<PAGE>
SECURITIES AND EXCHANGE COMMISSION
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 2000
-------
("Fiscal 2000").
--------------------------------------------------------------------------------
Commission file number 0-18163 CUSIP number 693501 10 8
--------------------------------------------------------------------------------
PPC Capital Corp
(Exact Name of Registrant as Specified in its Charter)
(the "Registrant", or the "Company", or the "Corporation")
<TABLE>
<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
Securities registered pursuant to Section 12(g) of the Act: Common Stock, no
par value
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 30 May 2000, the aggregate market value of the voting stock of the
registrant held by non-affiliates was approximately $330,000 based upon the
closing price of the shares on the Over-The-Counter ("OTC-BB") Electronic
Bulletin Board in the US trading activity report/trading activity report/trading
quote summary PRPS of $0.02 per share. As of such date, 16,913,389 common shares
of the Registrant's common stock (the "Common Shares" or "Common Stock") were
outstanding.
Documents Incorporated by Reference: None.
<PAGE>
PPC Capital Corp FORM 10-K
Fiscal Year End 2000
Page 2
Basis of Presentation
The Company prepares its consolidated financial statements in Canadian dollars.
In this report all references to "$" 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 30 May 2000 was C$1 = US$0.67. For additional information on exchange rates
see ITEM 6 -- Selected Financial Data - Exchange Rates.
----------------------------------------
<PAGE>
PPC Capital Corp FORM 10-K
Fiscal Year End 2000
Page 3
PART I
ITEM 1 -- BUSINESS
Investing is the priority for PPC Capital Corp, formerly named Power Plus
Corporation, a public company currently delisted on the Canadian Venture
Exchange ("CDNX")/1/ in Canada/2/ and trading on the OTC - BB 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, the Company has been the parent of
subsidiaries that hire employees, procured merchandise for resale, purchased or
built capital assets and carried on business./3/ Since its inception, the
Company 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
The Company 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 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/ Effective 29 November 1999 the Canadian Venture Exchange ("CDNX") commenced
operations as a result of the merger of the Vancouver Stock Exchange and
The Alberta Stock Exchange.
/2/ The Alberta Stock Exchange halted the trading of the Company's shares
effective 30 April 1999.
/3/ 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.
<PAGE>
PPC Capital Corp FORM 10-K
Fiscal Year End 2000
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"). 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.)
---------------------------------------------
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
_____________________________
/4/ The 1996 Reorganization Plan was conceived during Fiscal 1996 and
subsequently fleshed 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.
<PAGE>
PPC Capital Corp FORM 10-K
Fiscal Year End 2000
Page 5
on the retail businesses. Accordingly, at 31 October 1998 the Company had
neither ongoing retail operations nor operating assets.
Notwithstanding reorganizational proceedings underway since, the Company 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. The Company changed its name to PPC Capital Corp
effective 26 August 1999. Other reorganizational matters are pending in the
discretion of management which 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/5/ for the Company which could 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, CDNX has conducted a review of the financial affairs of the Company to
ascertain whether the Company was maintaining continued listing requirements.
CDNX determined that the Company, having divested what it considered to be
substantially all of its operating assets, did not meet the continued listing
requirements. Therefore, trading of the Company's shares was initially suspended
at the close of business on 30 April 1999 and on 31 May 2000 the securities were
delisted from CDNX. 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. It is open to the Company to make an application
for relisting when it is in a position to meet CDNX requirements.
_____________________________
/5/ See Note 7 in the Notes to the audited Consolidated Financial Statements -
Fiscal 2000, included herein.
<PAGE>
PPC Capital Corp FORM 10-K
Fiscal Year End 2000
Page 6
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 $4,000.
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. There has been
no activity on this matter in over a year and no further action is planned.
