<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
--- -------------------
Act of 1934 for the quarterly period ended 30 April 1999 ("Q1", "First
-----------
Quarter" or "Quarter 1 of Fiscal 2000"), or
Transition report pursuant to section 13 or 15(d) of the Securities
- --- ----------
Exchange Act of 1934 for the Transition period from to
-------------------- ---------- -------.
- --------------------------------------------------------------------------------
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 the "Corporation", or "Power Plus")
- --------------------------------------------------------------------------------
Province of Alberta, Canada
(State or other jurisdiction of incorporation)
7850 Woodbine Avenue, Suite 201,
Markham, Ontario, Canada L3R 0B9
(Address of principal executive offices) (Postal Code)
905-479-5683
800-769-3733 905-479-8911
(Telephone numbers) (Fax number)
- --------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by (S)13 or (S)15(d) of the Securities Exchange Act of 1934 during
-------------------------------
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes No X
-
As of 10 June 1999, there were 16,913,389 common shares of the Registrant's
common stock (the "Common Shares" or "Common Stock") outstanding. (See ITEM 2.
Management's Discussion and Analysis of Financial Condition and Results of
- --------------------------------------------------------------------------
Operations.)
- ----------
<PAGE>
[LOGO OF POWER PLUS CORPORATION] FORM 10-Q
First Quarter of Fiscal 2000
Page 2
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Interim Financial Statements 3
Consolidated Statement of Operations
for the periods ended 30 April 1999 and 1998
Consolidated Balance Sheet as at 30 April 1999 and 31 January 1999
Consolidated Statement of Changes in FinancialPosition
for the periods ended 30 April 1999 and 1998
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of 8
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signature 17
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
First Quarter of Fiscal 2000
Page 3
Part I - Financial Information
The Company prepares its consolidated financial statements in Canadian Dollars.
In this report all references to "$" are to Canadian dollars, unless otherwise
noted.
Exchange Rates
Based on the noon buying rates for cable transfers in New York City, certified
for customs purposes by the Federal Reserve Bank of New York, the exchange rate
on 10 June 1999 was C$1.00 = US$0.68
Item 1. Interim Financial Statements
First Quarter
(period ended 30 April 1999)
Fiscal 2000
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
(Amounts are expressed in Canadian Dollars)
<TABLE>
<CAPTION>
Three-month and year-to-date
period ended 30, April
----------------------------
1999 1998
----------------------------
<S> <C> <C>
Interest revenue and sales - see Notes 1 & 5 $5,944 $469,747
Costs of sales 0 329,387
---------- -----------
Gross profit 5,944 140,360
Expenses
Operating and administration 293,340 1,823,276
Assets write-down - see Note 2 0 227,143
Financing charges payable in stock - see Note 5 79,774 251,178
Amortization 0 63,838
---------- -----------
(Loss) from operations (367,170) (2,225,075)
Defecit, beginning of period - see Note 3 4,145,098 24,320,142
---------- -----------
Deficit, end of period $4,512,268 $26,545,217
========== ===========
Earnings per share ($0.02) ($0.21)
Weighted average common shares outstanding 16,913,389 10,601,150
</TABLE>
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
First Quarter of Fiscal 2000
Page 4
CONSOLIDATED BALANCE SHEETS (unaudited)
(Amounts are expressed in Canadian Dollars)
<TABLE>
<CAPTION>
30 April 1999 31 January 1999
------------- ---------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 327,543 $ 567,614
Accounts and note receivable - see Note 4 232,494 488,270
Prepaid expenses 0 14,400
----------- -----------
$ 560,037 $ 1,070,284
=========== ===========
Liabilities
Current accounts payable and accrued liabilities $ 63,136 $ 210,206
----------- -----------
Long-term liabilities
Non-cash accrued liabilities and interest payable - see Note 699,713 619,939
10% Convertible debentures payable - see Note 5 3,191,000 3,191,000
----------- -----------
3,890,713 3,810,939
----------- -----------
3,953,849 4,021,145
----------- -----------
Shareholders' (deficiency)
Share capital - see Note 6
Authorized at no par value:
An unlimited number of common shares
An unlimited number of preferred shares
Issued: 16,913,389 common shares (1998 - 16,913,389) 1,118,456 1,118,456
Deficit - see Note 3 (4,512,268) (4,069,317)
----------- -----------
(3,393,812) (2,950,861)
----------- -----------
$ 560,037 $ 1,070,284
=========== ===========
</TABLE>
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
First Quarter of Fiscal 2000
Page 5
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION (unaudited)
(Amounts are expressed in Canadian Dollars)
<TABLE>
<CAPTION>
Three-month and year-to-date
period ended 30 April
--------------------------------
1999 1998
<S> <C> <C>
Cash provided by (used in) operating activities
(Loss) for period ($367,170) ($2,225,075)
Items not affecting cash
Asset write-down - see Note 2 0 227,143
Financing charges payable in stock - see Note 5 79,774 251,178
Amortization 0 63,838
----------- ------------
(287,396) (1,682,916)
Changes in non cash operating items
Accounts receivable 100,221 195,536
Inventory - see Note 1 0 338,443
Prepaid expenses 14,400 (26,294)
