U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2003
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
Commission File No. 001-11540
POWERCHANNEL, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 65-0952186
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16 North Main Street, Suite 395
New City, New York 10956
(Address of Principal Executive Offices)
(845)634-7979
(Issuer's telephone number)
(Former name, address and fiscal year, if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the issuer was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of August 18, 2003: 11,212,052 shares of common stock outstanding,
$0.01 par value.
Item 1. Financial Information
POWERCHANNEL, INC.
(A Development Stage Enterprise)
BALANCE SHEET
June 30, December 31,
2003 2002
----------- -----------
(unaudited) (audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 789 $ 2,338
Prepaid Expenses -- 2,576
----------- -----------
TOTAL CURRENT ASSETS 789 4,914
EQUIPMENT, net 225 885
----------- -----------
$ 1,013 $ 5,799
=========== ===========
LIABILITIES AND DEFICIENCY IN ASSETS
CURRENT LIABILITIES:
Account payable and accrued liabilities 19,758 $ 24,089
Due to related parties -- 72,217
----------- -----------
TOTAL CURRENT LIABILITIES 19,758 96,306
DEFICIENCY IN ASSETS:
Common stock, $.01 par value, 20,000,000 shares
authorized, 1,074,155 issued and outstanding 10,742 10,742
Additional paid in capital 1,301,328 1,301,327
Accumulated deficit (1,330,815) (1,402,576)
----------- -----------
TOTAL DEFICIENCY IN ASSETS (18,745) (90,507)
----------- -----------
$ 1,013 $ 5,799
=========== ===========
POWERCHANNEL, INC.
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS
(Unaudited)
For the Period
Six Months Six Months July 8, 1998
Ended Ended (inception) to
June 30, June 30, June 30,
2003 2002 2003
----------- ----------- -----------
SALES $ -- 4,431 54,484
----------- ----------- -----------
EXPENSES:
Selling general and administrative 44,065 71,758 924,403
Write-down of equipment -- 29,799 95,000
Stock-based compensation -- -- 165,500
Loss on investment in franchise -- -- 29,799
Loss on inpairment of investment -- -- 250,000
Advertising (265) 3,000 47,415
----------- ----------- -----------
TOTAL EXPENSES 43,800 104,557 1,512,117
OTHER INCOME/(EXPENSE)
Interest Income -- -- 541
Other Income - Legal Opinions -- -- 20,942
Recovery of asset imparement 115,561 -- 115,561
Loss on Securities -- -- (10,226)
----------- ----------- -----------
115,561 -- 126,818
----------- ----------- -----------
NET INCOME (LOSS) BEFORE INCOME TAXES 71,761 $ (100,126) $(1,330,815)
----------- ----------- -----------
Income taxes -- -- --
NET LOSS $ 71,761 (100,126) (1,330,815)
=========== =========== ===========
NET LOSS PER SHARE: $ 0.07 $ (0.11)
=========== ===========
Number of shares used in computation 1,074,155 923,936
=========== ===========
POWERCHANNEL, INC.
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Three Months
Ended Ended
June 30, June 30,
2003 2002
----------- -----------
SALES $ -- $ 785
----------- -----------
EXPENSES:
Selling general and administrative 14,375 15,682
Write-down of equipment -- 8,799
Advertising (265) --
----------- -----------
TOTAL EXPENSES 14,110 24,481
OTHER INCOME/(EXPENSE)
Recovery of asset impairment 115,561 --
----------- -----------
115,561 --
----------- -----------
NET LOSS BEFORE INCOME TAXES $ 101,451 $ (23,696)
----------- -----------
Income taxes -- --
NET LOSS $ 101,451 $ (23,696)
=========== ===========
NET LOSS PER SHARE: $ 0.09 $ (0.02)
=========== ===========
Number of shares used in computation 1,074,155 1,017,031
=========== ===========
POWERCHANNEL, INC.
