U.S. SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-QSB


 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                                   ACT OF 1934

                  For the quarterly period ended June 30, 2004

     [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                               POWERCHANNEL, INC.

        (Exact name of small business issuer as specified in its charter)


            Delaware                                          65-0952186
(State or other jurisdiction of                            (I.R.S. Employer
 incorporation or organization)                           Identification No.)

                         16 North Main Street, Suite 395
                            New City, New York 10956
                    (Address of Principal Executive Offices)

                                  (845)634-7979
                           (Issuer's telephone number)

      (Former name, address and fiscal year, if changed since last report)

Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the issuer was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]

State the number of shares outstanding of each of the issuer's classes of common
equity, as of August 19, 2004: 26,669,829 shares of common stock outstanding,
$0.01 par value.

<PAGE>
ITEM 1. FINANCIAL INFORMATION
                       POWERCHANNEL, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)
                      CONDENSED CONSOLIDATED BALANCE SHEET
                                  JUNE 30, 2004
                                   (Unaudited)

                                     ASSETS

Current Assets:
  Cash                                                            $     635,108
  Inventories                                                           129,738
  Accounts Receivable, Net                                               68,375
  Prepaid Expenses                                                        6,378
  Prepaid Consulting Fees                                               113,903
                                                                  --------------
         Total Current Assets                                           953,502

Property and Equipment, Net                                              34,428

Deferred Consulting Fees, Net of Current Portion                         43,991
                                                                  --------------
                                                                  $   1,031,921
                                                                  ==============

                      LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities:
  Accounts Payable                                                $     660,053
  Accrued Liabilities                                                   633,727
  Convertible Notes Payable                                              44,305
  Deposits Payable                                                       70,000
                                                                  --------------
         Total Current Liabilities                                    1,408,085
                                                                  --------------
Commitments and Contingencies

Minority Interest                                                     1,176,543
                                                                  --------------
Stockholders' Deficit:
  Preferred Stock, Par Value $.01; Authorized 5,000,000 Shares,
    Issued and Outstanding 0 Shares                                           -
  Common Stock, Par Value $.01; Authorized 95,000,000 Shares,
    Issued and Outstanding 26,194,829 Shares                            261,948
  Additional Paid-In Capital                                         17,174,959
  Common Stock to be Issued, 2,315,531 Shares                         1,817,808
  Deferred Offering Costs                                               (14,000)
  Deferred Stock-Based Compensation                                  (2,788,815)
  Accumulated Other Comprehensive Income (Loss)                      (1,325,407)
  Deficit Accumulated in the Development Stage                      (16,679,200)
                                                                  --------------

         Total Stockholders' Deficit                                 (1,552,707)
                                                                  --------------
                                                                  $   1,031,921
                                                                  ==============
    The accompanying notes are an integral part of the financial statements.

                                       2
<PAGE>
                       POWERCHANNEL, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)
                 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                                                      For The Period
                                                                   For the Three                For the Six          August 10, 1998
                                                                    Months Ended                Months Ended            (Inception)
                                                                     June 30,                     June 30,                  To
                                                               2004           2003          2004            2003      June 30, 2004
                                                          -------------   ------------   ------------   -----------   -------------
Revenues:
<S>                                                       <C>             <C>            <C>            <C>           <C>
  Gross License Fees - PowerChannel Europe, PLC           $          -    $         -    $         -    $        -    $  1,894,348
  Expenses Reimbursed Pursuant to License Agreement                  -              -              -             -      (1,884,348)
  Net License Income                                                 -              -              -             -          10,000
  Sales - Net (Returns of $84,420 for the Quarter Ended
    June 30, 2004)                                             (39,134)             -        148,366             -         227,924
  Activation Fees                                                    -              -              -             -          15,525
                                                          -------------   ------------   ------------   -----------   -------------
         Total Revenues                                        (39,134)             -        148,366             -         253,449
                                                          -------------   ------------   ------------   -----------   -------------

Costs and Expenses:
  Cost of Sales                                                (51,038)             -        136,462             -         142,273
  Write-Down of Inventories                                     21,593              -         21,593             -         464,656
  Selling, General and Administrative Expenses                 446,705         24,457        976,047       137,153       6,759,263
  Impairment Loss on Investment                                      -              -              -             -         573,887
  Settlement of Debt                                                 -              -              -             -         111,300
                                                          -------------   ------------   ------------   -----------   -------------
  Stock-Based Compensation                                   1,867,740              -      3,709,561             -       6,030,814
                                                          -------------   ------------   ------------   -----------   -------------
        Total Costs and Expenses                             2,285,000         24,457      4,843,663       137,153      14,082,193
                                                          -------------   ------------   ------------   -----------   -------------

Loss Before Loss From Unconsolidated Affiliate
  And Other Income (Expense)                                (2,324,134)       (24,457)    (4,695,297)     (137,153)    (13,828,744)

Loss from Unconsolidated Affiliate                             (48,000)        (1,526)       (48,000)       (3,026)     (2,678,797)

Interest Expense                                               (12,122)             -        (16,164)            -        (171,659)
                                                          -------------   ------------   ------------   -----------   -------------
Net Loss                                                  $ (2,384,256)   $   (25,983)   $(4,759,461)   $ (140,179)   $(16,679,200)
                                                          =============   ============   ============   ===========   =============

Basic and Diluted Net Loss Per Share                      $       (.09)   $        (-)   $      (.19)   $     (.01)
                                                          =============   ============   ============   ===========

Weighted Average Shares Outstanding - Basic and Diluted     26,165,818     11,212,052     24,531,674    11,212,052
                                                          =============   ============   ============   ===========
Pro-Forma Net Loss Per Share (Basic and Diluted)          $       (.08)   $        (-)   $      (.18)   $       (-)
                                                          =============   ============   ============   ===========

Pro-Forma Weighted Average Shares Outstanding
  (Basic and Diluted)                                       28,478,011    $        (-)    26,467,248             -
                                                          =============   ============   ============   ===========
</TABLE>
    The accompanying notes are an integral part of the financial statements.

                                       3
<PAGE>
                       POWERCHANNEL, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)
                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                                   For The Period
                                                                            For the Six            August 10, 1998
                                                                            Months Ended            (Inception)
                                                                              June 30,                   To
                                                                        2004           2003        June 30, 2004
                                                                    ------------   -------------   --------------
Cash Flow From Operating Activities:
<S>                                                                 <C>            <C>              <C>
  Net Loss                                                          $(4,759,461)   $   (140,179)    $(16,679,200)
  Adjustments to Reconcile Net Loss to
    Net Cash Used in Operating Activities:
      Intrinsic Value of Beneficial Conversion Feature
        of Convertible Notes                                                  -               -          280,000
      Stock-Based Compensation                                        3,709,561               -        6,130,266
      Expense Recorded on Issuance of Common Stock
        for Debt Settlement                                                   -               -          111,300
      (Loss) Income on Investment in PowerChannel
        Europe PLC                                                       48,000         (68,454)       2,370,471
      Loss on Asset Disposal                                                  -               -           20,456
      Write-Down of Inventories                                          21,593               -          464,656
      Depreciation                                                        9,756          11,230           90,073
      Reserve for Bad Debts                                              68,376               -           68,376
      Impairment Loss on Investment in PowerChannel
        Europe PLC                                                            -               -          573,884
      Change in Current Operating Assets and Liabilities:
        Decrease in Inventories                                          93,094           3,332         (594,394)
        (Increase) in Accounts Receivable                              (136,751)              -         (136,751)
        (Increase) in Prepaid Expenses                                 (120,281)              -         (120,281)
        (Increase) Decrease in Other Assets                             (43,991)         17,127          (43,991)
        Increase (Decrease) Due to PowerChannel Europe PLC,
          Relating to Operations                                        (10,000)         74,120          678,142
        Increase (Decrease) in Accounts Payable and Accrued
                Liabilities                                            (111,435)         64,649        1,171,973

        Increase in Deposits Payable                                          -               -           45,000
                                                                    ------------   -------------   --------------

Net Cash (Used) in Operating Activities                              (1,231,539)       (112,295)      (5,570,020)
                                                                    ------------   -------------   --------------
Cash Flow From Investing Activities:
  Purchases of Property and Equipment                                   (25,116)              -         (144,957)
  Net Liabilities Acquired in Reverse Merger, Net of Cash                     -               -          (16,851)
  Advances to Related Party                                             (56,607)              -         (121,542)
  Repayments for Advances to Related Parties                             43,300         114,957          108,235
  Loans to Related Party                                                      -               -         (278,027)
  Repayments from Loans to Related Parties                                    -               -          278,027
  Purchase of PCE Stock                                                 (40,000)              -          (40,000)
                                                                    ------------   -------------   --------------
Net Cash Provided by (Used) in Investing Activities                     (78,423)        114,957         (215,115)
                                                                    ------------   -------------   --------------
</TABLE>
    The accompanying notes are an integral part of the financial statements.

                                       4
<PAGE>
                       POWERCHANNEL, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)
                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (Unaudited)
                                   (Continued)
<TABLE>
<CAPTION>
                                                                                   For The Period
                                                           For the Six             August 10, 1998
                                                           Months Ended              (Inception)
                                                            June 30,                     To
                                                   2004               2003          June 30, 2004
                                                -----------       -----------       ------------
Cash Flow From Financing Activities:
<S>                                              <C>                     <C>          <C>
  Proceeds from Issuance of Common Stock         2,187,500                 -          3,532,864
  Fees Paid on Sale of Common Stock               (265,000)                -           (275,000)
  Loans and Advances from Related Parties                -                 -          2,773,074
  Proceeds of Subscription Receivable              300,000                 -            300,000
  Proceeds from Deposits Payable                    25,000                 -             25,000
  Payments of Convertible Notes                   (215,695)                -           (215,695)
  Proceeds from Note Payable                             -                 -            112,000
  Proceeds from Convertible Notes                        -                 -            280,000
  Payment of Note Payable                         (112,000)                -           (112,000)
                                                -----------       -----------       ------------
Net Cash Provided By Financing Activities        1,919,805                 -          6,420,243
                                                -----------       -----------       ------------
Net Increase (Decrease) in Cash                    609,843            (2,662)           635,108

Cash - Beginning of Period                          25,265            65,358                  -
                                                -----------       -----------       ------------
Cash - End of Period                            $  635,108        $   68,020        $   635,108
                                                ===========       ===========       ============
</TABLE>
    The accompanying notes are an integral part of the financial statements.

