U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB/A
AMENDMENT NO. 2
TO
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION
12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934
POPSTAR COMMUNICATIONS, INC.
(Name of small business issuer in its charter)
NEVADA 88-0385920
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification Number)
107 EAST 3RD AVENUE
VANCOUVER, BC CANADA V5T 1C7
(Address of Principal Executive Offices) (Zip Code)
(604) 872-6608
(Registrant's Telephone Number, Including Area Code)
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
(None)
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $0.001
Title of Class
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TABLE OF CONTENTS
PART I
Item 1 Description of Business.
Item 2 Plan of Operation.
Item 3 Description of Property.
Item 4 Security Ownership of Certain Beneficial Owners
and Management.
Item 5 Directors, Executive Officers, Promoters and
Control Persons.
Item 6 Executive Compensation.
Item 7 Certain Relationships and Related Transactions.
Item 8 Description of Securities.
PART II
Item 1 Market Price of and Dividends on the
Registrant's Common Equity and Other Shareholder
Matters.
Item 2 Legal Proceedings.
Item 3 Changes In and Disagreements With Accountants.
Item 4 Recent Sales of Unregistered Securities.
Item 5 Indemnification of Directors and Officers.
PART F/S
Financial Statements.
PART III
Item 1 Index to Exhibits.
Item 2 Description of Exhibits.
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PART I
This Registration Statement on Form 10-SB includes forward-looking
statements which the Registrant believes are within the meaning of
the Securities Exchange Act of 1934 (the "Exchange Act"). These
statements are based on management's current beliefs and assumptions
about the Registrant and the industry in which the Registrant
competes in, and on information currently available to management.
Forward-looking statements include, but are not limited to, the
information concerning possible or assumed future results of
operations of the Registrant set forth under the headings "Financial
Information-Management's Discussion," "Plan of Operations," and
"Business." Forward-looking statements also include statements in
which words such as "expect", "anticipate", "intend", "plan",
"believe", "estimate", "consider", or similar expressions are used.
Forward-looking statements are not guarantees of future performance.
They involve risks, uncertainties and assumptions. The Registrant's
future results and shareholder values may differ materially from
those expressed or implied in these forward-looking statements.
Readers are cautioned not to put undue reliance on any
forward-looking statements. In addition, the Registrant does not
undertake to update forward-looking statements after the
effectiveness of this Registration Statement, even if new
information, future events or other circumstances have made them
incorrect or misleading.
ITEM 1 - DESCRIPTION OF BUSINESS
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. On May 19, 1999, in
contemplation of acquiring POPstar Global Communications Inc., a
British Virgin Islands company, the Company changed its name to
POPstar Communications, Inc. On July 20, 1999, the Company acquired
all of the outstanding common and preferred stock of POPstar Global
Communications, Inc., a British Virgin Islands company
("POPstar-BVI") in a business combination described as a "reverse
acquisition". As the Company had no operations prior to the
acquisition, the acquisition has been treated for accounting
purposes as the acquisition of POPstar (the Registrant) by
POPstar-BVI for the net book value of POPstar's net identifiable
assets in the amount of $72.00. Immediately prior to its
acquisition by POPstar, POPstar-BVI was in the business of
developing Internet-based facsimile transmission technology.
Immediately prior to the acquisition, POPstar had 3,400,000 shares
of Common Stock outstanding. As part of POPstar's acquisition of
POPstar-BVI, POPstar issued 12,875,000 shares of its Common Stock to
the shareholders of POPstar-BVI. POPstar had no significant
operations prior to its acquisition of POPstar-BVI. Additionally,
management of POPstar had no affiliation with management of
POPstar-BVI prior to the acquisition. Following the acquisition of
POPstar-BVI, the former management and Board of Directors of POPstar
resigned and was replaced by the management of POPstar-BVI
BUSINESS OF THE ISSUER
Product and Services
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.
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POPstar's product advantages includes a Web-based user Graphic User
Interface (GUI), a File Conversion Server ("FCS"), which permits
Microsoft documents (Word, Excel, Access etc.) to be "attached" and
converted to Fax format, along with the more commonly used text,
HTML and PostScript formatted documents. Without the FCS,
competitors' browser-based offerings require users to undertake a
complicated and error prone step to "save" or "translate" their
document to one of the more common formats before it can be
transmitted. Thus, POPstar's browser based entry screen supports
full conversion without the need for the user to download and
maintain a "printer driver", which has been the traditional method
of preparing and sending Fax documents.
One reason for the continued popularity of Fax, in Asian markets in
particular, is the compatibility with Chinese, Japanese, Korean and
other character sets Fax documents are "image based". POPstar's
FCS supports conversion of Microsoft documents using these localized
character sets to image format, such that these, too, can be
directly transmitted from the computer to the destination Fax
machine.
POPstar's "localized character" support of Fax documents has enjoyed
an enthusiastic reception in trials undertaken in Japan, Taiwan,
Hong Kong, China and elsewhere.
Although current Internet users are capable of transmitting
documents through the use of electronic mail ("e-mail") from one
computer to another, the majority of businesses still receive and
transmit their documents via Fax. Management believes that
POPstar's technology allows companies to combine the convenience and
costs savings provided by the Internet with the compatibility of
conventional Fax machines.
Transmission of Fax documents using POPstar's network will be priced
at rates competitive with those of long distance rates. Management
believes that POPstar's primary advantages stems from ease of use,
savings in installation of additional telephone lines for Fax
transmission and receipt, elimination of hard copies of documents at
the point of origin, electronic filing of documents and elimination
of manual handling of documents.
POPstar's technology will allow the growing number of Internet users
to capitalize on the lower costs and convenience offered by Internet
technology while allowing them to further utilize their Internet
connection for the transmission or receipt of documents without the
need of purchasing additional telephone connections (which require
monthly and per use fees). Management believes that such benefits
are even more significant to European and Asian end-users where the
installation of additional telephone connections are significantly
higher than Internet connectivity costs.
POPstar's Fax over Internet Protocol technology ("Internet Fax") is
provided to ISPs on a royalty-free basis. POPstar's Internet Fax
software also includes support for inter-ISP settlements, user
authentication functions, billing data generation and other
management and operation-related activities so as to allow ISPs to
manage and charge their customers for the Internet Fax service.
POPstar will derive revenue by receiving a portion of the payments
made to ISPs by their customers who use the Internet Fax service.
ISPs who use the POPstar technology are charged a wholesale price
for all Fax traffic submitted by users; POPstar and the ISP
delivering the Fax to the recipient conventional Fax machine, each
receive portions of this wholesale price, according to a prearranged
formula. Distribution of respective parties' portions
("Settlements") is consigned to an independent, specialist firm.
Management believes that a major obstacle standing in the way of
widespread use of the Internet for the transmission of commercial
traffic such as Internet Faxes, has been the inability of the ISP to
collect fees on a pay-for-use basis. While the world's traditional
telephone companies have long shared LD revenue under terms of
settlements agreements (using billing data generated by the
telephone exchange serving the originating telephone company), no
equivalent mechanism for inter-ISP settlements on Internet based
communication has existed until very recently. In most cases,
Internet Fax and Internet Voice transmissions do not even originate
through a telephone exchange, making it necessary to develop new
methods of calculating, apportioning and distributing respective
revenue shares between participants, along with corresponding
settlements agreements.
In response to the need for settlements on Internet based value
added services such as Internet Fax and Internet Voice
transmissions, the European Telecommunications Standards Institute
("ETSI"), a body governing inter-operability between telephone
companies in Europe, sponsored the development of the Open
Settlement Protocol ("OSP"), a key component of POPstar's inter-ISP
settlements strategy. POPstar has been informed by TransNexus, LLP,
("TransNexus"), one of the firms contributing to OSP, that it is the
first commercial user of OSP for Internet Fax transmission
settlements.
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Traditionally, ISPs have needed only billing systems which handle
monthly, flat-fee billings, as most Internet services were provided
on a flat-fee basis. However, ISPs desiring to generate additional
revenue by offering value-added services billed on a usage basis,
are required to implement billing systems that accommodate usage
billing. Usage billing for services such as Voice-Over-IP and
Fax-Over-IP is required not only by POPstar's technology but by any
service which the ISP desires to offer their users on a usage basis
as opposed to a flat-rate basis. Management believes that
implementation of usage billing systems for value-added services
will be required if ISPs are to remain profitable. Implementation
of usage billing varies from between two to six months depending on
the ISPs' current billing system and whether the ISP is able to
modify their system or needs to replace it entirely. Alternatively,
ISPs may contract with third party billing companies to supply usage
billing service. Costs of implementing or utilizing third-party
systems varies considerably. POPstar will assist ISPs with system
integration of the ISPs' billing system to work with POPstar's
Internet Fax technology.
Management believes that settlements should be done by independent
trusted third parties, and not by POPstar or by any of the ISPs or
other carriers associated with POPstar. As a consequence,
TransNexus of Atlanta, Georgia, was selected by POPstar as a
qualified settlements house, and subsequently contracted to provide
settlements services to POPstar and to the respective POPstar
partnering ISP offering origination ("Onramp") and termination
("Offramp") services. An additional service rendered by TransNexus
is the provision of least-cost routing information permitting
POPstar's software to route Fax traffic to the Offramp able to
deliver each Fax document for the lowest cost.
OSP is an open protocol which is provided royalty free to all users.