(A Development Stage Enterprise)
STATEMENTS OF DEFICEINCY IN ASSETS
Common Stock Additional Other
-------------------------- Paid-in Accumulated Comprehensive
Shares Amount Capital Deficit Income(loss)* Total
--------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2002 1,074,155 $ 10,742 $ 1,301,328 $(1,402,576) $ -- $ (90,506)
Net loss 71,761 71,761
--------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 2003 (unaudited) 1,074,155 10,742 1,301,328 (1,330,815) 0 $ (18,745)
======================================================================================
POWERCHANNEL, INC.
(A Development Stage Enterprise)
STATEMENT OF CASH FLOWS
(Unaudited)
Period
Six Months Six Months July 8, 1998
Ended Ended (inception) to
June 30, June 30, June 30,
2003 2002 2003
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 71,761 $ (100,126) $(1,330,815)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 660 1,009 43,055
Write-down of equipment -- 28,499 95,000
Forgiveness of debt -- 87,209 --
Loss on impaired royalty agreement -- -- 250,000
Loss on investment in franchise -- -- 29,799
Stock based on compensation -- 7,000 221,366
Changes in assets and liabilities: -- -- --
Prepaid expenses 2,576 -- (633)
Security deposits -- 98 --
Accounts payable and accrued liabilities (4,329) (794) 19,760
Due to officers and employees (72,217) (36,776) 228,886
----------- ----------- -----------
Net cash (used in) provided by operating activites (1,549) (13,881) (443,582)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Marketable securities available for sale -- 16,300 --
Unrealized gain/(loss) on securities -- (16,300) --
Intangible asset purchase -- (250,000) (254,500)
Equipment purchases -- -- (137,271)
----------- ----------- -----------
Net cash used in investing activies -- (250,000) (391,771)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt converted to equity -- -- 82,344
Convertible debenture issued -- 14,500 --
Common stock -- 250,000 753,798
----------- ----------- -----------
Net cash provided by financing activies -- 264,500 836,142
----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH (1,549) 619 789
CASH AT BEGINNING OF THE YEAR 2,338 1,706 --
----------- ----------- -----------
CASH AT THE END OF THE YEAR $ 789 $ 2,325 $ 789
=========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for:
Interest $ -- $ -- $ --
=========== =========== ===========
Taxes $ -- $ -- $ --
=========== =========== ===========
NON -CASH FINANCING ACTIVITIES:
Common stock issued for debt $ -- $ -- $ 358,741
=========== =========== ===========
Common stock issued for services $ -- $ -- $ 180,116
=========== =========== ===========
Common stock issued for acquistion of intangible assets $ -- $ -- $ 30,000
=========== =========== ===========
POWERCHANNEL, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements of Sealant
Solutions (the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-QSB and Regulation S-B. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation (consisting of normal
recurring accruals) have been included. 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 and disclosure of contingent 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 estimates.
Operating results expected for the six months ended June 30, 2003 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2003. For further information, refer to the financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-KSB for
the year ended December 31, 2002. Per share data for the periods are based upon
the weighted average number of shares of common stock outstanding during such
periods, plus net additional shares issued upon exercise of options and
warrants.
Note 2. Going Concern
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. The Company has suffered recurring losses
amounting to approximately $1,330,815, since inception. The Company intends to
raise additional debt or equity financing to continue its operations if they are
unsuccessful they may be required to cease operations and/or file for
bankruptcy.
Note 3. New Accounting Policies
In November 2002, the FASB issued FIN No. 45, "Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees and
Indebtedness of Others," an interpretation of SFAS Nos. 5, 57 and 107, and
rescission of FIN No. 34,"Disclosure of Indirect Guarantees of Indebtedness of
Others." FIN No. 45 elaborates on the disclosures to be made by the guarantor in
its interim and annual financial statements about its obligations under certain
guarantees that it has issued. It also requires that a guarantor recognize, at
the inception of a guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. The initial recognition and measurement
provisions of this interpretation are applicable on a prospective basis to
guarantees issued or modified after March 31, 2002; while, the provisions of the
disclosure requirements are effective for financial statements of interim or
annual periods ending after December 15, 2002. The adoption of such
interpretation on January 1, 2003 did not have a material impact on the
Corporation's results of operations, financial position or cash flows.