                                       5
<PAGE>
                       POWERCHANNEL, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)
                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (Unaudited)
                                   (Continued)
<TABLE>
<CAPTION>
                                                                                                           For The Period
                                                                             For the Six                   August 10, 1998
                                                                             Months Ended                    (Inception)
                                                                               June 30,                          To
                                                                       2004               2003             June 30, 2004
                                                                  --------------     --------------      ------------------
Supplemental Cash Flow Information:
<S>                                                               <C>                <C>                 <C>
  Cash Paid For Interest                                          $      91,360      $           -       $         91,360
                                                                  ==============     ==============      =================
  Cash Paid For Income Taxes                                      $           -      $           -       $              -
                                                                  ==============     ==============      =================
Non-Cash Financing Activities:
  Issuances of Common Stock as Fees for
    Sales of Common Stock                                         $           -      $           -       $         10,500
                                                                  ==============     ==============      =================
  Issuance of Common Stock on Settlement of
    Convertible Note Payable and Accrued Interest                 $           -      $           -       $         25,200
                                                                  ==============     ==============      =================
Deferred Stock-Based Compensation                                 $   3,773,611      $           -       $      7,261,601
                                                                  ==============     ==============      =================
Issuance of Common Stock for Deferred Offering Costs              $           -      $           -       $         14,000
                                                                  ==============     ==============      =================
Write-Off of Subscription Receivable                              $           -      $           -       $         50,575
                                                                  ==============     ==============      =================
Issuance of 250,000 Shares of Common Stock as Payment
     for Accrued Salaries - Related Parties                       $     205,000      $           -       $        205,000
                                                                  ==============     ==============      =================
Issuance of 228,122 Shares of Common Stock as Payment
     for Accrued Salaries and Fees                                $     187,060      $           -       $        187,060
                                                                  ==============     ==============      =================
Repayment of Advances to Related Party by Applying Accrued
     Salaries                                                     $      13,307      $           -       $         13,307
                                                                  ==============     ==============      =================
Issuance of 120,000 Shares of Common Stock as Payment for
  Accrued Liabilities                                             $      75,600      $           -       $         75,600
                                                                  ==============     ==============      =================
Issuance of 286,687 Shares of Common Stock as Consideration
  for Purchase of PCE Shares from Related Parties                 $      77,455      $           -       $         77,455
                                                                  ==============     ==============      =================
Cancellation of 286,687 Shares of Common Stock by
  Related Parties                                                 $       2,869      $           -       $          2,869
                                                                  ==============     ==============      =================
Additional Paid-In Capital Arising from Acquisition of PCE        $   2,715,234      $           -       $      2,715,234
                                                                  ==============     ==============      =================
Payable on Purchase of PCE Stock                                  $      14,898      $           -       $         14,898
                                                                  ==============     ==============      =================
</TABLE>
The accompanying notes are an integral part of the financial statements.

                                       6
<PAGE>
                       POWERCHANNEL, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2004
                                   (Unaudited)


NOTE 1-Basis of Presentation

     The accompanying  unaudited  condensed  consolidated  financial  statements
include the accounts of PowerChannel, Inc. and its subsidiaries,  which are both
wholly  and  majority  owned.   All  significant   inter-company   accounts  and
transactions have been eliminated in consolidation.

     The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with U.S. generally accepted  accounting  principles
for  interim  financial  information  and  with  instructions  to  Form  10-QSB.
Accordingly,  they do not include all of the information and footnotes  required
by  U.S.  generally  accepted  accounting   principles  for  complete  financial
statements.  In  the  opinion  of the  Company's  management,  the  accompanying
consolidated  financial  statements  reflect all adjustments (which include only
normal  recurring  adjustments)  necessary  to present  fairly the  consolidated
financial  position  and  results of  operations  and cash flows for the periods
presented.

     Results of operations for interim periods are not necessarily indicative of
the results of operations for a full year.

     The condensed  consolidated  financial  statements  have been prepared on a
going  concern  basis,   which   contemplates  the  realization  of  assets  and
satisfaction  of liabilities in the normal course of business.  The Company is a
development stage company and has incurred  recurring losses from operations and
operating cash  constraints  that raises  substantial  doubt about the Company's
ability to continue as a going concern.


NOTE 2 - Property and Equipment

         Property and equipment consists of the following:

                    Office Equipment                          $      8,000
                    Furniture and Fixtures                          83,175
                    Leasehold Improvements                          27,364
                                                              -------------
                                                                   118,639
                    Less:  Accumulated Depreciation                 84,211
                                                              -------------
                                                              $     34,428
                                                              =============

     Depreciation  expense  amounted  to $9,758 and  $11,230  for the six months
ended June 30, 2004 and 2003 respectively.

NOTE 3 - Investment In Unconsolidated Affiliate

     As of December 31, 2003 the Company determined that there was an other than
temporary decline in value of its investment in PowerChannel Europe PLC ("PCE").
Accordingly,  the Company  recognized  an  impairment  charge to operations of $
573,887  for the year  ended  December  31,  2003  representing  this other than
temporary  decline in value,  thereby  reducing  the  carrying  value to zero at
December  31,  2003.  As of June 30, 2004 the Company  increased  its  ownership
percentage in PCE to 70.41%. Accordingly, the Company no longer accounts for PCE
under the equity  method.  As a majority  owned  subsidiary  PCE is  included in
consolidation (see Note 4).

                                       7
<PAGE>
                       POWERCHANNEL, INC. AND SUBSIDIARIES
                         (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 JUNE 30, 2004
                                  (Unaudited)

NOTE 4 - Acquisition

     On May 31, 2004, the Company  acquired  13.47% of  Powerchannel  Europe PLC
("PCE")(see  Note 3) for $54,898 from Internet  Investors,  Inc., a wholly owned
subsidiary of Long Distance Direct Holdings, Inc. ("LDH"). Mr. Lampert, our sole
executive  officer and a director,  resigned as an officer and a director of LDH
on December 31, 2002 and  currently  owns  approximately  9% of the issuance and
outstanding shares of common stock of LDH.

     On June 30, 2004 the Company  acquired  38.44% of PCE for $77,455  from Mr.
Steven  Lampert,  the  Company's  Chief  Executive  Officer and a director,  and
Michael  Preston.  Mr.  Preston has  occasionally  served as a consultant to the
Company and owns a limited number of shares of common stock of the Company.  The
Company  issued 286,687 shares of common stock to Mr. Lampert and Mr. Preston as
consideration  for the PCE shares.  Concurrently  therewith,  the 286,687 shares
were  returned  to the  Company  by Mr.  Lampert  and  Mr.  Preston  as  capital
contributions.

     At June 30, 2004,  the  Company's  ownership in PCE increased to 70.41% and
the  accounts  of  PCE  have  been  included  in  these  consolidated  financial
statements.  The transaction  has been accounted for under the purchase  method.
Accordingly,  the  consolidated  statements  of  operations  will include  PCE's
results of operations from June 30, 2004. Prior to June 30, 2004 the Company had
accounted  for its  investment in PCE under the equity method and has recorded a
loss from the  unconsolidated  affiliate  in the amount of  $48,000  for the six
months ended June 30, 2004. PCE does not engage in any operations however it was
formerly engaged in the providing of Internet access.

     Unaudited  pro  forma   consolidated   results  of  operations  as  if  the
acquisition  had  taken  place at the  beginning  of 2003  would  not have  been
materially different from the amounts reported.

     The following table provides  unaudited  condensed  consolidated  financial
information about PCE as of June 30, 2004 and for the six months then ended:

              Current Assets                   $     3 931,504
              Total Assets                     $     3,931,504
              Current Liabilities              $       593,076
              Total Liabilities                $       593,076
              Equity                           $     3,338,428
              Revenues                         $             -
              Net (Loss)                       $       150,000

     The current assets included in the above table includes receivable from the
Company aggregating approximately $3.9 million.

NOTE 5 - Minority Interest

     Minority  interest at June 30, 2004  represents the minority  shareholders'
29.59% interest in the equity of PCE in the amount of $987,841.

NOTE 6 - Convertible Notes Payable

                                       8
<PAGE>
     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 note  holders,  these notes may be converted
into common  stock for the value of the note at a price of $0.1287 per share.  A
beneficial conversion amount was recorded in the amount of $280,000 and expensed
in 2000. In December 2003, one $20,000 Series A Note was paid in connection with
a  settlement  agreement  and in January  2004 the Company  paid an aggregate of
$215,695 principal to four note holders. At June 30, 2004, the remaining balance
due on these notes was $44,305.

                                       9
<PAGE>
                       POWERCHANNEL, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2004
                                   (Unaudited)

NOTE 6-  Convertible Notes Payable (Continued)

     In May 2004,  the Company and  Churchill  Investments,  Inc.  ("Churchill")
entered into a mutual release whereby the parties released each other party from
all obligations  with respect to the Consulting  Agreement and the  Non-recourse
Assignment. In addition,  Churchill agreed to reassign the remaining outstanding
balance of the Series A Notes in the amount of  $169,461  to the Company and the
Company agreed to indemnify Churchill for any losses due to claims instituted by
third party purchasers of shares issued upon conversion of the Series A Notes.

NOTE 7-  Note Payable - Other

     On June 25, 2003, the Company borrowed $112,000 (the "June 2003 Note") from
Knightsbridge   Holdings,   LLC  ("Knightsbridge")   pursuant  to  that  certain
Promissory Note and Security Agreement entered with Knightsbridge. In connection
with the June 2003 Note,  which bears  interest at 5% per annum and is due March
2004,  the Company  granted a security  interest in all of its  inventories.  In
addition, several stockholders of the Company, including the CEO of the Company,
pledged their shares  (14,803,296  shares) to  Knightsbridge  to secure the June
2003 Note.

     The June 2003 Note was paid in full in May  2004.  Simultaneously  with the
payment of the outstanding balance of the June 2003 Note,  Knightsbridge  agreed
to (i) release its security interest on the Company's  inventory and (ii) return
all of the shares that had been  pledged to it as  collateral  for the June 2003
Note. In addition,  the Company and Knightsbridge  entered into a mutual release
whereby the parties released each other from all obligations with respect to the
June 2003 Note.

NOTE 8-  Related Party Transactions

     Advances to Related Party

     During the quarter  ended June 30, 2004,  the Company made certain loans to
the  President  and CEO of the Company,  aggregating  $56,607.  During this same
period  the loans  were  repaid  through  the  payment  of cash in the amount of
$43,300 and the application of accrued salaries in the amount of $13,307.  These
loans made to Mr. Lampert violate Section 402 of the Sarbanes Oxley Act of 2002.
As a result,  despite the fact that such loans were repaid,  the Company  and/or
Mr. Lampert may be subject to fines,  sanctions and/or penalties.  At this time,
the Company is unable to determine  the amount of such fines,  sanctions  and/or
penalties that may be incurred by the Company and/or Mr. Lampert.

     Purchase of Inventories

     Inventories consist of set-top boxes, which require modification for use in
their related geographic regions.

     In May 2004, The Lampert Group, an entity 100% owned by Steven Lampert, the
Company's Chief  Executive  Officer and a director,  successfully  bid on 42.336
set-top  boxes  auctioned  off by S&H  Storage  &  Haulage  Ltd.  ("S&H")  at an
aggregate  price  of  approximately  $44,000.  Prior  to the  auction,  S&H took
possession of the set top boxes after PowerChannel  Europe PLC had failed to pay
for their storage. The Company then purchased the set-top boxes from The Lampert
Group for approximately $44,000.

