Alan
R. Lun,
|
||
President
|
Title of Class
|
Name and Address of
Beneficial Owner*
|
Amount and
Nature of
Beneficial
Ownership
|
Percent of Class
|
|||||||
Common
Stock
|
Wukuang
IE Limited
|
50,000,000 | 20.1 | % | ||||||
Common
Stock
|
Taikang
Capital Managements Corporation, 906, 9TH/F, YUXING BUILDING, XIHUAN RD
PANYU, GUANGZHOU F4 GD511490
|
20,000,000 | 8.0 | % |
Title of Class
|
Name of Beneficial
Owner*
|
Amount and Nature
of Beneficial
Ownership
|
Percent of Class
|
|||||||
Common
Stock
|
Alan
R. Lun
|
1,000,000 | 0.40 | % | ||||||
Common
Stock
|
James
T. Crane
|
735,000 | 0.20 | % | ||||||
Common
Stock
|
Yaofu
Su
|
600,000 | 0.20 | % | ||||||
Common
Stock
|
He
Yao
|
0 | 0 | % | ||||||
Common
Stock
|
Zhiguang
Cai
|
0 | 0 | % | ||||||
(Directors
and Officers as a group, 5 Persons)
|
2,335,000 | 0.80 | % |
Subsidiaries
|
Countries Registered In
|
Percentage of
Ownership
|
||||
MyStarU
Ltd.
|
Hong
Kong, The People’s Republic of China
|
100.00
|
%
|
|||
3G
Dynasty Inc.
|
British
Virgin Islands
|
100.00
|
%
|
|||
Subaye.com,
Inc.
|
United
States of America, Delaware
|
69.03
|
%
|
|||
Subaye
IIP Limited
|
British
Virgin Islands
|
69.03
|
%
|
|||
Guangzhou
Panyu Metals & Materials Limited
|
The
People’s Republic of China
|
100.00
|
%
|
|||
Guangzhou
Subaye Computer Tech Limited
|
The
People’s Republic of China
|
69.03
|
%
|
|||
Media
Group International Limited
|
Hong
Kong, The People’s Republic of China
|
69.03
|
%
|
1.
|
Entertainment
Arts Licensing and Investments - The Company purchases and licenses or
resells copyrights of entertainment-related assets.
|
|
2.
|
Online
Membership Services - The Company provides online content and member
services for commercial use.
|
|
3.
|
Application
Services – The Company provides “software as a service” business
solutions, including data storage, access and specific software on servers
which are available through remote access by users on a 24 hour
basis.
|
|
4.
|
Online
Marketplace - The Company is in the process of developing an online
shopping mall using 3D imaging and
animation.
|
5.
|
Software
Sales - The Company provides web-based and mobile software
platforms.
|
|
6.
|
Importing
and Exporting of Goods - The Company conducts international trade using
the PRC as its base of operations.
|
|
7.
|
Media
and Marketing - The Company coordinates and produces marketing and
advertising solutions for filmmakers and advertisers within the
entertainment arts industry of the
PRC.
|
Projected
Release Date
|
|
DaYouCun
|
October,
2009
|
True?
|
April,
2010
|
Qianfu
|
July,
2010
|
Paobu
|
October,
2010
|
Nine Months
Ended
June 30, 2009
|
||||
Big
Movie: Subaye
|
$
|
461,010
|
||
Big
Movie 2
|
374,889
|
|||
The
11 Movies
|
460,850
|
|||
The
113 Movies
|
1,346,249
|
|||
Total
|
$
|
2,642,998
|
Subaye.com Members
|
Subaye.com Company Profiles
|
|||||||||||||||
As of the
End of
Month
|
Month Over
Month
Growth
|
As of the
End of
Month
|
Month Over
Month
Growth
|
|||||||||||||
January 31, 2007
|
6,562
|
9,807
|
||||||||||||||
February 28, 2007
|
9,230
|
41
|
%
|
12,101
|
23
|
%
|
||||||||||
June
30,2007
|
10,625
|
15
|
%
|
21,204
|
75
|
%
|
||||||||||
April
30, 2007
|
11,447
|
8
|
%
|
26,323
|
24
|
%
|
||||||||||
May
31, 2007
|
11,699
|
2
|
%
|
27,989
|
6
|
%
|
||||||||||
June
30, 2007
|
11,968
|
2
|
%
|
29,821
|
7
|
%
|
||||||||||
July
31, 2007
|
12,500
|
4
|
%
|
32,560
|
9
|
%
|
||||||||||
August
31, 2007
|
12,876
|
3
|
%
|
36,999
|
14
|
%
|
||||||||||
September
30, 2007
|
15,121
|
17
|
%
|
38,123
|
3
|
%
|
||||||||||
October
31, 2007
|
15,903
|
5
|
%
|
39,400
|
3
|
%
|
||||||||||
November
30, 2007
|
16,023
|
1
|
%
|
40,995
|
4
|
%
|
||||||||||
December
31, 2007
|
16,348
|
2
|
%
|
45,243
|
10
|
%
|
||||||||||
January
31, 2008
|
18,859
|
15
|
%
|
53,343
|
18
|
%
|
||||||||||
February
29, 2008 *
|
19,015
|
1
|
%
|
40,301
|
(24
|
)%
|
||||||||||
June
30,2008
|
19,659
|
3
|
%
|
46,233
|
15
|
%
|
||||||||||
April
30, 2008
|
23,788
|
21
|
%
|
49,112
|
6
|
%
|
||||||||||
May
31, 2008
|
26,442
|
11
|
%
|
64,410
|
31
|
%
|
||||||||||
June
30, 2008
|
29,323
|
11
|
%
|
68,894
|
7
|
%
|
||||||||||
July
31, 2008
|
29,743
|
1
|
%
|
69,996
|
2
|
%
|
||||||||||
August
31, 2008
|
30,127
|
1
|
%
|
70,889
|
1
|
%
|
||||||||||
September
30, 2008
|
32,366
|
7
|
%
|
71,884
|
1
|
%
|
||||||||||
October
31, 2008
|
34,121
|
5
|
%
|
73,298
|
2
|
%
|
||||||||||
November
30, 2008
|
34,545
|
1
|
%
|
73,999
|
1
|
%
|
||||||||||
December
31, 2008
|
35,989
|
4
|
%
|
75,435
|
2
|
%
|
||||||||||
January
31, 2009
|
36,169
|
1
|
%
|
75,685
|
0
|
%
|
||||||||||
February
28, 2009
|
36,199
|
0
|
%
|
75,985
|
0
|
%
|
||||||||||
March
31, 2009
|
36,991
|
2
|
%
|
76,685
|
1
|
%
|
||||||||||
April
30, 2009
|
39,822
|
8
|
%
|
80,025
|
4
|
%
|
|
¨
|
largest
user base of users seeking videos produced by
SMEs;
|
|
¨
|
first
video uploading service provider in the PRC with an extensive customer
base across industries;
|
|
¨
|
local
market experience and expertise in introducing and expanding our services
across the PRC and operating in the PRC’s rapidly evolving internet
industry;
|
|
¨
|
leading
technology with a proven platform, providing users with relevant video
showcase and customers with a cost-effective way to reach potential
consumers; and
|
|
¨
|
extensive
and effective nationwide network of over 100 regional distributors,
providing high-quality and consistent customer
services.
|
|
¨
|
growing
our online video marketing business by attracting potential customers and
increasing per-customer spending on our services, enhancing user
experience;
|
|
¨
|
increasing
traffic through the development and introduction of new video-related
features and functions;
|
|
¨
|
expanding
Subaye Alliance by leveraging our brand and offering competitive economic
arrangements to Subaye Alliance members;
and
|
|
¨
|
pursuing
selective strategic acquisitions and alliances that will allow us to
increase user traffic, enlarge our customer base, expand our product
offerings and reduce customer acquisition
costs.
|
|
¨
|
offer
new and innovative products and services to attract and retain a larger
user base;
|
|
¨
|
attract
additional customers and increase per-customer
spending;
|
|
¨
|
increase
awareness of our brand and continue to develop user and customer
loyalty;
|
|
¨
|
respond
to competitive market conditions;
|
|
¨
|
respond
to changes in our regulatory
environment;
|
|
¨
|
manage
risks associated with intellectual property
rights;
|
|
¨
|
maintain
effective control of our costs and
expenses;
|
|
¨
|
raise
sufficient capital to sustain and expand our
business;
|
|
¨
|
attract,
retain and motivate qualified personnel;
and
|
|
¨
|
upgrade
our technology to support increased traffic and expanded
services.
