MYSTARU.COM, INC.

(Exact name of registrant as specified in its charter)

Delaware	35-2089848
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

6 North Twelfth Road

Country Garden

Shunde District

Foshan City, Guangdong

China 528312

 (Address of principal executive offices)

(86) 757 2663 9986

(Registrant’s telephone number, including area code)

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

 

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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o		Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x  

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: As of May 20, 2009, 179,864,316 shares of common stock, par value $.001 per share were outstanding.

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TABLE OF CONTENTS

			Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of March 31, 2009 and September 30, 2008		3
	Condensed Consolidated Statements of Operations and Comprehensive Income for the Six and Three Months Ended March 31, 2009 and 2008		4
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2009 and 2008		5
	Notes to Condensed Consolidated Financial Statements		6
Item 2.	Management's Discussion and Analysis of Financial Conditions and Results of Operations		22
Item 4T.	Controls and Procedures		31
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings		31
Item 1A.	Risk Factors		31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		31
Item 3.	Defaults Upon Senior Securities		31
Item 4.	Submission of Matters to a Vote of Security Holders		31
Item 5.	Other Information		31
Item 6.	Exhibits		31
Signatures			32

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Item 1. Financial Statements.

 

MYSTARU.COM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

		March 31, 2009				September 30, 2008
		(Unaudited)				(Audited)
ASSETS
Current Assets
Cash		$	523,548			$	302,632
Accounts Receivable, Net of Allowances for Doubtful Accounts of $362,952 (September 30, 2008 - $30,767) (Note 3)			16,648,256				10,387,036
Inventory			405,007				126,256
Prepaid Advertising			1,884,555				2,265,078
Other Current Assets			1,046,277				623,567
Total Current Assets			20,507,643				13,704,569
Property & Equipment, Net of Accumulated Depreciation of $16,793,179 (September 30, 2008 - $13,644,708) (Note 7)			7,207,469				10,301,602
Intangible Assets
Copyrights, Net of Accumulated Amortization of $2,265,234 (September 30, 2008 - $1,550,443) (Notes 5, 6)			12,632,387				13,118,866
Goodwill (Note 5)			557,735				557,224
Total Intangible Assets			13,190,122				13,676,090
TOTAL ASSETS		$	40,905,234			$	37,682,261

 

LIABILITIES  & STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts Payable		$	3,949,306			$	4,422,172
Customer Deposits			405,794				308,096
Accrued Liabilities			-				237,300
Short Term Debt			1,080,986				1,043,424
Total Current Liabilities			5,436,086				6,010,992
Total Liabilities			5,436,086				6,010,992
Minority Interest in Consolidated Subsidiaries (Note 11)			7,000,120				7,138,608
Commitment and Contingencies (Note 12)
Stockholders’ Equity (Note 9)
Preferred stock, $0.001 par value, authorized: 50,000,000 shares, zero shares issued and outstanding at March 31, 2009 and September 30, 2008			-				-
Common stock, $0.001 par value, authorized: 300,000,000 shares, - and 171,364,316 and 156,014,316 shares issued and outstanding at March 31, 2009 and September 30, 2008			171,364				156,014
Additional Paid in Capital			25,458,219				24,301,719
Shares to be Issued			8,500				350
Deferred Stock-Based Compensation			(1,816,515	)			(1,285,362	)
Accumulated Other Comprehensive Income			52,119				30,251
Retained Earnings			4,595,341				1,329,689
Total Stockholders’ Equity			28,469,028				24,532,661
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY		$	40,905,234			$	37,682,261

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX AND THREE MONTHS ENDED MARCH 31, 2009 AND 2008