Accounts payable and accrued liabilities (147,070) 351,886
---------- ------------
(319,845) (823,345)
---------- ------------
Cash provided by (used in) financing activities
Non-cash accrued liabilities & interest payable - see Note 5 79,774 12,844
10% Convertible debenture - see Note 5 0 750,000
Issue of Common Shares 0 5,192,730
Special Notes 0 (5,020,000)
---------- ------------
79,774 935,574
---------- ------------
Cash provided by (used in) investing activities
Purchase of capital assets 0 (56,013)
---------- ------------
Increase (decrease) in cash during period (240,071) 56,216
Cash, beginning of period 567,614 147,590
---------- ------------
Cash, end of period $ 327,543 $ 203,806
========== ============
</TABLE>
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
First Quarter of Fiscal 2000
Page 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Note 1: The Consolidated Financial Statements are for the three-month year-to-
date period ended 30 April 1999, pertaining to the current fiscal year
ending 31 January 2000 ("Fiscal 2000"), and the corresponding period
ended 30 April 1998, pertaining to the fiscal year ended 31 January 1999
("Fiscal 1999"). Q1 -- Fiscal 2000 statements include the results of
operations of the Company whereas Fiscal 1999 statements include the
results of operations of Power Plus Corporation and its wholly owned
subsidiaries Power Plus USA, Inc. ("PPUSA") and Power Plus Canada, Inc.
("PPCan") only for the period during Fiscal 1999 when they were
operating under its control. Accordingly, there are no assets or
liabilities of these subsidiaries included in the balance sheets. (See
Item 2 - Management Discussion and Analysis.)
In the opinion of management, the Consolidated Balance Sheet as at 30
April 1999 and the Consolidated Statements of Operations and Changes in
Financial Position for the three-month year-to-date periods ended 30
April 1999 and 1998, include all adjustments necessary for a fair
presentation of such financial statements. Such adjustments consisted
only of normal recurring items. The preparation of financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimated.
Interim results are not necessarily indicative of results for a full
year.
The Consolidated Balance Sheet as at 30 April 1999 and the Consolidated
Statements of Operations and Changes in Financial Position for the
three-month year-to-date periods ended 30 April 1999 and 1998 are
unaudited. The Consolidated Balance Sheet for Fiscal 1999 was audited
and reported to shareholders (see the SEC FORM 10-K Registration
Statement for Fiscal 1999, as previously filed). These interim quarterly
Consolidated Financial Statements and notes do not contain certain
information included in the Company's Audited Annual Consolidated
Financial Statements and the notes thereto.
Note 2: On 31 January 1998, PPUSA made a voluntary assignment under Chapter 11
of the US Bankruptcy code and, on 29 June 1998, certain assets of PPUSA
were sold. On 8 May 1998, PPCan filed a Notice of Intention to Make a
-----------------------------
Proposal pursuant to '50.4(1) of the Bankruptcy and Insolvency Act
-------- -----------------------------
Canada ("Proposal"). Effective 30 October 1998, the shares of PPCan were
sold to a third party pursuant to the Proposal and with the approval of
both creditors and the court. At the date of sale PPCan operated six
stores and, accordingly, the Company operated no stores after the sale.
The insolvency of PPUSA and sale of PPCan resulted from the Company's
inability to continue funding start-up operations pending attaining
critical mass and profitability. Accordingly, the Q1 - Fiscal 1999
interim financial statements reflected the write-down of PPCan's assets
in the amount of $227,143 for the wind-up of PPUSA's operations, the
reduction in PPCan's operations, and reported such other accounting
adjustments that are required to conform to generally accepted
accounting principles applicable in the circumstances. The
implementation of the Proposal, including the payment of the dividend
from the fund to the creditors of PPCan, will have no future effect on
the balance sheet of the Company. (See Item 2 - Management Discussion
and Analysis.)
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
First Quarter of Fiscal 2000
Page 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited), continued
Note 3: The Company's shareholders approved at the annual general and special
shareholder meeting held on 21 January 1999 a special resolution
effective 31 January 1999 authorizing the reduction in the Company's
stated capital pursuant to (S)36 of the Business Corporations Act
-------------------------
Alberta, by an amount up to but not to exceed $20,700,000. This
reduction of stated capital was offset by a corresponding reduction of
the shareholders' deficiency. It is management's opinion, after making
the adjustment, that the balance sheet will more accurately represent
the financial repositioning of the Company resulting from the
reorganization and restructuring, and the appropriate current financial
condition of the Company.
The Company agreed to and was approved to pay a $121,230 finder's fee
in respect of funds raised. This obligation is payable in 1,212,300 new
post-conversion common shares on the basis of $0.10 per new common share
and will be paid after the share consolidation has occurred. (See note
6, below) The accrual of this non-cash cost of issue was made in Q1 -
Fiscal 2000.
