
the Company's business was to retail over 400 types of dry cell batteries,
including common and specialized cells, and battery-powered and battery-related
products through Etc. in the US and BOSI in Canada. By the last quarter of
Fiscal 1996 (the year ended 31 January 1996), it had become apparent that on the
basis of the Company's share capitalization and considering the continued
non-profitability of Etc., the Company, notwithstanding its best efforts, could
not complete a crucial financing on the basis contemplated. The poor performance
of Etc. resulted from a number of unproductive stores situated in secondary
locations committed to by prior management. During this period, Etc.'s cash flow
had been subsidized by BOSI, to its serious detriment. (Etc. and BOSI are
hereinafter referred to collectively as the "Former Subsidiaries".)
______________________
/1/ The Alberta Stock Exchange halted the trading of the Company's shares
effective 30 April 1999. Please see ITEM 7(4) - Management's Discussion and
---------------------------
Analysis of Financial Condition and Results of Operations; Outlook for more
---------------------------------------------------------
information concerning the future direction of the Company.
/2/ Please see ITEM 7 - Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations for more information concerning the
-----------------------------------
operations of subsidiary companies.
/3/ Fiscal 1995, the nine-month period ended 31 January 1995, was the
transition year
<PAGE>
Power Plus Corporation FORM 10-K
Fiscal Year End 1999
Page 4
Accordingly, in December 1995, BOSI made a voluntary assignment into bankruptcy
pursuant to the Bankruptcy and Insolvency Act Canada. Also in December 1995,
-----------------------------
Etc. made a voluntary petition seeking protection under Chapter 11 of the United
States Bankruptcy Code that was subsequently converted to a Chapter 7 filing in
---------------
January 1996. The Company was the largest creditor of the Former Subsidiaries.
Accordingly, at 31 January 1996, the Company had neither ongoing operations nor
operating assets.
The Company, commensurate with its role of an investment banker, proposed a
reorganization plan/4/ to shareholders for their approval at a meeting of the
members held on 24 July 1996 (the "1996 Reorganization Plan"). The essence of
the plan involved reorganizing, restructuring and refinancing the Company,
which, in turn, sought new investment opportunities in businesses not dissimilar
to the Former Subsidiaries since it had access to proven senior management and
could acquire certain operating assets on an economic basis. 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 on 29 June 1998, and PPUSA ceased carrying
on the business. (See ITEM 7 - Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations.)
- -----------------------------------
In September 1996, the Company launched its Canadian Powerful Stuff chain
through its wholly owned subsidiary Power Plus Canada, Inc., ("PPCan")/5/. 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 an arm's length party that conducted a similar
business in Canada. (See ITEM 7 - Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations.)
- ---------------------------------------------
______________________
/4/ The 1996 Reorganization Plan was conceived during Fiscal 1996 and flushed
out during Q1 and Q2 of Fiscal 1997. It had two parts. The first was PLAN
2000, the Company's 5-year business plan prescribing how the Company
proposed to build its business to in excess of 1000 stores. The second was
the Financing Plan that set out the manner in which the Company proposed to
fund for this growth by raising new capital over the first three years,
until critical mass and financial self-sufficiency was achieved. The stores
operated from leased premises that ranged from 150 to 700 square feet in
major enclosed shopping malls in the US and Canada. They sold portable
energy, wireless communication products and services (beepers, cellular
phones, personal communication systems and related service contracts) and
hand-held electronic communications, entertainment, business and lifestyle
products.
/5/ 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-K
Fiscal Year End 1999
Page 5
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.
Notwithstanding reorganizational proceedings underway since, Power Plus has been
maintained in good standing from a corporate and regulatory statutory compliance
perspective. Shareholders approved, at the annual and special shareholders'
meeting held on 21 January 1999, the proposed reorganizational proceedings which
management considers in the best interests of the Company (the "1999
Reorganization Plan"). In summary, the shareholders resolved, subject to
regulatory approval, 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 effective 31 January 1999;
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 the Plan, while at the same time 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/6/ 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 has been conducting 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 on with its day-to-day operations in 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 transac-
______________
/6/ See Note 10 in the Notes to the audited Consolidated Financial Statements -
Fiscal 1999, included herein.
<PAGE>
Power Plus Corporation FORM 10-K
Fiscal Year End 1999
Page 6
tions by way of reverse take-over. The Company has been allowed until 31
December 1999 to satisfy The Exchange that upon implementation of its
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.
ITEM 2 -- PROPERTIES
As of the date hereof, the Company's 3,250 square feet of executive offices are
situated at 7850 Woodbine Avenue, Suite 201, Markham, Ontario, L3R 0B9 and
leased at arm's length basis on a month-to-month basis at a monthly occupancy
cost of approximately $3,400.
ITEM 3 -- 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.
1) 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.
2) 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.
3) 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 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
Power Plus Corporation FORM 10-K
Fiscal Year End 1999
Page 7
PART II
ITEM 5 -- MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Common stock data
Commensurate with the approvals and implementation of the Company's 1996
Reorganization Plan and the related renaming of the Company as Power Plus
Corporation, new stock trading symbols were adopted. The Common Stock is listed
on The Alberta Stock Exchange, Province of Alberta, Canada, and is traded under
the symbol "PPC". The former symbols were "BTB" in Alberta and "BATT" in the US.
The Company is a reporting issuer in the Provinces of Alberta and British
Columbia, in Canada, and in the United States. The Company's shares were listed
on the t Over-The-Counter Bullitin Board System ("OTC-BB") operated by the
National Association of Securities Dealers Automated Quotation System ("NASDAQ")
under its old symbol "BATTF". No trades were reported for the period 31 December
1994 through 28 February 1995. On 24 April 1995, the trading symbol was changed
to "BATT" when the Company's application to qualify as an exempt foreign issuer
was accepted by the National Association of Securities Dealers. Effective with
the Company's name change to Power Plus Corporation, the new symbol for trading
on the OTC-BB became "PPCO".
It came to the attention of management in March of 1998 that OTC-BB, without
consultation with the Company, unilaterally changed the symbol for trading on
the OTC-BB to "PRPS". A more senior issuer had requested and been granted the
symbol "PPCO".
The name change to PPC Capital Corp. and the related 5:1 share consolidation
forming part of the Company's pending 1999 Reorganization Plan as approved by
the shareholders and regulators (see ITEM 1 -- Business), will result in new
--------
trading symbols being adopted. This is anticipated to occur during Q2 -- Fiscal
2000, which would result in the currently issued and outstanding 16,913,389
Common Shares being consolidated into 3,382,677 post-consolidation shares.
The following table sets forth the reported high and low sale prices for the
Common Shares as quoted by The Alberta Stock Exchange for the periods set out
and expressed in Canadian dollars:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Fiscal 1999 Fiscal 1998 Fiscal 1997
----------- ----------- -----------
- ------------------------------------------------------------------------------------------------------------------------
High Low High Low High Low
---- --- ---- --- ---- ---
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1st Quarter $0.50 $0.10 $3.75 $1.00 $2.80 $2.30
- ------------------------------------------------------------------------------------------------------------------------
2nd Quarter $0.13 $0.03 $2.00 $1.20 $3.80 $2.80
- ------------------------------------------------------------------------------------------------------------------------
3rd Quarter $0.03 $0.01 $1.30 $0.75 $7.20 $4.00
- ------------------------------------------------------------------------------------------------------------------------
4th Quarter $0.03 $0.01 $0.85 $0.30 $4.20 $2.75
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table sets forth the reported high and low bid market quotations,
reflecting inter-dealer prices without retail mark-up, mark-down or commissions
and may not necessarily represent actual transactions, for the Common Shares as
quoted in the US on the OTC-BB for the periods set out and expressed in US
Dollars:
<PAGE>
Power Plus Corporation FORM 10-K
Fiscal Year End 1999
Page 8
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Fiscal 1999 Fiscal 1998 Fiscal 1997
----------- ----------- -----------
- ------------------------------------------------------------------------------------------------------------------
High Low High Low High Low
---- --- ---- --- ---- ---
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1st Quarter $0.33 $0.03 $2.69 $0.72 $1.80 $0.90
- ------------------------------------------------------------------------------------------------------------------
2nd Quarter $0.09 $0.01 $1.44 $0.86 $2.60 $1.50
- ------------------------------------------------------------------------------------------------------------------
3rd Quarter $0.01 $0.01 $0.93 $0.54 $4.60 $1.88
- ------------------------------------------------------------------------------------------------------------------
4th Quarter $0.01 $0.01 $0.61 $0.22 $2.88 $2.13
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Because a substantial number of Common Shares are held by agents in "street
name", the Company is unaware of exactly how many of the outstanding Common
Shares are held by residents of the United States. As of the date hereof, it is
estimated there are in excess of 2,000 beneficial holders of the 16,913,389
issued and outstanding Common Shares.
There are no restrictions concerning the payment of dividends on the Common
Shares. However, to date, the Company has not paid dividends on its Common
Shares.
Exchange Controls and Other Limitations Affecting Security Holders
Acquisitions of control of businesses or companies in Canada are regulated by
the Investment Canada Act (the "Investment Act"). The Investment Act created an
agency known as Investment Canada. In certain circumstances, an investment to
acquire control of a Canadian business is reviewable by said agency. In other
cases, only notice need be given to said agency and, in many cases, no action
need be taken at all. The Investment Act does not apply to the acquisition of
securities such as shares of the Company where the acquisition does not
constitute an acquisition of "control" within the meaning of said term in the
Investment Act. Generally, the term "control" means the possession, direct or
indirect, of the power to direct or cause the direction of the management and
policies of a person, whether through the ownership of voting securities, by
contract or otherwise. Under the Investment Act, the acquisition of more than
50% of the voting shares of a Company is deemed to be an acquisition of control
of such Company, and the acquisition of one-third or more of the voting shares
of a Company is presumed to be an acquisition of control of such Company unless
it can be established that the acquirer does not control the Company through the
ownership of one-third or more of the voting shares. The acquisition of less
than one-third of the voting shares of a Company is deemed not to be an
acquisition of control of such entity.
The Company is aware of no Canadian governmental laws, decrees or regulations
nor any foreign exchange controls which restrict the import or export of capital
or which affect the remittance of dividends, interest or other payments of non-
resident holders of the Company's securities, except as discussed in ITEM 7 --
Management's Discussion and Analysis of Financial Condition and Results of
- --------------------------------------------------------------------------
Operations.
- ----------
The Company knows of no limitation on the rights of nonresident or foreign
owners to hold or vote the Common Shares imposed by foreign laws and there are
no provisions in the Company's charter or by-laws which restrict ownership of
securities or prescribe restrictions on the payment of dividends, interest or
other payments to shareholders.