NOTE 1 - BUSINESS DESCRIPTION AND ORGANIZATION

MyStarU.com, Inc., a Delaware corporation (together with its consolidated subsidiaries, “MYST” or the “Company”) is a fully integrated information and entertainment service provider to the business, internet, and consumer markets in the People’s Republic of China (the “PRC”). The Company was originally incorporated on January 6, 1997 in the State of Indiana under the corporate name MAS Acquisition XXI Corp. On December 21, 2000, the Company acquired Telecom Communications of America, a sole proprietorship in California, and changed its name to Telecom Communications, Inc. On February 28, 2005, the Company reincorporated in the State of Delaware by merging with a Delaware corporation of the same name. The surviving Delaware corporation succeeded to all of the rights, properties and assets and assumed all of the liabilities of the original Indiana corporation. On July 10, 2007, the Company changed its name from Telecom Communications, Inc. to MyStarU.com, Inc. The Company's common stock continues to be quoted under the symbol, “MYST.OB,” on the over-the-counter bulletin board (“OTCBB”) in the United States of America.

The Company operates under the following business segments:

 

1.

Investments in Entertainment Arts Productions - The Company purchases and licenses or resells copyrights of entertainment-related assets.

2.

Online Content and Member Services Provider - The Company provides online content and member services for commercial use.

3.

Software Sales - The Company provides web-based and mobile software platforms.

 

4.

Media and Marketing Management - The Company’s subsidiary, Media Group International, coordinates product placement activities for filmmakers and advertisers within the entertainment arts industry of the PRC.

5.

Importing and Exporting of Goods - The Company conducts international trade using the PRC as its base of operations.

 

CONTROL BY PRINCIPAL STOCKHOLDERS

 

The directors, executive officers and their affiliates or related parties, own beneficially and in the aggregate, the majority of the voting power of the outstanding shares of the common stock of the Company. Accordingly, the directors, executive officers and their affiliates, if they voted their shares uniformly, would have the ability to control the approval of most corporate actions, including increasing the authorized capital stock of the Company and the dissolution, merger or sale of the Company's assets or business.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

These condensed interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”).

The interim results of operations are not necessarily indicative of the results to be expected for the fiscal year ending September 30, 2009. The Company’s financial statements contained herein are unaudited and, in the opinion of management, contain all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of financial position, results of operations and cash flows for the period presented. The Company’s accounting policies and certain other disclosures are set forth in the notes to the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended September 30, 2008. These financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto. The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Principles of Consolidation

 

Basis of presentation

The consolidated financial statements, prepared in accordance with US GAAP, include the assets, liabilities, revenues, expenses and cash flows of the Company and all its subsidiaries. This basis of accounting differs in certain material respects from that used for the preparation of the books and records of the Company’s principal subsidiaries, which are prepared in accordance with the accounting principles and the relevant financial regulations applicable to enterprises with limited liabilities established in the PRC (“PRC GAAP”) the accounting standards used in the place of their domicile. The accompanying consolidated financial statements reflect necessary adjustments not recorded in the books and records of the Company’s subsidiaries to present them in conformity with US GAAP.

 

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The consolidated financial statements of the Company reflect the activities of the parent and the following subsidiaries. All significant intercompany accounts, transactions and cash flows are eliminated on consolidation.

Subsidiaries		Countries Registered In		Percentage of Ownership
MyStarU Limited		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	%

MyStarU Ltd.

 

MyStarU Ltd. operates the Company’s online educational platforms, and manages the MyStarU franchise programs.

 

3G Dynasty

 

3G Dynasty operates the Company’s investments in entertainment arts business segment and is a holding company utilized by the Company to manage its investments in intellectual properties such as movie copyrights.

 

Subaye.com, Inc. (“Subaye.com”)

 

Subaye.com is a holding company utilized by the Company to manage its investments in Guangzhou Subaye Computer Technology Limited, Subaye IIP Limited and Media Group International, Inc.

  

Subaye IIP Limited

 

Subaye IIP Limited is an operating company utilized by the Company to manage the Company’s websites, www.subaye.com, www.goongreen.org, www.x381.com, www.goongood.com.  Subaye IIP Limited is also in the business of marketing and delivering software generally referred to as SAAS, or Software as a Service.

 

Guangzhou Panyu Metals & Materials Limited

 

Guangzhou Panyu Metals & Materials Limited ("Panyu") operates the Company’s importing and exporting business.