Note 4: Accounts and notes receivable of $232,494 represent the BPI secured
promissory note that arose on the sale of PPCan. It is due in equal
weekly installments through July 1999 and bears interest at 10% per
annum.
Note 5: The private placement of a series of first secured and fixed and
floating charge 10% convertible debentures ("1998 Debentures") in the
maximum principal amount of up to $5,000,000, maturing on 31 January
2000, bearing interest at a rate of 10% per annum, payable semi-annually
in common shares having a deemed price of $0.85 each, and secured by way
of a first fixed and floating charge against all the assets of the
Company, was proposed and conditionally approved by shareholders,
subject to regulatory approval. The 1998 Debentures were proposed to be
convertible, in whole or in part, at the option of the holder, into
units of the Company at a conversion price of $0.85 per unit, each unit
to consist of one common share and one share purchase warrant. Pending
proceeding with the 1998 Debentures, the Company, in the interim,
executed promissory notes evidencing indebtedness in the aggregate
principal amount of $3,191,000 of unsecured loans advanced to the
Company and bearing interest on maturity at an annual rate of 10% (the
"Unsecured Loan Notes"). As a result of market conditions, during Fiscal
1999 the Company abandoned the 1998 Debentures. 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 Debenture Trust Indenture. The Unsecured Loan Notes, by
agreement with their holders, were replaced by the Debentures during Q4
-- Fiscal 1999. The Debentures are convertible, in whole or in part, on
or before maturity, at the option of the holders into common shares of
the Company at a conversion price equal to $0.10 per new post-
consolidation common share (see Note 6, below).
Accrued non-cash interest payable for Q1 - Fiscal 2000 in the amount
of $79,774 (to 31 January 1999 was $319,939) is payable in-kind at the
time of repayment or by the issuance of common shares if converted at
the option of the holders.
Note 6: The Company has received both regulator and shareholder approvals to
consolidate the Company's issued and outstanding common shares. It is
the intention of the Company to complete this 1 for 5 consolidation,
from 16,913,389 Common Shares to 3,382,677 new post-consolidation common
shares, during Q2 -- Fiscal 2000.
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
First Quarter of Fiscal 2000
Page 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
A) Corporate Overview
Investing is the priority for Power Plus Corporation, a public company dual
listed on The Alberta Stock Exchange in Canada and the Over-The-Counter
("OTC") Electronic Bulletin Board in the United States. The primary activities
of the Company fall into two categories: investing in operating companies;
and, carrying on business through subsidiary operating companies. Accordingly,
Power Plus Corporation has been the parent of subsidiaries that hire
employees, procure merchandise for resale, purchase or build capital assets
and carry on specialty retail businesses operating in Canada and the US,
primarily selling batteries and battery-related products, wireless
telecommunications products and portable fashion electronics.
The Company's earlier 1996 Reorganization Plan, PLAN 2000, was management's 5-
year business plan that prescribed how the Company proposed to roll out its
Powerful Stuff specialty niche retail business throughout North America. PLAN
2000 incorporated a detailed financing plan setting out the framework for
providing a total of $49.1 million over its initial 3 years. The timeliness
and availability of this capital, which was being raised through the junior
public capital markets in Canada, was critical to the success of PLAN 2000.
This capital was vital to the Company's growth, but its availability was
dependent upon macroeconomic factors outside the Company's control. The goal
was critical mass, that point when adequate retail outlets were open,
operational and achieving at least annualized breakeven cash flow - at which
time the business could be financially self-sustaining. Beyond this, the
projected cash flow from store profit could ultimately make the Company's
growth internally funded.
With the Company's biggest challenge being the availability of capital,
management could not have foreseen the adversity represented by the
devastation to the junior capital markets in Canada during 1997, afflicted
with the BREX Resources mining scandal and infected by the decline of the
Asian markets. These debilitating circumstances were exacerbated by the
substantial devaluation of the Canadian against the US Dollar, especially
critical in light of PLAN 2000's emphasis on US expansion and the burdensome
appetite for US currency but whose capital was being raised in Canadian
dollars. Despite management's best efforts to act responsibly during this
period of uncertainty, these times ultimately called for strong preservation
measures. Consequently, on 31 January 1998 PPUSA sought protection under
Chapter 11 of the US Bankruptcy Code. PPUSA remained in possession of its
---------------
assets. With no expectation of any short-term improvement in this crisis, the
Company subsequently announced on 8 May 1998, that PPCan/1/ had also sought
protection from creditors by filing a Proposal under the Bankruptcy and
--------------
Insolvency Act Canada. PPCan remained in possession of its assets pending a
--------------
determination as to whether the operations could be refinanced or sold as a
going concern.
The Canadian junior capital markets only continued to deteriorate, so despite
the Company's efforts, the prospects of refinancing became unrealistic. As a
result, on 29 June 1998, the Company realized its security pertaining to the
indebtedness of PPUSA and foreclosed on its remaining assets and sold them,
including its list of pager customers, and ceased carrying on business in the
US. On 26 November 1998, the Company sold the shares of PPCan and certain
related intellectual properties to an arm's-length third party that conducts a
similar business in Canada. The sale was made pursuant to a share purchase
agreement dated 30 October 1998, between the Company, as vendor, and Battery
Plus Inc. ("BPI"), as purchaser.
