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SCHEDULE
14C
(Rule
14c-101)
INFORMATION
REQUIRED IN INFORMATION STATEMENT
SCHEDULE
14C INFORMATION
Information
Statement Pursuant to Section 14(c) of the Securities
Exchange
Act of 1934
Check the
appropriate box:
o Preliminary
information statement
¨ Confidential, for use of
the Commission Only (as permitted by Rule 14c-5(d)(2))
þ Definitive information
statement
MYSTARU.COM,
INC.
(Name of
Registrant as Specified in Its Charter)
Payment
of Filing Fee (Check the appropriate box):
þ No
fee required.
¨ Fee
computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1)
Title of each class of securities to which transaction applies: N/A
(2)
Aggregate number of securities to which transaction applies: N/A
(3)
Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
(4)
Proposed maximum aggregate value of transaction:
(5)
Total fee paid:
¨ Fee
paid previously with preliminary materials.
¨ Check
box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2)
and identify the filing for which the offsetting fee was paid previously.
Identify the previous filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1)
Amount Previously Paid: N/A
(2)
Form, Schedule or Registration Statement No.: N/A (3)
Filing Party: N/A
(4)
Date Filed: N/A MYSTARU.COM,
INC.
349
Dabeilu
Shiqiao,
Panyu
Guangzhou,
Guangdong
China
511400
INFORMATION
STATEMENT
WE ARE
NOT ASKING YOU FOR A PROXY
AND YOU
ARE REQUESTED NOT TO SEND US A PROXY.
TO ALL
STOCKHOLDERS:
This
Information Statement is first being mailed on or about October 2, 2009 to the
holders of record of the common stock, par value $0.001 (the “Common Stock”) of
MyStarU.com, Inc. (“we”, “us” or the “Company”) as of the close of business on
September 22, 2009 (the “Record Date”). This Information Statement relates to
certain actions taken by the written consent of the holders of a majority of the
Company's outstanding Common Stock, dated August 27, 2009 (the “Written
Consent”).
The
Written Consent authorized, effective upon the 21st day
following the mailing of this Information Statement to the Stockholders of the
Company, the following:
(1) The
amendment of the Company’s Certificate of Incorporation to change the name of
the Company from MyStarU.com, Inc. to Subaye, Inc. (the “Name
Change”);
(2) The
amendment of the Company's Certificate of Incorporation to effect a reverse
stock split of the Company's issued Common Stock, on the basis of issuing one
(1) share of Common Stock in exchange for each one hundred (100) shares of
Common Stock (the “Reverse Stock Split”); and
(3) The
amendment of the Company’s Certificate of Incorporation to increase the
authorized number of shares of our Common Stock post Reverse Stock Split from
3,000,000 to 150,000,000 (the “Share Increase Amendment” and together with the
Name Change and the Reverse Stock Split, the
“Amendments”).
The
Written Consent constitutes the consent of a majority of the total number of
shares of outstanding Common Stock and is sufficient under the General
Corporation Law of the State of Delaware (the “DGCL”) and the Company's Bylaws
to approve the Amendments. Accordingly, the Amendments shall not be
submitted to the Company's other stockholders for a vote.
This
Information Statement is being furnished to you to provide you with material
information concerning the actions taken in connection with the Written Consent
in accordance with the requirements of the Securities Exchange Act of 1934 and
the regulations promulgated there under, including Regulation 14C. This
Information Statement also constitutes notice under Section 228 of the DGCL of
the actions taken in connection with the Written Consent. 2
Only one
Information Statement is being delivered to two or more security holders who
share an address, unless the Company has received contrary instructions from one
or more of the security holders. The Company will promptly deliver, upon written
or oral request, a separate copy of the Information Statement to a security
holder at a shared address to which a single copy of the document was
delivered. If you would like to request additional copies of the
Information Statement, or if in the future you would like to receive multiple
copies of information or proxy statements, or annual reports, or, if you are
currently receiving multiple copies of these documents and would, in the future,
like to receive only a single copy, please so instruct the Company, by calling
the Company at (86) 20-3999-0266, or by writing to us at 349 Dabeilu, Shiqiao,
Panyu, Guangzhou, Guangdong, China 511400, Attn: Alan R. Lun.
THIS IS
NOT A NOTICE OF A MEETING OF STOCKHOLDERS AND NO STOCKHOLDERS MEETING WILL BE
HELD TO CONSIDER ANY MATTER DESCRIBED HEREIN.
Date:
September 30, 2009
3
INFORMATION
STATEMENT
INTRODUCTION
This
Information Statement is being mailed or otherwise furnished to stockholders of
the Company in connection with the prior receipt by the Board of Directors (the
“Board”) of approval by Written Consent of the holders of a majority of the
Company's Common Stock to approve the Amendments.