 

Guangzhou Subaye Computer Technology Limited

 

Guangzhou Subaye Computer Technology Limited ("Guangzhou Subaye") provides technical expertise with regard to computer software, hardware, internet infrastructure and networking for the Company and its employees and markets and sells computer software, namely IBS Version 5.0.

 

Media Group International Limited

 

Media Group International Limited ("MGI") provides media, advertising and marketing expertise for the Company and markets and sells its services such as advertising product placement services and media management services within the PRC entertainment market and overseas.

 

Foreign currency translation

The reporting currency of the Company is the US dollar. The Company’s principal operating subsidiaries established in the PRC and Hong Kong, use their local currency, Renminbi (RMB), and Hong Kong Dollar (HKD), as their functional currency. Results of operations and cash flows are translated at average exchange rates during the period, and assets and liabilities are translated at the unified exchange rate as quoted by the People’s Bank of China at the end of the period. Translation adjustments resulting from this process are included in accumulated other comprehensive income in stockholders’ equityon the balance sheets. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

Translation adjustments resulting from this process are included in accumulated other comprehensive income in stockholders' equity on the balance sheets and amounted to $52,119 and $30,251 as of March 31, 2009 and September 30, 2008, respectively.

 

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Revenue Recognition

 

Licensing Agreements

Licensing revenue derived from the Company’s copyrights is recognized in accordance with Statement of Position 00-2, Accounting by Producers or Distributors of Films (“SOP 00-2”). SOP 00-2 specifies that revenue is to be recognized when all of the following conditions are met:

 

1.

Persuasive evidence of a sale or licensing arrangement with a customer exists.

2.

The film is complete and, in accordance with the terms of the arrangement, has been delivered or is available for immediate and unconditional delivery.

3.

The license period of the arrangement has begun and the customer can begin its exploitation, exhibition, or sale.

 

4.

The arrangement fee is fixed or determinable.

 

5.

Collection of the arrangement fee is reasonably assured.

When the Company's licensing fee is based on a percentage or share of a customer's revenue from the exploitation of the films, the Company recognizes revenue as the customer exploits the films and the Company meets all of the other revenue recognition conditions. In those circumstances, the Company receives reports from the customers on a periodic basis and uses those reports as the basis for recording revenue.

 

The Company reviewed its business plan with regard to whether the Company will continue to sell off assets it doesn’t consider having immediate benefit to the Company. As a result, the Company believes the sale of these copyrights is in the ordinary course of business and should not be reported as an extraordinary event or as other income. Accordingly, the Company has reported the proceeds from the sales in “licensing and royalty revenues” within the consolidated statement of operations and the adjusted cost basis associated with the sale in costs of sales on the consolidated statement of operations.

Monthly Website Subscriptions

 

Revenue for the monthly subscription from the members who subscribed to the Company’s websites is recognized on a pro-rata basis, is calculated on a day-to-day basis and invoiced at the end of each month of full service in accordance with SEC Staff Accounting Bulletin No. 104, Revenue Recognition ("SAB 104"). The Company does not currently charge a cancellation fee or penalty if and when a customer decides to terminate their membership with our websites.

 

Current terms of the www.subaye.com membership agreement stipulate that the customer pays a nonrefundable fee of approximately $100 per month for access to the marketing and advertising capabilities in place at www.subaye.com. The Company does not currently provide any specific software to its customers, although, much of the website is driven by complex software which controls the video and voice streaming, among other things, which is prevalent throughout the website.

 

The Company has an ongoing agreement with China Netcom ("CN"). CN is an internet and webhosting provider in the PRC and manages the internet connection and webhosting of the Company's www.subaye.com website. Under the agreement, CN is required to ensure that the Company's internet connection and namely its webhosting, is operating correctly at all times such that all users of the websites, including Subaye.com members and anyone else who attempts to access the website can do so without interruption as long as the individual has a reliable internet connection. CN is compensated such that CN receives forty percent (40%) of the Company's gross membership fees, payable on a monthly basis within approximately fifteen (15) days of the end of each month. The Company records its revenues net of the fees paid to CN, in accordance with Emerging Issues Task Force Issue No. 99-19 ("EITF 99-19"). The Company believes net revenue presentation is reasonable given that it shares the obligation to perform with CN with regard to its membership contracts with its customers. The Company also does not believe it has the ability to replace CN with another comparable internet and webhosting provider. Lastly, the allocation of fees to CN is based on a fixed percentage portion of the membership revenues earned from membership fee transactions.

