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, 2000
[ ] 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 Identification No.)
Incorporation or Organization)
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
--------------------
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 [X] No [ ]
Number of shares of Common Stock of $0.001 par value outstanding of the issuer
as of September 30, 2000: 21,952,000
Transitional Small Business Disclosure Format (Check one); Yes [ ] No [X]
<PAGE>
POPSTAR COMMUNICATIONS, INC.
<TABLE>
Page
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<S> <C>
PART I. FINANCIAL INFORMATION .......................................................1
Item 1. Financial Statements ........................................................1
Unaudited Consolidated Balance Sheets at June 30, 2000 and
December 31, 1999 ...........................................................1
Unaudited Consolidated Statements of Operations for the Six Months
ended June 30, 2000 and 1999 ................................................2
Unaudited Consolidated Statements of Cash Flows for the Six Months
ended June 30, 2000 and 1999 ................................................3
Notes to Unaudited Interim Financial Statements .............................4
Item 2. Plan of Operation ..........................................................11
PART II. OTHER INFORMATION ..........................................................15
Item 1. Legal Proceedings ..........................................................18
Item 2. Changes in Securities ......................................................18
Item 3. Defaults Upon Senior Securities ............................................18
Item 4. Submission of Matters to a Vote of Security Holders ........................18
Item 5. Other Information ..........................................................18
Item 6. Exhibits and Reports on Form 8-K ...........................................18
Signatures ...........................................................................19
</TABLE>
i
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
POPSTAR COMMUNICATIONS, INC.
(A Development Stage Company)
Consolidated Balance Sheets
(Expressed in U.S. Dollars)
<TABLE>
----------------------------------------------------------------------------------------------------------------
September 30, December 31,
2000 1999
----------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,558,124 $ 23,745
Short-term investments 2,800,000 -
Accounts receivable 87,571 -
Note receivable from a company with common controlling
shareholders (note 3) 600,000 1,000,000
Prepaid expenses 23,666 2,739
-----------------------------------------------------------------------------------------------------------
Total current assets 6,069,361 1,026,484
Equipment 261,436 12,124
----------------------------------------------------------------------------------------------------------------
Total assets $ 6,330,797 $ 1,038,608
----------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 200,417 $ 195,569
Deferred revenue 6,187 -
Payable to companies with common controlling
shareholders (note 4) 128,779 230,227
----------------------------------------------------------------------------------------------------------------
Total current liabilities 335,383 425,796
Shareholders' equity:
Capital stock (note 5):
Authorized:
50,000,000 common voting shares, par value
of $0.001 per share
Issued and outstanding:
21,952,000 (December 31, 1999 - 19,447,500)
common voting shares 10,161,056 2,654,548
Deficit accumulated in the development stage (4,165,642) (2,041,736)
----------------------------------------------------------------------------------------------------------------
Total shareholders' equity 5,995,414 612,812
Operations (note 1)
Commitments (note 7)
----------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 6,330,797 $ 1,038,608
----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
POPSTAR COMMUNICATIONS, INC.
(A Development Stage Company)
Consolidated Statements of Operations and Deficit
(Expressed in U.S. Dollars)
================================================================================
<TABLE>
Period from
Three months Three months Nine months Nine months December 17,
ended ended ended ended 1998 to
September 30, September 30, September 30, September 30, September 30,
2000 1999 2000 1999 2000
-----------------------------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Sales $ 34,547 $ - $ 34,547 $ - $ 34,547
Cost of sales (3,310) - $ (3,310) $ - $ (3,310)
----------------------------------------------------------------------------------------------------------------------------------
31,237 - 31,237 - 31,237
Interest income (note 3) 98,067 24,484 264,748 44,410 326,456
----------------------------------------------------------------------------------------------------------------------------------
129,304 24,484 295,985 44,410 357,693
Expenses:
Accounting and audit fees 10,456 1,500 37,569 10,500 57,803
Amortization 15,365 86 23,994 - 23,994
Bank interest and charges 2,367 1,055 7,230 2,353 9,805
Commission - - 8,333 73,003 81,249
Foreign exchange loss (gain) (1,528) (202) (3,598) 386 (2,512)
Legal and professional fees (4,266) 52,761 36,890 279,824 333,080
License fee 77,542 - 81,141 - 106,141
Management fee - - - 1,950 1,950
Office 47,612 80,924 112,258 91,487 133,610
Rent (note 6(c)) 37,344 9,269 102,667 20,049 131,243
Salaries and wages 319,726 47,413 742,571 76,667 835,942
Sales and marketing 6,687 - 16,379 - 49,642
Travel and entertainment 41,845 - 108,502 - 147,194
Technical support 8,343 - 8,343 - 8,343
Related party transactions:
License fee (note 6(a)) 143,103 100,000 450,000 289,247 841,074
Management fees (note 6(b)) - 62,770 - 188,311 366,578
Administrative and office salaries (note 6(b)) 15,460 - 43,554 - 115,906
Sales and marketing fees (note6(b)) - 32,577 - 32,577 100,027
Software development (note 6(b)) 210,358 64,474 633,534 440,001 1,036,972
Travel and entertainment (note 6(b)) - 30,595 - 45,127 119,744
----------------------------------------------------------------------------------------------------------------------------------
Total expenses 930,414 483,222 2,409,367 1,551,482 4,497,785
Net loss before income taxes 801,110 458,738 2,113,382 1,507,072 4,140,092
Income taxes 2,457 - 10,524 - 25,550
-----------------------------------------------------------------------------------------------------------------------------------
Net loss 803,567 458,738 2,123,906 1,507,072 4,165,642
Deficit accumulated during the development
stage, beginning of period 3,362,075 - 2,041,736 - -
-----------------------------------------------------------------------------------------------------------------------------------
Deficit accumulated during the development
stage, end of period $4,165,642 $ 458,738 $4,165,642 $1,507,072 $ 4,165,642
