<PAGE>
As filed with the Securities and Exchange Commission on August 14, 2000
Registration No. __________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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PowerChannel Holdings, Inc.
(Name of Small Business Issuer in Its Charter)
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<S> <C> <C>
Delaware 7379 13-4104759
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
20 Squadron Boulevard, Suite 210
New City, NY 10956
(914) 639-0600
(Address and Telephone Number of Principal Executive Offices)
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James B. Gambrell, IV
President
PowerChannel Holdings, Inc.
20 Squadron Boulevard, Suite 210
New City, NY 10956
(914) 639-0600
(Name, Address, Telephone Number of Agent for Service)
With a copy to:
Herbert F. Kozlov, Esq.
Parker Duryee Rosoff & Haft, P.C.
529 Fifth Avenue
New York, NY 10017
(212) 599-0500
Approximate date of proposed sale to the public:
As soon as practicable after the Registration Statement becomes effective.
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If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / _________________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _________________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / / _________________
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check this following box. /X/ _________________
CALCULATION OF REGISTRATION FEE
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Proposed Maximum Proposed Maximum
Title of Each Class of Amount Offering Price Per Aggregate Offering Price Amount of
Securities To Be Registered To Be Registered Share(1) (1) Registration Fee
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<S> <C> <C> <C> <C>
Common Stock............... 2,175,607 $0.1287 $280,000 $73.92
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(1) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(o) under the Securities Act of
1933.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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SUBJECT TO COMPLETION, DATED AUGUST 14, 2000
PROSPECTUS
2,175,607 Shares
PowerChannel Holdings, Inc.
Common Stock
The selling stockholders of PowerChannel Holdings, Inc. listed on
page __ under the caption "Selling Stockholders" may offer and resell up to an
aggregate of 2,175,607 shares of our common stock under this prospectus. These
represent shares of common stock that the selling stockholders may receive upon
conversion of their Series A Convertible Notes.
We will not receive any proceeds from the resale of these shares.
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See "Risk Factors" beginning on page __ of this prospectus for a
discussion of certain factors that you should consider before purchasing any
shares.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this prospectus is August ____, 2000.
[The following language is located on the left margin of the first page of the
preliminary prospectus.]
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
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TABLE OF CONTENTS
Page
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Prospectus Summary............................................ 1
Risk Factors.................................................. 2
Special Note Regarding Forward Looking Statements............. 6
Capitalization................................................ 7
Use of Proceeds............................................... 7
Market for Common Stock....................................... 7
Dividend Policy............................................... 7
Management's Plan of Operation................................ 8
Business...................................................... 10
Management.................................................... 21
Principal Stockholders........................................ 23
Related Party Transactions.................................... 24
Selling Stockholders.......................................... 25
Description of Securities..................................... 26
Shares Eligible for Future Sale............................... 28
Plan of Distribution.......................................... 28
Legal Matters................................................. 29
Experts....................................................... 30
Where You Can Get More Information............................ 30
Index to Financial Statements................................. F-1
i
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Prospectus Summary
You should read the following summary together with the more detailed
information regarding our company and the common stock being sold in this
offering and our financial statements and notes thereto appearing elsewhere in
this prospectus.
PowerChannel Holdings, Inc.
Our Company
Our Company, PowerChannel Holdings, Inc., is a development stage
company. We were incorporated in the State of Delaware on March 26,1999. Our
principal executive offices are located at 20 Squadron Boulevard, Suite 210, New
City, New York 10965, and our telephone number at this address is (914)
639-0600.
PowerChannel intends to furnish free Internet access to members of the
general public who agree to supply household purchasing and behavioral
information. PowerChannel will sell that demographic information to businesses
in exchange for a fee. PowerChannel will provide its subscribers with set-top
boxes that will allow free Internet access when attached to a television and
telephone line. The subscribers will be required to respond to monthly surveys
provided by PowerChannel through the set-top boxes. These detailed household
survey responses, together with targeted interactive marketing and analytic
services based on them, will be sold to businesses that require such services
and information for their direct marketing and customer relationship management
programs.
When we refer to "PowerChannel," "we," "our," and "us" in this
prospectus, we mean PowerChannel Holdings, Inc., including our subsidiaries,
PowerChannel Inc. and PowerChannel.com Inc., unless otherwise indicated by the
context.
The Offering
Common Stock offered by the Selling Stockholders 2,175,607 shares
Common Stock to be outstanding after the Offering 23,864,535 shares
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2
Risk Factors
This offering involves a high degree of risk. You should carefully
consider the risks described below and the other information contained in this
prospectus, including our financial statements and the related notes, before you
purchase any shares of our common stock. The following risks, if they occur,
could materially harm our business, financial condition, or future results of
operations. If that occurs, the trading price of our common stock could decline,
and you could lose all or part of your investment.
We have no operating history that you can use to evaluate us.
We began our business in March 1999, and we have not generated any
commercial revenues to date. We have been devoting our efforts to various
organizational activities. As a result, we have no operating history that you
can use to evaluate us. Our business must be considered in light of the risks,
expenses, and problems frequently encountered by companies in the early stages
of development, particularly companies, like ours, in new and rapidly evolving
markets such as Internet access.
Given our recurring losses and accumulated deficits, we may be unable to
continue as a going concern.
Our independent auditors issued a report on their audit of our
consolidated financial statements for the year ended December 31, 1999. Their
report contains an explanatory paragraph in which they state that our history of
recurring losses and our working capital and stockholders' deficits raise
substantial doubt regarding our ability to continue as a going concern.
Our ability to attract and retain subscribers depends on factors we cannot
control.
Our success will depend, to a great extent, on our ability to attract
and retain subscribers. We estimate that we will need at least 50,000
subscribers to obtain meaningful data to sell to our customers. Our ability to
attract and retain subscribers will depend, in turn, on a number of factors,
many of which are beyond our control. One factor is the extent to which our set
top box design, when developed, is easy for subscribers and prospective
subscribers to use and understand. Another factor is the date we commence
operations, since prospective subscribers may obtain access to the Internet from
our competitors during any delay in the start of our operations. Because of
these and other factors, we cannot accurately predict our subscriber growth rate
or our future revenues.
Our ability to attract and retain customers interested in purchasing the data or
targeted interactive marketing services based on the data could have a
significant effect on our business and financial results.
We will be primarily dependent on major corporate customers for our
revenue. We will not sell any products or services directly to subscribers.
Instead, we hope to sell the data we collect from our subscribers and sell it,
together with targeted interactive marketing and analytic services based on it,
to customers in need of market research data. Our ability to attract and retain
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3
customers will depend on a number of factors, many of which are beyond our
control. These factors include:
o our ability to attract and retain a significant number of
subscribers;
o our ability to process the monthly surveys taken by our
subscribers into meaningful market research; and
o competition for market research data from other sources.
We cannot assure you that we will be able to establish or maintain
relationships with quality customers. Even if we are able to establish and
maintain these relationships, we cannot assure you that we will be able to do so
on terms favorable to us or in the numbers we need to become profitable. Our
failure to obtain a sufficient number of market research customers in a timely
manner could have a substantial negative effect on our business and financial
results.
We may have difficulty managing our growth as planned.
To manage our anticipated growth, we must:
o implement and continually improve our operational, financial
and management information systems;
o hire, train and retain additional qualified personnel;
o expand and upgrade core technologies; and
o effectively manage relationships with our strategic partners,
customers, subscribers and other third parties.
Our expansion could place a significant strain on our services and
support operations, sales and administrative personnel, and other resources.
We may not be able to keep up with changes in technology in our industry.
There can be no assurance that we will be successful in developing and
marketing service enhancements or new services in response to technological
changes, evolving industry standards or customer demands and preferences. We may
experience difficulties that could delay or prevent the successful development,
introduction and marketing of our services. Additionally, to the extent that we
are able to develop new services, if at all, there can be no assurance that such
services or any enhancements will adequately meet the requirements of the
marketplace and achieve market acceptance. Delays in the introduction of new
services, our inability to develop such new services or the failure of such
services to achieve market acceptance could have a material adverse effect on
our business, operating results and financial condition.
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4
We will need additional capital in the future and it may not be available,
either at all, or on acceptable terms.
We currently have no revenue and do not expect to generate any revenues
until some time after we launch our business model, build a subscriber base
significant enough to gather meaningful market research data and begin selling
these findings to our customers. Through our research and development
cost-sharing arrangement with our United Kingdom affiliate, PowerChannel Europe
PLC, we anticipate that we have available sufficient funds to meet our working
capital requirements for at least the next 12 months, on the basis that no
roll-out of the PowerChannel business model takes place in the United States.
After that, and also if we are able to roll out our business model during the
following twelve months, we will need to raise additional funds in order to
finance our operations while we develop our subscriber and customer bases. We
cannot assure you that financing will be available on terms favorable to us, or
at all. If adequate funds are not available on acceptable terms, we may be
forced to curtail or cease our operations. Even if we are able to continue our
operations, the failure to obtain financing could have a substantial adverse
effect on our business and financial results.
Our business model is largely unproven.
PowerChannel's ability to compete successfully under its business model
will be largely dependent upon its ability to sign and retain a large pool of
subscribers through which it can collect the market research data. In terms of
revenue sources, there is an intense competition among sellers of Internet
advertising, and a variety of related pricing models have developed, making it
difficult to project future levels of advertising revenues. We cannot assure you
that we will be able to compete successfully against our competitors either upon
commencement of our operations or thereafter or that our competition will not
have a material adverse effect on our business prospects, results of operations
and financial condition.
PowerChannel's cost structure is sensitive to unit costs of set top boxes.
The Company's cost structure relies mostly on its set-top box
suppliers, since the Company is not manufacturing its own units and cannot
directly influence production costs. Currently, PowerChannel has been testing a
number of set top boxes from multiple suppliers since each partnership and each
country of deployment may require differing functionality to support the
particular strategy developed for that country and partner. Moreover,
PowerChannel has determined that its business strategy is best served by having
more than one supplier for set top boxes. The Company has received strong
support amongst the set top box manufacturing community for its plans and has
identified a number of credible choices for sourcing its set top box needs.
We must customize or develop sophisticated technology, which we have limited
experience in doing.
The success of the Company's development plan requires the
customization/ development and integration of numerous technology systems. The
Company has no track record in these fields and must rely on third party
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5
developers and suppliers. While the Company is confident in its ability to
source, develop and manage these third party relationships, its failure so to do
could be detrimental to the growth, acceptance and success of its plans.
The costs inherent in these development projects are significant and
require considerable forward planning which may leave the Company unable to
respond to new technology introductions or opportunities.
There is intense competition in both data gathering and free Internet provision
markets.
The information, data, advertising and Internet services industries are
intensely competitive, are evolving rapidly, and are subject to rapid
technological change. We expect competition to increase in the future. Many of
our current and potential competitors have longer operating histories, greater
name recognition, larger customer and subscriber bases and substantially greater
financial, personnel, marketing, engineering, technical and other resources than
we have. We can give no assurance that we will be able to successfully compete
with these businesses. As a result, competition of this nature could materially
adversely affect our business, operating results and financial condition. We
expect that the information, data, advertising and Internet services markets
will continue to attract new competitors and new technologies, possibly
including alternative technologies that are more sophisticated and cost
effective than ours. We do not have the contractual right to prevent our
subscribers from changing to a competing network, and or they may terminate
their subscriber relationship with us at will. If we are unable to compete with
emerging technologies or services, we may lose a substantial amount of our
subscribers and, as a result, our business and operating results may be
materially adversely affected.
Our ability to enter into strategic relationships is critical to the success of
our business model.
A principal element of our growth strategy is the creation and
maintenance of strategic relationships that will enable us to offer our services
to a larger customer base than we could otherwise reach through our own direct
marketing efforts. We cannot predict the future success or failure of our
products and services or of our business overall, because of our limited
operating experience with any such strategic relationships to date. Although we
will consider creating direct marketing channels, we believe that strategic
partner relationships may offer a more effective and efficient marketing
channel. Consequently, our success will depend in part on the ultimate success
of these relationships and on the ability of our strategic partners to market
our services effectively. Although we view our strategic relationships as a key
factor in our overall business strategy and in the development and
commercialization of our services, there can be no assurance that any strategic
partners that we are able to attract will view their relationships with us as
significant for their own businesses or that they will not reduce or even
terminate their commitment to us the future.
Non-management shareholders have no effective voice in management because
management has substantial control.
Our executive officers control PowerChannel, giving them the ability,
among other things, to elect all of our directors and approve significant
corporate transactions. This concentration of voting stock ownership in our
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6
executive officers may also have the effect of delaying or preventing a change
in control, impeding a merger, consolidation, takeover or other business
combination involving us or discouraging a potential acquirer from making a
tender offer or otherwise attempting to obtain control of us, even if any of
these transactions would benefit you as shareholders.