In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest
Entities," an interpretation of
Accounting Research Bulletin No. 51. FIN No. 46 requires that variable interest
entities be consolidated by a company if that company is subject to a majority
of the risk of loss from the variable interest entity's activities or is
entitled to receive a majority of the entity's residual returns or both. FIN No.
46 also requires disclosures about variable interest entities that companies are
not required to consolidate but in which a company has a significant variable
interest. The consolidation requirements of FIN No. 46 will apply immediately to
variable interest entities created after January 31, 2003. The consolidation
requirements will apply to entities established prior to January 31, 2003 in the
first fiscal year or interim period beginning after June 15, 2003. The
disclosure requirements will apply in all financial statements issued after
January 31, 2003. The Corporation has adopted the provisions of FIN No. 46, such
provisions have not had a material effect on its results of operation, financial
position or the related financial statement disclosures.
In April 2003, the FASB issued Statements of Financial Accounting Standards No.
149 ("SFAS No. 149"), an amendment to SFAS No. 133. SFAS No. 149 clarifies under
what circumstances a contract with initial investments meets the characteristics
of a derivative and when a derivative contains a financing component. This SFAS
is effective for contracts entered into or modified after June 30, 2003.
Accounting for Financial Instruments - In May 2003, the FASB issued Statements
of Financial Accounting Standards No. 150 ("SFAS No. 150") "Accounting for
Certain Financial Instruments with Characteristics of Both Liabilities and
Equity". SFAS No. 150 established standards for how an issuer classifies and
measures in its statement of financial position certain financial instruments
with characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or an
asset in some circumstances) because that financial instrument embodies an
obligation of the issuer. This SFAS is effective for financial instruments
entered into or modified after May 31, 2003 and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. It is to be
implemented by reporting the cumulative effect of a change in accounting
principle for financial instruments created before the issuance date of SFAS
No.150 and still existing at the beginning of the interim period of adoption.
Restatement is not permitted. The adoption of SFAS No. 150 will not have a
material effect on the financial statements. The Company adopted SFAS No. 150 in
June 30, 2003.
Note 4. Stock Split
On December 13, 2002, the Company executed a 50 to 1 reverse stock split. All
per share information gives effect to the reverse stock split.
Note 5. Merger
On July 21, 2003 PowerChannel entered into a Stock Purchase and Share Exchange
Agreement whereby Sealant Solutions, Inc. acquired all of the outstanding shares
of PowerChannel, Inc. Under this agreement, Sealant agreed to issue shares equal
to 85% of the fully diluted
outstanding shares (or 9,117,525 shares) of Sealant Solutions, Inc. to
PowerChannel, Inc. shareholders. Such shares are deemed "restricted" as defined
under the SEC Rule 144. Under the terms of the agreement, Sealant Solutions is
the acquiring company. The merger is to be accounted for as a reverse merger,
which effectively is a recapitalization of the target company. Subsequent to the
merger agreement, the surviving company changed its name to PowerChannel, Inc.
In connection with the Stock Purchase and Share Exchange Agreement, Sealant
Solutions, Inc. increased its authorized common shares to 95,000,000 and
preferred shares to 5,000,000 having a par value of $.001.
Upon the closing date of the merger, the Company entered into an option
agreement with the CEO of Sealant. In exchange for consulting services, the
Company would issue common stock equal to 10% of the fully diluted outstanding
shares of Sealant. Such shares are restricted as defined under SEC Rule 144. The
Company will be granted options to purchase such shares under a right of first
refusal.
After the closing date of the merger, Michael Fasci shall remain on the Board of
Directors and Steven Lampert will be appointed to serve.