<PAGE>
Power Plus Corporation FORM 10-K
Fiscal Year End 1999
Page 9
Taxation
Dividends and other distributions deemed to be dividends paid or deemed to be
paid by a Canadian resident Company to a non-resident of Canada generally are
subject to non-resident withholding tax equal to 25% of the gross amount of the
dividend or deemed dividend. Also, a non-resident of Canada is subject to tax in
Canada at the rates generally applicable to residents of Canada on any "taxable
capital gain" arising on the disposition of the shares of a Canadian public
Company if such non-resident, together with persons with whom he does not deal
at arm's length, owned 25% or more of the issued shares of any class of the
capital stock of the Canadian public Company at any time in the five years
immediately preceding the date of disposition of the shares. The taxable portion
of the capital gain is three-quarters of the actual gain from the disposition of
the shares.
Canadian taxation of dividend and deemed dividend payments to and gains realized
by non-residents of Canada who are residents of the United States are subject to
the 1980 Canada-United States Income Tax Convention (the "1980 Convention").
Under the 1980 Convention, the rate of Canadian non-resident withholding tax on
dividends or deemed dividends paid to a United States resident may not exceed
15%, and in the case of a United States Company that beneficially owns at least
10% of the voting stock of the Company paying the dividend may not exceed 10% of
the dividend or deemed dividend. On March 17, 1995, the United States and Canada
signed a protocol to the 1980 Convention (the "1995 Protocol").
Ratified on 9 November 1995, the 1995 Protocol reduces the withholding rate on
dividends from 15% to 10%, and, in the case of a dividend paid to a United
States Company that owns at least 10% of the voting stock of the payor Company,
to 7% for dividends paid in 1995, 6% for dividends paid in 1996, and 5% for
dividends paid after 1996. Where the dividends are received by a United States
person carrying on business in Canada through a Canadian permanent establishment
and the shares in respect of which the dividends or deemed dividends are paid
are effectively connected with that permanent establishment, the dividends or
deemed dividends are generally subject to Canadian tax as business profits,
generally without limitation under the 1980 Convention.
The 1980 Convention also provides that gains realized by a United States
resident on the disposition of shares of a Canadian Company may not generally be
taxed in Canada unless the value of the Canadian Company is derived principally
from real property situated in Canada or the shares form part of the business
property of a permanent establishment which the United States shareholder has or
had in Canada within the twelve month period preceding the date of disposition.
Subject to certain limitations, generally Canadian income taxes paid or accrued
by a United States resident to Canada on account of dividends or deemed
dividends paid by the Canadian Company and gains from the disposition of the
Canadian Company's shares are eligible for foreign tax credit treatment in the
United States.
Recent Sales of Unregistered Securities
(See ITEM 7 (3 (a)(5) and (f) - Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations concerning the exchange
- ---------------------------------------------
convertible debenture for promissory notes.)
<PAGE>
Power Plus Corporation FORM 10-K
Fiscal Year End 1999
Page 10
ITEM 6 SELECTED FINANCIAL DATA
The following selected financial data of the Company are presented for and as of
the end of Fiscal 1999, Fiscal 1998, Fiscal 1997, Fiscal 1996 and the nine-month
Transition Fiscal 1995. This information should be read in conjunction with ITEM
7 -- Management's Discussion and Analysis of Financial Condition and Results of
--------------------------------------------------------------------------
Operations and the Consolidated Financial Statements and the Notes thereto,
- ----------
included elsewhere herein. The Company's Consolidated Financial Statements and
related information have been prepared according to Canadian Generally Accepted
Accounting Principles (CGAAP), and these financial statements comply in all
material respects with United States Generally Accepted Accounting Principles,
except as described in Note 12 to the Company's Consolidated Financial
Statements included elsewhere herein.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Transition
FYE ended
FYE 31 January 31 January
-------------- ----------
- -------------------------------------------------------------------------------------------------------------------------
1999 (6), (7), (8) 1998 (5) 1997 (4) 1996 (2) 1995(1), (2)
---- ---- ---- ---- ----
- -----------------------------------------------------------------------------------------------------------------------
Statement Of Operations Data:
- -----------------------------
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenue $ 585,035 $ 8,049,418 $ 4,080,598 $ 5,375,229 $ 8,547,973
- -----------------------------------------------------------------------------------------------------------------------
Net (loss) ($459,147) ($19,099,911) ($5,547,427) ($4,541,551) ($1,489,416)
- -----------------------------------------------------------------------------------------------------------------------
Net (loss) per share (3)
- -----------------------------------------------------------------------------------------------------------------------
Post reverse-split ($0.03) ($3.04) ($2.54) ($2.50) ($0.94)
- -----------------------------------------------------------------------------------------------------------------------
as originally reported (2) ($0.13) ($0.05)
- -----------------------------------------------------------------------------------------------------------------------
Balance Sheet Data:
- -------------------
- -----------------------------------------------------------------------------------------------------------------------
Total assets $ 1,070,284 $ 3,404,568 $ 11,043,854 $ 330,035 $ 5,182,679
- -----------------------------------------------------------------------------------------------------------------------
Working capital $ 860,078 ($3,657,152) $ 4,033,127 ($422,159) $ 611,868
- -----------------------------------------------------------------------------------------------------------------------
Long-term liabilities $ 3,810,939 $ 11,764,194 $ 4,740,000 NIL NIL
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities $ 4,021,145 $ 16,737,060 $ 7,455,813 $ 507,208 $ 2,152,401
- -----------------------------------------------------------------------------------------------------------------------
Common shareholders' ($2,950,861) ($13,332,492) $ 3,588,041 ($177,173) $ 3,030,278
equity / (deficiency) (3)
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Consolidated results of the Company and its Former Subsidiaries for a nine-
month transition year. (See also ITEM 1 - Business Background and History,
-------------------------------
supra.).
(2) The Company's Common Shares were subject to a reverse-split consolidation on
the basis of 20 old shares for one (new) Common Share, effective 1 November
1996, during Q4 -- Fiscal 1997. The comparative amounts for reported periods
prior to Fiscal 1997 have been restated on a comparative basis. The Common
Share characteristics and entitlements are the same as the old shares. (See
also ITEM 7 -- Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations for more discussion concerning management's 1996
-------------------------
Reorganization Plan as it concerns the Common Shares.)
(3) To date, the Company has not paid dividends on its Common Shares.
(4) In accordance with the 1996 Reorganization Plan and the Plan of
Arrangement, the stated capital amount and accumulated deficiency in
earnings were both reduced by $26,670,825. (See also ITEM 7 -- Management's
------------
Discussion and Analysis of Financial Condition and Results of Operations.)
------------------------------------------------------------------------
(5) Of the Long-term liabilities amount stated above, the Company converted the
total indebtedness, including principal plus accrued interest, of the 10%
Special Notes into Common Shares during Q1 - Fiscal 1999 and the 10% Bridge
Loan Notes into Common Shares during Q2 - Fiscal 1999, which eliminated
future cash out flow for both repayment of indebtedness and payment of
interest due. (See also ITEM 7 - Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations.)
---------------------------------------------
(6) In accordance with the 1999 Reorganization Plan, the stated capital amount
and accumulated deficiency in earnings were both reduced by $20,700,000, to
better reflect the financial repositioning of the Company. (See also ITEM 7
-- Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations for more discussion concerning Stated Capital Reduction.)
-------------
(7) In accordance with the 1999 Reorganization Plan approved by the
shareholders and regulator, the Company's Common Shares are proposed to be
consolidated on the basis of 5 Common Shares for 1 (new) Common Share,
expected to occur during Q2 - Fiscal 2000. (See also ITEM 7 -- Management's
------------
Discussion and Analysis of Financial Condition and Results of Operations
------------------------------------------------------------------------
<PAGE>
Power Plus Corporation FORM 10-K
Fiscal Year End 1999
Page 11
Exchange Rates
The following table sets forth, for the periods and dates indicated, certain
information currents he concerning exchange rates of United States and Canadian
Dollars. All figures shown represent noon buying rates for cable transfers in
New York City, certified for customs purposes by the Federal Reserve Bank of New
York. The sources of this data are the Federal Reserve Bulletin and the
International Financial Statistics prepared by the Bureau of Statistics of the
International Monetary Fund.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
C$ High C$ Low Average Fiscal Year End
------- ------ ------- ---------------
-------------------------------------------------------------------------------------------------------------
C/US US/C C/US US/C C/US US/C C/US US/C
---- ---- ---- ---- ---- ---- ---- ----
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999 $1.54 $0.65 $1.42 $0.70 $1.48 $0.68 $1.51 $0.66
-------------------------------------------------------------------------------------------------------------
1998 $1.36 $0.74 $1.44 $0.69 $1.39 $0.72 $1.46 $0.69
-------------------------------------------------------------------------------------------------------------
1997 $1.38 $0.73 $1.33 $0.75 $1.36 $0.74 $1.37 $0.73
-------------------------------------------------------------------------------------------------------------
1996 $1.36 $0.74 $1.28 $0.78 $1.32 $0.77 $1.32 $0.77
-------------------------------------------------------------------------------------------------------------
1995 $1.42 $0.70 $1.34 $0.74 $1.37 $0.72 $1.40 $0.71
-------------------------------------------------------------------------------------------------------------
</TABLE>
ITEM 7 -- MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
1) Overview
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 could only 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 decline of the
Asian markets. 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 dollar 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. PPUSA remained in
---------------
<PAGE>
Power Plus Corporation FORM 10-K
Fiscal Year End 1999
Page 12
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. 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 the remaining
assets of PPUSA 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 Battery
Plus Inc. ("BPI"), as purchaser.
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 in
the unaudited interim Q3 -- Fiscal 1999 Report to Shareholders, as of 31
October 1998 the Company no longer has any retail operations nor operating
assets. The Company is currently undergoing a reorganization, implementing
its 1999 Reorganization Plan, as described in detail herein (see ITEM 1 -
Business).
--------
2) Results of Operations
a) Fiscal 1999
On 31 January 1998, PPUSA sought protection by filing a Chapter 11
Petition under the United States Bankruptcy Code. PPUSA immediately
---------------
closed 18 Powerful Stuff stores in the US, leaving 11 stores open on an
interim basis, clustered in the State of Florida strategically
proximate to the operations office in Sarasota (closed in May 1998).
Management considered this interim measure to be in the Company's best
interests in order to consolidate and brace its US operations pending
possible financing and to protect its assets/7/ through reorganization
in the shorter term. By mid-June 1998, faced with deteriorating adverse
capital markets, the absence of new capital forced PPUSA to cease
carrying on business. On 29 June 1998, the Company realized its
security pertaining to the indebtedness of PPUSA and foreclosed on the
remaining assets of PPUSA. With the operations of PPUSA ceased, the
Company sold certain of the capital assets of PPUSA, 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 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. Accordingly, PPUSA, now discharged from its Chapter 11
Petition, no longer carries on business in the United States.
________________________
/7/ The Company is the first secured and largest creditor of both PPUSA and
PPCan.