PowerChannel cannot assure investors that it will effectively manage its growth
In order to generate revenues, we need to experience substantial growth
in the next twelve months and beyond as we start to implement our business
strategy and introduce new products and services. This growth will place
significant demands on all aspects of our business, particularly in adequately
expanding our administrative, technical and financial personnel. Our success
will be largely dependent upon our executive officers and other key personnel,
the loss of one or more of whom could have a materially adverse effect on us. We
do not currently maintain key person life insurance on the lives of any of these
employees. We also believe that our success will depend upon our ability to hire
and retain highly qualified engineering and product development personnel.
Competition in the recruitment of highly qualified personnel in the information,
data, advertising and Internet services industry is very intense. Our inability
to identify, attract and retain such personnel may have a materially adverse
effect on our business. We can give you no assurance that we will be able to
retain our key employees or that we will be able to attract qualified personnel
in the future.
Special Note Regarding Forward Looking Statements
Some of the statements under "Risk Factors," "Plan of Operation,"
"Business" and elsewhere in this prospectus constitute forward-looking
statements. These statements involve known and unknown risks, uncertainties, and
other factors that may cause our or our industry's results, level of activity,
performance, or achievements to be significantly different from any future
results, levels of activity, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, those
listed under "Risk Factors" and elsewhere in this prospectus.
In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "expects," "plans," "intends,"
"anticipates," "believes," "estimates," "predicts," "potential," or "continue"
or the negative of such terms or other comparable terminology.
Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
events, levels of activity, performance, or achievements. We do not assume
responsibility for the accuracy and completeness of the forward-looking
statements. We do not intend to update any of the forward-looking statements
after the date of this prospectus to conform them to actual results.
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7
Capitalization
The following table sets forth the historical capitalization of
PowerChannel as of March 31, 2000. You should read this table in conjunction
with our financial statements and the related notes thereto, and the other
financial information included elsewhere in this prospectus.
Long term indebtedness
Note payable - stockholders 280,000
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Total long term indebtedness $ 280,000
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Stockholders' equity (deficit)
Common stock par value $.001 per share;
authorized 100,000,000 shares
issued and outstanding 21,857,000 shares 21,657
Preferred stock par value $.001 per share;
authorized 10,000,000 shares
issued 0 shares --
Paid-in capital 790,500
Subscription receivable (4,569)
Deficit accumulated during development stage (1,118,499)
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Total stockholders' equity (deficit) (310,911)
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Use of Proceeds
PowerChannel will not receive any proceeds from the sale of the shares
of common stock offered by the selling shareholders pursuant to this prospectus.
Market for Common Stock
As of August 10, 2000, there were 47 holders of record of
PowerChannel's 21,688,928 shares of issued and outstanding common stock. Upon
the effectiveness of this registration statement, PowerChannel expects to become
quoted on the Nasdaq OTC bulletin board under the symbol "PCTV." As of August
10, 2000, there is no public market for the common stock of PowerChannel.
Dividend Policy
To date, PowerChannel has not declared nor paid any cash dividends on
its common stock. PowerChannel currently intends to retain any future earnings
to finance the growth and development of its business and therefore does not
anticipate paying any cash dividends in the foreseeable future.
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8
Management's Plan of Operation
The following discussion should be read in conjunction with the
PowerChannel consolidated financial statements and the related notes, as well as
the other financial information included elsewhere in this prospectus. This
discussion contains forward-looking statements that involve risks and
uncertainties. PowerChannel's actual results could differ materially from those
anticipated in these forward-looking statements as a result of any number of
factors, including those set forth under "risk factors" and elsewhere in this
prospectus.
General
We are a development stage company without any revenues or customers.
In order for us to generate revenue and earn profits, we must first successfully
launch our product somewhere in the world. To date, our focus has been on
developing our business concept and attracting one or more strategic partners to
help us facilitate the distribution of our products and services. This has
required considerable effort on our part to identify, contact, establish rapport
with and negotiate a relationship with one or more partners in any given
country. While we intend to pursue the US market actively, we have not yet been
able to attract a significant partner to give us a strong enough combined
product offering to attract sufficient capital to fine a nationwide deployment.
We do not have the money or manpower to do so in the United States at this time.
However, over the next twelve months, we will attempt to help develop our
business model both in the United States and overseas.
We have not generated any revenues to date and do not expect to do so
for the foreseeable future. Factors that may cause our future operating results
to vary include, among others, the particular nature of whatever strategic
relationships we may enter into in the future, changes in operating expenses
resulting from such strategic relationships, the acceptance of our products and
services by consumers and businesses, the financial and technological
performance of our products, services and licenses, the availability and
efficiency of various billing methods, the timing of new services and
announcements, market acceptance of new and enhanced versions of our services,
potential acquisitions and changes in legislation and regulation that may affect
the competitive environment for our products and services, and general economic
and seasonal factors, among others.
Our plan of operation for 2000 is to prove our business concept in the
United Kingdom. We have assigned the European rights to our business model to a
UK company named PowerChannel Europe plc of which we own approximately 14.75%.
PowerChannel Europe and its wholly owned subsidiary, PowerChannel Limited, have
entered into a strategic partnership and investment arrangement with a major UK
company, Granada Media Group, to develop and deploy our set-top box and Internet
access services. In conjunction with HSBC Investment Bank, a major international
investment bank, PowerChannel Europe is now engaged in raising equity financing
to fund the deployment of an initial 250,000 set-top boxes, and intends to
develop comparable strategic partnerships in other major European countries.
In an agreement with Granada Media Group, entered into in April 2000,
we have committed to devoting our executives and manpower to deploying
PowerChannel throughout the United Kingdom. Under this joint venture
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9
arrangement, Granada has invested approximately $20 million in the PowerChannel
business model, which will adequately cover our research and development and
system development costs for the next twelve months. PowerChannel anticipates
having to raise substantial amounts of capital in the next twelve months if it
is to deploy its products outside of Europe (where deployment is being
undertaken by PowerChannel Europe).
We have committed the bulk of our management resources to helping
develop and launch the PowerChannel concept in the United Kingdom over the next
year. In return, we will be reimbursed for the costs by PowerChannel Europe. We
believe that it is crucial that we prove our business concept in the UK before
attempting to launch PowerChannel elsewhere. We also believe that this
experience will make it much easier for us to later attract both strategic
partners and the capital required to launch PowerChannel in other countries. As
soon as the PowerChannel business model has been launched in the UK we will
commence the search for strategic partners in the United States. However, there
is risk in the potential for conflict between the needs of the UK and European
operations and those of PowerChannel itself. Because many of the officers and
directors of PowerChannel are also currently serving as officers and directors
of PowerChannel Europe until the latter can recruit and train local management,
and because they are critical to the success of both companies, there is a
potential for PowerChannel to suffer from the lack of resources until such local
management is in place.
In April 2000, PowerChannel entered into agreements with PowerChannel
Europe Limited (of which PowerChannel is a 14.5% shareholder) In secondment
agreements for PowerChannel's three key senior executives, PowerChannel agreed
to devote its personnel resources to PowerChannel Europe for the next eighteen
months. In an intellectual property licensing agreement effective April 1, 2000,
PowerChannel licensed its intellectual property to PowerChannel Europe. The
license is perpetual, non-transferable, geographically exclusive, and provides
for the reimbursement of costs by PowerChannel Europe to PowerChannel for
development and operating costs. The initial development fee is $10,000.
In February 2000, PowerChannel Europe entered into a series of
agreements with Granada Media Group to launch its business model. PowerChannel
Europe was a subsidiary of PowerChannel until November 1999, when PowerChannel
issued a dividend to its shareholders of 80% of its PowerChannel Europe stock.
Through these March 2000 agreements with Granada Media, PowerChannel Europe
expects to launch its business model. Because a substantial part of what
PowerChannel owns at this time is its investment in PowerChannel Europe, and
because deployment in the United States will be greatly facilitated by the
success of its business model in the United Kingdom, PowerChannel will
potentially gain from any success PowerChannel Europe might enjoy.
In furtherance of our goal to successfully launch the PowerChannel
business model in the United States, we have also identified a number of
strategic partnership opportunities by industry and category. As time and
resources allow, PowerChannel intends to begin a concerted effort to identify
and recruit one or more strategic partners for our deployment in other
countries. However, even if we are successful in identifying and securing such
partners and in obtaining the considerable capital required to finance a
country-specific deployment, we may be unable to manage the relationship and
deployment adequately because we are focusing our efforts on the making the UK
market deployment a success.
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Research and development
We expect to have a number of proprietary systems designed, developed
or customized to help us target and deliver our advertising, e-commerce and
survey systems. We intend to establish systems for targeting, reporting,
intelligent survey delivery, e-commerce and data mining. We also intend to
design a data center.
We are currently and extensively evaluating the competing set-top box
designs that are available. The existing set-top box technologies available to
us have a number of potentially limiting features. After having completed an
internal assessment with our help, PowerChannel Limited has engaged a UK-based
team of engineers to provide a technical evaluation of competing technologies
and to propose creating an in-house upgrade if this can be achieved more
cost-effectively than competing technologies and with less risk of failure.
Their work will include and evaluation of the hardware and software design,
browser configuration, manufacturing, quality control and numerous other issues.
This will allow all the PowerChannel companies to prepare to provide a "next
generation" set-top box approximately twelve months from now.
Business
Business development
PowerChannel Holdings, Inc. is a corporation organized in Delaware on
March 26, 1999. PowerChannel has two wholly owned Delaware subsidiaries, and is
a 14.75% shareholder in a European PowerChannel company. All references in this
registration statement to "we," "us," "our," or "PowerChannel," are references
to PowerChannel Holdings Inc. and its consolidated subsidiaries.
We are a development stage company. We intend to establish a database
of consumer information from subscribers to our free Internet service, and to
take advantage of the commercial opportunities for exploiting this information.
Our subscribers will be those consumers who agree to complete monthly surveys in
exchange for continuing free Internet access. They will receive Internet access
through their televisions by using the "set-top boxes" we provide, also free of
charge, with any television. We call this service PCTV.
In March 1999, PowerChannel acquired all of the outstanding shares of
PowerChannel Inc. in a tax-free stock-for-stock transfer. PowerChannel Inc. was
incorporated in August 1998 to take advantage of a relationship with a specific
vendor in the U.S. PowerChannel Inc. entered into a ten-month long product trial
in the New York area in November 1998 involving more than one hundred
subscribers. The trial confirmed our view that there was substantial consumer
demand for our service, and when it was complete we started the process of
looking for both finance and strategic partners.
PowerChannel.Com Inc. was incorporated in Delaware in March 2000 as a
wholly owned subsidiary of PowerChannel. We intend to assign PowerChannel.Com
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11
the North American rights to use our business model. PowerChannel.com is
currently seeking to form strategic partnerships with major U.S. companies to
deploy its business model in the United States.
PowerChannel Europe PLC was incorporated as a UK company in October
1998. We acquired PowerChannel Europe in April 1999. PowerChannel Europe now
holds the exclusive rights to the PCTV business model for all of Europe. In
November 1999, PowerChannel distributed 80% of the outstanding shares of
PowerChannel Europe to our shareholders. PowerChannel is responsible for
supplying its senior executives to PowerChannel Europe, as well as technological
assistance. PowerChannel and PowerChannel Europe will co-operate on future
research and development on a cost-sharing basis.
PowerChannel Limited is a UK company that was formed in January 2000 to
roll out the PCTV model in the United Kingdom and Ireland. PowerChannel Limited
is a wholly owned subsidiary of PowerChannel Europe. PowerChannel Limited
recently entered into a strategic partnership with Granada Media Group, then a
wholly owned subsidiary of one of the largest commercial groups in the United
Kingdom and now an independent, publicly-traded company with a market
capitalization of over $10 billion. Under this alliance, Granada was given a
five percent (5%) equity investment in PowerChannel Limited, and subsequently
converted this holding into shares in PowerChannel Europe simultaneously with
investing $21 million into PowerChannel Europe to enable PowerChannel Limited to
commence the deployment of the PowerChannel business model in the United
Kingdom. Under the strategic alliance, PowerChannel Limited is responsible for
the purchase of set-top boxes, and Granada for marketing and distributing them,
as well as for providing free Internet access through its existing Internet
service provider, "G-Wizz". Granada has publicly announced that it intends to
spend approximately $45 million dollars over the next three years to support
marketing, customer care, advertising, distribution, content and other related
costs in connection with G-Wizz.
Our business
The PCTV business model has been conceived as a stand-alone, integrated
Internet provision and data-collection business. We expect to supply consumers
with free Internet access and the free hardware to enable Internet access
through any television. We provide the Internet service in exchange for the
subscriber's permission to collect data about that subscriber's purchasing
behavior and demographics, and to sell that data to others. We have organized
our corporate structure to give us the flexibility to form strategic
partnerships or alliances in different geographic markets. We intend to form
these relationships only with well-financed entities that can provide one or
more of the operational functions required to implement the model. We intend to
select a primary distribution partner to inaugurate our rollout in each market.
We anticipate that each partnership will most probably involve the provision of
Internet through the television. This may be supplemented by various alternative
data acquisition methods, including additional partners, branded and non-branded
PC-based service and the marriage of our data with data acquired by other data
companies through conventional methods.