Note 6. Stock Incentive Plan
In July 2003, the Company created a 2003 Stock Incentive Plan which permits the
Company to make awards of stock options, stock appreciation rights, warrants,
dividend equivalents, stock awards, restricted stock, phantom stock, performance
shares or other securities or rights. All employees of the Company and
affiliates are eligible to participate. The number of shares that may be
delivered or purchased under the plan are up to 3,000,000 shares at a par value
of $.01.
Page 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The analysis of the Company's financial condition, liquidity, capital resources
and results of operations should be viewed in conjunction with the accompanying
financial statements including the notes thereto.
General
The company was incorporated in Delaware in 1995 under the name UC'NWIN Systems,
Inc. In August 1999 the company changed its name to The Winners Edge.com, Inc.
During 1999, as a result of a Chapter 11 Bankruptcy Plan of Reorganization, the
company acquired the assets of The Winners Edge Licensing Corporation. In
addition to the assets, the company also acquired a ten-year license with the
exclusive right to market the Winners Edge handicapping product renewable for a
second ten years. The company did not acquire the ownership of the handicapping
program. In September 2000 the company stopped marketing the Winners Edge
handicapping product due to insufficient income. On March 30, 2001, the Company
acquired a roofing sealant product, Roof Shield, which the company intends to
market worldwide. In July 2001 the Company changed its name to Sealant
Solutions, Inc. In September 2001 the Company acquired the rights to sell and
distribute in the United States the Lady Ole' line of cosmetics products. In
February 2002, the Company entered into a joint venture agreement with IFG
Goldstar Cement Company for the entitlement to a royalty payment based upon the
sale of certain concrete products. In April of 2002 the Company sold its rights
to the Lady Ole line of cosmetic products and is no longer in that business. In
November of 2002 the company agreed to terminate and cancel the remaining term
of it's licensing agreement with the Winners Edge Licensing Corporation and will
longer attempt to market that product. In July 2003 The Company entered into a
Stock Purchase and Share Exchange Agreement with PowerChannel, Inc. whereby The
Company acquired all of the outstanding shares of PowerChannel, Inc. The merger
was accounted for as a "reverse merger", which is effectively a recapitalization
of the target company. Subsequent to the merger agreement, the surviving company
changed its name to PowerChannel, Inc. (PWRC). Upon The Company's reverse merger
with PowerChannel, Inc., The Company has discontinued it's efforts with any of
it's previous business ventures and is now solely focused on creating
shareholder value via it's PowerChannel business and related business
opportunities.
Financial Condition
At June 30, 2003, the Company had total current assets of $789 as compared to
$4,914 at December 31, 2002, total assets of $1,013, as compared to $5,799 at
December 31, 2002, and shareholders deficiency of assets of ($18,745) compared
to a shareholders deficiency of assets of ($90,507) as of December 31, 2002. The
decrease in current assets were primarily due to the ongoing administrative
expenses that the Company incurred during the quarter. The reduction of $71,762
of shareholders deficiency in assets was primarily attributable to the recovery
of an asset imparement charge that the company had taken in the 4th quarter of
2002 relating to its investment in IFG Goldstar Cement. During the quarter
ending June 30, 2003, The Company agreed to exchange the fully impaired IFG
Goldstar Cement asset with an officer of The Company in exchange for the
discharge of $115,561 worth of indebtedness.
Liquidity
The Company had a net decrease in cash and cash equivalents for the six months
ended June 30, 2003 of $1,549, cash and cash equivalents at June 30, 2003 of
$789, and cash and cash equivalents of $2,338 at December 31, 2002.
Capital Resources
The company has no present material commitments for additional capital
expenditures. The company has no outstanding credit lines and no loan
commitments in place. Short term, the company anticipates generating cash to
continue its operations either thru private placements of its common stock or
from capital contributions from its officers and/or directors.
Results of Operations
The Company has focused its efforts to generate revenues from its Sealant
Product and has divested itself of the IFG Goldstar investment. There were no
revenues generated from the sales of The Company's products for the six months
ended June 30, 2003. The Company has been successful in effectuating a reverse
merger with PowerChannel, Inc. during the third quarter of 2003. The Company
believes that this merger offers the best opportunity for The Company to create
shareholder value.