The Board
believes it is in the best interests of the Company to approve the Amendments in
order for the Company to reflect its expanded business plan and potentially have
additional financing alternatives in the future.
This
Information Statement is being first sent to stockholders on or about October 2,
2009. The Amendments will become effective following the twentieth
(20) day after the mailing.
MEETING
NOT REQUIRED
The
Amendments were approved by the Written Consent. No further vote is required to
approve the Amendments. The Amendments will become effective
following the twentieth (20) day after the mailing of this Information Statement
to the stockholders of the Company.
FURNISHING
INFORMATION
This
Information Statement is being furnished to all holders of Common Stock of the
Company.
PROPOSALS
BY SECURITY HOLDERS
No
security holders entitled to vote have transmitted any proposals to be acted
upon by the Company.
DISSENTERS’
RIGHTS OF APPRAISAL
Under
Delaware law, the Company’s stockholders are not entitled to appraisal rights
with respect to any of the Amendments, and the Company will not independently
provide stockholders with any such right.
WE
ARE NOT ASKING YOU FOR A PROXY
AND
YOU ARE REQUESTED NOT TO SEND US A PROXY
VOTING
SECURITIES AND PRINCIPAL HOLDERS THEREOF
The
Amendments require the approval of a majority of the outstanding shares of
Common Stock. Each holder of Common Stock is entitled to one (1) vote for each
share held. As of the Record Date, the Company had 247,924,316 shares of Common
Stock issued and outstanding.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth information regarding the beneficial ownership of our
common stock as of September 9, 2009, for each person known by the Company to be
the beneficial owner of more than 5% of our outstanding shares of common
stock. Unless otherwise indicated, we believe that all persons named
in the table have sole voting and investment power with respect to all shares of
Company common stock beneficially owned by them.
4
*Except
as otherwise noted, the address is that of the Company.
The
following table sets forth information regarding the beneficial ownership of
Company common stock of each of our officers and directors and all our officers
and directors as a group as of September 9, 2009. Unless otherwise
indicated, we believe that all persons named in the table have sole voting and
investment power with respect to all shares of Company common stock beneficially
owned by them.
*Except
as otherwise noted, the address is that of the Company.
There are
no arrangements, known to the Company, including any pledge by any person, of
securities of the Company, the operation of which may at a subsequent date
result in a change in control of the Company. PROPOSAL
1
THE
NAME CHANGE
A
majority of the Company’s shareholders authorized, pursuant to the Written
Consent, an amendment of the Company’s Certificate of Incorporation to change
the name of the Company from MyStarU.com, Inc. to Subaye, Inc. (the “Name
Change”).
The Board
has determined that it would be in the best interests of the Company to adopt
the Name Change.
5
Purpose
for the Name Change
The Name
Change is intended to convey more clearly a sense of the Company’s business. As
the Company has grown, we have expanded our service offering beyond the
Company’s website and into entertainment, arts and distribution of feature
films. The Company has five business segments: Investments in Entertainment Arts
Productions, Online Membership Services Software sales, Importing and exporting
of goods, e-commerce and Media and Marketing Management. The Company’s expanded
business focus and enhanced offering is better described in a corporate name
that reflects the Company’s more comprehensive business.
Effects
of the Name Change
Changing
our name will not have any effect on our corporate status or the rights of
stockholders. Our ticker (trading) symbol, which is currently “MYST” and the
CUSIP number of our stock will both change as a result of the name change. We
have not yet been advised as to what the new symbol or CUSIP number will
be.
Effective
Date
Under
applicable federal securities laws, the Name Change cannot be effective until at
least twenty (20) calendar days after this Information Statement is sent to or
given to our stockholders. The Name Change will become effective upon the filing
of the Company’s Amended Certificate of Incorporation, attached hereto as Exhibit A, with the
Secretary of State of the State of Delaware.
PROPOSAL
2
THE
REVERSE STOCK SPLIT
A
majority of the Company’s shareholders authorized, pursuant to the Written
Consent, an amendment of the Company's Certificate of Incorporation to effect a
reverse stock split of the Company's issued Common Stock, on the basis of
issuing one (1) share of Common Stock in exchange for each one hundred (100)
shares of Common Stock (the “Reverse Stock Split”).
The Board
has determined that it would be in the best interests of the Company to approve
the Reverse Stock Split.
Reasons
for the Reverse Stock Split
The
current number of outstanding shares of Common Stock is atypical for a company
of the Company’s size. The Board believes that the Reverse Stock
Split is in the best interests of the Company and may provide the Company with
additional financing alternatives in the future.