- ---------------------
/1/ Since its acquisition in December 1988, PPCan, formerly 385729 Alberta Inc.,
had been inactive and did not commence to carry on business until September
1996.
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
First Quarter of Fiscal 2000
Page 9
All of the Company's retail operations in Canada and the US had been conducted
through PPCan and PPUSA and all of the capital assets employed in carrying on
the retail business were owned by them. Accordingly, and as reported in the
previously filed FORM 10-K Registration Statement for Fiscal 1999, the Company
no longer has any retail operations nor operating assets. The Company is
currently undergoing reorganization, implementing its 1999 Reorganization
Plan. In summary, the shareholders resolved as to the following matters:
1. To change the name of the Company to PPC Capital Corp;
2. To authorize the consolidation of the common shares of the Company on the
basis of one (1) common share for each five (5) common shares heretofore
outstanding;
3. To authorize a reduction of the stated capital of the Company by up to
$20,700.000;
4. To authorize the conversion of secured debt of the Company in an amount of
up to $5,000,000 into post-consolidation common shares of the Company at a
conversion price of $0.10 per post-consolidation common share;
5. To authorize the conversion of certain other debts of the Company in an
amount of up to $340,000 into post-consolidation common shares at a
conversion price of $0.10 per post-consolidation share; and,
6. To approve the payment of a finder's fee in the amount of $121,230 by
issuing up to 1,212,300 post-consolidation common shares at a conversion
price of $0.10 per post-consolidation common share.
While management cannot give any assurances as to the future outlook for the
Company, conditional regulatory approval to the 1999 Reorganization Plan was
granted on 29 April 1999 and over the next three months, the Company will be
proceeding to implement its plan and seek a professional opinion as to the
extent and applicability of the Company's substantial tax loss carry forwards.
Upon implementation of the 1999 Reorganization Plan and finalization of the
Company's tax opinion, management intends to aggressively pursue diversified
investment opportunities targeting to maximize shareholder value. In
management's opinion, the Company's tax loss carry forwards are expected to
represent a significant asset for the Company which will be material in
attracting a suitable candidate for purposes of restructuring its business
affairs.
In the circumstances of these reorganizational proceedings and as previously
reported, The Alberta Stock Exchange conducted a review of the financial
affairs of the Company to ascertain whether the Company was maintaining
continued listing requirements. The Exchange determined that the Company,
having divested what the Exchange considered to be substantially all of its
operating assets, did not meet the continued listing requirements and,
therefore, trading of the Company's shares was suspended at the close of
business on 30 April 1999. The Company, however, is in no way impaired from
continuing with its day-to-day operations, implementing the 1999
Reorganization Plan and seeking out new investment opportunities. The trading
in shares of Alberta issuers is typically halted for extended periods pending
closure of transactions by way of reverse take-over. The Company has been
allowed until 31 December 1999 to satisfy The Exchange that upon
implementation of its 1999 Reorganization Plan it has resumed compliance with
minimum listing requirements. Failure to comply within this reactivation
period would result in the Company's shares being delisted from The Alberta
Stock Exchange.
- ------------------
/2/ See Note 10 in the Notes to the audited Annual Consolidated Financial
Statements, in the FORM 10-K - Fiscal 1999.
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
First Quarter of Fiscal 2000
Page 10
B) Results of Operations
1) Q1 - Fiscal 2000
In accordance with foregoing, the Company continued in its role as an
investment banker and, as previously reported, is currently seeking new
investment opportunities. During Q1 - Fiscal 2000 the Company did not own
any active subsidiary companies. Conformably, the Company's interim
financial statements for Q1 -- Fiscal 2000 report the revenue and expenses
of essentially the parent company's activities only and, that while the
Company has positive working capital it has no long-term assets.
Accordingly, comparison to prior years, and in-depth discussion and
analysis are meaningless and unwarranted. In the circumstances, therefore,
these financial statements are not comparable to financial statements from
previous periods. Notwithstanding, the following limited discussion and
analysis should be read in conjunction with the previously filed audited
Annual Consolidated Financial Statements and the Notes thereto contained in
the SEC FORM 10K - Fiscal 1999 filing, representing the year ended 31
January 1999.