<PAGE>
Power Plus Corporation FORM 10-K
Fiscal Year End 1999
Page 13
For essentially the same reasons, on 8 May 1998 PPCan filed a Proposal
--------
pursuant to (S)50.4(1) of the Bankruptcy and Insolvency Act Canada. The
-----------------------------
Proposal was approved at the meeting of creditors held on 11 September
1998. Court approval of the Proposal was final on 7 October 1998. On 27
November 1998 the Company completed the sale of PPCan to BPI. Obtaining
these approvals was a prerequisite of the sale. As a condition of the
sale, BPI advanced PPCan approximately $638,000 to pay the Proposal
Trustee, to enable it to fund its obligations to the creditors in
accordance with the terms of the Proposal, and pay certain administrative
and operating costs incurred since 8 May 1998. As a result, all claims of
the creditors of PPCan as compromised will be fully satisfied. 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 $100,000 cash consideration.
Comparison of business results for Fiscal 1999, Fiscal 1998 and Fiscal
1997
The following table highlights items reflected in the Company's
Consolidated Statement of Operations expressed as percentages of sales:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Percentage of Sales
---------------------------------------------
FYE 31 January
---------------------------------------------
1999 1998 1997
---- ---- ----
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cost of sales 79.0% 81.5% 58.5%
--------------------------------------------------------------------------------------------------
Operating, occupancy & administrative expenses 763.2% 255.3% 180.8%
--------------------------------------------------------------------------------------------------
Net loss 78.5% 237.3% 139.4%
--------------------------------------------------------------------------------------------------
Operating and administrative expenses include write-off of assets abandoned in 1999 and 1998.
--------------------------------------------------------------------------------------------------
</TABLE>
The unfavorable increase in cost of sales and decrease in gross profit
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 accounting reserves included in the Fiscal
1999 and Fiscal 1998 accounts, for the cost of inventory adjustments
and write-off/write-down of inventory and capital assets carrying
values, pursuant to the closure of PPUSA and sale of PPCan, to fair
market values;
. 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; and,
. sporadic, inconsistent and ultimately no inventory purchases meant
the stores that were open had sparse merchandise mix so special sales
promotions were required to bolster sales (further reducing gross
profit).
Declining sales meant store operating overhead was uneconomic because
both the cost of direct labor and store rent, which were essentially
fixed costs and incurred as long as a location is open, were too onerous,
especially in light of the decreasing gross profit.
<PAGE>
Power Plus Corporation FORM 10-K
Fiscal Year End 1999
Page 14
The magnitude of 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 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.
During Fiscal 1999, the Company incurred $283,143 for the cost of ceasing
business in the US. Since the Company ceased to operate PPUSA as a going
concern at the beginning of Fiscal 1999, the Fiscal 1998 financial results
included the cost of winding up its business, provisions for the write-
downs of carrying values for accounts receivable, inventory and capital
assets.
Similarly, during Fiscal 1999 PPCan recorded a $670,209, additional to the
$600,000 recorded in Fiscal 1998, provision for the write-down of the
carrying value of its capital assets and leasehold improvements, because
commensurate with filing its Proposal it had abandoned certain capital
assets at 18 unprofitable locations.
Accordingly, Fiscal 1999 results are anomalous and not comparable to prior
years' results. The Consolidated Financial Statements for Fiscal 1999
include the accounts of the Company, PPUSA and PPCan and, accordingly,
report the results of the discontinued and sold operations. All significant
intercompany accounts and transactions between the Company and the
subsidiaries were eliminated.
No corporate income taxes were payable in Fiscal 1999. Management expects
the amount of accrued income tax losses, being carried forward and
available for sheltering future business income arising from Fiscal 1999 to
exceed $11 million. This amount, which is additional to $11 million accrued
from Fiscal 1998, is not reported in the Consolidated Balance Sheet but is
disclosed in Note 10 of the Notes to the Financial Statements, included
herein. (The opening amount of off-balance sheet accrued corporate income
tax being carried forward was reduced by approximately $9 million because
PPCan was sold and its losses are excluded henceforth.)
b) Fiscal 1998
During Fiscal 1998, management's inability, as previously explained, to
predict the availability and timing of capital injections, adversely
impacted its ability to operate and grow the business in an orderly
fashion. As expected, sales and operating results proved inelastically
reactive to capital availability. Faced with unpredictable capital
injections and a persistent chronic shortage of operating cash to fund
vital merchandise inventory purchases, the Company was unable to generate
normal and consistent sales levels from existing stores. Without new
capital and with uneconomic operations that required ongoing cash, the
business faced a crisis.
During early Fiscal 1998, the Company, through its subsidiaries, invested
$1,983,481 in capital operating assets, compared to $3,486,592 in the
previous year. A substantial portion of this amount had been expended on
the development, design and building of two new concept stores/8/. Both
stores opened in June 1997 to critical acclaim. Independent shopping center
mall and retail associations adjudged them new concept winners in their
category. Management, enthused by this profile, was optimistic concerning
the payback from the stores that showed promising economics.
Notwithstanding, the unavailability of
_______________________
/8/ Planning and design for these stores had actually commenced during Fiscal
1997. The Company had been committed to their completion and, in view of
the circumstances, had believed their launch could enhance the potential
for raising capital.
<PAGE>
Power Plus Corporation FORM 10-K
Fiscal Year End 1999
Page 15
projected capital meant that all stores were unable to acquire sufficient
merchandise inventory and eventually the drain on cash reserves to fund
inefficient and uneconomic operations forced management to seek protection.
During Q4 -- Fiscal 1998, management commenced systematically implementing
radical measures and defensive strategies, firstly to pare-down the
business to conserve demand for operating cash (but retain a hub from which
to grow the business should new financing become a reality), and secondly
to protect the assets. On 31 January 1998, PPUSA sought protection by
filing a Chapter 11 Petition under the United States Bankruptcy Code. (See
---------------
above).
Since the Company ceased to operate PPUSA as a going concern at the
beginning of Fiscal 1999, the Fiscal 1998 financial results include the
cost of winding up its business, provisions for the write-downs of carrying
values for accounts receivable, inventory and capital assets/9/.
Accordingly, at the end of Fiscal 1998, the Company wrote down the carrying
value of PPUSA's assets by $2,847,521 in view of the Chapter 11 filing
since it had vacated or abandoned all stores not located in Florida.
Similarly, PPCan recorded a $600,000 provision for the write-down of the
carrying value of its capital assets and leasehold improvements, because
commensurate with filing its Proposal it had abandoned certain capital
assets at 11 unprofitable locations.
Accordingly, Fiscal 1998 results are anomalous and not comparable to prior
years' results. The Consolidated Financial Statements for Fiscal 1998
include the accounts of the Company, PPUSA and PPCan.
All significant intercompany accounts and transactions between the Company
and the subsidiaries were eliminated. No corporate income taxes were
payable in Fiscal 1998. Management expects the amount of accrued income tax
losses, being carried forward and available for sheltering future business
income arising from Fiscal 1998 to exceed $15 million. This amount, which
is additional to $20 million accrued from Fiscal 1997, is not reported in
the Consolidated Balance Sheet.
c) Fiscal 1997
Prior to the end of Fiscal 1996, the Company's Former Subsidiaries were
assigned into bankruptcy. The Company was formerly named "Battery One,
Inc." Accordingly, at the end of Fiscal 1996, the Company had neither
ongoing operations nor operating assets.
On 1 February 1996, the beginning of Fiscal 1997, the Company announced its
1996 Reorganization Plan which was subdivided into two parts: PLAN 2000,
the Company's 5-year business plan prescribing how the Company proposed to
relaunch and build its business; and, the integrated $49.1 million
Financing Plan, which set out the timing and manner in which the Company
proposed to finance PLAN 2000's funding requirements, of which $15.4
million was received as of the end of Fiscal 1997. The 1996 Reorganization
Plan, which incorporated a related Plan of Arrangement, was approved by the
Company's shareholders at the annual and special meeting held on 24 July
1996, including proposals to: change its name; reduce its stated capital;
and, reorganize and consolidate its capitalization on the basis of 20 pre-
consolidation shares for 1 post-consolidation share plus one exchange
right. After the consolidation, 2,238,281 shares were outstanding from the
existing 44,765,613
__________________________
/9/ The value of the capital assets abandoned at unprofitable locations accrues
to offset existing rent obligations for those particular locations. In most
cases, landlords are able to re-lease more readily when a location is left
partially fixtured.
<PAGE>
Power Plus Corporation FORM 10-K
Fiscal Year End 1999
Page 16
pre-consolidation shares. The Plan of Arrangement received final court
approval in October 1996. (See (S)3 Financial Condition, Liquidity and
----------------------------------
Capital Resources below.)
-------------------------
During Fiscal 1997, the Company invested, through its operating
subsidiaries, $3,486,592 in capital operating assets, compared to $-nil
the previous year. Of this amount, $1,200,500 was invested in capital
assets acquired and $2,286,092 was added by purchasing or constructing
assets over the course of the year. At the end of Fiscal 1997, the Company
had non merchandise inventory valued at $247,439 comprised of store
furniture and fixtures and point of sale computer hardware not yet put
into service which was included in working capital and that was not
amortized. These fixed assets were to be deployed as new stores opened
during Fiscal 1998. Since the majority of stores were opened in the last
four months of Fiscal 1997 and because of the limited time these fixed
assets were deployed in the year, the Company did not amortize its capital
investment in fixed assets that year.
After much research and planning during the first part of Fiscal 1997, the
Company launched its rollout of the Powerful Stuff chain of retail stores.
Through PPUSA and PPCan, Power Plus operated 51 retail stores by the end
of Fiscal 1997 under the trade name Powerful Stuff. The majority of these
stores were opened in the last four months of Fiscal 1997. During the
first two quarters of Fiscal 1997 the Company operated only one store in
Canada and opened its first US store in July 1996. During Q3 & Q4 --
Fiscal 1997, the Company opened 36 locations and acquired a chain of 13
retail locations in Florida.
According to PLAN 2000, the Company must expand to the 125-store level
before attaining profitable operations. The weighted average number of
months stores were open during Fiscal 1997 was only 3 -- much less than
critical mass.
Cost of sales as a percentage of total sales for this period was 58.5%,
reflecting the inefficiencies arising from restructuring and rebuilding
the merchandise mix and the negative impact resulting from non optimal
purchasing power of a small chain lacking support from vendors in terms of
available credit and timely deliveries. This state of transition, which
commenced with the bankruptcies of the Former Subsidiaries, meant the
administrative and overhead costs included specialty legal and accounting
fees pursuant to those bankruptcies and certain non recurring costs in
preparation for restructuring and reorganizing the Company. In addition,
these costs are disproportionate to the planned normal level because new
management had invested substantial research and planning time for the
Company's future, and the inefficiencies expected in startup operations.
Senior management, commensurate with demands of PLAN 2000, also made the
strategic decision to hire a qualified management team that could meet the
demands and growth anticipated in PLAN 2000 and then to manage the future
business. This action increased overhead accordingly.