Management
of the Company is not aware of any present efforts of any persons to accumulate
Common Stock or to change control of the Company, and the proposed Reverse Stock
Split is not intended to be an anti-takeover device. Furthermore,
by effectuating the Reverse Stock Split of the existing shares of the Company on
a one (1) for one hundred (100) basis, the Company also hopes to increase its
price per share. There can be no guarantee that the Reverse Stock
Split will result in a higher price per share. Our Board has
discretion not to carry out the Reverse Stock Split if it determines that these
actions will not be beneficial.
Effects
of the Reverse Stock Split
As a
result of the Reverse Stock Split, the Company will decrease its shares of
authorized Common Stock proportionately. Following the Reverse Stock Split, the
Company will have 3,000,000 shares of authorized Common Stock. The Reverse Stock
Split will not impact the Company’s authorized shares of preferred stock, which
will remain at 50,000,000 shares.
6
Exchange
of Stock Certificates
When the
Board effects the Reverse Stock Split, the Company will file an amendment to its
Certificate of Incorporation with the Secretary of State of the State of
Delaware. The Reverse Stock Split will become effective on the date
of the filing of the amended Certificate of Incorporation with the Secretary of
State of the State of New Delaware (the "Effective Date") and the shareholders
will be notified on or after the Effective Date that the Reverse Stock Split has
been effected. The Company's transfer agent, Corporate Stock
Transfer, will act as its exchange agent (the "Exchange Agent") for holders of
Common Stock in implementing the exchange of their certificates.
As soon
as practicable after the Effective Date, shareholders shall be notified and
requested to surrender their old certificates to the Exchange Agent in exchange
for the proper number of new certificates. Beginning on the Effective
Date, each old certificate will be deemed for all corporate purposes to evidence
ownership of the reduced number of shares of Common Stock as a result of the
Reverse Stock Split.
Fractional
Shares
Shareholders
who would be entitled to receive fractional shares of Common Stock because they
hold a number of shares of Common Stock not evenly divisible, will have any such
fractional shares of Common Stock rounded up to the nearest whole
number.
Federal
Income Tax Consequences of the Reverse Stock Split
The
following is a summary of the material federal income tax consequences of the
Reverse Stock Split. This discussion is based on the Internal Revenue
Code, the Treasury Regulations promulgated thereunder, judicial opinions,
published positions of the Internal Revenue Service, and all other applicable
authorities as of the date of this document, all of which are subject to change
(possibly with retroactive effect). This discussion does not describe all
of the tax consequences that may be relevant to a holder in light of his
particular circumstances or to holders subject to special rules (such as dealers
in securities, financial institutions, insurance companies, tax-exempt
organizations, foreign individuals and entities, and persons who acquired their
Common Stock as compensation). In addition, this summary is limited to
stockholders that hold their Common Stock as capital assets. This
discussion also does not address any tax consequences arising under the laws of
any state, local or foreign jurisdiction.
ACCORDINGLY,
EACH STOCKHOLDER IS STRONGLY URGED TO CONSULT WITH A TAX ADVISOR TO DETERMINE
THE PARTICULAR FEDERAL, STATE, LOCAL OR FOREIGN INCOME OR OTHER TAX CONSEQUENCES
TO SUCH STOCKHOLDER OF THE REVERSE STOCK SPLIT.
No gain
or loss should be recognized by a stockholder upon such stockholder’s exchange
of pre-reverse stock split shares for post-reverse stock split shares pursuant
to the Reverse Stock Split. The aggregate tax basis of the post-reverse
stock split shares received in the Reverse Stock Split will be the same as the
stockholder’s aggregate tax basis in the pre-reverse stock split shares
exchanged therefore. The stockholder’s holding period for the post-reverse
stock split shares will include the period during which the stockholder held the
pre-reverse stock split shares surrendered in the Reverse Stock
Split.
The tax
treatment of each stockholder may vary depending upon the particular facts and
circumstances of such stockholder. Each stockholder is urged to consult
with such stockholder’s own tax advisor with respect to all of the potential tax
consequences of the Reverse Stock Split.
7
PROPOSAL
3
THE
SHARE INCREASE AMENDMENT
A
majority of the Company’s shareholders authorized, pursuant to the Written
Consent, an amendment of the Company’s Certificate of Incorporation to increase
the authorized number of shares of our Common Stock post Reverse Stock Split
from 3,000,000 shares to 150,000,000 shares (the “Share Increase
Amendment”).
The Board
has determined that it would be in the best interests of the Company to approve
the Share Increase Amendment.