Consideration of Q1 business results for Fiscal 2000 and Fiscal 1999
The following table highlights items reflected in the Company's unaudited
consolidated statement of operations expressed as percentages of sales:
<TABLE>
<CAPTION>
Expressed as a
Percentage of Interest
Revenue and Sales
(period ended 30 April)
Three months
---------------------------------
1999 1998
---------------------------------
<S> <C> <C>
Cost of sales N/A 70.1%
Operating, occupancy & administrative expenses 6277.2% 503.6%
Net loss 6277.2% 473.7%
</TABLE>
The materiality of the operating results of the Company's subsidiaries that
operated retail businesses compared to the business results of the parent
company that operated as an investment banker, meant that measurement,
reporting and comparison of business results historically focused on the
retail operations that were materially more significant than the Company's
investing activities. The significant change between periods reflects the
significant transition of the Company's focus, as discussed above, and as
reflected by abandoning the US subsidiary and selling the Canadian
subsidiary. The changes reported for Q1 -- Fiscal 1999 reflected an
unfavorable increase in cost of sales and decrease in gross profit, which
resulted principally for these reasons:
. PPUSA was operated as a discontinued business since the beginning of
Fiscal 1999 and until it ceased carrying on business in June 1998;
. during Fiscal 1999, PPCan retrenched and was operated on a pared-down
basis, pending and until its sale in November 1998;
. the negative impact of establishing accounting reserves and adjustments
to fair market values for inventory and capital assets carrying values
were included in the Fiscal 1999 accounts in anticipation of the closure
of PPUSA and sale of PPCan; and,
. the deteriorating gross profit and increasing diseconomy reflected the
Company's inability to purchase merchandise inventory to sustain
reasonable sales levels at the stores, in accordance with normal
industry practice.
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
First Quarter of Fiscal 2000
Page 11
Declining sales reported for Q1 -- Fiscal 1999 meant store operating
overhead was uneconomic because both the cost of direct labor and store
rent, which were fixed costs incurred as long as a location was open, were
too onerous, especially in light of the decreasing gross profit.
The magnitude of reduction reported for Q1 -- Fiscal 1999 in Operating and
Administration Expenses was partially nullified by accounting adjustments
for reserves made primarily to PPUSA's balance sheet in concert with its
Chapter 11 filing and PPCan's balance sheet to reflect the fair market
value of its assets. In addition, the professional fees for winding up
PPUSA and the sale of PPCan, and termination/severance payments to
employees were incurred therewith.
Accordingly, Q1 -- Fiscal 1999 Consolidated Financial Statements include
the accounts of the Company, PPUSA and PPCan and report the results of the
discontinued and sold operations. All significant intercompany accounts and
transactions between the Company and the subsidiaries were eliminated.
No corporate income taxes were payable in Q1 -- Fiscal 2000. Management
expects the amount of accrued income tax losses, being carried forward and
available for sheltering future business income accruing from Fiscal 1999,
approximates $22 million, and is not reported in the Consolidated Balance
Sheet./3/
2) Q1 - Fiscal 1999
The Company began Fiscal 1999 in a precarious posture. PPUSA was operating
under Chapter 11 and PPCan was seriously underfunded. As the Canadian
junior capital markets continued to deteriorate, the prospects of
refinancing the Company's subsidiaries became unrealistic. As a result, on
29 June 1998, the Company realized its security pertaining to the
indebtedness of PPUSA and foreclosed on the remaining assets of PPUSA and
sold them, including its list of pager customers. The remaining capital
assets of PPUSA, consisting primarily of store fixtures and leasehold
improvements, were abandoned where situated in various locations to offset
existing liabilities to landlords. PPUSA, discharged from its Chapter 11
Petition, ceased carrying on business.
On 26 November 1998, the Company sold its shares of PPCan and certain
related intellectual properties to BPI pursuant to a share purchase
agreement dated 30 October 1998. On 11 September 1998, the creditors of
PPCan accepted the offer made to them under the Proposal and the required
court approval was subsequently obtained by order dated 7 October 1998,
satisfying certain pre-conditions to the sale to BPI. As a result of the
Proposal and the completion of the sale to BPI, all claims of the creditors
of PPCan as compromised were fully satisfied.
All of the Company's retail operations in Canada and the US were conducted
through PPCan and PPUSA and all of the capital assets employed in carrying
on the retail business were owned by them. Accordingly, the Company as of
30 October 1998 no longer had any retail operations or operating assets.
C) Liquidity and Capital Resources
The FORM 10-K Registration Statement for Fiscal 1999 includes more detailed
discussion concerning changes to and arising from both the 1999
Reorganization Plan and the 1996 Reorganization Plan. All financing in
accordance with the 1996 Reorganization Plan concluded on 30 September 1998,
commensurate with the expiring of the entitlements formerly attached to
Warrants (see below). During Fiscal 1999, the Company converted both the
Bridge Loan Notes and Special Notes into Common Shares. As well, the Notes to
--------
the Consolidated Financial Statements (unaudited) included with these
-------------------------------------
/3/ See Footnote 2, IBID.
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
First Quarter of Fiscal 2000
Page 12
materials include particular details pertaining to current activity. Please
also see (S)5 -- Summary of changes to shares and share capital, below.