|
Webshops
|
||||||||
As of the
End of
Month
|
Month Over
Month
Growth
|
|||||||
February 29, 2008
|
14,301
|
|||||||
June
30,2008
|
16,213
|
13
|
%
|
|||||
April
30, 2008
|
19,205
|
18
|
%
|
|||||
May
31, 2008
|
19,986
|
4
|
%
|
|||||
June
30, 2008
|
20,641
|
3
|
%
|
|||||
July
31, 2008
|
25,690
|
24
|
%
|
|||||
August
31, 2008
|
27,108
|
6
|
%
|
|||||
September
30, 2008
|
31,887
|
18
|
%
|
|||||
October
31, 2008
|
32,981
|
3
|
%
|
|||||
November
30, 2008
|
33,785
|
2
|
%
|
|||||
December
31, 2008
|
34,359
|
2
|
%
|
|||||
January
31, 2009
|
35,590
|
4
|
%
|
|||||
February
28, 2009
|
35,850
|
1
|
%
|
|||||
March
31, 2009
|
36,550
|
2
|
%
|
|||||
April
30, 2009
|
37,331
|
2
|
%
|
|
June 30,
2009
|
June 30,
2008
|
$ Increase
(Decrease)
|
% Increase
(Decrease)
|
||||||||||||
(Unaudited)
|
(Unaudited)
|
|||||||||||||||
Net
Revenues
|
$
|
9,936,403
|
$
|
5,899,508
|
$
|
4,036,895
|
68
|
%
|
||||||||
Cost
of Sales
|
4,436,480
|
3,972,121
|
464,359
|
12
|
%
|
|||||||||||
Gross
Profit
|
5,499,923
|
1,927,387
|
3,572,536
|
185
|
%
|
|||||||||||
Operating
Expenses
|
1,234,533
|
817,578
|
416,955
|
51
|
%
|
|||||||||||
Income
From Operations
|
4,265,390
|
1,109,809
|
3,155,581
|
284
|
%
|
|||||||||||
Other
Income and Expenses
|
21
|
8,066
|
(8,045
|
)
|
(100
|
)%
|
||||||||||
Income
From Operations Before Taxes
|
4,265,411
|
1,117,875
|
3,147,536
|
282
|
%
|
|||||||||||
Provision
For Income Taxes
|
-
|
(683
|
)
|
683
|
(100
|
)%
|
||||||||||
Minority
Interest in Income of Subsidiaries
|
(1,524,474
|
)
|
(347,696
|
)
|
(1,176,778
|
)
|
338
|
%
|
||||||||
Net
Income From Operations
|
2,740,937
|
769,496
|
1,971,441
|
256
|
%
|
|||||||||||
Foreign
Currency Translation Adjustment
|
1,822
|
(68,006
|
)
|
69,828
|
(103
|
)%
|
||||||||||
Comprehensive
Income
|
2,742,759
|
701,490
|
2,041,269
|
291
|
%
|
|||||||||||
Earnings
Per Common Shares
|
||||||||||||||||
-Basic
and Diluted
|
$
|
0.02
|
$
|
0.00
|
||||||||||||
Weighted
Average Common Shares Outstanding
|
||||||||||||||||
-Basic
and Diluted
|
178,108,931
|
156,014,316
|
June 30,
2009
|
June 30,
2008
|
$ Increase
(Decrease)
|
% Increase
(Decrease)
|
|||||||||||||
(Unaudited)
|
(Unaudited)
|
|||||||||||||||
Net
Revenues
|
$
|
33,686,097
|
$
|
21,708,427
|
$
|
11,977,670
|
55
|
%
|
||||||||
Cost
of Sales
|
16,245,782
|
15,480,755
|
765,027
|
5
|
%
|
|||||||||||
Gross
Profit
|
17,440,315
|
6,227,672
|
11,212,643
|
180
|
%
|
|||||||||||
Operating
Expenses
|
10,046,076
|
2,985,634
|
7,060,442
|
236
|
%
|
|||||||||||
Income
From Operations
|
7,394,239
|
3,242,038
|
4,152,201
|
128
|
%
|
|||||||||||
Other
Income
|
37
|
22,317
|
(22,280
|
)
|
(100
|
)%
|
||||||||||
Income
From Operations Before Taxes
|
7,394,276
|
3,264,355
|
4,129,921
|
127
|
%
|
|||||||||||
Provision
For Income Taxes
|
-
|
(1,735
|
)
|
1,735
|
(100
|
)%
|
||||||||||
Minority
Interest in Losses (Income) of Subsidiaries
|
(1,387,687
|
) |
(898,268
|
)
|
(489,419
|
) |
54
|
%
|
||||||||
Net
Income From Operations
|
6,006,589
|
2,364,352
|
3,642,237
|
154
|
%
|
|||||||||||
Foreign
Currency Translation Adjustment
|
23,690
|
(132,726
|
)
|
156,416
|
(118
|
)%
|
||||||||||
Comprehensive
Income
|
6,030,279
|
2,231,626
|
3,798,653
|
170
|
%
|
|||||||||||
Earnings
Per Common Shares
|
||||||||||||||||
-Basic
and Diluted
|
$
|
0.04
|
$
|
0.02
|
||||||||||||
Weighted
Average Common Shares Outstanding
|
||||||||||||||||
-Basic
and Diluted
|
170,200,983
|
152,309,187
|
Page
|
||
FINANCIAL
STATEMENTS
|
||
Consolidated
Balance Sheets as of June 30, 2009 and September 30,
2008
|
F-2
|
|
Consolidated
Statements of Operations and Comprehensive Income for the Nine Months
Ended June 30, 2009 and 2008
|
F-3
|
|
Consolidated
Statements of Cashflows for the Nine Months Ended June 30, 2009 and
2008
|
F-4
|
|
Notes
to Consolidated Financial Statements for the Nine Months Ended June 30,
2009 and 2008
|
F-5
|
|
Report
of Independent Registered Public Accounting Firm
|
F-26
|
|
Consolidated
Balance Sheets as of September 30, 2008, 2007 and 2006
|
F-27
|
|
Consolidated
Statements of Operations and Comprehensive Income for the Years Ended
September 30, 2008, 2007 and 2006
|
F-28
|
|
Consolidated
Statement of Stockholders’ Equity as of September 30, 2008
|
F-29
|
|
Consolidated
Statements of Cashflows for the Years Ended September 30, 2008, 2007, and
2006
|
F-30
|
|
Notes
to Consolidated Financial Statements for the Years Ended September 30,
2008, 2007 and 2006
|
F-31
|
|
Proforma
Financial Statements
|
F-56
|
|
June 30,
2009
|
September 30,
2008
|
||||||
ASSETS
|
||||||||
Current
Assets
|
||||||||
Cash
|
$
|
213,075
|
$
|
113,860
|
||||
Accounts Receivable, Net of
Allowances for Doubtful Accounts of $362,773 and $30,767
(September 30, 2008) (Note 3)
|
5,372,984
|
4,858,787
|
||||||
Prepaid
Advertising (Note 6)
|
1,120,910
|
1,364,204
|
||||||
Advances Receivable
From Parent Company (Note 7)
|
3,875,937
|
4,860,660
|
||||||
Deposit
for Inventoriable Assets (Note 5)
|
8,151,837
|
-
|
||||||
Deposit
for Purchase of Website
|
2,113,439
|
-
|
||||||
Other
Current Assets
|
448,050
|
194,552
|
||||||
Total
Current Assets
|
21,296,232
|
11,392,063
|
||||||
Property
& Equipment, Net of Accumulated Depreciation of $11,147,812 and
$6,886,882 (September 30, 2008) (Note 9)
|
5,445,752
|
9,668,028
|
||||||
Other
Assets
|
||||||||
Security
Deposit
|
12,857
|
7,218
|
||||||
Goodwill
(Note 8)
|
203,123
|
202,608
|
||||||
Total
Other Assets
|
215,980
|
209,826
|
||||||
TOTAL
ASSETS
|
$
|
26,957,964
|
$
|
21,269,917
|
||||
LIABILITIES
& STOCKHOLDERS’ EQUITY
|
||||||||
Current
Liabilities
|
||||||||
Accounts
Payable
|
$
|
540,071
|
$
|
64,260
|
||||
Deferred
Revenue
|
175,215
|
110,423
|
||||||
Total
Current Liabilities
|
715,286
|
174,683
|
||||||
Total
Liabilities
|
715,286
|
174,683
|
||||||
Commitments
and Contingencies (See Note 12)
|
||||||||
Stockholders’
Equity (Note 10)
|
||||||||
Preferred stock, $0.01 par
value, authorized: 50,000,000 shares, 0 shares issued and outstanding at June 30,
2009 and September 30, 2008, respectively
|
-
|
-
|
||||||
Common
stock, $0.001 par value, authorized: 300,000,000 shares, 10,361,832 shares
issued and outstanding at June 30, 2009 and September 30, 2008,
respectively
|
10,362
|
10,362
|
||||||
Additional
Paid in Capital
|
17,439,837
|
17,439,837
|
||||||
Deferred
Stock-Based Compensation
|
(447,009
|
)
|
(1,098,927
|
)
|
||||
Accumulated
Other Comprehensive Income
|
38,071
|
23,581
|
||||||
Retained
Earnings
|
9,201,417
|
4,720,381
|
||||||
Total
Stockholders’ Equity
|
26,242,678
|
21,095,234
|
||||||
TOTAL
LIABILITIES & STOCKHOLDERS’ EQUITY
|
$
|
26,957,964
|
$
|
21,269,917
|
Nine Months Ended
|
Three
Months Ended
|
|||||||||||||||
June 30
|
June 30
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Unaudited
|
Unaudited
|
Unaudited
|
Unaudited
|
|||||||||||||
Revenue
|
||||||||||||||||
Online
Membership Services
|
16,369,908
|
4,851,857
|
5,590,553
|
2,551,767
|
||||||||||||
Application
Services
|
2,856,336
|
-
|
1,238,270
|
-
|
||||||||||||
Software
Sales
|
-
|
1,723,012
|
-
|
-
|
||||||||||||
Media
and Marketing Management
|
-
|
641,486
|
-
|
-
|
||||||||||||
Total
Revenue
|
19,226,244
|
7,216,355
|
6,828,823
|
2,551,767
|
||||||||||||
Costs
of Sales
|
4,258,273
|
3,337,011
|
1,414,819
|
975,761
|
||||||||||||
Gross
Profit
|
14,967,971
|
3,879,344
|
5,414,004
|
1,576,006
|
||||||||||||
Operating
Expenses
|
||||||||||||||||
Advertising
|
8,990,668
|
713,631
|
110,022
|
165,801
|
||||||||||||
Salaries
and Wages
|
152,261
|
161,296
|
62,091
|
34,888
|
||||||||||||
Stock
Based Compensation
|
651,918
|
422,217
|
217,306
|
217,306
|
||||||||||||
Bad
Debt Expense (Recovery)
|
331,928
|
(185,440
|
)
|
-
|
-
|
|||||||||||
Depreciation
and Amortization
|
18,394
|
55,966
|
5,695
|
18,935
|
||||||||||||
Other
Selling, General and Administrative Expenses
|
428,208
|
68,175
|
189,760
|
240,340
|
||||||||||||
Total
Operating Expenses
|
10,573,377
|
1,235,845
|
584,874
|
677,270
|
||||||||||||
Income
From Operations
|
4,394,594
|
2,643,499
|
4,829,130
|
898,736
|
||||||||||||
Other
Income and Expenses
|
86,442
|
441,196
|
93,608
|
181,544
|
||||||||||||
Net
Income From Operations Before Income Taxes
|
4,481,036
|
3,084,695
|
4,922,738
|
1,080,280
|
||||||||||||
Provision
for Income Taxes
|
-
|
-
|
-
|
-
|
||||||||||||
Net Income
From Operations
|
4,481,036
|
3,084,695
|
4,922,738
|
1,080,280
|
||||||||||||
Foreign
Currency Translation Adjustment
|
14,490
|
(122,010
|
)
|
2,439
|
(57,004
|
)
|
||||||||||
Comprehensive Income
|
$
|
4,495,526
|
2,962,685
|
$
|
4,925,177
|
$
|
1,023,276
|
|||||||||
Basic
Net Income Per Common Share
|
$
|
0.43
|
$
|
0.32
|
$
|
0.48
|
$
|
0.11
|
||||||||
Diluted
Net Income Per Common Share
|
$
|
0.43
|
$
|
0.32
|
$
|
0.48
|
$
|
0.11
|
||||||||
Number
of Common Shares Used to Compute Basic Weighted Average
|
10,361,832
|
9,303,903
|
10,361,832
|
10,031,832
|
||||||||||||
Number
of Common Shares Used to Compute Diluted Weighted Average
|
10,361,832
|
9,303,903
|
10,361,832
|
10,031,832
|
|
2009
|
2008
|
||||||
Cash
Flows From Operating Activities
|
||||||||
Net Income
|
$
|
4,481,036
|
$
|
3,084,695
|
||||
Adjustments
to Reconcile Net Income to Net Cash Provided By (Used
in) Operating Activities:
|
||||||||
Depreciation
and Amortization
|
4,245,631
|
2,647,000
|
||||||
Bad
Debt Expense (Recovery)
|
331,928
|
(185,440
|
)
|
|||||
Amortization
of Deferred Stock Based Compensation
|
651,918
|
422,217
|
||||||
Changes
in Operating Assets and Liabilities:
|
||||||||
Accounts
Receivable
|
(846,203
|
)
|
(3,909,461
|
)
|
||||
Prepaid
Advertising
|
243,294
|
211,907
|
||||||
Advances
Receivable From Parent Company
|
984,723
|
(2,424,674
|
)
|
|||||
Deposit
for Inventoriable Assets
|
(8,151,837
|
)
|
||||||
Other
Current Assets
|
(253,498
|
)
|
4,423
|
|||||
Security
Deposit
|
(5,639
|
)
|
-
|
|||||
Accounts
Payable
|
475,811
|
2,217
|
||||||
Deferred
Revenue
|
64,792
|
-
|
||||||
Net
Cash Provided By (Used In) Operating Activities
|
2,221,956
|
(147,116
|
)
|
|||||
Cash
flows From Investing Activities:
|
||||||||
Purchase
of Property and Equipment
|
(4,823
|
)
|
-
|
|||||
Deposit
for Website
|
(2,113,439
|
)
|
||||||
Cash
Received Upon Acquisition of MGI
|
-
|
2,834
|
||||||
Cash
Received Upon Acquisition of Guangzhou Subaye
|
-
|
501,290
|
||||||
Net
Cash (Used in) Provided By Investing Activities
|
(2,118,262
|
)
|
504,124
|
|||||
Effect
of Exchange Rate Changes on Cash
|
(4,479
|
)
|
(179,314
|
)
|
||||
Net
Increase in Cash
|
99,215
|
177,694
|
||||||
Cash
- Beginning of Period
|
113,860
|
-
|
||||||
Cash
- End of Period
|
$
|
213,075
|
$
|
177,694
|
||||
Supplemental
Disclosure of Cash flow Information:
|
||||||||
Taxes
Paid
|
$
|
-
|
$
|
-
|
||||
Interest
Paid
|
$
|
-
|
$
|
-
|
||||
Non
Cash Investing and Financing Activities:
|
||||||||
Issuance
of Stock for Services, Deferred Compensation
|
$
|
-
|
$
|
1,738,450
|
||||
Issuance
of Stock to Cancel Liabilities with MYST Subsidiaries or
MYST
|
$
|
-
|
$
|
5,482,070
|
||||
Issuance
of Stock to MYST, Increase in Advances Receivable From Parent
Company
|
$
|
-
|
$
|
361,059
|
||||
Acquisition
of Guangzhou Subaye Through Issuance of Common Stock
|
$
|
-
|
$
|
119,534
|
||||
Acquisition
of MGI Through Issuance of Common Stock
|
$
|
$
|
200,000
|
|||||
Acquired
Websites Through Issuance of Common Stock
|
$
|
-
|
$
|
1,534,914
|
1.
