MYSTARU.COM, INC.

TABLE OF CONTENTS TO ANNUAL REPORT

ON FORM 10-KSB

YEAR ENDED SEPTEMBER 30, 2007

PART I
Item 1. Description of Business		4
Item 2. Description of Property		10
Item 3. Legal Proceedings		11
Item 4. Submission of Matters to a Vote of Security Holders		11
PART II
Item 5. Market for Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities		11
Item 6. Management’s Discussion and Analysis or Plan of Operation		13
Item 7. Financial Statements		20
Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		22
Item 8A. Controls and Procedures		22
Item 8B. Other Information		22
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16 (a) of the Exchange Act		23
Item 10. Executive Compensation		23
Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		27
Item 12. Certain Relationships and Related Transactions		27
Item 13. Exhibits		28
Item 14. Principal Accountant Fees and Services		29

 

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The reported high and low sale prices for the common stock are shown below for the periods indicated. The prices reflect inter-dealer prices, without retail mark-up, markdown or commissions, and may not always represent actual transactions. As of September 30, 2007, we had approximately 195 stockholders of record. We anticipate many more shares are held in “street name” whereby our transfer agent does not have a record the individual or entity who holds the stock certificates.

Period		High			Low
Quarter ended December 31, 2005		$	0.72		$	0.41
Quarter ended March 31, 2006		$	0.80		$	0.46
Quarter ended June 30, 2006		$	0.72		$	0.46
Quarter ended September 30, 2006		$	0.54		$	0.15
Quarter ended December 31, 2007		$	0.43		$	0.16
Quarter ended March, 2007		$	0.45		$	0.27
Quarter ended June 30, 2007		$	0.35		$	0.17
Quarter ended September 30, 2007		$	0.19		$	0.12

 

On September 28, 2007, MYST was quoted at $0.145 per share.

 

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Dividends

There are no present material restrictions that limit the ability of the Company to pay dividends on common stock or that are likely to do so in the future. The Company has not paid any dividends with respect to its common stock, and does not intend to pay dividends in the foreseeable future.

 

The Application of the "Penny Stock Regulation" Could Harm The Market Price Of Our Common Stock.

Our common stock continues to trade below $5.00 per share, our common stock is considered a "penny stock" and is subject to Securities and Exchange Commission’s (the “SEC”) rules and regulations, which impose limitations upon the manner in which our shares can be publicly traded.

These regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the associated risks. Under these regulations, certain brokers who recommend such securities to persons other than established customers or certain accredited investors must make a special written suitability determination regarding such a purchaser and receive such purchaser's written agreement to a transaction prior to sale. These regulations have the effect of limiting the trading activity of our common stock and reducing the liquidity of an investment in our common stock.

Stockholders should be aware that, according to the SEC Release No. 34- 29093, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. These patterns include:

·

Control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;

 

·

Manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;

 

·

"Boiler room" practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales persons;

 

·

Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and

 

·

The wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses.

 

Furthermore, the "penny stock" designation may adversely affect the development of any public market for the Company's shares of common stock or, if such a market develops, its continuation. Broker-dealers are required to personally determine whether an investment in "penny stock" is suitable for customers.

Penny stocks are securities (i) with a price of less than five dollars per share; (ii) that are not traded on a "recognized" national exchange; (iii) whose prices are not quoted on the NASDAQ automated quotation system (NASDAQ-listed stocks must still meet requirement (i) above); or (iv) of an issuer with net tangible assets less than $2,000,000 (if the issuer has been in continuous operation for at least three years) or $5,000,000 (if in continuous operation for less than three years), or with average annual revenues of less than $6,000,000 for the last three years.

Section 15(g) and Rule 15g-2 of the Securities Exchange Act of 1934 (the “Exchange Act”) require broker-dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document before effecting any transaction in a penny stock for the investor's account. Potential investors in the Company's common stock are urged to obtain and read such disclosure carefully before purchasing any shares that are deemed to be "penny stock."

Rule 15g-9 requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker-dealer to (i) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives; (ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor's financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult for the Company's stockholders to resell their shares to third parties or to otherwise dispose of them.

Future Sales of Large Amounts of Common Stock Could Adversely Affect the Market Price of Our Common Stock and Our Ability to Raise Capital.

Future sales of our common stock by existing stockholders pursuant to Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”), or following the exercise of future option grants, could adversely affect the market price of our common stock. Our directors and executive officers and their family members are not under lockup letters or other forms of restriction on the sale of their common stock. The issuance of any or all of these additional shares upon exercise of options will dilute the voting power of our current stockholders on corporate matters and, as a result, may cause the market price of our common stock to decrease. Further, sales of a large number of shares of common stock in the public market could adversely affect the market price of the common stock and could materially impair our future ability to generate funds through sales of common stock or other equity securities.

 

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Recent Sales of Unregistered Securities

 

On October 31, 2006, pursuant to three stock purchase agreements, the Company issued 10,000,000 shares of its common stock, at $0.14 per share, for a total of $1,400,000. The recipients were sophisticated investors who had such knowledge and experience in financial, investment and business matters that they were capable of evaluating the merits and risks of the prospective investment in our securities. The recipients had access to business and financial information concerning the Company. The securities were issued in reliance on an exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), and all securities are “restricted securities” within the meaning under the Securities Act.

On July 16, 2007 pursuant to seven stock purchase agreements, the Company issued 23,000,000 shares of its common stock, at $0.10 per share, for a total of $2,300,000. The recipients were sophisticated investors who had such knowledge and experience in financial, investment and business matters that they were capable of evaluating the merits and risks of the prospective investment in our securities. The recipients had access to business and financial information concerning the Company. The securities were issued in reliance on an exemption from registration provided by Section 4(2) of the Securities Act and all securities are “restricted securities” within the meaning under the Securities Act.

ITEM 6.  MANAGEMENT’S DICUSSION AND ANALYSIS.

 

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 the 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.

 

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Results of Operations

Income Statement Items

The following table summarizes the results of our operations during the twelve months ended September 30, 2007 and 2006 and provides information regarding the dollar and percentage increase or (decrease) from the current fiscal year to the prior fiscal year:

Years Ended September 30, 2007 and 2006  

 

		9/30/2007			9/30/2006			Increase (Decrease )			Percentage Increase (Decrease )
Revenues		$	21,554,811		$	15,546,181		$	6,008,630			39.00	%
Cost of sales			18,219,172			6,621,878			11,597,294			175.00	%
Gross profit			3,335,639			8,924,303			(5,588,664	)		(63.00	)%
Operating expenses			7,846,812			8,002,716			(155,904	)		(2.00	)%
Other income			63,478			19,563			43,915			224.00	%
Income (loss) from continuing operations		$	(4,447,695	)	$	941,150		$	(5,388,845	)		(573.00	)%
Minority interest in income of subsidiary			(542,292	)		74,821			(617,113	)		(825.00	)%
Net income from discontinued operations			-			55,757			(55,757	)		(100.00	)%
Net income			(4,989,987	)		1,071,728			(6,061,715	)		(566.00	)%
Other comprehensive income			(7,263	)		1			(7,264	)		(726400.00	)%
Comprehensive income			(4,997,250	)		1,071,729			(6,068,979	)		(566.00	)%
Earnings per common share
- Basic		$	(0.04	)	$	0.01
- Fully diluted		$	(0.04	)	$	0.01
Weighted average common share Outstanding
- Basic			116,331,014			85,630,740
- Fully diluted			116,331,014			85,630,740

Revenues increased by $6,008,630 due primarily to:

Revenues were $21,554,811 for the year ended September 30, 2007 compared to $15,546,181 for the year ended September 30, 2006. The increase of $6,008,630 is due primarily to the Company’s growth in its new business segments. The Company recorded revenues of approximately $3.9 million for licensing and outright sales of its copyrights and approximately $4.3 million in revenues from online memberships derived from the Subaye.com website. Additionally, the revenues from the importing and exporting business segment increased to $11,437,595 in 2007 versus revenues of $2,868,074 in 2006 due to the fact that the Panyu M&M subsidiary was included in the results of operations for the entire twelve months ended September 30, 2007 while its results of operations for 2006 were only included in the Company’s results of operations from April 25, 2006 through September 30, 2006. The Company’s revenues from the software sales business segment decreased substantially, from $12,678,107 in 2006 to $1,899,100. The Company is in the process of formalizing new business plans which will utilize the Company’s software platforms to enhance the user’s experiences on the Company’s various websites.

Costs of Sales increased by $11,597,294 due primarily to:

Costs of sales were $18,219,172 for the year ended September 30, 2007 compared to $6,621,878 for the year ended September 30, 2006. Costs of Sales included cost of goods sold in trading, depreciation and other cost of sales. Costs of good sold increased so dramatically due to the full year’s results of operations of the Panyu M&M subsidiary, which had been acquired on April 25, 2006. Additionally, the Company’s revenues and costs of goods sold increased due to the continued organic growth of the import and export business segment, which had costs of goods sold of $11,224,318 in 2007 and $2,804,564 in 2006,. Depreciation and amortization of the Company’s various websites and copyrights are also classified as costs of goods sold as both the websites and copyrights are key assets that directly drive the Company’s revenue growth.