Our aim is to become one of the world's leading providers of consumer
information, using the Internet as our medium for data capture. In the process,
we hope to become the industry standard for the delivery of free Internet access
through television. We plan to develop a large base of subscribers both under
our PCTV brand name and through strategic partners.
<PAGE>
12
For each geographic market, we believe we need to reach a level of
50,000 subscribers to begin data sales at a commercially meaningful level and to
launch our data-warehousing management system. Furthermore, to become a leading
source of self-reported consumer information in each market, we believe we need
to reach a level of 500,000 subscribers.
One of the great strengths of the PowerChannel business model is that
it is platform-independent: the Survey for Service(TM) proposition can be
provided as a menu option through any platform delivery system, such as PC,
cable modem, wireless, satellite or digital television. As the penetration of
these systems into the market grows, we expect to incorporate these channels
into our business model. We currently concentrate on television-based service
through set-top boxes because we believe that it presents the best market
opportunity prevailing at this time .
Our principal products or services and their markets
Free Internet Access Through Set-top Boxes
------------------------------------------
We supply free Internet access through free set-top boxes to our
subscribers. These products and services do not, and will not, generate any
revenue. Rather, the provision of this service allows us to enter into a
relationship with subscribers. In exchange for these services, the subscriber
must agree to provide us with a continuous supply of personal data. When the
subscriber activates his set-top box, he will be asked to register by providing
his personal information: home address and telephone number. He will then be
greeted by a screen asking him to complete an on-screen point-and-click
questionnaire containing, on average, 25 multiple-choice questions. The
questionnaire is highly user-friendly and designed with engaging graphics. When
the questionnaire has been completed, the subscriber will be granted instant,
unlimited access to the Internet for one month. Before the end of the month, the
subscriber, upon switching on the set-top box, will see a message reminding him
to complete the next month's questionnaire. Should the subscriber fail to do so
within a specified time frame, his Internet access will be suspended until the
questionnaire is completed. If the subscriber persists in failing to complete
the survey, he/she will be liable either to return the set-top box to us or pay
us the retail value of the box.
Use of the Survey Responses
---------------------------
We will take the results of the survey responses, site visitation and
other Internet usage pattern data that we acquire, and synthesize and package
them in various forms. We will offer these packages to companies such as data
research businesses, political opinion pollsters, advertising agencies and major
consumer goods companies. We may also accept commissions from these companies to
provide more focused data. In addition to selling proprietary survey data to
support the business operations, we also plan to generate revenue from
e-commerce, targeted advertising based upon survey response and Internet usage
patterns and other forms of Internet revenue. We believe that no other company
currently provides the precision of behavioral and demographic data to target
advertising that we intend to provide.
Our strategic focus is to leverage and add value to this subscriber
information gathered through our online data collection system. Our system is
being developed to acquire individual behavioral information electronically from
<PAGE>
13
our subscriber base. It is designed to provide marketers with dynamic real-time
access to gain actionable consumer information critical in maximizing the
maintenance and growth of their business.
We work with our data research customers to design custom survey
requirements and question sets for subscriber response during any of our monthly
information-acquisition cycles. This customization includes brand/ service
listings, frequency of purchase, intent to purchase, usage levels and other
discriminators. The applications for customized characteristics include market
research, competitive marketing, product testing, cross-selling, loyalty and
relationship marketing.
Distribution methods of the products or services
We will adopt two distinct methods of distributing our subscriber
services: co-distribution arrangements and direct marketing. Our financial plan
assumes that the great majority of our subscribers will be acquired through
co-distribution arrangements.
O Co-distribution arrangements. By co-distributing with an
entity that has a consumer customer base fitting our preferred
profile, we can increase our penetration, reduce distribution
costs and increase the probability of retaining that customer.
By providing our distribution partners with substantial
private labeling and co-branding opportunities , they may be
able to use these to enhance and extend relationships with
their end-users. This positioning may allow us speedy access
to the broadest possible customer base through national and
multinational partners Co-distribution arrangements may
include electronic retail outlets, local or national telephone
companies, utilities, Internet service providers and cable or
television operators.
O Subscriber Direct Distribution. We will consider a direct
sales approach using a combination of television and print
advertising, direct mail, and telemarketing. Among the direct
marketing possibilities, we consider television advertising
and telemarketing the most valuable for our purposes. These
methods allow us to explain the PCTV proposition to the
potential subscriber better than in printed material. We may
consider developing and creating short television spots that
illustrate our set-top box, showing its ease of use and
explaining the commercial proposition as it relates to the
subscriber. The advertisements would explicitly state that the
subscriber would be receiving free Internet access in return
for completing periodic on-screen questionnaires and that the
data will be sold to third parties for their own purposes.
However, we do not expect to implement a direct distribution
plan in the near future because its high cost would require us
to expend substantial amounts of capital that we do not
presently have.
O Telemarketing. We may also use outbound telemarketing to
attract subscribers, using lists that identify households
without personal computers. The telemarketing script would
explain the product, the service and the commercial benefit of
PCTV to the potential subscriber. We would have to engage the
services of a major national outbound-telemarketing house to
manage this program if we decided to implement it. The use of
print advertisements and direct mail solicitations, supported
by an inbound-telemarketing agency, could be used as a back-up
<PAGE>
14
to the television and outbound-telemarketing programs. These
would be co-ordinated through a retained advertising agency,
which would compare the results of all four approaches to
assess their relative cost-effectiveness.
O Other Subscriber Acquisition Channels. Numerous other
distribution opportunities may be available to us, including
wholesale, reseller, retail, agent, joint-venture, strategic
or other methods. We will explore these as time and resources
permit. We expect to evaluate a number of non-traditional
distribution and sales models, including infomercials and
multi-level marketing in addition to heavily promoting
internal subscriber referrals.
Status of any publicly announced new product or service
In April 1999, our wholly owned subsidiary, PowerChannel, Inc.
announced its intention to begin deploying free set-top boxes to consumers in
the U.S. as part of an ongoing product trial series. We set up a website for
PowerChannel (http://www.PowerChannel.net) and another website
(http://www.FreePCTV.net) to allow consumers to sign-up as an indication of
their interest in receiving a free set-top box in exchange for answering survey
questions. PowerChannel was the subject of numerous press articles, including
ones written for Interactive Week, the Financial Times and Business Week. Having
completed the trials, and having satisfied ourselves as to the potential
consumer demand for our product offering, we then began looking for strategic
partners and a manufacturer of set-top boxes with greater functionality.
Competition
Although relatively new and rapidly evolving, access to the Internet by
means other than a computer is intensely competitive. We expect that competition
for PowerChannel's targeted subscriber base and customer base is expected to
increase significantly in the future.
We believe that the principal competitive factors for companies seeking
to collect market research information by means of offering free Internet access
through televisions are:
O Obtaining a pool of subscribers large enough to gather
meaningful survey data.
O Functionality and ease of operation with set-top boxes
O Brand recognition
We will compete for subscribers with other Internet service providers.
We will compete for customers with other household data compilers.
There are currently no direct competitors who do exactly what we look
to do. However, we have numerous competitors within certain segments of our
business. Competitors exist in a number of distinct categories. For example, in
the market for Internet access, we compete with both Internet-TV offerings,
PC-based services and other Internet appliances. We also compete in categories
like content provision, online advertising, e-commerce, marketing services and
data and information companies. We must evaluate each competitor in light of its
impact on various of our constituencies, such as subscribers, data customers,
and strategic partners, including distribution organizations and access,
technology, content and information providers.
<PAGE>
15
We believe that the principal competitive factors affecting the markets
for our products include customer service, content, quality, price, marketing,
distribution, continuation of service and proprietary technology. In addition,
consumer demand for Internet services may be adversely affected by the
increasing number of competitive products from which to choose, making it
difficult to predict our future success in producing products, or services for
the consumer market.
Because we have to operate in more than one industry and will
undoubtedly attract competition from a number of areas, our goal is to co-opt
potential competitors as partners. Our business model is predicated upon using
strategic partners to leverage our assets, tangible and intangible, and our
capabilities and thus increase our speed to market and market penetration.
Obviously, this strategy is not all-encompassing and cannot be relied upon as
the sole method of defending us against industry interlopers.
We will be operating in a complex and rapidly evolving marketplace that
includes Internet service providers and other Internet companies, as well as the
advertising, e-commerce, marketing services and data products industries, all of
which are highly competitive and aggressive. We have developed our operating
strategies to maximize opportunities to partner with potential competitors in
order to accelerate our growth while minimizing the risk of direct competition
wherever possible. The data products marketplace consists of proprietary
research, sponsored and non-sponsored survey questionnaires and list sales and
rentals. A key value driver of our business model is that data loses value with
time. Because the current state of the art for data collection uses an
inefficient mix of telephone and paper surveys that are unwieldy and slow, we
believe that the availability of a constantly renewed stream of fresh data
through the Internet creates a tremendous opportunity for us.
Suppliers
We must depend upon a number of critical supplier relationships for our
operating needs. In each country in which we choose to deploy our product
offerings, we may desire or be required to use different suppliers and vendors
for the major categories of our supply needs. Among the products or services we
will require in order to operate and grow our businesses are:
Set-top Box Developers and Manufacturers
----------------------------------------
The set-top box development and manufacturing industry is highly
fragmented. The principal suppliers for our needs are Sony, Phillips, Bull and
numerous other smaller development companies such as MSU, Boca Research, Netgem
and Paradise. Additionally, the component supply chains necessary to support
manufacturing set-top boxes are currently experiencing tremendous fluctuations
in supply and pricing, mostly in memory chips. As there are no widely adopted
industry standards for set-top box design similar to those of the personal
computer industry, we may find it difficult to acquire large amounts of
manufacturing capacity and component supplies for our preferred set-top box
design. We have held discussions with numerous suppliers of set-top boxes and
believe that we will be able to choose among a number of suppliers to procure
our product requirements. However, once we choose a primary supplier and product
design for a specific market, our ability to change will be greatly curtailed.
<PAGE>
16
As a consequence we bear some risk associated with having a highly customized
product that will only be available from a single source.
Internet Connectivity
We have not entered into any Internet access supply arrangements.
However, we do not anticipate operating our own network facilities. This
approach will require us to lease or purchase wholesale access from other
network suppliers. We do not believe that this will be problematic as there are
many suppliers operating in most countries. However, some of these potential
suppliers may view our business efforts as competitive to their own, which could
cause us some difficulty in sourcing an adequate supply of Internet access
services. Some of the third party suppliers of Internet access are PSINet, 1st
Up, MCI-WorldCom, GTE, British Telecom and Cable & Wireless and numerous other
smaller companies.
Our future profitability will be dependent in part on our ability to
use network facilities leased from others on a cost-effective basis. Because
there may be unforeseen changes in industry conditions, the continued
availability of leased transmission facilities at historical rates cannot be
assured. We do not own a network and, accordingly, will depend on other
companies for networks to supply our subscribers with Internet access. Our
ability to maintain and expand our business depends, in part, on our ability to
obtain network services on favorable terms from a wholesale ISP.
Internet Content Services
We operated a portal service during our product trials in the U.S.
using the services of a content aggregator. We believe that it is important to
our subscribers that we offer a portal as part of our consumer product offering.
Beyond that, however, we do not intend to create custom content and will
continue to depend upon other companies for the content input into our portal.
Software Systems Design and Implementation
While we have held discussions with a number of technology development
companies about supplying our needs for custom product development, we have not
entered into any formal agreement to support our development needs. There are
only a few companies of which we are aware who currently develop or operate
systems similar in nature to what we require. We may be forced to develop our
technology needs from scratch, which in addition to the added cost and time
could create substantial development risk for us. We intend to contract with a
number of third party software developers to provide software, services and
support essential to our success. These software programs are available to
virtually any competitor and therefore will not provide a proprietary
competitive advantage. However, we believe that by assembling various programs
into a unique combination that is difficult and expensive to duplicate, we would
be able to create a substantial and time-intensive hurdle to any would-be
competitor. Suppliers in this case include Xchange, MatchLogic, Engage
Technologies, Client Logic, YellowBrick Solutions and ResponseLogic.
<PAGE>
17
Dependence on one or a few major customers
We believe that our customers fall into one of two categories. Our
subscribers are our suppliers of raw data products and are the
business-to-consumer aspect of our business. Our true customers are the
business-to-business portion of our business, which we anticipate will generate
our revenues.
Business-to-consumer
We intend to have supply relationships with individual households. This
means that no single supplier of data to us could yield particularly strong
influence over us or force us into doing something by virtue of our dependence
upon its continuing to supply data to us. However, we may enter into strategic
relationships or joint ventures with companies or organizations that already
have established customer or memberships bases. If this happens, then our
strategic partner may be able to wield considerable influence over our business,
as the loss of the strategic partner could have a catastrophic effect on our
ability to acquire an uninterrupted supply of data.