-----------------------------------------------------
1) 1996 Special Warrant Private Placement Financing
During Fiscal 1997, according to the 1996 Reorganization Plan, the Company
completed the 1996 Special Warrant Private Placement Financing (the "1996
Special Warrants") of $4.5 million representing an aggregate of 2.25
million 1996 Special Warrants. Each 1996 Special Warrant was converted at
no additional consideration into one Common Share on 31 January 1997, plus
one Class B Warrant. This warrant consisted of two entitlements: firstly,
entitling holders to acquire up to an aggregate of 2.25 million Common
Shares; and, secondly, and subject to the exercise of the Class B Warrant,
a collateral Class BB Warrant, entitling holders to acquire up to an
aggregate of a further 2.25 million Common Shares. The 1996 Special Warrant
financing terms provided that the Company would incur a 10% penalty payable
by the issuance of 225,000 additional 1996 Special Warrants to the holders
of the 1996 Special Warrants. The penalty was incurred. (See (S)3 and (S)5
below for details about exercise, dilution and funds raised.)
2) Fiscal 1997 Share Capital Reorganization & Consolidation and Exchange
Rights Entitlements
The reorganization and consolidation of the Company's outstanding share
capital, according to the 1996 Reorganization Plan. In general terms, the
Company reorganized and consolidated all of its issued old shares (of which
44,765,613 pre-consolidation shares had been issued and outstanding as of
1 November 1996) on the basis of every 20 old shares before consolidation
being reorganized and consolidated into one consolidated Common Share (that
is 2,238,281 post-consolidated Common Shares) and one Exchange Right. Under
the terms of this consolidation, each consolidated Common Share had
attached to it one exchange entitlement (the "Exchange Rights") to purchase
one unit of the Company's equity (the "Exchange Rights Units") at an
exercise price of $2.00 per unit on or before 31 January 1997. Effective 31
January 1997, all the Exchange Rights were converted and the Company
received $4,476,562 in new capital. Each Exchange Rights Unit consisted of
one Common Share plus one purchase warrant, hereinafter referred to as the
Class A Warrants. The Class A Warrants consisted of two entitlements:
firstly, entitling holders to purchase 2,238,281 Common Shares; and,
secondly, conditional upon the exercise of the Class A Warrant, a
collateral warrant, the Class AA Warrant, that entitled holders to purchase
up to an aggregate of a further 2,238,281 Common Shares of the Company.
(See (S)3 & (S)5 below for more details concerning exercise, dilution and
funds raised.)
3) Approval of Amendment to Certain Terms of the Class A, AA, B and BB
Warrants
The Company obtained shareholder approval on 30 January 1998 to amend the
conversion price of all outstanding warrants to $1.25 per common share and
to extend the period of time for exercise of such outstanding warrants. All
other terms and conditions remained the same. However, despite the best
efforts of management, because of the ongoing degeneration of the junior
capital markets no additional warrants were exercised and no additional
capital was raised. Accordingly, all entitlements attributed to these
warrants expired 30 September 1998.
4) Special Notes convertible debt financing
In March 1996, in accordance with the 1996 Reorganization Plan, the Company
received approval for a $6 million 5-year 10% Special Note private
placement offering which was subsequently increased by $5 million in June
1997 to become $11 million 10% Special Notes. During Fiscal 1997, the
Company completed a $6 million placement in two closings. Each $1,000
principal amount of Special Notes was converted into an equivalent
principal amount of 5-year 10% convertible fixed and floating secured
debentures that were fully secured by all the assets of the Company.
- -------------------
/4/ All references in this FORM 10K are to Common Shares outstanding post-
consolidation that occurred during Fiscal 1997.
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
First Quarter of Fiscal 2000
Page 13
On 24 April 1998, the Company converted the $6 million Special Notes, plus
accrued and unpaid interest thereon, into 5,080,767 Common Shares at $1.25
per Common Share. (See (S)5 -- Summary of changes to shares and share
--------------------------------------
capital, below.)
-------
5) Summary of changes to shares and share capital
The table depicts the changes to share capital following from the 1996
Reorganization Plan and to the date hereof.
<TABLE>
<CAPTION>
Shares Capital Timing
---------- ------- --------
($ amounts are expressed in Canadian Dollars in millions; assumes maximum dilution) Completed
---------
<S> <C> <C> <C>
i Consolidated, beginning share capitalization (from 44,765,613 shares on 20:1 basis):
a.) Post-consolidation number of Common Shares 2,238,281 $ 0.0 FY 1997
b.) Capital raised from Exchange Right Units that
included Class A & AA Warrants:
i) Exchange Rights Unit converted into 1 Common 2,238,281 $ 4.5 FY 1997
Share at $2.00 & 1 Class A Warrant
ii) Class A Warrants exercised to purchase 1 197,456 $ 0.4 FY 1998
Common Share @ $2.00 and receive 1 Class AA Warrant
(Balance of Class A Warrants expired unexercised.)
iii) Class AA Warrants exercised to purchase 1 4,246 $ 0.0 FY 1998
Common Share @ $2.50 (Balance of Class AA Warrants
expired unexercised.)