2) Management is informed of a claim that may have been made against PPUSA in
the United States, after PPUSA ceased carrying on business, by a landlord
pertaining to store premises leased by PPUSA. The details of the claim 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>
PPC Capital Corp FORM 10-K
Fiscal Year End 2000
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 formerly
traded under the symbol PPC was delisted from trading on the Canadian Venture
Exchange ("CDNX"), Province of Alberta, Canada, effective 31 May 2000, as
described herein before in ITEM 1, CDNX commenced operations on Monday 29
November 1999. CDNX is the result of the merger of The Alberta Stock Exchange
and the Vancouver Stock Exchange. All companies listed on these exchanges at 26
November 1999 were listed on CDNX on 29 November 1999. 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 OTC-BB formerly 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 previous name change to The Company, 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 proposed 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. When implemented, this 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 CDNX for the periods set out and expressed in
Canadian dollars:
<TABLE>
<CAPTION>
Fiscal 2000 Fiscal 1999 Fiscal 1998
----------- ----------- -----------
High Low High Low High Low
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
1st Quarter $0.50 $0.10 $0.50 $0.10 $3.75 $1.00
2nd Quarter Shares halted from trading $0.13 $0.03 $2.00 $1.20
effective 1 May 1999, the
beginning of Q2.
3rd Quarter $0.03 $0.01 $1.30 $0.75
4th Quarter $0.03 $0.01 $0.85 $0.30
</TABLE>
<PAGE>
PPC CAPITAL CORP FORM 10-K
Fiscal Year End 2000
Page 8
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 U S
Dollars:
Fiscal 2000 Fiscal 1999 Fiscal 1998
----------- ----------- -----------
High Low High Low High Low
---- --- ---- --- ---- ---
1st Quarter $0.08 $0.01 $0.33 $0.03 $2.69 $0.72
2nd Quarter $0.15 $0.01 $0.09 $0.01 $1.44 $0.86
3rd Quarter $0.01 $0.01 $0.01 $0.01 $0.93 $0.54
4th Quarter $0.08 $0.01 $0.01 $0.01 $0.61 $0.22
Because agents hold a substantial number of Common Shares 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.
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>
PPC CAPITAL CORP FORM 10-K
Fiscal Year End 2000
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
There were no sales of unregistered securities during Fiscal 2000. As pertains
to prior years, please 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>
PPC CAPITAL CORP FORM 10-K
Fiscal Year End 2000
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 2000, Fiscal 1999, Fiscal 1998, Fiscal 1997 and Fiscal 1996.
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>
FYE 31 January
2000 1999/(3)/,/(4)/ 1998 1997/(2)/ 1996
---- ---- ---- ---- ----
Statement Of Operations Data:
<S> <C> <C> <C> <C> <C>
Total revenue $23,290 $585,035 $8,049,418 $4,080,598 $5,375,229
Net (loss) ($975,938) ($4,541,551) ($19,099,911) ($5,547,427) ($4,541,551)
Net (loss) per share ($0.06) ($0.03) ($3.04) ($2.54) ($2.50)
Balance Sheet Data:
Total assets $202,193 $1,070,284 $3,404,568 $11,043,854 $330,035
Working capital $127,529 $860,078 ($3,657,152) $4,033,127 ($422,159)
Long-term liabilities $4,054,328 $3,810,939 $11,764,194 $4,740,000 NIL
Total liabilities $4,128,992 $4,021,145 $16,737,060 $7,455,813 $507,208
Common shareholders'
equity / (deficiency) ($3,926,799) ($2,950,861) ($13,332,492) $3,588,041 ($177,173)
</TABLE>
(1) To date, the Company has not paid dividends on its Common Shares.
(2) 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 for the financial reporting of
FYE 1997.
(3) 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.)
---------------------------------------------
(4) In accordance with the 1999 Reorganization Plan, the stated capital amount
and accumulated deficiency in earnings were both reduced by $20,700,000, to
better reflect the financial repositioning of the Company. (See also ITEM 7
-- Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations for more discussion concerning Stated Capital Reduction.)
-------------
Exchange Rates
The following table sets forth, for the periods and dates indicated, certain
information currents he concerning exchange rates of United States and Canadian
Dollars. All figures shown represent noon buying rates for cable transfers in
New York City, certified for customs purposes by the Federal Reserve Bank of New
York. The sources of this data are the Federal Reserve Bulletin and the
International Financial Statistics prepared by the Bureau of Statistics of the
International Monetary Fund.