Operating expenses decreased by $155,904 due primarily to:

For the year ended September 30, 2007, we incurred operating expenses of $7,846,812 as compared to $8,002,716 for the year ended September 30, 2006. Stock-based compensation expense decreased $1,161,496 for the years ended September 30, 2007 versus September 30, 2006 due to a decrease in its 2007 issuances of stock to consultants and employees versus 2006, when much of the Company’s stock based compensation was incurred. The Company also recorded a bad debt recovery for 2007 of over $500,000 due to certain overdue accounts receivables from long time customers that were eventually paid. During the course of the Company’s 2006 audit, the Company‘s management agreed to reserve against certain accounts receivable even though there was no particular reason to do so other than the time the accounts receivables had remained outstanding.

Other income increased by $43,915 due primarily to:

 

Other income was $63,478 for year ended September 30, 2007 compared to $19,563 for the year ended September 30, 2006. The increase in other income was due to the gain on the sale of one of the Company’s automobiles, which was a total gain of $34,602 for the year ended September 30, 2007.

 

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Corporate tax

The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (SFAS 109). SFAS 109 requires the recognition of deferred income tax liabilities and assets for the expected future tax consequences of temporary differences between income tax basis and financial reporting basis of assets and liabilities. Provision for income taxes consist of taxes currently due plus deferred taxes.

In July, 2006, the Financial Accounting Standard Board (“FASB”) issued FASB Interpretations No. 48, Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109 (“FIN 48”), which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a return. FIN 48 provides guidance on the measurement, recognition, classification and disclosure of tax positions, along with accounting for the related interest and penalties. FIN 48 became effective as of January 1, 2007 and had no impact on the Company’s consolidated financial statements.

The charge for taxation is based on the results for the year as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of assessable tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences, and deferred tax assets are recognized to the extent that it is probably that taxable profit will be available against which deductible temporary differences can be utilized.

Deferred tax is calculated using tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement, except when it is related to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity.

Deferred tax assets and liabilities are offset when they related to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.

United States of America

Since the Company had no operations within the United States, there is no provision for US taxes and there are no deferred tax amounts as of September 30, 2007 and 2006, respectively.

Delaware

 

The Company is incorporated in Delaware but does not conduct business in Delaware. Therefore, the Company is not subject to corporate income tax. However, the Company does have to pay Franchise Tax to the Delaware Department of State.  Regardless of where the Company conducts business, it must file an Annual Franchise Tax Report and pay Franchise Tax for the privilege of incorporating in Delaware. The minimum Franchise Tax is $35 with a maximum of $165,000. The Company has not filed its Franchise Tax Return for 2007 as of the date hereof, but anticipates its Franchise Tax owed to Delaware will be approximately $10,000 for the year ended December 31, 2007.

British Virgin Islands

Alpha Century Holdings, 3G Dynasty and Arran Services are incorporated in the British Virgin Islands and, under the current laws of the British Virgin Islands, are not subject to income taxes.

Hong Kong

 

Mystaru Ltd. is incorporated in Hong Kong and is subject to Hong Kong taxation on its activities conducted in Hong Kong and income arising in or derived from Hong Kong. No provision for Hong Kong profits tax has been made as the Company incurred a loss during the years ended September 30, 2007 and 2006, respectively. The applicable Hong Kong statutory tax rate for the years ended September 30, 2007 and 2006 is 17.5%, respectively.

 

People’s Republic of China

 

The Company is governed by the Income Tax Law of the People’s Republic of China concerning Foreign Investment Enterprises and Foreign Enterprises and various local income tax laws (“the Income Tax Laws”). Under the Income Tax Laws, foreign investment enterprises (“FIE”) generally are subject to an income tax at an effective rate of 33% (30% state income taxes plus 3% local income taxes) on income as reported in their statutory financial statements after appropriate tax adjustments unless the enterprise is located in specially designated regions of cities for which more favorable effective tax rates apply. Upon approval by the PRC tax authorities, FIEs scheduled to operate for a period of 10 years or more and engaged in manufacturing and production may be exempt from income taxes for 2 years, commencing with their first profitable year of operations, after taking into account any losses brought forward from prior years, and thereafter with a 50% exemption for the next 3 years.

 

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No provision for Enterprise income tax in the PRC had been made for the years ended September 30, 2007 and 2006 due to the fact that the Company is exempt from PRC tax based on the statutory provisions granting a tax holiday for a two year period, as stated above, for the years ended September 30, 2007 and 2006.

 

Beginning January 1, 2008, the new Enterprise Income Tax (“EIT”) law will replace the existing laws for Domestic Enterprises (“DES”) and Foreign Invested Enterprises (“FIEs”).

 

The key changes are:

a.	The new standard EIT rate of 25% will replace the 33% rate currently applicable to both DES and FIEs, except for High Tech companies who pays a reduced rate of 15%. The Company believes it will qualify as a “High Tech Company.”
b.	Companies established before March 16, 2007 will continue to enjoy tax holiday treatment approved by local government for a grace period of the next 5 years or until the tax holiday term is completed, whichever is sooner.

 

The Company and its subsidiaries were all established before March 16, 2007 and therefore is qualified to continue enjoying the reduced tax rate as described above. Since the detailed guidelines of the new tax law is not publicized yet, the Company cannot determined what the new tax rate will be applicable to the Company after the end of their respective tax holiday terms.

 

The following table reconciles the statutory rates to the Company’s effective tax rate for the years ended September 30, 2007 and 2006:

		2007			2006
U.S. Statutory rates			35.0	%		35.0	%
Foreign income			(35.0	)		(35.0	)
China tax rates			33.0			33.0
China income tax exemption			(33.0	)		(33.0	)
Effective income tax rates			0.0	%		0.0	%

 

Value Added Tax

Enterprises or individuals who sell products, engage in repair and maintenance or import and export goods in the PRC are subject to a value added tax in accordance with Chinese laws. The value added tax rate applicable to the Company is 6% of the gross sales price. No credit is available for VAT paid on the purchases.

 

Liquidity and Capital Resources

We believe that our currently-available working capital, after receiving the aggregate proceeds of our capital raising activities in the fourth quarter of fiscal year 2007 and collection of our accounts receivable, should be adequate to sustain our operations at least through the end of fiscal year 2008.

As of September 30, 2007, we had a cash balance of $1,150,421 held in PRC and Hong Kong banks and cash in hand. We currently have no cash positions in the United States of America or any other countries. We have been funding our operations from receipts from customers and equity-based financing such as the sale of our common stock.

Management has invested substantial time evaluating and considering numerous proposals for possible investments, acquisitions or business combinations, either sought out by management or presented to management by investment professionals, the Company’s advisers and others. We continue to consider acquisitions, business combinations, or start up proposals, which could be advantageous to our shareholders. No assurance can be given that any such project, acquisition or combination will be concluded, or that all these actions will be approved by our Board of Directors.

Net cash provided by operations for the year ended September 30, 2007 was $695,098. In the future, we may use cash in our operations due to the continuing implementation of our business model and increased expenses from costs associated with being a public company.

We currently have a commitment to purchase copyrights from Zestv Features Limited (“Zestv”) under an agreement dated as of December 29, 2005 for the purchase of Zestv’s future rights to its music, films and TV programming copyrights of online content. The total obligation to Zestv was $2,500,000. During the year ended September 30, 2006, the Company paid approximately $1,800,000 towards this contract, which was presented as prepaid expenses in 2006. For 2007, a large portion of this balance was allocated to 11 internet broadcast movies which had been delivered by Zestv. For those movies which have been identified by the Company and were effectively purchased without recourse, we have reclassified the balances associated with the copyrights and shown those balances along with the rest of our copyright portfolio, as a separate line on the Company’s balance sheet, in accordance with SOP 00-2. During the year ended September 30, 2008, the Company anticipates payments under this contract to be approximately $84,000. The remaining balance on the contract will be paid during the year ended September 30, 2009. The future rights to the Zestv music, films and TV programming copyrights of online content are now presented in the Company’s balance sheet as “Copyrights - Programming Rights.”

 

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Additionally, an agreement with Zestv was signed on June 13, 2006 to purchase the copyrights and the internet copyrights to two films: “First, Open” and “Big Movie: Subaye.” The cost of the films’ copyrights was $840,000 and $900,000, respectively. The cost for the internet movie broadcast copyrights was $1,060,000 and $1,000,000, respectively.

Net cash used in investing activities for the year ended September 30, 2007 was $4,448,955. The Company acquired copyrights for the “BaoBu” and “Da You Can” productions totaling $4,300,000 in 2007. The copyrights are for productions scheduled to be completed in 2008.

Net cash provided by financing activities for the year ended September 30, 2007 was $3,700,000. It represented the issuance of 33,000,000 shares of the Company's common stock, par value $.001 per share, for an aggregate purchase price of $3,700,000 which was used in part to finance the purchase of the two copyrights identified above.

Our future growth is dependent on our ability to raise capital for expansion, and to seek additional revenue sources. If we decide to pursue any acquisition opportunities or other expansion opportunities, we may need to raise additional capital, although there can be no assurance such capital-raising activities would be successful.

Risk Factors That May Affect Future Operating Results

You should carefully consider the risks described below before making an investment decision. The risks and uncertainties described below are the material risks that apply to our business, operations, financial condition and prospects.