Reasons
for the Share Increase
The increase in authorized shares will
benefit the Company in a number of ways. First, the Company intends to acquire
the interest in its subsidiary, Subaye.com, Inc., a Delaware corporation
(“Subaye”), which it does not currently own. Currently, the Company owns 69% of
the issued and outstanding shares of Subaye. The Company contemplates entering
into an agreement with certain Subaye shareholders, who own 31% of Subaye’s
common stock (the “Minority Stockholders”), whereby the Company will issue a
certain number of shares of the Company ‘s Common Stock to the Minority
Shareholders in exchange for all of the Minority Stockholders common stock. As a
result, Subaye will become a wholly-owned subsidiary of the Company. The Company
has not reached an agreement with the Minority Shareholders on the number of
shares of the Company’s common stock that will be issued in the acquisition.
There is no assurance that an agreement will be reached with the Minority
Shareholders.
In
addition, an increase in authorized shares will enable the Company to act
quickly in the event other acquisition opportunities present themselves and
pursue financing arrangements that require the issuance of equity. Our goal is
to increase stockholder value by changing our operations to a business that has
the potential to generate greater returns to our stockholders and potential
investors than the business we are currently in. The Company does not have any
definitive agreements in place with any entity regarding acquisition
opportunities or financing arrangements.
Effectiveness
of the Share Increase Amendment
The Share
Increase Amendment will be effective upon the filing of the amendment to the
Company’s Certificate of Incorporation with the Secretary of State of the State
of Delaware, the Company's state of incorporation.
Effects
of the Share Increase
The
overall effect will be an increase in the authorized shares of the Company’s
common stock. The unissued shares may be issued by our Board in its discretion.
Any future issuance will have the effect of diluting the percentage of stock
ownership and voting rights of the present holders of Common
Stock. The Board
believes it advisable to increase in the number of authorized shares for the
reasons set forth above. However, this action is not being recommended by the
Board as part of an anti-takeover strategy although the Board is aware that the
increase in the number of authorized but unissued shares of Common Stock may
have a potential anti-takeover effect. Our ability to issue additional shares
could be used to thwart persons, or otherwise dilute the stock ownership of
stockholders seeking to control us.
DESCRIPTION
OF SECURITIES
GENERAL
The
following description of our capital stock and provisions of our Certificate of
Incorporation is a summary thereof and is qualified by reference to our
Certificate of Incorporation, copies of which may be obtained upon request. Our
authorized capital consists of 300,000,000 shares of Common Stock, par value
$.001 per share, of which approximately 247,924,316 shares are issued and
outstanding. We are authorized to issue 50,000,000 shares of preferred stock, of
which no shares are issued or outstanding.
8
COMMON
STOCK
Holders
of shares of Common Stock are entitled to share, on a ratable basis, such
dividends as may be declared by the Board out of funds, legally available
therefor. Upon our liquidation, dissolution or winding up, after payment to
creditors, our assets will be divided pro rata on a per share basis among the
holders of our Common Stock.
Each
share of Common Stock entitles the holders thereof to one vote. Holders of
Common Stock do not have cumulative voting rights, which means that the holders
of more than 50% of the shares voting for the election of directors can elect
all of the directors if they choose to do so, and, in such event, the holders of
the remaining shares will not be able to elect any directors. Our By-Laws
require that only a majority of our issued and outstanding shares need be
represented to constitute a quorum and to transact business at a stockholders'
meeting. Our Common Stock has no preemptive, subscription or conversion rights
and is not redeemable by us.
PREFERRED
STOCK
Our
Certificate of Incorporation authorize our Board to create and issue series of
preferred stock from time to time, with such designations, preferences,
conversion rights, cumulative, relative, participating, optional or other
rights, including voting rights, qualifications, limitations or restrictions
thereof as permitted under Delaware law.
MANAGEMENT’S
DISCUSSION ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Special
Note Regarding Forward-Looking Statements
This
periodic report contains certain forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995 with respect to the
financial condition, results of operations, business strategies, operating
efficiencies or synergies, competitive positions, growth opportunities for
existing products, plans and objectives of management. Statements in this
periodic report that are not historical facts are hereby identified as
“forward-looking statements” for the purpose of the safe harbor provided by
Section 21E of the Exchange Act and Section 27A of the Securities
Act. Prospective
shareholders should understand that several factors govern whether any
forward-looking statement contained herein will be or can be achieved. Any one
of those factors could cause actual results to differ materially from those
projected herein. These forward-looking statements include plans and objectives
of management for future operations, including plans and objectives relating to
the products and the future economic performance of the Company. Assumptions
relating to the foregoing involve judgments with respect to, among other things,
future economic, competitive and market conditions, future business decisions,
and the time and money required to successfully complete development projects,
all of which are difficult or impossible to predict accurately and many of which
are beyond the control of the Company. Although we believe that the assumptions
underlying the forward-looking statements contained herein are reasonable, any
of those assumptions could prove inaccurate and, therefore, there can be no
assurance that the results contemplated in any of the forward-looking statements
contained herein will be realized. Based on actual experience and business
development, the Company may alter its marketing, capital expenditure plans or
other budgets, which may in turn affect our results of operations. In light of
the significant uncertainties inherent in the forward-looking statements
included herein, the inclusion of any such statement should not be regarded as a
representation by the Company or any other person that the objectives or plans
of the Company will be achieved.