However, in order to ensure the confidentiality of routing and user
verification information transmitted between Onramp and Offramp
ISPs, TransNexus, and POPstar, POPstar employs an encryption
protocol known as BSAFE provided by RSA Data Security, Inc. for
such transmissions. POPstar is required to pay royalties equivalent
to 2% of POPstar's service revenue for the use of the BSAFE
encryption protocol. Aside from normal incremental improvements in
the POPstar software to comply with evolving industry standards,
POPstar is not aware of any licensing or other significant costs
associated with implementing current or anticipated protocols to the
POPstar technology.
POPstar's products and services, therefore, consists of an
integrated technology comprising of Internet Fax software, file
conversion server, least cost routing, inter-ISP settlements and
support for full accounting, audit trail and activity monitoring.
Additionally, the Company anticipates introducing enhancements to
its technology in the form of "Unified Messaging" service support,
in which text, voice and other messages are accessible from a
single, unified mailbox, and deliverable over the Internet and other
facilities to the intended recipient(s). The Internet Engineering
Task Force ("IETF"), the International Telecommunications Union
("ITU") and a number of other bodies are developing standards and
recommendations for message exchange and conversion; POPstar's
activities are directed toward compliance with these evolving
standards, and product enhancements will be released as these
standards mature. There are no assurances, however, that the
Company will be able to introduce these enhancements as intended or
that it will not face technical and market obstacles which may
prevent the Company from introducing such enhancements.
MARKET DESCRIPTION
POPstar's immediate market consists of ISPs who provide Internet
connectivity and other services to enterprise "seats", Small
Office/Home Office ("SOHO") business users, and residential users.
POPstar's technology offers ISPs' users a value added service which
allows them to transmit documents throughout the world at a
substantial discount to traditional long distance telephone network.
Fax usage continues to rise. The Fax portion of LD traffic billed
in 2000 is estimated to be in excess of $US30 billion (approximately
30% of the world total). The number of Fax messages is expected to
be between 10 and 20 times the number of email messages sent in the
same year. An "enterprise" PC-Fax user may send as many as 800
pages of Fax per year, according to some estimates, and the number
of new Fax machines purchased, especially outside Western world,
continues to grow at 20% per year or more. Additionally,
"outsourced" (third party Fax carriers) Fax traffic, largely
"broadcast" Fax, will generate in excess of $2 billion next year.
(All statistics courtesy Davidson Consulting.)
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POPstar's Fax methods are "Internet ready". Both Internet Voice and
"real-time" Internet Fax transmissions suffer from the Internet's
inherent problem in that the Internet transmits data in small blocks
("packets"). These packets often get delayed or lost due to
traffic. Such delays may approach many tens of seconds or even
minutes on some international routes, and may be experienced first
hand when "surfing" web sites in Asia and other countries. In
contrast, POPstar's technology transmits the Fax document in its
entirety to the Offramp ISP. The Offramp ISP waits and stores the
document until it has received the complete document and then
immediately forwards it to the end-user using conventional telephone
lines. POPstar's "immediate" store and forward transport avoids the
Internet's inherent problems while providing virtually the same
speed of delivery as conventional and real-time services.
INTERNATIONAL OPERATIONS
Internet Fax services that span international boundaries are most
attractive to potential users, due to the high usage of Fax traffic
and higher LD rates to and from Asian and other non-Western
countries. The establishment of POPstar operations in key
international markets already includes a sales and support office in
Hong Kong, operated by the Company's wholly owned subsidiary POPstar
Communications, Asia Pacific Ltd., a Hong Kong corporation
("POPstar-Asia") with other key locations to be staffed as growth
dictates.
One objective of POPstar's program is the recruitment of at least
one ISP in each major Fax traffic location (originating or
terminating), the "territory" handled by a location being defined by
LD cost boundaries. It can be more costly to transmit a Fax message
from a major city to a remote town in the same country, than to
transmit the same message at discounted rates from North America.
This is due in part to high domestic LD rates in some countries.
ISPs having lines terminating in high traffic destination areas are
being recruited as POPstar partners.
Generally, end-users are "conventional" customers of an ISP that
legally offers Internet connectivity services for a fee in the host
country. POPstar's Fax traffic originates in a manner similar to
that of e-mail traffic, in that the sender keys in "form" data
corresponding to his or her identity, the address to which the item
is to be delivered, and the identity of the sender and of any
"attachment" to be sent as part of the transmission. In the case of
a terminating ISP (Offramp), Internet message traffic arrives at the
ISP facilities in a manner similar to that of e-mail, and in fact
may be delivered as an e-mail document to a recipient. Therefore,
POPstar's actual transmission of Faxes between ISPs is performed
much like e-mail, which is currently free of regulation. In the
case of a delivering a Fax document to a conventional Fax machine,
however, the local telephone network must be used. The ISP must
then contract with the local telephone service provider, for
outgoing lines. (Normal "dial- in" Internet service does not need
outgoing lines). At that point, the ISP would normally be required
to state the use to which the lines would be put, and to comply with
local regulations. In both cases, the ISP is required to make a
statement of compliance in the contract binding the ISP with POPstar
and with TransNexus, as a condition of becoming part of the POPstar
network.
POPstar is not aware of regulatory bars to the transport of Fax
traffic into or out of any country using Internet facilities, but as
a precaution, requires each participating ISP to assume
responsibility for compliance with all regulations affecting them
with respect to POPstar operations. POPstar does not operate as a
common carrier in any country and to the knowledge of POPstar
management, is not subject to rules governing common carrier
operations in any country.
ISPs providing Internet Fax services to their end-users collect fees
for such services in accordance with each ISPs' billing policies.
Onramp or originating ISPs are required to maintain a credit balance
with TransNexus, POPstar's settlement house, and their accounts are
charged a wholesale rate for the transmission of their end-user's
Fax with the Onramp ISP being free to charge end-users whatever rate
it deems appropriate. A portion of revenue generated from message
traffic originating in a given jurisdiction is retained by the
Onramp ISP partner in that jurisdiction, with the balance being
collected using Electronic Funds Transfer methods, where available,
by TransNexus for subsequent distribution to POPstar and to the ISP
partners through whose facilities the traffic is eventually
delivered to the destination Fax machines (the Offramp ISP).
Distribution of such revenue POPstar and the Offramp ISP will occur
on a monthly basis.
The respective ISP partners' operations are subject to rules and
regulations of their respective jurisdictions, including those
applicable to funds transfers or other currency controls. ISPs in
each jurisdiction are responsible for compliance with such rules and
regulations.
It is possible that taxation, licensing, interconnection fees or
political or regulatory barriers could limit the viability of a
given ISP's operations as part of POPstar's program, thus limiting
POPstar's revenue associated with the region in question. POPstar
is currently not aware of any major market area having such
circumstances. However, there can be no assurances that such
barriers may not develop in the future.
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DEPENDENCE UPON KEY CUSTOMERS
POPstar's success will depend upon the number of destinations served
economically by POPstar affiliated ISPs, and the number of Internet
users served by POPstar partner ISPs operating Internet Fax
Offramps. POPstar's ability to deliver Internet Fax services more
economically than traditional LD services is dependent on soliciting
sufficient numbers of ISP partners throughout the world. Therefore,
POPstar will focus on partnering with large, multi-city ISPs.
Failure to obtain sufficient ISP partners will limit POPstar's
ability to deliver its services at lower costs than traditional LD
services and therefore may have a materially adverse effect on the
Company's results of operations.
MAJOR SUPPLIERS
POPstar uses Internet Fax software developed by TGI Technologies
Ltd. ("TGI"), a Canadian corporation affiliated with POPstar and
with whom exclusive, long-term supply and development contracts
exist. The Internet Fax software that POPstar uses is provided by
TGI under an exclusive license pursuant to a Licensing Agreement
dated January 11, 1999 by and between the Company's wholly owned
subsidiary, POPstar-BVI and TGI. All of the officers and directors
of TGI are also officers and directors of the Company. See Item 7
Related Transactions.
Under the terms of the Licensing Agreement, 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 derived from the
use of the Internet Fax software, or a minimum of $400,000.
POPstar-BVI is obliged to pay TGI 6% of net sales or a minimum of
$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.
In addition to the Licensing Agreement with TGI, POPstar-BVI has
also entered into a Services Agreement with TGI, whereby TGI has
agreed to provide POPstar-BVI with technical assistance, software
development, marketing, management, and other services related to
the enhancements and use of the 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%.
POPstar's ability to accurately bill ISPs for its Internet Fax
services is dependent on settlement services provided by TransNexus,
of Atlanta, Georgia. Although POPstar believes that its
relationship with TransNexus is strong and will remain so with
continued contract compliance, the termination of POPstar's contract
with TransNexus, the loss of TransNexus' settlement service, or a
reduction in the quality of service the Company receives from
TransNexus could have a material adverse effect on the Company's
results of operations. In addition, the accurate and prompt billing
of the Company's customers is dependent upon the timeliness and
accuracy of settlement details provided to the Company by
TransNexus.
In order to service areas without local ISP termination access,
POPstar operates a "global Offramp" (a server used for delivery of
Fax traffic over traditional LD facilities to locations in the world
having no local POPstar affiliated ISP) in Los Angeles, California.
POPstar has contracted with Innosys Communications, Inc.