Operating Risk

Currently, the Company’s revenues are derived from two main revenue streams: (i) from the re-selling of software to enterprises, large corporations, and the academic sector, as well as telecom-related services to customers in the PRC and (ii) from the import and export trading in PRC from Panyu M&M. The Company hopes to expand its operations to countries outside the PRC, however, such expansion has not been commenced and there are no assurances that the Company will be able to achieve such an expansion successfully. Therefore, a downturn or stagnation in the economic environment of the PRC could have a material adverse effect on the Company’s financial condition.

Products Risk

Our revenue-producing operations are limited and the information available about our business makes an evaluation of our business difficult. We have conducted limited operations and we have little operating history that permits you to evaluate our business and our prospects based on prior performance. You must consider your investment in light of the risks, uncertainties, expenses and difficulties that are usually encountered by companies in their early stages of development, particularly those engaged in international commerce. In addition to competing with other telecommunication and web companies, the Company could have to compete with larger U.S. companies who have greater funds available for expansion, marketing, research and development and the ability to attract more qualified personnel if access is allowed into the PRC market. If U.S. companies do gain access to the PRC markets in general, they may be able to offer products at a lower price. There can be no assurance that the Company will remain competitive should this occur.

Exchange Risk

The Company generates revenue and incurs expenses and liabilities in Chinese renminbi, Hong Kong dollars and U.S. dollars. As a result, the Company is subject to the effects of exchange rate fluctuations with respect to any of these currencies. Since 1994, the official exchange rate for the conversion of renminbi to U.S. dollars has generally been stable, with the renminbi appreciating slightly against the U.S. dollar. Although the economic situation remains favorable with sound performance of the financial industry, high priority should be given to monitoring the risks brought about by the excessively rapid growth of the PRC national economy, which could result in structural imbalances in domestic as well as foreign trade and global economic imbalances. As a result, the Company's operations and financial conditions may be affected by changes in the value of renminbi and other currencies in which its earnings and obligations are denominated. The Company has not entered into agreements or purchased instruments to hedge its exchange rate risks, although the Company may do so in the future.

 

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Our future performance is dependent on our ability to retain key personnel.

Our future success depends on the continued services of executive management in the PRC. The loss of any of their services would be detrimental to us and could have an adverse effect on our business development. We do not currently maintain key-man insurance for any of our executives. Our future success is also dependent on our ability to identify, hire, train and retain other qualified managerial and other employees. Competition for these individuals is intense and increasing.

Our business depends significantly upon the performance of our subsidiaries, which is uncertain.

Currently, a majority of our revenues are derived from the operations of our subsidiaries. Economic, governmental, political, industry and internal company factors outside our control affect each of our subsidiaries. If our subsidiaries do not succeed, the value of our assets and the price of our common stock could decline. Some of the material risks relating to our partner companies include:

·

our subsidiaries are located in the PRC and have specific risks associated with that; and

 

·

intensifying competition for our products and services, and those of our subsidiaries, which could lead to the failure of some of our subsidiaries.

 

A visible trading market for our common stock may not develop.

Our common stock is currently traded on the OTCBB under the symbol “MYST.OB.” The quotation of our common stock on the OTCBB does not assure that a meaningful, consistent and liquid trading market currently exists. We cannot predict whether a more active market for our common stock will develop in the future. In the absence of an active trading market:

·

investors may have difficulty buying and selling or obtaining market quotations;

 

·

market visibility for our common stock may be limited;

 

·

a lack of visibility for our common stock may have a depressive effect on the market price for our common stock; and

 

·

our stock is a penny stock and there are significant risks related to buying and owning penny stocks.

 

Rule 15g-9 under the Securities Exchange Act of 1934 imposes additional sales practice requirements on broker-dealers that sell non-NASDAQ listed securities except in transactions exempted by the rule, including transactions meeting the requirements of Rule 506 of Regulation D under the Securities Act and transactions in which the purchaser is an institutional accredited investor (as defined) or an established customer (as defined) of the broker or dealer. For transactions covered by this rule, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to sale. Consequently, this rule may adversely affect the ability of broker-dealers to sell our securities and may adversely affect your ability to sell any of the securities you own.

Our largest target market is in the PRC and there are several significant risks relating to conducting operations in the PRC. The capitalization of our business, the financial condition and results of operations are, to a significant degree, subject to economic, political and social events in the PRC.

Governmental policies in the PRC could impact our business.

Since 1978, the PRC's government has been and is expected to continue reforming its economic and political systems. These reforms have resulted in and are expected to continue to result in significant economic and social development in the PRC. Many of the reforms are unprecedented or experimental and may be subject to change or readjustment due to a number of political, economic and social factors. We believe that the basic principles underlying the political and economic reforms will continue to be implemented and provide the framework for the PRC's political and economic system. New reforms or the readjustment of previously implemented reforms could have a significant negative effect on our operations. Changes in the PRC's political, economic and social conditions and governmental policies which could have a substantial impact on our business include:

·	new laws and regulations or new interpretations of those laws and regulations;

 

·	the introduction of measures to control inflation or stimulate growth;

 

·	changes in the rate or method of taxation; and

 

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·	the imposition of additional restrictions on currency conversion and remittances abroad.

 

Economic policies in the PRC could negatively impact our business.

The economy of the PRC differs from the economies of most countries belonging to the Organization for Economic Cooperation and Development in various respects, such as structure, government involvement, level of development, growth rate, capital reinvestment, allocation of resources, self-sufficiency, rate of inflation and balance of payments position. In the past, the economy of the PRC has been primarily a planned economy subject to one- year and five-year state plans adopted by central government authorities and largely implemented by provincial and local authorities. These plans set production and development targets.

Since 1978, increasing emphasis had been placed on decentralization and the utilization of market forces in the development of the PRC's economy. Economic reform measures adopted by the PRC government may be inconsistent or ineffectual, and we may not be able to capitalize on any reforms in all cases. Further, these measures may be adjusted or modified in ways that could result in economic liberalization measures that are inconsistent from time to time, from industry to industry or across different regions of the country. The PRC's economy has experienced significant growth in the past decade. This growth, however, has been accompanied by imbalances in the PRC's economy and has resulted in significant fluctuations in general price levels, including periods of inflation. The PRC's government has implemented policies from time to time to increase or restrain the rate of economic growth, control periods of inflation or otherwise regulate economic expansion. While we may be able to benefit from the effects of some of these policies, these policies and other measures taken by the PRC's government to regulate the economy could also have a significant negative impact on economic conditions in the PRC, with a resulting negative impact on our business.

The PRC's entry into the World Trade Organization (“WTO”) creates uncertainty.

The PRC formally became the 143 ^rd member of the WTO, the multilateral trade body, on December 11, 2001. Entry into the WTO will require the PRC to further reduce tariffs and eliminate other trade restrictions. While the PRC’s entry into the WTO and the related relaxation of trade restrictions may lead to increased foreign investment, it may also lead to increased competition in the PRC's markets from international companies. The impact of the PRC’s entry into the WTO on the PRC's economy and our business is uncertain.

Uncertainty relating to the PRC’s legal system could negatively affect us.

The PRC has a civil law legal system. Decided court cases do not have binding legal effect on future decisions. Since 1979, many new laws and regulations covering general economic matters have been promulgated in the PRC. Despite this activity to develop the legal system, the PRC's system of laws is not yet complete. Even where adequate law exists in the PRC, enforcement of contracts based on existing law may be uncertain and sporadic and it may be difficult to obtain swift and equitable enforcement, or to obtain enforcement of a judgment by a court of another jurisdiction. The relative inexperience of the PRC's judiciary in many cases creates additional uncertainty as to the outcome of any litigation. Further, interpretation of statutes and regulations may be subject to government policies reflecting domestic political changes.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that will have a current effect on our financial condition and changes in financial condition in 2007.

Protection of Intellectual Property

The Company has invested approximately $10,000,000 in copyrights covering programming rights for movies, internet broadcasts, DVDs and television programming. We can not guarantee that if a competitor or anyone else were to commence litigation against us, we would be able to adequately defend our position and retain ownership and value in the intellectual property.

Operating Losses

We can not be sure that our current operating losses will decrease or that we will ever return to profitability. As a result of the possibility of continued losses and the potential that profits are not made, the Company could be forced to curtail operations under those circumstances or even to liquidate the Company.

Capital Requirements

In 2007 and 2006, the Company raised significant sources of financing by issuing equity securities, namely the Company’s common stock. We may not be able to continue to find adequate sources of not only equity financing but also debt financing. Certain business segments which we have committed to expanding operations in, namely the “Investments in Entertainment Arts” business segment, will involved very significant capital requirements.

 

19

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Impact of Inflation

We believe that inflation has had a negligible effect on operations during the period. We believe that we can offset inflationary increases in the cost of sales by increasing sales and improving operating efficiencies.

Trends, Events, and Uncertainties

The present demand for our products will be dependent on, among other things, market acceptance of the Company’s concept, the quality of its products and general economic conditions, which are cyclical in nature. The Company’s business operations may be adversely affected by increased competition and prolonged recessionary periods in the PRC.

Dividends

We do not expect to pay dividends for some time which could result in a 100% loss on your investment in the Company.

 

20

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ITEM 7. FINANCIAL STATEMENTS.