Business-to-Business
We intend to have revenue-generating relationships with a large and
diverse group of customers in securing our data sales. Companies in the
automotive, travel, telecommunications, consumer package goods, pharmaceutical,
retail, financial services and entertainment industries, as well as direct
marketing and advertising agencies and market research firms, will all be
candidates for our sales. We do not believe that any one company will dominate
our revenue streams. However, especially in the early stages of our sales
efforts, we may become dependent upon one or a few customers who could yield
great influence over our success or failure. We expect to seek out a few early
customers who will act as references for our efforts to attract more customers
as we grow. These early stage customers may be given special dispensation, such
as lower pricing, free services, exclusivity or other perquisites to attract
them to our services.
Patents, trademarks, licenses, franchises, concessions, royalty agreements or
labor contracts
We are the owner of a pending U.S. Patent Application for a system and
method for controlling access to a communications medium. The application was
filed with the U.S. Patent Office on April 9, 1999.
We also have pending applications to register the trademarks
"POWERCHANNEL", "PCTV" and POWERCHANNEL.NET. We also use the mark "Survey for
Service." In addition, an application is pending in the United Kingdom to
register the mark "POWERCHANNEL" there.
While we enjoy common law rights in all of our trademarks, we have not
undertaken any efforts to secure federal registration for our mark "Survey for
Service" and may be limited in enforcing our rights against third parties for
trademark infringement or third parties claiming that our use of such mark
infringes their intellectual property.
<PAGE>
18
We currently hold the Internet domain names "powerchannel.com",
"PowerChannel.TV", "freePCTV.net" and "powerchannel.net". We also hold
corresponding domain names in the United Kingdom. The Internet Corporation, on
behalf of Assigned Names and Numbers and the governments of applicable
countries, generally regulates the registration of domain names.
PowerChannel Europe has been assigned the exclusive rights in Europe to
our PCTV concept, technology and know-how for Europe. The agreement calls for
joint technology-development and sharing arrangements. We intend to assign to
PowerChannel.Com the exclusive rights to our business concept, technology and
know-how in the U.S. and Canada although we have not yet entered into this
contractual relationship.
PowerChannel intends to protect all of its intellectual property
through appropriate federal and state registrations and remedies. However,
despite our efforts to protect our proprietary rights, unauthorized parties may
attempt to copy aspects of our software or services or to obtain and use
information that we regard as proprietary. There can be no assurance that our
means of protecting our proprietary rights will be adequate or that our
competitors will not independently develop similar technology. In addition, the
laws of some foreign countries do not protect our proprietary rights to as great
an extent as the laws of the U.S. Any inability on our part to protect our
proprietary technology or other assets adequately could have a material adverse
effect on our business and results of operations.
We are not aware of any infringement of anyone else's trademarks or
patents by us or our licensees. To date, no actions have been filed against us
with respect to either alleged patent or trademark infringement claims. However,
no assurance can be given that actions or claims alleging trademark, patent or
copyright infringement will not be brought against us with respect to current or
future products or services, or that, if such actions are brought, we will
ultimately prevail. Any such claiming parties may have significantly greater
resources than us to pursue litigation of such claims. Any such claims, whether
with or without merit, could be time-consuming, result in costly litigation,
cause delays in introducing new or improved services, require us to enter into
royalty or licensing agreements or cause us to discontinue use of the challenged
trade name, service mark or technology at potentially significant expense to us
associated with the marketing of a new name or the development or purchase of
replacement technology, any of which results could have a material adverse
effect on us.
The U.S. Patent & Trademark Office has recently issued a number of
Internet-related patents that cover what many believe to be standard operating
methods. We do not know what effect these new-style patents may have on our
business. Our success relies substantially upon the acquisition and use of a
number of technologies that may be the subject of such patents that could
prevent us from operating our business without acquiring these technology(ies).
Furthermore the developing organization may be unwilling to license or grant use
at any cost or at a cost prohibitive to our profitability.
Need for government approval and effect of government regulation
Laws and regulations directly applicable to Internet communications,
commerce and advertising are becoming more widespread. A recent session of the
U.S. Congress resulted in Internet laws regarding children's privacy, copyrights
<PAGE>
19
and taxation. Such legislation could dampen the growth in use of the Internet
generally and decrease the acceptance of the Internet as a communications,
commercial and advertising medium. The governments of other states or foreign
countries might attempt to regulate our transmissions or levy sales or other
taxes relating to its activities. The European Union recently enacted its own
privacy regulations that may result in limits on the collection and use of
certain user information. The laws governing the Internet, however, remain
largely unsettled, even in areas where there has been some legislative action.
It may take years to determine whether and how existing laws such as those
governing intellectual property, privacy, libel and taxation apply to the
Internet and Internet advertising. In addition, the growth and development of
the market for Internet commerce may prompt calls for more stringent consumer
protection laws, both in the U.S. and abroad, that may impose additional burdens
on companies conducting business over the Internet. Our business, results of
operations and financial condition could be adversely affected by the adoption
or modification of laws or regulations relating to the Internet.
As the number of privacy bills introduced by the U.S. Congress in the
past year continues to rise, the debate over government regulation of online
privacy is rapidly evolving from a question of whether the industry will be
regulated into a question of when and how. In February 2000 a bipartisan group
of federal lawmakers formed a privacy caucus to push for new legislation.
Although the Federal Trade Commission has in the past sided with business,
favoring self-regulation, it is believed to be monitoring a number of e-commerce
companies, raising the real possibility that the industry will have to accept
some degree of government oversight. The Commission recently convened an
Advisory Committee on Online Access and Security to study the handling of
private electronic data and is expected to draft a report in the next few
months.. Many foreign countries require registration of companies that deal in
personal data.
We will enter into contracts with each of our subscribers for them to
provide information on a monthly basic in commercial exchange for a free set-top
box and free monthly Internet service. We will make full disclosure to the
subscriber that the information provided will be marketed to third parties. We
are in compliance with current government and industry regulation regarding the
acquisition of our consumer information. There is, however, no guarantee that
government regulations may not be changed in a way that might negatively affect
our ability to gather information from our subscribers
We believe that our use of permission-based data acquisition will not
only shield us from liability as privacy regulation increases around the globe,
but actually make our data more valuable. Other sources of online data may
become more scarce because their compilers may not have alternative ways to
collect data if their current method becomes regulated or banned. However, the
rapid rise in public awareness of online privacy concerns may well make it
harder for us to acquire subscribers.
We believe that our approach to data collection and dissemination will
benefit tremendously from the onslaught of data protection initiatives in the
United States and abroad. We collect data from a number of sources: survey
responses, site visitation and other online behavioral observations including
responses to advertising, email marketing and e-commerce offerings. Because our
subscribers must agree to allow us to track and store these things in advance,
we believe that we will have avoided most of the privacy issues that might
<PAGE>
20
arise. However, even with this permission-based strategy, our products will not
be for everyone. Many consumers will not be interested in allowing us to trade
in their personal information. More importantly, many may become alarmed as they
begin to fully appreciate the power of this information and exactly how much we
may know about them and their personal habits.
Research and development
PowerChannel did not expend any money for research and development in
the last fiscal year. However, as discussed in detail in our plan of operation,
we have begun to engage in considerable research and development, and this will
continue over the next twelve months.
Compliance with environmental laws
PowerChannel does not anticipate any significant costs to comply with
environmental laws and requirements.
Employees
As of August 10, 2000, PowerChannel had 10 employees, all of who were
located at our New City offices and all of which are employed on a full-time
basis. None of our employees is represented by a labor union. We have not
experienced any work stoppage and consider relations with our employees to be
good
Reports to Shareholders.
At the time of the filing of this registration statement, we are not
subject to the information and reporting requirements of the Securities Exchange
Act of 1934. Following the effective date of this registration statement,
PowerChannel will be subject to the Exchange Act reporting requirements and will
file reports, proxy statements and other information with the Securities and
Exchange Commission. Such reports, proxy statements and other information we
file with the SEC may be inspected and copied at the SEC public reference
facilities maintained by the Commission at its principal offices at Judiciary
Plaza, 450 5th Street NW, Washington, D.C. 20549. These reports, proxy
statements and other information may also be obtained from the website
maintained by the SEC at http://www.sec.gov. Copies of these materials can also
be obtained at prescribed rates from the public reference section of the SEC at
its principal offices in Washington D.C., as set forth above
Dividends
We have not paid any dividends on our common stock since our formation
and we do not expect to pay any cash or other dividends in the foreseeable
future. If we have any earnings in the future from our operations, we plan to
retain those earnings to help finance our future operations and growth. Any
decision on the future payment of dividends is solely at the discretion of the
board of directors and will depend on various factors including the results of
our operations and our financial conditions.
<PAGE>
21
Facilities
We lease approximately 2,400 square feet pursuant to a three-year lease
with 20 SQ Associates at 20 Squadron Boulevard, Suite 210, New City, New York
10956 for an annual rent of $44,000. This space is the location of our principal
executive offices.
Legal proceedings
PowerChannel is currently not a party to any lawsuit, litigation, or
regulatory proceeding of any kind, filed, pending or threatened.
Management
Executive officers and directors
Certain information concerning the directors and executive officers is
set forth below.
Name Position with Company Age
---- --------------------- ---
James B. Gambrell IV President, Treasurer and a Director 40
Michael Preston Vice President of Finance, Secretary and a Director 54
Steven Lampert Vice President of Marketing and a Director 50
Each director has served since PowerChannel's inception on March 26,
1999 and serves for a term of office of one year. The following is a brief
summary of the business experience of PowerChannel's directors and executive
officers.
James B. Gambrell IV -- President, Treasurer and a Director -- Prior to
joining PowerChannel, Mr. Gambrell had served since March 1997 as the President
and Chief Executive Officer of Imagitel, Inc., a telecommunications company that
serviced 800,000 customers in 45 states, and as its Chief Financial Officer from
1996 to 1997. From 1986 to 1996, Mr. Gambrell served as President of Waterford
Investments, an investment and corporate advisory firm. Mr. Gambrell holds a BS
in Business from the State University of New York, and an Executive MBA from
Baylor University. Mr. Gambrell also serves as the Chief Executive Officer and a
Director of PowerChannel Europe and PowerChannel Limited.
Michael Preston -- Vice President of Finance, Secretary and a Director
-- Before founding PowerChannel, Mr. Preston co-founded Long Distance Direct and
has been its Vice President and Chief Financial Officer since January, 1994. Mr.
Preston is also a partner in Alberdale & Company, a U.K.-based, SFA-regulated
corporate finance house. Mr. Preston founded and has served as a director of:
Sterling Publishing Group, PLC, a publisher of advertising-financed controlled
circulation business and consumer publications, with a US list management, list
brokering and data management subsidiary with revenues of $200 million
<PAGE>
22
(1977-1995); Broad Street Group PLC, a marketing services and advertising
company with revenues of $100 million (1977-1991); Frank Usher Holdings PLC
(1989-1990); and Cadiz Land Corporation (1983-1987). Mr. Preston holds an MA
degree from Oxford University, England, and is a U.K. Chartered Accountant. Mr.
Preston also serves as Director and Executive Deputy Chairman of PowerChannel
Europe and PowerChannel Limited.
Steven Lampert -- Vice President of Marketing Officer and a Director --
Before founding PowerChannel, Mr. Lampert co-founded Long Distance Direct and
has been its Chief Executive Officer since December 1991. Prior to founding
LDDI, Mr. Lampert was President of Comtec, Inc., a New York-based
telecommunications corporation that pioneered interactive voice-response
telephony, from November 1985 through November 1991. Prior to 1985, Mr. Lampert
served as director of telecommunications for NBC and Corning Labs. Mr. Lampert
holds a BA degree from Hunter College, New York. Mr. Lampert also serves as
Director and Executive Deputy Chairman of PowerChannel Europe and PowerChannel
Limited.
Executive compensation
The following table sets forth the compensation awarded or paid to, or
earned by, PowerChannel's President and any other executive officers of
PowerChannel who earned in excess of $100,000 in salary and bonus (collectively,
the "Named Executive Officers") for services rendered to PowerChannel during the
year ended June 30, 1999.
SUMMARY COMPENSATION TABLE (1)
<TABLE>
<CAPTION>
Long-Term
Compensation Awards
-------------------
Securities
Name and Principal Position Year Salary Bonus Underlying Options
--------------------------- ---- ------ ----- ------------------
<S> <C> <C> <C> <C>
James B. Gambrell IV 1999 $ 45,209 $0 0
President, Treasurer and a Director 1998 $ 12,500
Steven Lampert 1999 $ 0 $0 0
Vice President of Marketing and a Director 1998
Michael Preston 1999 $ 0 $0 0
Vice President of Finance, Secretary and 1998
a Director
Gary Blau 1999 $120,000 $0 0
1998
</TABLE>
In 2000, we adopted our 2000 Stock Option Plan, which provides for
incentive and non-qualified option grants underlying up to 2,500,000 shares of
our common stock for PowerChannel's management and employees.