("Innosys"), to forward Internet Fax transmissions through
traditional LD networks to countries having no local POPstar
affiliated ISP. Terms of the service agreements with Innosys permit
POPstar to seek and employ other facilities and carriers, as
conditions may dictate. Although POPstar believes that its
relationship with Innosys is strong and will remain so with
continued contract compliance, the termination of POPstar's contract
with Innosys, the loss of Innosys' Offramp service, or a reduction
in the quality of service the Company receives from Innosys could
have a material adverse effect on the Company's results of
operations. However, Management believes that its dependence upon
this global Offramp will lessen with time, as more terminating
POPstar ISPs begin operations in different countries around the world.
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COMPETITION
Internet Fax competitors include UUNet (Worldcom), NetCentric,
NetXchange, Net2Fax, and JFax. These competitors typically charge
ISPs an up front acquisition fee and continued royalty for using
their proprietary software and hardware. In contrast, POPstar does
not charge ISPs a fee for the acquisition of its technology but
rather charges ISPs a wholesale rate on a usage basis for the
transmission of the ISPs' end-user's Faxes using POPstar's
technology. Management believes that POPstar, at the time of
writing, is the only firm offering a revenue-sharing based plan to
ISPs, and the only firm using a third-party, independent settlements
house. POPstar's services are provided to ISPs at rates competitive
or lower than those of its competitor's published rates.
Management believes that these factors provide POPstar with
advantages in recruiting both large and small ISP partners.
Other types of competitors include Fax "outsourcing" providers such
as Xpedite. Such outsourcing is directed to major enterprises
having larger numbers of LAN "seats", where Fax "server"
functionality (PC document transmission, bulk broadcast
transmissions, etc.) benefits can be realized without the overhead
and complication of supporting an in-house Fax server. Such firms
generally charge premium prices for such services, and often require
the enterprise to provide significant numbers of phone lines or
other special facilities associated with the service.
Management believes that POPstar's technology provides a number of
advantages over the traditional outsourcing model, including the
joint marketing of the service by both POPstar and the ISP serving
the enterprise. The firm providing Internet connectivity to the
enterprise's LAN users becomes the natural provider of Fax
outsourcing, including such value added aspects as cost accounting
(assignment of costs to the sender and the sender's department),
authorization and control of users by the enterprise's LAN manager,
and many others.
The Company also faces competition from the transmission of computer
generated documents via the Internet as attachments to conventional
e-mail. Transmission by e-mail is currently generally free to
end-users (aside from Internet access charges). Transmission by
e-mail, however, requires both sender and recipient to possess
computer and e-mail capability. POPstar's technology, however,
allows end-users to reach the millions of already installed Fax
machines located throughout the world. Additionally, transmission
using POPstar's technology allows users to preserve a paper trail of
document transmission, including signatures and file stamps.
POPstar's management believe that the advantages of independent
settlements, ISP partner-driven recruitment of users, and web-page
entry of Fax traffic from the desktop will permit POPstar to
effectively compete with its competitors.
Many of the Company's existing competitors, as well as a number of
potential new competitors, have longer operating histories, greater
name recognition, larger customer bases and significantly greater
financial, technical and marketing resources than the Company. Such
competitors may be able to undertake more extensive marketing
campaigns, adopt more aggressive pricing policies and make more
attractive offers to potential employees and distribution partners.
Further, there can be no assurance that the Company's competitors
will not develop Internet Fax services that are equal or superior to
those of the Company or that achieve greater market acceptance than
the Company's offerings
REGULATION
The Company is not currently subject to direct federal, state or
local regulation, and laws or regulations applicable to access to or
commerce on the Internet, other than regulations applicable to
businesses generally. However, there can be no assurances that the
Company will not be subject to such regulation in the future.
COST OF COMPLIANCE WITH ENVIRONMENTAL REGULATIONS
The Company currently has no costs associated with compliance with
environmental regulations. However, there can be no assurances that
the Company will not incur such costs in the future.
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TRADEMARKS
The Company has made application to the U.S. Patent and Trademarks
Office for the registration of the Company's trade name POPstar and
its logo. The Company's application is currently undergoing review.
No assurances, however, can be given as to successfulness of the
Company's application.
NUMBER OF EMPLOYEES
As of October 15, 1999, the Company employed 10 people on a full
time basis. Of these, 8 are located in North America and 2 are
located at the Company's Hong Kong facility.
ITEM 2 - PLAN OF OPERATION
The following discussion contains certain forward-looking statements
that are subject to business and economic risks and uncertainties,
and the Company's actual results could differ materially from those
forward-looking statements. The following discussion regarding the
financial statements of the Company should be read in conjunction
with the financial statements and notes thereto.
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,
contained herein.
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.
Implementation Plan
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.
7
<PAGE>
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 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 January 1, 1999 to June 30, 1999, the
Company, through its wholly owned subsidiary, POPstar-BVI, raised
$1,988,732 from the sale of "restricted" Common Stock. During the
same period, the Company incurred an accumulated deficit of
$1,048,211 in developing its services. As set forth in the Section
"Certain Relationships and Related Party Transactions" below, the
Company has lent the sum of $1,000,000 to TGI Technologies Ltd. The
Company had an increase of $707,464 in non-cash operating working
capital. As a result, the Company had cash on hand amounting to
$647,985 as at June 30, 1999.
During the period from July 1, 1999 to September 30, 1999, the
Company raised a further $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.
8
<PAGE>
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
$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.
9
<PAGE>
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.
ITEM 3 - DESCRIPTION OF PROPERTY
At present, the Company does not maintain a physical office in the
United States, The Company's current administrative facility is made
available to the Company and its wholly owned subsidiary POPstar-BVI
from TGI pursuant to an oral month to month lease for office space
located at 107 East 3rd Avenue, Vancouver, British Columbia, Canada.
The monthly rental rate is currently $4,000 per month.
Additionally, the Company maintains a sales, marketing and technical
support facility for its Asian operations pursuant to an oral,
month-to-month lease for executive offices located at Westlands
Centre, Room 908, 20 Westlands Road, Quarry Bay, Hong Kong. The
owner of the office space is Easewell Management Ltd., a company
beneficially owned by Thompson Chu, the Company's Chairman of the
Board. See Certain Relationships and Related Transactions.
ITEM 4 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of August 15, 1999, certain
information with respect to the Company's equity securities owned of
record or beneficially by (i) each Officer and Director of the
Company; (ii) each person who owns beneficially more than 5% of each
class of the Company's outstanding equity securities; and (iii) all
Directors and Executive Officers as a group.
<TABLE>
<S> <C> <C> <C>
Title Common Stock Percent of
of Class Name and Address Outstanding Outstanding
- -------- ---------------- ------------ -----------
Common Stock John McDermott 0 0%
107 East 3rd Avenue
Vancouver, BC Canada
Common Stock Don Lau 0 0%
107 East 3rd Avenue
Vancouver, BC Canada
Common Stock Thompson Chu 0 0%
107 East 3rd Avenue
Vancouver, BC Canada
Common Stock Yong Kiat Rickie Tang(1) 1,750,000 10.66%
335 Bukit Timah Road #10-02
Singapore 259718
Common Stock Pang Lin Choi(2)
2702-6 Lucky Commercial Centre
103-9 Des Voeux Road West 8,525,000 51.93%
All Directors and 1,750,000 10.66%
Officers as a Group (4
Persons in total)
</TABLE>
(1) Denotes shares beneficially owned by Mr. Tang but held by Kemayan E.C.
Hybrid Ltd. Mr. Tang is a principal of Kemayan E.C. Hybrid Ltd.
(2) Denotes shares held by Mr. Pang Lin Choi as trustee of the John
McDermott and Thompson Chu Family Trust. The John McDermott Family trust holds
2,000,000 shares of the Company's Common Stock (the "McDermott Shares"). The
Thompson Chu Family Trust holds 6,525,000 shares of the Company's Common Stock
(the "Chu Shares"). Mr. Choi, as trustee, holds sole voting and investment
rights with respect to the McDermott and Chu shares.
10
<PAGE>
The Company believes that the beneficial owners of securities listed
above, based on information furnished by such owners, have sole
investment and voting power with respect to such shares, subject to
community property laws where applicable. Beneficial ownership is
determined in accordance with the rules of the Commission and
generally includes voting or investment power with respect to
securities. Shares of stock subject to options or warrants
currently exercisable, or exercisable within 60 days, are deemed
outstanding for purposes of computing the percentage of the person
holding such options or warrants, but are not deemed outstanding for
purposes of computing the percentage of any other person.
ITEM 5 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth the names and ages of the current
directors and executive officers of the Company, the principal
offices and positions with the Company held by each person and the
date such person became a director or executive officer of the
Company. The executive officers of the Company are elected annually
by the Board of Directors. The directors serve one year terms until
their successors are elected. The executive officers serve terms of
one year or until their death, resignation or removal by the Board
of Directors. There are no family relationships between any of the
directors and executive officers. In addition, there was no
arrangement or understanding between any executive officer and any
other person pursuant to which any person was selected as an
executive officer.
The directors and executive officers of the Company are as follows:
Name Age Positions
- ---- --- ----------
John McDermott 63 President
and Director
Thompson Chu 40 Chairman of the Board
of Directors
Don Lau 41 Secretary
and Treasurer
Yong Kiat Rickie Tang 40 Director
JOHN MCDERMOTT is currently the Company's President and a member of
its Board of Directors. Since August 1989, Mr. McDermott has been
President of TGI Technologies Ltd., a high technology manufacturing
and research and development company. From 1978 to 1986, Mr.
