SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30,
1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-27213
POPSTAR COMMUNICATIONS, INC.
(Exact Name of Registrant as Specified in its Charter)
NEVADA 88-0385920
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
107 EAST 3RD AVENUE
VANCOUVER, BC CANADA V5T 1C7
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (604) 872-6608
N/A
(Former name, former address and former fiscal year, if changed since last
report)
___________
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ ] No [ X ]
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practicable date:
Title of each class of Common Stock Outstanding at November 30, 1999
----------------------------------- --------------------------------
Common Stock, $0.001 par value 17,067,500
Transitional Small Business Disclosure Format
(Check one);
Yes [ ] No [ X ]
<PAGE>
INDEX
POPSTAR COMMUNICATIONS, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets at September 30, 1999 (Unaudited) and December 31, 1998
Statements of Operations (Unaudited) Three months ended September 30,
1999 and 1998 and Nine months ended September 30, 1999 and 1998
Statements of Cash Flows (Unaudited) Nine months ended September 30,
1999 and 1998
Notes to Interim Financial Statements (Unaudited)
Item 2. Plan of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
POPSTAR COMMUNICATIONS, INC.
(A Development Stage Company)
Consolidated Balance Sheet
(Expressed in U.S. Dollars)
<S> <C> <C>
September 30, December 31,
1999 1998
(unaudited)
-------------------------------
Assets
Current assets:
Cash $ 151,859 $ -
Note receivable from a common controlled company (note 3) 1,000,000 -
Organization costs - 108
Prepaid expenses 393 -
-------------------------------
Total current assets $ 1,152,252 $ 108
Capital assets $ 3,342 $ -
==============================
Total assets $ 1,155,594 $ 108
==============================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 139,116 $ -
Payable to common controlled companies (note 4) 390,776 -
Officers' advances 2,517 2,392
------------------------------
Total current liabilities 532,409 2,392
Shareholders' equity:
Capital stock (note 5) 2,136,232 5,800
Deficit (1,513,047) (8,084)
-------------------------------
Total shareholders' equity/(deficit) 623,185 (2,284)
Going concern (note 1)
Commitment (note 8)
Contingency (note 9)
Subsequent event (note 10)
Total liabilities and shareholders' equity $ 1,155,594 $ 108
==============================
</TABLE>
See accompanying notes to interim financial statements
1
<PAGE>
<TABLE>
<CAPTION>
POPSTAR COMMUNICATIONS, INC.
(A Development Stage Company)
Consolidated Statement of Operations and Deficit (Unaudited)
(Expressed in U.S. Dollars)
<S> <C> <C> <C> <C>
Three months Three months Nine months Nine months
ended ended ended ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------
Revenues:
Interest income (note 3) $ 21,032 $ - $ 40,958 $ -
Other income 3,452 - 3,452 -
- -------------------------------------------------------------------------------------------------------------
Total revenues 24,484 - 44,410 -
Expenses:
Accounting fees 1,500 - 10,500 -
Amortization 86 18 86 54
Bank interest and charges 1,055 - 2,353 -
Commission - - 72,917 -
Foreign exchange loss (202) - 386 -
Legal and professional fees 52,761 518 279,824 1,554
License fee (note 6(a)) 100,000 - 289,247 -
Management fee - - 1,950 -
Office (note 6(b)) 80,924 - 91,487 -
Rent 9,268 - 20,049 -
Salaries and wages 47,413 - 76,667 -
Sales and marketing fees (note 6(b)) 32,577 - 32,577 -
Software development (note 6(b)) 127,244 - 628,312 -
Travel and entertainment (note 6(b)) 30,595 - 45,127 -
- -------------------------------------------------------------------------------------------------------------
Total expenses 483,222 536 1,551,483 1,608
- -------------------------------------------------------------------------------------------------------------
Net loss 458,738 536 1,507,074 1,608
- -------------------------------------------------------------------------------------------------------------
Basic and diluted loss per weighted
share (note 2(e)) $ 0.03 $ - $0.22 $ -
- -------------------------------------------------------------------------------------------------------------
Weighted average number of common
shares outstanding 13,748,940 3,400,000 6,887,555 3,400,000
</TABLE>
See accompanying notes to interim financial statements
2
<PAGE>
<TABLE>
<CAPTION>
POPSTAR COMMUNICATIONS, INC.