<PAGE>
23
Employment agreements
On March 1, 2000, PowerChannel and James B. Gambrell IV entered into an
employment agreement. This agreement expires on February 28, 2003, subject to
annual renewals thereafter, and provides for a payment to Mr. Gambrell of an
annual salary of $250,000. The agreement also provides for bonuses, life, death
and disability insurance, and the granting of an option to acquire up to 600,000
shares of PowerChannel's common stock at an exercise price of $1.00 per share
for a term of ten years. These options have not yet been formally granted.
On March 1, 2000, PowerChannel and Michael D. Preston entered into an
employment agreement. The agreement expires on February 28, 2003, subject to
annual renewals thereafter, and provides for a payment to Mr. Preston of an
annual salary of $200,000. The agreement also provides for bonuses, life, death
and disability insurance, and the granting of an option to acquire up to 250,000
shares of PowerChannel's common stock at an exercise price of $1.00 per share
for a term of ten years. These options have not yet been formally granted.
On March 1, 2000, PowerChannel and Steven Lampert entered into an
Employment Agreement . The agreement expires on February 28, 2003, subject to
annual renewals thereafter, and provides for a payment to Mr. Lampert of an
annual salary of $200,000. The agreement also provides for bonuses, life, death
and disability insurance, and the granting of an option to acquire up to 250,000
shares of PowerChannel's common stock at an exercise price of $1.00 per share
for a term of ten years. These options have not yet been formally granted.
Principal Stockholders
The following table sets forth information concerning the beneficial
ownership of PowerChannel's common stock as of August 10, 2000, by each director
and executive officer, all directors and officers as a group, and each
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percentage of
Title of Class Beneficial Owner Beneficial Ownership Class
-------------- ----------------------- -------------------- -------------
<S> <C> <C> <C>
Common Stock Michael Preston 9,867,296 45.5%
20 Squadron Boulevard,
Suite 210
New City, NY 10965
Common Stock Steven Lampert 9,742,296 44.9%
20 Squadron Boulevard,
Suite 210
New City, NY 10965
</TABLE>
<PAGE>
24
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percentage of
Title of Class Beneficial Owner Beneficial Ownership Class
-------------- ----------------------- -------------------- -------------
<S> <C> <C> <C>
Common Stock James B. Gambrell IV 2,000,000 9.2%
20 Squadron Boulevard,
Suite 210
New City, NY 10965
Common Stock Internet Investors, Inc. 3,773,296 17.4%
Common Stock All officers and directors as 15,617,296 82.3%
a group
</TABLE>
The shares in this table listed as being owned by Michael Preston
include 3,773,296 shares held by Internet Investors, Inc. Internet Investors,
Inc. is a wholly owned subsidiary of Long Distance Direct Holdings, Inc. Mr.
Preston and Mr. Lampert own an aggregate of 22.9% of the shares of Long Distance
Direct Holdings, Inc. and are also officers and directors.
The shares in this table listed as being owned by Steven Lampert also
include 3,773,296 shares held by Internet Investors, Inc.. The number does not
include 10,000 shares owned by Mr. Lampert's daughter, for which Mr. Lampert
disclaims beneficial ownership.
The amount of shares listed as being owned by the directors and
officers collectively includes shares owned by Internet Investors, Inc.
Related Party Transactions
Together, James B. Gambrell IV, Michael Preston and Steven Lampert own
36.2% of PowerChannel Europe. PowerChannel is a 14.75% shareholder in
PowerChannel Europe. To facilitate PowerChannel Europe's strategic partnership
with Granada Media Group Ltd., PowerChannel and PowerChannel Europe entered into
an agreement where PowerChannel management will devote the next eighteen months
working for PowerChannel Europe to help launch the PowerChannel business model
in the United Kingdom. PowerChannel also licenses its intellectual property to
PowerChannel Europe. For a more detailed description of this transaction and the
relationship between these parties, please refer to the Business Section.
Together, Michael Preston and Steven Lampert own 22.9% of Long Distance
Direct Holdings, Inc.. Long Distance Direct Holdings, Inc., through its wholly
owned subsidiary, Internet Investors, Inc., is a 17.4% shareholder in
PowerChannel. Also, through a service agreement, for a period of time LDDH
provided certain of its employees to PowerChannel.
<PAGE>
25
On January 7, 2000, the Securities and Exchange Commission filed an
action in federal court against Long Distance Direct Holdings, Inc., alleging
violations of the Securities Exchange Act of 1934 for failing to file, or filing
late, a number of the annual reports required to be filed on Form 10-K and some
quarterly reports required to be filed on Form 10-Q from 1995 through 1999. Long
Distance Direct Holdings, Inc. subsequently entered into a final judgment with
the Commission, which was filed with the Court on March 7, 2000, enjoining Long
Distance Direct Holdings, Inc. from failing to file accurate and complete
reports required to be filed with the Commission. The final judgment further
ordered that on or before April 30, 2000, Long Distance Direct Holdings, Inc.
file:
o a complete and accurate annual report on Form 10-K for fiscal
1998;
o complete and accurate quarterly reports on Form 10-Q for the
second through fourth quarters of 1999; and
o such other periodic reports which may become due prior to
entry of the judgment.
The final judgment further provided the filing of a notification with
the Court of the filing of its delinquent reports, and also that a copy of the
Final Judgment be delivered to any incoming chief executive officer or president
of Long Distance Direct Holdings, Inc..
Long Distance Direct has informed PowerChannel that it is taking steps
to comply with the terms of the final judgment concerning the Form 10-K and Form
10-Q filings.
Long Distance Direct, Inc., a wholly owned subsidiary of Long Distance
Direct Holdings, Inc., is subject to an order of the Federal Communications
Commission dated February 9, 2000, for willfully or repeatedly violating section
258 of the Communications Act of 1934.
Steven Lampert's stepson introduced certain of the purchasers of the
Series A Convertible Notes to PowerChannel.
Selling Stockholders
The following table sets forth the names of the selling stockholders,
the number of shares of common stock beneficially owned by the selling
stockholders and the number of shares of common stock which may be offered for
sale pursuant to this prospectus by such selling stockholder. The offered shares
of common stock may be offered from time to time by each of the selling
stockholders named below. See "Plan of Distribution." However, the selling
stockholders are under no obligation to sell all or any portion of the shares of
common stock offered, nor are the selling stockholders obligated to sell such
shares of common stock immediately under this prospectus. Particular selling
stockholders may not have a preset intention of selling their shares and may
offer less than the number of shares indicated. Because the selling stockholders
may sell all or part of the shares of common stock offered hereby, no estimate
can be given as to the number of shares of common stock that will be held by the
selling stockholders upon termination of any offering made hereby. The number of
<PAGE>
26
shares of common stock issuable upon conversion of the convertible notes are
subject to adjustment by reason of stock splits, stock dividends and other
similar transactions, additional issuances of securities or variation in the
price of PowerChannel's common stock.
Common Shares Beneficially
Owned After Offering
<TABLE>
<CAPTION>
Number of Common
Name of Selling Shares Beneficially Common Shares Percent of
Stockholder Owned Prior to Offering Offered Hereby Number Outstanding
------------------- ----------------------- -------------- ----- -----------
<S> <C> <C> <C> <C>
Ronald Adams 155,403 155,403 0 0%
Robert J. Mottern 50,000 50,000 0 0%
Samuel Farkash 396,271 396,271 0 0%
Shay Cohen 388,501 388,501 0 0%
Taviv Meir 466,201 466,201 0 0%
Yekuda Klod Benistiy 424,981 424,981 0 0%
Todd Grama 200,000 (1) 100,000 100,000 *
Millenium Holdings Inc. 594,250 (2) 194,250 400,000 1.67%
Total 2,175,607
</TABLE>
(1) Includes 100,000 shares purchased on November 11, 1999
(2) Includes 400,000 shares purchased on November 11,1999.
* less than 1%
None of the Selling Stockholders has held an office, position, or has
had any material relationship with PowerChannel or any of its predecessors or
affiliates.
Description of Securities
General
The authorized capital stock of PowerChannel consists of 100,000,000
shares of common stock, $0.001 par value, and 10,000,000 shares of preferred
stock, $0.001 par value.
Common Stock
As of August 10, 2000, there were 21,688,928 shares of common stock
outstanding, which were held of record by 47 stockholders. The holders of
outstanding shares of common stock are entitled to receive dividends out of
assets legally available therefor at such times and in such amounts as the Board
of Directors may, from time to time, determine, subject to any preferences which
may be granted to the holders of preferred stock. Holders of common stock are
entitled to one vote per share on all matters on which the holders of common
stock are entitled to vote. The common stock is not entitled to preemptive
rights and is not subject to redemption or conversion. Upon liquidation,
dissolution or winding-up of PowerChannel, the assets (if any) legally available
for distribution to stockholders are distributable ratably among the holders of
the common stock after payment of all debt and liabilities of PowerChannel and
the liquidation preference of any outstanding class or series of preferred
stock. All outstanding shares of common stock are, and the shares of common
<PAGE>
27
stock to be issued pursuant to this offering will be, when issued and delivered,
validly issued, fully paid and nonassessable. The rights, preferences and
privileges of holders of common stock are subject to any series of preferred
stock that PowerChannel may issue in the future. Certain holders of common stock
or securities convertible into common stock are entitled to the registration
rights discussed below.
Preferred Stock
PowerChannel's certificate of incorporation authorizes the issuance of
"blank check" preferred stock with whatever designation, rights and preferences
as may be determined by the board of directors. Accordingly, the board is
empowered, without stockholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting, or other rights which could adversely affect
the voting power or other rights of the holders of common stock. The preferred
stock could be utilized, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of PowerChannel.
Although we do not currently intend to issue any shares of preferred stock,
there can be no assurance that we will not do so.
Series A Convertible Notes
On February 29, 2000 PowerChannel entered into subscription agreements
with seven individuals and in conjunction with such agreements, issued Series A
Convertible Notes. Pursuant to these notes, PowerChannel acquired $280,000 in
investment capital and issued security interests at 7% interest for a term of
three years. At the option of the noteholder, these notes may be converted into
common stock for the value of the note at a price of $0.1287 per share. The
notes also have registration rights and the shares issuable upon conversion are
being registered hereunder.
Certain provisions of Delaware law and charter documents
PowerChannel is a Delaware corporation and subject to Section 203 of
the Delaware General Corporation law (the "Delaware GCL"), an anti-takeover law.
In general, Section 203 of the Delaware GCL prevents an "interested stockholder"
(defined generally as a person owning 15% or more of a corporation's outstanding
voting stock) from engaging in a "business combination" (as defined) with a
Delaware corporation for three years following the date such person became an
interested stockholder, subject to certain exceptions such as the approval of
the board of directors and of the holders of at least two-thirds of the
outstanding shares of voting stock not owned by the interested stockholder. The
existence of this provision would be expected to have an anti-takeover effect,
including attempts that might result in a premium over the market price of the
shares of Common Stock held by stockholders.
As permitted by the Delaware GCL, PowerChannel has included in its
certificate of incorporation a provision to eliminate the personal liability of
its directors for monetary damages for breach or alleged breach of their
fiduciary duties as directors to the extent permitted by the Delaware GCL. In
addition, the bylaws of PowerChannel provide that PowerChannel is required to
indemnify its officers and directors under certain circumstances, including the
circumstances in which indemnification would otherwise be discretionary, and
PowerChannel is required to advance expenses to its officers and directors as
incurred in connection with proceedings against them for which they may be
indemnified.
<PAGE>
28
Shares Eligible for Future Sale
Prior to this offering, there has been no public market for our common
stock. Upon conversion of the Series A Convertible Notes and completion of this
offering, we will have 23,864,535 shares of common stock issued and outstanding.
Upon conversion of the Series A Convertible Notes into 2,175,607 shares of
common stock, these shares will be freely tradeable without restriction or
further registration under the Securities Act, except for any shares held by an
"affiliate" of PowerChannel (as the term affiliate is defined by the rules and
regulations issued under the Securities Act), which will be subject to the
resale limitations of Rule 144 promulgated under the Securities Act.
Plan of Distribution
The shares of common stock issuable upon the exercise of the Series A
Convertible Notes will be offered solely by the noteholders. No underwriters are
participating in this offering. The notes are exercisable in accordance with the
terms of a form of Subscription Agreement between PowerChannel and each of the
seven noteholders.
Neither PowerChannel nor the selling stockholder has employed an
underwriter for the sale of shares by the selling stockholder. The selling
stockholder may offer shares directly or through pledgees, donees, transferees
or other successors in interest at various times
(1) on The OTC Bulletin Board or in any other securities market on
which PowerChannel's common stock is then listed or traded,
(2) in negotiated transactions,
(3) in a combination of any of the above transactions or
(4) through any other available market transaction.
The selling stockholder may offer shares at
(1) fixed prices which may be changed,
(2) prices prevailing at the time of sale,
(3) prices related to such prevailing market prices or
(4) at negotiated prices.