The Company has an ongoing agreement with SSTH Limited ("SSTH"). SSTH is a merchant service provider contracted to complete two tasks: (i) to assist the members of www.subaye.com in preparing each member's corporate branding video, which is to be uploaded to www.subaye.com and (ii) to assist the Company with the daily operations of www.subaye.com and more specifically, to collect the monthly member fees, which are currently paid in cash, from the members of www.subaye.com. Collecting these cash receipts, tracking which customers have paid and which have not, and remitting the cash to the Company, is a time intensive project each month. In October 2006, the Company and SSTH Limited orally agreed to allow SSTH Limited as much as 90 days in order to collect all cash receipts from any particular month. The Company determined it would provide the merchant services provider flexibility with regard to remitting cash to the Company so that the merchant services provider could focus its efforts on collecting fees from the members of www.subaye.com. The Company has never experienced collection issues with regard to the merchant services provider and does not expect any collection issues to occur in the future.  SSTH is compensated such that SSTH receives ten percent (10%) of the Company's gross membership fees, payable on a monthly basis at the end of each month. The Company records its revenues net of the fees paid to SSTH, in accordance with Emerging Issues Task Force Issue No. 99-19 ("EITF 99-19"). The Company believes net revenue presentation is reasonable given that it shares the obligation to perform with SSTH with regard to its membership contracts with its customers. The Company also does not believe it has the ability to replace SSTH with another comparable internet and webhosting provider. Lastly, the allocation of fees to SSTH is based on a fixed percentage portion of the membership revenues earned from membership fee transactions.

 

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The Company also has an ongoing agreement with FRT whereby FRT is to ensure the telephone lines and mechanical equipment associated with the Company's internet connection is operating correctly. The Company has a fixed arrangement with FRT such that the monthly fees payable to FRT for its services are approximately $6,200.

Media & Marketing Management

In accordance with SAB 104, the Company recognizes revenue generated by its MGI subsidiary when the following fundamental criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the price to the customer is fixed or determinable and (iv) collection of the resulting receivable is reasonably assured. In general, revenues are typically earned throughout the life of MGI contracts, normally on a monthly basis.

Software Sales

Revenue from the sale of software is recognized pursuant to the requirements of Statement of Position 97-2 “Software Revenue Recognition” (SOP 97-2), issued by the American Institute of Certified Public Accountants, as amended by SOP 98-9 “ Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions.” In accordance with SOP 97-2, we begin to recognize revenue from licensing and supporting our software products when all of the following criteria are met: (1) we have evidence of an arrangement with a customer; (2) we deliver the products; (3) license agreement terms are deemed fixed or determinable and free of contingencies or uncertainties that may alter the agreement such that it may not be complete and final; and (4) collection is probable.

Our software licenses generally do not include acceptance provisions. An acceptance provision allows a customer to test the software for a defined period of time before committing to license the software. If a license agreement includes an acceptance provision, we do not record deferred subscription value or recognize revenue until the earlier of the receipt of a written customer acceptance or, if not notified by the customer to cancel the license agreement, the expiration of the acceptance period.

 

Under our traditional software sales business model, software license agreements for our IBS version 5.0 software typically include a lifetime right of use and do not provide for any support or maintenance to be provided by the Company for the term of the agreement. Software license fees are recognized once all four criteria for revenue recognition criteria are met (as the contracts do not include a right to unspecified software products.)

 

Our standard licensing agreements include a product warranty provision for all products. Such warranties are accounted for in accordance with SFAS No. 5, “Accounting for Contingencies.” The likelihood that we would be required to make refunds to customers under such provisions is considered remote. As a result, the Company has not accrued for potential liabilities associated with the performance of its software products as no liabilities are specifically anticipated by the Company.