MYSTARU.COM AND SUBSIDIARIES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2007 AND 2006

 

		2007			2006 Restated
ASSETS
Current Assets
Cash		$	1,150,422		$	1,211,542
Accounts Receivable, Net of Allowances for Doubtful Accounts of $413,036 (2006 – $883,220)			7,982,668			3,524,929
Accounts Receivable, Related Party			1,107,359			840,000
Due From Related Parties			-			247,833
Prepaid Expenses			1,778,966			2,546,955
Other Current Assets			598,588			253,029
Total Current Assets			12,618,003			8,624,288
Property, Plant & Equipment, Net			8,376,420			11,515,723
Intangible Assets
Copyrights, net of accumulated amortization of $2,534,178 (2006 – $1,530,000)			6,262,456			2,470,000
Goodwill			354,615			354,051
Total Intangible Assets			6,617,071			2,824,051
TOTAL ASSETS		$	27,611,494		$	22,964,062
LIABILITIES & STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts Payable		$	3,435,530		$	4,120,721
Accrued Liabilities			257,712			83,857
Due to Related Parties			-			57,854
Total Current Liabilities			3,693,242			4,262,432
Total Liabilities			3,693,242			4,262,432
Minority Interest in Consolidated Subsidiaries			3,801,642			3,261,308
Commitment and Contingencies (See Note 13)
Stockholders’ Equity
Preferred stock, $0.001 par value, authorized: 50,000,000 shares, zero shares issued and outstanding at September 30, 2007 and 2006			-			-
Common stock, $0.001 par value, authorized: 300,000,000 shares, 146,288,000 and 97,088,000 shares issued and outstanding at September 30, 2007 and 2006			146,288			97,088
Additional Paid in Capital			22,905,224			15,893,589
Shares to be Issued			2,065			-
Deferred Stock-Based Compensation			(479,225	)		(3,089,863	)
Accumulated Other Comprehensive Income			(7,016	)		247
(Accumulated Deficit) Retained Earnings			(2,450,726	)		2,539,261
Total Stockholders’ Equity			20,116,610			15,440,322
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY		$	27,611,494		$	22,964,062

F-3

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MYSTARU.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE YEARS ENDED SEPTEMBER 30, 2007 AND 2006

 

		2007			2006
Revenues					Restated
Licensing and Royalty Revenues		$	3,908,086		$	-
Online Membership Services			4,310,030			-
Import and Export Sales			11,437,595			2,868,074
Software Sales			819,100			11,238,107
Software Sales - Related Party			1,080,000			1,440,000
Total Revenue			21,554,811			15,546,181
Costs of Sales			18,219,172			6,621,878
Gross Profit			3,335,639			8,924,303
Operating Expenses
Salaries and Wages			731,887			564,292
Stock Compensation			3,354,538			4,516,034
Impairment Loss			1,342,722			1,530,000
Bad Debt Expense (Recovery)			(436,396	)		357,380
Selling, general and administrative			2,854,061			1,035,010
Total Operating Expenses			7,846,812			8,002,716
(Loss) Income From Continuing Operations			(4,511,173	)		921,587
Other Income and Expenses			63,478			19,563
Net (Loss) Income From Continuing Operations Before Income Taxes & Minority Interest			(4,447,695	)		941,150
Provision for Income Taxes			-			-
Net (Loss) Income From Continuing Operations Before Minority Interest			(4,447,695	)		941,150
Minority Interest (Loss) Income of Subsidiary			(542,292	)		74,821
Net (Loss) Income From Continuing Operations			(4,989,987	)		1,015,971
Income From Discontinued Operations, net of tax			-			55,757
Net (Loss) Income from Operations			(4,989,987	)		1,071,728
Foreign Currency Translation Adjustment			(7,263	)		1
Comprehensive (Loss) Income		$	(4,997,250	)	$	1,071,729
Basic Net (Loss) Income Per Common Share		$	(0.04	)	$	0.01
Diluted Net (Loss) Income Per Common Share		$	(0.04	)	$	0.01
Basic Weighted Average
Number of Common Shares			116,331,014			85,630,740
Diluted Weighted Average
Number of Common Shares			116,331,014			85,630,740

 

F-4

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MYSTARU.COM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

AS OF SEPTEMBER 30, 2007

 

		Common Stock						Additional			Deferred			Shares			Accumulated Other			Accumulated (Deficit)
		Shares Issued			Par . 001			Paid in Capital			Stock-Based Compensation			to be  Issued			Comprehensive Income			Retained Earnings			Total
BALANCE, September 30, 2004			60,188,000		$	60,188		$	3,912,489		$	(731,250	)	$	-		$	133		$	(580,919	)	$	2,660,641
Issuance of Stock for Cash			13,500,000			13,500			3,036,500			-						-			-			3,050,000
Stock Issued for Services			3,500,000			3,500			836,500			(840,000	)					-			-			-
Amortization of Deferred Stock Compensation			-			-			-			667,353						-			-			667,353
Foreign Currency Translation			-			-			-			-						113			-			113
Net Income			-			-			-			-						-			2,048,452			2,048,452
BALANCE, September 30, 2005			77,188,000			77,188			7,785,489			(903,897	)					246			1,467,533			8,426,559
Issuance of Stock For Cash			4,600,000			4,600			1,421,400			-						-			-			1,426,000
Issuance of Stock for Services			15,300,000			15,300			6,702,000			(6,702,000	)					-			-			-
Amortization of Deferred Stock Compensation			-			-			-			4,516,034						-			-			4,516,034
Foreign Currency Translation			-			-			-			-						1			-			1
Net Income			-			-			-			-						-			1,071,728			1,071,728
BALANCE, September 30, 2006			97,088,000			97,088			15,893,589			(3,089,863	)					247			2,539,261			15,440,322
Issuance of Stock For Cash			33,000,000			33,000			3,667,000			-						-			-			3,700,000
Issuance of Stock for Services			1,300,000			1,300			472,235			(473,900	)		365			-			-			-
Issuance of Stock to Acquire Websites			14,700,000			14,700			2,604,300			-						-			-			2,619,000
Issuance of Stock for Legal Settlement			200,000			200			268,100			(270,000	)		1,700			-			-			-
Amortization of Deferred Stock-Based Compensation			-			-			-			3,354,538						-			-			3,354,538
Foreign Currency Translation			-			-			-			-						(7,263	)		-			(7,263	)
Net Income			-			-			-			-						-			(4,989,987	)		(4,989,987	)
BALANCE, September 30, 2007			146,288,000		$	146,288		$	22,905,224		$	(479,225	)	$	2,065		$	(7,016	)	$	(2,450,726	)	$	20,116,610

 

F-5

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MYSTARU.COM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASHFLOWS

FOR THE YEARS ENDED SEPTEMBER 30, 2007 AND 2006

 

		2007			2006
Cash flows from operating activities					Restated
Net (loss) income		$	(4,989,987	)		1,071,728
Adjustments to reconcile net (loss) income to net cash provided (used in) by operating activities:
Depreciation			4,995,659			1,919,971
Gain on sale of copyrights			1,278,077			-0-
Gain on disposal of subsidiary			(564	)		-0-
Amortization of copyrights			995,875			-0-
Allowance for bad debts			(436,396	)		357,379
Impairment loss of copyrights			1,342,722			1,530,000
Minority interests			542,292			(74,821	)
Gain on disposal of subsidiary			-			(295,533	)
Stock- based compensation expense			3,354,538			4,516,034
Changes in operating assets and liabilities:
Accounts receivable			(4,288,702	)		(10,396,185	)
Due from related party			247,833			(156,188	)
Prepaid and other current assets			(1,777,057	)		(369,729	)
Accounts payable and accrued expenses			(569,192	)		(686,466	)
Net cash provided by (used in) operating activities			695,098			(2,583,810	)
Cash flows from investing activities:
Capital contribution by minority interest			-			10,386
Business acquisition - net of cash acquired			-			179,986
Sales proceeds of disposal of subsidiary - net cash			-			(9,454	)
Capital expenditures			(4,448,955	)		(34,211	)
Net Cash Used In Investing Activities			(4,448,955	)		(165,615	)
Cash flows from financing activities
Due to related party			-			(13,322	)
Proceeds from loan payable			-			226,410
Repayment of finance lease			-			(10,199	)
Proceeds from new issuance of common stock			3,700,000			1,426,000
Net cash flows provided by financing activities:			3,700,000			1,628,889
Effect of exchange rate changes in cash			(7,263	)		1
Net decrease in cash			(61,120	)		(789,305	)
Cash - beginning of year		$	1,211,542		$	2,000,847
Cash - end of year		$	1,150,422		$	1,211,542
Supplemental disclosure of cash flow information:
Taxes paid		$	-		$	-
Interest paid		$	-		$	-
Non cash investing and financing activities:
Accounts receivable used for acquisition of software		$	-		$	3,600,000
Accounts receivable used for acquisition of copyrights of movie		$	-		$	1,230,000
Accounts receivable used for prepayment of copyrights in net		$	-		$	1,250,000
Accounts receivable used for acquisition of subsidiary		$	-		$	500,000
Acquired websites through issuance of common stock		$	2,619,000			-
Acquired web-site through issuance of common stock of subsidiaries		$	2,718,000		$	5,576,344

 

F-6

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MYSTARU.COM, INC. AND SUBSIDIARIES

 

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 September 30, 2007 and 2006 consist of the following:

		September 30,  2007			September 30,  2006
Trade accounts receivable		$	8,395,704		$	4,408,149
Less: allowance for doubtful accounts			(413,036	)		(883,220	)
Totals		$	7,982,668		$	3,524,929

 

The activity in the allowance for doubtful accounts for trade accounts receivable for the years ended September 30, 2007 and 2006 is as follows:

		September 30,  2007			September 30,  2006
Beginning allowance for doubtful accounts		$	883,220		$	525,840
Additional charged to bad debt expense			28,996			357,380
Recovery of accounts charged to bad debt expense in 2006 and 2005			(503,972	)		-
Gain on foreign currency translation			4,792			-
Ending allowance for doubtful accounts		$	413,036		$	883,220

 

F-13

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The Company’s future operations and continued expansion is subject to a significant concentration risk.  During the years ended September 30, 2007 and 2006, the Company’s revenues from certain service providers in the PRC accounted for 100% of total revenues, respectively.  The Company’s accounts receivable from certain service providers in the PRC as of September 30, 2007 and 2006 amounted to 100% of total accounts receivable, respectively. 