Sales on or through The OTC Bulletin Board will be effected at such
prices as may be obtainable and as may be satisfactory to the selling
stockholder. No sales or distributions other than as disclosed in this
prospectus will be effected until after this prospectus shall have been
appropriately amended or supplemented, if required, to set forth the terms of
the sale or distribution. The shares held by the selling stockholder may be sold
<PAGE>
29
directly or through brokers or dealers, or in a distribution by one or more
underwriters on a firm commitment or best efforts basis. The method by which the
selling stockholder's shares may be sold include
o on the Nasdaq National Market or any other market where our
common stock may trade, at the then-prevailing prices and
terms or at prices related to the then-current market price or
at negotiated prices;
o a block trade in which a broker-dealer will attempt to sell
shares as agent, but may position and resell a portion of the
block as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by that
broker-dealer for its own account under this prospectus;
o an over-the-counter distribution under the rules of the Nasdaq
SmallCap Market;
o ordinary brokerage transactions and transactions in which a
broker solicits purchasers; or
o in privately negotiated transactions.
The selling stockholder may from time to time deliver all or a portion
of its shares of common stock held by it to cover a short sale or sales or upon
exercise of a put equivalent position. In addition, any shares of common stock
that qualify for sale under Rule 144 or Rule 144A under the Securities Act may
be sold under any such rules rather than under this prospectus.
Brokers or dealers may receive commission or discounts from the selling
stockholder in amounts to be negotiated immediately prior to the sale.
Commission expenses and brokerage fees will be paid by the selling stockholder.
The selling stockholder and any underwriters, dealers or agents that
participate in the distribution of its shares of PowerChannel's common stock may
be deemed to be "underwriters" within the meaning of the Securities Act, and any
profit on the resale of those shares by them or any discounts, commissions or
concessions received by any such underwriters, dealers or agents may be deemed
to be underwriting discounts and commissions under the Securities Act.
PowerChannel has agreed to indemnify the holders of the notes, their
officers, directors, partners, employees, agents, counsel, plaintiffs' lead
counsel and each person who controls each holder of the warrants, as determined
under applicable securities laws, against liabilities relating to this offering,
including liabilities under the Securities Act. Expenses of this offering,
estimated at $______, will be borne in full by PowerChannel.
Legal Matters
The validity of the shares of common stock offered hereby will be
passed upon for PowerChannel by its counsel, Parker Duryee Rosoff & Haft, P.C.,
New York, New York.
<PAGE>
30
Experts
The Consolidated Financial Statements of PowerChannel Holdings, Inc.
dated December 31, 1999 appearing in this prospectus and registration statement
have been audited by Yohalem Gillman & Co., C.P.A., 477 Madison Avenue, New
York, New York 10022-5802, independent auditors, as set forth in its report
appearing herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
Where You Can Get More Information
This prospectus is part of a registration statement filed with the
Securities and Exchange Commission. At your request, we will provide you,
without charge, a copy of any exhibits to the registration statement. If you
would like more information, write or call us at:
PowerChannel Holdings, Inc.
20 Squadron Boulevard, Suite 210
New City, New York 10956
(914) 639-0600
Attn: Chief Executive Officer
We intend to provide to our stockholders annual reports containing
audited financial statements and other appropriate reports. In addition, we file
annual, quarterly and current reports, proxy statements and other information
with the Securities and Exchange Commission. You may read and copy any reports,
statements or other information we file at the Securities and Exchange
Commission's public reference room in Washington, D.C. You can request copies of
these documents, upon payment of a duplicating fee, by writing to the Securities
and Exchange Commission. Please call the Securities and Exchange Commission at
1-800-SEC-0330 for further information on the operation of the public reference
rooms. Our Securities and Exchange Commission filings are also available to the
public free of charge on the Securities and Exchange Commission's Internet site
at http://www.sec.gov.
<PAGE>
POWERCHANNEL HOLDINGS, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
<PAGE>
POWERCHANNEL HOLDINGS, INC. AND SUBSIDIARY
(A Development Stage Company)
TABLE OF CONTENTS
--------------------------------------------------------------------------------
-------
P a g e
-------
Independent Auditors' Report 1
Consolidated Financial Statements
Balance Sheet 2
Statements of Operations 3
Statements of Stockholders' Equity (Deficit) 4
Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
<PAGE>
Independent Auditor's Report
To the Board of Directors and Stockholders
PowerChannel Holdings, Inc.
We have audited the accompanying consolidated balance sheet of PowerChannel
Holdings, Inc. and Subsidiary (A Development Stage Company) as of December 31,
1999 and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for the year ended December 31, 1999 and for the
periods from August 10, 1998 (inception) to December 31, 1998 and from August
10, 1998 (inception) to December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about 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.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PowerChannel Holdings, Inc. and
Subsidiary (A Development Stage Company) as of December 31, 1999 and the
consolidated results of their operations and cash flows for the year ended
December 31, 1999 and for the periods from August 10, 1998 (inception) to
December 31, 1998 and from August 10, 1998 (inception) to December 31, 1999 in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and has a net capital deficiency that raise substantial doubt
about its ability to continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
New York, New York
July 20, 2000
<PAGE>
POWERCHANNEL HOLDINGS, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
--------------------------------------------------------------------------------
DECEMBER 31,
1999
------------
ASSETS
Current assets
Cash $ 131
Prepaids 90,000
Due from related party 12,332
---------
Total current assets 102,463
---------
Property and equipment, net 44,826
---------
Other assets 4,103
---------
$ 151,392
=========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable $ 299,520
Due to related party 90,209
Loans payable - stockholders 34,456
---------
Total current liabilities 424,185
---------
Commitment
Stockholders' equity (deficit)
Common stock par value $.001 per share;
authorized 100,000,000 shares
issued and outstanding 21,457,000 shares 21,457
Preferred stock par value $.001 per share;
authorized 10,000,000 shares;
issued 0 shares --
Paid-in capital 590,700
Subscription receivable (4,569)
Deficit accumulated during development stage (880,381)
---------
Total stockholders' equity (deficit) (272,793)
---------
$ 151,392
=========
--------------------------------------------------------------------------------
See accompanying notes. - 2 -
<PAGE>
POWERCHANNEL HOLDINGS, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AUGUST 10, 1998 (INCEPTION)
YEAR ENDED TO DECEMBER 31,
DECEMBER 31, ------------------------------
1999 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Revenues $ -- $ -- $ --
------------ ------------ ------------
Expenses
Salary 129,888 -- 129,888
Payroll taxes and fringes 24,197 -- 24,197
------------ ------------ ------------
Total payroll and related costs 154,085 -- 154,085
Automobile expenses 13,094 -- 13,094
Conferences 7,340 -- 7,340
Consulting 217,994 22,500 240,494
Depreciation 10,094 -- 10,094
Direct marketing expenses 55,805 3,116 58,921
Insurance 4,909 1,075 5,984
Internet access costs 119,941 -- 119,941
Moving expenses 18,300 -- 18,300
Office and miscellaneous expenses 24,542 3,791 28,333
Professional fees 65,767 34,630 100,397
Rent and utilities 21,966 -- 21,966
Telephone 29,055 222 29,277
Travel expense 58,320 13,835 72,155
------------ ------------ ------------
Total expenses 801,212 79,169 880,381
------------ ------------ ------------
Net loss $ (801,212) $ (79,169) $ (880,381)
============ ============ ============
Net loss per common share:
Basic $ (.07) $ (.04) $ (.11)
============ ============ ============
Diluted $ (.07) $ (.04) $ (.11)
============ ============ ============
Weighted Average Common Shares
Outstanding -
Basic and Diluted 10,923,025 1,765,000 8,332,149
============ ============ ============
</TABLE>
--------------------------------------------------------------------------------
See accompanying notes. - 3 -
<PAGE>
POWERCHANNEL HOLDINGS, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999 AND PERIOD
AUGUST 10, 1998 (INCEPTION) TO DECEMBER 31, 1999
---------------------------------------------------------------------------------------
Deficit
Accumulated
Common Stock During
------------------------- Paid-in Subscription Development
Shares $ Capital Receivable Stage Total
---------- ---------- ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at inception -
August 10, 1998 -- $ -- $ -- $ -- $ -- $ --
Common stock issued 17,650,000 17,650 -- (3,350) -- 14,300
Net loss - December 31, 1998 -- -- -- -- (79,169) (79,169)
---------- ---------- ---------- ---------- ---------- ----------
Balance - December 31, 1998 17,650,000 17,650 -- (3,350) (79,169) (64,869)
Common stock issued 3,807,000 3,807 590,700 (1,219) -- 593,288
Net loss - December 31, 1999 -- -- -- -- (801,212) (801,212)
---------- ---------- ---------- ---------- ---------- ----------
Balance - December 31, 1999 21,457,000 $ 21,457 $ 590,700 $ (4,569) $ (880,381) $ (272,793)
========== ========== ========== ========== ========== ==========
</TABLE>
--------------------------------------------------------------------------------
See accompanying notes. - 4 -
<PAGE>
POWERCHANNEL HOLDINGS, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AUGUST 10, 1998 (INCEPTION)
YEAR ENDED TO DECEMBER 31,
DECEMBER 31, ---------------------------
1999 1998 1999
----------- ---------- -----------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $(801,212) $ (79,169) $(880,381)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation 10,094 -- 10,094
Change in current operating assets
and liabilities:
Decrease (increase) in inventory 20,000 (20,000) --
Increase in other assets (4,100) (3) (4,103)
Increase in accounts payable 318,940 33,580 352,520
--------- --------- ---------
Net cash used in operating
activities (456,278) (65,592) (521,870)
--------- --------- ---------
Cash flows from investing activities
Purchases of property and equipment (50,475) (4,445) (54,920)
Advances to affiliate (12,332) -- (12,332)
--------- --------- ---------
Net cash used in investing
activities (62,807) (4,445) (67,252)
--------- --------- ---------
Cash flows from financing activities
Proceeds from issuance of common stock 450,288 14,300 464,588
Advances from affiliate 68,828 21,381 90,209
Advances from stockholders -- 34,456 34,456
--------- --------- ---------
Net cash provided by financing
activities 519,116 70,137 589,253
--------- --------- ---------
Net increase in cash 31 100 131
Cash - beginning of period 100 -- --
--------- --------- ---------
Cash - end of period $ 131 $ 100 $ 131
========= ========= =========
</TABLE>
--------------------------------------------------------------------------------
See accompanying notes. - 5 -
<PAGE>
POWERCHANNEL HOLDINGS, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
--------------------------------------------------------------------------------
1. Organization and Operations
PowerChannel Holdings, Inc. was incorporated under the laws of the State
of Delaware on March 26, 1999. PowerChannel, Inc. was incorporated under
the laws of the State of Delaware on August 10, 1998.
The Company plans to furnish to subscribers (the general public throughout
the United States) free Internet access in return for supplying
demographic information, which the Company will sell and use for the
provision of interactive marketing services to client businesses.
Financial Condition
The Company incurred net losses of approximately $801,000 and $79,000 for
the year ended December 31, 1999 and for the period August 10, 1998
(inception) to December 31, 1998, respectively. At December 31, 1999, the
Company had a working capital deficiency of approximately $322,000. The
Company began operations in August 1998 and, to date, has not recognized
any revenue. The continuance of the Company depends on the financial
support of its shareholders.
As a result of the above factors, there is substantial doubt about the
Company's ability to continue as a going concern. The consolidated
financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of PowerChannel
Holdings, Inc. and PowerChannel, Inc., its controlled subsidiary. All
significant intercompany balances and transactions have been eliminated.
Investments in unconsolidated affiliates, over which the Company exercises
significant influence but not control, are accounted for by the equity
method.
Property and Equipment
Property and equipment are stated at cost. Major property additions,
replacements and betterments are capitalized, while maintenance and
repairs which do not extend the useful lives of these assets are expensed
as incurred. Depreciation is provided over the estimated useful lives of
the assets using the straight-line and accelerated methods. Upon
retirement or disposal of assets, the cost and related accumulated
depreciation are removed from the balance sheet, and any gain or loss is
reflected in earnings.
--------------------------------------------------------------------------------
- 6 -
<PAGE>
POWERCHANNEL HOLDINGS, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
--------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies (continued)
Income Taxes
The Company is taxed as a C Corporation under the provisions of both the
Internal Revenue Code and state laws.
Earnings Per Share
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings Per Share", effective December 31, 1997. Earnings per
share have been computed based on the weighted average shares and dilutive
potential common shares outstanding during the year. The assumed exercise
of outstanding warrants and stock options for diluted loss per common
share was not applicable because their effect was antidilutive.
Use of Estimates
The preparation of the consolidated 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 as of the
date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from these estimates.
3. Property and Equipment
The detail of property and equipment at December 31, 1999 is as follows:
Office equipment $ 33,645
Furniture and fixtures 21,275
---------
54,920
Less accumulated depreciation 10,094
---------
$ 44,826
=========
The estimated useful lives of the various classes of physical assets were as
follows during 1999:
Office equipment 5 years
Furniture and fixtures 7 years
--------------------------------------------------------------------------------
- 7 -
<PAGE>
POWERCHANNEL HOLDINGS, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
--------------------------------------------------------------------------------
4. Acquisitions and Investments in Unconsolidated Affiliates
Prior to November 1999, the Company beneficially owned 100% of
PowerChannel Limited, which was an inactive company, with no assets and no
revenues.