                                       10
<PAGE>
                       POWERCHANNEL, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2004
                                   (Unaudited)

NOTE 9-  Other Comprehensive Income (Loss) - Supplemental Non-Cash Investing
         Activities

     Other   comprehensive   income  (loss)  consists  of  accumulated   foreign
translation gains and losses and is summarized as follows:

                Balance - December 31, 2003                 $  (625,949)
                Equity Adjustments from Foreign
                Currency Translation                            (61,756)
                Balance - June 30, 2004                     $  (687,705)

NOTE 10- Stockholders' Deficit

          Issuances  of Common  Stock  and  Stock  Options  in  Connection  with
          Consulting Agreements

     On January  20,  2004 the  Company  agreed to issue an  additional  260,943
shares of common  stock  valued at  $245,286  and make  payment  of $10,000 to a
consultant in lieu of  additional  compensation  bonuses  relating to a one year
consulting  agreement originally entered into on November 24, 2003. The value of
the  stock  is  being  amortized  over  the  remaining  life  of the  agreement.
Amortization  reported as stock-based  compensation amounted to $130,659 for the
six months ended June 30, 2004.

     On January  20,  2004 the  Company  agreed to issue an  additional  270,943
shares of common stock valued at $254,686 to a consultant  in lieu of additional
compensation  bonuses  relating to a one year  consulting  agreement  originally
entered  into on November 24,  2003.  The value of the stock is being  amortized
over the remaining life of the agreement.  Amortization  reported as stock-based
compensation  amounted to $135,666 for the six months ended June 30, 2004.  This
consultant was also appointed in January 2004 as a director of the Company.

     On February 6, 2004 the Company agreed to issue an additional 50,000 shares
of common  stock valued at $61,500 to a consultant  as  additional  compensation
relating to a one year consulting  agreement originally entered into on December
4, 2003. This consulting agreement was subsequently terminated in April 2004 and
accordingly  the entire  amount was charged to  operations  in the quarter ended
June 30, 2004.

     On April 9, 2004 the Company  entered into  Amendment  No. 1 to the Amended
and Restated  Consulting  Agreement,  effective  as of February 9, 2004,  with a
consultant.  The Company had previously  entered into a consulting  agreement on
November 24, 2003 and an Amended and Restated Consulting  Agreement effective as
of January 20, 2004 with the consultant.  The amendments  provide issuance of an
additional  660,943  shares of common  stock  valued at $621,286  and payment of
$202,000 to the  consultant.  The value of the stock is being amortized over the
remaining life of the  agreement,  as extended.  Amortization  reported as stock
based compensation  amounted to $150,029 for the six months ended June 30, 2004.
In  consideration  for extending the term of the Restated  Agreement to November
24, 2005, the  Corporation  will grant the consultant  2,000,000  options with a
five year term and  piggyback  registration  rights.  The exercise  price of the
options is $1 per share.  The Company  estimated the fair value of these options
to be $  1,879,735  utilizing  the  Black-Scholes  valuation  method  using  the
following assumptions:  a risk-free interest rate of 3.1%, volatility of 339.44%
and a term of five years. Such amount is being amortized over the remaining life
of the  agreement,  as extended.  Amortization  amounted to $453,921 for the six
months ended June 30, 2004.

                                       11
<PAGE>
                       POWERCHANNEL, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2004
                                   (Unaudited)

NOTE 10- Stockholders' Deficit (Continued)

     Other

     During the quarter ended March 31, 2004 the Company  issued  239,158 shares
of common stock valued at $ 234,466 to various  consultants  for  services.  The
entire  amount has been  reported  as stock based  compensation  for the quarter
ended June 30, 2004.

     During the quarter ended March 31, 2004 the Company  issued  250,000 shares
of common  stock  valued at  $205,000  to its  President  as  payment of accrued
salaries,  232,122  shares of common  stock  valued at $182,960 to  employees as
payment of accrued salaries and 5,000 shares of common stock valued at $4,100 to
a consultant as payment of accrued fees.

     During the quarter ended June 30, 2004 the Company issued 120,000 shares of
common stock valued at $75,600 as payment of previously accrued consulting fees.

     2004 Incentive Stock Plan

     During January 2004, the Company adopted the 2004 Incentive Stock Plan (the
"2004 Plan") under which  options  (either  incentive  or  nonqualified),  stock
awards and restricted  stock purchase  offers,  covering an aggregate  amount of
2,000,000  shares  of common  stock,  may be  granted  to  officers,  directors,
employees and consultants of the Company. The exercise price established for any
awards granted under the Plan,  shall be determined by a Compensation  Committee
appointed by the Company's  Board of Directors.  The exercise price of incentive
stock  options  cannot be less than 100%  (110% for 10% or  greater  shareholder
employees)  of the fair  market  value  ("FMV")  at the  date of  grant  and the
exercise price of nonqualified options cannot be less than 85% of the FMV at the
date of grant. The exercise period of incentive  options cannot extend beyond 10
years from the date of grant and  nonqualified  options  cannot extend beyond 10
years  from the date of grant.  During the six  months  ended June 30,  2004 the
Company  issued an aggregate of 2,000,000  shares of common stock under the 2004
Plan.

     Private Placement

     During  February  and March  2004 the  Company  sold 99.5  Units to private
investors,  each Unit  consisting  of 50,000  shares of common  stock and 50,000
common  stock  purchase  warrants at a price of $25,000 per Unit,  pursuant to a
private placement  memorandum that called for a maximum offering of 50 Units. In
connection  with this  offering  the Company  issued an  aggregate  of 4,975,000
shares of  common  stock and  4,975,000  common  stock  purchase  warrants.  The
warrants are exercisable  into one share of common stock at an exercise price of
$.75 per warrant.  The warrants are callable when the five-day  average  closing
bid price of the common stock equals or exceeds $1. The warrants are exercisable
for a period of 36 months from the final closing of the offering.  In connection
with this  offering  the  Company  received  gross  proceeds of  $2,487,500  and
incurred offering costs of approximately $265,000.

                                       12
<PAGE>
                       POWERCHANNEL, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2004
                                   (Unaudited)

NOTE 11- Commitments and Contingencies

     Consulting Services

     On June 23,  2003,  the  Company  entered  into an  Engagement  Letter with
Knightsbridge  Holdings,  LLC,  ("Knightsbridge")  pursuant to which the Company
engaged  Knightsbridge to provide certain  consulting and related services for a
one-year  term.  As  consideration  for the  services to be  rendered  under the
Engagement  Letter,  the Company issued an aggregate of 625,000 shares of common
stock valued at $625,000 to  Knightsbridge.  The Engagement Letter provides that
the Company issue to Knightsbridge,  or its designees, an amount of common stock
of the Company, upon the closing of a merger/acquisition  with a public company,
in an amount not less than 11.50% of the fully diluted shares of the post merger
company.  The Engagement Letter further provides that such shares will have full
ratchet anti dilution  provisions  for the term of the  Engagement  Letter.  The
Company  believes that  Knightsbridge  failed to provide the  consideration  and
services that were  contracted  for, and, as a result,  does not intend to issue
any additional shares to Knightsbridge. As of December 31, 2003, the Company has
reserved  for  issuance  however,  1,504,193  shares of common  stock  valued at
$1,045,191  based  upon the terms of the  Engagement  Letter  and during the six
months  ended June 30,  2004,  the Company has  reserved an  additional  811,338
shares valued at $772,617.  Such  2,315,531  shares of common stock to be issued
have been reported as a component of stockholders'  deficit.  The value of these
shares to be issued  along  with the  original  625,000  shares  issued is being
amortized  over one year and the remaining  life of the  contract.  Amortization
reported as stock based  compensation  amounted to $1,664,576 for the six months
ended June 30,  2004.  There can be no  assurance  that  Knightsbridge  will not
commence an action  against  the  Company  relating to its rights to receive the
shares, or if instituted, that such action will not be successful.  Although the
Company  believes that any action which may be commenced would be without merit,
and it would vigorously defend any such action,  the cost of such litigation can
be  substantial  even if the Company were to prevail.  Further,  an  unfavorable
outcome could have a material adverse effect on the Company's revenues, profits,
results of operations, financial condition and future prospects.

     Litigation

     Except  for the  following,  the  Company  is  currently  not  party to any
material legal proceedings.

     In October 2003, a stockholder  alleging  investment fraud filed a claim in
the  Civil  Court of the City of New  York  seeking  damages  in the  amount  of
approximately $48,000.

     In April 2003, a stockholder alleging investment fraud filed a claim in the
Supreme  Court of Nassau  County  seeking  damages in the amount of $25,000 plus
interest.  The plaintiff has withdrawn his claim but may commence this action at
a future point in time.

     Management  believes  that the  resolution  of these claims will not have a
material  effect on the  financial  position  or  results of  operations  of the
Company.

                                       13
<PAGE>
                       POWERCHANNEL, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2004
                                   (Unaudited)

NOTE 11- Commitments and Contingencies (Continued)

     Antidilution Agreement

     Steven Lampert,  the Company's  President,  has entered into a Confidential
Antidilution  Agreement dated July 1, 2003 with Michael Fasci, a former director
and officer of the Company.  In consideration  for Mr. Fasci agreeing to vote in
favor of the reverse  merger the Company  entered into in July 2003, Mr. Lampert
agreed to transfer to Mr. Fasci shares of his common stock  whereby Mr.  Fasci's
ownership would at all times be maintained at 10% of the  outstanding  shares of
the Company.  The term of this  agreement is for three years.  As a result,  Mr.
Lampert may be required to transfer all or a portion of his shares to Mr. Fasci.

     Employment Agreement

     On February 10, 2004, the Company entered into an employment agreement with
its Chief  Executive  Officer.  The agreement is for a one year term with annual
renewal  options.  It provides  for an annual base  salary of  $160,000,  annual
performance bonuses, stock and stock option eligibility, and employee benefits.

     Accrued Liabilities

     Included  in accrued  liabilities  are  federal  payroll  taxes  payable of
approximately $150,000 under federal tax liens.

NOTE 12- Subsequent Events

     In July 2004, 500,000 restricted shares of common stock were issued.

     In July 2004,  25,000  restricted shares of common stock were returned by a
consultant due to non performance of services to be rendered.

                                       14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Our History

We were incorporated in Delaware in 1995 under the name UC'NWIN Systems, Inc. In
August 1999, we changed our name to The Winners Edge.com, Inc. During 1999, as a
result of a Chapter 11 Bankruptcy Plan of Reorganization, we acquired the assets
of The Winners Edge Licensing  Corporation.  In addition to the assets,  we also
acquired a ten-year  license with the exclusive right to market the Winners Edge
handicapping  product  renewable for a second ten years.  We did not acquire the
ownership of the handicapping  program.  In September 2000, we stopped marketing
the Winners Edge handicapping  product due to insufficient  income. On March 30,
2001,  we acquired a roofing  sealant  product,  Roof Shield.  In July 2001,  we
changed our name to Sealant  Solutions,  Inc. In September 2001, we acquired the
rights  to sell and  distribute  in the  United  States  the Lady  Ole'  line of
cosmetics products.  In February 2002, we entered into a joint venture agreement
with IFG Goldstar  Cement Company for the entitlement to a royalty payment based
upon the sale of certain concrete products. In April of 2002, we sold our rights
to the Lady Ole line of cosmetic  products.  In  November of 2002,  we agreed to
terminate and cancel the  remaining  term of our  licensing  agreement  with the
Winners Edge Licensing Corporation.