The Company has the following concentrations of business with customers constituting greater than 5% of the Company’s gross sales in 2007 and 2006. Their revenues totaled $7,318,067, representing approximately 30% of our total revenue. The loss of these customers, individually or in the aggregate, could have a material impact on our future results of operations.

		2007			2006
Essential Gallery Enterprises Limited			5	%		21	%
TaiKang Capital Management Corporation			5	%		9	%
IC China Corporation			5	%		43	%
China Industry Park Holdings Ltd.			9	%		0	%
Guangzhou Fengcun			6	%		0	%

 

The Company has not experienced any significant difficulty in collecting its accounts receivable in the past and is has no reason to believe this may change in the near future.

The Company has the following concentrations of business with one supplier constituting greater than 10% of the Company’s purchasing volume in year 2007 and 2006:

		2007			2006
ZesTV			30.40	%		12.34	%
IC Soft Limited			Less Than 1	%		17.00	%

 

NOTE 5 - BUSINESS ACQUISITIONS

Acquisitions of Interests in Panyu Metals & Minerals Import & Export Co. Limited

On April 1, 2006, the Company’s subsidiary, Subaye.com, acquired a 100% interest in Panyu Metals & Minerals Import & Export Co. Limited for total consideration of $500,000, which was payable in the form of $500,000 of the Company’s yet-to-be collected accounts receivable. The net assets received by the Company from the acquisition of Panyu M&M totaled $179,986. In accordance with the purchase method of accounting, the results of Panyu M&M 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 Panyu M&M was allocated to the assets acquired and liabilities assumed by Subaye.com. The Company recorded $354,051 of goodwill, which was the excess of acquisition costs over fair value of net assets of Panyu M&M.

 

Accounts receivables		$	193,453
Property, plant, and equipment			12,024
Other current assets			368,951
Goodwill			354,051
Liabilities assumed			(608,465	)
Net assets acquired		$	320,014
Purchase consideration		$	500,000
Net assets acquired			(320,014	)
Net cash inflow from acquisition of the Panyu M&M		$	179,986

 

F-14

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On October 1, 2006, the Company acquired 100% of the outstanding ownership interests in Ghuangzhou Panyu Metals & Minerals Import & Export Co. Limited from its majority owned subsidiary, Subaye.com, for gross consideration of $500,000.. The net assets received by the Company from the acquisition of Panyu M&M totaled $145,385. In accordance with the purchase method of accounting, the results of Panyu M&M 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 Panyu M&M was allocated to the assets acquired and liabilities assumed by the Company less the goodwill of $320,014, which was recorded upon Subaye.com’s acquisition of Panyu M&M. The company recorded $354,615 of intangible assets, which was the excess of acquisition cost over fair value of net assets of Panyu M&M.

 

Accounts receivables			642,262
Property, plant, and equipment			13,214
Other current assets			4,821
Goodwill			354,615
Accounts payable and accrued liabilities assumed			(586,254	)
Customer deposits liability assumed			(40,365	)
Net assets acquired		$	388,293
Purchase consideration		$	500,000
Net assets acquired			(388,293	)
Net cash inflow from acquisition of the Panyu M&M		$	111,707

 

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 Panyu M&M have been included in our subsidiary, Subaye.com’s statement of operations from April 1, 2006 and within the Company’s statement of operations since October 1, 2006. If the operating results had been included since the beginning of the year ended September 30, 2006, the pro-forma consolidated revenue and pro-forma consolidated net income would have been $19,573,348 and $2,245,180 respectively.

Acquisition of Additional Ownership in Subaye.com

On May 16, 2007, Subaye.com. issued 1,150,000 shares of its common stock to the Company for $2,300,000. As a result of this transaction, the Company holds a direct 64.60% ownership interest Subaye. An independent valuation of Subaye was completed as of September 30, 2006. This valuation report was relied upon by the Company’s management while discussions about this transaction took place.

NOTE 6 - SALE OF ASSETS

On June 5, 2007, the Company sold all rights under its copyright for the television programming rights to Big Movie: Subaye, which was initially produced as a motion picture in the PRC. The Company continues to own the internet, film and DVD rights for Big Movie: Subaye. The details of the sale are listed below:

		2007
Gross proceeds from the sale of Copyright - Big Movie: Subaye		$	400,000
Adjusted cost basis			(304,655	)
Net profit		$	95,345

The copyright’s adjusted cost basis was net of an impairment loss writedown in 2006 of $75,971 and was not net of any amortization or depreciation.

 

F-15

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On June 10, 2007, the Company sold all rights under its copyright for the television, PRC theatre, overseas theatre and DVD programming rights to First Open, which is anticipated to be produced as a motion picture in the PRC. The Company continues to own the internet rights for First Open. The details of the sale are listed below:

		2007
Gross proceeds from the sale of Copyright - First Open		$	1,800,000
Adjusted cost basis			(617,268	)
Net profit		$	1,182,732

The copyright’s adjusted cost basis was net of an impairment loss writedown in 2006 of $617,268 and was not net of any amortization or depreciation.

The Company reviewed its business plan with regard to whether the Company will continue to sell off assets it doesn’t consider to have immediate benefit to the Company. As a result, the Company believes the sale of the 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.

		2007			2006
U.S. Statutory rates			35.0	%		35.0	%
Foreign income			(35.0	)		(35.0	)
China tax rates			33.0			33.0
China income tax exemption			(33.0	)		(33.0	)
Effective income tax rates			0	%		0	%

 

F-20

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Value Added Tax

 

Enterprises or individuals who sell products, engage in repair and maintenance or import and export goods in the PRC are subject to a value added tax in accordance with Chinese laws. The value added tax rate applicable to the Company is 6% of the gross sales price. No credit is available for VAT paid on the purchases.

 

NOTE 11 - RELATED PARTY TRANSACTIONS

a) Names and relationship of related parties

		Existing relationships with the Company
TaiKang Capital Management Corporation		A common shareholder of the Company

b) Summary of related party transactions

		2007			2006
Sales of products to:
TaiKang Capital Management Corporation		$	1,080,000			1,440,000

 

F-21

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MYSTARU.COM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2007 AND 2006

 

NOTE 12 - MINORITY INTEREST

Minority interest represents the minority stockholders’ proportionate share of 35.40% (2006 - 46.08%) of the equity of Subaye.com. The Company’s 64.60% controlling interest requires that Subaye.com’s operations be included in the Consolidated Financial Statements. The 35.40% (2006 - 48.08%) equity interest of Subaye.com that is not owned by the Company is shown as “Minority interests in consolidated subsidiaries” in the financial statements is shown as $3,801,642 and $3,261,308, respectively. Included within Minority interests are 200,000 Series A Convertible Preferred stock outstanding in Subaye.com valued at $780,000. This stock is convertible into 400,000 shares of common stock, at a conversion rate of two shares of common stock for every one share of preferred stock.

 

		September 30, 2007			September 30, 2006
Minority interest of shareholders		$	3,021,642		$	2,481,308
Minority interest of preferred stock			780,000			780,000
Minority interest in consolidated subsidiaries		$	3,801,642		$	3,261,308

 

NOTE 13 - 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. As of September 30, 2007, the Company had operating leases that have remaining terms of nine months. The following table summarizes the Company’s future minimum lease payments under operating lease agreements as of September 30, 2007:

 

Year ended September, 30
2008		$	213,173
			213,173

F-22

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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 $411,422 and $266,814 for the years ended September 30, 2007 and 2006, respectively.

 

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.

 

NOTE 14 - OPERATING RISK

 Credit risk

The Company is exposed to credit risk from its cash at bank and fixed deposits and bills and accounts receivable. The credit risk on cash at bank and fixed deposits is limited because the counterparties are recognized financial institutions. Bills and accounts receivable are subjected to credit evaluations. An allowance has been made for estimated irrecoverable amounts which has been determined by reference to past default experience and the current economic environment.

 

 Foreign currency risk

Most of the transactions of the Company were settled in Renminbi and U.S. dollars. In the opinion of the directors, the Company would not have significant foreign currency risk exposure.