 

Under the terms of substantially all of our license agreements, we have agreed to indemnify customers for costs and damages arising from claims against such customers based on, among other things, allegations that our software products infringe the intellectual property rights of a third party. In most cases, in the event of an infringement claim, we retain the right to (i) procure for the customer the right to continue using the software product; (ii) replace or modify the software product to eliminate the infringement while providing substantially equivalent functionality; or (iii) if neither (i) nor (ii) can be reasonably achieved, we may terminate the license agreement and refund to the customer a pro-rata portion of the fees paid. Such indemnification provisions are accounted for in accordance with SFAS No. 5. The likelihood that we would be required to make refunds to customers under such provisions is considered remote. In most cases and where legally enforceable, the indemnification is limited to the amount paid by the customer.

 

The Company is also a provider of software as a service "SAAS” products. The Company’s SAAS software provides its customers with:

·

the ability to store data on the Company’s servers and access the data through the internet utilizing “remote access” capabilities

 

·

the ability to customize the design and update the content of the customers’ respective company websites, including the ability to organize and edit online advertising videos

 

·

customer relationship management software, which allows the Company’s customers to maintain records and data associated with their own customers on a real-time and per-customer basis within a secure platform

 

·

integration with www.subaye.com, which allows for immediate updating of each SAAS customer’s corporate branding video and other corporate data on www.subaye.com

Potential customers for the SAAS products are identified by our salespersons, starting with existing members of www.subaye.com, then targeting small to midsize enterprises in China that would benefit from the enhanced services beyond membership to the www.subaye.com website.

The Company charges a monthly licensing fee of approximately $100 for each license purchased by a SAAS customer.

In September 2008, the Company completed several significant investments in computer hardware and software totaling approximately $5.3 million and committed to the SAAS business model. In November and December 2008, the Company entered into two contracts which a large shopping mall management company to secure its first 3,900 SAAS customers, which consisted of shop owners within two separate shopping malls in the PRC. These initial 3,900 SAAS customers will generate approximately $390,000 in revenues per month for a 12 month period on a combined basis. Prior to these sales the Company's software sales business segment had only completed one software sale in the past twelve months. Continued sales of the IBS Version 5.0 computer software are possible but the Company is not focused on sales of this product at this time. The Company's efforts are currently focused on expanding its SAAS business opportunities, which the Company believes will be much more lucrative than traditional sales of its IBS Version 5.0 software. The interest level in the PRC with regard to SAAS is very high but we are new to this business and we are uncertain of the likelihood of success.

 

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Importing and Exporting Sales

The Company recognizes revenue on import and export sales when products are delivered and the customer takes ownership and assumes risk of loss, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists and the sales price is fixed or determinable. Net sales of products represent the invoiced value of goods, net of value added taxes, sales returns, trade discounts and allowances. In December 1999, the Securities Exchange Commission issued Staff Accounting Bulletin ("SAB) No. 101, "Revenue Recognition" and in July 2000, the Emerging Issues Task Force ("EITF") issued EITF Abstract No. 99-19 Reporting Revenue Gross as a Principal versus Net as an Agent ("EITF 99-19") which provided further guidance to SAB 101 on revenue recognition in certain circumstances. Prior to the introduction of EITF 99-19, the manner in which the Company recognized revenues depended on the goods and services sold. We reviewed the considerations included in EITF 99-19 with respect to sales of products within each of our business segments but with particular attention to our importing and exporting business segment. We determined that while EITF 99-19 outlines the variety of types of business transactions which would require the Company to report its revenues and costs of goods sold on a net basis, we do not believe our importing and exporting business should be accounted for with net reporting of revenues and costs of sales. The Company takes full ownership and assumes the risk of loss for its imported goods while the goods are in transit. The Company does not consider itself an agent for its customers, as described by EITF 99-19. After reviewing EITF 99-19, management believes that the Company is correct in continuing to present its revenues and costs of goods sold on a gross basis.