-----------------------------------------------------------------------------------------------------------------------------------
Basic and diluted loss per weighted
share (note 2(g)) $ 0.04 $ 0.03 $ 0.10 $ 0.11 $ 0.24
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Weighted average number of common shares
outstanding 21,885,695 13,462,234 21,160,611 13,418,889 17,542,524
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
POPSTAR COMMUNICATIONS, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Expressed in U.S. Dollars)
<TABLE>
Period from
incorporation on
Nine months Nine months December 17,
ended ended 1998 to
September 30, September 30, September 30,
2000 1999 2000
------------------------------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (2,123,906) $ (1,507,072) $ (4,165,642)
Non-cash items and transactions:
Common shares issued for
software technology 20,000 - 20,000
Amortization 23,994 - 23,994
License fee obligation settled by
reduction in note receivable
from a company with common
controlling shareholders 400,000 - 400,000
Common shares issued in
consideration for legal services
rendered - 22,500 22,500
Net costs deemed to be issued on
recapitalization - (2,517) (2,517)
Changes in non-cash operating
working capital:
Accounts receivable (87,571) - (87,571)
Prepaid expenses (20,927) (393) (23,666)
Accounts payable and
accrued liabilities 4,848 139,116 200,417
Deferred revenue 6,187 - 6,187
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Total cash flows from
operating activities (1,777,375) (1,348,366) (3,606,298)
Cash flows from financing activities:
Payable to common controlled companies (101,448) 390,776 128,779
Issuance of capital stock 7,486,508 2,112,791 10,121,073
------------------------------------------------------------------------------------------------------------------------------------
Total cash flows from
financing activities 7,385,060 2,503,567 10,249,852
Cash flows from investing activities:
Short-term investments (2,800,000) - (2,800,000)
Purchase of equipment (273,306) (3,342) (285,430)
Note receivable from a company with
common controlling shareholders - (1,000,000) (1,000,000)
------------------------------------------------------------------------------------------------------------------------------------
Total cash flows from
investing activities (3,073,306) (1,003,342) (4,085,430)
------------------------------------------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 2,534,379 151,859 2,558,124
Cash and cash equivalents,
beginning of period 23,745 - -
------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents,
end of period $ 2,558,124 $ 151,859 $ 2,558,124
------------------------------------------------------------------------------------------------------------------------------------
Supplementary disclosure:
Non-cash transactions:
Common shares issued for
software technology $ 20,000 $ - $ -
License fee obligation settled
by reduction in note receivable
from a company with common
controlling shareholders 400,000 - -
Common shares issued for legal
services rendered - 22,500 22,500
Income taxes paid $ 10,524 $ - $ 25,550
Interest expense paid 2,207 - 2,207
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</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
POPSTAR COMMUNICATIONS, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
Nine months ended September 30, 2000 (unaudited)
================================================================================
1. Operations:
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 is an IP-messaging
solution provider of Internet based facsimile transmission technology and
unified messaging technology services. Over the past year, the Company has
successfully field tested the facsimile transmission technology and is in
the process of field testing its unified messaging technology services. The
Company is considered a development stage company.
On July 20, 1999, the Company acquired all the issued and outstanding
common and preferred shares of POPstar Global Communications Inc.
("POPstar") in exchange for 12,875,000 common shares of the Company with
the management of POPstar continuing to manage operations for the combined
entity. As the Company had no significant operations to the date of the
acquisition, the transaction was accounted for as a capital transaction,
whereby POPstar was considered to have issued common shares for
consideration equal to the net monetary assets of the Company. Accordingly,
these consolidated financial statements reflect the assets, liabilities,
revenues and expenses of POPstar for all periods prior to July 20, 1999
consolidated with those of the Company from the date of the capital
transaction.
The Company's financial statements are prepared using generally accepted
accounting principles in the United States applicable to a going concern
which contemplates the realization of assets and liquidation of liabilities
in the normal course of business. At September 30, 2000, the Company
started to generate revenues from monthly service fees charged in
connection with fax mailboxes. Total revenue is relatively insignificant,
is not yet sufficient to cover operating costs and does not provide
sufficient cash flows to fund operations nor meet the Company's liabilities
as they become due. During the nine-month period ended September 30, 2000,
the Company issued shares for cash (note 5(a)); continued development of
certain licensed software (note 6(a)); and paid cash and issued shares to
acquire, on an exclusive basis, software technology from a third party
(note 7(b)). Management anticipates that cash will continue to be available
from its shareholders, a company with the common controlling shareholders
(note 3), or from additional security issuances to third parties to fund
operating requirements for the next fiscal year. There is no guarantee that
the licensed software will generate 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 wholly-owned subsidiaries, POPstar, POPstar
Communications Asia Pacific Ltd. ("POPstar Asia"), POPstar
Communications Pte. Ltd. and POPstar Communications Canada Corp. All
intercompany balances and transactions have been eliminated.
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, 2000 (unaudited)
================================================================================
2. Significant accounting policies (continued):
(a) Basis of presentation (continued):
As the Company commenced commercial operations beginning in the
quarter ended September 30, 2000, for accounting purposes, it is
considered to be a development stage enterprise.
The financial information as at September 30, 2000 and for the nine
month periods ended September 30, 2000 and 1999 is unaudited. However,
such financial information reflects all adjustments (consisting solely
of normal recurring adjustments), which are, in the opinion of
management, necessary for a fair presentation of the results of
operations for the periods presented.