Operating and administration expenses incurred in Fiscal 1997, as
discussed above, are not comparable to Fiscal 1996, principally because,
pursuant and subsequent to the bankruptcies of the Former Subsidiaries,
the Company was initially focused on reorganizing, restructuring and
planning for the future.
The amount of amortization for the period declined in comparison to the
corresponding periods ending in Fiscal 1996 because the Company had fewer
assets deployed during the year as compared to the prior period.
No corporate income taxes were payable in Fiscal 1997. Management expects
the amount of accrued income tax losses being carried forward and
available for sheltering future business income arising from Fiscal 1997
to exceed $5 million. This amount, which
<PAGE>
Power Plus Corporation FORM 10-K
Fiscal Year End 1999
Page 17
is additional to $15 million accrued from Fiscal 1997, is not reported in
the Fiscal 1998 audited Consolidated Balance Sheet.
3) Financial Condition, Liquidity and Capital Resources
a) Financing Action and Changes during Fiscal 1999
i) 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)3(b)(v) -- Special Notes convertible debt financing, below.)
----------------------------------------
ii) 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. (See the table in (S)3(c) -- Summary of changes to shares and
--------------------------------
share capital)
-------------
iii) 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(c)
-- Summary of changes to shares and share capital and (S)4(e) --
----------------------------------------------
Consolidation of Share Capital, below.)
------------------------------
iv) 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.
v) The Company executed promissory notes evidencing indebtedness in the
aggregate principal amount of $3,191,000 of unsecured loans advanced
as at FYE 1999 and bearing interest payable on maturity at an annual
rate of 10%. The holders of these promissory notes agreed to the
replacement of these unsecured loans by 10% first fixed and floating
charge secured debentures maturing 31 January 2001 with interest
accruing and payable upon maturity. The replacement of these
unsecured loans with debentures totaling $3,191,000 was completed
during Q4 -- Fiscal 1999. (See (S)3(f) - Conversion of Secured Debt,
--------------------------
below.)
vi) Interest due on the 10% Bridge Loan Notes, 10% Promissory Notes
(converted into the secured Convertible Debenture (see above)) 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.
vii) 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>
Power Plus Corporation FORM 10-K
Fiscal Year End 1999
Page 18
b) Update concerning financings commenced from 1996 Financing Plan
(Please refer to (S)3c -- Summary of changes to shares and share capital,
----------------------------------------------
below.)
i) Fiscal Advisor engaged for Fiscal 1997
The Company engaged C.M. Oliver & Company Limited of Toronto (the
"Agent") effective 1 March 1996 as its fiscal advisor and agent for
a one-year term. The term was not extended. The Agent assisted the
Company on a best efforts basis in raising the capital in accordance
with the Financing Plan. The Agent's compensation included a warrant
to purchase up to 225,000 post-consolidation shares at $2.00 per
share. (Please also refer to the table in (S)3c -- Summary of
----------
changes to shares and share capital, below.)
-----------------------------------
As well, the Agent's compensation included an 8% finder's fee for
certain capital amounts raised. During Fiscal 1997, the Company paid
a total of $752,000 in cash and 45,000 Common Shares as a payment in
kind on account of finder's fees.
ii) 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 (iv.) -- 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 (iv.) -- Approval of Amendment
---------------------
to Certain Terms of Class A, Class AA, Class B and Class BB
-----------------------------------------------------------
Warrants, below.)
--------
<PAGE>
Power Plus Corporation FORM 10-K
Fiscal Year End 1999
Page 19
iii) Fiscal 1997 Share Capital Reorganization & Consolidation and
Exchange Rights Entitlements
The reorganization and consolidation of the Company's outstanding
share capital, according to the 1996 Reorganization Plan, occurred
pursuant to a Plan of Arrangement under (S)86 of the Business
--------
Corporations Act Alberta, which had received shareholder, court and
----------------
regulatory approval. In general terms, the Company reorganized and
consolidated all of its issued old shares (of which 44,765,613 pre-
consolidation shares/10/ 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(c) --
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 (iv.) --
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)3c -- Summary of
----------
changes to shares and share capital, below.)
-----------------------------------
iv) 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:
(1) extend the Class A Warrant Exercise Date and Class B Warrant
Exercise Date until 30 June 1998;
(2) 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;
___________________
/10/ All references in this FORM 10K are to Common Shares outstanding post-
consolidation that occurred during Fiscal 1997.
<PAGE>
Power Plus Corporation FORM 10-K
Fiscal Year End 1999
Page 20
(3) extend the Class AA Warrant Exercise Date and the Class BB
Warrant Exercise Date to 30 September 1998; and
(4) reduce the exercise price of the Class AA Warrants and the
Class BB Warrants from $2.00 per common share to $1.25 per
common share.
All other terms and conditions remained the same.
However, despite these amendments and the best efforts of
management, because of the ongoing degeneration of the junior
capital markets no additional warrants were exercised and no
additional capital was raised. Accordingly, all entitlements
attributed to these warrants expired 30 September 1998.
v) 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 5,080,767
Common Shares at $1.25 per Common Share. (See (S)3(c) -- Summary of
----------
changes to shares and share capital, below.)
-----------------------------------
vi) 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 was 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 $6.4
million in additional capital on a fully diluted basis. As of the
date hereof, as a result of market conditions this financing was
aborted.
vii) Future potential funding from the Financing Plan
All financing in accordance with the 1996 Reorganization Plan
concluded on 30 September 1998, commensurate with the expiring of
the entitlements formerly attached to Warrants. During Fiscal 1999,
the Company converted both the Bridge Loan Notes and Special Notes
into Common Shares. No additional financing will be concluded in
regard to the 1996 Reorganization Plan.
<PAGE>
Power Plus Corporation FORM 10-K
Fiscal Year End 1999
Page 21
c) Summary of changes to shares and share capital
The table depicts the changes to share capital following from the 1996
Reorganization Plan and to the date hereof.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Shares Capital Timing
-------- ------- ------
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
($ amounts are expressed in Canadian Dollars in millions; assumes maximum dilution) Completed
---------
- ----------------------------------------------------------------------------------------------------------------------------
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 @ $2.00 197,456 $ 0.4 FY 1998
and receive 1 Class AA Warrant (Balance of Class A Warrants
expired unexercised.)
- ----------------------------------------------------------------------------------------------------------------------------
iii) Class AA Warrants exercised to purchase 1 Common Share @ $2.50 4,246 $ 0.0 FY 1998
(Balance of Class AA Warrants expired unexercised.)
- ----------------------------------------------------------------------------------------------------------------------------
iv) Agent's Option to purchase 225,000 Common Shares at $2.00 and 225,000 $ 0.5 FY 1997
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 2,250,000 $ 4.5 FY 1997
Fiscal 1998 for Common Shares and an equivalent number of Class B Warrants
- ----------------------------------------------------------------------------------------------------------------------------
b.) Class B Warrants exercised to purchase one Common Share at $2.00 and 687,500 $ 1.3 FY 1998
receive one Class BB Warrant. (Balance of Class B Warrants and all Class BB
Warrants issued expired unexercised.)
- ----------------------------------------------------------------------------------------------------------------------------
c.) Penalty Special Warrants to receive 225,000 Common Shares at no cost and 225,000 $ 0.0 FY 1997
255,000 Class B Penalty Warrants. (Exercised Class B Warrants included
above.)
- ----------------------------------------------------------------------------------------------------------------------------
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 5,080,767 $ 6.0 FY 1999
debt financing, above)
- ----------------------------------------------------------------------------------------------------------------------------
b.) $4.1 million -- Bridge Loan Notes (see (S)3(a)(ii) - Financing actions and 3,771,858 $ 4.1 FY 1999
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)3(b)(I) - Conversion of Secured Debt, below) FY 2000
- ----------------------------------------------------------------------------------------------------------------------------
(1) At the meeting of shareholders of the Company held on 30 January 1998, the shareholders of the Company approved the
consolidation of the Company's issued and outstanding Common Shares on a ratio of 1 new common share for up to each 5
common shares outstanding. Subject to the approval of The Alberta Stock Exchange, it is the intention of the Company
to complete this consolidation as soon as possible 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.
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
d) 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
<PAGE>
Power Plus Corporation FORM 10-K
Fiscal Year End 1999
Page 22
Company pursuant to (S)36 of the Business Corporations Act Alberta, by
-------------------------
reducing the stated capital of the Common Shares by an amount up to but
not to exceed $20,700,000. This reduction of stated capital of the Common
Shares would result in the reduction of the shareholders' deficiency by
the same amount. It is management's opinion, after making the adjustment,
that the balance sheet will more accurately represent the financial
repositioning of the Company resulting from the reorganization and
restructuring, and the appropriate current financial condition of the
Company.
In accordance with the Plan of Arrangement incorporated in the 1996
Reorganization Plan, the Company reduced both the stated capital amount
for the Common Shares and the accumulated deficit by $26,670,825,
effective 31 July 1996.
A reduction of the stated capital will have no immediate tax consequences
to a holder of Common Shares. The reduction of stated capital might have
an effect, in certain circumstances, if the Company is wound up or makes a
distribution to its shareholders, or when the Company redeems, cancels or
acquires its Common Shares. As a general rule, upon such transactions, the
holder of Common Shares will be deemed to have received a dividend to the
extent that the amount paid or distributed exceeds these stated capital of
its Common Shares.
e) 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 Q2 -- Fiscal 2000.
f) 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
<PAGE>
Power Plus Corporation FORM 10-K
Fiscal Year End 1999
Page 23
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)3(e) -- 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, 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, 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 1,121,230
post-consolidation common (see (S)3(c) -- Consolidation of Share
----------------------
Capital, above).
-------
g) Fiscal 1997 and Prior
Over the several years prior to Fiscal 1997, the Company experienced
significant operating losses and met cash flow requirements by selling
common shares on a private placement basis. The Company raised
approximately $1.8 million during the 9 months ended 31 January 1995. On
29 July 1994, 3 million share purchase warrants were exercised and the
Company issued 3 million common shares for cash proceeds of $660,000. In
addition, on 29 July 1994 the Company completed a private placement
financing of special warrants. The Company issued 6,363,636 special
warrants at 22c each, for cash proceeds of $1.4 million. Each special
warrant entitled the holder to convert the special warrant at no further
consideration into one common share and one-half of one regular warrant.
One regular warrant entitles the holder to purchase one share of common
stock at $1.00 per share on a pre-consolidation basis or $20.00 per share
post-consolidation. During Fiscal 1996, 4,498,454 special warrants were
exchanged, 1,279,000 special warrants were exchanged during the 9 months
ended 31 January 1995 and the remainder in February 1996 was exchanged for
Common Shares. No regular warrant, which expired between July 1996 and
January 1997, was exercised.
<PAGE>
Power Plus Corporation FORM 10-K
Fiscal Year End 1999
Page 24
4) Outlook
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 the Plan, while at the same time
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/11/ 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 has been conducting 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 on with its day-to-day operations in
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 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.