(A Development Stage Company)
Consolidated Statement of Cash Flows (Unaudited)
(Expressed in U.S. Dollars)
<S> <C> <C>
Nine months Nine months
ended ended
September 30, September 30,
1999 1998
--------------------------------
Cash flows from operating activities:
Net loss $ (1,540,963) $ (1,608)
Amortization 86 54
Changes in non-cash operating working capital 138,831 -
--------------------------------
(1,366,045) (1,554)
Cash flows from financing activities:
Note receivable from a common controlled company (1,000,000) -
Payable to common controlled companies 390,776 -
Officers' advances 125 1,554
Issuance of capital stock 2,130,432 -
--------------------------------
1,521,333 -
Purchase of capital assets:
Purchase of capital assets (3,428) -
--------------------------------
Increase/(decrease) in cash 151,859 -
Cash, beginning of period - -
--------------------------------
Cash, end of period $ 151,859 $ -
--------------------------------
</TABLE>
See accompanying notes to interim financial statements
3
<PAGE>
POPSTAR COMMUNICATIONS, INC.
(A Development Stage Company)
Notes to Interim Financial Statements
(Expressed in U.S. Dollars)
Nine months ended September 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
The Company was incorporated on June 19, 1995 under the laws of the State of
Nevada as Cherokee Leather, Inc. On May 17, 1999 the Company changed its name
to POPstar Communications, Inc. The Company currently has no operations and in
accordance with SFAS #7, is considered a development stage company.
In the opinion of Management, the accompanying unaudited financial statements of
the Company contain all adjustments which are of a normal recurring nature
necessary to present fairly the financial position as of September 30, 1999, and
the results of operations and cash flows for the periods indicated. Interim
financial results are not necessarily indicative of operating results for an
entire year.
1. GOING CONCERN:
The Company's financial statements are prepared using generally accepted
accounting principles applicable to a going concern which contemplates the
realization of assets and liquidation of liabilities in the normal course of
business. However the Company does not have an established source of revenue
sufficient to cover its operating costs and to allow it to continue as a going
concern. During the period, the Company issued shares for cash (note 5) and
commenced development of certain licensed software (note 6), however there is no
guarantee that the licensed software will result in revenues sufficient to cover
its operating costs or that proceeds received from the issuance of shares or
other sources will maintain the Company until that time.
2. SIGNIFICANT ACCOUNTING POLICIES:
(a) Basis of presentation:
The consolidated financial statements include the accounts of the Company and
its inactive subsidiary, POPstar Communications Asia Pacific Ltd.
(b) Software development:
Software development costs are expensed as incurred unless they meet generally
accepted accounting criteria for deferral and amortization. The Company
assesses whether it has met the relevant criteria for deferral and amortization
at each reporting date. No such expenditures meet these criteria in the current
period.
(c) Income taxes:
Income taxes will be provided for using the liability method of accounting in
accordance with Statement of Financial Accounting Standards No. 109 (SFAS #109)
"Accounting for Income Taxes". A deferred tax asset or liability will be
recorded for all temporary differences between financial and tax reporting.
4
<PAGE>
POPSTAR COMMUNICATIONS, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements, page 2
(Expressed in U.S. Dollars)
Nine months ended September 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(d) Use of estimates:
The preparation of the consolidated financial statements, in conformity with
generally accepted accounting principles, requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingencies at the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the reporting period.
Assumptions underlying these estimates are limited by the availability of
reliable data and the uncertainty of predictions concerning future events.
Consequently, the estimates and assumptions made do not necessarily result in a
precise determination of reported amounts. Actual results could differ from
those estimates.