(b) Foreign operations:
The functional currency of the Company's wholly-owned subsidiaries
outside of the United States is the United States dollar. Monetary
items of those operations that are originally denominated in foreign
currencies are translated into United States dollars at the rate of
exchange in effect of the balance sheet date and non-monetary items
are translated at historical exchange rates. Revenues and expenses are
translated at the rate of exchange in effect on the dates they occur.
Depreciation or amortization of assets translated at historical
exchange rates is translated at the same exchange rates as the assets
to which they relate.
Exchange gains and losses arising on the translation of monetary items
are included in income for the current period.
(c) Equipment:
Equipment is stated at cost. Depreciation is provided on a
straight-line basis at a rate of 25% per annum.
(d) 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
have met these criteria during the nine-month period ended September
30, 2000.
(e) Income taxes:
Income taxes are provided for using the asset and liability method of
accounting. A deferred tax asset or liability is recorded for all
temporary differences between the carrying values of assets and
liabilities for financial and tax reporting purposes and of tax loss
carryforwards based on the enacted tax rates in the expected period of
reversal of the difference.
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, 2000 (unaudited)
================================================================================
2. Significant accounting policies (continued):
(e) Income taxes (continued):
A valuation allowance is provided to the extent that it is considered
more likely than not that the deferred tax assets arising due to loss
carryforwards or temporary differences will not be realized.
(f) Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities 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.
(g) Loss per share:
Basic loss per share is computed by dividing losses attributable to
the common shareholders by the weighted average number of common
shares outstanding during the period. Under the capitalization
accounting described in note 1, the shares issued to the former
shareholders of POPstar are considered to have been outstanding for
all periods presented proportionate to their date of issuance. Diluted
loss per share reflects per share amounts that would have resulted if
dilutive securities, such as the common share options, had been
converted to common stock at the later of the beginning of the period
or their date of issuance.
The losses attributable to the common shareholders for the nine-month
period is represented by the net loss of $2,123,906. The weighted
average number of common shares outstanding for the period ended
September 30, 2000 is calculated as follows:
<TABLE>
Weighted
Number number of
of common of shares
shares issued outstanding
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Shares outstanding, December 31, 1999 19,447,500 19,447,500
Shares cancelled during the period (2,400,000) (2,400,000)
Shares issued during the period 4,904,500 4,113,111
------------------------------------------------------------------------------------------------------
21,952,000 21,160,611
------------------------------------------------------------------------------------------------------
</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, 2000 (unaudited)
================================================================================
2. Significant accounting policies (continued):
(g) Loss per share (continued):
As at September 30, 2000, there were outstanding options to acquire
1,031,000 common shares of the Company (note 5(b)) which are not
included in the computation of diluted loss per share because to do so
would have been anti-dilutive for the periods presented.
(h) Stock based compensation:
Stock options granted in exchange for employee services rendered have
been accounted for using the intrinsic value based method whereby the
excess, if any, of the quoted market price of the stock at the grant
date over the exercise price is recognized in the period of granting.
The Company has elected to adopt the disclosure only provision of
Statement of Financial Accounting Standards No. 123 ("FAS 123") with
respect to option grants to employees.
Stock based compensation awarded as a result of stock options granted
to non-employees is accounted for using the fair value based method of
accounting. The fair value is determined using the option-pricing
model that takes into account the stock price at the grant date, the
exercise price, the expected life of the option, the volatility of the
underlying stock and the expected dividends on it, and the risk-free
interest rate over the expected life of the option. Any compensation
is recognized over the service period of the stock options being
granted, represented by the vesting period.
Stock issued in exchange for services rendered have been accounted for
based on the estimated fair value of the equity instruments at the
date of issuance.
3. Note receivable from a company with common controlling shareholders:
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. During the period, the Company received a
payment of $400,000 of the principal balance and interest income of $42,097
from TGI.
4. Payable to companies with common controlling shareholders:
The payables to companies with common controlling shareholders are
non-interest bearing, unsecured and have no specific terms of repayment.
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, 2000 (unaudited)
================================================================================
5. Capital stock:
(a) Common shares:
<TABLE>
------------------------------------------------------------------------------------------------------
Shares Amount
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance, December 31, 1999 19,447,500 $ 2,654,548
Common shares cancelled (2,400,000) -
Common shares issued for cash at $2.00 per share 3,000,000 6,000,000
Common shares issued for cash at $0.833333
per share 1,750,000 1,458,333
Common shares issued on exercise of options for
cash at $0.01 per share 117,500 1,175
Common shares issued on exercise of options for
cash at $1.00 per share 27,000 27,000
Common shares issued for software technology
at $2.00 per share 10,000 20,000
------------------------------------------------------------------------------------------------------
Balance, September 30, 2000 (unaudited) 21,952,000 $ 10,161,056
------------------------------------------------------------------------------------------------------
</TABLE>
(b) Options:
(i) Stock-based compensation:
In 1999, the Company adopted a stock option plan (the "Plan")
pursuant to which the Company may grant stock options to
directors, management, employees and contractors. The Plan
authorized grants of options to purchase up to 757,500 shares of
authorized but unissued common stock. During the nine-month
period ended September 30, 2000, the Company's shareholders
approved an additional 1,242,500 common shares under the Plan to
be eligible to be granted as options. Stock options are granted
with an exercise price equal to the stock's market value at the
date of the grant. The stock options have various periods to
expiry as noted in the tables below.