On July 21, 2003, pursuant to a Stock Purchase Agreement and Share Exchange,  as
amended,  between our company and  PowerChannel,  Inc., a Delaware  corporation,
PowerChannel merged into our company.  Pursuant to the Stock Purchase Agreement,
PowerChannel ceased to exist and we continued as the surviving  corporation.  In
addition,  we changed our name to  Powerchannel,  Inc. Under this agreement,  we
issued   10,137,897   shares  of  our  common  stock.  Such  shares  are  deemed
"restricted"  as defined under Rule 144 as promulgated  under the Securities Act
of 1933,  as amended.  Under the terms of the  agreement,  we are the  acquiring
company.  The merger was accounted for as a reverse merger, which effectively is
a recapitalization of the target company.

Pursuant to the  Agreement,  Michael  Fasci  remained on our Board of  Directors
until his resignation in February 2004,  Edward Fasci resigned from our Board of
Directors  and  Steven  Lampert  was  appointed  to our Board of  Directors.  In
addition,  Michael Fasci resigned as President and Chief  Executive  Officer and
Steven  Lampert was  appointed as  President,  Chief  Executive  Officer,  Chief
Financial  Officer and Secretary.  The Acquisition was approved by the unanimous
consent of the Board of  Directors of our company and  PowerChannel  on July 21,
2003. Mr. Lampert has entered into a Confidential  Antidilution  Agreement dated
July 1, 2003 with Michael Fasci,  a former  director and officer of the Company.
In  consideration  for Mr. Fasci agreeing to vote in favor of the reverse merger
the Company  entered into in July 2003,  Mr.  Lampert  agreed to transfer to Mr.
Fasci  shares of his common  stock so that Mr.  Fasci's  ownership  would at all
times be maintained at 10% of the outstanding shares of the Company. The term of
this agreement is for three years.  As a result,  Mr. Lampert may be required to
transfer all or a portion of his shares to Mr. Fasci.

Business Summary

We provide low-cost access to the Internet. In order to accomplish this, we also
provide the  physical  hardware to deliver it through the use of the  consumer's
existing  television.  We are primarily focused on the Hispanic market,  using a
bilingual  (English/Spanish)  approach  to  meet  the  needs  of  the  differing
generations within the Hispanic  community.  Our home page offers the subscriber
an  English/Spanish  language option at the click of a button. Our portal points
the  subscriber  to all the major  Hispanic  portals and to links with  Hispanic
commercial,  educational and community sites. The reach of our links is designed
to embrace the full extent of diverse Hispanic cultural and ethnic interests. As
we develop,  we will  continue to utilize the already  existing  and  successful
Hispanic-specific  content of others to enhance the practical sense of community
that its planned household penetration creates.

Acquisition of a Controlling Interest in Powerchannel Europe PLC

On May 31, 2004, the Company acquired 13.47% of Powerchannel  Europe PLC ("PCE")
for $54,898 from Internet  Investors,  Inc. , a wholly owned  subsidiary of Long
Distance Direct Holdings,  Inc. ("LDH"). Mr. Lampert, our sole executive officer
and a director,  resigned  as an officer  and a director of LDH on December  31,
2002 and currently owns  approximately 9% of the issuance and outstanding shares
of common stock of LDH.

On June 30, 2004 the Company  acquired 38.44% of PCE for $77,455 from Mr. Steven
Lampert,  the  Company's  Chief  Executive  Officer and a director,  and Michael
Preston.  Mr. Preston has occasionally served as a consultant to the Company and
owns a limited  number of shares of common  stock of the  Company.  The  Company
issued  286,687  shares  of  common  stock to Mr.  Lampert  and Mr.  Preston  as
consideration  for the PCE shares.  Concurrently  therewith,  the 286,687 shares
were  returned  to the  Company  by Mr.  Lampert  and  Mr.  Preston  as  capital
contributions.

                                       15
<PAGE>
At June 30, 2004,  the  Company's  ownership in PCE  increased to 70.41% and the
accounts  of PCE have been  included  in the  Company's  consolidated  financial
statements.  The transaction  has been accounted for under the purchase  method.
Accordingly,  the  consolidated  statements  of  operations  will include  PCE's
results of operations from June 30, 2004. Prior to June 30, 2004 the Company had
accounted  for its  investment in PCE under the equity method and has recorded a
loss from the  unconsolidated  affiliate  in the amount of  $48,000  for the six
months ended June 30, 2004. PCE does not engage in any operations however it was
formally engaged in the providing of Internet access.

Results of Operations

Six Months Ended June 30, 2004 compared to Six Months Ended June 30, 2003

Revenues

During  the six  ended  June 30,  2004 we had sales of  approximately  $148,366.
During the six months ended June 30, 2003, we did not generate any revenue.  The
reason for the increase in the revenues was the  commencement  of the  Company's
new business of providing low cost Internet access.

Costs and Expenses

Cost and expenses  incurred  for the six months ended June 30, 2004,  aggregated
$4,843,663 as compared to $137,153 for the six months ended June 30, 2003.  Cost
and expenses increased by $4,706,510 for the six months ended June 30, 2004 when
compared to the comparable period of the prior year. This increase resulted from
the following:

     o    Cost of sales of $136,462 during the six months ended June 30, 2004;
     o    write down of  inventories of $21,593 during the six months ended June
          30, 2004;
     o    selling,  general and administrative expenses for the six months ended
          June 30, 2004 was  $976,047,  as  compared to $137,153  during the six
          months ended June 30, 2003,  which represents an increase of $838,894;
          and
     o    the  Company  recognized  stock based  compensations  in the amount of
          $3,709,561  during the six months  ended June 30,  2004 as compared to
          none during the six months ended June 30, 2003.

Net Loss

The net loss was  $4,759,461 for the six months ended June 30, 2004, as compared
to a net loss of $140,179 for the six months  ended June 30, 2003.  The net loss
increased by $4,619,282  from the previous  period  primarily as a result of the
reasons set forth above.

Three Months Ended June 30, 2004 compared to Three Months Ended June 30, 2003

Revenues

During the quarter ended June 30, 2004 we had sales of approximately $45,000 and
sales  returns of  approximately  $84,000,  resulting in net  negative  sales of
approximately  $39,000.  During the three months ended June 30, 2003, we did not
generate any revenue.  The reason for the  generation of net negative  sales was
the  return of a majority  of our  set-top  terminals  previously  delivered  to
ISS-LG,  Inc. for sale in Puerto Rico.  Revenues  from the sale of the Company's
set-top  boxes are  recognized  at the time of  shipment to the  customer.  As a
result,  the revenues  were booked upon shipment of the set top boxes to ISS-LG,
Inc., which were subsequently  returned.  Access fees are deferred and amortized
over the life of the subscription.

Costs and Expenses

Cost and expenses incurred for the three months ended June 30, 2004,  aggregated
$2,285,000 as compared to $24,457 for the three months ended June 30, 2003. Cost
and expenses  increased by  $2,260,543  for the three months ended June 30, 2004
when compared to the comparable period of the prior year. This increase resulted
from the following:

     o    write down of  inventories  of $21,593  during the three  months ended
          June 30, 2004;
     o    selling,  general and  administrative  expenses  for the three  months
          ended June 30, 2004 was  $446,705,  as compared to $24,457  during the
          three  months  ended June 30, 2003,  which  represents  an increase of
          $422,248; and
     o    the  Company  recognized  stock based  compensations  in the amount of
          $1,867,740  during the three months ended June 30, 2004 as compared to
          none during the three months ended June 30, 2003.

Net Loss

The net loss was  $2,384,256  for the  three  months  ended  June 30,  2004,  as
compared to a net loss of $25,983 for the three months ended June 30, 2003.  The
net loss increased by $2,358,273 from the previous period  primarily as a result
of the reasons set forth above.

                                       16
<PAGE>
Off-Balance Sheet Arrangements

The Company had no off-balance  sheet  arrangements  for the three months ending
June 30, 2004.

Liquidity and Capital Resources

Financial Condition

The  Company  has  generated  minimal  revenue  to  date  and has  financed  its
operations through sales of its common stock and debt. The future success of the
Company depends upon its ability to raise additional financing, generate greater
revenue,  and exit the development stage. There is no guarantee that the Company
will be able to do so.

At June 30,  2004,  the Company had total  current  assets of $953,502 and total
current  liabilities  of $1,408,085  resulting in a working  capital  deficit of
$454,583.  In addition,  the Company had a stockholders deficit of $1,552,707 at
June 30, 2004.

The Company is a development stage company that has a working capital deficit at
June 30, 2004 of $454,583 and for the period August 10, 1998 (inception) to June
30, 2004 has incurred net losses  aggregating  $16,679,200.  These factors raise
substantial  doubt about the Company's  ability to continue as a going  concern.
Management's  plans with  respect to  alleviation  of the going  concern  issues
include   establishment  of  strategic   partnerships  with  key  suppliers  and
customers,  the raising of capital by the sale of shares of common  stock in the
Company,  and through  potential  operating  revenues  stemming from the sale of
set-top boxes and internet  access.  Continuation of the Company is dependent on
the following:

     o    consummation of the contemplated financings;
     o    achieving sufficiently profitable operations;
     o    subsequently maintaining adequate financing arrangements; and
     o    its exiting the development stage.

The  achievement  and/or  success of the Company's  planned  measures,  however,
cannot be determined at this time.

Capital Resources

The Company anticipates generating cash to continue its operations either though
private  sales  of its  common  stock  or from  capital  contributions  from its
officers  and/or  directors.  In addition,  the Company hopes to reach levels of
revenue  sufficient to meet its operating costs.  There is no guarantee that the
Company will be able to reach these levels or generate  cash through the sale of
its  common  stock.  The  Company  currently  does not have  any  agreements  or
arrangements for financing.

Since the merger in July 2003 through April 2004,  our  investors  have provided
funding  approximately  in the amount of $2,600,000 in cash, and various parties
have provided services valued at approximately  $5,000,000, in consideration for
the issuance of  securities  issued or to be issued.  To obtain  funding for our
ongoing  operations,  pursuant  to an  offering  conducted  under  Rule  506  of
Regulation D, as promulgated  under the Securities Act of 1933, we sold units to
accredited  investors with each unit consisting of 50,000 shares of common stock
and 50,000  common stock  purchase  warrants at a price of $25,000 per unit.  In
connection  with this  offering we issued an aggregate  of  4,975,000  shares of
common  stock and  4,975,000  common  stock  purchase  warrants for an aggregate
purchase  price of  $2,487,500.  The common  stock  purchase  warrants  are each
exercisable into one share of common stock at the holder's option at an exercise
price of $.75 per  warrant.  At anytime  after the  filing of this  registration
statement,  we may call the warrants when the five-day average closing bid price
of the common stock equals or exceeds $1.00.  The warrants are exercisable for a
period of thirty-six months.