ITEM 7a-- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and schedules listed in ITEM 14(a) hereof are
incorporated herein by reference and are filed as a part of this report.
ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
_________________
/11/ See Note 10 in the Notes to the audited Consolidated Financial Statements -
Fiscal 1999, included herein.
<PAGE>
Power Plus Corporation FORM 10-K
Fiscal Year End 1999
Page 25
PART III
ITEM 10 -- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names of all directors and executive officers
of the Company as of the date hereof, all positions and offices held by each
such person with the Company or each such person's principal occupation or
employment, the name and principal business of any organization by which such
person is employed for the past five fiscal years, and the period during which
he has served as such.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Conclusion
Commencement of Current
Name Age Position of Service Term
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
J. Douglas Elliott 47 Director of the Company since 1994 and Chairman, 19 August 1994 July 2000
CEO and President of the Company since December
1995; Lawyer by background; President of Elliott &
Associates, Inc. 1987 to present; Elliott &
Associates provides consulting services to the
investment and financial services industries
specializing in the structuring, financing and
management of investment opportunities, and
financial public relations.
- ----------------------------------------------------------------------------------------------------------------
R. Bruce Freeman 46 Director of the Company since 1989, Vice Chairman 13 January 1989 July 2000
of the Company since 1993 and CFO and Treasurer
since September 1995; Chartered Accountant by
background, with joint degree in accounting and
law; Managing Partner of Freeman & Associates
which provides consulting services to companies
and individuals in the investment and financial
services industries specializing in the
structuring, financing and management of special
projects; Prior to May 1991, Vice-President and
Chief Financial Officer of Magnasonic Canada,
Inc., a Company which held major interests in
Sanyo Canada, Inc., Major Video Super Stores and
holds an interest in Magnasonic Lloyds Company,
Inc.
- ----------------------------------------------------------------------------------------------------------------
V. Lynn Elliott 48 Director of the Company since 1998. Consultant. January 1998 January 2002
- ----------------------------------------------------------------------------------------------------------------
Michael J. Perkins 46 Corporate Secretary of the Company since 1991 and August 1991 July 2000
specialty Canadian securities counsel; Partner of
Armstrong Perkins Hudson, Barristers and
Solicitors and formerly managing partner of
Ogilvie and Company, Barristers and Solicitors
since 1990, both of Calgary, Alberta.
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Directors are elected annually by the shareholders (although the Company's by-
laws authorize the shareholders to elect directors to hold office for a term
expiring not later than the close of the third annual meeting of shareholders
following the election) and hold office until their successors are duly elected
and qualified. The Company's officers are chosen by and serve at the pleasure of
the Board of Directors.
There is no arrangement or understanding known to the Company between any person
named in the foregoing table, other than as disclosed herein. (See ITEM 13 --
Certain Relationships and Related Transactions.)
- ----------------------------------------------
Lynn Elliott is the spouse of Douglas Elliott but otherwise there are no family
relationships between any director or executive officer and any other director
or executive officer of the Company.
During the last fiscal year, the board of directors held five (5) meetings.
<PAGE>
Power Plus Corporation FORM 10-K
Fiscal Year End 1999
Page 26
The Company is required to have an Audit Committee, which currently consists of
R. Bruce Freeman (Chairman), J. Douglas Elliott and Lynn Elliott. The general
function of the Audit Committee is to review the overall audit plan and system
of internal controls of the Company, and the results of the external audit and
to resolve any problems with the Company's auditor. During the Fiscal 1999, the
Audit Committee held four (4) meetings at which all members attended.
The Company has no other standing committees of the board of directors.
On 29 September 1994, in the US District Court for the Northern District of
California, the US Securities and Exchange Commission (the "Commission") issued
a civil complaint for injunctive and other relief against Dimples Group Inc.
("Dimples") and others, including Mr. J. Douglas Elliott, the Chairman, CEO and
President of Dimples, arising from an inquiry initiated by the Commission. Mr.
Elliott has informed the Company as follows in regard to the Commission
complaint:
"The complaint alleged that in various periods during 1990 and 1991, Mr.
Elliott, while an officer and director of Dimples, a Canadian corporation
engaged in the manufacture and distribution of diapers, violated Section
10(b) of the Exchange Act and Rule 10b-5 thereunder in connection with a
------------
general solicitation of investors in the United States to purchase securities
of Dimples. It was alleged Mr. Elliott played a role in the dissemination of
Dimples' projections and representations in connection with the sale of a
security, which he knew or should have known lacked a reasonable basis. Based
upon certain correspondence, it appears that the Commission's inquiry began
in 1991 in response to claims filed by members of former management of
Dimples that Dimples' Board of Directors unanimously resolved to terminate
and remove from office for cause in 1990. These complaints were made to many
and the complainants' allegations were thoroughly considered by Canadian
courts and administrative agencies. Among other results favorable to Dimples
and its management, Canada's Ontario Court rendered judgment against these
complainants, finding they were not to be believed and that their conduct
constituted the tort of abuse of process. Dimples was awarded damages against
these complainants and the related money judgments remain unsatisfied. Also,
Dimples' business operations and its public disclosure, after independent
review by Canadian regulatory and administrative authorities, were approved
of and no actions were taken against Dimples or its management.
On 29 May 1998, Mr. Elliott accepted, without admitting to the Commission's
allegations, an administrative Offer of Settlement of this civil action,
agreeing to the imposition of an Order that he not violate US securities laws
in the future. As is mandatory SEC policy in regard to such settlements, it
is a term of this settlement that Mr. Elliott not take any action or make or
permit to be made any public statement denying the allegations. As a result
of agreeing to this administrative Offer of Settlement, the SEC's lawsuit
against Mr. Elliott has been dismissed. There is no judgment or injunction
against Mr. Elliott, no finding that he profited, directly or indirectly,
from the sale of shares of Dimples Group Inc., and no monetary fines,
sanctions or penalties. This settlement does not in any way restrict or
prevent Mr. Elliott from serving as an officer or director of a publicly
traded company in the United States and does not in any way restrict or
prevent Mr. Elliott from trading in shares of a publicly traded company in
the United States. This administrative settlement of this civil matter is not
expected to have any material impact on Mr. Elliott carrying on in the
securities industry, nor is it expected to have any material impact on future
operating results or the financial condition of any public issuers Mr.
Elliott may have any association with."
The administrative settlement of this Commission complaint against Mr. Elliott
is not expected to have any material impact on future operating results or the
financial conditions of the Company.
<PAGE>
Power Plus Corporation FORM 10-K
Fiscal Year End 1999
Page 27
(S)16(a) Beneficial Ownership Reporting Compliance
-----------------------------------------
None of the Company's officers or directors has filed reports on Forms 3, 4 & 5
with the Securities and Exchange Commission. Officers and directors file similar
insider reports with The Alberta Stock Exchange as required.
ITEM 11 -- EXECUTIVE COMPENSATION
During Fiscal 1999, the Company employed a total of five executive officers. The
aggregate cash compensation (including salaries, fees, commissions, bonuses paid
for services rendered during the most recently completed fiscal year, bonuses
paid during the most recently completed fiscal year for services rendered in a
previous year, and any compensation other than bonuses earned during the most
recently completed fiscal year the payment of which was deferred) paid to such
executive officers by the Company and its subsidiaries for services rendered
during Fiscal 1999 was approximately $250,000. No one officer received
compensation exceeding $70,000.
There were no amounts set aside or accrued by the Company during Fiscal 1999, to
provide pension, retirement or similar benefits for the officers and directors
of the Company, pursuant to any existing plan, contract, authorization or
arrangement provided or contributed to by the Company.
The directors of the Company are entitled to but have not received a fee for
attending meetings and are reimbursed for travel and other expenses properly
incurred while attending meetings of the Board of Directors or any committee
thereof or in the performance of their duties as directors of the Company. The
directors are eligible to receive stock options pursuant to the Company's
Incentive Stock Option Plan described below.
Pursuant to a resolution of the board of directors of the Company dated 20 June
1996, the Company established a stock option plan ("SOP") for the board of
directors, management and employees of the Company. The shareholders approved
and ratified the adoption of the SOP at the annual general and special meeting
of shareholders held on 24 July 1996. The purpose of the SOP is to afford
persons who provide services to the Company, whether as directors, management,
employees or otherwise, an opportunity to obtain a proprietary interest in the
Company by permitting them to purchase common shares of the Company and to aid
in attracting, as well as retaining and encouraging the continuing involvement
of such persons with the Company. Subject to the terms of the SOP, the board of
directors has full authority to administer the SOP upon such terms as the board
of directors, in their sole discretion, shall determine, provided no option
shall be granted under the SOP after 10 July 2001. Up to 10% of the issued and
outstanding common shares of the Company, from time-to-time on a non-diluted
basis, have been reserved and set aside for issuance upon exercise of options
which may be granted pursuant to the SOP. A copy of the SOP may be obtained at
no charge by each shareholder of the Company upon written request being made to
the chief financial officer of the Company, at the executive offices of the
Company.
As of the date hereof, there were no options granted to acquire Common Shares.
<PAGE>
Power Plus Corporation FORM 10-K
Fiscal Year End 1989
Page 28
ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the amount of Common Shares beneficially owned by
directors and executive officers of the Company and each person known by the
Company to be beneficial owner of more than five percent of the Common Shares as
of the date hereof.
1. Directors and Officers Shareholdings
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
Amount and Nature of
Name of Beneficial Owner Beneficial Ownership/(a)/ Percent of Class/(b)/
------------------------ ----------------------- ----------------
-------------------------------------------------------------------------------
<S> <C> <C>
J. Douglas Elliott NIL NIL
------------------------------------------------------------------------------
R. Bruce Freeman 15,000 Less than 1%
- --------------------------------------------------------------------------------------
Lynn Elliott NIL NIL
- --------------------------------------------------------------------------------------
Michael J. Perkins NIL NIL
---
- ---------------------------------------------------------------------------------------
All executive officers and directors as a group 15,000 Less than 1%
======
- ---------------------------------------------------------------------------------------
</TABLE>
a) Securities beneficially owned include: securities which the named
person has the right to acquire within 60 days as of the date hereof,
such as through the exercise of any option, warrant or right;
securities directly or indirectly held by the named person or by
certain members of his family for which the named person has sole or
shared voting or investment power.
b) Percent of class based on 16,913,389 Common Shares outstanding as of
the date hereof. Common Shares which an individual or group has the
right to acquire within 60 days pursuant to the exercise of options are
deemed to be outstanding for the purpose of computing the percentage
ownership of such individual or group, but are not deemed to be
outstanding for the purpose of computing the percentage ownership of
any other individual or group shown in the table.
2. Other Shareholdings Exceeding Five Percent (5%)
David A. Williams indirectly beneficially owns 2,448,808 Common Shares
representing 14.4% of the Common Shares outstanding as of the date hereof.