|
Online Membership Services - The
Company provides online content and member services for commercial
use.
|
2.
|
Application Services – The
Company provides “software as a service” business solutions, including
data storage, access and specific software on servers which are available
through remote access by users on a 24 hour
basis.
|
3.
|
Software Sales - The Company
provides web based and mobile software platform know as IBS Version
5.0.
|
4.
|
Media
and Marketing Management - The Company coordinates product placement
activities for filmmakers and advertisers within the entertainment arts
industry of the PRC.
|
1.
|
The Company sold 2,024,192 shares
of its common stock to MYST for
$1,060,000.
|
2.
|
The Company acquired certain
valuable assets, namely the minority ownership rights to the website known
as www.subaye.com, by issuing 798,747 shares, valued at $1,565,544, of its
common stock to CDN.
|
3.
|
The Company issued 500,000 shares
of its common stock and 200,000 shares of its Series A convertible
preferred stock, par value $0.01, to Top Rider Group Limited for
$1,760,000. Each share of the Company’s Series A convertible preferred
stock is convertible into two shares of the Company’s common
stock.
|
4.
|
The Company agreed to reimburse
CDN for website development costs incurred on behalf of the Company in
2006 and 2005 totaling
$190,800.
|
5.
|
MYST and CDN agreed to terminate
the Rights Agreement dated November 11,
2005.
|
Subsidiaries
|
Countries Registered In
|
Percentage of
Ownership
|
||||
Subaye
IIP Limited
|
British
Virgin Islands
|
100.00
|
%
|
|||
Guangzhou
Subaye Computer Tech Limited
|
The
People’s Republic of China
|
100.00
|
%
|
|||
Media
Group International Limited
|
Hong
Kong, The People’s Republic of China
|
100.00
|
%
|
Description
|
Useful Lives
|
|
Computer
hardware
|
3
years
|
|
Computer
software
|
3
years
|
|
Websites
|
3
years
|
|
Furniture
and fixtures
|
5 and 7 years
|
|
Leasehold
improvements
|
5
years
|
June 30,
|
|||||||
2009
|
2008
|
||||||
Warrants
to Purchase Common Stock, Held by MYST
|
|
1,150,000 | - | ||||
Warrants
to Purchase Common Stock, Held by an Individual
|
500,000 | - | |||||
1,650,000 | - |
Nine Months
Ended
June 30,
2009
|
Year Ended
September 30,
2008
|
|||||||
Beginning
allowance for doubtful accounts
|
$
|
30,767
|
$
|
216,074
|
||||
Recoveries
of bad debts
|
-
|
(185,440
|
)
|
|||||
Foreign
currency adjustment
|
78
|
133
|
||||||
Additional
charge to bad debt expense
|
331,928
|
-
|
||||||
Ending
allowance for doubtful accounts
|
$
|
362,773
|
$
|
30,767
|
June
30,
|
September 30,
|
|||||||
2009
|
2008
|
|||||||
Prepaid
advertising – PRC movie productions
|
$ | 320,951 | $ | 566,274 | ||||
Prepaid
customer advertising – PRC movie advertising
|
799,959 | 797,930 | ||||||
$ | 1,120,910 | $ | 1,364,204 |
For the Nine
Months Ended
June 30,
2009
|
||||
Beginning
balance receivable from MYST, as of September 30, 2008
|
$
|
4,860,660
|
||
Expenses
paid by MYST on behalf of the Company
|
(315,513
|
)
|
||
Purchase
of Copyright License from 3G Dynasty
|
(1,867,233
|
)
|
||
Purchase
of DVDs from 3G Dynasty
|
(6,722,003
|
)
|
||
Expenses
paid by the Company on behalf of MYST
|
8,708,299
|
|||
Cash
receipts by the Company on behalf of MYST
|
(874,676
|
)
|
||
Interest
charged to the Company by MYST, on the daily balance owed to
MYST
|
86,404
|
|||
Ending
balance receivable from MYST, as of June 30, 2009
|
$
|
3,875,937
|
For the Year
Ended
September 30,
2008
|
||||
Beginning
balance receivable from MYST, as of September 30, 2007
|
$
|
2,519,676
|
||
Issuance
of stock to MYST, to cancel liabilities owed to MYST and MYST’s
subsidiaries
|
5,482,070
|
|||
Issuance
of stock to MYST, increase in advances receivable from
MYST
|
361,059
|
|||
Liabilities
owed to MYST subsidiaries, assumed upon acquisition of Guangzhou
Subaye
|
(3,224,157
|
)
|
||
Cash
receipts from the Company’s customers, held by MYST
|
248,293
|
|||
Expenses
paid by MYST on behalf of the Company
|
(2,192,769
|
)
|
||
Expenses
paid by the Company on behalf of MYST
|
2,952,279
|
|||
Cash
receipts by the Company on behalf of MYST
|
(1,893,961
|
)
|
||
Interest
charged to MYST on the daily balance owed to the Company
|
608,170
|
|||
Ending
balance receivable from MYST, as of September 30,
2008
|
$
|
4,860,660
|
Cash
|
$
|
2,834
|
||
Fixed
Assets, Net
|
$
|
653
|
||
Goodwill
|
$
|
202,453
|
||
Due
to Related Party
|
$
|
(5,940
|
)
|
|
Net
Assets Acquired
|
$
|
200,000
|
||
Purchase
Consideration
|
$
|
200,000
|
||
Net
Assets Acquired
|
$
|
200,000
|
||
Net
Cash Inflow from Acquisition of MGI
|
$
|
2,834
|
(Restated)
|
||||
Cash
|
$
|
501,290
|
||
Computer
Software
|
2,700,000
|
|||
Security
Deposit
|
31,147
|
|||
Property
and Equipment
|
111,254
|
|||
Liabilities
Assumed
|
(3,224,157
|
)
|
||
Net
Assets Acquired
|
$
|
119,534
|
||
Purchase
Consideration
|
$
|
119,534
|
||
Net
Assets Acquired
|
$
|
(119,534
|
)
|
|
Net
Cash Inflow From Acquisition of Guangzhou Subaye
|
$
|
501,290
|
June 30,
2009
|
September 30,
2008
|
|||||||
Websites
|
$
|
7,146,945
|
$
|
7,132,716
|
||||
Computer
Software
|
9,406,632
|
9,387,042
|
||||||
Furniture
& Fixtures
|
39,987
|
35,152
|
||||||
16,593,564
|
16,554,910
|
|||||||
Less:
Accumulated Depreciation and Amortization
|
(11,147,812
|
)
|
(6,886,882
|
)
|
||||
$
|
5,445,752
|
$
|
9,668,028
|
2009
|
2008
|
|||||||
Depreciation
Included Within Operating Expenses
|
$
|
18,394
|
$
|
55,966
|
||||
Amortization
of Websites Included Within Cost of Sales
|
1,881,684
|
1,626,281
|
||||||
Amortization
of Software Included Within Cost of Sales
|
2,345,553
|
964,753
|
||||||
$
|
4,245,631
|
$
|
2,647,000
|
Estimated
Useful
|
||||||||
Software Acquired
|
Cost
|
Life (Years)
|
||||||
IBS
V5.0
|
$
|
1,350,000
|
2.25
|
**
|
||||
IBS
V5.0 Edu
|
675,000
|
3.00
|
||||||
IBS
V5.0 Gov
|
675,000
|
3.00
|
||||||
$
|
2,700,000
|
Expected
Volatility
|
45.95
|
%
|
||
RiskFree
Interest Rate
|
3.91
|
%
|
||
Exercise
Price
|
$
|
4.00
|
||
Price
Per Common Share
|
$
|
1.86
|
||
Expected
Term (In Years)
|
5
|
a.
|
The new standard EIT rate of 25%
will replace the 33% rate currently applicable to both DES and FIEs,
except for High Tech companies who pay a reduced rate of 15%. The Company
currently believes it will qualify as a high tech
company.
|
b.
|
Companies established before
March 16, 2007 will continue to enjoy tax holiday treatment approved by
local government for a grace period of the next five years or until the
tax holiday term is completed, whichever is
sooner.
|
Nine
Months
Ended
June
30,
2009
|
Nine
Months
Ended
June
30,
2008
|
|||||||
PRC
Tax Without Consideration of Tax Holiday
|
$
|
1,069,790
|
$
|
1,017,949
|
||||
PRC
Tax Savings as a Result of Tax Holiday
|
$
|
(1,069,790
|
)
|
$
|
(1,017,949
|
)
|
||
Increase
in Basic Earnings Per Share as a Result of Tax Holiday
|
$
|
0.10
|
0.11
|
|||||
Increase
in Diluted Earnings Per Share as a Result of Tax Holiday
|
$
|
0.10
|
$
|
0.11
|
Three
Months
Ended
June
30,
2009
|
Three
Months
Ended
June
30,
2008
|
|||||||
PRC
Tax Without Consideration of Tax Holiday
|
$
|
1,230,685
|
$
|
356,492
|
||||
PRC
Tax Savings as a Result of Tax Holiday
|
$
|
(1,230,685
|
)
|
$
|
(356,492
|
)
|
||
Increase
in Basic Earnings Per Share as a Result of Tax Holiday
|
$
|
0.12
|
$
|
0.04
|
||||
Increase
in Diluted Earnings Per Share as a Result of Tax Holiday
|
$
|
0.12
|
$
|
0.04
|
2009
|
2008
|
|||||||
U.S.
Statutory rates
|
35.0
|
%
|
35.0
|
%
|
||||
Foreign
income
|
(35.0
|
)
|
(35.0
|
)
|
||||
China
tax rates
|
25.0
|
33.0
|
||||||
China
income tax exemption
|
(25.0
|
)
|
(33.0
|
)
|
||||
Effective
income tax rates
|
0
|
%
|
0
|
%
|
Twelve
Months Ended:
|
||||
June
30, 2010
|
$
|
105,888
|
||
June
30, 2011
|
61,768
|
|||
$
|
167,656
|
Twelve
Months Ended:
|
||||
June
30, 2010
|
$
|
12,400
|
||
$
|
12,400
|
|
·
|
The
Company had a verbal office sublease agreement with MYST through
March 1, 2009 such that the Company's monthly rent for its former
headquarters in Foshan City, China was $2,406. The verbal
office sublease agreement was canceled by the Company effective March 1,
2009.
|
|
·
|
From time
to time, the Company has had significant balances owed from MYST. As of
June 30, 2009, MYST owed the Company approximately $3.8 million. The
reduction of the balance owed from MYST to the Company of approximately
$1.0 million during the nine months ended June 30, 2009 was largely as a
result of MYST paying expenses totaling $8,904,750 on behalf of the
Company, the Company paying expenses on behalf of MYST of $8,708,299 and
the Company collecting funds on behalf of MYST of $874,676 respectively.