The Company needs to raise an additional $2,000,000 during the next 12 months to
effectively  institute its business plan to market and  distribute its products.
The Company is currently  seeking debt and/or equity  financing  arrangements to
provide an alternative source for its future capital needs.  However,  there can
be no assurance that it will be able to obtain this capital on acceptable terms,
if at all. In such an event,  this may have a materially  adverse  effect on our
business, operating results and financial condition. The following discusses the
manner in which we will utilize our material funding requirements of $2,000,000:

Expense                                                 Amount
------------------------------------------------------- ------------------------
Working Capital                                         $800,000
------------------------------------------------------- ------------------------
Marketing                                               $750,000
------------------------------------------------------- ------------------------
Professional Expenses                                   $250,000
------------------------------------------------------- ------------------------
General and Administrative                              $200,000
------------------------------------------------------- ------------------------

                                       17
<PAGE>
Related Party Loans

During the quarter  ended March 31, 2004, we made certain loans to the President
and CEO,  aggregating  $56,607.  During  this same  period the loans were repaid
through  the  payment of cash in the amount of $43,300  and the  application  of
accrued  salaries  in the amount of  $13,307.  These  loans made to Mr.  Lampert
violate Section 402 of the Sarbanes Oxley Act of 2002. As a result,  despite the
fact that such loans were repaid,  our company and/or Mr. Lampert may be subject
to fines,  sanctions and/or penalties.  At this time, we are unable to determine
the amount of such fines, sanctions and/or penalties that may be incurred by our
company and/or Mr. Lampert. The purpose of such loan was for personal use.

Additional Transactions

In February 2000,  the Company issued Series A Convertible  Notes (the "Series A
Notes") in the aggregate amount of $280,000 to several  investors (the "Original
Holders").

On  June  23,  2003,  the  Company  entered  into  an  Engagement   Letter  with
Knightsbridge  Holdings,  LLC,  ("Knightsbridge")  pursuant to which the Company
engaged  Knightsbridge to provide certain  consulting and related services for a
one-year  term.  As  consideration  for the  services to be  rendered  under the
Engagement Letter, the Company issued an aggregate of 625,000 shares of common

                                       18
<PAGE>
stock valued at $625,000 to  Knightsbridge.  The Engagement Letter provides that
the Company issue to Knightsbridge,  or its designees, an amount of common stock
of the Company, upon the closing of a merger/acquisition  with a public company,
in an amount not less than 11.50% of the fully diluted shares of the post merger
company.  The Engagement Letter further provides that such shares will have full
ratchet anti dilution  provisions  for the term of the  Engagement  Letter.  The
Company  believes that  Knightsbridge  failed to provide the  consideration  and
services that were  contracted  for, and, as a result,  does not intend to issue
any additional  shares to  Knightsbridge.  The Company has reserved for issuance
however,  1,504,193  shares of common stock valued at $1,045,191  based upon the
terms of the  Engagement  Letter and during the quarter ended March 31, 2004 the
Company has reserved an  additional  797,538  shares  valued at  $763,923.  Such
2,301,731  shares of common stock to be issued have been reported as a component
of stockholders'  deficit. The value of these shares to be issued along with the
original  625,000  shares  issued  is  being  amortized  over  one  year and the
remaining   life  of  the  contract.   Amortization   reported  as  stock  based
compensation  amounted to $688,502 for the quarter  ended March 31, 2004.  There
can be no assurance that  Knightsbridge  will not commence an action against the
Company  relating to its rights to receive the shares,  or if  instituted,  that
such action will not be  successful.  Although  the  Company  believes  that any
action which may be commenced  would be without merit,  and it would  vigorously
defend any such action,  the cost of such litigation can be substantial  even if
the Company  were to  prevail.  Further,  an  unfavorable  outcome  could have a
material  adverse  effect  on  the  Company's  revenues,   profits,  results  of
operations, financial condition and future prospects.

As of December 31, 2003 the Company has reserved for issuance however, 1,504,193
shares  of  common  stock  valued  at  $1,045,191  based  upon the  terms of the
Engagement  Letter and during the  quarter  ended March 31, 2004 the Company has
reserved an additional 797,538 shares valued at $763,923.  Such 2,301,731 shares
of common stock to be issued have been reported as a component of  stockholders'
deficit.  The value of these shares to be issued along with the original 625,000
shares issued is being  amortized  over one year and the  remaining  life of the
contract.

On June 25,  2003,  the Company  borrowed  $112,000  (the "June 2003 Note") from
Knightsbridge  pursuant to that certain  Promissory Note and Security  Agreement
entered with  Knightsbridge.  In connection with the June 2003 Note, the Company
granted a  security  interest  in all of its  inventory.  In  addition,  several
stockholders of the Company,  including Steven Lampert,  the CEO of the Company,
pledged their shares to Knightsbridge to secure the June 2003 Note.

In  December  2003,  one  $20,000  Series A Note was paid in  connection  with a
settlement  agreement  and in January  2004 the  Company  paid an  aggregate  of
$215,695  principal  to four note  holders.  At March 31,  2004,  the  remaining
balance due on these notes was $44,305.

In May 2004,  the Company and Churchill  Investors,  Inc.  entered into a mutual
release  whereby  the  parties  released  each other from all  obligations  with
respect  to  the  Consulting  Agreement  and  the  Non-recourse  Assignment.  In
addition,  Churchill agreed to reassign the remaining outstanding balance of the
Series A Notes in the amount of $169,461  to the Company and the Company  agreed
to indemnify  Churchill  for any losses due to claims  instituted by third party
purchasers of shares issued upon conversion of the Series A Notes.

                                       19
<PAGE>
In addition,  in May 2004, we paid off the balance owed in  connection  with the
June 2003 Note.  Simultaneously  with such payment of the outstanding balance of
the June 2003 Note, Knightsbridge agreed to

     o    release its security interest on our inventory; and
     o    return all of the shares that had been pledged to it as collateral for
          the June 2003 Note.

In addition, our company and Knightsbridge entered into a mutual release whereby
the parties  released each other from all  obligations  with respect to the June
2003 Note.

On April 22, 2004,  the Company issued 120,000 shares of common stock to Michael
Fasci,  a former  director and officer of the Company.  The Company issued these
shares  in  consideration  for the  forgiveness  of debt  owed to Mr.  Fasci  by
Advantage  Fund I, LLC, which such debt was assumed by the company in connection
with a settlement agreement entered with Advantage Fund LLC.

Risk Factors

Risks relating to our company

We have a history of losses since our inception and expect to incur losses for
the foreseeable future.

We incurred net losses for the year ended  December 31, 2003 of  $4,393,962  and
for the six months ended June 30, 2004 of  $4,759,461.  We have not yet achieved
profitability  and we can give no assurances that we will achieve  profitability
within the  foreseeable  future as we fund  acquisitions,  operating and capital
expenditures in areas such as establishment and expansion of markets,  sales and
marketing,  operating  equipment and research and development.  We cannot assure
investors  that we will  ever  achieve  or  sustain  profitability  or that  our
operating losses will not increase in the future.

We have a limited operating history in which to evaluate our business

Although  our  predecessor  was in  business  for eight  years,  we have been in
business  less than one year.  We have  limited  operating  history  and limited
assets.  Our limited financial  resources are  significantly  less than those of
other companies, which can develop a similar product in the U.S.

If we do not obtain additional cash to operate our business,  we may not be able
to execute our business plan and may not achieve profitability.

In the event that cash flow from operations is less than  anticipated and we are
unable to secure  additional  funding to cover these added  losses,  in order to
preserve  cash, we would be required to further reduce  expenditures  and effect
further reductions in our corporate infrastructure, either of which could have a
material  adverse  effect  on our  ability  to  continue  our  current  level of
operations. To the extent that operating expenses increase or we need additional
funds to make  acquisitions,  develop  new  technologies  or  acquire  strategic
assets,  the need for additional  funding may be accelerated and there can be no
assurances that any such additional  funding can be obtained on terms acceptable
to us, if at all. If we are not able to generate sufficient capital, either from
operations or through additional financing,  to fund our current operations,  we
may not be able to continue as a going concern.  If we are unable to continue as
a going concern,  we may be forced to significantly  reduce or cease our current
operations.  This could significantly reduce the value of our securities,  which
could result in our de-listing from the OTC Bulletin Board and cause  investment
losses for our shareholders.

Our Independent  Auditors have expressed  substantial doubt about our ability to
continue  as a going  concern,  which may  hinder our  ability to obtain  future
financing.

In their report dated April 16, 2004, our  independent  auditors stated that our
financial statements for the year ended December 31, 2003 were prepared assuming
that we would  continue as a going  concern.  Our ability to continue as a going
concern is an issue raised as a result of recurring  losses from  operations and
cash flow deficiencies from our inception. We continue to experience net losses.
Our ability to continue as a going concern is subject to our ability to generate
a profit  and/or  obtain  necessary  funding  from  outside  sources,  including
obtaining  additional funding from the sale of our securities,  increasing sales
or  obtaining  loans  and  grants  from  various  financial  institutions  where
possible.  Our  continued  net losses and  stockholders'  deficit  increases the
difficulty  in  meeting  such  goals and there  can be no  assurances  that such
methods will prove successful.

Our future success is dependent, in part, on the performance and continued
service of our President.

                                       20
<PAGE>
Our performance and future operating results are substantially  dependent on the
continued  service and  performance  of Steven  Lampert,  our  President,  Chief
Executive  Officer and  shareholder.  We will rely on Mr. Lampert to develop our
business  and  possible   acquisitions.   If  Mr.   Lampert's   services  become
unavailable,  our business and prospects would be adversely affected.  We do not
currently  maintain "key man"  insurance  for any of our  executive  officers or
other key  employees  and do not intend to obtain this type of  insurance  until
such time as the Company has positive cash flow and is  profitable.  The loss of
the  services  of Mr.  Lampert  could  have a  material  adverse  effect  on our
financial condition, operating results, and, on the public market for our common
stock.

Increased competition in the Internet service industry may make it difficult for
our  company to attract  and retain  members  and to  maintain  current  pricing
levels.

We operate in the Internet services market, which is extremely competitive.  Our
current and  prospective  competitors  include  many large  companies  that have
substantially greater market presence, financial, technical, marketing and other
resources  than we have. We compete  directly or  indirectly  with the following
categories of companies:

     o    established online service providers, such as America Online, Inc.,
          the Microsoft Network and Prodigy Communications Corporation;

     o    local, regional and national Internet service providers;

     o    national telecommunications companies;

     o    regional Bell operating companies, such as BellSouth Corporation and
          SBC Communications Inc.;

     o    personal computer manufacturers with Internet service provider
          businesses such as Gateway, Inc. and Dell Computer Corporation;

     o    "free access" Internet service providers; and

     o    online cable services; and

     o    television manufacturers with "built in Internet capabilities" such as
          Sony, Toshiba and Mitsubishi.