<PAGE>
PPC CAPITAL CORP FORM 10-K
Fiscal Year End 2000
Page 11
<TABLE>
<CAPTION>
C$ 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>
2000 $1.53 $0.65 $1.43 $0.70 $1.48 $0.68 $1.45 $0.69
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
</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, which is 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 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
--------------
<PAGE>
PPC CAPITAL CORP FORM 10-K
Fiscal Year End 2000
Page 12
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 reorganization, implementing its
1999 Reorganization Plan, as described in detail herein (see ITEM 1 -
Business).
--------
2) Results of Operations
a) Fiscal 2000
The Company continued the process of resolving matters arising from the
reorganization of its business pursuant to the sale of PPCan and
cessation of the business of PPUSA. The Company continued to lend money
to operating businesses and seeks new opportunities. Management intends
to aggressively pursue diversified investment opportunities targeting to
maximize shareholder value. In management's opinion, the Company's tax
loss carry forwards that are approximately $44million represent a
significant asset/6/ for the Company which will be material in
attracting a suitable candidate for purposes of restructuring its
business affairs.
Accordingly, its business during Fiscal 2000 was substantially pared-
down and also not directly comparable to the consolidated results of
previous years.
Comparison of business results for Fiscal 2000, Fiscal 1999 and Fiscal
1998
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
--------------
2000 1999 1998
---- ----- -----
<S> <C> <C> <C>
Cost of sales 0% 79.0% 81.5%
Operating, occupancy & administrative expenses 4090% 763.2% 255.3%
Net loss 4080% 78.5% 237.3%
Operating and administrative expenses include write-off of assets abandoned in 1999 and 1998.
</TABLE>
The unfavorable increase in the Operating expenses ratio is a statistical
anomaly that fails to convey the absolute decrease in amounts expended and
arises because of the signifi
__________________________
/6/ See Note 7 in the Notes to the audited Consolidated Financial Statements -
Fiscal 2000, included herein.
<PAGE>
PPC CAPITAL CORP FORM 10-K
Fiscal Year End 2000
Page 13
cant decrease in revenue compared to expenses resulting mostly from the
accrual non-cash interest payable and the accrual of non-cash fee paid for
the refinancing and extension of the 10% Convertible Debenture, which is
payable in Common Stock, and professional fees.
No corporate income taxes were payable in Fiscal 2000. Management expects
the amount of accrued income tax losses, being carried forward and
available for sheltering future business income arising from Fiscal 2000 to
exceed $44million. This amount is not reported in the Audited Consolidated
Balance Sheet but is disclosed in Note 7 of the Notes to the Financial
Statements, included herein.
b) 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.
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.
From the Comparison table above, 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;
----------------
/7/ The Company is the first secured and largest creditor of both PPUSA and
PPCan.
<PAGE>
PPC CAPITAL CORP FORM 10-K
Fiscal Year End 2000
Page 14
. 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.
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.
c) 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.
<PAGE>
PPC Capital Corp FORM 10-K
Fiscal Year End 2000
Page 15
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
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.
3) Financial Condition, Liquidity and Capital Resources
a) The Company negotiated the extension of the maturity of the 10%
Convertible Debentures for an additional two years on the same terms
and conditions. The 10% Convertible Debentures, for a maximum principal
amount of up to $5,000,000, are a first secured and fixed and floating
charge, maturing on 31 January 2002 (extended on the same terms and
conditions from those that would have matured on 31 January 2000),
bearing interest at a rate of 10% per annum payable semi-annually in
common shares. The Convertible Debentures, including all principal
amounts advance thereunder and interest accruing thereon, may be
converted, in whole or in part, on or before maturity, at the option of
the
____________________
/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.
/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>
PPC Capital Corp FORM 10-K
Fiscal Year End 2000
Page 16
holders, into common shares of the Company at a conversion price equal
to $0.10 per post-consolidation common share.
b) 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.