However, on March 5, 2009, the Company and MYST agreed to ensure that the
net balance outstanding between Subaye and MYST will be repaid on a
monthly basis, within 30 days from the end of each month. The Company and
MYST are in the process of reorganizing operations in order to accomplish
this task. The Company does expect transactions will continue
to occur between the Company and MYST but we believe the monthly
reconciling and repayment of the balance owed to or from the Company will
enable the Company to mitigate the risk of a substantial loss occurring
due to nonpayment of debts owed to the Company by
MYST.
|
|
·
|
On
a historic
basis, the Company and MYST have routinely paid bills on behalf of each
other and received cash payments on behalf of each other. Until
recently, the Company and MYST have not consistently reimbursed each other
for any significant net balance owed to the other party. The
determination as to whether MYST or the Company would collect a receivable
due to either MYST or the Company was determined based on whichever
collection methods were available to each party and how fast collection
could be processed. Factors causing a delay in collection could
include banking regulations in the PRC, which the Company was subject to
but MYST was not, the geographic location of a customer and each
customer’s capabilities with regard to remitting funds to the Company or
MYST, the banking regulations the customer is subject to, and in general,
the fact that disbursement of funds out of mainland China was not as easy
to process as disbursements were out of Hong Kong. The Company
and MYST worked together to provide the easiest method of payment
available to the Company in order to pay the Company’s bills and for the
Company’s customers when customers wished to pay the Company for services
provided. This generally involved avoiding transferring funds
out of the PRC and ensuring funds being held in Hong Kong were replenished
whenever possible in order to avoid difficulties in transferring funds
internationally in the future. The Company’s current and former
offices are all over one hour’s train ride from Hong Kong, which presents
further difficulties as payments out of the Company’s Hong Kong bank
accounts are not easily processed unless payment is authorized in
person.
|
|
·
|
During the nine months ended June
30, 2009, the Company paid expenses on behalf of MYST of
$8,708,299.
During
the nine months ended June 30, 2009, MYST paid expenses on behalf of the
Company of $8,904,750.
|
|
·
|
During the nine months ended June
30, 2009, MYST entered into a contract with 3G Dynasty, a subsidiary of
MYST, whereby the Company licensed a copyright from 3G Dynasty for
$1,867,233 and agreed to pay 3G Dynasty $6,722,003 for the costs of
producing 25,600,000 DVDs, which were to be used by the Company in an
advertising promotion with the members of
www.subaye.com.
|
|
·
|
During the nine months ended June
30, 2009, the Company collected $874,676 in accounts receivables on behalf
of MYST.
|
|
·
|
Historically, the Company has
relied on certain business relationships maintained by its majority
shareholder in order to conduct business. An example of the business
relationships utilized includes certain media contacts in the PRC,
government contacts in the PRC, and financial contacts in the PRC, U.S.
and Canada.
|
|
·
|
On February 20, 2008, the Company
issued 767,457 shares of common stock valued at $1,534,914 to MYST as
consideration for the purchase of three websites controlled by MYST,
namely www.goongreen.org, www.x381.com, and
www.goongood.com. The Company believes these acquisitions
provide synergies with the business operations of the Company's website,
www.subaye.com, and are expected to enhance the services offered and
corresponding revenues derived from the members of www.subaye.com.
The transaction was between two entities under common
control. As a result, the transaction was accounted for at the
historical adjusted cost of the net assets transferred, which was
$1,534,914.
|
|
·
|
On February 20, 2008, the Company
issued 66,532 shares of common stock valued at $133,064 to MYST as
consideration to relieve Guangzhou Subaye's liabilities with Alpha Century
Holdings Limited, a subsidiary of
MYST.
|
|
·
|
On February 20, 2008, the Company
issued 54,176 shares of common stock valued at $108,353 to
MYST. This issuance of common stock was intended to reduce
Guangzhou Subaye's liabilities owed to Arran Services Limited, a
subsidiary of MYST. However, once the Company’s independent
auditors completed their June 30, 2008 financial review of the Company,
the liabilities were determined to be significantly less. As a
result, the Company recorded an increase in the balance due from MYST to
account for the consideration the Company was to receive upon issuing
these shares of common
stock.
|
|
·
|
On February 20, 2008, the Company
issued 111,835 shares of common stock valued at $223,670 to MYST as
consideration to relieve Guangzhou Subaye's liabilities with Arran
Services Limited, a subsidiary of
MYST.
|
|
·
|
On October 1, 2007, the Company
issued 59,767 shares of common stock valued at $119,534 to MYST as
consideration to acquire Guangzhou Subaye from MYST. The
Company’s management believed it could generate additional sales of the
computer software owned by Guangzhou Subaye. The transaction
was between two entities under common control. As a result, the
transaction was accounted for at the historical adjusted cost of the net
assets transferred, which was
$119,534.
|
|
·
|
On October 1, 2007, the Company
issued 1,375,891 shares of common stock valued at $2,751,781 to MYST as
consideration to relieve Guangzhou Subaye's debts with Alpha Century
Holdings Limited, a subsidiary of
MYST.
|
|
·
|
On October 1, 2007, the Company
issued 339,872 shares of common stock valued at $679,744 to MYST as
consideration to relieve the Company's debts with Alpha Century Holdings
Limited, a subsidiary of
MYST.
|
|
·
|
On October 1, 2007, the Company
issued 335,203 shares of common stock valued at $670,406 to MYST as
consideration to relieve the Company's debts with MyStaru Limited, a
subsidiary of MYST, a subsidiary of
MYST.
|
|
·
|
On October 1, 2007, the Company
issued 126,353 shares of common stock valued at $252,706 to
MYST. This issuance of common stock was intended to reduce the
Company's liabilities owed to MyStarU Limited, a subsidiary of
MYST. However, once the Company completed its September 30,
2007 audit, the liabilities were determined to be significantly
less. As a result, the Company recorded an increase in the
balance due from MYST to account for the consideration the Company was to
receive upon issuing these shares of common
stock.
|
|
·
|
On October 1, 2007, the Company
issued 511,702 shares of common stock valued at $1,023,405 to MYST as
consideration to relieve Guangzhou Subaye's debts with Arran Services
Limited, a subsidiary of
MYST.
|
|
·
|
During the three months ended
December 31, 2006, the Company and MYST reviewed current market terms for
commercial loans in the PRC and agreed to an interest charge on the daily
balance outstanding and owed to either MYST or the Company. The
interest charged on the daily balance outstanding would be based upon a
10% interest rate per annum, compounding on a daily basis. The
interest rate continues to be in effect through the date of these
financial statements.
|
1.
|
Online
Membership Services - The Company provides online content and member
services for commercial use.
|
|
2.
|
Application
Services - The Company is implementing a software as a service "SAAS"
business model
|
|
3.
|
Online
Marketplace – The Company is developing a new segment called the Online
Marketplace.
|
|
4.
|
Software
Sales - The Company provides web based and mobile software platform know
as IBS Version 5.0.
|
|
5.
|
Media
and Marketing Management - The Company coordinates product placement
activities for filmmakers and advertisers within the entertainment arts
industry of the PRC.
|
Nine
Months Ended
June
30, 2009
|
Online
Membership
Services
|
Application
Services
|
Online
Marketplace
|
Software
Sales
|
Media &
Marketing
|
Consolidated
Total
|
||||||||||||||||||
Net
Sales
|
$
|
16,369,908 |
$
|
2,856,336 |
$
|
- |
$
|
- |
$
|
- |
$
|
19,226,244 | ||||||||||||
Cost
of Sales
|
1,912,726 | 1,320,111 | - | 1,025,436 | - | 4,258,273 | ||||||||||||||||||
Segment
Income (Loss)
|
4,014,776 | 1,515,796 | - | (1,025,436 |
)
|
(24,100 |
)
|
4,481,036 | ||||||||||||||||
Segment
Assets
|
11,013,050 | 3,665,194 | 10,265,277 | 683,731 | 1,330,712 | 26,957,964 | ||||||||||||||||||
Expenditures
for Segment Assets
|
- | - | 10,265,277 | - | 10,265,277 |
Nine
Months Ended
June
30, 2008
|
Online
Membership
Services
|
Media and
Marketing
Management
|
Software
Sales
|
Consolidated
Total
|
||||||||||||
Net Sales
|
$
|
4,851,857
|
$
|
641,486
|
$
|
1,723,012
|
$
|
7,216,355
|
||||||||
Cost
of Sales
|
1,641,750
|
702,935
|
992,326
|
3,337,011
|
||||||||||||
Segment
(Loss) Income Before Income Taxes
|
2,706,438
|
(95,519)
|
473,776
|
3,084,695
|
||||||||||||
Segment
Assets
|
15,510,876
|
66,601
|
3,348,746
|
18,926,223
|
||||||||||||
Expenditures
for Segment Assets, Net of Liabilities assumed
|
1,534,914
|
200,000
|
119,534
|
1,854,448
|
2008
|
2007
|
2006
|
||||||||||
(Restated)
|
||||||||||||
ASSETS
|
||||||||||||
Current
Assets
|
||||||||||||
Cash
|
$
|
113,860
|
$
|
-
|
$
|
8,628
|
||||||
Accounts Receivable, Net of
Allowances for Doubtful Accounts of $30,767 (2008), $216,074
(2007) and $0 (2006) (Note 3)
|
4,858,787
|
383,811
|
-
|
|||||||||
Prepaid
Advertising (Note 4)
|
566,274
|
951,741
|
549,358
|
|||||||||
Prepaid
Customer Advertising (Note 4)
|
797,930
|
-
|
-
|
|||||||||
Advances Receivable
From Parent Company (Note 5)
|
4,860,660
|
2,519,676
|
-
|
|||||||||
Other
Current Assets
|
194,552
|
-
|
-
|
|||||||||
Current
Assets of Discontinued Operations (Note 13)
|
-
|
-
|
1,124,981
|
|||||||||
Total
Current Assets
|
11,392,063
|
3,855,228
|
1,682,967
|
|||||||||
Property
& Equipment, Net of Accumulated Depreciation (Note 7)
|
9,668,028
|
3,731,917
|
5,576,344
|
|||||||||
Other
Assets
|
||||||||||||
Security
Deposit
|
7,218
|
4,423
|
-
|
|||||||||
Goodwill
(Note 6)
|
202,608
|
-
|
-
|
|||||||||
Total
Other Assets
|
209,826
|
4,423
|
-
|
|||||||||
TOTAL
ASSETS
|
$
|
21,269,917
|
$
|
7,591,568
|
$
|
7,259,311
|
||||||
LIABILITIES
& STOCKHOLDERS’ EQUITY
|
||||||||||||
Current
Liabilities
|