                                       21
<PAGE>
We will also face  competition  from companies that provide  broadband and other
high-speed  connections  to the  Internet,  including  local  and  long-distance
telephone companies, cable television companies, electric utility companies, and
wireless   communications   companies.   These   companies   may  use  broadband
technologies to include  Internet access or Web hosting in their basic bundle of
services  or may offer  Internet  access or Web hosting  services  for a nominal
additional  charge.  Broadband  technologies  enable  consumers  to transmit and
receive print,  video,  voice and data in digital form at  significantly  faster
access speeds than existing dial-up modems.

Our  competition is likely to increase.  We believe this will probably happen as
large  diversified  telecommunications  and  media  companies  acquire  Internet
service providers,  as Internet service providers  consolidate into larger, more
competitive  companies  and as  providers  who offer free access to the Internet
grow in number and size.  Diversified  competitors may bundle other services and
products  with  Internet  connectivity  services,  potentially  placing  us at a
significant competitive disadvantage.  In addition,  competitors may charge less
than  we do  for  Internet  services,  or may  charge  nothing  at  all in  some
circumstances,  causing us to reduce,  or preventing us from raising,  our fees.
Furthermore,  the  increase  in "wired"  homes with high speed  Internet  access
equipment  built  directly  into  the  home  may  prevent  us from  achieving  a
substantial member based. As a result, our business may suffer.

Any disruption in the Internet  access  provided by our company could  adversely
affect our business, results of operations and financial condition.

Our systems  and  infrastructure  will be  susceptible  to natural and  man-made
disasters  such as  earthquakes,  fires,  floods,  power loss and sabotage.  Our
systems  also will be  vulnerable  to  disruptions  from  computer  viruses  and
attempts by hackers to penetrate our network security.

We will be  covered  by  insurance  from loss of income  from some of the events
listed above,  but this  insurance may not be adequate to cover all instances of
system  failure.  Any of the events  described  above could cause  interference,
delays,  service  interruptions or suspensions and adversely affect our business
and results of operations.

We must continue to expand and adapt our system infrastructure to keep pace with
the increase in the number of members who use the services we expect to provide.
Demands on  infrastructure  that exceed our current  forecasts  could  result in
technical  difficulties with our servers.  Continued or repeated system failures
could impair our reputation and brand names and reduce our revenues.

If, in the future,  we cannot  modify  these  systems to  accommodate  increased
traffic,  we could suffer slower response times,  problems with customer service
and delays in reporting  accurate  financial  information.  Any of these factors
could significantly and adversely affect the results of our operations.

If our third party network providers are unable or unwilling to provide Internet
access to our members on commercially  reasonable  terms, we may suffer the loss
of customers, higher costs and lower overall revenues.

We provide dial-up access through  company-owned  points of presence and through
third  party  networks.  We will  be  able to  serve  our  members  through  the
combination  of network  providers that we deem most  efficient.  Our ability to
provide Internet access to our members will be limited if:

     o    our third-party network providers are unable or unwilling to provide
          access to our members;
     o    we are unable to secure alternative arrangements upon termination of
          third-party network provider agreements; or
     o    there is a loss of access to third-party providers for other reasons.

These events could also limit our ability to further  expand  nationally  and/or
internationally,  which could have a material adverse affect on our business. If
we lose access to third-party providers under current  arrangements,  we may not
be able to make  alternative  arrangements on terms acceptable to us, or at all.
We do not currently  have any plans or  commitments  with respect to alternative
third-party provider  arrangements in areas served by only one network provider.
Moreover,  while the contracts with the  third-party  providers  require them to
provide  commercially  reliable  service  to  our  members  with  a  significant
assurance of  accessibility  to the Internet,  the  performance  of  third-party
providers may not meet our requirements, which could materially adversely affect
our business, financial condition and results of operations.

Our revenues and results of operations  will be dependent  upon our  proprietary
technology and we may not be successful in protecting our proprietary  rights or
avoiding claims that we are infringing upon the proprietary rights of others.

                                       22
<PAGE>
Our success  depends in part upon our  software  and related  documentation.  We
principally  rely upon copyright,  trade secret and contract laws to protect our
proprietary  technology.  We cannot be certain that we have taken adequate steps
to prevent  misappropriation  of our technology or that our competitors will not
independently develop technologies that are substantially equivalent or superior
to our technology.

We could incur  substantial  costs and diversion of management  resources in the
defense of any claims  relating to proprietary  rights,  which could  materially
adversely affect our business,  financial condition,  and results of operations.
Parties making these claims could secure a judgment awarding substantial damages
as well as injunctive or other equitable relief that could effectively block our
ability to license our products in the United States or abroad.  Such a judgment
could have a material  adverse effect on our business,  financial  condition and
results of operations.  If a third party asserts a claim relating to proprietary
technology or information  against us, we may seek licenses to the  intellectual
property from the third party. We cannot be certain, however, that third parties
will extend  licenses to us on commercially  reasonable  terms, or at all. If we
fail to obtain the  necessary  licenses  or other  rights,  we could  materially
adversely affect our business, financial condition and results of operations.

If we fail to grow  our  user  base,  we may not be able to  generate  revenues,
decrease per user telecommunications costs or implement our strategy

If we are unable to grow our user base, we may not be able to generate revenues,
decrease per-user  telecommunications costs or implement our strategy. We intend
to generate new users through other distribution  channels,  such as television,
radio and print media  advertising,  direct marketing  campaigns,  and bundling,
co-branding  and  retail  distribution  arrangements.  However,  we have  little
practical experience with marketing our service through these channels. If these
distribution  channels prove more costly or less effective than anticipated,  it
could adversely  impact our ability to grow. We would also be unable to grow our
user base if a significant  number of our current registered users stopped using
our service.  We cannot assure you that we will be able to successfully  address
these issues and retain our existing user base.

Changed in government regulation could decrease our revenues and increase our
costs.

Changes in the regulatory  environment  could decrease our revenues and increase
our costs.  As a provider of  Internet  access and e-mail  services,  we are not
currently subject to direct regulation by the Federal Communications Commission.
However, several telecommunications  carriers are seeking to have communications
over  the  Internet  regulated  by the FCC in the  same  manner  as  other  more
traditional  telecommunications  services.  Local  telephone  carriers have also
petitioned the FCC to regulate  Internet access providers in a manner similar to
long distance  telephone  carriers and to impose access fees on these providers,
and recent events suggest that they may be successful in obtaining the treatment
they seek. In addition,  we operate our services  throughout  the United States,
and regulatory  authorities  at the state level may seek to regulate  aspects of
our  activities as  telecommunications  services.  As a result,  we could become
subject to FCC and state regulation as Internet services and  telecommunications
services converge.

We remain subject to numerous  additional laws and regulations that could affect
our business.  Because of the Internet's popularity and increasing use, new laws
and regulations with respect to the Internet are becoming more prevalent.  These
laws and regulations have covered, or may cover in the future, issues such as:

     o    user privacy;

     o    pricing;

     o    intellectual property;

     o    federal, state and local taxation;

     o    distribution; and

     o    characteristics and quality of products and services.

Legislation  in  these  areas  could  slow  the  growth  in use of the  Internet
generally and decrease the  acceptance of the Internet as a  communications  and
commercial  medium.  Additionally,  because we rely on the collection and use of
personal data from our  subscribers  for targeting  advertisements  shown on our
services,  we may be harmed by any laws or regulations that restrict our ability
to  collect  or  use  this  data.   The  Federal  Trade   Commission  has  begun
investigations  into the privacy practices of companies that collect information
about individuals on the Internet. In addition, the FTC is conducting an ongoing
investigation  into  the  marketing  practices  of  Internet-related  companies,
including  Juno.  As part of the FTC's  activities,  we have been  requested  to
provide,  and have  provided,  marketing-related  and  customer  service-related
information to the FTC. Depending on the outcome of the FTC inquiry, we could be
required to modify our  marketing  or customer  service  practices in a way that
could negatively affect our business.

                                       23
<PAGE>
It may  take  years to  determine  how  existing  laws  such as those  governing
intellectual  property,  privacy,  libel and taxation apply to the Internet. Any
new  legislation  or regulation  regarding the Internet,  or the  application of
existing  laws and  regulations  to the Internet,  could harm us.  Additionally,
while  we  do  not  currently   operate  outside  of  the  United  States,   the
international  regulatory environment relating to the Internet market could have
an  adverse   effect  on  our   business,   especially   if  we  should   expand
internationally.

The growth of the Internet, coupled with publicity regarding Internet fraud, may
also lead to the  enactment of more  stringent  consumer  protection  laws.  For
example,  numerous  bills have been  presented  to Congress  and  various  state
legislatures  designed to address the prevalence of unsolicited  commercial bulk
e-mail  on the  Internet.  These  laws  may  impose  additional  burdens  on our
business.  The enactment of any additional  laws or regulations in this area may
impede the growth of the Internet,  which could decrease our potential  revenues
or otherwise cause our business to suffer.

Regulation of content and access could limit our ability to generate revenues
and expose us to liability

Prohibition  and  restriction  of Internet  content and access  could dampen the
growth  of  Internet  use,   decrease  the  acceptance  of  the  Internet  as  a
communications  and commercial  medium and expose us to liability.  A variety of
restrictions on content and access,  primarily as they relate to children,  have
been enacted or proposed,  including laws which would require  Internet  service
providers  to  supply,  at cost,  filtering  technologies  to limit or block the
ability of minors to access  unsuitable  materials on the  Internet.  Because of
these content  restrictions and potential  liability to us for materials carried
on or disseminated through our systems, we may be required to implement measures
to reduce our exposure to liability.  These measures may require the expenditure
of  substantial  resources  or the  discontinuation  of our  product  or service
offerings that subject us to this liability. Further, we could incur substantial
costs in defending against any of these claims and we may be required to pay

large judgments or settlements or alter our business practices. In addition, our
liability  insurance  may not cover  potential  claims  relating to the Internet
services we provide or may not be adequate to indemnify  us for all  liabilities
that may be imposed on us.

We could be exposed to liability for defamation, negligence and infringement.

Because users download and redistribute  materials that are cached or replicated
by us in connection with our Internet services,  claims could be made against us
for  defamation,  negligence,  copyright  or  trademark  infringement,  or other
theories  based on the  nature  and  content  of such  materials.  While we have
attempted  to  obtain  safe  harbor  protection   against  claims  of  copyright
infringement under the Digital Millenium  Copyright Act of 1998, there can be no
guarantee  that we will prevail in any such claims.  We also could be exposed to
liability  because of  third-party  content that may be  accessible  through our
services,  including  links to Web-sites  maintained by our users or other third
parties,  or posted directly to our Web-site,  and  subsequently  retrieved by a
third party  through our services.  It is also possible that if any  third-party
content provided through our services contains errors,  third parties who access
such material  could make claims  against us for losses  incurred in reliance on
such  information.  You  should  know  that  these  types of  claims  have  been
successfully  brought  against other online  service  providers.  In particular,
copyright  and  trademark  laws are evolving and it is uncertain how broadly the
rights provided under these laws will be applied to online  environments.  It is
impossible  for us to determine  who the  potential  rights  holders may be with
respect to all materials available through our services.

