Star E Media 10QSB 2003 Q2 Quarterly report (small business)

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-QSB

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2003

[   ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________.

Commission file number: 000-49943

Star E Media Corp.

(Exact name of registrant as specified in its charter)

Nevada (State or other jurisdiction of incorporation or organization)	91-2038162 (I.R.S. Employer Identification No.)
27171 Burbank Road Lake Forest, CA (Address of principal executive offices)	92610 (Zip Code)

Registrant's telephone number, including area code (949) 581-9477

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __     NoX.

Applicable only to issuers involved in bankruptcy proceedings during the preceding five years

Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court.

Yes  __   No __.

Applicable only to corporate issuers

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. As of August 15, 2003, there were 13,280,000 shares of common stock outstanding.

Transitional Small Business Disclosure Format

(check one):

Yes __   NoX .

STAR E MEDIA CORP.

TABLE OF CONTENTS

PART I
Item 1	Financial Statements	3
Item 2	Management's Discussion and Analysis or Plan of Operations	18
PART II
Item 1	Legal Proceedings	21
Item 2	Changes in Securities and Use of Proceeds	21
Item 3	Defaults Upon Senior Securities	21
Item 4	Submission of Matters to a Vote of Security Holders	21
Item 5	Other Information	21
Item 6	Exhibits and Reports on Form 8-K	22

2

PART I

This Quarterly Report includes forward-looking statements within the meaning of the Securities Exchange Act of 1934 (the "Exchange Act"). These statements are based on management's beliefs and assumptions, and on information currently available to management. Forward-looking statements include the information concerning possible or assumed future results of operations of the Company set forth under the heading "Management's Discussion and Analysis of Financial Condition or Plan of Operation." Forward-looking statements also include statements in which words such as "expect," "anticipate," "intend," "plan," "believe," "estimate," "consider" or similar expressions are used.

Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions. The Company's future results and shareholder values may differ materially from those expressed in these forward-looking statements. Readers are cautioned not to put undue reliance on any forward-looking statements.

ITEM 1Financial Statements

3

STAR E MEDIA CORPORATION

BALANCE SHEET

(Unaudited)

June 30, 2003 and December 31, 2002

		6/30/2003	12/31/2002
ASSETS
Cash		-	83,403
Accounts Receivable		220,250
Inventory		42,576	42,737
Prepaid Expenses		42,000
	Total Current Assets	304,826	126,140
Equipment, Net		37,476	39,926
Other Assets
Royalty Advances		34,693	69,385
Investment in ESP		30,000
Capitalized Production Costs		123,646	180,643
	Total Other Assets	188,339	250,028
	Total Assets	530,641	416,094
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Bank Overdraft		35,090
Payables and Accrued Expenses		230,977	119,962
Notes Payable		639,669	485,433
	Total Current Liabilities	905,736	605,395
Stockholders' Equity
Common Stock, authorized
100,000,000 shares, issued
13,280,000 at June 30, 2003
and 13,030,000 at
December 31, 2002, par value
$0.001 per share		13,280	13,030
Additional Paid in Capital		1,688,213	1,626,463
Retained Earnings (Deficit)		(2,076,588)	(1,828,794)
	Total Stockholders' Equity	(375,095)	(189,301)
	Total Liabilities and
	Stockholders' Equity	530,641	416,094
The accompanying notes are an integral part of these statements

4

STAR E MEDIA CORPORATION

STATEMENT OF OPERATIONS

(Unaudited)