Mr. Williams is beneficially entitled to acquire additional Common Shares
upon the issuance of certain finder's fee conversion Common Shares
numbering 1,121,230 on a post-consolidated basis, and upon any conversion
of the Company's outstanding Debentures. Mr. Williams indirectly
beneficially, including through Roxborough Holdings Limited, owns
$3,191,000, or all, of the Company's outstanding Debentures. The extent and
timing of the issuance of these shares is not determined as of the date
hereof. Although management does not anticipate any change of control of
the Company resulting from the future issuance of additional Common Shares
beneficially to Mr. Williams, the potential for a change of control exists.
ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
1. The Company agreed to enter into a 5-year management services agreement,
which was approved by the shareholders, made between the Company and a
private management company beneficially owned and controlled by R. Bruce
Freeman, the Vice Chairman, CFO and Treasurer of the Company, and Elliott &
Associates, Inc., which provides the services of J. Douglas Elliott, as the
Chairman, CEO and President of the Company. The management services
agreement provided for: a term commencing effective 1 March 1996 and
expiring 31
<PAGE>
Power Plus Corporation FORM 10-K
Fiscal Year End 1999
Page 29
January 2000; the reimbursment of unpaid historical services provided to
the Company together with expenses incurred from 1 September 1994 up to and
including 29 February 1996, by the issuance of shares; the payment of an
annual management fee to be determined, plus industry standard benefits and
reimbursement of all reasonable out-pf-pocket expenses incurred on behalf
of the Company; and, the issuance of incentive bonus shares to be earned
annually based upon performance thresholds to be determined.
As of the date hereof, the Company has not been capable of complying with
all its obligations under this management services agreement. Accordingly,
subject to regulatory approval and future events, it is proposed that these
obligations may be settled in full satisfaction by the issuance of debt
conversion common shares, the extent and timing of which is not determined
as of the date hereof.
2. The Company retains Armstrong Perkins Hudson, Barristers and Solicitors, of
which Michael J. Perkins, the Company's Corporate Secretary is a partner,
to perform specialty securities work and for general corporate
organizational matters, for which the Company incurred fees of $31,000
during Fiscal 1999.
3. Elliott & Associates, Inc., which provides the services of J. Douglas
Elliott as Chairman, President and CEO of the Company, was, for purposes of
administration, appointed Trustee under the Debenture Trust Indenture
governing the Company's outstanding Debentures (see ITEM 7 - Management's
------------
Discussion & Analsyis of Financial Condition and Result of Operations;
---------------------------------------------------------------------
Conversion of Secured Debt.)
--------------------------
4. See ITEM 12(2) - Security Ownership of Certain Beneficial Owners and
---------------------------------------------------
Management; Other Shareholdings Exceeding Five Percent. The Company has
---------- ------------------------------------------
received both regulator and shareholder approval to pay Roxborough Holdings
Limited, which holds certain of the Debentures, a $121,230 finder's fee in
respect of funds raised through its efforts. 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.
<PAGE>
Power Plus Corporation FORM 10-K
Fiscal Year End 1999
Page 30
PART IV
ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
Page
----
(A) 1. Index to Audited Consolidated Financial Statements of Power
-----------------------------------------------------------
Plus Corporation F-1
----------------
Auditors' Report dated 9 April 1999 F-2
Consolidated Balance Sheets for the fiscal years ended
31 January 1999 and 1998 F-3
Consolidated Statements of Operations for the fiscal years
ended 31 January 1999, 1998 and 1997 F-4
Consolidated Statements of Deficit for the fiscal years
ended 31 January 1999, 1998 and 1997 F-5
Consolidated Statements of Changes in Financial Position for the
fiscal years ended 31 January 1999, 1998 and 1997 F-6
Notes to Consolidated Financial Statements F-7
2. Index of Financial Statement Schedules
--------------------------------------
None
3. Exhibits
--------
The exhibits listed on the accompanying index of exhibits are filed as
part of this Annual Report on Form 10-K.
(b) Reports on FORM 8-K
None
<PAGE>
Power Plus Corporation FORM 10-K
Fiscal Year End 1999
Page 31
(c) Index of Exhibits
Exhibit Description
-----------
Number
------
*3.1 Certificate of the Company, as amended, of the Company.
*3.2 By-laws of the Company.
*4.1 Specimen Common Share Certificate.
*4.2 Incentive Stock Option Plan.
*4.3 Form of Special Note
27 Financial Data Schedule (EDGAR purposes only)
______________________________
* Previously filed as an exhibit to the Company's Annual Report on Form 20-F
with the Securities and Exchange Commission for the fiscal year ending 12
April 1990 and incorporated herein by reference thereto.
** Previously filed as an exhibit to the Company's Form 8-K filed dated 15
April 1996 and incorporated herein by reference thereto.
<PAGE>
Power Plus Corporation FORM 10-K
Fiscal Year End 1999
Page 32
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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: 28 May 1999 By: /s/ J. Douglas Elliott
----------------------
J Douglas Elliott
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
-------------------------------
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated as of the 28th day of May 1999.
/s/ J. Douglas Elliott
----------------------
J Douglas Elliott
Chairman, CEO and President
(Principal Executive Officer)
/s/ R. Bruce Freeman
---------------------
R Bruce Freeman
Vice Chairman, CFO
(Principal Financial and Accounting
Officer)
/s/ V Lynn Elliott
-------------------
V. Lynn Elliott
<PAGE>
Power Plus Corporation
Audited Consolidated Financial Statements
For the year ended 31 January 1999
("Fiscal 1999")
<PAGE>
Power Plus Corporation Fiscal 1999
Consolidated Financial Statements
Page 1
Index to Audited Consolidated Financial Statements
Page
Auditors' Report dated 9 April 1999 2
Consolidated Balance Sheets for the fiscal years ended
31 January 1999 and 1998 3
Consolidated Statements of Operations for the fiscal years ended
31 January 1999, 1998 and 1997 4
Consolidated Statements of Deficit for the fiscal years ended
31 January 1999, 1998 and 1997 5
Consolidated Statements of Changes in Financial Position for the
fiscal years ended 31 January 1999, 1998 and 1997 6
Notes to Consolidated Financial Statements 7
<PAGE>
BDO Dunwoody LLP
Chartered Accountants
Auditors' Report
To the Board of Directors of Power Plus Corporation:
We have audited the consolidated balance sheets of Power Plus Corporation
as at 31 January 1999 and 1998 and the consolidated statements of
operations, deficit and changes in the financial position for each of the
years in the three-year period ended 31 January 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Canada. Those standards require that we plan and perform an
audit to obtain reasonable assurance whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at 31
January 1999 and 1998 and the results of its operations and the changes in
its financial position for each of the years in the three-year period ended
31 January 1999 in accordance with generally accepted accounting principles
in Canada.
__________________
"BDO Dunwoody LLP"
Chartered Accountants
Toronto, Canada
9 April 1999
Comments By Auditors for U.S. Readers
on Canada - U.S. Reporting Difference
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the Company's ability to continue as a going concern, such as those described in
note 2(b) to the financial statements. Our report to the shareholders dated 9
April 1999 is expressed in accordance with Canadian reporting standards which do
not permit a reference to such events and conditions in the auditor's report
when these are adequately disclosed in the financial statements.
<PAGE>
Fiscal 1999
Consolidated Financial Statements
Page 3
Power Plus Corporation
Consolidated Balance Sheets
as at 31 January
($-amounts are expressed in Canadian Dollars)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 567,614 $ 147,590
Accounts and note receivable - see Note 3 488,270 342,842
Inventory 0 756,375
Prepaid expenses 14,400 68,907
-------------- -------------
1,070,284 1,315,714
Capital assets, net - see Note 5 0 1,288,846
Deferred charges, net - see Note 6 0 253,680
Other assets, net - see Note 6 0 546,328
-------------- -------------
$ 1,070,284 $ 3,404,568
============== =============
Liabilities
Current accounts payable and accrued liabilities $ 210,206 $ 4,972,866
-------------- -------------
Long-term liabilities
Non-cash accrued liabilities & interest payable - see Note 7 619,939 762,944
10% Bridge loan notes payable - see Note 7 0 4,081,250
10% Convertible debentures payable - see Note 7 3,191,000 1,900,000
Special Notes - see Note 8 0 5,020,000
-------------- -------------
3,810,939 11,764,194
-------------- -------------
4,021,145 16,737,060
-------------- -------------
Shareholders' (deficiency)
Share capital - see Note 9
Authorized at no par value:
An unlimited number of common shares
An unlimited number of preferred shares
Issued: 16,913,389 common shares (1998 - 8,060,766) 1,118,456 9,577,678
Convertible component of Special Notes - see Note 8 0 1,400,000
Deficit - see Note 9(d) (4,069,317) (24,310,170)
-------------- -------------
(2,950,861) (13,332,492)
-------------- -------------
$ 1,070,284 $ 3,404,568
============== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Fiscal 1999
Consolidated Financial Statements
Page 4
Power Plus Corporation
Consolidated Statements of Operations
for the year ended 31 January
($-amounts are expressed in Canadian Dollars)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Sales $ 585,035 $ 8,049,418 $ 4,080,598
Cost of sales 461,995 6,596,747 2,389,115
----------- ------------- ------------
Gross profit 123,040 1,452,671 1,691,483
----------- ------------- ------------
Expenses
Operating and administration 2,235,279 15,320,099 7,105,723
Asset write-down - see Notes 4, 5 & 6 670,209 3,247,521 0
Financing charges payable in stock - see Notes 7 & 8 490,485 762,944 0
Amortization 1,069,019 1,222,018 273,187
----------- ------------- ------------
Loss from operations 4,341,952 19,099,911 5,687,427
Gain from sale/abandonment of Subsidiaries - see Note 4 3,882,805 0 0
----------- ------------- ------------
Net loss for period $ 459,147 $ 19,099,911 $ 5,687,427
=========== ============= ============
Loss per share - see Note 9
Net Loss per share $ 0.03 $ 3.04 $ 2.54
Weighted average number of common shares outstanding 14,390,876 6,291,746 2,238,281
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Fiscal 1999
Consolidated Financial Statements
Page 5
Power Plus Corporation
Consolidated Statements of Deficit
as at 31 January
($-amounts are expressed in Canadian Dollars)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Deficit, beginning of period $ 24,310,170 $ 5,210,259 $ 26,193,657
Net loss for period 459,147 19,099,911 5,687,427
Stated capital reduction - see Note 9 (20,700,000) 0 (26,670,825)
------------- ------------ -------------
Deficit, end of period $ 4,069,317 $ 24,310,170 $ 5,210,259
============= ============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Fiscal 1999
Consolidated Financial Statements
Page 6
Power Plus Corporation
Consolidated Statements of Changes in Financial Position
for the year ended 31 January
($-amounts are expressed in Canadian Dollars)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash provided by (used in) operating activities
Loss for period $ (459,147) $(19,099,911) $(5,687,427)
Items not affecting cash
Gain on sale/abandonment of Subsidiaries - see Note 4 (3,882,805) 0 0
Asset write-down - see Notes 4,5 & 6 670,209 3,247,521 0
Financing charges payable in stock - see Notes 7 & 8 490,485 762,944 0
Amortization 1,069,019 1,222,018 273,187
----------- ------------ -----------
(2,112,239) (13,867,428) (5,414,240)
Changes in non cash operating items
Accounts receivable 342,842 (140,521) (138,318)
Inventory 756,375 1,053,154 (1,809,529)
Prepaid expenses 54,507 326,942 (376,089)
Accounts payable and accrued liabilities (4,762,659) 2,257,053 2,208,605
On sale/abandonment of Subsidiaries - see Note 4 3,955,812 0 0
----------- ------------ -----------
(1,765,362) (2,489,550) (5,529,571)
----------- ------------ -----------
Cash provided by (used in) financing activities
Issue of common shares and warrants 0 2,179,378 8,082,641
10% Convertible debentures payable 1,291,000 1,900,000 0
10% Bridge Loan Notes payable 0 4,081,250 0
----------- ------------ -----------
1,291,000 2,179,378 6,000,000
----------- ------------ -----------
Cash provided by (used in) investing activities
Proceeds on sales of subsidiary and assets - see Note 4 894,386 0 0
Purchase of Capital Assets 0 (1,983,481) (2,671,310)
Deferred charges 0 0 (550,573)
Purchase of other assets 0 0 (961,232)
----------- ------------ -----------
894,386 (1,983,481) (4,183,115)
----------- ------------ -----------
Increase (decrease) in cash during period 420,024 (4,193,743) 4,339,955
Cash, beginning of period 147,590 4,341,243 1,288
----------- ------------ -----------
Cash, end of period $ 567,614 $ 147,590 $ 4,341,243
=========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Power Plus Corporation FORM 10-K
Fiscal Year End 1999
Page F - 7
Notes to the Consolidated Financial Statements
1. Nature of Business
Power Plus Corporation's wholly-owned subsidiaries Power Plus USA, Inc.