McDermott was an Executive Vice President at Glenayre Electronics in
Vancouver, a Radio Paging, Radio Telephone and Voice Mail company.
Prior to that, Mr. McDermott was Vice President of Marketing at
Rockwell Wescom in Chicago. Mr. McDermott also held an engineering
position with British Telecom and Alberta Government Telecom. He
holds an engineering degree from Liverpool UK and is registered as
a Professional Engineer in Canada since 1969. Mr. McDermott is
expected to contribute the whole of his time to the operations of
Company and its subsidiaries.
THOMPSON CHU is currently the Company's Chairman of the Board of
Directors. Since 1989, Mr. Chu has been the Chief Executive Officer
of TGI Technologies Ltd., a high technology manufacturing and
research and development company. Mr. Chu has considerable
management experience in the trading and telecommunications
industries in North America, China and South East Asia. Mr. Chu has
an MBA with distinction from INSEAD in France, a MSc in
Science-Business Administration from the University of British
Columbia, a Bachelors degree in Business Administration from Acadia
University in Nova Scotia, a diploma in International Business from
the Institute of Pacific Asian Management of the University of
Hawaii and a diploma in French from the Universite Sainte-Anne in
Nova Scotia. Mr. Chu is expected to contribute approximately 50% of
his time to the operations of the Company and its subsidiary.
DON LAU is currently the Company's Secretary & Treasurer. Since
January 1999, Mr. Lau has been the Vice President, Corporate Finance
of POPstar Global Communications, Inc., the Company's wholly owned
subsidiary. Between September 1995 to January 1999, Mr. Lau was the
Vice President, Corporate Finance for Tradeglobe Consulting Ltd., an
international trade consulting and management company. Between
November 1991 to July 1995, Mr. Lau was the Managing Director,
Corporate Finance of The Nikko Securities Co. Limited in Hong Kong,
where he was responsible for the equity origination, merger, and
acquisition business of Nikko Securities in Hong Kong. Mr. Lau has
over 15 years experience in senior corporate finance positions with
Bankers Trust, Nikko Securities and Schroders in Asia. Mr. Lau holds
an MBA degree from the University of British Columbia and a
Bachelors degree in Business Administration from Acadia University
in Canada. Mr. Lau is expected to contribute the whole of his time
to the operations of Company and its subsidiaries.
YONG KIAT RICKIE TANG is currently a member of the Company's Board
of Directors. Since July 1992, Mr. Tang has been the President and
Chief Executive Officer of Kemayan Corporation Berhad, a
conglomerate listed on the Main Board of the Kuala Lumpur Stock
Exchange in Malaysia. Mr. Tang holds a Bachelor of Science degree
with Honors in Estate Management from the National University of
Singapore and a Graduate Diploma in Marketing from the Marketing
Institute of Singapore.
ITEM 6 - EXECUTIVE COMPENSATION
On July 20, 1999, the Company entered into a three-year Employment
Agreement with John McDermott, the Company's President, whereby the
Company will pay Mr. McDermott an annual salary of $83,333.33. The
Agreement also requires the Company to provide, at its expense,
complete health insurance coverage for Mr. McDermott and his family
and annual automobile allowance of $5,600 for business use.
On July 20, 1999, the Company entered into a two-year Employment
Agreement with Thompson Chu, the Company's Chairman of the Board,
whereby the Company will pay Mr. Chu an annual salary of $50,000.
The Agreement also requires the Company to provide, at its expense,
complete health insurance coverage for Mr. Chu and his family.
On July 20, 1999, the Company entered into a two-year Employment
Agreement with Don Lau, the Company's Secretary and Treasurer,
whereby the Company will pay Mr. Lau an annual salary of $48,000.
The Agreement also requires the Company to provide, at its expense,
complete health insurance coverage for Mr. Lau and his family.
SUMMARY COMPENSATION TABLE
The Summary Compensation Table shows certain compensation
information for services rendered in all capacities for the years
ended December 31, 1998 and 1997, and the period ended June 30,
1999. Other than as set forth herein, no executive officer's salary
and bonus exceeded $100,000 in any of the applicable years. The
following information includes the dollar value of base salaries,
bonus awards, the number of stock options granted and certain other
compensation, if any, whether paid or deferred.
<TABLE>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
Awards Payouts
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities
Other Annual Restricted Underlying LTIP All Other
Name and Principal Salary Bonus Compensation Stock Awards Options SARs($) Payouts Compensation
Position Year ($) ($) ($) ($) (#) ($) ($)
- -------- ---- ------- ------ ------------ ------------ -------------- ------- -------------
John McDermott 1999 33,833 -0- 1,400(1) -0- 250,000 -0- -0-
(President) (6/30)
1998 0 -0- -0- -0- -0- -0- -0-
1997 0 -0- -0- -0- -0- -0- -0-
Thompson Chu 1999 22,500 -0- -0- -0- -0- -0- -0-
(Chairman of the (6/30)
Board)
1998 0 -0- -0- -0- -0- -0- -0-
1997 0 -0- -0- -0- -0- -0- -0-
Don Lau 1998 24,000 -0- -0- -0- 50,000 -0- -0-
(Secretary & (6/30)
Treasurer)
1998 0 -0- -0- -0- -0- -0- -0-
1997 0 -0- -0- -0- -0- -0- -0-
</TABLE>
(1) Denotes sums paid to Mr. McDermott pursuant to his employment
agreement for car allowance.
<TABLE>
OPTION/SAR GRANTS IN SIX MONTH
PERIOD ENDED JUNE 30, 1999
(INDIVIDUAL GRANTS)
<S> <C> <C> <C> <C>
NUMBER OF SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS/SAR'S
OPTIONS/SAR'S GRANTED TO EMPLOYEES EXERCISE OF BASE PRICE
NAME GRANTED(#) IN FISCAL YEAR ($/SH) EXPIRATION DATE
- ---- ----------- --------------- ------------------- ----------------
John McDermott 250,000 33% $0.01 March 31, 2002
Thompson Chu 0 0 0 0
Don Lau 50,000 6.6% $1.00 June 30, 2002
</TABLE>
11
<PAGE>
<TABLE>
AGGREGATED OPTION/SAR EXERCISES IN SIX MONTH
PERIOD ENDED JUNE 30, 1999
AND JUNE 30, 1999 OPTIONS/SAR VALUES
<S> <C> <C> <C> <C>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-
SECURITIES UNDERLYING THE-MONEY OPTION/SARS
SHARES ACQUIRED ON VALUE REALIZED OPTIONS/SARS AT JUNE 30, AT JUNE 30, 1999 ($)
NAME EXERCISE (#) ($) 1999(#) EXERCISABLE/UNEXERCISABLE
EXERCISABLE/UNEXERCISABLE
- ---- ------------------ -------------- ------------------------- -------------------------
John McDermott -0- -0- 0/250,000 205,825
Thompson Chu n/a n/a n/a n/a
Don Lau -0- -0- 0/50,000 -0-
</TABLE>
COMPENSATION OF DIRECTORS
Currently, Directors do not receive any compensation for their
services.
ITEM 7 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On January 11, 1999, the Company's wholly owned subsidiary,
POPstar-BVI, entered into a Licensing Agreement and a Services
Agreement with TGI Technologies Ltd., for the licensing and service
of the Internet Fax Technology, as previously described. Mr.
McDermott and Mr.Chu, officers of the Company are also officers of
TGI. In addition, Mr. McDermott, Mr. Chu and Mr. Tang are directors
of TGI.
On March 30, 1999, the Company's wholly owned subsidiary,
POPstar-BVI, entered into an unsecured promissory note with TGI
whereby POPstar-BVI agreed to lend TGI the sum of $1,000,000. Said
note provided interest terms of eight (8) percent per annum,
compounded annually. The principal and interest are due on either
the earlier of a demand by the Company or on March 30, 2001. Mr.
McDermott and Mr. Chu, officers of the Company are also officers of
TGI. In addition, Mr. McDermott, Mr. Chu and Mr. Tang are directors
of TGI.
As previously discussed, on July 20, 1999, the Company acquired all
of the outstanding common and preferred stock of POPstar-BVI in a
business combination described as a "reverse acquisition." For
accounting purposes, the acquisition has been treated as the
acquisition of POPstar (the Registrant) by 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.
On December 17, 1998, the Company's wholly owned subsidiary,
POPstar-BVI entered into an oral month to month lease for the lease
of approximately 4,800 square feet of administrative space located
at 107 East 3rd Avenue, Vancouver, British Columbia, Canada to serve
as the Company's temporary headquarters at a rate of $4,000 per
month. The leased premises are owned by TGI. As previously
discussed, Mr. McDermott and Mr. Chu, officers of the Company are
also officers of TGI. In addition, Mr. McDermott, Mr. Chu and Mr.
Tang are directors of TGI.
On March 15, 1999, the Company's wholly owned subsidiary,
POPstar-Asia entered into an oral month to month lease for the lease
of approximately 1,000 square feet of executive offices located at
Westlands Centre, Room 908, 20 Westlands Road, Quarry Bay, Hong Kong
to serve as a sales, marketing, and technical support facility for
the Company's Asian operations at a rate of $2,000 per month. The
leased premises are owned by Easewell Management Ltd., a company
beneficially owned by Mr. Chu, a director of the Company.