The
following analysis of the results of operations and financial condition of the
Company should be read in conjunction with the financial statements of the
Company for the year ended September 30, 2008 and notes thereto contained in the
report on Form 10-K as filed with the Securities and Exchange
Commission.
9
OVERVIEW
Company
Background
MyStarU.com,
Inc., a Delaware corporation, together with its consolidated subsidiaries, 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.
As used in this report, the words “MYST”, “the
Company”, ”we”, ”us” and ”our” refer to MyStarU.com,
Inc. and its subsidiaries.
The
consolidated financial statements presented are those of MyStarU.com, Inc.,
which have been prepared in accordance with accounting principles generally
accepted in the United States of America. The results of operations are for the
nine and three months ended June 30, 2009 and 2008, respectively. The Company’s
accounting policies and certain other disclosures are set forth in the notes to
the consolidated financial statements contained herein.
The
consolidated financial statements of the Company reflect the activities of the
parent and the following subsidiaries.
General
Business Discussion
The
Company operates under the following business segments:
10
Investments
in Entertainment Arts Productions
We
generate income from the purchase and subsequent licensing or resale of
copyrights for motion pictures, internet broadcasting, television broadcasting,
DVD and other possible forms of reproductions of our copyrighted
assets.
Motion
Pictures
3G
Dynasty began the theatrical screening of the film BIG MOVIE (http://ent.sina.com.cn/f/m/bigmovie/index.shtml)
in 400 theaters throughout the PRC beginning on December 29, 2006 and running
through January 20, 2007. The “Investments in Entertainment Arts” business
segment is committed to bringing a variety of unique titles to the Chinese
market. Our first release, BIG MOVIE, a joint venture with Hua Xia Films
Distributions Limited Beijing, is a template for the future distribution of film
in the PRC by MYST.
We
currently hold copyrights for an additional four motion pictures which are
currently in production with our production partners. However, the governmental
approval process for release of these additional motion pictures is not yet
complete. The following table is an outline of projected release dates for each
of our motion pictures:
Internet
Broadcasts
During
the nine months ended June 30, 2009, we generated revenues from our internet
broadcasts being viewed on our websites and affiliated websites. The
revenues generated by each copyrighted broadcast(s) and certain revenue-sharing
arrangements are detailed in the chart below.
We may
also license or resell these copyrights and any of our other copyrights for
motion pictures, internet broadcasting, television broadcasting, DVD rights and
any overseas rights.
11
One of
our business partners, ZesTV, Inc. (“ZesTV”) is a leading Chinese media and
entertainment company. ZesTV is involved with the development, production, and
marketing of entertainment, news and information to a global audience. ZesTV
owns and operates a valuable portfolio of news and entertainment networks, a
premier motion picture company, significant television production operations, a
leading internet entertainment website group, and plans the development of
studio-branded theme parks. We have a deposit on account of approximately
$550,000 with ZesTV which will be used in the future to secure additional
internet broadcast movies as they are developed by ZesTV. These purchases are
subject to the approval of 3G Dynasty once the final edited copy of the internet
broadcast movies are submitted to 3G Dynasty for review.
As of
June 30, 2009, MYST held copyrights to 114 internet broadcasts.
Online
Membership Services
Subaye
We own a
majority interest in our subsidiary, Subaye.com, Inc. We have established a
website, www.subaye.com, a provider of corporate online video in China and a
destination for business to business e-commerce in the PRC for customers who
utilize the website to enhance the marketing and promotion of their business
products and services. We continue to experience a strong demand for our
services through www.subaye.com and believe the market it serves is one of the
fastest growing in the PRC. These customers are demanding easily accessible
methods to market and promote their products or services. We have also committed
to maintaining a minimal monthly fee for our members with the hope that the
demand and low cost of utilizing www.subaye.com will result in stable, if not
dramatic membership growth in the coming years.
The
online membership services business segment generated member growth of 67%
for the twelve months ended April 30, 2009. We expect continued
growth in membership, revenues and net income for this business segment during
the fiscal year ending September 30, 2009.