For the three months ended June 30, 2003 and 2002

and the six months ended June 30, 2003 and 2002

		3 months	3 months	6 months	6 months
		ended	ended	ended	ended
		June 30,	June 30,	June 30,	June 30,
		2003	2002	2003	2002
Revenue
	Sales of Product	271,289	0	271,613	0
	Total Revenue	271,289	0	271,613	0
Cost of Sales
	Costs of Goods Sold	60,445	0	60,606	0
	Total Cost of Sales	60,445	0	60,606	0
	Gross Profit	210,844	0	211,007	0
Expenses
	Sales and Marketing	-	2,811	15,796	4,831
	General and Administrative	71,503	82,979	346,343	139,180
	Research and Development	-	12,914		27,637
	Interest	26,485	-	91,724	-
	Amortization
	Depreciation Expense	2,470	1,300	4,938	2,387
	Total Expense	100,458	100,004	458,801	174,035
Loss before Income Taxes		110,386	(100,004)	(247,794)	(174,035)
Provision for Income Taxes		0	0	0	0
Net Income (Loss)		110,386	(100,004)	(247,794)	(174,035)
Basic and Diluted Earnings
	(Loss) per Share	0.01	(0.01)	(0.02)	(0.01)
Basic and Diluted Weighted
	Average Number of Shares	13,055,000	12,548,437	13,042,500	12,548,437
The accompanying notes are an integral part of these statements

5

STAR E MEDIA CORPORATION

STATEMENT OF STOCKHOLDERS' EQUITY

(Unaudited)

from December 31, 2001 to June 30, 2002

	Common Stock		Additional	Stock	Accumulated	Total
	Shares	Amount	Paid in	Subscribed	Deficit	Equity
			Capital
Balance, December 31, 2001	12,400,000	12,400	1,226,793	(35,000)	(767,613)	436,580
Payment of Stock Subscribed				35,000		35,000
Sales of Stock	150,000	150	149,850			150,000
Sales of Stock	480,000	480	114,720			115,200
Service Contributed by Officers			135,100			135,100
Deficit for year					(1,061,181)	(1,061,181)
						-
Balance, December 31, 2002	13,030,000	13,030	1,626,463	-	(1,828,794)	(189,301)
						-
Stock for Services	50,000	50	19,950			20,000
Stock for Prepaid Services	200,000	200	41,800			42,000
Deficit for Period					(247,794)	(247,794)
						-
Balance, June 30, 2003	13,280,000	13,280	1,688,213	-	(2,076,588)	(375,095)
The accompanying notes are an integral part of these statements

6

STAR E MEDIA CORPORATION

STATEMENT OF CASH FLOWS

(Unaudited)

For the six months ended June 30, 2003 and 2002

		6 months	6 months
		ended	ended
		June 30,	June 30,
		2003	2002
Cash Flow from Operating Activities
	Net Loss	(247,794)	(174,035)
	Royalty Advances	34,692	(10,000)
	Capitalized Costs	56,997	(132,664)
	Change in Accounts Receivable	(220,250)
	Inventory	161
	Change in Accounts Payable	146,105	92,985
	Depreciation	4,938
	Amortization
	Stock for Services	20,000
	Contributed Services
	Cash Flows Provided by Operations	(205,151)	(223,714)
Cash Flows Used in Investing
	Purchase of equipment	2,488	11,934
	Investment in ESP	30,000
	Cash Used in Investing	32,488	11,934
Cash Flows from Financing
	Notes Payable	154,236
	Sales of Stock		150,000
	Stock Subscribed		19,000
	Cash Flows from Financing	154,236	169,000
Net Increase (Decrease) in Cash Flows		(83,403)	(66,648)
Cash, Beginning of Period		83,403	71,317
Cash, End of the Period		-	4,669
Non Cash Transactions
Supplemental Information
Year 2002
	Tax paid $0
	Interest Expense $0
Year 2003
	Taxes paid $0
	Interest Expense

The accompanying notes are an integral part of these statements

See Notes on Equity Transactions for non stock transactions

7

STAR E MEDIA CORPORATION

NOTES TO FINANCIAL STATEMENTS

NOTE 1.OVERVIEW OF OPERATIONS AND ACCOUNTING POLICIES

Star E Media Corporation (the Company) was formed on March 8, 2000 in the State of Nevada. We develop and produce children’s educational products in a multi-lingual format, focusing on the CD technology. We are positioning our Company to be a gateway for interactive educational technology, initially for the Arabic and Spanish languages and later for other languages. We have established a relationship and have royalty agreements with three major US producers of educational software. Our agreements allow us to utilize proven and successful titles and add an additional language. These agreements allow us to bypass the ramp-up time for releasing a title free from computer bugs.