("PPUSA") and Power Plus Canada, Inc. ("PPCan"), (collectively, "Power
Plus" or the "Company"), operated 22 retail stores at the conclusion of the
fiscal year ended 31 January 1998 ("Fiscal 1998") and 51 retail stores at
the conclusion of the fiscal year ended 31 January 1997 ("Fiscal 1997")
under the trade name Powerful Stuff! The stores operated from leased
premises in major enclosed shopping malls in the US and Canada. On 31
January 1998, PPUSA made a voluntary assignment under Chapter 11 of the US
Bankruptcy code and, on 29 June 1998, the operating assets of PPUSA were
sold and it ceased operations. Effective 31 October 1998, the shares of
PPCan were sold to a third party pursuant to a proposal made by PPCan in
accordance with (S)50.4(1) of the Bankruptcy and Insolvency Act Canada
-----------------------------
("Proposal") and with the approval of both creditors and the court. At the
date of sale PPCan operated six stores. Accordingly, there were no stores
operating as at 31 January 1999.
2. Significant Accounting Policies
a) Basis of Presentation
Power Plus Corporation was incorporated on 15 December 1986 under the
Business Corporations Act, Alberta.
-------------------------
These consolidated financial statements are prepared in accordance
with generally accepted accounting principles in Canada and are
expressed in Canadian Dollars. The results of operations of the
Company for Fiscal 1999 include the results of operations of its
subsidiaries only for the period during which they were operating
under its control. No subsidiary assets or liabilities are included in
the balance sheet as at 31 January 1999.
The consolidated financial statements for Fiscal 1998 and Fiscal 1997
include the accounts of Power Plus Corporation and its subsidiaries
PPCan and PPUSA (collectively the "Subsidiaries").
All significant intercompany accounts and transactions between the
Company and Subsidiaries have been eliminated.
b) Going Concern
These financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the
satisfaction of liabilities and commitments in the normal course of
business.
The Company has incurred significant losses to date and as at 31
January 1999 had no commercial operations. The continuation of the
Company as a going concern is dependent upon the identification and
commencement of profitable commercial operations and the availability
of the necessary operating and long-term financing. Should the Company
be unable to continue as a going concern, it may be unable to realize
the carrying value of its assets and to meet its liabilities as they
become due.
c) Inventory
Inventory consisted of merchandise held for resale and store fixtures
and kiosks not yet put into use and was carried at the lower of cost
or estimated net realizable value. Cost of merchandise inventory was
determined using the first-in, first-out inventory valuation method.
<PAGE>
Power Plus Corporation FORM 10-K
Fiscal Year End 1999
Page F - 8
d) Foreign Currency Translation
The operations of PPUSA were considered integrated with the Company
and accordingly it accounted for the translation of foreign currency
transactions and related financial statement items using the temporal
method. Under this method, monetary items are translated at the rate
of exchange in effect at the balance sheet date, non-monetary items
are translated at historical exchange rates and revenue and expense
items are translated at average rates of exchange for the period in
which they occur. Exchange gains and losses were included in the
determination of net income.
e) Capital Assets
Capital assets were initially recorded at cost. Amortization was
calculated on a straight-line basis on the original cost over the
following estimated useful lives:
<TABLE>
<S> <C>
Leasehold improvements 10 years
Store kiosks, furniture and fixtures 5 years
Store design and set-up costs 3 years
</TABLE>
Costs capitalized for new stores and kiosks included all design,
delivery, installation and construction costs.
f) Deferred Charges
Deferred charges were initially recorded at cost. These included
patent and trademark filing costs, intellectual properties, cost of
raising capital and such other costs such as restructuring and
reorganizing costs that were properly deferred to be matched against
the result of the expenditure. Costs of raising capital were deferred
until such time as the related transactions were completed. The cost
of issuing the Special Notes was amortized over the period from their
issuance until their conversion.
The provision for amortization was calculated on a straight-line basis
on the original cost over the following estimated useful lives:
<TABLE>
<S> <C>
Trade marks, trade names, intellectual properties 10 years
Customer list 10 years
Deferred cost of raising equity capital until transaction completed
Costs for issuing Special Notes over five-year life of Special Notes
</TABLE>
g) Financial Instruments
The Company's financial instruments consist of cash and cash
equivalents, accounts receivable, accounts payable and accrued
liabilities and convertible promissory notes. No financial assets or
liabilities were denominated in foreign currencies at 31 January 1999.
As at 31 January 1998 approximately $277,000 of financial assets and
$3,513,000 of financial liabilities was denominated in US Dollars and
the Company was exposed to currency risk accordingly. It is
management's opinion that the Company is not exposed to interest rate
or credit risks arising from these financial instruments. The fair
values of these financial instruments approximate their carrying
values, unless otherwise noted.
h) Accounting Estimates
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.
<PAGE>
Power Plus Corporation FORM 10-K
Fiscal Year End 1999
Page F - 9
3. Note Receivable
The note receivable of $488,270 is included in accounts and notes
receivable includes a secured promissory note of $483,504 which arises on
the sale of PPCan (see Note 4). It is due in equal weekly installments
through July 1999 and bears interest at 10% per annum.
4. Gain on Sale and Abandonment of Subsidiaries
a) On 8 May 1998 PPCan filed its Proposal that was approved at the
meeting of creditors held on 11 September 1998, and court approval of
the Proposal was final on 7 October 1998. On 27 November 1998 the
Company completed the sale of PPCan to a third party for total
consideration of $1,211,000 consisting of cash of $638,000 and secured
promissory notes receivable of $573,000. As a condition of the sale,
the third party advanced PPCan approximately $638,000 to pay the
Proposal Trustee, to enable it to fund its obligations to the
creditors in accordance with the terms of the Proposal, and pay
certain administrative and operating costs incurred after 8 May 1998.
As a result, all claims of the creditors of PPCan as compromised will
be fully satisfied. 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 $100,000 cash
consideration. The Company has realized a non-cash gain as a result of
the sale of $1,399,280.
b) In June 1998 PPUSA ceased carrying on business and the Company sold
certain operating assets, including its customer lists, to an arm's-
length party 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. As
management has abandoned its interest in PPUSA and does not expect to
recommence its operations or to assume any responsibility for its
remaining liabilities, its financial position as at 31 January 1999 is
not reflected in the consolidated balance sheet. The Company realized
a non-cash gain of $2,485,525 resulting from the abandonment of these
assets and the remaining liabilities of PPUSA.
5. Capital Assets
The Company has no material Capital Assets as at 31 January 1999.
In the circumstances, in Fiscal 1999 the remaining Capital Assets of PPCAN
were written down to their value realized on sale and those of PPUSA were
written-off. As at 31 January 1998 the Capital Assets of the Subsidiaries
were written down to their then estimated net realizable value, which
consisted of the following:
<TABLE>
<CAPTION>
--------------------------------------------
Accumulated
Cost amortization Net
& write downs
--------------------------------------------
31 January 1998
--------------------------------------------
<S> <C> <C> <C>
Kiosks, store fixtures and equipment 3,307,692 2,226,744 1,080,948
Leasehold improvements 307,682 101,962 205,720
Store design and set-up costs 34,746 32,568 2,178
---------- ---------- ----------
$3,652,149 $2,363,303 $1,290,875
========== ========== ==========
</TABLE>
<PAGE>
Power Plus Corporation FORM 10-K
Fiscal Year End 1999
Page F - 10
6. Deferred Charges and Other Assets
The Company has no deferred charges as at 31 January 1999. Deferred charges
as at 31 January 1998 consisted of the deferred cost of raising capital for
the Company while the transaction was still pending. Costs included fees
paid to the Company's fiscal agent for raising the funding for the Special
Notes and certain restructuring and reorganizing costs.
<TABLE>
<CAPTION>
------------------------------------------
Accumulated
Cost amortization Net
& write downs
------------------------------------------
31 January 1998
------------------------------------------
<S> <C> <C> <C>
Trade marks, trade names and intellectual
properties 276,232 276,232 0
Customer list 685,000 138,672 546,328
---------- -------- --------
Other assets 961,232 414,904 546,328
Deferred issuing cost of capital and
long-term debt 795,560 541,880 253,680
---------- -------- --------
$1,756,792 $956,784 $800,008
========== ======== ========
</TABLE>
The deferred issuing cost pertaining to a proposed and pending prospectus
financing that management abandoned was written off in Fiscal 1998.
7. Short-term Debt
a) Bridge Loan Notes
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. As a term of the Bridge
Loan Notes, the Company obtained regulatory approval to reserve
180,000 Common Shares, with an ascribed value of $450,000, for
issuance to the Bridge Loan Note holders as bonus shares. The Company
issued 3,771,858 Common Shares as payment in full of all obligations,
including accrued interest of $408,572, to Bridge Loan Note holders
for all debts and sums of money due and owing by the Company to the
Bridge Loan Note holders upon the basis of a conversion price of $1.25
per Common Share.
b) Convertible debentures
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.