Subaye.com’s
platform consists of its websites, www.goongreen.org, www.x381.com,
www.goongood.com, www.subaye.com and the Subaye Alliance network, which is its
network of third-party websites. As of April 30, 2009, Subaye.com had 39,822
members and the Company’s video database consisting of 80,025 profiles of
corporate video showcases. These showcases offer a cost-effective venue for
small to mid-size enterprises (“SMEs”) to advertise their products and services
and establish and enhance their corporate brands.
We
launched the internet video services on our www.subaye.com website and began
generating revenues from corporate video uploading services in November, 2006.
We have grown significantly since we commenced operations in October of
2006. We charge our members a monthly membership fee of approximately
$100. The table below details our membership growth and the growth of
corporate profiles of small to medium sized enterprises, which make up the
majority of our membership.
12
From July
1, 2007 through December 31, 2007, Subaye.com offered a special promotion to
allow potential member users and current member users use of our website free of
charge. As a result, no revenue was generated by the Company during this time
period.
We
believe that Subaye.com is poised for growth due to the following
strengths:
Our goal
is to become a platform that provides internet users with the best way to find
information and allows businesses to reach a broad base of potential customers.
We intend to achieve our goal by implementing the following
strategies:
13
The
successful execution of our strategies is subject to certain risks and
uncertainties, including our ability to:
Subaye.com
achieved profitability as of the quarter ended December 31, 2006. We have
experienced growth in recent periods, in part, due to the growth in the PRC’s
online marketing industry, which may not be representative of future growth or
be sustainable. We cannot assure that our historical financial information is
indicative of our future operating results or financial performance, or that our
profitability will be sustained.
X381
The
Company's www.x381.com website is focused on selling goods and services to the
PRC marketplace. The chart below details the growth of this business
since the website was acquired by the Company in February, 2008.
14
The
Company has provided its services on the www.x381.com website to its members
free of charge since the website was acquired in February
2008. In July 2009 the Company expects to begin charging annual
membership fees of approximately $100 which we currently estimate will generate
revenues of approximately $1,000,000 for the year ended September 30,
2009.
Other
Websites
We also
plan to launch the www.goongood.com and www.goongreen.org websites during the
summer of 2009. We currently estimate an additional $1.2 million in
revenues could be generated by these two websites during the year ended
September 30, 2009. MyStarU.com
and Icurls.com
The
Company purchased www.mystaru.com on October 1, 2006, and www.icurls.com on
November 20, 2006. We expect to use the two websites in 2009 to continue to
develop the Company’s offerings in the arts education market. From October 1,
2006 and through the date of this report, the Company sold approximately $1.8
million in “master franchise licenses” and approximately $1.7 million in “end
user licenses” to unrelated parties in the PRC. The third party purchasers are
intent on utilizing the Company’s education-related web-based offerings in
certain sectors of the PRC and across potential large portions of the PRC
population within each sector.
The
system is a prototype for state-of-the-art delivery of streaming video
performing education courses in the music and movie industries in the PRC. The
new courseware was developed using the Guangzhou Subaye's EDU v5.0 Education
Management System and is delivered to viewers via the MYST platform. The
multimedia content is produced using Adobe Flash(r) video synchronized
presentations and demonstrative video clips. Users can view multimedia training
presentations that include downloadable video files of course materials and are
then able to upload their own video files to teachers for analysis, which
affords users the opportunity to have questions answered by course teachers.
MYST intends to use this new capability to reach hundreds of thousands of young
people who are interested in entering the performing arts, music and movie
industries. MYST’s goal is to deliver education content online without
meaningful limitations or restrictions.
In a
country with significant mobile phone usage, the growth opportunities remain
tremendous. The PRC has more than 1.33 billion people, and mobile services will
remain a strong area of growth. Entertainment content for these mobile devices
is in high demand and MYST is intent on becoming a dominant player within this
space.
SAAS
In
September, 2008, the Company committed to the Software as a Service business
model (“SAAS”) and the Company's subsidiary, Subaye IIP Limited, completed
several significant investments in computer hardware and computer software in
order to serve the emerging SAAS marketplace in the PRC. For the nine
and three months ended June 30, 2009, the Company had revenues of $2,856,336 and
$1,238,270 from its SAAS business. The SAAS business is focused on
developing significant recurring revenues from a variety of
customers. Management is continuing to focus on the SAAS market in
the PRC and expects continued success within the market.
Online
3D Animation Shopping Mall
On April
3, 2009, Subaye IIP, Limited entered into a $2.1 million agreement with a
PRC-based web developer with extensive experience within the website design and
website infrastructure fields. A new website and associated infrastructure is to
be designed and is scheduled to begin operating on or before April 3, 2010.