(e) Loss per share:
Net loss per share is provided in accordance with Statement of Financial
Accounting Standards No. 128 "Earnings Per Share". Basic loss per share is
computed by dividing losses available to common shareholders by the weighted
average number of common shares outstanding during the period.
3. NOTE RECEIVABLE FROM A COMMON CONTROLLED COMPANY:
The note receivable from TGI Technologies Ltd. ("TGI") is unsecured and bears
interest at 8% per annum. Both TGI and the Company have greater than 50% of
their respective voting shares owned by the same group of shareholders. The
funds were loaned to TGI on March 30, 1999 from monies received on the issuance
of shares of the Company. The principal and any outstanding accrued interest
are due on the earlier of demand by the Company or March 30, 2001. The Company
received interest income from TGI of $20,000 during the three months ended
September 30, 1999 and $39,726 during the nine months ended September 30, 1999.
On January 11, 1999, the Company entered into License and Service Agreements
with TGI as described in note 6.
4. PAYABLE TO COMMON CONTROLLED COMPANIES:
The payables to common controlled companies are non-interest bearing,
unsecured and have no specific terms of repayment.
5
<PAGE>
POPSTAR COMMUNICATIONS, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements, page 3
(Expressed in U.S. Dollars)
Nine months ended September 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
5. CAPITAL STOCK:
Authorized:
50,000,000 common voting shares with par value of $0.001 per share
<S> <C> <C>
1999 1998
--------------------
Issued and outstanding:
Balance, beginning of period
5,800,000 common shares $ 5,800 $ 5,800
--------------------
2,400,000 common shares canceled - -
22,500 common shares issued to the Company's securities
counsel in consideration for legal services rendered 22,500 -
12,875,000 common shares issued to acquire POPstar
Global Communications, Inc. 1,982,932 -
125,000 common shares issued for cash at $1.00 per share 125,000 -
--------------------
2,130,432 -
Balance, end of period
16,442,500 common shares $2,136,232 $ 5,800
--------------------
Subsequent to September 30, 1999, the Company issued 625,000 common shares at
$0.833333 per share for total proceeds of $520,833.
</TABLE>
6
<PAGE>
POPSTAR COMMUNICATIONS, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements, page 4
(Expressed in U.S. Dollars)
Nine months ended September 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
6. RELATED PARTY TRANSACTIONS:
(a) On January 11, 1999, the Company entered into a Licensing Agreement with
TGI, a company under common control, whereby the Company has been granted the
exclusive commercial exploitation rights to certain Internet fax server software
(the "Software"). Under this license, the Company has agreed to pay a
percentage of the net sales resulting from the commercial activities of the
Software, subject to a specified annually minimum, as follows:
Calendar Percentage Annual
year of net sales minimum
--------------------------------------------
1999 8% $400,000
2000 6% 600,000
2001 4% 500,000
2002 2% 500,000
During the three months ended September 30, 1999, the Company paid a total of
$100,000 in license fees to TGI. During the nine months ended September 30,
1999, the Company paid a total of $289,247 in license fees to TGI.
(b) In addition, the Company has entered into an agreement with TGI, a
company under common control, whereby TGI will provide technical assistance,
software development, marketing, management and other services, as required.
The charge is based on TGI's direct and indirect costs of the services provided
plus 15%.
During the three months ended September 30, 1999, the Company incurred
service fees under this agreement totaling $248,835. During the nine months
ended September 30, 1999, the Company incurred service fees under this agreement
totaling $749,902.
7. INCOME TAXES:
There is no provision for income taxes for the period ended September 30, 1999,
due to the loss and no state income tax in Nevada. The Company's total deferred
tax asset as of September 30, 1999 is as follows:
Deferred tax asset $ 527,476
Valuation allowance (527,476)
Net deferred tax asset $ -
The net operating loss carry forward will expire in 2019, but may be limited
under IRC Section 381 upon the consummation of a business combination.