Basis of Presentation and Going Concern

The accompanying statements have been prepared following accounting standards generally accepted in the United States of America. As reflected in the accompanying financial statements, the Company had negative cash flow from operations and incurred a net loss during the previous three years. The number of sales have been minimal. The Company has established strategic relationships with two distributors who will carry their products. None of these relationships have materialized to date. The statements have been prepared assuming that the Company will continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the C ompany be unable to achieve sufficient cash flow from operations or secure adequate future financing and be therefore unable to continue as a going concern.

Product Development

We have licensing agreements with three companies, Scholastic, School Zone Interactive and Knowledge Adventure for a total of 68 titles (previously produced children’s educational games and activities). These agreements allow us to add either Spanish, Arabic or both to the titles. We are also allowed to market these products in specifically identified countries. The licensing agreements are generally for 3 years. Of the 68 titles, 14 Spanish/English titles have been completed and 16 Arabic/English titles have been completed.

The Company is not doing business with Lizard Ltd. at this time.

Marketing Strategy

Future operating results will depend on the Company’s ability to attract new customers to generate sufficient volume to fund operations. We are principally attempting to establish relationships with established wholesalers, SpaceToon and ESP International.

Revenue Recognition

We sell to end-users, retailers and to wholesale distributors. For both of these types of sales we recognize revenue upon shipment. All products are sold FOB shipping point. We offer no right of return for either type of sale on our product. We do offer a limited warranty that our CD is not defective. The warranty policy on CD’s is explained underWarrantiesbelow.

We do not offer any additional elements with our products such as upgrades or services.

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Research and Development

All costs incurred to establish the technological feasibility of a computer software product to be sold are research and development costs. Those costs are charged to expense when incurred as required by FASB Statement No. 2,Accounting for Research and Development Costs. Costs incurred in this manner and expensed as prescribed were $140,256 in 2000, $164,888 in 2001, $34,637 in 2002 $0 for the period ending June 30, 2003.

Advertising

Advertising and marketing costs are expensed as incurred. Advertising expenses were $0 for the year ended December 31, 2000, $3,800 for year ended December 31, 2001, $0 for the year ended December 31, 2002 and $0 for the three and six month periods ended June 30, 2003.

Production Costs of Localization of Computer Software

Costs of producing product masters incurred subsequent to establishing technological feasibility are capitalized and amortized as prescribed by FASB No. 86,Accounting for the Costs of Computer Software to Be Sold, Leased , or Otherwise Marketed. Those costs include coding and testing performed subsequent to establishing technological feasibility. For each title it takes approximately six months to complete the language conversion. Capitalized software costs are amortized on a product-by-product basis annually. The annual amortization is the greater of the amount computed using the ratio that current gross revenues for a product bear to the total of current and anticipated future gross revenues for that product or the straight-line method over the remaining estimated economic life of the product including the period being reported on. Amortization starts when the product is available for sale. At each balance sheet date, the unamortized capitalized costs of computer software production shall be compared to the net realized value of that product. The amount by which the unamortized capitalized costs of a computer software product exceed the net realizable value of that asset is written off.

The economic lives of these titles are estimated by management to be either a specific number of sales or three years, whichever comes first. The royalty agreements are normally for three years. The economic lives in sales ranges from 10,000 discs per title to 27,500 units per title.

Inventory Costs

The costs incurred for duplicating the computer software and for physically packaging the product for distribution are capitalized as inventory on a unit-specific basis and charged to costs of sales when revenue from the sale of those units is recognized. We had no inventory at 12/31/00. The detail of the inventory as of 6/30/03 and 12/31/02 is shown below.

	6/30/03	12/31/02
Inventory	$42,576	$42,737

9

Equipment

Equipment is depreciated using the straight-line method over its estimated useful lives, which range from five to seven years.

	6/30/03	12/31/02
Equipment	53,863	48,906
Less: Accumulated depreciation	(16,387)	(8,980)
Net Equipment	37,476	39,926

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Earnings per Share

The basic earnings (loss) per share is calculated by dividing the Company’s net income available to common shareholders by the weighted average number of common shares during the year. The diluted earnings (loss) per share is calculated by dividing the Company’s net income (loss) available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted as of the first of the year for any potentially dilutive debt or equity.