iv) Agent's Option to purchase 225,000 Common 225,000 $ 0.5 FY 1997
Shares at $2.00 and receive equal number of Agent's
Option Class A Warrants
ii 1996 Special Warrant Private Placement Financing
a.) Special Warrants for $2.00 that were exchanged 2,250,000 $ 4.5 FY 1997
during first quarter of Fiscal 1998 for Common
Shares and an equivalent number of Class B Warrants
b.) Class B Warrants exercised to purchase one Common 687,500 $ 1.3 FY 1998
Share at $2.00 and 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 225,000 $ 0.0 FY 1997
Shares at no cost and 255,000 Class B Penalty
Warrants. (Exercised Class B Warrants included
above.)
iii Conversions of Debts into Common Shares at $1.25 per share
a.) $6 million - Special Notes (see (S)3(b)(v) - 5,080,767 $ 6.0 FY 1999
Special Notes convertible debt financing, above)
b.) $4.1 million -- Bridge Loan Notes (see (S)3(a)(ii) 3,771,858 $ 4.1 FY 1999
- Financing actions and changes during Fiscal 1999,
above)
v Number of Shares, fully diluted (1) / Cash Capital Raised 16,913,389 $22.0
vi Convertible indebtedness - future potential dilution
a.) $3 million - Secured Debt (see (S)3(b)(I) - FY 2000
Conversion of Secured Debt, below)
(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>
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
First Quarter of Fiscal 2000
Page 14
6) Stated Capital Reduction
As proposed in the 1999 Reorganization Plan, the Company's shareholders
approved at the annual general and special shareholder meeting held on 21
January 1999 a special resolution effective 31 January 1999 authorizing the
reduction in the stated capital of the Company pursuant to (S)36 of the
Business Corporations Act Alberta, by reducing the stated capital of the
-------------------------
Common Shares by an amount up to but not to exceed $20,700,000. This
reduction of stated capital of the Common Shares also reduced shareholders'
deficiency by the same amount. It is management's opinion, after making the
adjustment, that the balance sheet will more accurately represent the
financial repositioning of the Company resulting from the reorganization
and restructuring, and the appropriate current financial condition of the
Company.
A reduction of the stated capital will have no immediate tax consequences
to a holder of Common Shares. The reduction of stated capital might have an
effect, in certain circumstances, if the Company is wound up or makes a
distribution to its shareholders, or when the Company redeems, cancels or
acquires its Common Shares. As a general rule, upon such transactions, the
holder of Common Shares will be deemed to have received a dividend to the
extent that the amount paid or distributed exceeds these stated capital of
its Common Shares.
7) Consolidation of Share Capital
At the special meeting of shareholders of the Company held on 30 January
1998, the shareholders of the Company approved a resolution approving the
consolidation of the Company's issued and outstanding common shares on a
ratio of one new common share for up to each five common shares
outstanding. In accordance with the 1999 Reorganization Plan, as approved
at the 21 January 1999 meeting of the shareholders, and as approved by The
Alberta Stock Exchange, it is the intention of the Company to complete this
consolidation from the 16,913,389 common shares outstanding to 3,382,677
post-consolidation common shares during Q2 -- Fiscal 2000.
8) Conversion of Secured Debt
i) At the special meeting of shareholders held on 30 January 1998, the
Company's shareholders approved, subject to regulatory approval, the
private placement of a series of first secured and fixed and floating
charge 10% convertible debentures ("1998 Debentures") in the maximum
principal amount of up to $5,000,000. The 1998 Debentures were proposed to
mature on 31 January 2000, bearing interest at a rate of 10% per annum,
payable semi-annually in common shares having a deemed price of $0.85 each,
and secured by way of a first fixed and floating charge against all the
assets of the Company. The 1998 Debentures were proposed to be convertible,
in whole or in part, at the option of the holder, into units of the Company
at a conversion price of $0.85 per unit, each unit to consist of one common
share and one share purchase warrant. Pending proceeding with the 1998
Debentures, the Company, in the interim, executed promissory notes
evidencing indebtedness in the aggregate principal amount of $3,191,000 of
unsecured loans advanced to the Company and bearing interest on maturity at
an annual rate of 10% (the "Unsecured Loan Notes"). As a result of market
conditions, the Company abandoned the 1998 Debentures. Subsequently, the
Company created a debenture trust indenture (the "Debenture Trust
Indenture") dated 30 September 1998, providing for the issuance of a series
of 10% fixed and floating charge secured debentures in the principal sum
not to exceed $5,000,000, due 31 January 2000 (the "Debentures"), and
pledged all present and future debts, liabilities and obligations of the
Company under the Debenture Trust Indenture. The Unsecured Loan Notes, by
agreement with their holders, were replaced by the Debentures during Q4 --
Fiscal 1999. Management considered it desirable to provide for the
convertibility of the Debentures, including all principal amounts advanced
thereunder and interest accruing thereon, into Common Shares of the Company
on the basis that the Debentures will be convertible,
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
First Quarter of Fiscal 2000
Page 15
in whole or in part, on or before maturity, at the option of the holders,
into common shares of the Company at a conversion price equal to $0.10 per
post-consolidation common share (see (S)7 -- Consolidation of Share
----------------------
Capital, above). In view of the fact that the possible aggregate issuance
-------
of Common Shares issuable upon conversion of the Debentures represents over
25% of the Company's Common Shares currently issued and outstanding,
shareholder approval was obtained at the 21 January 1999 meeting of the
shareholders. The required approval of The Alberta Stock Exchange was
granted on 29 April 1999.