7
<PAGE>
POPSTAR COMMUNICATIONS, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements, page 5
(Expressed in U.S. Dollars)
Nine months ended September 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
8. COMMITMENT:
On August 10, 1999, the Company entered into a non-exclusive, royalty free
Service Agreement with TransNexus, LLC, a company incorporated under the laws of
the State of Georgia. Under the terms of the Agreement, TransNexus, LLC will
provide financial transaction settlement services and billing information to
Internet Service Providers ('ISP') using the Company's technology in exchange
for a percentage of the billings. As of today, the charging rates are still
under negotiation and have not yet been finalized.
9. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE:
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or
after January 1, 2000, and, if not addressed, the impact on operations and
financial reporting may range from minor errors to significant systems failure
which could affect an entity's ability to conduct normal business operations.
It is not possible to be certain that all aspects of the Year 2000 Issue
affecting the Company, including those related to the efforts of customers,
suppliers, or other third parties, will be fully resolved.
10. SUBSEQUENT EVENT:
On November 12, 1999, the Company issued 625,000 common shares to Sunfield
Industries Ltd. for cash at $0.833333 per share for total proceeds of $520,833.
8
<PAGE>
ITEM 2. PLAN OF OPERATIONS
CAUTIONARY STATEMENTS:
This Quarterly Report on Form 10-QSB contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. The Company intends that such
forward-looking statements be subject to the safe harbors created by such
statutes. The forward-looking statements included herein are based on current
expectations that involve a number of risks and uncertainties. Accordingly, to
the extent that this Quarterly Report contains forward-looking statements
regarding the financial condition, operating results, business prospects or any
other aspect of the Company, please be advised that the Company actual financial
condition, operating results and business performance may differ materially from
that projected or estimated by the Company in forward-looking statements. The
differences may be caused by a variety of factors, including but not limited to
adverse economic conditions, intense competition, including intensification of
price competition and entry of new competitors and products, adverse federal,
state and local government regulation, inadequate capital, unexpected costs and
operating deficits, increases in general and administrative costs, lower sales
and revenues than forecast, loss of customers, customer returns of products sold
to them by the Company, termination of contracts, loss of supplies,
technological obsolescence of the Company's products, technical problems with
the Company's products, price increases for supplies and components, inability
to raise prices, failure to obtain new customers, litigation and administrative
proceedings involving the Company, the possible acquisition of new businesses
that result in operating losses or that do not perform as anticipated, resulting
in unanticipated losses, the possible fluctuation and volatility of the
Company's operating results, financial condition and stock price, inability of
the Company to continue as a going concern, losses incurred in litigating and
settling cases, adverse publicity and news coverage, inability to carry out
marketing and sales plans, loss or retirement of key executives, changes in
interest rates, inflationary factors and other specific risks that may be
alluded to in this Quarterly Report or in other reports issued by the Company.
In addition, the business and operations of the Company are subject to
substantial risks that increase the uncertainty inherent in the forward-looking
statements. The inclusion of forward looking statements in this Quarterly
Report should not be regarded as a representation by the Company or any other
person that the objectives or plans of the Company will be achieved.
GENERAL OVERVIEW
POPstar Communications, Inc. (the "Company" or "POPstar"), is a development
stage Internet technology company currently in the process of developing
Internet based facsimile transmission technology. The Company is currently in
the process of field testing its technology and intends to market its service to
Internet Service Providers ("ISPs") around the world. POPstar's technology will
equip ISPs with the ability to provide Internet based facsimile transmission
services to their end-users. POPstar's software is provided free of charge to
ISPs in return for a share of all revenue generated from the use of its
software.
The Company was originally incorporated under the laws of the State of Nevada on
June 19, 1995 as Cherokee Leather, Inc. Between 1995 to 1999, the Company was
inactive. As previously discussed in its Form 10-SB/A filed with the Securities
and Exchange Commission on November 12, 1999, the Company acquired all of the
outstanding common stock of POPstar Global Communications, Inc., a British
Virgin Island Company ("POPstar-BVI") on July 20, 1999. In conjunction with the
acquisition, the Company adopted the business plan of POPstar-Global and changed
its name to POPtar Communications, Inc.