The Company's revenues for the quarter ended June 30, 2003, were $-0- compared
to sales of $785 in the year earlier quarter. The principal reason for the
decreased revenue was the reduction in sales of its sealant product as seen in
the previous period.
Operating expenses for the six months ended June 30, 2003 were $43,800, as
compared to $ 104,557 for the six months ended June 30, 2002. The decrease in
operating expenses is due to the company reducing its expenditures to be more in
line with income.
Operating expenses for the quarter ended June 30, 2003 were $14,111 compared to
expenses of $24,481 in the year earlier quarter. The decrease in operating
expenses is due to the company reducing its expenditures to be more in line with
income, primarily due to a reduction in employee compensation.
The Company realized a net gain of $71,761 for the six months ending June 30,
2003, as compared to a net loss of $(100,126) for the six months ending June
2002.
The Company realized a net gain of $101,451 for the three months ending June 30,
2003, as compared to a net loss of $(23,696) for the three months ending June
30, 2002. The decrease in net loss for the period was primarily due to the
recovery of an asset impairment charge taken by the company in a previous
quarter.
The Company knows of no unusual or infrequent events or transactions, nor
significant economic changes that have materially affected the amount of it's
reported income from continuing operations for the six-month period ended June
30, 2003.
Subsequent Events
Subsequent to the end of the quarter ending June 30, 2003, The Company entered
into a Stock Purchase and Share Agreement whereby The Company acquired all of
the outstanding shares of PowerChannel, Inc. Under this agreement, The Company
agreed to issue shares equal to 85% of the fully diluted outstanding shares of
The Company to PowerChannel, Inc. shareholders. Such shares are deemed
"restricted" as defined under the SEC Rule 144. Under the terms of the
agreement, Sealant Solutions, Inc. is the acquiring company. The merger is to be
accounted for as a reverse merger, which effectively is a recapitalization of
the target company. Subsequent to the merger agreement, the surviving company
changed its name to PowerChannel, Inc.
Item 3. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
Our Chief Executive Officer and Chief Financial Officer (collectively the
"Certifying Officers") maintain a system of disclosure controls and
procedures that is designed to provide reasonable assurance that
information, which is required to be disclosed, is accumulated and
communicated to management timely. Under the supervision and with the
participation of management, the Certifying Officers evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule [13a-14(c)/15d-14(c)] under the Exchange
Act) within 90 days prior to the filing date of this report. Based upon
that evaluation, the Certifying Officers concluded that our disclosure
controls and procedures are effective in timely alerting them to material
information relative to our company required to be disclosed in our
periodic filings with the SEC.
(b) Changes in internal controls.
Our Certifying Officers have indicated that there were no significant
changes in our internal controls or other factors that could significantly
affect such controls subsequent to the date of their evaluation, and there
were no such control actions with regard to significant deficiencies and
material weaknesses.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. Not Applicable
Item 2. Changes in Securities. None
Item 3. Defaults Upon Senior Securities. Not Applicable
Item 4. Submission of Matters to a Vote of Security None
Holders.
Item 5. Other Information. None
Item 6. Exhibits and Reports of Form 8-K. 99.1 Certification.
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 in its
behalf by the undersigned, thereunto duly authorized, on August 18, 2003.
POWERCHANNEL, INC.
Date: August 19, 2003 By: /s/ Steven Lampert
-------------------------
Steven Lampert
Chairman and President
CERTIFICATION OF
CHIEF EXECUTIVE OFFICER AND
CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
I, Steven Lampert certify that:
1. I have reviewed this quarterly report on Form 10-QSB of PowerChannel, Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in the quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in the
quarterly report;
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, if any, is made known to us by others
within those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. I have disclosed, based on our most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weakness in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. I have indicated in the quarterly report whether there were significant
changes in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Dated: August 19, 2003
/s/ Steven Lampert
- -------------------------
Steven Lampert
President, Chief Executive Officer
and Chief Financial Officer