The Company has no potentially dilutive securities outstanding at the end of the statement periods. Therefore, the basic and diluted earnings (loss) per share are presented on the face of the statement of operations as the same number.

On December 27, 2002, as part of a loan and stock sale we issued 23,000 warrants to purchase common stock at $0.50 per share, good for four years. These warrants are out of the money and as such are anti-dilutive and do not affect the earnings per share calculation.

Stock Based Compensation to Employees and Directors

The Company accounts for its stock based compensation based upon provisions in SFAS No. 123,Accounting for Stock-Based Compensation. In this statement stock based compensation is divided into two general categories, based upon who the stock receiver is, namely, employees/directors and non-employees/directors. The employees/directors category is further divided based upon the particular stock issuance plan, namely compensatory and non-compensatory. The employee/directors non-compensatory securities are recorded when the stock is sold at the sales price. The compensatory stock may be recorded i n one of two different methods. Compensation is calculated and recorded either at the securities’ fair value or intrinsic value. The Company has selected to utilize the fair value method for the valuation of its securities given as compensation to employees.

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Securities Based Compensation to Non-Employees

SFAS 123 provides that stock compensation paid to non employees be recorded with a value which is based upon the fair value of the services rendered or the stock given, whichever is more reliable. The common stock paid to non-employees was valued at the value of the services rendered. 

Warranty

We warrant our CD’s for workmanship of production only for thirty days after receipt of the goods. The warranty is only for a replacement CD. Notwithstanding our limited sales to date, we have estimated one half of one percent (.5%) defect rate for the CD’s.

NOTE 2.MERGER

On August 15, 2001 Star E Media Corporation merged with the Nevada corporation Quick & Easy Software, Inc. This merger was effected to improve the ability of Star E Media to raise capital. Quick & Easy Software, Inc. had no operations, 2,400,000 shares of common stock outstanding and could be considered a "shell" company. Quick & Easy issued an additional 10,000,000 shares of common stock in exchange for all of Star E Media’s common stock outstanding, which were also 10,000,000. The surviving legal entity was Quick & Easy which then changed its name to Star E Media Corporation. This merger was accounted for as a reverse acquisition and is shown on the statement of stockholders’ equity. Quick & Easy’s balance sheet on August 15, 2001 was the following.

Cash	12,067
Debt	0
Equity	12,067

NOTE 3.NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS:

We had no long-term debt or obligations as of December 31, 2001.

On March 27 and June 30, 2003 we borrowed $3,000 and $6,000 respectfully from a shareholder on a demand note without interest.

In 2002 we borrowed $360,000 from a shareholder. This is a demand note and carries a 6% annual interest rate. On March 7, 2003 we borrowed and additional $21,500 from the same shareholder and increased the note to $381,500. As of June 30, 2003 this note had a balance of $297,945.

On December 27, 2002 we borrowed $230,000 from a private individual. This note is due June 27, 2003 and carried an interest rate of 6% annual interest. If this note is not paid off on the maturity date then the interest rate becomes retroactively 35%. The note was not paid off. This note is secured by all of the assets of the Company. 480,000 shares of common stock and 23,000 warrants were issued with this note.

11

Demand note, no interest	$20,000
Note	297,945
Demand note, 6% annual interest
Note $230,000	230,000
Demand note, 35% annual interest
Total	547,945
Accrued Interest	91,724
Total Notes Payable	639,669

NOTE 4.STOCKHOLDERS’ EQUITY

Authorized Capital Stock

We have a total authorized capital of 100,000,000 shares of common stock at $.001 par value per share. Shareholders have all the rights afforded them by Nevada law.

Year 2000 Equity Transactions

Year 2000 Conversion of Debt

The debt of $226,276 which was converted related to rent and other overhead items paid for by Star E Media’s related party company Western Global. These amount due were converted to 126,252 shares of common stock at the end of the year at an average price of $1.79 per share.