We are  dependent on strategic  marketing  alliances as a source of revenues and
our business could suffer if any of these alliances are terminated.

We have strategic marketing  alliances with a number of third parties,  and most
of our strategic marketing partners have the right to terminate their agreements
with us on short notice.  Any termination may result in the substantial  loss of
members  obtained  through  the  alliance.  If any of  our  strategic  marketing
agreements are terminated,  we cannot assure you that we will be able to replace
the terminated agreement with an equally beneficial arrangement.  We also expect
that we will not be able to renew all of our current agreements when they expire
or, if we are, that we will be able to do so on acceptable terms. We also do not
know  whether  we will be  successful  in  entering  into  additional  strategic
marketing alliances, or that any additional relationships, if entered into, will
be on terms  favorable  to us.  Our  receipt  of  revenues  from  our  strategic
marketing  alliances  may also be  dependent  on  factors  which are  beyond our
control,  such  as the  quality  of the  products  or  services  offered  by our
strategic marketing partners.

                                       24
<PAGE>
The  Company  and/or its  President  and CEO may be subject to fines,  sanctions
and/or  penalties of an  indeterminable  nature as a result of violations of the
Sarbanes  Oxley Act of 2002 in  connection  with loans made to the President and
CEO.

During the quarter  ended March 31, 2004,  we made certain  loans to Mr.  Steven
Lampert, the Company's President and CEO, aggregating $56,607.  During this same
period  the loans  were  repaid  through  the  payment  of cash in the amount of
$43,300 and the application of accrued salaries in the amount of $13,307.  These
loans made to Mr. Lampert violate Section 402 of the Sarbanes Oxley Act of 2002.
As a result,  despite the fact that such loans were repaid,  our company  and/or
Mr. Lampert may be subject to fines,  sanctions and/or penalties.  At this time,
we are unable to determine the amount of such fines,  sanctions and/or penalties
that may be incurred by our Company and/or Mr. Lampert. The purpose of such loan
was for personal use.

Risks Related To Our Stock

A former  consultant  may be entitled to receive  11.50% of the Company's  fully
diluted  outstanding  shares  which,  if the  Company is required to issue these
shares, could have a material adverse effect on our financial condition.

On June 23, 2003, the Company  entered into an Engagement  Letter which requires
that the Company issue to Knightsbridge,  or its designees,  an amount of common
stock of the  Company,  upon the closing of a  merger/acquisition  with a public
company,  in an amount not less than 11.50% of the fully  diluted  shares of the
post merger  company.  The Engagement  Letter further  provides that such shares
will have full ratchet anti dilution  provisions  for the term of the Engagement
Letter.  The  Company  believes  that   Knightsbridge   failed  to  provide  the
consideration and services that were contracted for, and, as a result,  does not
intend  to  issue  any  additional  shares  to  Knightsbridge.  There  can be no
assurance  that  Knightsbridge  will not commence an action  against the Company
relating to its rights to receive the shares, or if instituted, that such action
will not be successful.  Although the Company believes that any action which may
be commenced  would be without merit,  and it would  vigorously  defend any such
action,  the cost of such litigation can be substantial even if the Company were
to prevail. Further, an unfavorable outcome could have a material adverse effect
on the Company's revenues,  profits, results of operations,  financial condition
and future prospects.

Shares of common  stock issued in  connection  with the  conversion  of Series A
Convertible  Notes may have not have been in  compliance  with certain state and
federal securities laws.

                                       25
<PAGE>
On July 31, 2003, the Company  entered into a Consulting  Agreement  pursuant to
which the Company  engaged the consultant to provide certain  advisory  services
for a one-year term, for an aggregate fee of $250,000.  In lieu of payment,  the
Consultant  agreed to accept a  non-recourse  assignment  of  $280,000  Series A
Convertible  Notes.  Following the  execution  and delivery of the  Non-recourse
Assignment, the consultant or its assignees,  converted $110,539 of the Series A
Convertible  Notes into  855,000  shares of common  stock.  The  issuance of the
shares  of  common  stock in  connection  with the  conversion  of the  Series A
Convertible Notes may not have been in compliance with certain state and federal
securities  laws due to the fact that the  Consultant or its  assignees,  at the
time of the conversion, may not have been the lawful holder in due course of the

Notes by virtue of the fact that the Notes were  assigned  to them  without  the
consent  of the  original  note  holders.  It should be noted  that the  Company
subsequently  settled with all of the original  note holders.  In addition,  any
subsequent sale of the shares  issuable upon  conversion of the Notes,  may have
violated Rule 144.

The Company is currently unable to determine the amount of damages, if any, that
it may incur as a result of these share issuances  and/or any subsequent  sales,
which include,  but are not limited to, damages that may result from the Company
having to rescind the  issuance of these  shares.  The payment of damages  could
have a material adverse effect on the Company's  revenues,  profits,  results of
operations, financial condition and future prospects.

Steven  Lampert,  the  Company's  sole  officer and a director,  entered into an
agreement  whereby he may be required to transfer  his shares of common stock of
the Company

Steven Lampert has entered into a Confidential Antidilution Agreement dated July
1, 2003 with Michael  Fasci,  a former  director and officer of the Company.  In
consideration  for Mr. Fasci agreeing to vote in favor of the reverse merger the
Company  entered into in July 2003,  Mr. Lampert agreed to transfer to Mr. Fasci
shares of his common stock so that Mr. Fasci's  ownership  would at all times be
maintained  at 10% of the  outstanding  shares of the Company.  The term of this
agreement  is for three  years.  As a result,  Mr.  Lampert  may be  required to
transfer all or a portion of his shares to Mr. Fasci.

We have  anti-takeover  provisions,  which could inhibit potential  investors or
delay or prevent a change of control that may favor you.

Some of the  provisions  of our  certificate  of  incorporation,  our bylaws and
Delaware law could,  together or separately,  discourage  potential  acquisition
proposals or delay or prevent a change in control.  In particular,  our board of
directors is authorized to issue up to 5,000,000 shares of preferred stock (less
any outstanding shares of preferred stock) with rights and privileges that might
be senior to our common stock,  without the consent of the holders of the common
stock.

If we cannot operate as a going concern, our stock price will decline and you
may lose your entire investment.

Our auditors included an explanatory  paragraph in their report on our financial
statements  for the year ended  December  31,  2003 which  states  that,  due to
recurring  losses from  operations  since  inception  of the  Company,  there is
substantial doubt about our ability to continue as a going concern.

Our  Common  Stock is  Subject  to the  "Penny  Stock"  Rules of the SEC and the
Trading Market in Our  Securities is Limited,  Which Makes  Transactions  in Our
Stock Cumbersome and May Reduce the Value of an Investment in Our Stock.

The Securities and Exchange  Commission has adopted Rule 15g-9 which establishes
the  definition  of a "penny  stock,"  for the  purposes  relevant to us, as any
equity  security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions.  For
any transaction involving a penny stock, unless exempt, the rules require:

     o    that a broker or dealer approve a person's account for transactions in
          penny stocks; and
     o    the broker or dealer receive from the investor a written agreement to
          the transaction, setting forth the identity and quantity of the penny
          stock to be purchased.

                                       26
<PAGE>
In order to approve a person's account for transactions in penny stocks, the
broker or dealer must:

     o    obtain financial information and investment experience objectives of
          the person; and
     o    make a reasonable determination that the transactions in penny stocks
          are suitable for that person and the person has sufficient knowledge
          and experience in financial matters to be capable of evaluating the
          risks of transactions in penny stocks.

The broker or dealer  must also  deliver,  prior to any  transaction  in a penny
stock, a disclosure  schedule prescribed by the Commission relating to the penny
stock market, which, in highlight form:

     o    sets forth the basis on which the broker or dealer made the
          suitability determination; and
     o    that the broker or dealer received a signed, written agreement from
          the investor prior to the transaction.

Generally,  brokers may be less willing to execute  transactions  in  securities
subject  to the  "penny  stock"  rules.  This  may  make it more  difficult  for
investors to dispose of our common stock and cause a decline in the market value
of our stock.

Disclosure  also has to be made about the risks of  investing in penny stocks in
both public offerings and in secondary trading and about the commissions payable
to both the broker-dealer and the registered representative,  current quotations
for the securities and the rights and remedies available to an investor in cases
of fraud in penny stock  transactions.  Finally,  monthly  statements have to be
sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stocks.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Principals of Consolidation

The consolidated financial statements include the accounts of PowerChannel, Inc.
and  its  wholly  owned  and  majority  owned   subsidiaries.   All  significant
intercompany accounts and transactions are eliminated in consolidation.

Stock-Based Compensation

As permitted under FAS No. 123, "Accounting for Stock-Based  Compensation",  the
Company has elected to follow  Accounting  Principles  Board Opinion No. 25 (APB
No. 25), "Accounting for Stock Issued to Employees", and related interpretations
in accounting for  stock-based  awards to employees.  Accordingly,  compensation
cost for stock options and restricted stock grants is measured as the excess, if
any, of the market price of the Company's common stock at the date of grant over
the exercise price.  Warrants and options issued to  nonemployees  are accounted
for using the fair value method of  accounting  as prescribed by FAS No. 123 and
Emerging Issues Tak Force ("EITF") No. 96-18, "Accounting for Equity Instruments
That Are Issued to Other Than  Employees for Acquiring,  or in Conjunction  with
Selling,  Goods or  Services".  Compensation  costs  are  amortized  in a manner
consistent with Financial  Accounting Standards Board Interpretation No. 28 (FIN
No. 28),  "Accounting  for Stock  Appreciation  Rights and Other  Variable Stock
Option or Award Plans". The Company uses the Black-Scholes  option pricing model
to value options, restricted stock grants and warrants granted to nonemployees.

Basic and Diluted Earnings (Loss) Per Share

Basic earnings  (loss) per share is computed based by dividing net income (loss)
by the weighted average number of shares of common stock outstanding  during the
period.  The Common stock issued and outstanding  with respect to the pre-merger
Sealant stockholders has been included since January 1, 2001.

Because  the  Company  is  incurring  losses,  the effect of stock  options  and
warrants is antidilutive. Accordingly, the Company's presentation of diluted net
loss per share is the same as that of basic net loss per share.

Pro-forma weighted average shares outstanding includes the pro-forma issuance of
1,504,953 common shares reserved to be issued pending potential litigation (see
Note 11).

Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America requires  management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities and the disclosures of contingent assets and liabilities at the date
of the financial  statements  and the reported  amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.