In November 1999, the Board passed a resolution distributing eighty (80%)
percent of its shareholding in PowerChannel Limited to the Company's
shareholders. In January 2000, PowerChannel Limited changed its name to
PowerChannel Europe Limited and in April 2000 to PowerChannel Europe, PLC.
The Company currently owns 14.75 percent of the outstanding ordinary
shares of PowerChannel Europe, PLC. PowerChannel Europe, PLC holds the
European rights to the PowerChannel patent-pending business model and
know-how, owned and developed by the Company. A new company with the name
PowerChannel Limited has been incorporated as a subsidiary of PowerChannel
Europe, PLC to roll out the PowerChannel model in the UK and Ireland.
PowerChannel Limited has entered into a strategic partnership with one of
the largest groups in the UK.
Under the alliance, the strategic partner was allotted a five (5%) percent
equity investment in PowerChannel Limited convertible into shares in
PowerChannel Europe, PLC for nil consideration. PowerChannel Limited will
finance the procurement of the set-top boxes. The strategic partner has
publicly announced that it intends to spend some (pound)30 million,
approximately $50,000,000, over the 36 months following launch to support
marketing, customer care, advertising, distribution, content and other
related costs in connection with its ISP, and the infrastructure and
market awareness resulting from this expenditure will be available to the
strategic partnership. Under the agreement, the strategic partner will
provide free access to its ISP and has accepted full responsibility for
the distribution of the set-top boxes through its existing channels.
PowerChannel Limited and the strategic partner will share revenues from
advertising, sponsorships, e-commerce and data sales.
In April 2000, the strategic partner converted its shares in PowerChannel
Limited into shares of PowerChannel Europe, PLC and invested approximately
(pound)13 million (approximately $21 million) for new shares in
PowerChannel Europe, PLC. As a result of the conversion and the cash
investment, the strategic partner now owns 23.5% of the present fully
diluted share capital of PowerChannel Europe, PLC.
In conjunction with a major international investment bank, PowerChannel
Europe, PLC is now engaged in raising additional equity finance to fund
its initial deployment of set-top boxes, and intends to develop comparable
strategic partnerships in other major European countries.
5. Loan Payable - Stockholders
The Company issued to its stockholders a promissory note dated December
31, 1998, payable on demand at eight and one-half (8-1/2%) percent
interest.
--------------------------------------------------------------------------------
- 8 -
<PAGE>
POWERCHANNEL HOLDINGS, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
--------------------------------------------------------------------------------
6. Related Party Transactions
In August 1998, the Company entered into an agreement with Long Distance
Direct Holdings, Inc. ("LDDI") (an affiliate) which stipulates that LDDI
will make certain employees available to the Company as needed to assist
the Company in conducting its business. This agreement expired in August
1999. In consideration, the Company issued LDDI the right to purchase
2,000,000 shares at $.10 per share of the Company's stock. In August 1999,
LDDI exercised its right. Additionally, at December 31, 1999 the Company
owed approximately $90,000 which represents expenses incurred by LDDI for
PowerChannel. These amounts have been subsequently repaid.
The due from related party represents legal expenses, which amounted to
approximately $12,000 for the year ended December 31, 1999, paid by the
Company on behalf of PowerChannel Ltd.
7. Stockholders' Equity
PowerChannel, Inc. shareholders exchanged all of their shares of stock for
an equal number of shares in PowerChannel Holdings, Inc. during 1999.
8. Federal Income Taxes
The Company accounts for income taxes in accordance with the asset and
liability method prescribed by Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes. Under the asset and liability method
of Statement 109, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to the taxable income in the years in
which those temporary differences are expected to be recovered or settled.
Under Statement 109, the effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period that includes
the enactment date.
As of December 31, 1999 and 1998, net operating loss (NOL) carryforwards
amounted to approximately $880,000 and $79,000, respectively, and expire
in 2014.
Pursuant to SFAS No. 109, for financial reporting purposes, a valuation
allowance was recorded as of December 31, 1999 to fully offset the
Company's net deferred tax assets of approximately $300,000 relating to
the NOL.
--------------------------------------------------------------------------------
- 9 -
<PAGE>
POWERCHANNEL HOLDINGS, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
--------------------------------------------------------------------------------
9. Commitment
The Company conducts its operations in office space under an operating
lease expiring in December 2002. The lease provides for increases in rent
for utilities and other building operating costs. At December 31, 1999,
future minimum rent payments under the operating lease are as follows:
2000 $ 44,400
2001 44,400
2002 44,400
------------
$ 133,200
============
Rent expense for the year ended December 31, 1999 and the period August
10, 1998 (inception) to December 31, 1998 amounted to approximately
$21,000 and $-0-, respectively.
10. Licensing Agreement
On August 12, 1998, PowerChannel, Inc. entered into a licensing agreement
with American Interactive Media, Inc. (AIM) to offer free Internet access
to consumers, utilizing AIM supplied set-top appliances and AIM provided
Internet service provider (WebPassport Network).
The licensing agreement was superseded by a new agreement dated May 19,
1999. The new agreement granted to PowerChannel, Inc. an exclusive
worldwide license with the right to sublicense the "WebPassport system",
the "WebPassport intellectual property" and the "WebPassport technology".
PowerChannel, Inc. signed a convertible promissory note in the amount of
$1,090,000 at an interest rate of 3% above the prime rate which matured on
December 31, 2000. This note represented $90,000 in set-top appliances and
$1,000,000 in prepaid license fees. During 1999, AIM sent PowerChannel,
Inc. notification that it was terminating the license agreement and
requested payment in full of the underlying note. PowerChannel, Inc.
disputed the termination notice with AIM and entered into discussions to
settle the dispute. On June 30, 2000, the parties entered into a
termination agreement which rescinded all previous agreements. Pursuant to
this termination agreement, PowerChannel Holdings, Inc. issued AIM 288,000
shares of its common stock as payment in full for PowerChannel, Inc.
retaining possession of the set-top appliances (costing $90,000) and as
settlement for the $53,000 which was owed to AIM as reimbursement of
certain operating costs as called for under the May 19th agreement.
Additionally, the Company issued AIM 50,000 warrants for shares at $2.50
per share which are exercisable for 3 years. AIM and PowerChannel, Inc.
agreed to release each other from all other liabilities associated with
their relationship.
--------------------------------------------------------------------------------
- 10 -
<PAGE>
POWERCHANNEL HOLDINGS, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
--------------------------------------------------------------------------------
11. Supplemental Disclosure of Cash Flow Information
Noncash financing activities that are excluded from the consolidated cash
flow statement for the year ended 1999 and the period August 10, 1998
(inception) to December 31, 1998 include a receivable for the issuance of
common stock in the amount of $1,219 and $3,350, respectively.
Additionally, the Company issued 288,000 shares of common stock in
satisfaction of amounts due for set-top appliances and accounts payable
(see Note 10).
12. Stock Option Plan
During 2000, the Company adopted the 2000 stock option plan of
PowerChannel Holdings, Inc. The aggregate number of common shares that may
be issued is 2,500,000. Any key employee shall be eligible to be granted
options as determined by the Company's stock option committee. The price
of the shares subject to each option shall not be less than 100% of the
fair market value of such shares on the date such option is granted. No
options have yet to be issued under this plan.
--------------------------------------------------------------------------------
- 11 -
<PAGE>
POWERCHANNEL HOLDINGS, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
<PAGE>
POWERCHANNEL HOLDINGS, INC. AND SUBSIDIARY
(A Development Stage Company)
TABLE OF CONTENTS
--------------------------------------------------------------------------------
P a g e
-------
Consolidated Financial Statements
Balance Sheets 1
Statements of Operations 2
Statements of Stockholders' Equity (Deficit) 3
Statements of Cash Flows 4
Notes to Consolidated Financial Statements 5
<PAGE>
POWERCHANNEL HOLDINGS, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
-------------------- -------------------
ASSETS
<S> <C> <C>
Current assets
Cash $ 167,333 $ 131
Prepaids 90,000 90,000
Due from related parties 181,947 12,332
------------------- -------------------
Total current assets 439,280 102,463
------------------- -------------------
Property and equipment, net 46,779 44,826
------------------- -------------------
Other assets 4,103 4,103
------------------- -------------------
$ 490,162 $ 151,392
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable $ 444,634 $ 299,520
Due to related parties 41,629 90,209
Loans payable - stockholders 34,810 34,456
------------------- -------------------
Total current liabilities 521,073 424,185
------------------- -------------------
Note payable - stockholders 280,000 -.-
------------------- -------------------
Commitment
Stockholders' equity (deficit)
Common stock par value $.001 per share;
authorized 100,000,000 shares
issued and outstanding 21,657,000 shares
(21,457,000 shares in 1999) 21,657 21,457
Preferred stock par value $.001 per share;
authorized 10,000,000 shares
issued 0 shares -.- -.-
Paid-in capital 790,500 590,700
Subscription receivable (4,569) (4,569)
Deficit accumulated during development stage (1,118,499) (880,381)
------------------- -------------------
Total stockholders' equity (deficit) (310,911) (272,793)
------------------- -------------------
$ 490,162 $ 151,392
=================== ===================
</TABLE>
--------------------------------------------------------------------------------
See accompanying notes.
- 1 -
<PAGE>
POWERCHANNEL HOLDINGS, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, AUGUST 10, 1998
------------------------------------------- (INCEPTION) TO
MARCH 31,
2000 1999 2000
------------------- -------------------- --------------------
<S> <C> <C> <C>
Revenues $ -.- $ -.- $ -.-
------------------- -------------------- --------------------
Expenses
Salary 24,907 14,576 154,795
Payroll taxes and fringes 9,886 3,099 34,083
------------------- -------------------- --------------------
Total payroll and related costs 34,793 17,675 188,878
Automobile expenses 6,508 1,000 19,602
Conferences -.- -.- 7,340
Consulting 110,750 98,625 351,244
Depreciation 2,656 -.- 12,750
Direct marketing expenses -.- 6,944 58,921
Insurance 3,258 1,800 9,242
Internet access costs 3,658 23,373 123,599
Moving expenses -.- -.- 18,300
Office and miscellaneous expenses 9,821 8,163 38,154
Professional fees 44,161 1,000 144,558
Rent and utilities 12,300 -.- 34,266
Telephone 8,455 2,203 37,732
Travel expense -.- 16,567 72,155
Interest expense 1,758 -.- 1,758
------------------- -------------------- --------------------
Total expenses 238,118 177,350 1,118,499
------------------- -------------------- --------------------
Net loss $ (238,118) $ (177,350) $ (1,118,499)
=================== ==================== ====================
Net loss per common share:
Basic $ (.01) $ (.10) $ (.11)
=================== ==================== ====================
Diluted $ (.01) $ (.10) $ (.11)
=================== ==================== ====================
Weighted average common shares
outstanding -
Basic and Diluted 21,459,222 1,765,000 10,304,497
=================== ==================== ====================
</TABLE>
--------------------------------------------------------------------------------
See accompanying notes.
- 2 -
<PAGE>
POWERCHANNEL HOLDINGS, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
--------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 2000 AND PERIOD
AUGUST 10, 1998 (INCEPTION) TO DECEMBER 31, 1999
-------------------------------------------------------------------------------------------
Deficit
Common Stock Accumulated
----------------------- During
Paid-in Subscription Development
Shares $ Capital Receivable Stage Total
----------- ---------- ------------- --------------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at inception -
August 10, 1998 (inception) -.- $ -.- $ -.- $ -.- $ -.- $ -.-
Common stock issued 17,650,000 17,650 -.- (3,350) -.- 14,300
Net loss - December 31, 1998 -.- -.- -.- -.- (79,169) (79,169)
----------- ---------- ------------- --------------- ---------------- ------------
Balance - December 31, 1998 17,650,000 17,650 -.- (3,350) (79,169) (64,869)
Common stock issued 3,807,000 3,807 590,700 (1,219) -.- 593,288
Net loss - December 31, 1999 -.- -.- -.- -.- (801,212) (801,212)
----------- ---------- ------------- --------------- ---------------- ------------
Balance - December 31, 1999 21,457,000 21,457 590,700 (4,569) (880,381) (272,793)
Common stock issued 200,000 200 199,800 -.- -.- 200,000
Net loss - March 31, 2000 -.- -.- -.- -.- (238,118) (238,118)
----------- ---------- ------------- --------------- ---------------- ------------
Balance - March 31, 2000 21,657,000 $ 21,657 $ 790,500 $ (4,569) $ (1,118,499) $ (310,911)
=========== ========== ============= =============== ================ ============
</TABLE>
--------------------------------------------------------------------------------
See accompanying notes.