Stock for Services

Consulting was paid for with 8,373,748 shares of common stock valued at $8,650. This consulting is shown as the initial capitalization of the Company. The services rendered were that of formation of the Company, meetings to do promotional activities, to gauge the viability of the Company and promotional networking. The value of these services was listed at par value, which is $0.001 per share.

Year 2001 Equity Transactions

Year 2001 Conversion of Debt

The debt of $148,200 which was converted related to rent and other overhead items paid for by Star E Media’s related party company Western Global. This amount due was converted to 157,500 shares of common stock at the end of the year at an average price of $0.94 per share.

Stock for Services

Consulting was paid for with 4,000 shares of stock and valued at $4,000 for an average price of $1.00 per share. This was paid in 2002.

12

Stock Subscription

A current Company shareholder also purchased 35,000 shares of restricted common stock on subscription at $1.00 per share. This was paid in year 2002.

Sales of Common Stock

Periodically because of cash flow needs, the Company would issue restricted shares of common stock through private placement. These private placements were negotiated individually and had different pricing. For the year 2001 1,303,500 shares of restricted common stock were sold through private placement at an average sales price of $0.40 per share for a total value of $517,000.

Merger

The merger with Quick & Easy Software effectively increased our common stock by 2,400,000 shares. See Note 2 for the details on this merger.

Services Contributed to the Company

Three officers donated services to the Company during the year 2001. The value of these services has been estimated by the Company at $288,000. This amount has been recorded in the Statement of Operations and Stockholders’ Equity.

Stock sales in year 2002

In the year 2002 we sold two sales of restricted common stock. The first was 150,000 shares of restricted common stock for $150,000. We also sold 480,000 shares of common stock for a net value of $115,200. This second sale of stock was in conjunction with a loan with a face value of $230,000.

In conjunction with this same loan, 23,000 warrants were issued at $0.50 per share and good for four years. At this price these warrants are out of the money and carry no intrinsic value. Calculating the value using an acceptable method also produced no value.

Services Contributed to the Company

Three officers donated services to the Company during the year 2002. The value of these services has been estimated by the Company at $135,100. This amount has been recorded in the Statement of Operations and Stockholders’ Equity.

Year 2003

The Company exchanged attorney services valued at $20,000 for 50,000 shares of common stock.

The Company issued 200,000 shares of common stock for prepaid services valued at $42,000. These services will be for promotion of the Company’s products.

NOTE 5INCOME TAXES: 

The Company provides for income taxes under Statement of Financial Accounting Standards No. 109,Accounting for Income Taxes. SFAS No. 109 requires the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse.

13

SFAS No. 109 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. In the Company’s opinion, it is uncertain whether they will generate sufficient taxable income in the future to fully utilize the net deferred tax asset. Accordingly, a valuation allowance equal to the deferred tax asset has been recorded. The total deferred tax asset is $309,066, which is calculated by multiplying a 22% estimated tax rate by the cumulative NOL of $1,404,844. The total valuation allowance is a comparable $309,066.

The provision for income taxes is comprised of the net change in deferred taxes less the valuation account plus the current taxes payable as shown in the chart below.

	2002	2001	2000
Net change in deferred taxes by year	203,552	64,418	41,096
Valuation account by year	(203,552)	(64,418)	(41,096)
Current taxes payable	0	0	0
Provision for Income Taxes	0	0	0

Below is a chart showing the estimated federal net operating losses and the years in which they will expire.

Year	Amount	Expiration
2000	186,800	2020
2001	292,807	2021
2002	925,237	2022
Total NOL	1,404,844

NOTE 6.LEASES AND OTHER COMMITMENTS:

We are renting an office and part of a warehouse from a Company owned by an officer on a month-to-month basis under a verbal agreement. We have no long-term lease commitments.

Other Contingencies

Economic Impact of Increased Security Measures

Since the terrorist attack of September 11, 2001 we have reviewed our Company for any impact that this might have brought our business. Our analysis is that our sales may have been reduced because of people’s lack of buying during for the slowdown or actual stoppage of mails for some corporations. We have found it more difficult to do business with the Arabic speaking communities. According to the FASB guidelines for this economic impact we have not quantified the negative impact.