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.
iii) The Company executed promissory notes evidencing indebtedness in
the aggregate principal amount of $3,191,000 of unsecured loans
advanced as at FYE 2000 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 (a) above.
iv) 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 during
Fiscal 2000.
v) 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.
c) Stated Capital Reduction
As proposed in the 1999 Reorganization Plan, the Company's
shareholders approved at the annual general and special shareholder
meeting held on 21 January 1999 a special resolution effective 31
January 1999 authorizing the reduction in the stated capital of the
Company pursuant to (S)36 of the Business Corporations Act Alberta, by
-------------------------
reducing the stated capital of the Common Shares by an amount up to
but not to exceed $20,700,000. This reduction of stated capital of the
Common Shares would result in the reduction of the shareholders'
deficiency by the same amount. It is management's opinion, after
making the adjustment, that the balance sheet will more accurately
represent the financial repositioning of the Company resulting from
the reorganization and restructuring, and the appropriate current
financial condition of the Company.
<PAGE>
PPC Capital Corp FORM 10-K
Fiscal Year End 2000
Page 17
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.
d) 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 CDNX, it is open to the Company, in management's
discretion, to complete this consolidation from the 16,913,389 common
shares outstanding to 3,382,677 post-consolidation common shares.
e) 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, originally due 31
January 2000 but was recently extended to 31 January 2002 (see
(a) above) (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 may
be converted, 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. In view of the fact that the possible aggregate issuance
of Common Shares issuable
<PAGE>
PPC Capital Corp FORM 10-K
Fiscal Year End 2000
Page 18
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 CDNX 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.
4) Outlook
While management cannot give any assurances as to the future outlook for
the Company, management intends to 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/10/ for the Company which will be material in attracting
a suitable candidate for purposes of restructuring its business affairs.
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.
___________________
/10/ See Note 7 in the Notes to the audited Consolidated Financial Statements -
Fiscal 2000, included herein.
<PAGE>
PPC Capital Corp FORM 10-K
Fiscal Year End 2000
Page 19
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>
-------------------------------------------------------------------------------------------------------------------
Commencement Conclusion of
Name Age Position of Service Current Term
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
J. Douglas Elliott 48 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 47 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 49 Director of the Company since 1998. Consultant. January 1998 January 2002
-------------------------------------------------------------------------------------------------------------------
Michael J. Perkins 47 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 three (3) meetings.
<PAGE>
PPC Capital Corp FORM 10-K
Fiscal Year End 2000
Page 20
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 Fiscal 2000, 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>
PPC Capital Corp FORM 10-K
Fiscal Year End 2000
Page 21
(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 CDNX as required.
ITEM 11 -- EXECUTIVE COMPENSATION
There were no amounts set aside or accrued by the Company during Fiscal 2000, 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.
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.
<PAGE>
PPC Capital Corp FORM 10-K
Fiscal Year End 2000
Page 22
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 January 2000; the reimbursement 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.
<PAGE>
PPC Capital Corp FORM 10-K
Fiscal Year End 2000
Page 23
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 $37,500
during Fiscal 2000.
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.)
---------------------------
<PAGE>
PPC Capital Corp FORM 10-K
Fiscal Year End 2000
Page 24
PART IV
ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Page
----
<S> <C>
(A) 1. Index to Audited Consolidated Financial Statements of The Company F-1
-----------------------------------------------------------------
Auditors' Report dated 7 April 2000 F-2
Consolidated Balance Sheets for the fiscal years ended 31 January 2000 and 1999 F-3
Consolidated Statements of Operations
for the fiscal years ended 31 January 2000, 1999 and 1998 F-4
Consolidated Statements of Deficit
for the fiscal years ended 31 January 2000, 1999 and 1998 F-5
Consolidated Statements of Cash Flows
for the fiscal years ended 31 January 2000, 1999 and 1998 F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
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>
PPC Capital Corp FORM 10-K
Fiscal Year End 2000
Page 25
(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>
PPC Capital Corp FORM 10-K
Fiscal Year End 2000
Page 26
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.
PPC Capital Corp
Date: 30 May 2000 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 30th day of May 2000.
