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SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
For the
quarterly period ended March 31, 2009
For the
transition period from ________ to ________
Commission
File Number 333-62236
MYSTARU.COM,
INC.
(Exact
name of registrant as specified in its charter)
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)
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.
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.
TABLE OF
CONTENTS
2
Item
1. Financial Statements.
MYSTARU.COM,
INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
The
accompanying notes are an integral part of the condensed consolidated financial
statements.
3
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR
THE SIX AND THREE MONTHS ENDED MARCH 31, 2009 AND 2008
The
accompanying notes are an integral part of the condensed consolidated financial
statements.
4
CONDENSED
CONSOLIDATED STATEMENTS OF CASHFLOWS
FOR
THE SIX MONTHS ENDED MARCH 31, 2009 AND 2008
The
accompanying notes are an integral part of the condensed consolidated financial
statements.
5
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:
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.
6
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.
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.
7
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:
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.
8
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:
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.
9
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.
Trade
Accounts Receivable
Trade
accounts receivable are recorded at the invoiced amount and do not bear
interest. The allowance for doubtful accounts represents the Company’s best
estimate of the amount of probable credit losses in the existing accounts
receivable balance. The Company determines the allowance for doubtful accounts
based upon historical write-off experience and current economic conditions. The
Company reviews the adequacy of its allowance for doubtful accounts on a regular
basis. Receivable balances past due over 120 days, which exceed a specified
dollar amount, are reviewed individually for collectibility. Account balances
are charged off against the allowance after all means of collection have been
exhausted and the potential for recovery is considered remote. The Company does
have off-balance sheet credit exposure related to its customers. The
concentration of customers owing at least 5% of the Company’s outstanding
accounts receivable as of March 31, 2009 was 82% of the company’s accounts
receivable.
Use
of Estimates
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 disclosure of contingent assets and liabilities at
the date of the financial statements, as well as the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Estimates and assumptions are periodically reviewed and
the effects of revisions are reflected in the consolidated financial statements
in the period they are determined to be necessary. Significant estimates include
estimates of the useful life of property and equipment, copyrights,
collectibility of accounts receivable, and valuation of stock based
compensation.
10
Certain
reclassifications to the Company’s balance sheet and income statement have been
made in 2008, in order for the 2009 financial statements to conform to the
presentation of these financial statements. These reclassifications did not
impact the Company’s assets, liabilities, net income (loss) or stockholders
equity for the six months ended March 31, 2009 and 2008,
respectively.
The
Company’s business operations are conducted in the PRC. During the normal course
of business, the Company extends unsecured credit to its customers. Management
reviews its accounts receivable on a regular basis to determine if the allowance
for doubtful accounts is adequate. An estimate for doubtful accounts is made
when collection of the full amount is no longer probable. Trade accounts
receivable at March 31, 2009 and September 30, 2008 consisted of the
following:
The
activity in the allowance for doubtful accounts for trade accounts receivable
for the six months ended March 31, 2009 and the year ended September 30, 2008 is
as follows:
NOTE
4 - ADVERTISING PROMOTION
The
Company expenses advertising costs as the costs are incurred in accordance with
Statement of Position 93-7 “Reporting on Advertising
Costs” (“SOP 93-7”), issued by the American Institute of Certified
Public Accountants.
On
October 1, 2008, the Company entered into a promotional event whereby a total of
16,000 members of www.subaye.com would receive a total of 1,600 DVDs which
included both a promotional video on behalf of the customer and the motion
picture “Big Movie: Subaye” free of charge. The customer would
receive the DVDs and participate in the promotion if they agreed to remain
customers of the Company for the twelve month period from October 1, 2008
through September 30, 2009 (the “12 Month Period”). If a customer
does not remain a customer for the full 12 Month Period then the customer will
owe the Company approximately $0.72 per DVD for each month in which they did not
remain a customer during the 12 Month Period. The Company then
delivered the DVDs to its participating customers December 2008 and January
2009. The total cost of the promotional event was approximately $6.8
million. The Company recorded a prepaid expense for approximately
$6.8 million and expensed the full value of the advertising promotion in
December 2008 and January 2009. For the six and three months ended
March 31, 2009, the Company recorded $6.8 million and $3.4 million in
advertising costs for the advertising promotion, respectively, which is
included as advertising in the accompanying consolidated statements of
operations and comprehensive income.
11
NOTE
5 - PURCHASE AND SALE OF ASSETS
Purchase of Copyrights to
Qianfu
On
February 22, 2009 the Company purchased the copyrights to Qianfu, a PRC motion
picture, for approximately $3,872,490.
Sale of Copyrights to Motion
Picture “Stockbrokers”
On March
12, 2009, the Company sold all rights under its copyright for the programming
rights to the Chinese, motion picture “Stockbrokers.” Once the sale was
complete, the Company had no remaining assets or copyrights associated with the
Stockbrokers production. The details of the sale are listed below:
On
October 23, 2007, the Company’s subsidiary, Subaye.com, acquired 100% of the
outstanding ownership units of Media Group International Limited (“MGI”) for
100,000 shares of common stock of Subaye.com, valued at $200,000 which was the
fair market value of recent arms length transactions involving the common stock
of Subaye.com, Inc. The net assets received by Subaye.com from the acquisition
of MGI totaled $197,166. In accordance with the purchase method of accounting,
the results of MGI and the estimated fair market value of the assets and
liabilities assumed have been included in the consolidated financial statements
from the date of acquisition.
The
purchase price of MGI was allocated to the assets acquired and liabilities
assumed by Subaye.com less the goodwill of $202,453, which was
recorded upon Subaye.com’s acquisition of MGI. The Company recorded $202,453 of
goodwill, which was the excess of acquisition cost over fair value of net assets
of MGI.
Goodwill
is comprised of the residual amount of the purchase price over the fair value of
the acquired tangible and intangible assets. The operating results of MGI have
been included in our subsidiary, Subaye.com’s statement of operations from
October 23, 2007 and within the Company’s statement of operations since October
23, 2007. If the operating results had been included since the beginning of the
prior fiscal year, October 1, 2007, the Company’s pro-forma consolidated revenue
and the Company’s pro-forma net income would have been $15,808,919 (unchanged)
and $1,543,059, respectively.
12
First
Open
On
December 30, 2007, the Company sold all rights under its copyright for the
internet programming rights to First Open. Once the sale was complete, the
Company had no remaining assets or copyrights associated with the First Open
production. The details of the sale are listed below:
The
copyright’s adjusted cost basis was net of an impairment loss write down in 2006
of $332,291 and was not net of any amortization or depreciation.
Internet Broadcast
Copyrights
On
February 1, 2008, the Company sold all rights under its copyrights for the
internet programming rights for a total of 11 distinct productions. These
copyrighted films had been acquired through the Company's contract with ZesTV.
Below is the list of the 11 movies included in the sale:
ZuiAiZongDongYuan
ShiFenAi
HongMeiLi
Xin
Xiang
TianDiGaoBai
FengKuangFenShiWong
TuYaDeKunShi
YongShi
GongBu
NianCaiNuMo
DaTangFengYun
NOTE 6 -
COPYRIGHTS Intangible
assets are stated at cost (estimated fair value upon contribution or
acquisition), less accumulated amortization and impairment. Amortization expense
is recognized on the straight-line basis over the estimated useful lives of the
assets as follows:
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