<TABLE>
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Average
Options exercise
outstanding price
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Beginning balance, December 31, 1999 757,500 $ 0.39
Transactions during the period:
Granted 561,000 2.00
Exercised (144,500) 0.19
Expired (143,000) 1.63
---------------------------------------------------------------------------------------------------
Outstanding and exercisable, September 30, 2000 1,031,000 $ 1.12
---------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
POPSTAR COMMUNICATIONS, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements, page 6
(Expressed in U.S. Dollars)
Nine months ended September 30, 2000 (unaudited)
================================================================================
5. Capital stock (continued):
(b) Options (continued):
(i) Stock-based compensation (continued):
The following table summarizes options outstanding and
exercisable at September 30, 2000:
<TABLE>
-------------------------------------------------------------------------------------------------
Outstanding
-------------------------------------------------------------------------------------------------
Weighted Number
Exercise average period of shares
prices Number remaining to expiry exercisable
-------------------------------------------------------------------------------------------------
(months)
<S> <C> <C> <C>
$0.01 340,000 17.8 90,000
$1.00 230,000 22.5 70,000
$2.00 461,000 27.9 -
-------------------------------------------------------------------------------------------------
1,031,000 28.3 160,000
-------------------------------------------------------------------------------------------------
</TABLE>
(ii) Other:
During the nine-month period ended September 30, 2000, the
Company granted options to three investors exercisable to
purchase up to an aggregate of 3,000,000 shares of common stock
at $2.00 per share. The options are exercisable by the investors
at any time prior to the date which is three months subsequent to
the date on which the Company's stocks are listed for trading on
an exchange.
(iii) Subsequent event:
On October 1, 2000, the Company granted to employees options
exercisable to purchase 50,000 shares of common stock at $2.00
per share.
6. Related party transactions:
Related party transactions not disclosed elsewhere in these consolidated
financial statements are as follows:
(a) On January 11, 1999, the Company entered into a Licensing Agreement
with TGI, 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 revenues resulting from the commercial
activities of the Software, subject to a specified annual minimum, as
follows:
------------------------------------------------------------------
Calendar Percentage Annual
year of net sales minimum
------------------------------------------------------------------
2000 6% $ 600,000
2001 4% 500,000
2002 2% 500,000
------------------------------------------------------------------
9
<PAGE>
POPSTAR COMMUNICATIONS, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements, page 7
(Expressed in U.S. Dollars)
Nine months ended September 30, 2000 (unaudited)
================================================================================
6. Related party transactions (continued):
The agreement provides that the Company can offset any amounts owing
to TGI against the note receivable disclosed in note 3. During the
period, the Company recorded expenditures of $450,000 (of which
$400,000 was offset) in license fees to TGI, being the annual minimum
prorated for the nine-month period ended September 30, 2000.
(b) The Company has also entered into an agreement with TGI, 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 period, the Company incurred service fees, including the
15%, under this agreement totaling $677,088.
(c) During the nine-month period ended September 30, 2000, POPstar Asia
leased office space for its office in Hong Kong for $2,000 per month
from Easewell Management Ltd. pursuant to a leasing arrangement. A
director of Easewell Management Ltd. is a director of the Company.
During the nine-month period ended September 30, 2000, POPstar Asia
leased office space for its office in Beijing, The People's Republic
of China for $2,200 per month pursuant to a leasing arrangement from a
director of the Company.
During the nine-month period ended September 30, 2000, POPstar
Communications Canada Corp. leased office space for its office in
Vancouver, Canada for CDN$4,489 per month from Tradeglobe Consulting
Ltd. pursuant to a leasing arrangement. Two directors of Tradeglobe
Consulting Ltd. are directors of the Company.
7. Commitment:
(a) 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 using the Company's technology in exchange for a percentage
of the billings. The charging rates for these arrangements have been
established through negotiation.
On September 20, 2000, the Company entered into a new non-exclusive,
royalty free Service Agreement with TransNexus, Inc. (formerly
TransNexus, LLC), a company incorporated under the laws of the State
of Delaware. Under the new terms of the Agreement, TransNexus, Inc.
will operate the Clearinghouse Services on behalf of the Company as
the POPstar Clearinghouse Service's independent, and third party
settlement agency. In exchange for providing services, TransNexus
earns a ten percent (10%) share of the originating parties' wholesale
calling rate.
(b) During the three months ended September 30, 2000, the Company acquired
software technology from Belcarra Messaging Corp. in consideration of
CDN$35,000 ($23,800) in cash and 10,000 shares of common stock of the
Company valued at $2.00 per share. If the software technology meets
certain predetermined performance benchmarks by January 10, 2001, the
Company agreed to issue an additional 10,000 shares of common stock to
the seller.
10
<PAGE>
ITEM 2. PLAN OF OPERATION
FORWARD-LOOKING STATEMENTS:
This Quarterly Report on Form 10-QSB contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended; and
Section 21E of the Securities Exchange Act of 1934, as amended. Statements in
this filing about our future results, level of activity, performance, goals or
achievements or other future events constitute forward-looking statements. These
statements involve known and unknown risks, uncertainties and other factors that
may cause actual results or events to differ materially from those anticipated
in our forward-looking statements.
In some cases, you can identify forward-looking statements by our use of words
such as "may," "will," "should," "could," "expect," "plan," "intend,"
"anticipate," believe," "estimate," "predict," "potential," " or "continue" or
the negative or other variations of these words, or other comparable words or
phrases. The Company intends that such forward-looking statements be subject to
the safe harbors created by these statutes. The forward-looking statements
included herein are based on current beliefs and 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's 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, 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 filed
by the Company with the Securities and Exchange Commission. 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. Forward-looking statements
are based on management's beliefs, expectations and projections on the date they
are made. The Company assumes no obligation to update forward-looking statements
if management's beliefs, expectations or projections or other circumstances
should change. Investors should not place undue reliance on forward-looking
statements.