||||||||||||
Accounts
Payable
|
$
|
64,260
|
$
|
1,528
|
$
|
-
|
||||||
Deferred
Revenue
|
110,423
|
-
|
-
|
|||||||||
Current
Liabilities of Discontinued Operations (Note 13)
|
-
|
-
|
625,544
|
|||||||||
Related
Party Payables
|
-
|
-
|
201,061
|
|||||||||
Advances Payable
to Parent Company (Note 5)
|
-
|
-
|
674,359
|
|||||||||
Convertible
Debt-Parent Company (Notes 6,8,9)
|
-
|
-
|
1,534,849
|
|||||||||
Total
Current Liabilities
|
174,683
|
1,528
|
3,035,813
|
|||||||||
Total
Liabilities
|
174,683
|
1,528
|
3,035,813
|
|||||||||
Commitments
and Contingencies (See Note 11)
|
||||||||||||
Stockholders’
Equity (Note 9)
|
||||||||||||
Preferred stock, $0.01 par
value, authorized: 50,000,000 shares, 0, 200,000 and 200,000 shares
issued and
outstanding at September 30, 2008, 2007 and 2006,
respectively
|
-
|
2,000
|
2,000
|
|||||||||
Common stock, $0.001 par value,
authorized: 300,000,000 shares, 10,361,832, 4,913,819 and 3,763,819 shares issued and
outstanding at September 30, 2008, 2007 and 2006,
respectively
|
10,362
|
4,914
|
3,764
|
|||||||||
Additional
Paid in Capital
|
17,439,837
|
6,687,258
|
4,388,408
|
|||||||||
Deferred
Stock-Based Compensation
|
(1,098,927
|
)
|
-
|
-
|
||||||||
Accumulated
Other Comprehensive Income
|
23,581
|
129
|
1,959
|
|||||||||
Retained
Earnings (Accumulated Deficit)
|
4,720,381
|
895,739
|
(172,633
|
)
|
||||||||
Total
Stockholders’ Equity
|
21,095,234
|
7,590,040
|
4,223,498
|
|||||||||
TOTAL
LIABILITIES & STOCKHOLDERS’ EQUITY
|
$
|
21,269,917
|
$
|
7,591,568
|
$
|
7,259,311
|
2008
|
2007
|
2006
|
||||||||||
(Restated)
|
||||||||||||
Revenue
|
||||||||||||
Online
Membership Services
|
$
|
7,680,017
|
$
|
4,310,030
|
$
|
-
|
||||||
Media
and Marketing Management
|
640,320
|
-
|
-
|
|||||||||
Software
Sales
|
1,826,871
|
-
|
-
|
|||||||||
Total
Revenue
|
10,147,208
|
4,310,030
|
-
|
|||||||||
Costs
of Sales
|
4,676,265
|
2,182,239
|
-
|
|||||||||
Gross
Profit
|
5,470,943
|
2,127,791
|
-
|
|||||||||
Operating
Expenses
|
||||||||||||
Advertising
|
1,140,927
|
825,125
|
125,000
|
|||||||||
Stock
Based Compensation
|
639,523
|
-
|
-
|
|||||||||
Salaries
|
398,677
|
120,883
|
-
|
|||||||||
Bad
Debt (Recovery) Expense
|
(185,440
|
)
|
216,074
|
-
|
||||||||
Depreciation
and Amortization
|
110,374
|
55,966
|
-
|
|||||||||
Other
Selling, General and Administrative
|
148,679
|
(25,757
|
)
|
10,261
|
||||||||
Total
Operating Expenses
|
2,252,740
|
1,192,291
|
135,261
|
|||||||||
Income
(Loss) From Continuing Operations
|
3,218,203
|
935,500
|
(135,261
|
)
|
||||||||
Other
Income and Expenses
|
||||||||||||
Interest Income (Expense) on
Advances Receivable or Payable to
MYST
|
608,170
|
122,991
|
(34,849
|
)
|
||||||||
Other
Income and Expenses
|
521
|
9,881
|
-
|
|||||||||
Total
Other Income and Expenses
|
608,691
|
132,872
|
(34,849
|
)
|
||||||||
Net
Income (Loss) From Continuing Operations Before Discontinued Operations
and Income Taxes
|
3,826,894
|
1,068,372
|
(170,110
|
)
|
||||||||
Provision
for Income Taxes
|
(2,252
|
)
|
-
|
-
|
||||||||
Net
Loss From Discontinued Operations, Net of Taxes
|
-
|
-
|
(2,523
|
)
|
||||||||
Net
Income (Loss) from Continuing Operations
|
$
|
3,824,642
|
$
|
1,068,372
|
$
|
(172,633
|
)
|
|||||
Foreign
Currency Translation Adjustment
|
23,452
|
(1,830
|
)
|
1,959
|
||||||||
Comprehensive
Income (Loss)
|
$
|
3,848,094
|
$
|
1,066,542
|
$
|
(170,674
|
)
|
|||||
Basic
Net Income (Loss) Per Common Share
|
$
|
0.40
|
$
|
0.25
|
$
|
(0.15
|
)
|
|||||
Diluted
Net Income (Loss) Per Common Share
|
$
|
0.38
|
$
|
0.23
|
$
|
(0.15
|
)
|
|||||
Basic
Weighted Average
|
||||||||||||
Number
of Common Shares
|
9,569,830
|
4,195,463
|
1,181,604
|
|||||||||
Diluted
Weighted Average
|
||||||||||||
Number
of Common Shares
|
9,948,519
|
4,595,463
|
1,181,604
|
|
|
Preferred Stock
|
Common Stock
|
|
||||||||||||||||||||||||||||||||
|
|
Shares
Issued
|
Par
$0.01
|
Shares
Issued
|
Par
$0.001
|
Additional
Paid in
Capital
|
Other
Comprehensive
Income
|
Deferred
Stock Based
Compensation
|
(Accumulated
Deficit)
Retained
Earnings
|
Total
Stockholder’s
Equity
|
|
|||||||||||||||||||||||||
Balance, January 27, 2005
|
-
|
$
|
-
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
-
|
$
|
-
|
$
|
-
|
|||||||||||||||||||||
Issuance
of Stock to Founder
|
10,000
|
10
|
-
|
-
|
-
|
-
|
10
|
|||||||||||||||||||||||||||||
Net
Income
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||
Balance,
September 30, 2005
|
—
|
-
|
10,000
|
10
|
-
|
-
|
-
|
10
|
||||||||||||||||||||||||||||
Issuance
of Stock For Cash
|
200,000
|
2,000
|
2,955,072
|
2,955
|
2,823,663
|
-
|
-
|
-
|
2,828,618
|
|||||||||||||||||||||||||||
Issuance
of Stock for Website Rights
|
-
|
-
|
798,747
|
799
|
1,564,745
|
-
|
-
|
-
|
1,565,544
|
|||||||||||||||||||||||||||
Foreign
Currency Translation
|
-
|
-
|
-
|
-
|
-
|
1,959
|
-
|
-
|
1,959
|
|||||||||||||||||||||||||||
Net
Loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(172,633
|
)
|
(172,633
|
)
|
|||||||||||||||||||||||||
Balance,
September 30, 2006
|
200,000
|
2,000
|
3,763,819
|
3,764
|
4,388,408
|
1,959
|
-
|
(172,633
|
)
|
4,223,498
|
||||||||||||||||||||||||||
Issuance
of Stock For Cash
|
-
|
-
|
610,000
|
610
|
1,219,390
|
-
|
-
|
-
|
1,220,000
|
|||||||||||||||||||||||||||
Issuance
of Stock For Conversion of Debt
|
540,000
|
540
|
1,079,460
|
-
|
-
|
-
|
1,080,000
|
|||||||||||||||||||||||||||||
Sale
of Subsidiary
|
-
|
-
|
-
|
-
|
-
|
(1,959
|
)
|
-
|
-
|
(1,959
|
)
|
|||||||||||||||||||||||||
Foreign
Currency Translation
|
-
|
-
|
-
|
-
|
-
|
129
|
-
|
-
|
129
|
|||||||||||||||||||||||||||
Net
Income
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
1,068,372
|
1,068,372
|
|||||||||||||||||||||||||||
Balance,
September 30, 2007
|
200,000
|
$
|
2,000
|
4,913,819
|
$
|
4,914
|
$
|
6,687,258
|
$
|
129
|
-
|
895,739
|
7,590,040
|
|||||||||||||||||||||||
Issuance
of Stock For Acquisition of Guangzhou Subaye
|
—
|
59,767
|
60
|
119,474
|
-
|
-
|
119,534
|
|||||||||||||||||||||||||||||
Issuance
of Stock, Increase in Advances Receivable From MYST
|
—
|
180,529
|
181
|
360,879
|
-
|
-
|
361,060
|
|||||||||||||||||||||||||||||
Issuance
of Stock For Acquisition of MGI
|
-
|
-
|
100,000
|
100
|
199,900
|
-
|
-
|
200,000
|
||||||||||||||||||||||||||||
Issuance
of Stock For Retirement of Liabilities with MYST
|
-
|
-
|
2,741,035
|
2,741
|
5,479,328
|
-
|
-
|
5,482,069
|
||||||||||||||||||||||||||||
Issuance
of Stock For Compensation
|
-
|
869,225
|
869
|
1,737,581
|
-
|
(1,738,450
|
)
|
-
|
-
|
|||||||||||||||||||||||||||
Issuance
of Stock to Acquire Websites From MYST
|
-
|
-
|
767,457
|
767
|
1,534,147
|
-
|
-
|
-
|
1,534,914
|
|||||||||||||||||||||||||||
Amortization
of Deferred Compensation
|
-
|
-
|
-
|
-
|
-
|
-
|
639,523
|
-
|
639,523
|
|||||||||||||||||||||||||||
Conversion
of Preferred Stock to Common Stock
|
(200,000
|
)
|
(2,000
|
)
|
400,000
|
400
|
1,600
|
-
|
-
|
-
|
||||||||||||||||||||||||||
Issuance
of Stock and Warrants For Cash
|
-
|
330,000
|
330
|
1,319,670
|
-
|
-
|
1,320,000
|
|||||||||||||||||||||||||||||
Foreign
Currency Translation
|
-
|
-
|
-
|
-
|
23,452
|
-
|
23,452
|
|||||||||||||||||||||||||||||
Net
Income
|
-
|
-
|
-
|
-
|
-
|
-
|
3,824,642
|
3,824,642
|
||||||||||||||||||||||||||||
Balance,
September 30, 2008
|
-
|
$
|
-
|
10,361,832
|
$
|
10,362
|
$
|
17,439,837
|
$
|
23,581
|
(1,098,927
|
)
|
$
|
4,720,381
|
$
|
21,095,234
|
2008
|
2007
|
2006
|
||||||||||
(Restated)
|
||||||||||||
Cash
Flows From Operating Activities
|
||||||||||||
Net
Income (Loss)
|
$
|
3,824,642
|
$
|
1,068,372
|
(172,633
|
)
|
||||||
Adjustments
to Reconcile Net Income (Loss) to Net Cash Provided By (Used
in) Operating Activities:
|
||||||||||||
Depreciation
and Amortization
|
4,037,025
|
1,863,569
|
-
|
|||||||||
Bad
Debt (Recovery) Expense
|
(185,440
|
)
|
216,074
|
-
|
||||||||
Amortization
of Deferred Stock Based Compensation
|
639,523
|
-
|
-
|
|||||||||
Changes
in Operating Assets and Liabilities:
|
||||||||||||
Accounts
Receivable
|
(4,289,669
|
)
|
(599,885
|
)
|
-
|
|||||||
Prepaid
Advertising
|
385,467
|
(402,383
|
)
|
(549,358
|
)
|
|||||||
Prepaid
Advertising for Customers
|
(797,930
|
)
|
-
|
-
|
||||||||
Advances
Receivable From Parent Company
|
309,576
|
(3,149,447
|
)
|
4,739,450
|
||||||||
Other
Current Assets
|
(194,552
|
)
|
-
|
-
|
||||||||
Security
Deposit
|
(2,795
|
)
|
(4,423
|
)
|
-
|
|||||||
Accounts
Payable and Accrued Expenses
|
62,732
|
1,528
|
-
|
|||||||||
Deferred
Revenue
|
110,423
|
-
|
-
|
|||||||||
Related
Party Payable
|
(5,939
|
)
|
(201,061
|
)
|
-
|
|||||||
Net
Cash Provided by (Used In) Operating Activities
|
3,893,063
|
(1,207,656
|
)
|
4,017,459
|
||||||||
Cash
flows From Investing Activities:
|
||||||||||||
Cash
Received Upon Acquisition of MGI
|
2,834
|
-
|
-
|
|||||||||
Cash
Received Upon Acquisition of Guangzhou Subaye
|
501,290
|
-
|
-
|
|||||||||
Capital
Expenditures
|
(5,287,922
|
)
|
(19,142
|
)
|
(4,010,800
|
)
|
||||||
Net
Cash Used In Investing Activities
|
(4,783,798
|
)
|
(19,142
|
)
|
(4,010,800
|
)
|
||||||
Cash
flows From Financing Activities
|
||||||||||||
Proceeds
From Issuance of Common Stock, Warrants (2008)
|
1,320,000
|
1,220,000
|
-
|
|||||||||
Net
Cash flows Provided by Financing Activities:
|
1,320,000
|
1,220,000
|
-
|
|||||||||
Effect
of Exchange Rate Changes in Cash
|
(315,405
|
)
|
(1,830
|
)
|
1,959
|
|||||||
Net
Increase (Decrease) in Cash
|
113,860
|
(8,628
|
)
|
8,618
|
||||||||
Cash
- Beginning of Year
|
$
|
-
|
$
|
8,628
|
$
|
10
|
||||||
Cash
- End of Year
|
$
|
113,860
|
$
|
-
|
$
|
8,628
|
||||||
Supplemental
Disclosure of Cash flow Information:
|
||||||||||||
Taxes
Paid
|
$
|
2,252
|
$
|
-
|
$
|
1,105
|
||||||
Interest
Paid
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||
Non
Cash Investing and Financing Activities:
|
||||||||||||
Issuance
of Stock for Services, Deferred Compensation
|
$
|
1,738,450
|
$
|
-
|
$
|
-
|
||||||
Issuance
of Stock to Cancel Liabilities with MYST Subsidiaries or
MYST
|
$
|
5,482,070
|
$
|
1,080,000
|
$
|
-
|
||||||
Issuance
of Stock to MYST, Increase in Advances Receivable From Parent
Company
|
$
|
361,059
|
$
|
-
|
$
|
-
|
||||||
Acquisition
of Guangzhou Subaye Through Issuance of Common Stock
|
$
|
119,534
|
$
|
-
|
$
|
-
|
||||||
Acquisition
of MGI Through Issuance of Common Stock
|
$
|
200,000
|
$
|
-
|
$
|
-
|
||||||
Accounts
Receivable Used for Acquisition of Subsidiary
|
$
|
-
|
$
|
-
|
$
|
500,000
|
||||||
Acquired
Website Through Issuance of Common Stock
|
$
|
1,534,914
|
$
|
-
|
$
|
1,565,544
|
|
1.