 Company’s operations are substantially in foreign countries

Substantially all of the Company’s products are manufactured in China. The Company’s operations are subject to various political, economic, and other risks and uncertainties inherent in China. Among other risks, the Company’s operations are subject to the risks of restrictions on transfer of funds; export duties, quotas, and embargoes; domestic and international customs and tariffs; changing taxation policies; foreign exchange restrictions; and political conditions and governmental regulations

 

F-23

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NOTE 15 - SEGMENT REPORTING

 

The Company operates in four distinct 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. Importing and exporting of goods - The Company conducts international trade using the PRC as its base of operations

Year Ended   September 30, 2007		Investments in Entertainment Arts Productions			Online Content and Member Services Provider			Software Sales			Importing and Exporting of Goods			Corporate/  Others			Consolidated Total
Net sales		$	3,908,086		$	4,310,030		$	1,899,100		$	11,437,595			-		$	21,554,811
Cost of sales			2,709,187			2,086,517			2,199,149			11,224,319			-			18,219,172
Segment income (loss) before taxes			299,104			1,228,222			(912,963	)		10,948			(5,622,561	)		(4,997,250	)
Segment assets			10,009,865			5,057,538			6,282,531			3,391,607			2,869,953			27,611,494
Expenditures for segment assets			4,300,000			2,619,000			-			-			148,955			7,067,955

 

Year Ended September 30, 2006			Programming Rights Licensing			Online Memberships for the B2B Marketplace			Software Sales			Importing and Exporting of Goods			Corporate/  Others			Consolidated  Total
Net sales		$	-		$	-		$	12,678,107		$	2,868,074		$	-		$	15,546,181
Cost of sales			-			-			3,815,036			2,804,564						6,619,600
Segment income (loss) before taxes			-			-			2,277,970			(127,523	)					2,150,447
Segment assets						-			10,412,692			13,214						10,425,906
Expenditures for segment assets			-			-			9,526,293			1,250			-			9,527,543

 

NOTE 16 - STOCK AWARDS PLAN

On June 8, 2005, a Registration Statement on Form S-8 was filed by the Company with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended (the “Securities Act”), for registration under said Securities Act of an additional 30,000,000 shares of common stock in connection with the Company's 2005 Stock Awards Plan (the “Plan”).

All shares issued under the Plan may be either authorized and unissued shares or issued shares reacquired by the Company. Under the Plan, no participant may receive in any calendar year (i) Stock Options relating to more than 10,000,000 shares, (ii) Restricted Stock or Restricted Stock Units that are subject to the attainment of Performance Goals of Section 13 hereof relating to more than 5,000,000 shares, (iii) Stock Appreciation Rights relating to more than 10,000,000 shares, or (iv) Performance Shares relating to more than 5,000,000 shares. No non-employee director may receive in any calendar year Stock Options relating to more than 1,200,000 shares or Restricted Stock Units relating to more than 500,000 shares. The shares reserved for issuance and the limitations set forth above shall be subject to adjustment. All of the available shares may, but need not, be issued pursuant to the exercise of Incentive Stock Options. The number of shares that may be issued under the Plan for benefits other than Stock Options or Stock Appreciation Rights shall not exceed a total of 30,000,000 shares.

 

F-24

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MYSTARU.COM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2007 AND 2006

 

NOTE 17 - DISCONTINUED OPERATIONS

On April 1, 2006, MYST sold all its interests in Island Media with the net gain on the disposal of $295,533. Island Media’s operating loss for the period up to the date of disposition was $239,776 was shown as Discontinued Operations in the consolidated statements of Income and comprehensive income. The following table shows the results of the Island Media from October 1, 2005 to March 31, 2006

		From October 1, 2005 to March 31, 2006			From June 2 (date of inception) , 2005 to September 30, 2005
Net revenues - others		$	247,458		$	66,282
Cost of sales- other cost of sales			202,860			50,525
Gross profit			44,598			15,757
Expenses:
Depreciation			21,016			5,032
Salaries			199,238			56,831
Other selling, general and administrative			99,020			30,247
Total operating expenses costs			319,274			92,110
			(274,676	)		(76,353	)
Other income (expense):
Interest income			173			287
Other income			35,899			2,660
Interest expense			(1,626	)		(2,351	)
Gain on disposal of fixed assets			454			-
Total other income			34,900			596
Income from continuing operations before income tax			(239,776	)		(75,757	)
Income tax expenses			-			-
Loss from discontinued operations , net		$	(239,776	)	$	(75,757	)

 

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MYSTARU.COM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2007 AND 2006

 

NOTE 18 - SUBSEQUENT EVENTS

 

On October 1, 2007, the Company sold 100% of the outstanding ownership units of Guangzhou TCOM Computer to Subaye.com for $822,392. Payment of the purchase price of $822,392 was made in the form of 411,196 shares of Subaye.com common stock.

 

On October 1, 2007, Subaye.com issued 1,825,890 and 511,702 shares of its common stock to settle $3,651,780 and $1,023,404 in outstanding liabilities with the Company’s subsidiaries, Alpha Century Holdings Limited and Arran Services.

 

On October 1, 2007, the sole shareholder of the Subaye.com preferred stock converted the preferred stock to 400,000 shares of the Company’s common stock.

 

On October 23, 2007, MyStarU.com, Inc.’s majority-owned subsidiary, Subaye.com, Inc. announced the acquisition of Media Group Int'l Ltd. ('MGI'), a premier media and marketing management firm. Subaye will immediately begin executing the planned integration of the Corporate Video Online/Offline, commercial movie advertising markets, and overseas business operations and networks. Subaye expects the acquisition and the subsequent integration to be a leading provider of corporate video online/offline and product placement advertising in movies. The acquisition broadens its product portfolio and addressable market, helps develop overseas markets, and will immediately increase corporate video members and revenue. Under the terms of the transaction, MGI shareholders will receive 100,000 shares of Subaye's common stock as 1.2% of the total outstanding Shares.

 

Subsequent to the above transactions and certain other privately registered transactions, the Company holds a 67.05% ownership in Subaye.com.

On October 25, 2007, MyStarU.com, Inc. (the “Registrant”) dismissed Child, Van Wagoner & Bradshaw, PLLC (“CV&B”) as its independent auditors, effective immediately. On October 25, 2007, the Registrant engaged DNTW Chartered Accountants, LLP (“DNTW”) as its successor independent audit firm. The Registrant’s dismissal of CV&B and engagement of DNTW was approved by the Registrant’s Board of Directors on October 25, 2007.

Effective October 29, 2007, Yan Liu resigned as Chief Financial Officer of the Registrant.

On October 29, 2007, the Registrant appointed James T. Crane to serve as its Chief Financial Officer. 

 

Mr. Crane is the founder of J. Crane & Company, P.C., a Cambridge, Massachusetts-based professional services firm (the “Firm”).  The Firm is registered with the Public Company Accounting Oversight Board to conduct audits of public companies and currently provides auditing, accounting, tax and public company regulatory compliance services to clientele in 23 states and 6 foreign countries. 

 

Mr. Crane is a certified public accountant licensed by Massachusetts and in good standing.  Prior to organizing J. Crane & Company, P.C., Mr. Crane was a partner in the Lexington, Massachusetts professional services firm of Baker, O’Connor & Sullivan, LLC.  Mr. Crane began his career with Ernst & Young.  Mr. Crane received a B.S. degree in Accountancy from BentleyCollege.  Mr. Crane currently serves as a director of Commerce Planet, Inc., an affinity and lead generation services company, which is traded publicly on the Over the Counter Bulletin Board. Mr. Crane also serves and has served as Chief Financial Officer of several current and former clients of J. Crane & Company, P.C. and has served and continues to serve as a member of the board of directors of various Boston-area not-for-profits.  Mr. Crane is a member of the American Institute of Certified Public Accountants and the Massachusetts Society of Certified Public Accountants.

In connection with Mr. Crane’s appointment, the Registrant has entered into a compensation arrangement whereby Mr. Crane is entitled to receive 735,000 shares of the Registrant’s common stock, to vest over a two year period.

NOTE 19 - RECENTLY ISSUED ACCOUNTING STANDARDS

 

Recently issued accounting pronouncements

 

In June 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109, which clarifies the accounting for uncertainty in tax positions. This interpretation requires that the entities recognize in the financial statements the impact of a tax position, if that position is more likely than not of being sustained upon examination, based on the technical merits of the position. FIN 48 will be effective for the fiscal years beginning after December 15, 2006. The Company does not expect the adoption of FIN 48 to have a material impact on the consolidated financial statements.

 

The In September 2006, FASB issued SFAS No. 157, Fair Value Measurements . SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. Under SFAS No. 157, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years, with early adoption permitted. The Company does not expect the adoption of SFAS No. 157 to have a material impact on the consolidated financial statements.

 

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In December 2006, FASB issued FSB EITF 00-19-2, Accounting for Registration Payment Arrangements , which specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement should be separately recognised and measured in accordance with FASB Statement No. 5, Accounting for Contingencies . The FSB EITF 00-19-2 is effective immediately for new and modified registration payment arrangements entered into after December 21, 2006, and beginning in the fiscal year ended December 31, 2007 for any such instruments entered into before that date. The Company does not expect the issuance of FSB EITF 00-19-2 to have a material impact on the consolidated financial statements.

 

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, which permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS No. 159 will be effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Management is in the process of determining whether it will elect the fair value option allowed by the Standard.

 

In June 2007, FASB issued FASB Staff Position No. EITF 07-3, “Accounting for Nonrefundable Advance Payments for Goods or Services Received for use in Future Research and Development Activities” (“FSP EITF 07-3”), which addresses whether nonrefundable advance payments for goods or services that used or rendered for research and development activities should be expensed when the advance payment is made or when the research and development activity has been performed. FSP EITF 07-3 will be effective for an entity’s financial statements issued for fiscal years beginning after December 15, 2007. Management is currently evaluating the effect of this pronouncement on financial statements.