Subaye IIP, Limited’s personnel will supervise the development effort and ensure
the vision for the website is fulfilled. The website will feature 3D imaging and
animation. We anticipate it will function with and become integrated with the
www.subaye.com and www.x381.com websites already operated by the Company. The
members of these two websites will also be invited to utilize the new online
shopping mall. The Company will sell its own inventory of consumer goods through
the online shopping mall and will also earn commissions for allowing its
www.x381.com and www.subaye.com members to utilize the shopping mall. The
Company believes the vision behind this website is unique and expects
significant interest in the website to build as the website nears completion on
or before April 3, 2010.
15
On May 3,
16 and 26, 2009, the Company’s subsidiary, Subaye IIP Limited, entered into
three agreements with three consumer goods distributors in the PRC. The products
will include clothes, footwear, bags and garniture, jewellery and electronics.
The consumer goods distributors committed to delivering goods ordered by Subaye
IIP Limited or the members of www.subaye.com “just in time.” If the consumer
goods distributors do not deliver the products ordered by the first day
subsequent to the order, the consumer goods distributors will pay Subaye IIP
Limited a penalty equal to 5% of the cost of the product ordered per day it is
delivered late. The contracts are valid from May 3, 16 and 26, 2009
through November 2, 15 and 25, 2010. In accordance with the contract,
Subaye IIP Limited paid a deposit of approximately $8.2 million. The
deposit will be used by the consumer goods distributor to ensure product is
available for ordering by Subaye IIP Limited or the members of www.subaye.com on
an as needed basis.
Software
Sales
We offer
software-based products through our subsidiaries, Subaye IIP and Guangzhou
Subaye.
IBS
v4.1 and v5.0 Enterprise Suite
The IBS
v4.1 and v5.0 software suites include a built-in MoDirect, an innovative suite
of technologies that enables wireless and web publishers to target SEO4Mobile
users more effectively and allows advertisers to obtain targeted leads with rich
demographic data. Corporate users can leverage all available information
resource management on the intranet/extranet over the internet, including
wireless applications, and advertisers can use the IBS v4.1 and v5.0 to publish
SMS and MMS by searches on mobile phones. The system enables manufacturers and
service providers to use the internet to establish and manage continuous
connections with automated e-services, operations monitoring and e-commerce
offerings. The system’s customers include end-user clients in many industries
throughout the PRC. The IBS v4.1 and v5.0 standard package includes three
servers and software, as well as system integration.
Guangzhou
Subaye has continued to develop relationships established in the past with some
of the Company’s contacts in the internet and business industries such as
Baidu.com (Nasdaq: BIDU), Shanghai Linktone Information Limited (Nasdaq: LTON),
the wireless business division of Beijing eLong Information Technology Limited,
a subsidiary of eLong Inc. (Nasdaq: LONG), 3721 Inter China Network Software Co.
Ltd (www.3721.com), a Yahoo!, Inc. Company (Nasdaq: YHOO), Tencent Company
Limited (www.qq.com), Kongzhong Corporation (Nasdaq: KONG), Guangdong Mobile
Communication Co., Limited, a China Mobile Communications Corporation and China
Mobile (Hong Kong) Ltd. (NYSE: CHL) to develop entertainment, SMS, MMS, WAP
portal and other wireless content such as artist profiles, gaming and an
SEO4Mobile SMS search engine.
Import
and Export Trading
Our
subsidiary, Guangzhou Panyu Metals and Minerals Import & Export Co., Ltd
(“Panyu M&M”) holds the licenses and approvals necessary to operate our
international trading and provide e-commerce logistic agent services. Panyu
M&M operates in today’s global economy and continually delivers quality
services for our importing and exporting clientele. As in the other three
business segments, we believe the import/export businesses of the PRC are
well-positioned.
During
the year ended September 30, 2009, management expects significant growth in
revenues for Panyu M&M. Panyu M&M has been in the process of
negotiating significant distribution contracts with large PRC importers in
recent months and anticipates revenues from these potential new contracts will
be significant if and once finalized.