POPstar is a developer of Internet-based facsimile transmission technology which
will allow ISPs in various parts of the world to cooperate in the transport and
delivery of documents, using the Internet instead of conventional long distance
telephone networks ("LD"). POPstar's technology will allow ISPs to offer to
their end-users, the ability to transmit and receive documents from a personal
computer to or from any conventional facsimile ("Fax") machine located
throughout the world using the Internet as opposed to LD networks. Management
believes that the Company's technology will offer end-users several significant
advantages over conventional Fax machine and computer Fax modem transmission of
Faxes over LD networks, in that POPstar's technology allows end-users to
transmit Faxes through the use of a simple browser interface (such as Microsoft
Explorer or Netscape Navigator) without the need or costs for conventional
telephone lines or additional hardware. These features are believed to offer
competitive advantages for businesses which use personal computers connected to
the Internet via local area networks ("LANs"), as well as the growing number of
small office / home office users connected to the Internet via cable or digital
subscriber line access (known as "Broadband" connections) and for business
travelers desiring to transmit Fax documents while traveling throughout the
world.
9
<PAGE>
PLAN OF OPERATIONS
The Company's prior full fiscal year ending December 31, 1998 is not indicative
of the Company's current business plan and operations. During the periods
ending December 31, 1997, December 31, 1998, and June 30, 1999, the Company had
no revenues and was in its development stages. After the Company's acquisition
of POPstar-BVI, as previously discussed, the Company's current business plan was
implemented. Therefore, this plan of operation will focus on the Company's
current business plan and operations. For information concerning the Company's
prior full fiscal years, the Company refers the reader to the financial
statements provided under Part F/S included in its Form 10SB/A as filed with the
Securities and Exchange Commission on November 12, 1999.
POPstar does not currently generate any revenue from its operations and does not
expect to report any revenue from operations at least until the launch of its
Internet Fax service. Additionally, after the launch of the Company's service,
there can be no assurance that the Company will generate positive cash flow and
there can be no assurances as to the level of revenues, if any, the Company may
actually achieve from its Internet fax operations.
The Company's goal is to build a global Internet services network using the
Internet as the backbone, and independent qualified partners in each country to
manage the local customer base. The success of the Company depends on the
careful selection and active participation of the qualified ISPs. The ISP's
commitment to POPstar will depend on the commercial viability of Internet Fax
and use of Internet Fax services by end users. Therefore, prior to the
commercial launch of the POPstar network, a series of field trials will be
undertaken. During the field trials, POPstar will work closely with a select
group of founding ISPs to further define and resolve all outstanding technical
and/or commercial issues.
POPstar will initially target high revenue routes such as those in North
America, Asia, and Europe, and establish ISPs in locations serviced by these
routes. POPstar's initial implementation plan was to establish partnerships
with approximately 10 to 20 ISPs in these routes during the field trials. More
recently, POPstar has focused its marketing efforts on national and
international ISPs with sizable numbers of users. POPstar has chosen to
concentrate on these larger ISPs, with one result being an anticipated reduction
in the actual number of ISP partners to be recruited during the initial period
of commercial service, but with an increase in end-users. Currently, the
Company has established partnerships with 7 ISPs throughout North America, Asia,
and Europe and is currently in the process of field testing its technology.
Revenue sharing agreements are negotiated on an ISP by ISP basis depending on
each particular ISP's circumstances. In addition, POPstar is currently in
negotiations with one national ISP based in North America and one multinational
ISP based in Europe which service several million end-users. Successful
alliances with these national and multinational ISPs will give POPstar immediate
access to an extensive network of terminating ISPs and end-users. However, no
assurances can be made as to the successfulness of such negotiations.