/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>
PPC Capital Corp
Audited Consolidated Financial Statements
For the year ended 31 January 2000
("Fiscal 2000")
<PAGE>
PPC Capital Corp Fiscal 2000
Audited Consolidated Financial Statements
Page F 1
Index to Audited Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
<S> <C>
Auditors' Report dated 7 April 2000 2
Consolidated Balance Sheets for the fiscal years ended
31 January 2000 and 1999 3
Consolidated Statements of Operations for the fiscal years ended
31 January 2000, 1999 and 1998 4
Consolidated Statements of Deficit for the fiscal years ended
31 January 2000, 1999 and 1998 5
Consolidated Statements of Cash Flows for the fiscal years ended
31 January 2000, 1999 and 1998 6
Notes to Consolidated Financial Statements 7
</TABLE>
<PAGE>
BDO Dunwoody LLP
Chartered Accountants
Auditors' Report
To the Board of Directors of PPC Capital Corp:
We have audited the consolidated balance sheets of PPC Capital Corp as at
31 January 2000 and 1999 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 2000. 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 2000 and 1999 and the results of its operations and its cash
flows for each of the years in the three-year period ended 31 January
2000 in accordance with generally accepted accounting principles in
Canada.
_____________________________
"BDO Dunwoody LLP"
Chartered Accountants
Toronto, Canada
7 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 7
April 2000 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>
FORM 10-K Fiscal 2000
Audited Consolidated Financial Statements
Page F 3
PPC Capital Corp
Consolidated Balance Sheets
as at 31 January
($-amounts are expressed in Canadian Dollars)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 124,829 $ 567,614
Accounts and note receivable 77,364 488,270
Prepaid expenses 0 14,400
----------- -----------
$ 202,193 $ 1,070,284
=========== ===========
Liabilities
Current accounts payable and accrued liabilities $ 74,664 $ 210,206
----------- -----------
Long-term liabilities - see Note 5
Non-cash accrued liabilities & interest payable 863,328 619,939
10% Convertible debentures payable 3,191,000 3,191,000
----------- -----------
4,054,328 3,810,939
----------- -----------
4,128,992 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 (1999 -16,913,389) 1,118,456 1,118,456
Deficit - see Note 6(c) (5,045,255) (4,069,317)
----------- -----------
(3,926,799) (2,950,861)
----------- -----------
$ 202,193 $ 1,070,285
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
FORM 10-K Fiscal 2000
Audited Consolidated Financial Statements
Page F 4
PPC Capital Corp
Consolidated Statements of Operations
for the year ended 31 January
($-amounts are expressed in Canadian Dollars)
<TABLE>
<CAPTION>
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Sales and other income $ 23,290 $ 585,035 $ 8,049,418
Cost of sales 0 461,995 6,596,747
----------- ----------- -----------
Gross profit 23,290 123,040 1,452,671
----------- ----------- -----------
Expenses
Operating and administration 680,128 2,235,279 15,320,099
Asset write-down - see Notes 4 670,209 3,247,521
Financing charges payable in stock - see Notes 5 319,100 490,485 762,944
Amortization 0 1,069,019 1,222,018
----------- ----------- -----------
Loss from operations 975,938 4,341,952 19,099,911
Gain from sale/abandonment of Subsidiaries - see Note 3 0 3,882,805 0
----------- ----------- -----------
Net loss for period $ 975,938 $ 459,147 $19,099,911
=========== =========== ===========
Loss per share - see Note 6
Net Loss per share $ 0.06 $ 0.03 $ 3.04
Weighted average number of common shares outstanding 16,913,389 14,390,876 6,291,746
</TABLE>
--------------------------------------------------------------------------------
Consolidated Statements of Deficit
as at 31 January
($-amounts are expressed in Canadian Dollars)
<TABLE>
<CAPTION>
2000 1999 1998
---------- ------------ -----------
<S> <C> <C> <C>
Deficit, beginning of period $4,069,317 $ 24,310,170 $ 5,210,259
Net loss for period 975,938 459,147 19,099,911
Stated capital reduction - see Note 6 0 (20,700,000) 0
---------- ------------ -----------
Deficit, end of period $5,045,255 $ 4,069,317 $24,310,170
========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
FORM 10-K Fiscal 2000
Audited Consolidated Financial Statements
Page F 5
PPC Capital Corp
Consolidated Statements of Cash Flows
for the year ended 31 January
($-amounts are expressed in Canadian Dollars)
<TABLE>
<CAPTION>
2000 1999 1998
--------- ----------- ------------
<S> <C> <C> <C>
Cash provided by (used in) operating activities