GENERAL OVERVIEW
POPstar Communications, Inc. (the "Company" or "POPstar") is a development stage
Internet technology company. The Company is an IP-messaging solution provider of
Internet based facsimile transmission technology and unified messaging
technology services. Over the past year, the Company has successfully field
tested its facsimile transmission technology and is in the process of field
testing its unified messaging technology services. The Company is marketing its
services to Internet Service Providers ("ISPs") around the world. The Company
began to generate revenues from the use of POPstar's Enroute technology during
the fiscal quarter ended September 30, 2000. POPstar's technology is designed to
equip ISPs with the ability to provide Internet based facsimile transmission
and, in the future, a full range of unified messaging services to their
end-users. In most cases, POPstar's software is provided free of charge to ISPs
in return for a share of 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. On July 20, 1999, the Company acquired all of the outstanding common
stock of POPstar
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Global Communications Inc., a British Virgin Island Company ("POPstar-BVI"). In
conjunction with the acquisition, the Company adopted the business plan of
POPstar-Global and changed its name to POPstar Communications, Inc. POPstar's
business plan is to provide a unique opportunity for Internet-based companies
such as ISPs, access service providers, portals, carriers and telephone
companies to offer value-added IP-messaging services to their customers with
minimal additional investment. POPstar is in the process of building a global
network of ISP partners and other Internet-based companies, which is designed to
facilitate unified messaging services using the Internet. POPstar plans to
license its messaging software technology to its ISP partners and to share
revenues charged to end users based on the messaging traffic between and with
ISPs and publicly switched telephone networks ("PSTN"). POPstar also intends to
provide network management services related to its unified messaging services,
including secure call routing and real-time settlement/billing services.
The POPstar Business Model
POPstar plans to allow ISPs to select from a number of available products and
services to offer end-users, including fax, voice and data unified messaging
services over the Internet. All of POPstar's messaging services are web-based
and designed to be assessable by an authorized user from the user's mailbox
anywhere in the world. POPstar offers the following service options to ISPs:
o Outsource: ISPs can outsource the services related to unified
messaging services to POPstar. POPstar will manage the entire unified
messaging system, including hardware, servers, software and leased
lines.
o Manage servers on-premises: ISPs can manage their own servers and join
the POPstar Clearinghouse System to share revenue and messaging
traffic with other POPstar Clearinghouse partners. In this case,
POPstar licenses messaging software to the ISP free of charge and
shares revenue on the messaging traffic with the ISP partner. The
POPstar Clearinghouse provides financial transaction settlement
services and billing information to ISP partners.
o Purchase the servers and messaging software: POPstar will sell turnkey
packages to ISPs and the ISP can furnish its own unified messaging
services.
The first two service options are designed to allow ISPs to participate in the
POPstar Clearinghouse System and share revenues on 'long distance' traffic and
messaging between POPstar partners. The POPstar Clearinghouse has been designed
using Open Settlement Protocol ("OSP") standards and is designed to provide the
necessary call authentication, routing and settlement services. POPstar's
software technology allows a partner to originate, route and deliver messaging
traffic to the least-cost delivery point in the POPstar network and earn a share
of revenue from the call or service.
PLAN OF OPERATION
The Company is in the process of launching its POPstar Global Partnership
Program. Beginning with fax over Internet services, the Company is introducing
its services into the North American, Asian Pacific and Western European
markets. Over the past year, the Company's focus has been primarily on services
dealing specifically with Fax-over-Internet Protocol ("FoIP"). The Company has
tested the product to ensure that it is user-friendly and that it meets the
customer's needs. The Company's Enroute software allows the Company to offer
prices that, in most cases, are less than or equal to our competitors. The
Company intends to use the results of its field-testing to improve the next
generation of the Enroute software.
During the fiscal period ended December 31, 1999, the Company focused its
efforts on the development of its Enroute Version 2.3 software product. The
development of the Company's Enroute Version 2.3 software product was completed
at the end of January 2000. The Enroute Version 2.3 product is designed to take
advantage of POPstar's distributed fax server technology to deliver fax traffic
across the public Internet to users around the globe. The server runs on Solaris
UNIX platform; the clients are Web-based; and the file conversion utilities that
convert documents to image (TIFF) format runs on NT operating systems. The
Enroute Version 2.3 product development supports both single and double byte
characters, making it suitable for use in the Asian language markets. Other
Enroute Version 2.3 developments provide secure compatibility with the IP Open
Settlement Protocol standards. Open Settlement Protocol allows for call clearing
and settlement between independent partners.
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We delayed the commercial launch of Enroute Version 2.3, originally scheduled
for March, to July 1, 2000. The delay was caused by technical difficulties
related to integration between TransNexus and the Mind billing system. The
technical difficulties were resolved, and on May 1, 2000, POPstar connected to
the TransNexus commercial site, which is capable of generating call records for
each of the POPstar enrolled sites. We also completed the development of a
solution to integrate the Mind and Optigold billing systems, which allows us to
convert TransNexus call records into invoices.
In April, we completed development of technology that permits the automatic sign
in and registration of end users at sites equipped with either Mind or Optigold
billing systems. End users can access the POPstar partner websites and register
for either a free demo service or pay-for-use service. Mind and Optigold billing
systems support both credit and prepaid debit card services. We also completed a
data migration solution to customize call records to match the needs of ISP
partners with billing systems other than Mind or Optigold. The Company now
provides turnkey solutions for most systems. POPstar is now in the process of
offering its fax over Internet commercial services to ISPs and their customers.