 

Sales revenue represents the invoiced value of goods, net of a value-added tax (VAT). All of the Company’s products sold in the PRC are subject to a Chinese value-added tax at a rate of 6% of the gross sales price or at a rate approved by the Chinese local government.”

Amortization of Copyrights

The Company amortizes its copyrights using the individual-film-forecast-computation method, in accordance with the SOP 00-2, which amortizes or accrues (expenses) such costs in the same ratio that current period actual revenue (numerator) bears to estimated remaining unrecognized ultimate revenue as of the beginning of the current fiscal year (denominator). The Company began amortization of certain movie copyrights in December 2006, when the Company began to recognize revenue from one of its copyrighted titles, “Big Movie: Subaye.”  Amortization related to the Company's copyrights was $710,485 and $0 and $115,388 and $0  for the six and three months ended March 31, 2009 and 2008, respectively, and was included in cost of sales.

The ultimate revenue to be included in the denominator of the individual-film-forecast-computation method fraction is subject to certain limitations as set forth in the SOP. If an event or change in circumstance indicates that the Company should assess whether the fair value of the copyright is less than its unamortized costs, the Company will determine the fair value of the film and will write off the amount by which the unamortized capitalized costs exceeds the episode's fair value. Accordingly, the Company cannot subsequently restore any amounts written off in previous fiscal years to income.

On October 3, 2007, the Company issued 735,000 shares of common stock to the Company’s Chief Financial Officer for services to be provided over a two year period at a price of $.13 per share for a total consideration equal to $95,550. The shares are being amortized over 24 months with stock-based compensation expense of $3,981 each month. The total stock-based compensation expense for the six and three months ended March 31, 2009 and 2008 was $23,888 and $23,888 and $11,944 and $11,944, respectively.

On October 3, 2007, the Company issued 1,000,000 shares of common stock to the Company’s Chief Executive Officer for services to be provided over a two year period at a price of $.13 per share for a total consideration equal to $130,000. The shares are being amortized over 24 months with stock-based compensation expense of $5,417 each month. The total stock-based compensation expense for the six and three months ended March 31, 2009 and 2008 was $32,500 and $32,500 and $16,250 and $16,250, respectively.

On October 3, 2007, the Company issued 400,000 shares of common stock to an investor relations consultant, for services to be provided over a 24 month period at a price of $.13 per share for a total consideration equal to $52,000. The shares are being amortized over 24 months with stock-based compensation expense of $2,167 each month. The total stock-based compensation expense for the six and three months ended March 31, 2009 and 2008 was $13,000 and $13,000 and $6,500 and $6,500, respectively.

On October 3, 2007, the Company issued 526,316 shares of common stock for investor relations purposes, for services to be provided over a 12 month period at a price of $.57 per share for a total consideration equal to $300,000. The shares are being amortized over 12 months with stock-based compensation expense of $25,000 each month. The total stock-based compensation expense for the six and three months ended March 31, 2009 and 2008 was $0 and $150,000 and $0 and $75,000, respectively.

 

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On September 18, 2008, the Company agreed to issue 350,000 shares of common stock to Mary Kratka for investor relations and promotions services at a price of $0.08 per share for total consideration equal to $28,000. The shares are being amortized over approximately 3 months with a stock-based compensation expense of $9,333 each month. The total stock-based compensation expense for the six and three months ended March 31, 2009 and 2008 was $51,520 and $0 and $25,760 and $0, respectively.

On October 10, 2008, the Company agreed to issue 7,000,000 shares of common stock to Results Group International for consulting services at a price of $0.05 per share for total consideration equal to $350,000. The shares are being amortized over 36 months with a stock-based compensation expense of $9,722 each month. The total stock-based compensation expense for the six and three months ended March 31, 2009 and 2008 was $52,061 and $0 and $26,030 and $0, respectively.