|
Online Membership Services - The
Company provides online content and member services for commercial
use.
|
|
2.
|
Software Sales - The Company
provides web-based and mobile software
platforms.
|
|
3.
|
Media and Marketing Management -
The Company coordinates product placement activities for filmmakers and
advertisers within the entertainment arts industry of the
PRC.
|
|
1.
|
The Company sold 2,024,192 shares
of its common stock to MYST for
$1,060,000.
|
|
2.
|
The Company acquired certain
valuable assets, namely the minority ownership rights to the website known
as www.subaye.com, by issuing 798,747 shares, valued at $1,565,544, of its
common stock to CDN.
|
|
3.
|
The Company issued 500,000 shares
of its common stock and 200,000 shares of its Series A convertible
preferred stock, par value $0.01, to Top Rider Group Limited for
$1,760,000. Each share of the Company’s Series A convertible preferred
stock is convertible into two shares of the Company’s common
stock.
|
|
4.
|
The Company agreed to reimburse
CDN for website development costs incurred on behalf of the Company in
2006 and 2005 totaling
$190,800.
|
|
5.
|
MYST and CDN agreed to terminate
the Rights Agreement dated November 11,
2005.
|
Subsidiaries
|
Countries Registered In
|
Percentage of
Ownership
|
||||
Subaye
IIP Limited
|
British
Virgin Islands
|
100.00
|
%
|
|||
Guangzhou
Subaye Computer Tech Limited
|
The
People’s Republic of China
|
100.00
|
%
|
|||
Media
Group International Limited
|
Hong
Kong, The People’s Republic of China
|
100.00
|
%
|
Description
|
Useful Lives
|
|
Computer
hardware
|
3
years
|
|
Computer
software
|
3
years
|
|
Websites
|
3
years
|
|
Furniture
and fixtures
|
5
years
|
|
Leasehold
improvements
|
5
years
|
September 30,
|
|
|||||||||||
|
2008
|
2007
|
2006
|
|||||||||
Warrants
to Purchase Common Stock, Held by MYST
|
1,150,000
|
-
|
-
|
|||||||||
Warrants
to Purchase Common Stock, Held by an Individual
|
500,000
|
-
|
-
|
|||||||||
Common
Stock Issuable Upon Conversion of Debt
|
-
|
-
|
767,425
|
|||||||||
Preferred
Stock
|
-
|
200,000
|
200,000
|
|||||||||
1,650,000
|
200,000
|
967,425
|
2008
|
2007
|
2006
|
||||||||||
Beginning
allowance for doubtful accounts
|
$
|
216,074
|
$
|
-
|
$
|
-
|
||||||
Recoveries
of bad debts
|
(185,440
|
)
|
-
|
-
|
||||||||
Foreign
currency adjustment
|
133
|
-
|
-
|
|||||||||
Additional
charge to bad debt expense
|
-
|
216,074
|
-
|
|||||||||
Ending
allowance for doubtful accounts
|
$
|
30,767
|
$
|
216,074
|
$
|
-
|
September 30,
|
|
|||||||||||
2008
|
2007
|
2006
|
||||||||||
Prepaid
advertising – PRC
movie productions
|
$
|
566,274
|
$
|
811,741
|
$
|
153,846
|
||||||
Prepaid
advertising –
online media
|
-
|
140,000
|
395,512
|
|||||||||
$
|
566,274
|
$
|
951,741
|
$
|
549,358
|
For the Year
Ended
September 30,
2008
|
||||
Beginning
balance receivable from MYST, as of September 30, 2007
|
$
|
2,519,676
|
||
Issuance
of stock to MYST, to cancel liabilities owed to MYST and MYST’s
subsidiaries
|
5,482,070
|
|||
Issuance
of stock to MYST, increase in advances receivable from
MYST
|
361,059
|
|||
Liabilities
owed to MYST subsidiaries, assumed upon acquisition of Guangzhou
Subaye
|
(3,224,157
|
)
|
||
Cash
receipts from the Company’s customers, held by MYST
|
248,293
|
|||
Expenses
paid by MYST on behalf of the Company
|
(2,192,769
|
)
|
||
Expenses
paid by the Company on behalf of MYST
|
2,952,279
|
|||
Cash
receipts by the Company on behalf of MYST
|
(1,893,961
|
)
|
||
Interest
charged to MYST on the daily balance owed to the Company
|
608,170
|
|||
Ending
balance receivable from MYST, as of September 30,
2008
|
$
|
4,860,660
|
For the Year
Ended
September 30,
2007
|
||||
Beginning
balance payable to MYST, as of September 30, 2006
|
$
|
(674,359
|
)
|
|
Expenses
paid by MYST or its subsidiaries on behalf of the Company
|
(1,432,035
|
)
|
||
Issuance
of common stock to MYST for cash
|
1,220,000
|
|||
Cash
receipts by MYST on behalf of the Company
|
3,237,928
|
|||
Interest
charged to MYST on the daily balance owed to the Company
|
168,142
|
|||
Ending
balance receivable from MYST, as of September 30, 2007
|
$
|
2,519,676
|
Cash
|
$
|
2,834
|
||
Fixed
Assets, Net
|
$
|
653
|
||
Goodwill
|
$
|
202,453
|
||
Due
to Related Party
|
$
|
(5,940
|
)
|
|
Net
Assets Acquired
|
$
|
200,000
|
||
Purchase
Consideration
|
$
|
200,000
|
||
Net
Assets Acquired
|
$
|
200,000
|
||
Net
Cash Inflow from Acquisition of MGI
|
$
|
2,834
|
(Restated)
|
||||
Cash
|
$
|
501,290
|
||
Computer
Software
|
2,700,000
|
|||
Security
Deposit
|
31,147
|
|||
Property
and Equipment
|
111,254
|
|||
Liabilities
Assumed
|
(3,224,157
|
)
|
||
Net
Assets Acquired
|
$
|
119,534
|
||
Purchase
Consideration
|
$
|
119,534
|
||
Net
Assets Acquired
|
$
|
(119,534
|
)
|
|
Net
Cash Inflow from Acquisition of Guangzhou Subaye
|
$
|
501,290
|
Accounts
Receivable
|
$
|
193,453
|
||
Property
and Equipment
|
12,024
|
|||
Other
Current Assets
|
368,951
|
|||
Goodwill
|
354,051
|
|||
Liabilities
Assumed
|
(608,465
|
)
|
||
Net
Assets Acquired
|
$
|
320,014
|
||
Purchase
Consideration
|
$
|
500,000
|
||
Net
Assets Acquired
|
(320,014
|
)
|
||
Net
Cash Inflow from Acquisition of the Panyu M&M
|
$
|
179,986
|
Cash
|
$
|
111,707
|
||
Accounts
Receivable
|
544,555
|
|||
Prepaid
Expenses
|
4,821
|
|||
Property
and Equipment
|
13,214
|
|||
Other
Assets
|
96,633
|
|||
Advances
Receivable from Parent Company
|
563
|
|||
Goodwill
|
354,051
|
|||
Liabilities
Assumed
|
(625,544
|
)
|
||
Net
Assets Acquired
|
$
|
500,000
|
||
Purchase
Price
|
$
|
500,000
|
||
Net
Assets Sold
|
(500,000
|
)
|
|
1
|
The Company sold 2,024,192 shares
of its common stock to MYST for
$1,060,000.
|
|
2.
|
The Company acquired certain
valuable assets, namely certain minority ownership rights to the website
known as www.subaye.com, by issuing 798,747 shares, valued at $1,565,544,
of its common stock to CDN.
|
|
3.
|
The Company issued 500,000 shares
of its common stock and 200,000 shares of its Series A convertible
preferred stock, par value $0.01, to Top Rider Group Limited for
$1,760,000. Each share of the Company’s series A convertible preferred
stock is convertible into two shares of the Company’s common
stock.
|
|
4.
|
Additionally, the Company agreed
to reimburse CDN for website development costs incurred on behalf of the
Company in 2006 and 2005 totaling
$190,800.
|
|
5.
|
MYST and CDN agreed to terminate
the Rights Agreement dated November 11,
2005.