ii) At the special meeting of shareholders held on 30 January 1998, the
Company's shareholders approved the implementation of a four-tiered revised
corporate finance plan, including reasonable fiscal advisory and finder's
fees and commissions. The Company and Roxborough Holdings Limited (the
"Finder") agreed to a finder's fee arrangement (the "Finder's Fee
Agreement") in respect of funds raised through the efforts of the Finder,
pursuant to which the Company has accrued that will pay the Finder a fee
equal to 10% of the first $300,000 of funds raised, and thereafter 7.5% of
funds raised between $300,000 and $1,000,000, and 5% of funds raised over
$1,000,000. To date the Finder arranged funds of $3,191,000, pursuant to
which the Company is obligated to pay the Finder a fee of $121,230 (the
"Finder's Fee"). Management obtained the approval of the shareholders at
the meeting of shareholders held on 21 January 1999, and subsequent
regulatory approval, to pay the Finder's Fee in full by converting it into
post-consolidation common shares of the Company on the basis of a
conversion price of $0.10 per post-consolidation share, or 1,212,300 post-
consolidation common (see (S)7 -- Consolidation of Share Capital, above).
------------------------------
The accrual of the non-cash cost of issue was made in Q1 - Fiscal 2000.
The Company has neither any share purchase warrants, nor options to purchase
shares granted to any officers, directors, employees, advisors or consultants
to the Company, which remain or are outstanding as of the date hereof.
Commencing in Fiscal 1996, all securities, including the Special Notes that
were converted into Common Shares, were sold by private placement to
accredited investors in Canada. These securities were issued pursuant to the
governing securities laws in the applicable governing jurisdictions in Canada
but were not registered or sold principally in the US. Sales of the securities
in the US were made in reliance upon the exemption from registration contained
in (S)4(2) of the Securities Act of 1933, as amended.
----------------------
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
First Quarter of Fiscal 2000
Page 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The following summarizes, to the best of management's knowledge, potential,
pending or known legal proceedings and litigation, arising primarily from
transactions between third parties and one or both of PPUSA and PPCan, in
all considered ordinary routine litigation incidental to the business.
a) CDA Industries Inc., a Canadian company and manufacturer and supplier
of store fixtures, commenced an action in the Ontario Court against the
Company for the payment of alleged unpaid amounts due from either or
both PPCan and PPUSA. The Company has disputed this claim considering
it without merit and will vigorously defend it as required and advised.
b) PageMart Canada Limited, a Canadian company and former supplier of
airtime to PPCan was sued by PPCan in the Ontario Court for non-
performance. PageMart countersued the Company in response, alleging it
was owed certain amounts for services rendered by it to PPCan and for
breach of contract. The Company has disputed PageMart's claim
considering it without merit, and will vigorously defend it as required
and advised.
c) Management is informed of claims that may have been made against PPUSA
in the United States, after PPUSA ceased carrying on business, by
landlords pertaining to store premises leased by PPUSA. The details of
these claims are undetermined as of the date hereof, and there is the
possibility that collateral claims may have been made against the
Company. The Company has retained US counsel to advise management and
will take all steps necessary and required.
In management's opinion, and to the best of its knowledge, none of these
potential, pending or known routine legal proceedings are expected to have
any material impact on future operating results or the financial condition
of the Company.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
a.) Exhibits
Exhibit 27 -- Financial data schedule
b.) Reports on Form 8-K
None
<PAGE>
POWER PLUS CORPORATION FORM 10-Q
First Quarter of Fiscal 2000
Page 17
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
-------------------------------
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Power Plus Corporation
Date: 14 June 1999 /s/ R. Bruce Freeman
--------------------------------
R. Bruce Freeman
Vice Chairman and Chief Financial Officer
(Duly authorized officer of the Registrant
and its chief financial officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO (UNAUDITED), AS DEFINED AND
INCLUDED IN THIS FILING ON PAGES 3 THROUGH 7, FOR THE THREE MONTH PERIOD ENDED
30 APRIL 1999 AND IS QUALIFIED BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> CANADIAN DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> APR-30-1999
<EXCHANGE-RATE> 0.68
<CASH> 327,543
<SECURITIES> 0
<RECEIVABLES> 232,494
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 560,037
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 560,037
<CURRENT-LIABILITIES> 63,136
<BONDS> 3,890,713
0
0
<COMMON> 1,118,456
<OTHER-SE> (4,512,268)
<TOTAL-LIABILITY-AND-EQUITY> 560,037
<SALES> 5,944
<TOTAL-REVENUES> 5,944
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 293,340
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 79,774
<INCOME-PRETAX> (367,170)
<INCOME-TAX> 0
<INCOME-CONTINUING> (367,170)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (367,170)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