The current business plan is being aggressively implemented under the fax
services banner. However, the Company intends to shift its focus from fax
services to unified messaging and integrated voice services beginning in 2001.
Management believes that the performance of the fax services introduction and
the successful implementation of its unified messaging services are key elements
to the Company's ability to raise additional financing that may be necessary if
revenues do not support the Company's operations.
Research and Development
Management anticipates that research and development expenditures for the fiscal
year ending December 31, 2000 will be approximately $1,000,000, of which
$633,534 was incurred during the nine-month period ended September 30, 2000.
Enroute Version 2.3.4 is the current commercial release providing ISPs webfax,
fax-to-e-mail and e-mail-to-fax services. The Company completed development of a
fax-to-fax feature and is now in the process of testing the technology. The
Company anticipates that the fax-to-fax service will be released late in the
fourth quarter of 2000 as part of Enroute Version 2.3.5, which will also include
recent updates to the TransNexus OSP interface.
The Company's current research and development focus is as follows:
- Version 2.4 of Enroute in the short-term.
- Version 3.0 of Enroute in the long-term.
Enroute Version 2.4 development efforts will focus on needed enhancements to
Version 2.3, which will include the development of a new gatekeeper to replace
the least cost routing daemon system used in Version 2.3, the implementation of
a secure socket ("SSL") program throughout the server to provide security
features, a change in user authorization procedures, a real-time call record
reporting gateway to established Internet billing systems and a secure e-mail to
fax service.
The Company continued its development efforts on Version 2.4, which was
originally scheduled for release in the third quarter of 2000. The Company's
development team experienced a technical difficulty in the implementation of
security procedures and the secure sockets layer ("SSL"). Management believes
the Company made good progress towards completing the SSL functionality within
V2.4, and that V2.4 should be ready to test in late 2000. Management anticipates
that V2.4 will be ready for commercial release during the first quarter in 2001.
Our development of the Enroute Version 3.0 Internet Protocol unified messaging
services ("UMS") product will continue throughout 2000. The prototype of Enroute
Version 3.0 is built. Field testing of the UMS beta version is on schedule and
ready to test towards the end of the first quarter in 2001. Management expects
the prototype to support the storage and retrieval of voice, fax and e-mail
messages in and from one mailbox, access to and from the mailbox via the
telephone network and the Internet. POPstar products are Web-based so that all
messages are accessible to authorized users from any place in the world with
Internet access.
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Version 3.0 Internet Protocol unified messaging product is being developed to
run across all platforms and operating systems. Management anticipates this
development to include a series of applications to run on UNIX, NT, Linux and
other operating systems and platforms without having to make operating system
specific changes to the applications. Development efforts are designed to create
solutions targeted to the carrier and backbone markets: the product will be
designed to scale to meet the needs of the target carriers. The cross-platform
development is supported by an in-house developed library of universal messaging
objects ("UMO") written in C++ computing language. The UMO is being developed to
allow the Company to adapt quickly to the rapid changes taking place in the
rapidly growing Internet market. The UMO is designed to allow all applications
to be written just once for UNIX, NT and Linux compatibility.
The Company's first major release of the new series will be Version 3.1, which
is scheduled for the second quarter in 2001. The Company anticipates this
release to provide commercial grade unified messaging services to PSTN and
Desktop users. The Version 3.1 product will take advantage of the outgoing
services provided through the Version 2.4 product.
On June 26, 2000, POPstar entered into an agreement with Exodus Communications,
Inc. Exodus is a major US backbone carrier and has one of the largest IP
networks in the world, with a peak Internet exchange rate of over 10.3 gigabits
per second. The Exodus Network is a global backbone with high performance
network architecture and industry leading public and private interconnect
arrangements. The Company will co-locate POPstar's own UcanFax gateway (which
enables users who are not associated with any of POPstar's partnering ISPs to
utilize POPstar's services) at the Exodus site in Seattle, Washington. By
co-locating, the Company is able to increase network stability and bandwidth
availability. In addition, the Exodus site provides the secure 7 x 24 location
needed for commercial traffic and the high-speed backbone to carry this traffic.
Capital Expenditures
Management expects the capital purchases scheduled for the fiscal year ending
December 31, 2000 to be approximately $1,000,000, split between hardware and
software at $750,000 and office furniture and equipment at $250,000. The
hardware is needed primarily to support POPstar's own global gateways in Los
Angeles, Seattle and Vancouver and secondarily to help develop a market presence
in other countries. As of September 30, 2000, the Company has expended $273,306
for capital purchases.
Employees
On September 30, 2000, the Company employed 35 people. Management anticipates
that the number of employees will increase to 45 employees by year-end. The
Company intends to staff its global offices in the UK, Canada, US, Hong Kong,
China and Singapore. Management expects to hire additional personnel in customer
sales and support positions to provide services on a 7 days a week, 24 hours a
day basis.
The Company hired personnel in the following areas:
Administration: We hired 1 new staff member in mid-May to assist the Corporate
Secretary and Treasurer in the handling of the Company's administrative
responsibilities. In August, a managing director was hired in the UK (London) to
manage activities in Europe, the Middle East and Africa. In September, a support
staff member was hired to handle marketing and corporate development in the
Vancouver office.
Sales and Marketing: We hired 4 new sales staff at the beginning of June 2000 -
3 new employees in the Vancouver office and 1 new employee in Singapore. In
July, we hired 1 new sales staff employee in Shanghai. In September, we hired 1
new sales staff for the Beijing office. Management anticipates further additions
over the ensuing months.