 

F-27

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ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

On October 25, 2007, MyStarU.com, Inc. (the “Registrant”) dismissed Child, Van Wagoner & Bradshaw, PLLC (“CV&B”) as its independent auditors, effective immediately. On October 25, 2007, the Registrant engaged DNTW Chartered Accountants, LLP (“DNTW”) as its successor independent audit firm. The Registrant’s dismissal of CV&B and engagement of DNTW was approved by the Registrant’s Board of Directors on October 25, 2007.

 

CV&B’s audit reports on the Registrant’s consolidated financial statements as of the fiscal years ended September 30, 2006 and 2005 did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. 

 

In connection with the audits of the Registrant’s financial statements for each of the two most recently filed financial statements for the years ended September 30, 2006 and 2005 and through the date hereof, there were no disagreements between the Registrant and CV&B on any matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to CV&B’s satisfaction, would have caused CV&B to make reference to the matter in its reports on the financial statements for such years.

 

In connection with the audits of the Registrant’s financial statements for each of the two most recently filed financial statements for the years ended September 30, 2006 and 2005 and through the date hereof, there have been no “reportable events” as defined in Regulation S-B, Item 304(a)(1)(iv).

The Registrant has requested that CV&B furnish it with a letter addressed to the Securities and Exchange Commission stating whether it agrees with the above statements. A copy of CV&B’s letter will be filed with the SEC upon receipt.

 

In deciding to select DNTW, the Board of Directors reviewed auditor independence issues and existing commercial relationships with DNTW and concluded that DNTW has no commercial relationship with the Registrant that would impair its independence. During the Registrant’s fiscal years ended September 30, 2006 and 2005 and through the date hereof, the Registrant did not consult with DNTW regarding any of the matters or events set forth in Item 304(a)(2)(i) and (ii) of Regulation S-B.

ITEM 8A. CONTROLS AND PROCEDURES

 

Our Chief Executive Officer and Chief Financial Officer (collectively, the “Certifying Officers”) are responsible for establishing and maintaining disclosure controls and procedures for us. As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the “Exchange Act”), we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2007, being the date of our most recently completed fiscal year. This evaluation was carried out under the supervision and with the participation of the Certifying Officers. Based upon that evaluation, the Certifying Officers concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive officers as appropriate, to allow timely decisions regarding required disclosure.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including the Certifying Officers, to allow timely decisions regarding required disclosure.

The Certifying Officers have also indicated that there were no significant changes in our internal controls or other factors that could materially affect such controls subsequent to the date of their evaluation, and there were no corrective actions with regard to significant deficiencies and material weaknesses.

Our management, including each of the Certifying Officers, does not expect that our disclosure controls or our internal controls will prevent all error and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control. The design of any systems of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, the control system may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of these inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

ITEM 8B. OTHER INFORMATION

None.

 

22

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PART III.

 

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTORS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

The following table sets forth the name, age, positions and offices or employments for the past five years as of the date of this filing, of our executive officers and directors*. Members of the board are elected and serve for one year terms or until their successors are elected and qualify. All of the officers serve at the pleasure of the Board of Directors of the Company.

NAME		AGE		POSITION
Alan R. Lun		41		CEO, President and Director
Yan Liu		30		Vice President , COO and Director
James T. Crane		31		CFO
Yaofu Su		27		Vice President, Director

Alan R. Lun, Chief Executive Officer, President and Director

On April 30, 2007, the Board appointed Alan R. Lun to replace Mr. Chen as the Company’s Chief Executive Officer, President and as a member of the Board. Mr. Lun is also the Chief Executive Officer of MyStarU Ltd., a wholly-owned subsidiary of the Company, a position he has held since March 2006. From March 2001 through February 2006, Mr. Lun was the division manager of Guangdong Country Garden Property Management Co. Ltd., a property management company in China.

 

James T. Crane, Chief Financial Officer

Mr. Crane joined the Company on October 29, 2007. In 2001, Mr. Crane founded J. Crane & Company, P.C., a professional services firm. Prior to founding J. Crane & Company, P.C., Mr. Crane worked as an external auditor and business consultant for an international public accounting firm. Mr. Crane has worked with numerous public companies in the United States of America, Asia and Europe, where he focused his time and efforts on emerging businesses, assisting them with SEC compliance and communication matters, accounting and accounting-related functions and debt and equity financing actions. Mr. Crane is a Certified Public Accountant. Mr. Crane received his Bachelor of Science in Accountancy from Bentley College in Waltham, Massachusetts. Mr. Crane currently serves as a director on the Board of Commerce Planet, Inc., an SEC reporting company, and has also served as an officer or director of several other public and private companies.

 

Yan Liu, Vice President, Chief Operating Officer, Former Chief Financial Officer and Director

Ms. Liu joined the Company as Vice President and Director of the Company on March 20, 2006. From June 2004 through March 2006, Ms. Liu was the Chief Operating Officer of sinosuper.com ("Sino"). Sino is an internet company that is a wholly-owned subsidiary of Wukuang IE Limited. From May 2003 to April 2004, Ms. Liu was the Company’s General Manager of the Marketing and Sales Department. From July 2002 to April 2003, Ms. Liu was the assistant to the Chief Executive Officer of South China Motor Group in Guangzhou, China. From June 1999 to July 2002, she was the director of the Plan Department at Dali Motorcycle Limited in Xinhui City, China. Ms. Liu also served as the Company’s Chief Financial Officer from April 2, 2007 through October 29, 2007.

Yaofu Su, Vice President, Director

 

 

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*	Tim T. Chen, former Chief Executive Officer, President and Director of the Company was replaced on April 30, 2007 by Alan R. Lun. Mr. Chen is no longer employed by the Company.

Hongtao Zhang, former Director of the Company, was removed as Director on April 2, 2007.

Victor Z. Li resigned as Chief Financial Officer, Secretary, Treasurer and Director of the Company on April 2, 2007.

 

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Board of Directors

 

We currently have three members on our Board of Directors, who are elected to annual terms and until their successors are elected and qualified. Executive officers are appointed by the Board of Directors on an annual basis and serve until their successors have been duly elected and qualified. There are no family relationships among any of our directors, officers or key employees. There have been no material changes to the procedures by which security holders may recommend nominees to the Board of Directors since the date of the Company's most recent quarterly report on Form 10-QSB.

Audit Committee

Although our Board does not have a separately-designated standing Audit Committee, our full Board of Directors performs the functions usually designated to an Audit Committee. As of October 29, 2007, James T. Crane has been designated as the Board's "audit committee financial expert" as defined in Item 407(d)(3) of Regulation S-B. Mr. Crane is a licensed CPA, and was formerly an auditor at Ernst & Young, an international professional services firm. Currently, Mr. Crane serves as an accounting and auditing consultant to 14 public companies, and over 20% of his business during both 2006 and 2007 involved direct SEC representation of his clients. Mr. Crane’s experience and background has provided him with an understanding of accounting principles generally accepted in the United States of America and financial statements prepared thereon. Mr. Crane has experience preparing, auditing, analyzing and evaluating financial statements that present a breadth and level of complexity of accounting issues comparable to the issues that can reasonably be expected to be raised by our financial statements. Mr. Crane has an understanding of audit committee functions. We are traded on the Over the Counter Bulletin Board which does not have a requirement of director independence; however, Mr. Crane is not independent . 

Director Independence

In determining the independence of its Directors, the Company uses the definition of independence adopted by the American Stock Exchange ("AMEX") Based on the AMEX standards, the Board of Directors has determined that none of our members of the board of directors are independent. Except as disclosed above, no other committees of the Board of Directors exist.

Compliance With Section 16(a) of the Exchange Act

Section 16(a) of the Securities Exchange Act of 1934 requires that the Company’s directors and executive officers and persons who beneficially own more than ten percent (10%) of a registered class of its equity securities, file with the SEC reports of ownership and changes in ownership of its common stock and other equity securities. Executive officers, directors, and greater than ten percent (10%) beneficial owners are required by SEC regulation to furnish the Company with copies of all Section 16(a) reports that they file. Based solely upon a review of the copies of such reports furnished to us or written representations that no other reports were required, the Company believes that, during that past fiscal year, all filing requirements applicable to its executive officers, directors, and greater than ten percent (10%) beneficial owners were met.

Code of Ethics

We have adopted a Code of Ethics for our Senior Financial Officers and for all of our employees. We shall, without charge, provide to any person, upon request, a copy of our Code of Ethics for our Senior Financial Officers. All such requests should be mailed to: Mystaru.com, Inc., 9/F., Beijing Business World, 56 Dongxinglong Avenue, Beijing China, 100062, attention: Alan Lun, CEO.

As required by SEC rules, we will report within five business days the nature of any change or waiver of our Code of Ethics for our Senior Financial Officers.

 

ITEM 10. EXECUTIVE COMPENSATION.

The following table presents a summary of the compensation paid to our Chief Executive Officer, our Chief Financial Officer and our President, during the fiscal year ended September 30, 2007. Except as listed below, there are no bonuses, other annual compensation, restricted stock awards or stock options/SARs or any other compensation paid to the named executive officers.