Net loss for period $(975,938) $ (459,147) $(19,099,911)
Adjustments required to reconcile net loss with net
cash provided by operating activities:
Gain on sale/abandonment of Subsidiaries - see Note 3 0 (3,882,805) 0
Asset write-down - see Notes 4 0 670,209 3,247,521
Financing charges payable in stock - see Notes 5 319,100 490,485 762,944
Amortization 0 1,069,019 1,222,018
--------- ----------- ------------
(656,839) (2,112,239) (13,867,428)
Changes in non cash operating items
Accounts receivable 363,996 342,842 (140,521)
Inventory 0 756,375 1,053,154
Prepaid expenses 14,400 54,507 326,942
Accounts payable and accrued liabilities (135,543) (4,762,659) 2,257,053
On sale/abandonment of Subsidiaries - see Note 3 0 3,955,812 0
--------- ----------- ------------
(442,785) (1,765,362) (2,489,550)
--------- ----------- ------------
Cash provided by (used in) financing activities
Issue of common shares and warrants 0 0 2,179,378
10% Convertible debentures payable 0 1,291,000 1,900,000
10% Bridge Loan Notes payable 0 0 4,081,250
--------- ----------- ------------
0 1,291,000 2,179,378
--------- ----------- ------------
Cash provided by (used in) investing activities
Proceeds on sales of subsidiary and assets - see Note 3 0 894,386 0
Purchase of Capital Assets 0 0 (1,983,481)
--------- ----------- ------------
0 894,386 (1,983,481)
--------- ----------- ------------
Increase (decrease) in cash during period (442,785) 420,024 (4,193,743)
Cash, beginning of period 567,614 147,590 4,341,243
--------- ----------- ------------
Cash, end of period $ 124,829 $ 567,614 $ 147,590
========= =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
PPC Capital Corp FORM 10-K Fiscal 2000
Audited Consolidated Financial Statements
Page F 6
Notes to the Consolidated Financial Statements
1. Nature of Business
PPC Capital Corp ("Corp"), formerly Power Plus Corporation and which was
renamed in August 1999, lends money to operating businesses. During the
fiscal year ended 31 January 2000 ("Fiscal 2000") continued its business on
a scaled-down basis with an arm's length party. During the fiscal year
ended 31 January 1999 ("Fiscal 1999"), Corp's wholly-owned subsidiaries
Power Plus USA, Inc. ("PPUSA") and Power Plus Canada, Inc. ("PPCan"),
(collectively, the "Company") were wound down and sold. 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 its sale,
PPCan operated six stores. Accordingly, there were no stores operating as
at 31 January 1999. Previously, PPCan and PPUSA operated 22 retail stores
at the conclusion of the fiscal year ended 31 January 1998 ("Fiscal 1998")
down from 51 retail stores at the conclusion of the prior fiscal year under
the trade name Powerful Stuff! The stores operated from leased premises in
major enclosed shopping malls in the US and Canada.
2. Significant Accounting Policies
a) Basis of Presentation
Corp 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 2000 include the results of
operations of only Corp. By comparison Fiscal 1999 includes the
results of operations of PPCan and PPUSA (the "Subsidiaries") only for
the period during which they were operating under Corp's control
although no assets or liabilities of the Subsidiaries are included in
the balance sheet as at and subsequent to 31 January 1999.
The consolidated financial statements for Fiscal 1998 include the
accounts of Corp and 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.
Prior to Fiscal 2000, the Company incurred significant losses.
Effective 31 January 1999 had no commercial retail 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
The cost of merchandise inventory of the Subsidiaries was determined
using the first-in, first-out inventory valuation method.
<PAGE>
PPC Capital Corp FORM 10-K Fiscal 2000
Audited Consolidated Financial Statements
Page F 7
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
estimated useful lives of the assets.
f) Deferred Charges
Deferred charges were initially recorded at cost. These included
patent and trademark filing costs, intellectual properties, cost of
raising capital and other costs such as restructuring and reorganizing
costs that were properly deferred to be matched against the result of
the expenditure.
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 as at or subsequent
to 31 January 1999.
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.
4. Gain on Sale and Abandonment of Subsidiaries
a) On 8 May 1998 PPCan filed a 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. Obtaining these approvals was a
prerequisite of the sale. 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 post-Notice. 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.