|
Valuation
of Services Provided by MYST and Issuance of Convertible
Debt
|
$
|
1,000,000
|
||
Valuation
of Liabilities Cancelled Upon Stock Issuance to MYST
|
1,060,000
|
|||
Valuation
of Stock Issued to CDN
|
1,565,544
|
|||
Valuation
of Stock Issued to Top Rider
|
1,760,000
|
|||
Liabilities
Assumed From CDN
|
190,800
|
|||
Net
assets acquired
|
$
|
5,576,344
|
At September 30,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
Websites
|
$
|
7,132,716
|
$
|
5,576,344
|
5,576,344
|
|||||||
Computer
Software
|
9,387,042
|
|||||||||||
Furniture
& Fixtures
|
35,152
|
19,142
|
-
|
|||||||||
16,554,910
|
5,595,486
|
5,576,344
|
||||||||||
Less:
Accumulated depreciation and amortization
|
(6,886,882
|
)
|
(1,863,569
|
)
|
-
|
|||||||
$
|
9,668,028
|
$
|
3,731,917
|
$
|
5,576,344
|
At September 30,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
Depreciation
Included Within Operating Expenses
|
$
|
110,374
|
$
|
4,787
|
-
|
|||||||
Amortization
of Websites Included Within Cost of Sales
|
2,248,672
|
1,858,782
|
-
|
|||||||||
Amortization
of Software Included Within Cost of Sales
|
1,677,979
|
-
|
-
|
|||||||||
$
|
4,037,025
|
$
|
1,863,569
|
$
|
-
|
Estimated
Useful
|
||||||||
Website Acquired
|
Cost
|
Life (Years)
|
||||||
www.goongreen.org
|
$ | 534,914 | 1.75 | ** | ||||
www.goongood.com
|
500,000 | 3.00 | ||||||
www.x381.com
|
500,000 | 3.00 | ||||||
$ | 1,534,914 |
Estimated Useful
|
||||||||
Software Acquired
|
Cost
|
Life (Years)
|
||||||
IBS
V5.0
|
$ | 1,350,000 | 2.25 | ** | ||||
IBS
V5.0 Edu
|
675,000 | 3.00 | ||||||
IBS
V5.0 Gov
|
675,000 | 3.00 | ||||||
$ | 2,700,000 |
1.
|
The Company sold 2,024,192 shares
of its common stock to MYST for
$1,060,000.
|
2.
|
The Company acquired certain
valuable assets, namely the minority ownership rights to the website known
as www.subaye.com, by issuing 798,747 shares, valued at $1,565,544, of its
common stock to China Dongguan
Networks.
|
3.
|
The Company issued 500,000 shares
of its common stock and 200,000 shares of its Series A convertible
preferred stock, par value $0.01, to Top Rider Group Limited for
$1,760,000. Each share of the Company’s Series A convertible preferred
stock is convertible into two shares of the Company’s common
stock.
|
4.
|
The Company agreed to reimburse
CDN for website development costs incurred on behalf of the Company in
2006 and 2005 totaling
$190,800.
|
5.
|
MYST and CDN agreed to terminate
the Rights Agreement by and between CDN and Alpha Century Holdings,
Limited, a wholly-owned subsidiary of MYST, dated as of November 11,
2005.
|
Expected
Volatility
|
45.95
|
%
|
||
RiskFree
Interest Rate
|
3.91
|
%
|
||
Exercise
Price
|
$
|
4.00
|
||
Price
Per Common Share
|
$
|
1.86
|
||
Expected
Term (In Years)
|
5
|
a.
|
The new standard EIT rate of 25%
will replace the 33% rate currently applicable to both DES and FIEs,
except for High Tech companies who pay a reduced rate of 15%. The Company
currently believes it will qualify as a high tech
company.
|
b.
|
Companies established before
March 16, 2007 will continue to enjoy tax holiday treatment approved by
local government for a grace period of the next five years or until the
tax holiday term is completed, whichever is
sooner.
|
For the Years
Ended September 30,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
PRC
Tax Without Consideration of Tax Holiday
|
$
|
1,032,653
|
$
|
352,563
|
-
|
|||||||
PRC
Tax Savings as a Result of Tax Holiday
|
$
|
(1,032,653
|
)
|
(352,563
|
)
|
-
|
||||||
Increase
in Basic Earnings (Loss) Per Share as a Result of Tax
Holiday
|
$
|
0.11
|
0.08
|
0.00
|
||||||||
Increase
in Diluted Earnings (Loss) Per Share as a Result of Tax
Holiday
|
$
|
0.10
|
0.08
|
0.00
|
2008
|
2007
|
2006
|
||||||||||
U.S.
Statutory rates
|
35.0
|
%
|
35.0
|
%
|
35.0
|
%
|
||||||
Foreign
income
|
(35.0
|
)
|
(35.0
|
)
|
(35.0
|
)
|
||||||
China
tax rates
|
25.0
|
33.0
|
33.0
|
|||||||||
China
income tax exemption
|
(25.0
|
)
|
(33.0
|
)
|
(33.0
|
)
|
||||||
Effective
income tax rates
|
0
|
%
|
0
|
%
|
0
|
%
|
Year
Ended:
|
||||
September
30, 2009
|
$
|
21,654
|
||
$
|
21,654
|
Year
ended September, 30
|
||||
2009
|
$
|
49,600
|
||
$
|
49,600
|
September 30,
|
||||
|
2006
|
|||
(Restated)
|
||||
Assets of Discontinued
Operations
|
||||
Cash
|
$
|
111,707
|
||
Accounts
Receivable, Net
|
544,555
|
|||
Prepaid
Expenses
|
4,821
|
|||
Fixed
Assets, Net
|
13,214
|
|||
Goodwill
|
354,051
|
|||
Other
Assets
|
96,633
|
|||
Total
Assets
|
$
|
1,124,981
|
||
Liabilities of Discontinued
Operations
|
||||
Accounts
Payable and Accrued Expenses
|
$
|
572,663
|
||
Customer
Deposits
|
40,365
|
|||
Other
Liabilities
|
12,516
|
|||
Total
Liabilities
|
625,544
|
2006
|
||||
(Restated)
|
||||
Sales
|
$
|
2,868,074
|
||
Cost
of Goods sold
|
2,806,843
|
|||
Gross
Profit
|
61,231
|
|||
Salaries
|
(18,996
|
)
|
||
Travel
and Entertainment
|
(42,482
|
)
|
||
Other
Expenses
|
(24,043
|
)
|
||
Interest
Income
|
21,767
|
|||
Loss
from Discontinued Operations
|
$
|
(2,523
|
)
|
|
·
|
The Company is under a verbal
office sublease agreement with MYST through June 30, 2009 such that
the Company's monthly rent for its headquarters in Foshan City, China is
$2,406.
|
|
·
|
A significant balance was
receivable from MYST and MYST’s subsidiaries through the years ended
September 30, 2008, and 2007, respectively. As of December 31, 2008, a
balance of $483,480 was payable to MYST by the
Company. Historically, significant inter-company receivable
balances existed between MYST and the Company. At its maximum
in June 2008, MYST owed the Company approximately $8
million.
|
|
·
|
The Company issued a convertible
promissory note to a subsidiary of MYST on May 17, 2006 for $1,500,000.
The remaining balance on the convertible promissory note was converted to
540,000 shares of the Company's common stock on May 16,
2007.
|
|
·
|
The Company and its majority
shareholder have also entered into several stock purchase agreements
through the date of these financial statements, as disclosed in the
footnotes to these financial
statements.
|
|
·
|
The Company and its majority
shareholder have also entered into several business, asset acquisitions
and disposals through the date of these financial statements, as disclosed
in the footnotes to these financial
statements.
|
|
·
|
Historically, the Company has
relied on certain business relationships maintained by its majority
shareholder in order to conduct business. An example of the business
relationships utilized includes certain media contacts in the PRC,
government contacts in the PRC, and financial contacts in the PRC, U.S.
and Canada.
|
Year Ended
September 30, 2008
|
Online
Membership
Services
|
Software
Sales
|
Media and
Marketing
Management
|
Consolidated
Total
|
||||||||||||
Net Sales
|
$
|
7,680,017
|
$
|
1,826,871
|
$
|
640,320
|
$
|
10,147,208
|
||||||||
Cost
of Sales
|
2,658,265
|
1,316,342
|
701,658
|
4,676,265
|
||||||||||||
Segment
Income (Loss) Before Income Taxes
|
3,703,639
|
(57,092
|
)
|
180,347
|
3,826,894
|
|||||||||||
Segment
Assets
|
17,316,591
|
2,910,490
|
1,042,836
|
21,269,917
|
||||||||||||
Expenditures
for Segment Assets, Net of Liabilities assumed
|
6,822,836
|
119,534
|
200,000
|
7,142,370
|
Year Ended
September 30, 2007
|
Online
Membership
Services
|
Consolidated
Total
|
||||||
Net Sales
|
$
|
4,310,030
|
$
|
4,310,030
|
||||
Cost
of Sales
|
2,182,239
|
2,182,239
|
||||||
Segment
Income From Continuing Operations
|
1,068,372
|
1,068,372
|
||||||
Segment
Assets
|
7,591,568
|
7,591,568
|
||||||
Expenditures
for Segment Assets
|
-
|
-
|
Year Ended
September 30, 2006
(Restated)
|
Online
Membership
Services
|
Importing and
Exporting of
Goods
|
Consolidated
Total
|
|||||||||
Net sales
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||
Cost
of sales
|
-
|
-
|
-
|
|||||||||
Segment
loss from continuing operations
|
(170,110
|
)
|
-
|
(170,110
|
)
|
|||||||
Segment
loss from discontinued operations
|
-
|
(2,523
|
)
|
(2,523
|
)
|
|||||||
Segment
assets
|
6,634,331
|
624,980
|
7,259,311
|
|||||||||
Expenditures
for segment assets
|
4,010,800
|
20,363
|
4,031,163
|
As
Previously
Stated
|
Adjustment
|
As
Restated
|
||||||||||
Revenue
|
||||||||||||
Online
Membership Services
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||
Import
and Export Sales
|
2,868,074
|
(2,868,074
|
)
|
-
|
||||||||
Total
Revenue
|
2,868,074
|
(2,868,074
|
)
|
-
|
||||||||
Cost
of Sales
|
2,806,844
|
(2,806,844
|
)
|
-
|
||||||||
Gross
Profit
|
61,230
|
(61,230
|
)
|
-
|
||||||||
Operating
expenses:
|
||||||||||||
Advertising
|
125,000
|
-
|
125,000
|
|||||||||
Salaries
and Wages
|
18,996
|
(18,996
|
)
|
-
|
||||||||
Selling,
General and Administrative
|
75,664
|
(65,403
|
)
|
10,261
|
||||||||
Total
Operating Expenses
|