On January 12, 1999, 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
contracted to sell, and Kemayan E.C. Hybrid Ltd. (a company
beneficially owned by Mr. Yong Kiat Rickie Tang, a director of the
Company) 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.
12
<PAGE>
ITEM 8 - DESCRIPTION OF SECURITIES
COMMON STOCK
The Company's Articles of Incorporation authorize the issuance of
50,000,000 shares of Common Stock, $0.001 par value per share, of
which 16,442,500 were outstanding as of August 31, 1999. Holders of
shares of Common Stock are entitled to one vote for each share on
all matters to be voted on by the stockholders. Holders of Common
Stock have no cumulative voting rights. Holders of shares of Common
Stock are entitled to share ratably in dividends, if any, as may be
declared, from time to time by the Board of Directors in its
discretion, from funds legally available therefor. In the event of
a liquidation, dissolution or winding up of the Company, the holders
of shares of Common Stock are entitled to share pro rata all assets
remaining after payment in full of all liabilities. Holders of
Common Stock have no preemptive rights to purchase the Company's
common stock. There are no conversion rights or redemption or
sinking fund provisions with respect to the common stock. All of
the outstanding shares of Common Stock are fully paid and
non-assessable.
TRANSFER AGENT
The transfer agent for the Common Stock is Alpha Tech Stock
Transfer, 4505 South Wasatch Blvd., Suite 205, Salt Lake City, UT
84124.
13
<PAGE>
PART II
ITEM 1 - MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND OTHER SHAREHOLDER MATTERS
MARKET INFORMATION
The following table sets forth the high and low bid prices for
shares of the Company Common Stock for the periods noted, as
reported by the National Daily Quotation Service and the NASDAQ
Bulletin Board. Quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not represent actual
transactions. The Company's Common Stock was not listed on the
NASDAQ Bulletin Board during 1997. On June 11, 1998, the Company's
Common Stock began listing on the NASDAQ exchange under the trading
symbol CHRK. However, the Company's Common Stock did not begin
trading until July 22, 1999, subsequent to the Company acquisition
of POPstar-BVI on July 20, 1999. In conjunction with the
acquisition, the Company trading symbol was changed to POPS.
BID PRICES
YEAR PERIOD HIGH LOW
1999 Third Quarter (July 22, 1999 to
August 15, 1999). . . . . . . . . . . 4.00 0.25
Pursuant to NASD Eligibility Rule 6530 (the "Rule") issued on
January 4, 1999, issuers who do not make current filings pursuant to
Sections 13 and 15(d) of the Securities Act of 1934 are ineligible
for listing on the NASDAQ Over- the-Counter Bulletin Board.
Pursuant to the Rule, issuers who are not current with such filings
are subject to de-listing pursuant to a phase-in schedule depending
on each issuer's trading symbol as reported on January 4, 1999. As
previously discussed, the Company's trading symbol on January 4,
1999 was CHRK. Therefore, pursuant to the phase-in schedule, the
Company was subject to de-listing on October 8, 1999. One month
prior to an issuer's de-listing date, non complying issuers will
have their trading symbol appended with an "E". Consequently, the
Company's trading symbol was revised on September 13, 1999 to POPSE.
The Company is not currently in compliance with the Rule, and in the
past, has not made filings pursuant to Sections 13 and 15(d) of the
Securities Act of 1934. The Company has filed this Registration
Statement on Form 10-SB in order to become a "reporting" company and
therefore comply with the Rule. Quotation of the Company's
securities was removed from the OTCBB on October 8, 1999, and will
remain removed until such time as the Securities and Exchange
Commission ("SEC") has reviewed the Company's Form 10-SB and has
stated that it has no further comments Once the Company has
complied with the Rule, it will once again become eligible for
listing on the NASDAQ Over-the-Counter Bulletin Board and will seek
to be reinstated on the NASDAQ Over-the-Counter Bulletin Board.
The Securities Enforcement and Penny Stock Reform Act of 1990
requires additional disclosure relating to the market for penny
stocks in connection with trades in any stock defined as a penny
stock. The Commission has adopted regulations that generally define
a penny stock to be any equity security that has a market price of
less than $5.00 per share, subject to certain exceptions. Such
exceptions include any equity security listed on Nasdaq and any
equity security issued by an issuer that has (i) net tangible assets
of at least $2,000,000, if such issuer has been in continuous
operation for three years, (ii) net tangible assets of at least
$5,000,000, if such issuer has been in continuous operation for less
than three years, or (iii) average annual revenue of at least
$6,000,000, if such issuer has been in continuous operation for less
than three years. Unless an exception is available, the regulations
require the delivery, prior to any transaction involving a penny
stock, of a disclosure schedule explaining the penny stock market
and the risks associated therewith.
NUMBER OF SHAREHOLDERS
The number of beneficial holders of record of the Common Stock of
the Company as of the close of business on June 30, 1999 was
approximately 47. Many of the shares of the Company's Common Stock
are held in a "street name" and consequently reflect numerous
additional beneficial owners.
DIVIDEND POLICY
To date, the Company has declared no cash dividends on its Common
Stock, and does not expect to pay cash dividends in the next term.
The Company intends to retain future earnings, if any, to provide
funds for operation of its business.
ITEM 2 - 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.
14
<PAGE>
ITEM 3 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Prior to the acquisition of POPstar-BVI by the Company as previously
described, the Company engaged Barry L. Friedman, P.C., Certified
Public Accountants ("Mr. Friedman"), to audit the Company' s
financial statements for the fiscal years ended December 31, 1998,
and December 31, 1997.
Subsequent to the acquisition of POPstar-BVI by the Company, the
Company's newly appointed Board of Directors elected to retain KPMG
LLP, as their principal accountant to audit the Company's financial
statements effective August 1, 1999. There have been no
disagreements between Barry L. Friedman, KPMG and Management of the
type required to be reported under this Item 3 since the date of
their engagement.
ITEM 4 - RECENT SALES OF UNREGISTERED SECURITIES
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 5 - INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Corporation Laws of the State of Nevada and the Company's Bylaws
provide for indemnification of the Company's Directors for
liabilities and expenses that they may incur in such capacities. In
general, Directors and Officers are indemnified with respect to
actions taken in good faith in a manner reasonably believed to be
in, or not opposed to, the best interests of the Company, and with
respect to any criminal action or proceeding, actions that the
indemnitee had no reasonable cause to believe were unlawful.
Furthermore, the personal liability of the Directors is limited as
provided in the Company's Articles of Incorporation.
15
<PAGE>
PART F/S
INDEX TO FINANCIAL STATEMENTS
The Financial Statements required by this Item are included at the
end of this report beginning on page F-1 as follows:
POPstar Communications, Inc., formerly known as Cherokee
Leather, Inc. Audited Financial Statements for the
Years ended December 31, 1997 and 1998 . . . . . . . . . . . F-1
Financial Statements of POPstar Communications,
Inc., formerly known as Cherokee Leather, Inc.,
for the six months ended June 30, 1999 (Unaudited) . . . . F-15
POPstar Global Communications Inc. Audited Financial
Statements for the period from incorporation on
December 17, 1998 to December 31, 1998
and for the six months ended June 30, 1999 (Unaudited) . . . F-23
16
<PAGE>
PART III
ITEM 1 - INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
2.1* Acquisition Agreement between
POPstar Communications, Inc. and
POPstar Global Communications Inc.,
dated July 13, 1999
3.1* Articles of Incorporation
3.2* Amended Articles of Incorporation,
filed with the Nevada Secretary of
State on May 19, 1999
3.3* Bylaws of the Company
10.1* Telecommunications Services Agreement by and
between INNOSYS COMMUNICATIONS, INC. and
POPstar Global Communications, Inc., dated
December 18, 1998
10.2* Licensing Agreement between TGI Technologies
Ltd. and POPstar Global Communications,
Inc., dated January 11, 1999
10.3* Services Agreement by and between TGI
Technologies Ltd. and POPstar Global
Communications, Inc., dated January 11, 1999
10.4* Promissory Note in the amount of U.S.
$1,000,000 between TGI Technologies Ltd. and
POPstar Global Communications, Inc., dated
March 30, 1999
10.5* Employment agreement by and between POPstar
Global Communications, Inc. and Don Lau,
dated July 20, 1999
10.6* Employment agreement by and between POPstar
Global Communications, Inc. and John
McDermott, dated July 20, 1999
10.7* Employment agreement by and between POPstar
Global Communications, Inc. and Thompson
Chu, dated July 20, 1999
10.8* Services Agreement by and between
TransNexus, LLC and POPstar Global
Communications, Inc., dated August 10, 1999
16* Letter by former auditor Barry L. Friedman
dated November 1, 1999.
27* Financial Data Schedule
____________________
* Previously filed
ITEM 2 - DESCRIPTION OF EXHIBITS
Not applicable
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of
1934, the registrant caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
POPSTAR COMMUNICATIONS, INC.
Date: January 7, 2000 By: /s/ John McDermott
John McDermott
President & Chief
Executive Officer
17
<PAGE>
BARRY L. FRIEDMAN, P.C.
Codified Public Accountant
1582 TULITA DRIVE OFFICE (702) 361-8414
LAS VEGAS, NEVADA 89123 FAX NO. (702) 896-0278
To Whom It May Concern: March 10, 1999
The firm of Barry L. Friedman, P.C., Certified Public Accountant consents to
the inclusion of their report of March 10, 1999, on the Financial Statements
of Cherokee Leather, Inc., as of December 31, 1998, in any filings that are
necessary now or in the near future with the U.S. Securities and Exchange
Commission.