POPstar has also entered into strategic marketing alliances with Internet
industry leaders such as Lucent Technologies ("Lucent"), Sun Microsystems
("SUN"), MIND/CTI ("MIND/CTI"), and TransNexus. POPstar and these allicance
partners are continuing in joint marketing efforts with respect to trade shows,
press releases and Internet Web page links. Lucent currently represents 40% of
the ISP remote access server market. Other server hardware providers include
Cisco Systems, 3Com, and Nortel. As the remote access servers of Cisco, 3Com
and Nortel evolve to support IP Faxing, POPstar will enhance its software to
support these systems. Sun is currently the dominant supplier of Internet
server platforms, and POPstar has developed its technology to be fully
compatible with SUN's systems. MIND/CTI is a dominant supplier of billing
systems to ISPs and telephone companies. POPstar has developed its technology
to translate standard Call Detail Records ("CDRs") provided by TransNexus to
formats compatible with MIND/CTI's systems, as well as to the defacto industry
standard format used in "RADIUS" accounting systems. Such alliances allows
POPstar to associate its name and services with the Internet's technological
leaders. At present, the Company has not experienced any significant
technological difficulties and anticipates starting commercial operations in the
fourth quarter of 1999. However, there can be no assurances that the Company
will be able to initiate its commercial service in the fourth quarter as
anticipated. Failure to launch its service as anticipated could have a material
adverse effect on the Company's financial condition and results of operations.
Locations not serviced by locally available ISPs, will initially be serviced by
traditional long distance telephone networks from the Company's global Offramp
10
<PAGE>
node in Los Angeles, California. The POPstar approach is to use the lowest cost
network, the Internet, to deliver traffic wherever possible. This approach
places emphasis on the establishment of as many local ISPs to serve as
"Offramps" for facsimile traffic in all major cities of the developed world. In
the interim, the Company's facilities in Los Angeles will serve as a global off
ramp for all traffic not served by local ISPs.
POPstar's plan is to establish alliances with ISPs servicing large numbers of
Internet users throughout the world. Initially, POPstar will concentrate on
those areas of high Internet usages such as North America, Europe and Asia. By
focusing on ISPs with large national or international points of presence and
large customer bases, POPstar will be able to expand its network to provide
economical Faxing services to its ISP customers and their end-users.
Liquidity
During the period from July 1, 1999 to September 30, 1999, the Company raised
$125,000 from the issuance of capital stock, incurred an additional deficit of
$439,818 in developing its services, purchased $3,342 of capital assets, had a
decrease of $75,095 in non-cash operating working capital and a decrease of
$102,871 in payables. As a result, the Company's cash on hand amounted to
$151,859 as at September 30, 1999.
On November 12, 1999, the Company raised an additional $520,833 from the
issuance of capital stock pursuant to a share purchase agreement between the
Company and Sunfield Industries Ltd. (an unrelated third-party).
Pursuant to a share purchase agreement dated January 12, 1999 and as amended by
a supplemental agreement dated March 29, 1999 and an Investor Exchange Agreement
dated July 13, 1999, the Company, through its wholly owned subsidiary,
POPstar-BVI has contracted to sell, and Kemayan E.C. Hybrid Ltd. (a company
beneficially owned by Mr. Yong Kiat Rickie Tang, a director of the Company) has
contracted to purchase, 250,000 shares of the Company's "restricted" Common
Stock on or before March 31, 2000 at $0.8333 per share for net proceeds
anticipated to be in the amount of $208,333.
Pursuant to a share purchase agreement dated January 12, 1999 and as amended by
a supplemental agreement dated March 29, 1999 and an Investor Exchange Agreement
dated July 13, 1999, the Company, through its wholly owned subsidiary,
POPstar-BVI has contracted to sell, and Golden Harvest Overseas Ltd. (an
unrelated third-party) has contracted to purchase, 1,500,000 shares of the
Company's "restricted" Common Stock on or before March 31, 2000 at $0.8333 per
share for net proceeds anticipated to be in the amount of $1,250,000.