219,660
|
(84,399
|
)
|
135,261
|
||||||||
Loss
From Continuing Operations
|
(158,430
|
)
|
23,169
|
(135,261
|
)
|
|||||||
Other
Income and Expenses:
|
||||||||||||
Interest
Income (Expense) on Advances to or From Parent Company
|
85
|
(34,934
|
)
|
(34,849
|
)
|
|||||||
Other
Expenses
|
(13,183
|
)
|
13,183
|
-
|
||||||||
Total
Other Income and Expenses
|
(13,098
|
)
|
(21,751
|
)
|
(34,849
|
)
|
||||||
Net
Loss From Continuing Operations Before Income Taxes
|
(171,528
|
)
|
1,418
|
(170,110
|
)
|
|||||||
Net
Loss From Discontinued Operations
|
-
|
(2,523
|
)
|
(2,523
|
)
|
|||||||
Provision
for Income Taxes
|
(1,105
|
)
|
1,105
|
-
|
||||||||
Net
Loss
|
(172,633
|
)
|
-
|
(172,633
|
)
|
|||||||
Foreign
Currency Translation Adjustment
|
1,959
|
-
|
1,959
|
|||||||||
Comprehensive
Loss
|
$
|
(170,674
|
)
|
$
|
-
|
$
|
(170,674
|
)
|
||||
Net
Loss Per Common Share - Basic and Diluted
|
$
|
(0.15
|
)
|
$
|
(0.15
|
)
|
||||||
Basic
Weighted Average Number of Common Shares
|
1,181,604
|
1,181,604
|
||||||||||
Diluted
Weighted Average Number of Common Shares
|
1,360,845
|
1,181,604
|
As
Previously
Stated
|
Adjustment
|
As Restated
|
||||||||||
Current
Assets:
|
||||||||||||
Cash
|
$
|
120,335
|
$
|
(111,707
|
)
|
$
|
8,628
|
|||||
Accounts
Receivable, Net of Allowances for Doubtful Accounts
|
544,555
|
(544,555
|
)
|
-
|
||||||||
Prepaid
Expenses
|
4,820
|
(4,820
|
)
|
-
|
||||||||
Prepaid
Advertising
|
549,359
|
(1
|
)
|
549,358
|
||||||||
Other
Current Assets
|
96,633
|
(96,633
|
)
|
-
|
||||||||
Current
Assets of Discontinued Operation
|
-
|
1,124,981
|
1,124,981
|
|||||||||
Total
Current Assets
|
1,315,702
|
367,265
|
1,682,967
|
|||||||||
Property
and Equipment, Net of Accumulated Depreciation
|
5,589,558
|
(13,214
|
)
|
5,576,344
|
||||||||
Other
Assets:
|
||||||||||||
Goodwill
|
354,051
|
(354,051
|
)
|
-
|
||||||||
Total
Other Assets
|
354,051
|
(354,051
|
)
|
-
|
||||||||
TOTAL
ASSETS
|
$
|
7,259,311
|
-
|
$
|
7,259,311
|
|||||||
LIABILITIES
& STOCKHOLDERS’ EQUITY
|
||||||||||||
Current
Liabilities:
|
||||||||||||
Accounts
Payable
|
$
|
585,180
|
$
|
(585,180
|
)
|
$
|
-
|
|||||
Current
Liabilities of Discontinued Operations
|
-
|
625,544
|
625,544
|
|||||||||
Customer
Deposits
|
40,364
|
(40,364
|
)
|
-
|
||||||||
Related
Party Payables
|
-
|
201,061
|
201,061
|
|||||||||
Advances
Payable to Parent Company
|
875,420
|
(201,061
|
)
|
674,359
|
||||||||
Convertible
Debt-Parent Company
|
1,534,849
|
-
|
1,534,849
|
|||||||||
Total
current liabilities
|
3,035,813
|
-
|
3,035,813
|
|||||||||
Total
Liabilities
|
3,035,813
|
-
|
3,035,813
|
|||||||||
Commitment
and Contingencies
|
||||||||||||
Stockholders'
Equity:
|
||||||||||||
Preferred
Stock: $0.01 Par Value, Authorized: 50,000,000 Shares, 200,000 Shares
Issued and Outstanding
|
2,000
|
-
|
2,000
|
|||||||||
Common
Stock: $0.001 Par Value, Authorized 300,000,000 Shares, 3,763,819 Shares
Issued and Outstanding
|
3,764
|
-
|
3,764
|
|||||||||
Additional
Paid-in Capital
|
4,388,408
|
-
|
4,388,408
|
|||||||||
Accumulated
Other Comprehensive Income
|
1,959
|
-
|
1,959
|
|||||||||
Accumulated
Deficit
|
(172,633
|
)
|
-
|
(172,633
|
)
|
|||||||
Total
Stockholders’ Equity
|
4,223,498
|
-
|
4,223,498
|
|||||||||
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$
|
7,259,311
|
$
|
-
|
$
|
7,259,311
|
As
Previously
Stated
|
Adjustment
|
As Restated
|
||||||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||
Net
loss
|
$
|
(172,633
|
)
|
$
|
-
|
$
|
(172,633
|
)
|
||||
Adjustments
to Reconcile Net Loss to Net Cash Used in Operating
Activities:
|
||||||||||||
Depreciation
|
19,173
|
(19,173
|
)
|
-
|
||||||||
Changes
in Operating Assets and Liabilities:
|
||||||||||||
Accounts
Receivable
|
(351,102
|
)
|
351,102
|
-
|
||||||||
Prepaid
and Other Current Assets
|
(281,861
|
)
|
281,861
|
-
|
||||||||
Accounts
Payable and Accrued Charges
|
(23,285
|
)
|
23,285
|
-
|
||||||||
Customer
Deposits
|
40,364
|
(40,364
|
)
|
|||||||||
Prepaid
Advertising
|
-
|
(549,358
|
)
|
(549,358
|
)
|
|||||||
Advances
Receivable From Parent Company
|
-
|
4,739,450
|
4,739,450
|
|||||||||
Net
Cash Used in Operating Activities
|
(769,344
|
)
|
4,786,803
|
4,017,459
|
||||||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||
Cash
Received upon Acquisition of Subsidiary
|
179,986
|
(179,986
|
)
|
-
|
||||||||
Capital
Expenditures
|
(4,031,163
|
)
|
20,363
|
(4,010,800
|
)
|
|||||||
Net
Cash Used in Investing Activities
|
(3,851,177
|
)
|
(159,623
|
)
|
(4,010,800
|
)
|
||||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
Advances
From Parent Company
|
4,738,887
|
(4,738,887
|
)
|
-
|
||||||||
Net
Cash Provided by Financing Activities
|
4,738,887
|
(4,738,887
|
)
|
-
|
||||||||
EFFECT
OF EXCHANGE RATE ON CASH
|
1,959
|
-
|
1,959
|
|||||||||
INCREASE
IN CASH
|
120,325
|
(111,707
|
)
|
8,618
|
||||||||
CASH
AT BEGINNING OF YEAR
|
$
|
-
|
$
|
10
|
||||||||
CASH
AT END OF YEAR
|
$
|
120,325
|
$
|
8,628
|
MyStarU.com, Inc.
|
Pro forma
adjustments
|
Pro forma
Combined
|
|||||||||||
CURRENT ASSETS:
|
|||||||||||||
Cash
|
$
|
770,228
|
$
|
-
|
$
|
770,228
|
|||||||
Accounts Receivable
|
12,802,752
|
-
|
12,802,752
|
||||||||||
Inventory
|
500,041
|
-
|
500,041
|
||||||||||
Prepaid Advertising
|
1,487,826
|
-
|
1,487,826
|
||||||||||
Deposit for Purchase of Inventoriable
Assets
|
8,151,837
|
-
|
8,151,837
|
||||||||||
Deposit for Purchase of
Website
|
2,113,439
|
-
|
2,113,439
|
||||||||||
Other Current Assets
|
1,049,357
|
-
|
1,049,357
|
||||||||||
Total Current Assets
|
26,875,480
|
-
|
26,875,480
|
||||||||||
Property & Equipment
|
5,616,192
|
-
|
5,616,192
|
||||||||||
Other Assets
|
|||||||||||||
Copyrights
|
12,401,575
|
-
|
12,401,575
|
||||||||||
Goodwill
|
557,738
|
-
|
557,738
|
||||||||||
Security
Deposit
|
43,008
|
-
|
43,008
|
||||||||||
Total Other Assets
|
13,002,321
|
-
|
13,002,321
|
||||||||||
Total Assets
|
$
|
45,493,993
|
$
|
-
|
$
|
45,493,993
|
|||||||
CURRENT
LIABILITIES
|
|||||||||||||
Accounts Payable and Accrued
Expenses
|
$
|
3,474,434
|
$
|
-
|
$
|
3,474,434
|
|||||||
Customer Deposits
|
435,022
|
-
|
435,022
|
||||||||||
Short Term Debt
|
1,154,161
|
-
|
1,154,161
|
||||||||||
Total Current Liabilities
|
5,063,617
|
-
|
5,063,617
|
||||||||||
Total Liabilities
|
5,063,617
|
-
|
5,063,617
|
||||||||||
Minority Interest in Consolidated
Subsidiaries
|
8,524,585
|
(8,524,585
|
)
|
(a)
|
-
|
||||||||
Total Stockholders’
Equity
|
31,905,791
|
8,524,585
|
(a)
|
40,430,376
|
|||||||||
Total Liabilities and Stockholders'
Equity
|
$
|
45,493,993
|
$
|
-
|
$
|
45,493,993
|
(a)
|
The net change in minority interest in
consolidated subsidiaries includes an
adjustment of minority interest to stockholders’ equity to
distribute additional ownership of MyStarU.com, Inc. to the former
shareholders of the minority interest of Subaye.com,
Inc.
|
MyStarU.com Inc
|
Pro forma
Adjustment
|
Pro forma
Combined
|
|||||||||||
Revenues
|
$
|
33,686,097
|
$
|
-
|
$
|
33,686,097
|
|||||||
Cost of Sales
|
16,245,782
|
-
|
16,245,782
|
||||||||||
Gross profit
|
17,440,315
|
-
|
17,440,315
|
||||||||||
Operating Expenses:
|
|||||||||||||
Advertising
|
7,595,002
|
-
|
7,595,002
|
||||||||||
Stock Based Compensation
|
949,251
|
-
|
949,251
|
||||||||||
Bad Debt Expense
|
331,928
|
-
|
331,928
|
||||||||||
Salaries and Wages
|
152,261
|
-
|
152,261
|
||||||||||
Depreciation and
Amortization
|
36,801
|
-
|
36,801
|
||||||||||
Other Selling, General and Administrative
|
980,833
|
-
|
980,833
|
||||||||||
Total Operating Expenses
|
10,046,076
|
-
|
10,046,076
|
||||||||||
Income From Operations
|
7,394,239
|
-
|
7,394,239
|
||||||||||
Other Income and Expenses
|
37
|
-
|
37
|
||||||||||
Minority Interest in the Income of
Subsidiaries
|
(1,387,687
|
)
|
1,387,687
|
(b)
|
-
|
||||||||
Net Income
|
$
|
6,006,589
|
$
|
-
|
$
|
7,394,276
|
|||||||
Foreign Currency Translation
Adjustment
|
23,690
|
-
|
23,690
|
||||||||||
Comprehensive Income
|
$
|
6,030,279
|
1,387,687
|
$
|
7,417,966
|
||||||||
Earnings Per Share:
|
|||||||||||||
Basic and
Diluted
|
$
|
0.04
|
$
|
0.04
|
Name of Beneficial Owner
|
Amount of
Beneficial
Ownership
|
Percentage of
Class
|
||
Wukuang
IE Limited
|
50,000,000
|
20.1%
|
||
Taikang
Capital Managements Corporation
|
20,000,000
|
8.0%
|
||
Bon
Air Group Ltd.
|
11,565,000
|
4.6%
|
||
Gui
Wen Cai
|
11,500,000
|
4.6%
|
||
Trueboon
Corporation
|
8,500,000
|
3.4%
|
||
Bloomen
Limited
|
8,000,000
|
3.2%
|
||
Results
Group International Corp., Limited
|
7,000,000
|
2.8%
|
||
Free
Productions Limited
|
7,000,000
|
2.8%
|
||
Jin
Li
|
1,100,000
|
0.4%
|
||
Ruibo
Lun
|
1,000,000
|
0.4%
|
||
Total
|
125,665,000
|
50.3%
|
By
Order of the Board of Directors
|
|
Alan
R. Lun, President
|
Name:
Zhiguang Cai
|
Title:
Chief Executive
Officer
|