On January 6, 2009, the Company agreed to issue 8,000,000 shares of common stock to Bloomen Limited for consulting services over a 36-month contract at a price of $0.04 per share for total consideration equal to $320,000. The shares are being amortized over 36 months with a stock-based compensation expense of $8,888 each month. The total stock-based compensation expense for the six and three months ended March 31, 2009 and 2008 was $26,667 and $0 and $26,667 and $0, respectively.

On March 30, 2009, the Company agreed to issue 8,500,000 shares of common stock to Trueboon Limited for consulting services over a 36 month contract at a price of $0.06 per share for total consideration equal to $510,000. The shares are being amortized over 36 months with a stock-based compensation expense of $14,167 each month, commencing in April 2009.

Subaye.com Stock Based Compensation

On October 1, 2007, Subaye.com issued 170,000 shares of common stock to Subaye.com’s Chief Executive Officer for services to be provided over a two year period from January 2, 2008 through December 31, 2009 at a price of $2.00 per share for a total consideration equal to $340,000. The shares will be amortized over 24 months with stock-based compensation expense of $14,167 each month. The total stock-based compensation expense for the six and three months ended March 31, 2009 and 2008 was $85,000 and $42,500 and $42,500 and $42,500, respectively.

On October 1, 2007, Subaye.com issued 50,000 shares of common stock to an employee of Subaye.com for services to be provided beginning February 1, 2008 at a price of $2.00 per share for a total consideration equal to $100,000. The total stock-based compensation expense for the six and three months ended March 31, 2009 and 2008 was $25,000 and $12,500 and $12,500 and $12,500, respectively.

On October 1, 2007 and then additionally on January 2, 2008, Subaye.com issued 450,000 shares of common stock to an investor relations consultant, for services to be provided over a 24 month period at a price of $2.00 per share for a total consideration equal to $900,000. The shares will be amortized over 24 months with stock-based compensation expense of $37,500 each month. The total stock-based compensation expense for the six and three months ended March 31, 2009 and 2008 was $225,000 and $112,500 and $112,500 and $112,500 respectively.

On January 2, 2008, Subaye.com issued 50,000 shares of common stock to a company executive, for services to be provided over a 24 month period at a price of $2.00 per share for a total consideration equal to $100,000. The shares will be amortized over 24 months with stock-based compensation expense of $4,167 each month. The total stock-based compensation expense for the six and three months ended March 31, 2009 and 2008 was $25,000 and $12,500 and $12,500 and $12,500, respectively.

On January 2, 2008, Subaye.com issued 70,800 shares of common stock to a company executive, for services to be provided over a 24 month period at a price of $2.00 per share for a total consideration equal to $141,600. The shares will be amortized over 24 months with stock-based compensation expense of $5,900 each month. The total stock-based compensation expense for the six and three months ended March 31, 2009 and 2008 was $35,400 and $17,700 and $17,700 and $17,700, respectively.

On February 26, 2008, Subaye.com issued 78,425 shares of common stock to its Chief Financial Officer, for services to be provided over a 24 month period at a price of $2.00 per share for a total consideration equal to $156,850. The shares will be amortized over 24 months with stock-based compensation expense of $6,535 each month. The total stock-based compensation expense for the six and three months ended March 31, 2009 and 2008 was $39,211 and $7,211 and $19,606 and $7,211, respectively.

Total stock compensation expense reported was $648,847 and $867,024 and $337,757 and $503,155 for the six and three months ended March 31, 2009 and 2008, respectively.

Sales of Common Stock Securities

		March 31, 2009				September 30, 2008
Minority interest of shareholders		$	7,000,120			$	7,138,608

NOTE 12 - COMMITMENTS & CONTINGENCIES

 

Operating Leases

In the normal course of business, the Company leases office space under operating lease agreements. The Company rents office space, primarily for regional sales administration offices, in commercial office complexes that are conducive to administrative operations. The operating lease agreements generally contain renewal options that may be exercised at the Company's discretion after the completion of the base rental terms. In addition, many of the rental agreements provide for regular increases to the base rental rate at specified intervals, which usually occur on an annual basis.