<PAGE>
PPC Capital Corp FORM 10-K Fiscal 2000
Audited Consolidated Financial Statements
Page F 8
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.
4. Write down of certain Long-term Assets
The Company has no material long-term assets as at and subsequent to 31
January 1999. In the circumstances, in Fiscal 1999 the remaining capital
assets of PPCAN were written down to their realized value on the sale while
remaining assets valued at $1,290,875 of PPUSA were written-off. Similarly,
deferred charges and other assets, including the unamortized portion of
capitalized financing charges and certain rights and trademarks, were also
written off during Fiscal 1999. (See Note 3 above)
5. Long-term Debt
The 10% Convertible Debentures, for a maximum principal amount of up to
$5,000,000, are a first secured and fixed and floating charge, maturing on
31 January 2002 (extended on the same terms and conditions from those that
would have matured on 31 January 2000), bearing interest at a rate of 10%
per annum payable semi-annually in common shares. The Convertible
Debentures, including all principal amounts advance thereunder and interest
accruing thereon, may be converted, 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.
Accrued non-cash interest payable to 31 January 2000 was $639,039 (1999 --
$319,939).
6. Share Capital
The Company arranges the 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 2000 there were no changes to share
capital although 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) 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 Com-
<PAGE>
PPC Capital Corp FORM 10-K Fiscal 2000
Audited Consolidated Financial Statements
Page F 9
mon 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.
d) The following table sets out the changes to the stated capital and
Common Shares.
<TABLE>
<CAPTION>
--------------------------------------
Shares Dollars
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
--------------------------------------------------------------------------------------------------------------------
No change during the year
--------------------------------------------------------------------------------------------------------------------
31 January 2000 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.
g) The Company has received the approval of both the regulator and
shareholders 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 post-consolidation common shares.
h) The regulator and shareholders approved payment to Roxborough Holdings
Limited, which also holds certain of the Convertible Debentures, of a
finder's fee arrangement in respect of funds raised through its
efforts for which the Company paid a fee of $121,230. This obligation
is payable in post-conversion common shares on the basis of $0.10 per
new common share. Accordingly, the Company will issue in the future
1,212,300 new common shares in payment of this obligation.
7. Income Taxes
As at 31 January 2000 the Company had incurred certain losses for Canadian
Income Tax purposes of approximately $44,000,000 (FYE 1999 - $43,000,000)
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, although the ultimate extent to which they may be
applied against Canadian source earnings from operations is yet to be
determined, expire as follows:
Fiscal Year $-millions
2003 26.9
2004 2.4
2006 13.7
2007 1.0
-----
$44.0
=====
<PAGE>
PPC Capital Corp FORM 10-K Fiscal 2000
Audited Consolidated Financial Statements
Page F 10
8. Operating Segment Information
During Fiscal 2000, the Company operated only in Canada. In prior years,
the Company's Subsidiaries operated 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 and 1998
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
</TABLE>
1. 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 as was applicable for Fiscal 1999 and Fiscal 1998, 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.
<PAGE>
PPC Capital Corp FORM 10-K Fiscal 2000
Audited Consolidated Financial Statements
Page F 11
<TABLE>
<CAPTION>
--------------------------------
1999 1998
--------------------------------
<S> <C> <C>
Net loss per Canadian GAAP $ 459,147 $ 19,099,911
Adjustments related to:
Convertible Feature of Special Notes 0 280,000
Gain on Extinguishment of Debt 3,478,159 0
------------ -------------
Net Loss before Extraordinary Items per US GAAP 3,937,306 19,379,911
------------ -------------
Extraordinary Gain on Debt Extinguishment per US
GAAP (3,478,159) 0
------------ -------------
Net Loss per US GAAP $ 459,147 $ 19,379,911
============ =============
Loss per Share per US GAAP
Before Extraordinary Items $ 0.27 $ 3.08
After Extraordinary Items $ 0.03 $ 3.08
-----------------------------
Shareholders' (Deficiency) per Canadian GAAP ($4,069,317) ($13,332,492)
Adjustment related to Convertible Feature of
Special Notes 0 (980,000)
------------ -------------
Shareholders' (Deficiency) per US GAAP ($4,069,317) ($14,312,492)
============ =============
</TABLE>