- 3 -
<PAGE>
POWERCHANNEL HOLDINGS, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, AUGUST 10, 1998
------------------------------------------- (INCEPTION TO)
MARCH 31,
2000 1999 2000
------------------- -------------------- --------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $ (238,118) $ (177,350) $ (1,118,499)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation 2,656 -.- 12,750
Change in current operating assets
and liabilities:
Increase in other assets -.- -.- (4,103)
Increase in accounts payable 145,114 15,036 497,634
------------------- -------------------- --------------------
Net cash used in operating
activities (90,348) (162,314) (612,218)
------------------- -------------------- --------------------
Cash flows from investing activities
Purchases of property and equipment (4,609) (1,519) (59,529)
Advances to affiliate (169,615) -.- (181,947)
------------------- -------------------- --------------------
Net cash used in investing
activities (174,224) (1,519) (241,476)
------------------- -------------------- --------------------
Cash flows from financing activities
Proceeds from issuance of common stock 200,000 200,000 664,588
Advances from (repayments to) affiliate (48,580) (52,163) 41,629
Advances from stockholders 354 -.- 34,810
Proceeds from note payable - stockholders 280,000 -.- 280,000
------------------- -------------------- --------------------
Net cash provided by financing
activities 431,774 147,837 1,021,027
------------------- -------------------- --------------------
Net increase (decrease) in cash 167,202 (15,996) 167,333
Cash - beginning of period 131 100 -.-
------------------- -------------------- --------------------
Cash - end of period $ 167,333 $ (15,896) $ 167,333
=================== ==================== ====================
</TABLE>
--------------------------------------------------------------------------------
See accompanying notes.
<PAGE>
POWERCHANNEL HOLDINGS, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
--------------------------------------------------------------------------------
1. Organization and Operations
PowerChannel Holdings, Inc. was incorporated under the laws of the State
of Delaware on March 26, 1999. PowerChannel, Inc. was incorporated
under the laws of the State of Delaware on August 10, 1998.
The Company plans to furnish to subscribers (the general public
throughout the United States) free Internet access in return for
supplying demographic information, which the Company will sell and use
for the provision of interactive marketing services to client businesses.
Financial Condition
The Company incurred net losses of approximately $238,000, $177,000 and
$1,118,000 for the three months ended March 31, 2000 and 1999 and for the
period August 10, 1998 (inception) to March 31, 2000, respectively. At
March 31, 2000, the Company had a working capital deficiency of
approximately $82,000. The Company began operations in August 1998 and,
to date, has not recognized any revenue. The continuance of the Company
depends on the financial support of its shareholders.
As a result of the above factors, there is substantial doubt about the
Company's ability to continue as a going concern. The consolidated
financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
2. Summary of Significant Accounting Policies
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. 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 (consisting of normal recurring accruals)
considered necessary for a fair presentation of the results of operations
for the periods presented have been included.
3. Series A Convertible Notes
On February 29, 2000 PowerChannel entered into subscription agreements
with seven individuals and in conjunction with such agreements, issued
Series A Convertible Notes. Pursuant to these notes, PowerChannel
acquired $280,000 in investment capital and issued security interests at
7% interest for a term of three years. At the option of the noteholder,
these notes may be converted into common stock for the value of the note
at a price of $0.1287 per share.
--------------------------------------------------------------------------------
<PAGE>
POWERCHANNEL HOLDINGS, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
--------------------------------------------------------------------------------
4. Net Loss Per Common Share
Net loss per common share has been computed (basic and diluted) for all
periods presented and is based on the weighted average number of shares
outstanding during the period.
--------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
PowerChannel's bylaws require that directors and officers be
indemnified to the maximum extent permitted by Delaware law.
The Delaware GCL provides that a director or officer of a corporation
(i) shall be indemnified by the corporation for all expenses of litigation or
other legal proceedings when he is successful on the merits, (ii) may be
indemnified by the corporation for the expenses, judgments, fines and amounts
paid in settlement of such litigation (other than a derivative suit) even if he
is not successful on the merits if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation (and, in the case of a criminal proceeding, had no reason to believe
his conduct was unlawful), and (iii) may be indemnified by the corporation for
expenses of a derivative suit (a suit by a stockholder alleging a breach by a
director or officer of a duty owed to the corporation), even if he is not
successful on the merits, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, provided that no such indemnification may be made in accordance
with this clause (iii) if the director or officer is adjudged liable to the
corporation, unless a court determines that, despite such adjudication but in
view of all of the circumstances, he is entitled to indemnification of such
expenses. The indemnification described in clauses (ii) and (iii) above shall be
made upon order by a court or a determination by (i) a majority of disinterested
directors, (ii) if there are no such directors or if such directors so direct,
by independent legal counsel in a written opinion or (iii) the stockholders that
indemnification is proper because the applicable standard of conduct is met.
Expenses incurred by a director or officer in defending an action may be
advanced by the corporation prior to the final disposition of such action upon
receipt of an undertaking by such director or officer to repay such expenses if
it is ultimately determined that he is not entitled to be indemnified in
connection with the proceeding to which the expenses relate. PowerChannel's
Certificate of Incorporation includes a provision eliminating, to the fullest
extent permitted by Delaware law, director liability for monetary damages for
breaches of fiduciary duty.
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth all expenses payable by the Registrant
in connection with the sale of the Common Stock being registered.
Registration fee......................................$73.92
OTCBB Listing Application fee.........................$
Printing and engraving expenses.......................$10,000
Legal fees and expenses...............................$24,000
Accounting fees and expenses..........................$20,000
Transfer agent and registrar fees.....................$0
Miscellaneous.........................................$0
Total.....................................$
Part II-1
<PAGE>
Item 26. Recent Sales of Unregistered Securities.
PowerChannel has sold and issued within the past three years the
following securities which were not registered under the Securities Act of 1933,
as amended (the "Act"):
On March 31, 1999, PowerChannel issued 18,975,000 shares of its common
stock to its founders, all of whom are directors, officers or family members or
affiliates of directors or officers, for nominal consideration.
On June 7, 1999, PowerChannel issued 1,019,000 shares of its common
stock to other founders for nominal consideration.
On November 11, 1999, PowerChannel issued 500,000 shares of its common
stock to investors at $.50 per share.
On May 10, 2000, PowerChannel entered into a subscription agreement
with Tom Brisco. Under this agreement, PowerChannel issued 3,540 shares of its
common stock, valued at $2.50 per share, to Mr. Brisco in satisfaction of a debt
owed for services rendered.
On May 10, 2000, PowerChannel entered into an agreement with Stanton
Crenshaw Communications whereby PowerChannel issued 10,961 shares of its common
stock, valued at $2.50 per share, to Stanton Crenshaw as settlement and release
for an alleged breach of contract.
On June 2, 2000, PowerChannel entered into an agreement with Philip
Barber. Under this agreement, PowerChannel issued 760 shares of its common
stock, valued at $2.50 per share in exchange for services rendered.
On July 4, 2000, PowerChannel entered into a settlement agreement with
American Interactive Media, Inc. Pursuant to this agreement, PowerChannel issued
American Interactive Media 288,000 shares of its common stock, and a warrant to
purchase 50,000 shares of its common stock at $2.50 per share.
The recipients of the above-described securities represented their
intention to acquire the securities for investment only and not with a view to
distribution thereof. Appropriate legends were affixed to the stock certificates
issued in such transactions. All recipients had adequate access, through
employment or other relationships, to information about the registrant.
Item 27. Exhibits and Financial Statement Schedules.
(a) Exhibits.
<PAGE>
Exhibit
Number Description of Document
-------- -----------------------
3.1 Certificate of Incorporation of PowerChannel.
3.2 Bylaws of PowerChannel.
5.1 Opinion of Parker Duryee Rosoff & Haft, P.C.*
10.1 Form of subscription agreement between PowerChannel and each of the
selling shareholders.
10.2 Form of convertible note.
10.3 Employment agreement between PowerChannel and James B. Gambrell IV,
dated as of March 1, 2000.
10.4 Employment agreement between PowerChannel and Steven Lampert, dated
as of March 1, 2000.
10.5 Employment agreement between PowerChannel and Michael D. Preston,
dated as of March 1, 2000.
10.6 Secondment agreement among PowerChannel, PowerChannel Europe
Limited and James Gambrell, dated as
10.7 Secondment agreement among PowerChannel, PowerChannel Europe
Limited and Steven Lampert, dated as
10.8 Secondment agreement among PowerChannel, PowerChannel Europe
Limited and Michael Preston, dated
10.9 Consulting agreement between PowerChannel Inc. and Gary Blau, dated
as of January 1, 1999.
10.10 Patent assignment by Steven Lampert to PowerChannel dated as of
April 9, 1999.
10.11 Intellectual property license agreement between PowerChannel and
PowerChannel Europe Limited,
10.12 Settlement agreement and release between PowerChannel and Stanton
Crenshaw Communications, dated
10.13 Subscription agreement between PowerChannel and Tom Brisco, dated
as of May 10, 2000.
----------
* To be filed by amendment.
<PAGE>
Exhibit
Number Description of Document
-------- -----------------------
10.14 Termination agreement between PowerChannel and American Interactive
Media, Inc., dated as of
10.15 2000 Stock Option Plan.
10.16 Declaration of trust by PowerChannel to PowerChannel Europe
Limited, dated as of April 1, 2000.
21.1 Subsidiaries of PowerChannel.
23.1 Consent of Yohalem Gillman & Co., C.P.A., independent auditors.
23.2 Consent of Parker Duryee Rosoff & Haft, P.C. Reference is made to
Exhibit 5.1
27 Financial Data Schedule
Item 28. Undertakings.
Registrant hereby undertakes:
(1) That for purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under
the Securities Act shall be deemed to be part of this Registration Statement as
of the time it was declared effective.
(2) That for the purpose of determining any liability under the
Securities Act, each post_effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To file, during any period in which offers or sales are being made,
a post_effective amendment to this Registration Statement:
(a) To include any Prospectus required by Section 10(a)(3) of
the Securities Act;
(b) To reflect in the Prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post- effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement;
<PAGE>
(c) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
(4) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(5) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of Registrant pursuant to Item 24 of this Part II to the Registration Statement,
or otherwise, Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act, and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by Registrant of expenses incurred or paid by a director, officer or
controlling person of Registrant in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against the public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has authorized this Registration
Statement or Amendment thereto to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New City, State of New York on the
10th day of August, 2000.
POWERCHANNEL HOLDINGS, INC.
By: /s/ James B. Gambrell, IV
--------------------------------
James B. Gambrell, IV, President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints James B. Gambrell, IV his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution
for him and in his name, place and stead, in any and all capacities to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and the documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates signed.
/s/ Steven Lampert August 10, 2000
---------------------------------------
Steven Lampert, Director and Vice President of Marketing
/s/ James B. Gambrell, IV August 10, 2000
---------------------------------------
James B. Gambrell, IV, President, Director and Chief Operating Officer
/s/ Michael Preston August 10, 2000
---------------------------------------
Michael Preston, Director and Vice President of Finance
Part II-6
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Document
-------- -----------------------
3.1 Certificate of Incorporation of PowerChannel.
3.2 Bylaws of PowerChannel.
5.1 Opinion of Parker Duryee Rosoff & Haft, P.C.*
10.1 Form of subscription agreement between PowerChannel and each of the
selling shareholders.
10.2 Form of convertible note.
10.3 Employment agreement between PowerChannel and James B. Gambrell IV,
dated as of March 1, 2000.
10.4 Employment agreement between PowerChannel and Steven Lampert, dated
as of March 1, 2000.
10.5 Employment agreement between PowerChannel and Michael D. Preston,
dated as of March 1, 2000.
10.6 Secondment agreement among PowerChannel, PowerChannel Europe
Limited and James Gambrell, dated as
10.7 Secondment agreement among PowerChannel, PowerChannel Europe
Limited and Steven Lampert, dated as
10.8 Secondment agreement among PowerChannel, PowerChannel Europe
Limited and Michael Preston, dated
10.9 Consulting agreement between PowerChannel Inc. and Gary Blau, dated
as of January 1, 1999.
10.10 Patent assignment by Steven Lampert to PowerChannel dated as of
April 9, 1999.
10.11 Intellectual property license agreement between PowerChannel and
PowerChannel Europe Limited,
10.12 Settlement agreement and release between PowerChannel and Stanton
Crenshaw Communications, dated
10.13 Subscription agreement between PowerChannel and Tom Brisco, dated
as of May 10, 2000.
----------
* To be filed by amendment.
<PAGE>
Exhibit
Number Description of Document
-------- -----------------------
10.14 Termination agreement between PowerChannel and American Interactive
Media, Inc., dated as of
10.15 2000 Stock Option Plan.
10.16 Declaration of trust by PowerChannel to PowerChannel Europe
Limited, dated as of April 1, 2000.
21.1 Subsidiaries of PowerChannel.
23.1 Consent of Yohalem Gillman & Co., C.P.A., independent auditors.
23.2 Consent of Parker Duryee Rosoff & Haft, P.C. Reference is made to
Exhibit 5.1
27 Financial Data Schedule