Operations: We hired 3 new operational support staff in July - 1 new employee to
handle operations support in the Vancouver office, 1 new employee to handle
technical support in Singapore and 1 new employee to handle technical support in
Shanghai. In August, 1 new employee was hired for operations support in
Vancouver. In September, an Operations Specialist from Vancouver moved to Hong
Kong to oversee the Greater China and north Pacific region; a new operations
specialist was hired in Vancouver. Also, in September, 2 new employees were
hired for operations support in Vancouver.
Not included in the 35 employee total are 3 additional support personnel engaged
on a contract basis in our UK (London) office - 2 contract workers provide
technical support and 1 contract worker provides clerical support in accounting
and administration.
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Intellectual Property Acquisition
On July 31, 2000, the Company, through its wholly owned subsidiary POPstar-BVI,
acquired from Belcarra Messaging Corp. an exclusive right to use and exploit
certain Intellectual Property relating to Internet messaging. The Company paid
Belcarra CDN$35,000 ($23,000) in cash and issued 10,000 shares of common stock
valued at $2.00 per share. If the Intellectual Property meets certain
predetermined performance benchmarks by January 10, 2001, the Company agreed to
issue Belcarra an additional 10,000 shares of common stock. Briefly, the
Intellectual Property includes:
o the IMAP mail server software, which is based on Carnegie Mellon
University's "Cyrus" IMAP server as modified by Belcarra. The software
is designed to can be easily implemented into a corresponding server
having capacities exceeding 100,000 users using standard computer
platforms;
o Mail Transfer Agent software technology ("EXIM" MTA as modified by
Fireplug Computers Inc.) is designed to provide scalability of
messaging systems (carrying all message types, including fax, voice
and other unified messaging) over a range of thousands of users to
many millions of users and over thousands of domains;
o Open LDAP, an LDAP directory tool, incorporated into the MTA software
above; and
o certain administrative software incorporating Open LDAP, and as
developed by Ted Powell.
Management believes that the acquisition of the intellectual property will
reduce the estimated development costs and time associated with developing its
own server and mail transfer agent technology.
Management believes that the acquired intellectual property is capable of
providing POPstar with the ability to offer Unified Messaging Services ("UMS")
on an economical basis to its IP Partners, including "carrier class" system
users. Management also believes the acquired intellectual property may provide
POPstar with price and performance advantages in UMS that could not be attained
using `brand name' mail servers available from SUN Microsystems (SIMS) or from
Software.com, for example.
On September 8, 2000, POPstar Communications (Europe) Limited, ("POPstar
Europe"), (formerly Fenshelf 163 Ltd.), was incorporated with the Registrar of
Companies for England and Wales as a private company limited by shares. POPstar
Europe is a wholly owned subsidiary of POPstar-BVI and the Company anticipates
it will conduct POPstar's European operations. Starting October 2, 2000, the
Company rented a virtual executive office in London, England on a month-to-month
basis.
Results of Operations for three months ended September 30, 2000 and September
30, 1999
Revenue
Sales: Sales for the three-month period ended September 30, 2000 were $34,547,
compared to no sales for the three-month period ended September 30, 1999. Sales
for the three-month period ended September 30, 2000 resulted from sales of
product and services, including software maintenance contracts ($28,873),
services rendered ($1,542), monthly fees generated from fax mailbox users
($160), and the sale of equipment and parts to ISPs ($3,972).
Cost of Sales: For the three-month period ended September 30, 2000, the cost of
sales represented the purchase of equipment and parts from a POPstar vendor
($3,310), which were in turn sold to ISPs. For the period ended September 30,
1999, there were no cost of sales.
Interest Income: Interest income for the three month period ended September 30,
2000 was $98,067, compared to $24,484 for the three-month period ended September
30, 1999 - a 300% increase. The interest income received for the three-month
period ended September 30, 2000 was interest earned on bank and term deposits
($88,238) and interest on a note receivable from a company with common
controlling shareholders, TGI Technologies Ltd. ("TGI") ($9,829). In comparison,
the interest received for the
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three-month period ended September 30, 1999 included interest on a note
receivable from TGI ($20,000) and interest earned on bank deposits ($4,484).
Operating Expenses
License Fee: The license fee paid to TGI for the exclusive commercial
exploitation rights to certain Internet fax server software during the
three-month periods ended September 30, 2000 and 1999 was $143,103 and $100,000,
respectively. The 43% increase during the three-month period ended September 30,
2000 was due to an increase in the minimum annual license fee paid to TGI. The
minimum annual license fee for 2000 and 1999 was $600,000 and $400,000,
respectively. For each year, the license fee was prorated over a twelve-month
period. In addition, a license fee of $77,542 was paid for rights related to
certain software in the quarter ended September 30, 2000, compared to nil
pricing during the same period in 1999.
Research & Development: Research and development is provided by an affiliated
company, TGI, under agreement and consists primarily of technical assistance,
software development, and other related services, as required. The charge is
based on TGI's direct and indirect costs of the services provided plus 15%.
Research & development costs for the three-month period ended September 30, 2000
amounted to $210,358, compared with $64,474 for the three-month period ended
September 30, 1999. The rise of 226% was due to increased software development
expenditures.
General and Administrative: Our general and administrative costs consist
primarily of personnel costs, accounting & audit fees, professional and legal
costs, travel & entertainment, sales & marketing, technical support and lease of
office space. Total general and administrative costs were $576,953 and $318,748
for the three-month periods ended September 30, 2000 and 1999, respectively,
representing an increase of 81%.
The rise in general and administrative costs were primarily related to an
increase in personnel costs resulting from the Company's growth and expansion
worldwide. The Company anticipates that general and administrative costs will
continue to grow in the foreseeable future as it implements a market growth
strategy.