Pursuant to a share purchase agreement dated January 12, 1999 and as amended by
a supplemental agreement dated March 29, 1999 and an Investor Exchange Agreement
dated July 13, 1999, the Company, through its wholly owned subsidiary,
POPstar-BVI has contracted to sell, and Uprising Overseas Ltd. (an unrelated
third-party) has contracted to purchase, 1,250,000 shares of the Company's
"restricted" Common Stock on or before March 31, 2000 at $0.8333 per share for
net proceeds anticipated to be in the amount of $1,041,666.
The Company believes that proceeds from the prior and anticipated sale of the
Company's Common Stock shall be sufficient to fund operations for the remainder
of the current fiscal year ending December 31, 1999. For the year ending
December 31, 2000, the Company estimates that it will require working capital of
approximately $6,000,000, comprising of approximately $600,000 for capital
expenditures, $1,700,000 for costs of services, $500,000 for payment of current
liabilities, $1,200,000 for license and services fees, $1,000,000 for salaries
and wages and $1,000,000 for overhead expenses. Of the working capital
requirement of $6,000,000, approximately $2,500,000 is expected to funded by the
contracted sale of restricted Common Stock of the Company on or before March 31,
2000 pursuant to share purchase agreements with Kemayan E.C. Hybrid Ltd., Golden
Harvest Overseas Ltd. and Uprising Overseas Ltd. referred to in the section
headed "Liquidity" above. It is the intention of the Company to raise the
balance of its working capital requirement through private and public offerings
of its Common Stock. However, there can be no assurances that the Company will
be able to successfully complete such offerings.
Capital Expenditures
On January 11, 1999, POPstar-BVI entered into the Licensing Agreement with TGI
under which POPstar-BVI is obliged to pay TGI, until the fourth quarter, 2002, a
portion of all net sales generated from the use of TGI's software. For the year
1999, POPstar-BVI is obliged to pay TGI 8% of net sales, or a minimum of
$400,000. POPstar-BVI is obliged to pay TGI 6% of net sales or a minimum of
11
<PAGE>
$600,000 for the year 2000. For the year 2001, POPstar-BVI is obliged to pay
TGI 4% of net sales of a minimum of $500,000. For the year 2002, POPstar-BVI is
obliged to pay TGI 2% of net sales or a minimum of $500,000. POPstar-BVI is not
obliged to pay any additional licensing fees following the end of the year 2002.
The Agreement provides that any amounts outstanding for more than 30 days shall
be subject to interest at the rate of 1% per month (or an aggregate of 12% per
annum). At present, the Company expects to make its minimum royalty payment of
$400,000 to TGI for the calendar year ended 1999.
In addition to the Licensing Agreement with TGI, POPstar-BVI also entered into a
Services Agreement on January 11, 1999 with TGI under which TGI has agreed to
provide POPstar-BVI with technical assistance, software development, marketing,
management, and other services related to the enhancements and use of TGI's
Internet Fax technology. All fees for services provided by TGI to POPstar-BVI
under the Services Agreement are to be billed to POPstar-BVI on the basis of
TGI's direct and indirect costs of the services provided plus 15%.
The Company also expects to purchase approximately $600,000 of additional
equipment in connection with the expansion of its business.
YEAR 2000 DISCLOSURE
The Company has completed a review of its computer systems and non-information
technology ("non-IT") systems to identify all systems that could be affected by
the inability of many existing computer and microcomputer systems to process
time-sensitive data accurately beyond the year 1999, referred to as the Year
2000 or Y2K issue. The Company is dependent on third-party computer systems and
applications. The Company also relies on its own computer and non-IT systems
(which consist of personal computers, internal telephone systems, internal
network server, Internet server and associated software and operating systems).