16
Results
of Operations
Income
Statement Items
The
following table summarizes the results of our operations during the three
months ended June 30, 2009 and 2008 and provides information regarding the
dollar and percentage increase or (decrease) from the current fiscal period to
the prior fiscal period: CONDENSED CONSOLIDATED STATEMENTS
OF INCOME
AND
COMPREHENSIVE INCOME
FOR
THE THREE MONTHS ENDED JUNE 30, 2009 AND 2008
(UNAUDITED)
Revenues
increased by $4,036,895 due primarily to:
Revenues
were approximately $9.9 million for the three months ended June 30, 2009
compared to approximately $5.9 million for the three months ended June 30,
2008. The increase of approximately $4.0 million was due primarily to
the Company’s growth in revenues for its online membership services business
segment of approximately $3.0 million, growth in the new SAAS business segment
of approximately $1.2 million and growth in the import and export sales business
segment of approximately $600,000. The investments in entertainment arts
business segment had a reduction in revenues of approximately
$800,000. The Company's investments in entertainment arts productions
business segment licenses, provides internet broadcasts and completes outright
sales of its entertainment assets, namely copyrights. During the three months
ended June 30, 2009 and 2008, the Company's investments in entertainment arts
business segment sold copyrights to motion pictures for approximately $0 and
$800,000, respectively, and recorded approximately $400,000 and $400,000 in
revenues, respectively, for the Company's online video playing
fees. For the three months ended June 30, 2009 and 2008, the Company
recorded net revenues of approximately $5.6 million and $2.6 million,
respectively, for its online membership services segment. The
Company had approximately 40,000 and 26,000 members of its www.subaye.com
website throughout the three months ended June 30, 2009 and 2008, respectively,
each of which paid approximately $100 per month for the services and content
available at www.subaye.com. Under an agreement with China Netcom,
the Company's internet provider, and SSTH Limited, the Company's third party
merchant services provider, the Company retains 50% of the gross revenues
generated by the www.subaye.com website. China Netcom and SSTH retain
the remaining 50% of gross revenues. The Company continues to see
increased interest in SAAS solutions within the Chinese marketplace and is
working to obtain marketshare as this business expands in popularity and
acceptance within China. The Company now has three SAAS contracts which
generate total monthly revenues of over $450,000. The importing and
exporting business segment suffered as a result of the general downturn in the
economy in the last few months of 2008 and first three months of
2009. The economy appeared to be strengthening at the end of June
2009. The media and marketing management business segment generated
approximately $0 and $0, respectively, during the three months ended June 30,
2009 and 2008, respectively. The Company expects to release the DaYouCun motion
picture by October 31, 2009. 17
Costs
of Sales increased by $464,359 due primarily to:
Costs of
sales were approximately $4.4 million for the three months ended June 30, 2009
compared to $4.0 million for the three months ended June 30,
2008. During the three months ended June 30, 2009 and 2008, the
Company's investments in entertainment arts productions business segment had
costs of sales which included approximately $0 and $750,000 for the cost basis
of copyrights sold, respectively. Amortization of copyrights totaled
approximately $231,000 and $0 for the three months ended June 30, 2009 and 2008.
Amortization and depreciation of the Company’s websites and computer software
totaled approximately $1.6 million and $1.2 million for the three months ended
June 30, 2009 and 2008. The cost of goods sold for the importing and exporting
business segment totaled approximately $2.6 million and $2.1 million for
the three months ended June 30 2009 and 2008, respectively. The Company's media
and marketing management business segment did not generate any revenues and
therefore did not generate any costs of sales during the three months ended June
30, 2009 and 2008, respectively.
Operating
Expenses increased by $416,955 due primarily to:
For the
three months ended June 30, 2009, we incurred operating expenses of $1.2
million, as compared to approximately $800,000 for the three months ended June
30, 2008. The increase in operating expenses for the three months ended June 30,
2009 is comprised of an increase in advertising costs of approximately $200,000
and other general and administrative expenses of approximately
$200,000.
Other
income and expenses decreased by $8,045 due primarily to:
Other
income and expenses were $21 for three months ended June 30, 2009 compared to
$8,066 for the three months ended June 30, 2008. For the three months ended June
30, 2009, the Company recorded interest income on its bank balances of $21.
For the three months ended June 30, 2008, the Company had other income, which
included interest income and other income earned through the importing and
exporting business segment for non-operating activities,
respectively.
Net
income increased by $1,971,441:
The
Company generated net income of approximately $2.7 million and approximately
$800,000 for the three months ended June 30, 2009 and 2008,
respectively. The increase in net income is a result of the
substantial growth of the online membership services business
segment. 18
Results
of Operations
Income
Statement Items
The
following table summarizes the results of our operations during the nine months
ended June 30, 2009 and 2008 and provides information regarding the dollar and
percentage increase or (decrease) from the current fiscal period to the prior
fiscal period:
CONDENSED CONSOLIDATED STATEMENTS
OF INCOME
AND
COMPREHENSIVE INCOME
FOR
THE NINE MONTHS ENDED JUNE 30, 2009 AND 2008
(UNAUDITED)
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