Very truly yours,
/s/Barry L. Friedman
Certified Public Accountant
F-1
<PAGE>
Cherokee Leather, Inc.
(A Development Stage Company)
FINANCIAL STATEMENTS
December 31, 1998
December 31, 1997
December 31, 1996
F-2
<PAGE>
TABLE OF CONTENTS
PAGE #
INDEPENDENT AUDITORS REPORT 1
ASSETS 2
LIABILITIES AND STOCKHOLDERS' EQUITY 3
STATEMENT OF OPERATIONS 4
STATEMENT OF STOCKHOLDERS' EQUITY 5
STATEMENT OF CASH FLOWS 6
NOTES TO FINANCIAL STATEMENTS 7-11
F-3
<PAGE>
BARRY L. FRIEDMAN, P.C.
Certified Public Accountant
1582 TULITA DRIVE OFFICE (702) 361-8414
LAS VEGAS, NEVADA 89123 FAX NO. (702) 896-0278
INDEPENDENT AUDITORS' REPORT
Board of Directors March 10, 1999
Cherokee Leather, Inc.
Las Vegas, Nevada
I have audited the accompanying Balance Sheets of Cherokee Leather, Inc. (A
Development Stage Company), as of December 31, 1998, December 31, 1997, and
December 31, 1996, and the related statements of operations, stockholders,
equity and cash flows for the three years ended December 31, 1998, December
31, 1997, and December 31, 19.96. These financial statements are the
responsibility of the Company's management. My responsibility is to express
an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. I believe that my audit provides a
reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cherokee Leather, Inc. (A
Development stage Company), as of December 31, 1998, December 31, 1997, and
December 31, 1996, and the results of its operations and cash flows for the
three years ended December 311 1998, December 31, 1997, and December 31,
1996, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared. assuming the
Company will continue as a going concern. As discussed in Note #5 to the
financial statements, the Company has suffered recurring losses from
operations and has no established source of revenue. This raises
substantial doubt about its ability to continue as a going concern.
Management's plan in regard to these matters is described in Note #5. These
financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
/s/Barry L. Friedman
Certified Public Accountant
F-4
<PAGE>
Cherokee Leather,, Inc.
(A Development Stage Company)
BALANCE SHEET
ASSETS
<TABLE>
<S> <C> <C> <C>
December December December
31, 1998 31, 1997 31, 1996
CURRENT ASSETS: $ 0 $ 0 $ 0
_________ ________ _______
TOTAL CURRENT ASSETS: $ 0 $ 0 $ 0
_________ ________ _______
OTHER ASSETS:
Organization Costs (Net) $ 108 $ 180 $ 252
_________ ________ _______
TOTAL OTHER ASSETS: 108 $ 180 $ 252
_________ ________ _______
TOTAL ASSETS $ 180 $ 180 $ 252
_________ ________ _______
</TABLE>
See accompanying notes to financial statements & audit report
F-5
<PAGE>
Cherokee Leather, Inc.
(A Development Stage Company)
BALANCE SHEET
LIABILITIES AND STOCKOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C>
December December December
31, 1998 31, 1997 31, 1996
________ ________ ________
CURRENT LIABILITIES:
Officers' Advances (Note #5) $ 2,392 $ 320 $ 235
_______ _______ _______
TOTAL CURRENT LIABILITIES: $ 2,392 $ 320 $ 235
_______ _______ _______
STOCKHOLDERS' EQUITY: (Note #4)
Common stock
Par value $0.001
Authorized 50,000,000 shares
Issued and outstanding at
December 31, 1996
5,800,000 shares: $ 5,800
December 31, 1997
5,800,000 shares: $ 5,800
December 31, 1998
5,800,000 shares: $ 5,800
Additional Paid-In Capital 0 0 0
ACCUMULATED LOSS: -8,084 -5,940 -5,783
_______ _______ _______
TOTAL STOCKHOLDERS' EQUITY: $-2,284 $ -140 $ +17
_______ _______ _______
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY: $ 108 $ 180 $ 252
_______ _______ _______
See accompanying notes to financial statements & audit report
F-6
<PAGE>
Cherokee Leather, Inc.
(A Development Stage Company)
STATEMENT OF OPERATIONS
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Year Year Year Jun.19,1995
Ended Ended Ended (Inception)
Dec. 31, Dec. 31, Dec. 31, to Dec. 31,
1998 1997 1996 1998
INCOME:
Revenue $ 0 $ 0 $ 0 $ 0
_______ _______ _______ _______
EXPENSES:
General, Selling and
Administrative: $ 2,072 $ 85 $ 235 $ 7,832
Amortization: 72 72 72 252
_______ _______ _______ _______
TOTAL EXPENSES: $ 2,144 $ 157 $ 307 $ 8,084
_______ _______ _______ _______
NET PROFIT/LOSS (-): $-2,144 $ -157 $ -307 $-8,084
_______ _______ _______ _______
Net Profit/Loss(-)
per weighted share
(Note 1): $-.0004 $ NIL $ NIL $-.0014
_______ _______ _______ _______
Weighted average
Number of common
shares outstanding: 5,800,000 5,800,000 5,800,000 5,800,000
_________ _________ _________ _________
</TABLE>
See accompanying notes to financial statements & audit report
F-7
<PAGE>
Cherokee Leather, Inc.
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C> <C>
Additional Accumu-
Common Stock paid-in lated
Shares Amount Capital Deficit
Balance,
December 31, 1995 $5,800,000 $ 5,800 $ 0 $-5,476
Net loss year ended
December 31, 1996 -307
__________ _______ _______ _______
Balance,
December 31, 1996 $5,800,000 $ 5,800 $ 0 $-5,783
Net loss year ended
December 31, 1997 -157
__________ _______ _______ _______
Balance,
December 31, 1997 $5,800,000 $ 5,800 $ 0 $-5,940
Net loss year ended
December 31, 1998 -2,144
__________ _______ _______ _______
Balance,
December 31, 1998 5,800,000 $ 5,800 $ 0 $-8,084
__________ _______ _______ _______
See accompanying notes to financial statements & audit report
F-8
<PAGE>
CHEROKEE Leather, Inc.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Year Year Year Jun.19,1995
Ended Ended Ended (Inception)
Dec. 31, Dec. 31, Dec. 31, to Dec. 31,
1998 1997 1996 1998
Cash Flows from
Operating Activities
Net Loss $-2,144 $ -157 $ -307 $-8,084
Adjustment to
Reconcile net loss
To net cash provided
by operating
Activities:
Amortization: +72 +72 +72 +252
Changes in assets and
Liabilities:
Organization Costs: 0 0 0 -360
Increase in current
Liabilities:
Officers' Advances: +2,072 +85 +235 +2,392
________ _______ _______ _______
Net cash used in
Operating activities: $ 0 $ 0 $ 0 $-5,800
Cash Flows from
Investing Activities: 0 0 0 0
Cash Flows from
Financing Activities:
Issuance of Common
Stock for Cash 0 0 0 +5,800
________ _______ ________ _______
Net Increase (decrease) $ 0 $ 0 $ 0 $ 0
Cash,
Beginning of period: 0 0 0 0
________ _______ ________ _______
Cash, End of Period: $ 0 $ 0 $ 0 $ 0
________ _______ ________ _______
See accompanying notes to financial statements & audit report
F-9
<PAGE>
Cherokee Leather, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998, December 31, 1997, and December 31, 1996
NOTE 1 - HISTORY AND ORGANIZATION OF THE COMPANY
The Company was organized June 19, 1995, under the laws of the State of
Nevada as Cherokee Leather, Inc. The Company currently has no operations and
in accordance with SFAS #7, is considered a development company.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Method
The Company records income and expenses on the accrual method.
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 contingent assets and liabilities at the date of the financial
statements and the reported .amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and equivalents
The company maintains a cash balance in a non-interest-bearing bank that
currently does not exceed federally insured limits. For the purpose of the
statements of cash flows, all highly liquid investments with the maturity
of three months or less are considered to be cash equivalents. There are
no cash equivalents as of December 31, 1998.
F-10
<PAGE>
Cherokee Leather, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998, December 31, 1997, and December 31, 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
Income taxes are provided for using the liability method of accounting in
accordance with Statement of Financial Accounting Standards No. 109 WAS
4109) "Accounting for Income Taxes". A deferred tax asset or liability is
recorded for all temporary difference between financial and tax reporting.
Deferred tax expense (benefit) results from the net change during the year
of deferred tax assets and liabilities.
Organization Costs
Costs incurred to organize. the Company are, being amortized on a
straight-line basis over a sixty-month period.
Loss Per Share
Net loss per share is provided in accordance with Statement of Financial
Accounting Standards No. 128 (SFAS #128) "Earnings Per Share". Basic loss
per share is computed by dividing losses available to common stockholders by
the weighted average number of common shares outstanding during the period.
Diluted lose per share reflects per share amounts that would have resulted
if dilative common stock equivalents had been converted to common stock. As
of December 31, 1998, the company had no dilative common stock equivalents
such as stock options.
Year End
The Company has selected December 31st as its year-end.