On July 1, 2008, the Company entered into a lease for new office space in Foshan City, Guangdong, China. The following table summarizes the Company’s future minimum lease payments under operating lease agreements for the five years subsequent to March 31, 2009:

On February 1, 2009, the Company entered into a lease agreement to utilize approximately 22,000 square feet of office space at 349 Dabei Road, Shiqiao Street, Panyu District, Guanzhou City, Guangdong, China 511400 for approximately $8,824 per month through January 31, 2011.

Twelve Months Ended March 31,
2010		$	163,632
2011			145,984
2012			14,436
		$	324,052

The Company recognizes lease expense on a straight-line basis over the life of the lease agreement. Contingent rent expense is recognized as it is incurred. Total rent expense in continuing operations from operating lease agreements was $39,608 and $161,638 for the six months ended March 31, 2009 and 2008, respectively.

 

Litigation

We may be involved from time to time in ordinary litigation that will not have a material effect on our operations or finances. We are not aware of any pending or threatened litigation against the Company or our officers and directors in their capacity as such that could have a material impact on our operations or finances.

 

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NOTE 13 - SHORT TERM DEBT

 

Total debt obligations as of March  31 consist of the following:

 

		March 31, 2009				September 30, 2008
8.64% Bank Loan, Due September 18, 2009		$	933,624			$	1,021,138
7.92% Bank Loan, Due December 31, 2009			147,362				-
Short Term Non-Interest Bearing Bank Advance			-				22,286
Total Debt Obligations			1,080,986				1,043,424
Less: Current Maturities			1,080,986				1,043,424
Total Long-Term Debt		$	-			$	-

 

Bank Loan

 

On September 19, 2008, we entered into a bank loan with Panyu RuralCredit Union and Cooperative Bank, a PRC-based bank, for a total of $1,021,138, (7,000,000 RMB). The bank loan has an annualized interest rate of 8.64% with interest payable on a monthly basis.  We used the net proceeds from the bank loan to invest in computer equipment and computer software and for other general corporate purposes.  We paid back approximately $87,500 during the three months ended March 31, 2009. As of March 31, 2009, the outstanding borrowings related to this transaction have been included in the Consolidated Balance Sheets within short term debt.  The bank loan and all unpaid interest is payable in full on September 18, 2009.

 

During the three months ended December 31, 2008, the Company entered into a second bank loan for $145,896 (1,000,000 RMB). The bank loan has an annualized interest rate of 7.92%.

 

Short Term Non-Interest Bearing Bank Advance

 

In April 2008, the Company received an advance from ICBC, a PRC-based bank for $22,286 (152,779 RMB). This advance was repaid to ICBC during the three months ended December 31, 2008.

 

Aggregate scheduled maturities of our debt obligations for each of the five 12- month periods subsequent to March 31, 2009, and thereafter are as follows:

 

12 Months Ended March 31,
2010		$	1,080,986
2011		-
2012		-
2013		-
2014		-
Subsequent to 2014		-
Total scheduled debt payments		$	1,080,986

 

NOTE 14 - SEGMENT REPORTING

Six Months Ended March 31, 2008		Investments in Entertainment Arts Productions				Online Memberships for the B2B Marketplace				Media & Marketing Management				Importing and Exporting of Goods				Corporate/ Others				Consolidated Total
Net sales		$	3,953,352			$	4,023,102			$	641,486			$	7,190,979				-			$	15,808,919
Cost of sales			2,115,601				1,658,315				702,935				7,031,783				-				11,508,634
Segment income (loss) before minority interest			1,807,459				2,422,893				(89,450	)			20,989				(2,016,463	)			2,145,428
Segment assets			13,840,594				11,639,440				152,623				3,769,251				2,481,019				31,882,927
Expenditures for segment assets			952,588				1,000,000				-				-				-				1,952,588

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

	MYSTARU.COM, INC.
Date: May 20, 2009	By:	/s/ Alan R. Lun
		Alan R. Lun President and Chief Executive Officer
		(Principal Executive Officer)

 

Date: May 20, 2009	By:	/s/ James T. Crane
		James T. Crane
		Chief Financial Officer
		(Principal Accounting and Financial Officer)

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