In conducting the Company's review of its internal systems, the Company
performed operational tests of its systems which revealed no Y2K problems. As a
result of its review, the Company has discovered no problems with its systems
relating to the Y2K issue and believes that such systems are Y2K compliant. The
Company has obtained written assurances from TGI, Innosys, and TransNexus, its
major suppliers, as to their Y2K readiness. However, the Company has not
obtained written assurances from any other supplier regarding the status of
those suppliers with respect to the Y2K issue, and the Company does not
currently have any plans to obtain such assurances. Costs associated with the
Company's review were not material to its results of operations and are not
anticipated to be material in the future.
While the Company believes that its procedures have been designed to be
successful, because of the complexity of the Year 2000 issue and the
interdependence of organizations using computer systems, there can be no
assurances that the Company's efforts, or those of third parties with whom the
Company interacts, have fully resolved all possible Y2000 issues. Failure to
satisfactorily address the Y2K issue could have a material adverse effect on the
Company. The most likely worst case Y2K scenario which management has
identified to date is that, due to unanticipated Y2K compliance problems, the
Company's software may not function as intended or that the Company may not be
able to bill its customers on a timely basis. Should this occur, it would
result in a material loss of some or all gross revenue for an indeterminable
amount of time, which could cause the Company to cease operations. In the event
of failure of one or more of its suppliers due to Y2K issues, the Company's only
recourse for any damages suffered would be through litigation. The Company has
not yet developed a contingency plan to address this worst case Y2K scenario,
and does not intend to develop such a plan in the future.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company may from time to time be involved in various claims, lawsuits,
disputes with third parties, actions involving allegations of discrimination, or
breach of contract actions incidental to the operation of its business. The
Company is not currently involved in any such litigation which it believes could
have a materially adverse effect on its financial condition or results of
operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On July 20, 1999, the Company acquired all of the outstanding common stock and
preferred stock of POPstar-BVI in a business combination described as a "reverse
acquisition". As part of the reorganization, the Company issued 12,875,000
shares of its Common Stock to the shareholders of POPstar-BVI in exchange for
all of the outstanding shares of Common and Preferred Stock of POPstar-BVI.
Such shares include the shares owned by officers and directors of the Company as
set forth in the Section "Security Ownership of Certain Beneficial Owners and
Management" hereunder. This issuance was conducted under an exemption under
Section 4(2) of the Securities Act of 1933.
On July 20, 1999, the Company issued 10,000 shares of "restricted" (as that term
is defined under Rule 144 of the Securities Act of 1933) Common Stock to MRC
Legal Services Corp., an "accredited investor", the Company's securities
counsel, in consideration for legal services rendered. The issuance was exempt
under Section 4(2) of the Securities Act of 1933.
On July 20 1999, the Company issued an aggregate of 125,000 shares of
"restricted" (as that term is defined under Rule 144 of the Securities Act of
1933) Common Stock to four accredited investors, resulting in net proceeds of
approximately $125,000 to the Company. The issuance was conducted under an
exemption provided by Rule 506 of Regulation D promulgated under the Securities
Act of 1933 and Section 4(2) of the Securities Act of 1933.
On August 10, 1999, the Company issued 12,500 shares of "restricted" (as that
term is defined under Rule 144 of the Securities Act of 1933) Common Stock to
MRC Legal Services Corp., the Company's securities counsel, in consideration for
legal services rendered. The issuance was exempt under Section 4(2) of the
Securities Act of 1933.
On November 12, 1999, the Company issued 625,000 shares of "restricted" Common
Stock to Sunfield Industries Ltd. (an "accredited" unrelated third-party). The
issuance was conducted under an exemption provided by Rule 506 of Regulation D
promulgated under the Securities Act of 1933 and Section 4(2) of the Securities
Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the security holders for a vote during the
period covered by this report.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
27.1 Financial Data Schedule
(B) REPORTS ON FROM 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934. The
registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
POPSTAR COMMUNICATIONS, INC.
By /s/ John McDermott
----------------------------------
John McDermott
President
Dated: December 17, 1999
13
<PAGE>
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