Results of Operations for nine months ended September 30, 2000 and September 30,
1999
Revenue
Sales: Sales for the nine-month period ended September 30, 2000 were $34,547,
compared with no sales for the nine-months period ended September 30, 1999.
Sales for the nine-month period ended September 30, 2000 were from sales of
product and services, including maintenance contracts ($28,873), services
rendered ($1,542), monthly fees generated from fax mailbox users ($160), and the
sale of equipment and parts to ISPs ($3,972).
Cost of Sales: For the nine-month period ended September 30, 2000, the cost of
sales was $3,310, compared with $0 for the nine-month period ended September 30,
1999, as no sales were made during that period.
Interest Income: Interest income for the nine month period ended September 30,
2000 was $264,748, compared to $44,410 for the nine-month period ended September
30, 1999 - a 500% increase. The increase was a result of the Company having a
significantly larger amount of cash raised from the issuance of common stocks in
February and March 2000.
Operating Expenses
License Fee: The license fee paid to TGI for the nine-month periods ended
September 30, 2000 and 1999 was $450,000 and $289,247, respectively. The 56%
increase during the nine-month period ended September 30, 2000 was due to an
increase in the minimum annual license fee. The minimum annual license fee for
2000 and 1999 was $600,000 and $400,000, respectively. For both periods, the
licensee fee was prorated over a twelve-month period.
Research & Development: Research and development is provided by an affiliated
company, TGI, under agreement and consists primarily of technical assistance,
software development, and other related services, as required. The charge is
based on TGI's direct and indirect costs of the services provided plus 15%.
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Research & development costs for the nine-month period ended September 30, 2000
totaled $633,534, compared with $440,001 for the same period in 1999,
representing a 44% increase.
General and Administrative: The Company's general and administrative costs
consist primarily of personnel costs, accounting & audit fees, professional and
legal costs, travel & entertainment, sales & marketing, technical support and
office & rental expenses. Total general and administrative costs were $1,325,833
and $822,234 for the nine-month periods ended September 30, 2000 and 1999,
respectively, representing an increase of 61%.
The rise in general and administrative costs was primarily due to increases in
personnel costs, travel & entertainment and office & rental expenses. The
Company anticipated that these costs would increase due to expansion and growth
of the Company worldwide.
Liquidity
As at September 30, 2000, the Company's cash and short-term investments amounted
to $5,358,124. During the nine-month period ended September 30, 2000, the
Company raised $7,486,508 from the issuance of capital stock, offset by a net
loss of $2,123,906 and capital equipment purchases of $273,306.
The Company's cash position, less known commitments (comprising primarily
personnel costs, professional & legal fees, licensing fees and software
development expenses) as of September 30, 2000, is expected to be adequate to
fund the Company's on-going operations during the fourth quarter ending December
31, 2000. Accordingly, the Company does not anticipate the need to raise
additional funds to meet its working capital needs during the fourth quarter
2000.
If the Company does not begin to generate material revenues, liquidity will be
reduced as amounts are expended for continuing research and development,
expansion of sales and marketing activities and development of its
administrative functions. Additionally, the Company's liquidity will also be
reduced as amounts are used for purchases of capital assets. In addition, the
Company continues to incur operating losses and will continue to need additional
working capital to fund its operations, research and development, and marketing
efforts for the 2001 fiscal year. As a result, the Company may be required to
raise additional capital to finance its operations for the 2001 fiscal year and
beyond. The Company intends to raise such additional funding through the sale of
equity or convertible debt securities. The Company may not be able to raise
additional capital on acceptable terms, if at all, when needed. If the Company
is able to raise capital, it may not be available on terms commercially
favorable to us. The sale of equity or convertible debt securities may result in
dilution to the Company's stockholders.
If the Company chooses to speed up its current growth by acquiring additional
unified messaging companies, then significant additional capital in addition to
the amounts detailed above will be required to meet these objectives. In that
case, the Company will be required to secure additional funding though the sale
of equity or convertible debt securities. The Company may not be able to raise
sufficient capital necessary for the continuation of our acquisition strategy
when needed.
Material Obligations:
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
2000, POPstar-BVI is obliged to pay TGI 6% of net sales, or a minimum of
$600,000. For the year 2001, POPstar-BVI is obliged to pay TGI 4% of net sales
or 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 the minimum royalty payment of $600,000 to
TGI for the year 2000.
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
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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%.
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
During the three months ended September 30, 2000, POPstar issued the following
unregistered securities:
On July 31, 2000, as part of an agreement with Belcarra Messaging Corp, the
Company issued 10,000 shares of common stock of the Company at a price of $2.00
per share. The shares were part of a transaction that included cash and stock
consideration as payment for the acquisition of Belcarra's mail server
technology.
The Company relied on the exemption from registration provided under Section 4
(2) of the Securities Act of 1933, as amended, in connection with the issuance
of the underlying shares.
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 three
months ended September 30, 2000.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
Exhibit
Number Description
------- -----------
10.1 TransNexus/POPstar Clearinghouse Service Agreement
dated September 20, 2000 between registrant and
TransNexus, Inc.
27.1 Financial Data Schedule
(B) REPORTS ON FROM 8-K
The Company did not file any Reports on Form 8-K during the three months
ended September 30, 2000.
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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.
/s/ John McDermott
------------------------------------------
John McDermott
President
/s/ Don Lau
------------------------------------------
Don Lau
Treasurer (Principal Financial Officer)
Dated: November 14, 2000
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EXHIBIT INDEX
Exhibit
Number Description
------ -----------
10.1 TransNexus/POPstar Clearinghouse Service Agreement dated
September 20, 2000 between registrant and TransNexus, Inc.
27.1 Financial Data Schedule