                                       27
<PAGE>
Recent Accounting Pronouncements

In August 2001, the Financial Accounting Standards Board ("FASB") issued FAS No.
143 (FAS 143),  "Accounting  for  Obligations  Associated with the Retirement of
Long-Lived  Assets"  which is required to be adopted in fiscal  years  beginning
after  June  15,  2002.  FAS  143  establishes   accounting  standards  for  the
recognition  of and  measurement  of an  asset  retirement  obligation  and  its
associated asset retirement cost.

In April  2002,  the FASB  issued  FAS No.  145 (FAS  145),  "Recission  of FASB
Statements  No. 4, 44 and 64,  amendment of FASB Statement No. 13, and Technical
Corrections," which among other matters,  limits the classification of gains and
losses from  extinguishments of debt as extraordinary to only those transactions
that are  unusual  and  infrequent  in nature as defined by APB  Opinion  No. 30
"Reporting  the Results of  Operations - Reporting  the Effects of Disposal of a
Segment of a Business  and  Extraordinary,  Unusual and  Infrequently  Occurring
Events and Transactions." FAS 145 is effective no later than January 1, 2003.


In June 2002,  the FASB  issued FAS No.  146 (FAS  146),  "Accounting  for Costs
Associated  with  Exit  or  Disposal  Activities."  FAS 146  generally  requires
companies to recognize costs  associated  with exit or disposal  activities when
they are incurred rather than at the date of a commitment to an exit or disposal
plan. This pronouncement is effective for exit or disposal activities  initiated
after December 31, 2002.

In May 2003,  the FASB  issued FAS No. 150 (FAS 150),  "Accounting  for  Certain
Financial Instruments with Characteristics of both Liabilities and Equity." This
statement affects the classification, measurement and disclosure requirements of
certain freestanding  financial  instruments  including  mandatorily  redeemable
shares.  FAS 150 is  effective  for all  financial  instruments  entered into or
modified after May 31, 2003.

In August 2001, the FASB issued FAS No. 144,  "Accounting  for the Impairment or
Disposal  of  Long-Lived  Assets".   This  statement  supercedes  FAS  No.  121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of", and amends Accounting  Principles Board ("APB") Opinion No. 30,
"Reporting  Results of  Operations  -  Reporting  the  Effects of  Disposal of a
Segment of a Business,  and  Extraordinary,  Unusual and Infrequently  Occurring
Events and Transactions".  FAS No. 144 retains the fundamental provisions of FAS
No. 121 for recognition and measurement of impairment, but amends the accounting
and  reporting  standards  for segments of a business to be disposed of. FAS No.
144 was effective in 2002.

On December 31, 2002, the FASB issued FAS No. 148,  "Accounting  for Stock-Based
Compensation  -  Transition  and  Disclosure".  FAS No. 148 amends FAS No.  123,
"Accounting for Stock-Based  Compensation",  to provide  alternative  methods of
transition  to FAS No. 123's fair value  method of  accounting  for  stock-based
employee compensation.  FAS No. 148 also amends the disclosure provisions of FAS
No. 123 and  Accounting  Principles  Board  ("APB")  Opinion  No.  28,  "Interim
Financial  Reporting",  to require  disclosure  in the  summary  of  significant
accounting policies of the effects of an entity's accounting policy with respect
to  stock-based  employee  compensation  on reported net income and earnings per
share in annual and interim financial  statements.  While the statement does not
amend FAS No. 123 to require  companies  to account for employee  stock  options
using the fair  value  method,  the  disclosure  provisions  of FAS No.  148 are
applicable to all companies with stock-based employee  compensation,  regardless
of whether they account for that compensation using the fair value method of FAS
No. 123, or the intrinsic value method of APB Opinion 25,  "Accounting for Stock
issued to Employees" ("APB 25").

The adoption of FAS 143,144, 145 (other than as noted below), 146 and 150 is not
expected to have a material  effect on the  Company's  results of  operations or
financial position. The adoption of FAS 145 in recording the Company's shares of
PowerChannel Europe PLC's 2001 net income was not material.

Item 3. Controls and Procedures

(a) Evaluation of disclosure controls and procedures.

Our Chief  Executive  Officer  and Chief  Financial  Officer  (collectively  the
"Certifying  Officers")  maintain a system of disclosure controls and procedures
that is designed to provide  reasonable  assurance  that  information,  which is
required to be disclosed,  is accumulated and communicated to management timely.
Under the supervision and with the  participation of management,  the Certifying
Officers  evaluated  the  effectiveness  of  the  design  and  operation  of our
disclosure  controls and  procedures  (as defined in Rule  [13a-14(c)/15d-14(c)]
under the Exchange  Act) as of June 30, 2004.  Based upon that  evaluation,  the
Certifying  Officers  concluded that our disclosure  controls and procedures are
effective  in timely  alerting  them to  material  information  relative  to our
company required to be disclosed in our periodic filings with the SEC.

                                       28
<PAGE>
(b) Changes in internal controls.

Our Certifying Officers have indicated that there were no significant changes in
our  internal  controls or other  factors that could  significantly  affect such
controls  subsequent  to the date of their  evaluation,  and there  were no such
control actions with regard to significant deficiencies and material weaknesses.

                                       29
<PAGE>
                           PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

Except for the  following,  we are currently  not a party to any material  legal
proceedings.

     o    In October 2003, a stockholder alleging investment fraud filed a claim
          in the  Civil  Court of the City of New York  seeking  damages  in the
          amount of approximately $48,000;

     o    In April 2003, a stockholder  alleging  investment fraud filed a claim
          in the Supreme Court of Nassau County seeking damages in the amount of
          $25,000 plus  interest.  The plaintiff has withdrawn his claim but may
          commence this action at a future point in time; and

     o    On July 20, 2004,  the Company  filed a complaint In the Circuit Court
          of the 11th Judicial  Circuit in and for  Miami-Dade  County,  Florida
          against  Knightsbridge  Holdings,  LLC,  Advantage Fund I, LLC, Triple
          Crown  Consulting  Co.,  Phoenix  Capital  Partners,   LLC,  Churchill
          Investments,  Inc., Alyce B. Schreiber, Robert Press, Benjamin Kaplan,
          Newbridge  Securities  Corporation  and  Anslow &  Jacklin,  LLP,  the
          Company's  former  attorneys.  The  Company is seeking  relief  deemed
          appropriate  by the court and to establish a  constructive  trust over
          all  securities  held by the defendants and all proceeds from the sale
          of such securities.  The Company is also seeking to rescind the Letter
          Agreement entered with Knightsbridge  Holdings, LLC. In its complaint,
          the  Company  alleged  fraudulent  inducement,   breach  of  contract,
          conspiracy and breach of fiduciary duty.

Management believes that the resolution of these claims will not have a material
effect on the financial position or results of operations of the Company.

Item 2. Changes in Securities.

On June 30, 2004, the Company  acquired  38.44% of  PowerChannel  Europe PLC for
$77,455 from Steven Lampert,  the CEO and a director of the Company, and Michael
Preston.  The Company  issued an aggregate of 286,687  shares of common stock to
Mr. Lampert and Mr.  Preston.  Concurrently  therewith,  the 286,687 shares were
returned to the Company by Mr. Lampert and Mr. Preston as capital contributions.

On February 29, 2000,  the Company  entered into  subscription  agreements  with
seven  individuals  and in  conjunction  with such  agreements,  issued Series A
Convertible  Notes.  Pursuant to these notes, the Company  acquired  $280,000 in
investment  capital and issued  security  interests at 7% interest for a term of
three  years.  At the option of the note  holders,  these notes may be converted
into common stock for the value of the note at a price of $0.1287 per share.  In
December  2003,  one  $20,000  Series  A Note  was  paid  in  connection  with a
settlement  agreement  and in January  2004 the  Company  paid an  aggregate  of
$215,695 principal to four note holders. At June 30, 2004, the remaining balance
due on  these  notes  was  $44,305.  In May  2004,  the  Company  and  Churchill
Investments,  Inc.  ("Churchill")  entered  into a mutual  release  whereby  the
parties  released  each other  party from all  obligations  with  respect to the
Consulting  Agreement and the Non-recourse  Assignment.  In addition,  Churchill
agreed to reassign the  remaining  outstanding  balance of the Series A Notes in
the amount of  $169,461  to the  Company  and the  Company  agreed to  indemnify
Churchill for any losses due to claims  instituted by third party  purchasers of
shares issued upon conversion of the Series A Notes.

During the quarter ended June 30, 2004,  the Company  issued  120,000  shares of
common stock to Michael Fasci, the Company's former director,  valued at $75,600
as payment of consulting fees.

In July  2004,  the  Company  issued  500,000  shares of  common  stock to Isaac
Weinhouse in consideration for consulting services.

* All of the above  offerings  and sales were deemed to be exempt under Rule 506
of Regulation D and Section 4(2) of the Securities  Act of 1933, as amended.  No
advertising or general solicitation was employed in offering the securities. The
offerings and sales were made to a limited  number of persons,  all of whom were
accredited investors,  business associates of PowerChannel or executive officers
of PowerChannel,  and transfer was restricted by PowerChannel in accordance with
the  requirements of the Securities Act of 1933. In addition to  representations
by the  above-referenced  persons, we have made independent  determinations that
all of the above-referenced  persons were accredited or sophisticated investors,
and  that  they  were  capable  of  analyzing  the  merits  and  risks  of their
investment, and that they understood the speculative nature of their investment.
Furthermore,  all of the  above-referenced  persons were provided with access to
our Securities and Exchange Commission filings.

                                       30
<PAGE>
Item 3. Defaults Upon Senior Securities.

None

Item 4. Submission of Matters to a Vote of Security None Holders.

None

Item 5. Other Information.

In May 2004,  The Lampert  Group,  an entity 100% owned by Steven  Lampert,  the
Company's Chief  Executive  Officer and a director,  successfully  bid on 42,336
set-top  boxes  auctioned  off by S&H  Storage  &  Haulage  Ltd.  ("S&H")  at an
aggregate  price  of  approximately  $44,000.  Prior  to the  auction,  S&H took
possession of the set top boxes after Powerchannel  Europe PLC had failed to pay
for their storage. The Company then purchased the set-top boxes from The Lampert
Group for $44,000.

Item 6. Exhibits and Reports of Form 8-K.

Reports on Form 8K

None.

Exhibits

Exhibit Number             Description

31.1      Certification  of CEO and CFO  Pursuant to Section 302 of the Sarbanes
          Oxley Act of 2002

32.1      Certification  of CEO and CFO  Pursuant to section 906 of the Sarbanes
          Oxley Sarbanes Oxley Act of 2002

                                       31
<PAGE>
                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this report to be signed in its
behalf by the undersigned, thereunto duly authorized, on August 19, 2004.

                               POWERCHANNEL, INC.


Date:  August 20, 2004   By: /s/ Steven Lampert
                             -------------------------
                                 Steven Lampert
                                 Chairman and President

                                       32