F-11
<PAGE>
Cherokee Leather, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS CONTINUED
December 31, 1998, December 31, 1997, and December 31, 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Year 2000 Disclosure
The year 2000 issue is the result of computer programs .being written using
two digits rather than four to define the applicable year. Computer programs
that have time sensitive software may recognize a date using 11001, as the
year 1900 rather than the year 2000. This, could result in a system failure
or miscalculations causing disruption of normal business activities. Since
the Company currently has no operating business and does not use any
computers, and since it has no customers, suppliers or other constituents,
there are no material Year 2000 concerns.
NOTE 3 - INCOME TAXES
There is no provision for income taxes for the period ended December 31,
1998, due to the net lose and no state income tax in Nevada, the state of
the Company's domicile and operations. The Company's total deferred tax
asset as of December 31, 1998 is as follows:
Net operation loss carry forward $ 8,084
valuation allowance $ 8,084
Net deferred tax asset $ 0
The federal net operation loss carry forward will expire in various amounts
from 2015 to 2018.
This carry forward may be limited upon the consummation of a business
combination under IRC Section 381.
F-12
<PAGE>
Cherokee Leather, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
December 31, 1998, December 31, 1997, and December 31, 1996
NOTE 4 - STOCKHOLDERS' EQUITY
Common Stock
The authorized common stock of the corporation consists of 50,000,000 shares
with a par value of $0.001 per share.
Preferred Stock
The corporation has no preferred stock.
On June 19, 1995, the Company issued 5,800,000 shares of its $0,001 par
value common stock in consideration of $5,800 in cash.
NOTE 5 - 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 significant cash or other
material assets, nor does it have an established source of revenues
sufficient to cover its operating costs and to allow it to continue as a
going concern. It is the intent of the Company to seek a merger with an
existing, operating company. Until that time, the stockholders/officers and
or directors have committed to advancing the operating costs of the Company
interest free.
F-13
<PAGE>
CHEROKEE LEATHER, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1998, December 31, 1997; and December 31, 1996
NOTE 6 - RELATED PARTY TRANSACTIONS
The Company neither owns nor leases any real or personal property. An
officer of the corporation provides office services without charge. Such
costs are immaterial to the financial statements and accordingly, have not
been reflected therein. The officers and directors of the Company are
involved in other business activities and may, in the f future, become
involved in other business opportunities. If a specific business opportunity
becomes available,, such persons may face a conflict in selecting between
the Company and their other business interests. The Company has not
formulated a policy for the resolution of such conflicts.
NOTE 7 - WARRANTS AND OPTIONS
There are no warrants or options outstanding to acquire any additional,
shares of common stock.
F-14
<PAGE>
Financial Statements
POPSTAR COMMUNICATIONS, INC.
(Formerly Cherokee Leather, Inc.)
(A Development Stage Company)
(Expressed in U.S. Dollars)
Six months ended June 30, 1999
(Unaudited)
F-15
<PAGE>
POPSTAR COMMUNICATIONS, INC.
(Formerly Cherokee Leather, Inc.)
(A Development Stage Company)
</TABLE>
<TABLE>
<S> <C> <C>
Balance Sheet
(Expressed in U.S. Dollars)
(Unaudited)
June 30, 1999, with comparative figures for 1998
1999 1998
______ ______
Assets
Other assets $ 72 $ 144
______ ______
Liabilities and Shareholders' Deficiency
Officers' advances $2,517 $ 320
Shareholders' deficiency:
Capital stock (note 3) 5,800 5,800
Deficit (8,245) (5,976)
_______ _______
Total shareholder's deficiency (2,445) (176)
Going concern (note 1)
Contingency (note 5)
Subsequent event (note 6)
Total liabilities and shareholder's
deficiency $ 72 $ 144
======= =======
</TABLE>
See accompanying notes to financial statements.
F-16
<PAGE>
POPSTAR COMMUNICATIONS, INC.
(Formerly Cherokee Leather, Inc.)
(A Development Stage Company)
Statement of Operations and Deficit
(Expressed in U.S. Dollars)
(Unaudited)
<TABLE>
Six months ended June 30, 1999, with comparative figures for 1998
<S> <C> <C>
1999 1998
_____ _____
Revenues $ - $ -
Expenses:
Amortization 36 36
Office 125 -
_____ _____
Total expenses 161 36
_____ _____
Net loss 161 36
Deficit, beginning of period 8,084 5,940
_____ _____
Deficit, end of period $8,245 $5,976
===== =====
Basic loss per weighted share (note 2(c)) $ - $ -
===== =====
Weighted average number of common shares
outstanding 5,800,000 5,800,000
========= =========
</TABLE>
See accompanying notes to financial statements.
F-17
<PAGE>
POPSTAR COMMUNICATIONS, INC.
(Formerly Cherokee Leather, Inc.)
(A Development Stage Company)
Statement of Cash Flows
(Expressed in U.S. Dollars)
(Unaudited)
<TABLE>
Six months ended June 30, 1999, with comparative figures for 1998
<S> <C> <C>
1999 1998
_____ _____
Cash flows from operating activities:
Net loss $(161) $(36)
Amortization, an item not involving cash 36 36
Changes in non-cash operating working capital 125 -
_____ _____
Cash, beginning and end of period $ - $ -
</TABLE>
See accompanying notes to financial statements.
F-18
<PAGE>
POPSTAR COMMUNICATIONS, INC.
(Formerly Cherokee Leather, Inc.)
(A Development Stage Company)
Notes to Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
Six months ended June 30, 1999
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 June 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 has no cash or other material
assets, nor does it have an established source of revenue sufficient to
cover its operating costs and to allow it to continue as a going
concern. Subsequent to period end, the Company acquired all the issued
and outstanding common and preferred shares of POPstar Global
Communications Inc. ("POPstar") (note 6), however, there is no guarantee
that the acquisition of POPstar will result in revenues or funds loaned
to the Company sufficient to cover its operating costs.
2. Significant accounting policies:
(a) 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.
(b) Use of estimates:
The preparation of the 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.
F-19
<PAGE>
POPSTAR COMMUNICATIONS, INC.
(Formerly Cherokee Leather, Inc.)
(A Development Stage Company)
Notes to Financial Statements, page 2
(Expressed in U.S. Dollars)
(Unaudited)
Six months ended June 30, 1999
2. Significant accounting policies (continued):
(c) 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 stockholders by the
weighted average number of common shares outstanding during the period.
Diluted loss per share reflects per share amounts that would have
resulted if dilative common stock equivalents had been converted to
common stock. As of June 30, 1999, the Company had no dilative common
stock equivalents such as stock options.
3. Capital stock:
Authorized:
50,000,000 common voting shares with par value of $0.001 per share
1999 1998
____ ____
Issued and outstanding:
5,800,000 common shares $ 5,800 $ 5,800
===== =====
Subsequent to period end:
(a) The Company canceled 2,400,000 common shares held by its affiliates;
(b) The Company issued 22,500 common shares to the Company's securities
counsel in consideration for legal services rendered;
(c) The Company issued 12,875,000 common shares to the shareholders of
POPstar to acquired all POPstar's issued and outstanding shares
(note 6); and
(d) The Company issued 125,000 common shares for total proceeds of
$125,000.
F-20
<PAGE>
POPSTAR COMMUNICATIONS, INC.
(Formerly Cherokee Leather, Inc.)
(A Development Stage Company)
Notes to Financial Statements, page 3
(Expressed in U.S. Dollars)
(Unaudited)
Six months ended June 30, 1999
4. Income taxes:
There is no provision for income taxes for the period ended June 30,
1999, due to the loss and no state income tax in Nevada, the state of
the Company's domicile and operations. The Company's total deferred tax
asset as of June 30, 1999 is as follows:
1999 1998
______ ______
Deferred tax asset $ 2,886 $ 2,092
Valuation allowance (2,886) (2,092)
______ ______
Net deferred tax asset $ - $ -
====== ======
The federal net operating loss carry forward will expire in various
amounts from 2010 to 2019 but may be limited under IRC Section 381 upon
the consummation of a business combination.
5. 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.
6. Subsequent event:
On July 20, 1999, the Company acquired all the issued and outstanding
common and preferred shares of POPstar in exchange for 12,875,000 common
shares of the Company with the management of POPstar continuing to manage
the operations of the combined entity. The common shares of the
Company cannot be sold until July 20, 2000 except pursuant to an effective
registration statement under the United States Securities Act of 1933 and
any applicable State laws or upon the express written agreement of the
Company. As the Company had no significant operations to the date of the
acquisition, the transaction will be accounted for as a reverse
acquisition, whereby POPstar acquired the Company at the net book value
of the Company's net identifiable assets. The financial statements of
POPstar will be the consolidated entity's historical financial statements.
F-21
<PAGE>
Consolidated Financial Statements of
POPSTAR GLOBAL COMMUNICATIONS INC.
(A Development Stage Company)
(Expressed in U.S. Dollars)
Six months ended June 30, 1999 (unaudited)
Period from incorporation on December 17, 1998 to December 31, 1998
F-22
<PAGE>
KPMG LLP
Chartered Accountants Telephone (604) 691-3000
Box 10426 777 Dunsmuir Street Telefax (604) 691-3031
Vancouver BC V7Y 1K3 www.kpmg.ca
Canada
Auditors' Report
To the Board of Directors
POPstar Global Communications Inc.