Summary Compensation Table

Name and Principal Position		Year Ended September 30,			Base Salary $			Bonus $			Stock Awards $			Option Awards $			Non-equity plan compensation $			Non-qualified Deferred compensation Earnings $			All Other Compensation $			Dollar Value of total compensation for the covered fiscal year $
(a)		(b)			(c)			(d)			(e)			(f)			(g)			(h)			(i)			(j)
Alan R. Lun			2007			92,028			0			0			0			0			0			0			92,068
Chief Executive Officer, President, Director			2006 2005			60,000 0			0 0			0 0			0 0			0 0			0 0			0 0			60,000 0
Tim T. Chen			2007			147,097			0			0			0			0			0			0			147,097
Chief Executive Officer, President, Director			2006 2005			780,000 0			0 0			0 0			0 0			0 0			0 0			0 0			780,000 0
Victor, Z. Li			2007			62,171			0			0			0			0			0			0			62,171
Chief Financial Officer, Treasurer, Secretary, Controller, Director			2006 2005			490,000 0			0 0			0 0			0 0			0 0			0 0			0 0			490,000 0
Yan Liu			2007			59,063			0			0			0			0			0						59,063
Vice President, Chief Operating Officer, Director			2006 2005			364,000 0			0 0			0 0			0 0			0 0			0 0			0 0			364,000 0
Yaofu Su			2007			27,977			0			0			0			0			0			0			27,977
Vice President, Chief Operating Officer, Director			2006 2005			312,000 0			0 0			0 0			0 0			0 0			0 0			0 0			364,000 0

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Outstanding Equity Awards at Fiscal Year-End

		Option awards															Stock awards
Name		Number of securities underlying unexercised options (#) exercisable			Number of securities underlying unexercised options (#) unexercisable			Equity incentive plan awards: Number of securities underlying unexercised unearned options (#)			Option exercise price ($)			Option expiration date			Number of shares or units of stock that have not vested (#)			Market value of shares or units of stock that have not vested ($)			Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested (#)			Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested ($)
(a)		(b)			(c)			(d)			(e)			(f)			(g)			(h)			(i)			(j)
-			0			0			0			0			0			0			0			0			0
-			0			0			0			0			0			0			0			0			0
-			0			0			0			0			0			0			0			0			0

Director Compensation Table

The following table presents a summary of the compensation paid to the members of our Board of Directors during the fiscal year ended September 30, 2007. Except as listed below, no other compensation was paid to our Directors.

		Fees Earned or Paid in Cash			Stock Awards			Option Awards			Non-equity plan compensation			Non- qualified Deferred compensation Earnings			All Other Compensation			Total
Name		$			$			$			$			$			$			$
(a)		(b)			(c)			(d)			(g)			(h)			(i)			(j)
Alan R. Lun			0			0			0			0			0			0			0
Tim T. Chen			0			0			0			0			0			0			0
Victor Z. Li			0			0			0			0			0			0			0
Yaofu Su			0			0			0			0			0			0			0
Yan Liu			0			0			0			0			0			0			0
Hongtao Zhang			0			0			0			0			0			0			0

Director Compensation Agreements

The Company’s members of the board of directors are currently not compensated for board services rendered to the Company.

Employment Agreements

The Company has entered into employment agreements with its officers. The terms of the employment have been disclosed above. There are no employment contracts established with our employees in the PRC as it is not common to have employment contracts in the PRC for non-management employees before the new PRC Labor Regulation, effective January 1, 2008.

Termination of Employment and Change of Control Arrangement

There are no compensatory plans or arrangements, including payments to be received from the Company, with respect to any person named in the Summary Compensation Table set forth above which would in any way result in payments to any such person because of his or her resignation, retirement or other termination of such person's employment with the Company or its subsidiaries, or any change in control of the Company, or a change in the person's responsibilities following a change in control of the Company.

 

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Indemnification of Officers And Directors

We indemnify to the fullest extent permitted by, and in the manner permissible under the laws of the State of Delaware, any person made, or threatened to be made, a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he/she is or was a director or officer of our Company, or served any other enterprise as director, officer or employee at our request. Our board of directors, in its discretion, shall have the power on behalf of the Company to indemnify any person, other than a director or officer, made a party to any action, suit or proceeding by reason of the fact that he/she is or was our employee.

 

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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

(a)   Security Ownership of Certain Beneficial Owners

The following tables set forth, as of December 17, 2007, information known to us relating to the beneficial ownership of shares of common stock by: each person who is the beneficial owner of more than 5 percent of the outstanding shares of common stock; each director; each executive officer; and all executive officers and directors as a group.

We believe that all persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them except as stated therein.

Under the securities laws, a person is considered to be the beneficial owner of securities that can be acquired by him or her within 60 days from the date of this filing upon the exercise of options, warrants or convertible securities. We determine beneficial owner's percentage ownership by assuming that options, warrants or convertible securities that are held by him or her, but not those held by any other person and which are exercisable within 60 days of the date of this filing, have been exercised or converted. As of December 17, 2007 there were 151,014,316 shares of our common stock issued and outstanding.

 

Name and address of beneficial owner*			Number of Shares Beneficially Owned			Percentage of Shares Beneficially Owned			Position
Taikang Capital Managements Corporation 906, 9TH/F, YUXING BUILDING, XIHUAN RD PANYU, GUANGZHOU F4 GD511490			20,000,000			13.24	%		5% owner
Auto Treasure Holdings Limited 1906, 19TH/F, YUXING BUILDING, XIHUAN RD PANYU, GUANGZHOU F4 GD511490			9,889,000			6.55	%		5% owner
Alan R. Lun			1,000,000			0.66	%		Chief Executive Officer, President and Director
James T. Crane			735,000			0.49	%		Chief Financial Officer
Yan Liu			700,000			0.48	%		Vice President, Chief Operating Officer and Director
Yaofu Su			600,000			0.40	%		Vice President, Director
Directors and Executive officers as a group			3,035,000			2.03	%

 

* Except where otherwise indicated, the address of the beneficial owner is deemed to be the same address of the Company.

 

(b)   Changes in Control

We know of no contractual arrangements which may at a subsequent date result in a change of control in the Company.

 

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..

 

During the years ended September 30, 2007 and 2006, we sold our products to TaiKang Capital Management Corporation for $1,080,000 and $1,440,000, respectively. As of September 30, 2007, the outstanding balance due from TaiKang Capital Management Corporation was $1,107,359.

 

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ITEM 13. EXHIBITS

 

(a)

Exhibits

 

Our financial statements are included as Item 7 of this Form 10-KSB

 

3.1	Certificate of Incorporation.*

 

3.2	Certificate of Amendment of Certificate of Incorporation, as filed on July 10, 2007 with the Secretary of State of the State of Delaware.**

 

3.2

Bylaws.*

 

14.1	Code of Ethics***

 

16.1	Letter on Change in Certifying Accountant +

 

21.1	List of Subsidiaries ++

 

23.1	Consent of Child, Van Wagoner & Bradshaw, PLLC ++

 

31.1	Rule 13a-14(a)/15d-14(a) Certification (CEO) ++

 

31.2	Rule 13a-14(a)/15d-14(a) Certification (CFO) ++

 

32.1	Section 1350 Certification (CEO) ++

 

32.2	Section 1350 Certification (CFO) ++

 

(b)	Current Reports on Form 8-K (incorporated by reference)

 

Form 8-K, dated April 9, 2007

 

Form 8-K, dated May 4, 2007

 

Form 8-K, dated July 20, 2007

 

Form 8-K, dated July 31, 2007

 

Form 8-K/A, dated August 20, 2007

Form 8-K, dated October 31, 2007

Form 8-K/A, dated December 6, 2007

 

*	Incorporated by reference to exhibits filed with the registrant’s definitive proxy statement on Form 14A as filed with the SEC on January 27, 2005.

 

**	Incorporated by reference from the registrant’s Form 8-K (SEC File No. 62236) as filed with the SEC on July 31, 2007.

***	Incorporated by reference from the registrant’s Form 10-QSB (SEC File No. 62236) as filed with the SEC on February 1, 2005.

 

+	As of the date of filing, the letter is unavailable. Pursuant to Item 304(a)(3) of Regulation S-B, the letter will be filed with the SEC within 10 business days after the date of filing.

 

++	Filed herewith.

 

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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

AUDIT FEES

The aggregate fees billed by the Company's auditors for professional services rendered in connection with the audit of the Company's annual consolidated financial statements for fiscal 2007 and 2006 and reviews of the consolidated financial statements included in the Company's Forms 10-KSB for fiscal 2007 and 2006 were approximately $21,500 and $34,000, respectively.

AUDIT-RELATED FEES

The Company's auditors did not bill any additional fees for assurance and related services that are reasonably related to the performance of the audit or review of the Company's financial statements.

TAX FEES

The aggregate fees billed by the Company's auditors for professional services for tax compliance, tax advice, and tax planning were $0 for fiscal 2007 and 2006.

ALL OTHER FEES

The aggregate fees billed by the Company's auditors for all other non-audit services rendered to the Company, such as attending meetings and other miscellaneous financial consulting in fiscal 2007 and 2006 were $0.

 

 

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

 

	MYSTARU.COM, INC.
Date: January 16, 2008	By:	/s/ Alan R. Lun
		Alan R. Lun CEO and President (Principal Executive Officer)

 

Date: January 16, 2008	By:	/s/ James T. Crane
		James T. Crane CFO (Principal Financial and Accounting Officer)

 

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