Accordingly, 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
<PAGE>
Power Plus Corporation FORM 10-K
Fiscal Year End 1999
Page F - 11
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 9(g)). Accrued non-cash interest
payable to 31 January 1999 was $319,939.
8. Special Notes
During Fiscal 1997, the Company completed a $6 million Special Notes 5-
year, 10% convertible fixed and floating charge debentures private
placement debt financing in accordance with the Company's Financing Plan
incorporated in its Reorganization Plan. The terms of the Special Notes
were convertible, in whole or in part, into Common Shares at any time, at
$2.50 per Common Share and were secured by all the assets of Power Plus
Corporation.
Notwithstanding the original terms of the Special Notes and underlying
Debentures, the Special Note holders agreed that, subject to shareholder
and regulatory approval, the payment of any and all debts and sums of money
due and owing under the Special Notes shall be paid in full and converted
into Common Shares on the basis of a conversion price of $1.25 per Common
Share. At a Special Meeting of common shareholders on 30 January 1998,
shareholders approved the conversion of the Special Notes into Common
Shares with force and effect as of 31 January 1998. On 24 April 1998, the
Company converted the $6 million Special Notes, plus accrued and unpaid
interest of $350,956 thereon, into 5,080,765 Common Shares at $1.25 per
Common Share.
Interest was payable on the Special Notes semi-annually on the 31/st/ day
of January and July. Interest paid in cash on the Special Notes during
Fiscal 1998 was $300,000 on 31 July and another $300,000 was accrued at
year-end to record the liabilities for future disposition in accordance
with the foregoing. Interest paid during Fiscal 1997 was $251,100.
In the opinion of management, the convertible feature of the Special Notes
had an assignable fair value of $1,400,000 at the date of issuance, which
amount has been classified as a component of shareholders' equity.
Correspondingly, the liability component of the Special Notes had an
assignable fair value of $4,600,000 at the date of issuance and the
difference between this amount and their face value is being amortized on a
straight-line basis over their term. The liability component was $5,020,000
at the time of conversion and no amortization was taken for Fiscal 1999 due
to the timing of the conversion of the Special Notes (Fiscal 1998 -
$280,000; Fiscal 1997 - $140,000).
9. Share Capital
The Company arranges private placement unit financings from time to time
and records the proceeds as equity upon the receipt thereof. As and when
the units are exchanged for Common Shares, the Company records the issuance
of shares. During Fiscal 1999, the Company reorganized its share capital as
follows:
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.
b) Effective 24 July 1998, the Company converted 10% Bridge Loan notes it
had executed and delivered 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) None of the remaining outstanding Class A, AA, B and BB Warrants were
exercised prior to their expiry in Q3 -- Fiscal 1999 and, no
additional Common Shares were issued.
<PAGE>
Power Plus Corporation FORM 10-K
Fiscal Year End 1999
Page F - 12
d) The Company's shareholders approved at the annual general and special
shareholder meeting held on 21 January 1999 a special resolution
effective 31 January 1999 authorizing the reduction in the stated
capital of the Company pursuant to (S)36 of the Business Corporations
---------------------
Act Alberta, by reducing the stated capital of the Common Shares by an
---
amount up to but not to exceed $20,700,000. This reduction of stated
capital of the Common Shares would result in the reduction of the
shareholders' deficiency by the same amount. It is management's
opinion, after making the adjustment, that the balance sheet will more
accurately represent the financial repositioning of the Company
resulting from the reorganization and restructuring, and the
appropriate current financial condition of the Company.
e) The following table sets out the changes to the stated capital and
Common Shares.
<TABLE>
<CAPTION>
------------------------------
Shares Dollars
-----------------------------------------------------------------------------------------
31 January 1996 balance 39,192,975 $ 26,016,484
-----------------------------------------------------------------------------------------
<S> <C> <C>
Pre-consolidation
Shares issued for payment in kind 900,000
Warrants issued for cash 3,773,125
Warrants exchanged for shares 4,672,638
Total pre-consolidation old shares outstanding 44,765,613
Stock consolidation at 20:1 ratio 2,238,281
Post-consolidation
Exchange rights exercised for shares 2,238,281 4,476,561
Warrants issued for cash & exchanged for shares 32,000 80,738
Cost of issuing (277,783)
Stated capital reduction (26,670,825)
-----------------------------------------------------------------------------------------
31 January 1997 balance 4,508,560 $ 7,398,300
-----------------------------------------------------------------------------------------
Warrants exercised for cash 2,179,378
Warrants exchanged for shares 3,552,204
-----------------------------------------------------------------------------------------
31 January 1998 balance 8,060,764 $ 9,577,678
-----------------------------------------------------------------------------------------
Conversion of $6 million Special Note;
principal, conversion premium and interest 5,080,767 7,750,956
Conversion of Bridge Loan Notes;
principal, bonus shares and interest 3,771,858 4,939,822
Stated capital reduction (20,700,000)
Value of stock to be issued for payment
in-kind of finder's fee (see below) 121,230
Cost of issue (121,230)
-----------------------------------------------------------------------------------------
31 January 1999 balance 16,913,389 $ 1,118,456
-----------------------------------------------------------------------------------------
</TABLE>
f) The Company has neither issued nor had any stock options outstanding
for the past three years.
<PAGE>
Power Plus Corporation FORM 10-K
Fiscal Year End 1999
Page F - 13
g) The Company has received both regulator and shareholder approval 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 outstanding to 3,382,677 new post-
consolidation common shares during Q2 -- Fiscal 2000.
h) The Company has received both regulator and shareholder approval to
pay Roxborough Holdings Limited, which holds certain of the
Debentures, a $121,230 finder's fee in respect of funds raised through
its efforts. 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.
10. Income Taxes
As at 31 January 1999 the Company had incurred certain losses for Canadian
Income Tax purposes of approximately $22,200,000 (31 January 1998 -
$11,000,000) from operations together with losses arising on the
abandonment of PPUSA in Fiscal 1999 and the bankruptcy of certain former
subsidiaries during Fiscal 1996. These losses have not been recognized for
accounting purposes. The loss carry-forwards expire from 2000 through 2007
fiscal years although the ultimate extent to which they may be applied
against Canadian source earnings from operations is yet to be determined.
11. Operating Segment Information
The Company identified its operations in Canada and the United States as
separate segments. Both segments were accounted for on an identical basis.
Operating segment information for the years ended 31 January 1999, 1998 and
1997 is as follows:
<TABLE>
<CAPTION>
Canada United States Total
--------------------------------------------------------------------
1999
-----------------------------------------
<S> <C> <C> <C>
Sales 313,366 271,669 585,035
Loss from operations 3,642,833 699,119 4,341,952
Total assets 1,070,284 0 1,070,284
--------------------------------------------------------------------
--------------------------------------------------------------------
1998
-----------------------------------------
Sales 2,158,560 5,890,859 8,049,419
Loss from operations 6,641,273 12,458,638 19,099,911
Total assets 1,797,282 1,607,286 3,404,568
--------------------------------------------------------------------
--------------------------------------------------------------------
1997
-----------------------------------------
Sales 503,429 3,577,169 4,080,598
Loss from operations 3,595,000 2,092,427 5,687,427
Total assets 7,422,843 3,621,011 11,043,854
--------------------------------------------------------------------
</TABLE>
<PAGE>
Power Plus Corporation FORM 10-K
Fiscal Year End 1999
Page F - 14
12) Differences from United States Accounting Principles
These consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in Canada ("Canadian GAAP").
They comply, in all material respects, with accounting principles generally
accepted in the United States of America ("US GAAP") except in certain
respects, the effect of which is set out below:
a) Classification of the Convertible Feature of the Special Notes Under
Canadian GAAP the value ascribed to the convertible feature of the
Special Notes was recorded as a component of shareholders' equity. The
resulting difference between the face value of the Special Notes and
the value at which they were initially recorded was then amortized as
an operating expense over their original term. Under US GAAP this
would not have been permitted and the Special Notes would have been
recorded as a liability at their face value. The Special Notes were
converted into Common Shares during Fiscal 1999
b) Extinguishment of Debt
A portion of the gain on the sale and abandonment of subsidiaries
represents the extinguishment of debts owing to creditors of the
subsidiaries. Under US GAAP this portion would have been reported as
an extraordinary item and loss before extraordinary items and the
related loss per share information would have been presented on the
statement of operations.
The impact of the above on these financial statements is as follows:
<TABLE>
<CAPTION>
-------------------------------------------------
1999 1998 1997
-------------------------------------------------
<S> <C> <C> <C>
Net loss per Canadian GAAP $ 459,147 $19,099,911 $ 5,687,427
Adjustments related to:
Convertible Feature of Special Notes 0 280,000 140,000
Gain on Extinguishment of Debt 3,478,159 0 0
-------------------------------------------------
Net Loss before Extraordinary Items per US GAAP 3,937,306 19,379,911 5,827,427
Extraordinary Gain on Debt Extinguishment per US GAAP (3,478,159) 0 0
-------------------------------------------------
Net Loss per US GAAP $ 459,147 $19,379,911 $ 5,827,427
-------------------------------------------------
Loss per Share per US GAAP
Before Extraordinary Items $ 0.27 $ 3.08 $ 2.60
After Extraordinary Items $ 0.03 $ 3.08 $ 2.60
-------------------------------------------------
Shareholders' (Deficiency) per Canadian GAAP ($ 4,069,317) ($13,332,492) $ 3,588,041
Adjustment related to Convertible Feature of Special Notes 0 (980,000) (1,260,000)
-------------------------------------------------
Shareholders' (Deficiency) per US GAAP ($ 4,069,317) ($14,312,492) $ 2,328,041
-------------------------------------------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO, AS DEFINED AND INCLUDED
IN THIS FILING ON PAGES F-3 THROUGH F-13, FOR THE TWELVE MONTH FISCAL YEAR
ENDED 31 JANUARY 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> CANADIAN DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-31-1999
<EXCHANGE-RATE> 0.677
<CASH> 567,614
<SECURITIES> 0
<RECEIVABLES> 488,270
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,070,284
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,070,284
<CURRENT-LIABILITIES> 210,206
<BONDS> 3,191,000
0
0
<COMMON> 1,118,456
<OTHER-SE> (4,069,317)
<TOTAL-LIABILITY-AND-EQUITY> 1,070,284
<SALES> 585,035
<TOTAL-REVENUES> 585,035
<CGS> 461,995
<TOTAL-COSTS> 461,995
<OTHER-EXPENSES> 2,235,279
<LOSS-PROVISION> 1,069,019
<INTEREST-EXPENSE> 490,485
<INCOME-PRETAX> (4,341,952)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,341,952)
<DISCONTINUED> 0
<EXTRAORDINARY> 3,478,159
<CHANGES> 0
<NET-INCOME> (459,147)
<EPS-BASIC> (0.27)
<EPS-DILUTED> (0.03)
</TABLE>