We have audited the balance sheet of POPstar Global Communications Inc. (A
Development Stage Company) as at December 31, 1998 and the statements of
operations and deficit and cash flows for the period from incorporation on
December 17, 1998 to December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and
perform an audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 1998 and
the results of its operations and its cash flows for the period then ended
in accordance with generally accepted accounting principles in the United
States.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in note 1 to the
financial statements, the Company has suffered losses from operations and
has no established source of revenue. This raises substantial doubt about
its ability to continue as a going concern. Management's plan in regard to
these matters is described in note 1. These financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/KPMG LLP
Chartered Accountants
Vancouver, Canada
July 28, 1999
F-23
<PAGE>
POPSTAR GLOBAL COMMUNICATIONS INC.
(A Development Stage Company)
Consolidated Balance Sheet
(Expressed in U.S. Dollars)
<TABLE>
<S> <C> <C>
June 30, December 31,
1999 1998
__________ ________
(unaudited)
Assets
Current assets:
Cash $ 647,985 $ -
Note receivable from a common controlled company (note 3) 1,000,000 -
Prepaid expenses 393 -
___________ _____
Total assets: $1,648,378 $ -
=========== =====
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 214,210 $ -
Payable to common controlled companies (note 4) 493,647 -
Total current liabilities __________ _____
707,857 -
Shareholders' equity:
Capital stock (note 5) 1,988,732 -
Deficit (1,048,211) -
Total shareholder's equity ___________ _____
940,521 -
Going concern (note 1)
Commitment (note 8)
Contingency (note 9)
Subsequent event (note 10)
Total liabilities and shareholder's equity $1,648,378 $ -
========== =====
</TABLE>
See accompanying notes to consolidated financial statements.
F-24
<PAGE>
POPSTAR GLOBAL COMMUNICATIONS INC.
(A Development Stage Company)
Consolidated Statement of Operations and Deficit
(Expressed in U.S. Dollars)
<TABLE>
<S> <C> <C>
Period from
incorporation
on
Six months December 17,
ended 1998 to
June 30, December 31,
1999 1998
___________ ___________
(unaudited)
Revenues:
Interest income (note 3) $ 19,926 $ -
Expenses:
Accounting fees 9,000 -
Bank interest and charges 1,298 -
Commission 72,917 -
Foreign exchange loss 588 -
Legal and professional fees 227,064 -
License fee (note 6(a)) 189,247 -
Management fee 1,950 -
Office (note 6(b)) 147,956 -
Rent 10,781 -
Salaries and wages 29,254 -
Sales and marketing fees (note 6(b)) 24,379 -
Software development (note 6(b)) 254,878 -
Travel and entertainment (note 6(b)) 98,825 -
____________ ______
Total expenses 1,068,137 -
____________ ______
Net loss 1,048,211 -
Deficit, beginning of period - -
Deficit, end of period $1,048,211 $ -
=========== ======
Basic and diluted loss per weighted share (note 2(e)) $ 0.11 $ -
=========== ======
Weighted average number of common shares outstanding 9,688,767 -
=========== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-25
<PAGE>
POPSTAR GLOBAL COMMUNICATIONS INC.
(A Development Stage Company)
Consolidated Statement of Cash Flows
(Expressed in U.S. Dollars)
<TABLE>
<S> <C> <C>
Period from
incorporation
Six months on December 17,
ended 1998 to
June 30, December 31,
1999 1998
____________ ______
(unaudited)
Cash flows from operating activities:
Net loss (1,048,211) $ -
Changes in non-cash operating working capital 213,817 -
____________ ______
Total cash flows from operating activities (834,394)
Cash flows from financing activities:
Note receivable from a common controlled company (1,000,000) -
Payable to common controlled companies 493,647 -
Issuance of capital stock 1,988,732 -
_____________ ______
Total cash flows from financing activities 1,482,379 -
Increase in cash 647,985 -
Cash, beginning of period - -
Cash, end of period 647,985 $ -
============= ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-26
<PAGE>
POPSTAR GLOBAL COMMUNICATIONS INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
Six months ended June 30, 1999 (unaudited) and
Period from incorporation on December 17, 1998 to
December 31, 1998
The Company was incorporated in the British Virgin
Islands as an International Business Company on December
17, 1998. The Company is a provider of Internet based
facsimile transmission technology and is currently in the
process of field testing its services, as such, it 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
June 30, 1999, and the results of operations and cash
flows for the period 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.
F-27
<PAGE>
POPSTAR GLOBAL COMMUNICATIONS INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements, page 2
(Expressed in U.S. Dollars)
Six months ended June 30, 1999 (unaudited) and
Period from incorporation on December 17, 1998 to
December 31, 1998
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. Diluted loss per share reflects per
share amount that would have resulted if the preferred
shares had been converted to common stock.
As at June 30, 1999, the 2,375,000 issued and
outstanding preferred shares are not included in the
computation of diluted loss per share because to do so
would have been anti-dilutive for the period presented.
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. During the period, the Company received interest
income of $19,726 from TGI. Subsequent to year end, 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.
F-28
<PAGE>
POPSTAR GLOBAL COMMUNICATIONS INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements, page 3
(Expressed in U.S. Dollars)
Six months ended June 30, 1999 (unaudited) and
Period from incorporation on December 17, 1998 to
December 31, 1998
5. Capital stock:
Authorized:
100,000,000 common voting shares with no par value
10,000,000 preferred voting shares with no par value
<TABLE>
<S> <C> <C>
Shares Amount
___________ __________
Issued and outstanding:
Common share issued for cash - $ -
___________ __________
Balance, December 31, 1998 - -
Common shares issued for cash at $0.000911 per share 10,500,000 9,565
Preferred shares issued for cash at $0.833333 per share 2,375,000 1,979,167
___________ __________
Balance, June 30, 1999 $1,988,732
=========== ==========
(a) The Company was incorporated in December 1998
with an authorized share capital of 5,000,000 common
voting shares with no par value. No shares were issued
prior to December 31, 1998.
(b) On January 21, 1999, the Company increased its
authorized share capital to 100,000,000 common voting
shares without par value and 10,000,000 preferred voting
shares without par value. At the option of the
shareholder, each preferred share may be converted into
one common share.
(c) On January 1, 1999 and February 17, 1999, the
Company issued a total of 10,500,000 common shares for
total proceeds of $9,565.
(d) On March 29, 1999 and June 30, 1999, the Company
issued a total of 2,375,000 preferred shares for total
proceeds of $1,979,167.
(e) On January 12, 1999, the Company committed an
additional 625,000 and 3,000,000 preferred shares to be
issued not later than October 31, 1999 and March 31,
2000, respectively, for total cash proceeds of $3,020,833.
(f) On January 12, 1999, the Company granted an option to a
shareholder to acquire up to 1,000,000 preferred shares
at an amount equal to $0.833333 per preferred share. The
payment for the acquisition would be an exchange of the
preferred shares for an assignment of debt due to the
shareholder from a company under common control.
F-29
<PAGE>
POPSTAR GLOBAL COMMUNICATIONS INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements, page 4
(Expressed in U.S. Dollars)
Six months ended June 30, 1999 (unaudited) and
Period from incorporation on December 17, 1998 to
December 31, 1998
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:
</TABLE>
<TABLE>
<S> <C> <C>
Calendar Percentage Annual
year of net sales minimum
____ ____________ ________
1999 8% $ 400,000
2000 6% 600,000
2001 4% 500,000
2002 2% 500,000
</TABLE>
During the period, the Company paid a total of $189,247
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 period, the Company incurred service fees
under this agreement totalling $501,068.
7. Income taxes:
There is no provision for income taxes for the period
ended June 30, 1999, due to the loss and no state income
tax in Nevada. The Company's total deferred tax asset as
of June 30, 1999 is as follows:
Deferred tax asset $366,874
Valuation allowance (366,874)
__________
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.
F-30
<PAGE>
POPSTAR GLOBAL COMMUNICATIONS INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements, page 5
(Expressed in U.S. Dollars)
Six months ended June 30, 1999 (unaudited) and
Period from incorporation on December 17, 1998 to
December 31, 1998
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 July 20, 1999, POPstar Communications, Inc. ("POPS")
(formerly named Cherokee Leather, Inc.) acquired all the
issued and outstanding common and preferred shares of the
Company in exchange for 12,875,000 common shares of POPS
with the management of the Company continuing to manage
operations for the combined entity. The common shares
of POPS cannot be sold until July 20, 2000 except pursuant
to an effective registration statement under the United
States Securities Act of 1933 and any applicable State
laws or upon the express written agreement of the Company.
As POPS has no significant operations to the date of the
acquisition, the transaction will be accounted for as a reverse
acquisition, whereby the Company acquired POPS at the net book
value of POPS' net identifiable assets. The financial statements
of the Company will be the consolidated entity's historical
financial statements.
F-32
<PAGE>
POPSTAR GLOBAL COMMUNICATIONS INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements, page 6
(Expressed in U.S. Dollars)
Six months ended June 30, 1999 (unaudited) and
Period from incorporation on December 17, 1998 to
December 31, 1998
10. Subsequent event (continued):
A condensed unaudited balance sheet of POPS as at July
20, 1999 is as follows:
<TABLE>
<S> <C>
Assets $ 72
_________
Current liabilities 2,517
Shareholders' equity:
Share capital 5,800
Deficit (8,245)
_________
(2,445)
_________
$ 72
=========
F-32
</TABLE>