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NOTE 7.GOING CONCERN

The accompanying financial statements have been prepared assuming that we will continue as a going concern. As of the balance sheet date we had no established sources of revenue. This factor raised doubt about the Company’s ability to continue as a going concern. These financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

Since the end of the year we have restructured our marketing efforts and have continued to seek investment funding. We have decided to focus our efforts on two languages, Spanish and Arabic.

We feel that this will add sales to our Company in the current and future years.

Management expects these plans to allow the Company to become profitable in one of the latter quarters of the upcoming fiscal year. No assurance can be made however that these plans will be successful.

NOTE 8.THE EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS

Below is a listing of the most recent accounting standards and their effect on the Company.

SFAS 145Extra-ordinary item classification, sale-lease-back classification

This statement rescinds SFAS 4, 44 and 64 and reinstates APB 30 as the standard for the classification of gains and losses of the extinguishment of debt as extra-ordinary items. This standard also amends SFAS 13 in that it requires that capital leases that are modified so that the resulting lease agreement is classified as an operating lease be accounted for under the sale-lease-back provisions of SFAS 98. The effective date of this statement is May 15, 2002.

SFAS 146Accounting for Costs Associated with Exit or Disposal Activities

This statement requires companies to recognize costs associated with exit or disposal activities, other than SFAS 143 costs, when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of these costs are lease termination costs, employee severance costs associated with restructuring, discontinued operation, plant closing, or other exit or disposal activity. This statement is effective after December 15, 2002.

SFAS 147Acquisitions of Certain Financial Institutions – an amendment of FASB Statement No. 72 and 144 and FASB Interpretation No. 9

This statement makes the acquisition of financial institutions come under the statements 141 and 142 instead of statement 72, 144 and FASB Interpretation No. 9. This statement is applicable for acquisition on or after October 1, 2002.

The adoption of these new Statements is not expected to have a material effect on the Company’s financial position, results or operations, or cash flows.

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NOTE 9. RELATED PARTY

We rent our offices and part of a warehouse from a company which has the same officers as we have. The rent is a verbal contract on a month-to-month basis and is approximately $8,000 per month.

During 2002 we borrowed $360,000 from a current shareholder. See notes payable for more detail.

During 2003 we borrowed and additional $30,500 from the same shareholder. See notes payable for more detail. This note was paid down somewhat as of June 30, 2003

NOTE 10. ADVANCED ROYALTIES AND ROYALTY AGREEMENTS

We have licensing and prepaid royalty agreements with three companies, Scholastic, School Zone Interactive and Knowledge Adventure for a total of 59 titles. These agreements allow us to localize the English version into either Spanish or Arabic or both. We are also licensed to market these products in most Spanish and /or Arabic speaking countries. None of the agreements allow us to sell in the US. Our licensor will procure localized product from us and sell within the United States. The licensing agreements are generally for 3 years and renewable. Of the 59 titles, 30 have progressed through the development stage and are ready for production. Prepaid royalties on future sales are required to be paid at certain points along the development process. As we sell units we are required to remit to the licensor royalty payments on a per unit sold basis. In addition, we have agreed to sell our finished products to these companies at a

discounted rate. On a quarterly basis we assess the recoverability of the remaining Royalty Advances. This assessment is based upon our estimation of future sales, the economic life (3 years) of the title and the specific terms of each royalty agreement. When future estimated sales or economic life are less than the remaining royalty advance or when the agreement has expired the associated royalty advance is charged off.

Our schedule of Royalty Advances is as follows.

	Scholastic	School Zone	Vivendi	Total
Balance 12/31/01	91,915	10,000	14,000	115,915
Additions	10,000	10,000	0	20,000
Expired Advances	(66,856)	(6,275)	(14,000)	(87,131)
Sales	0	0	0	0
Balance 12/31/02	51,085	18,300	0	69,385
Charge off	12,771	4,575
Balance 3/31/03	38,314	13,725	0	52,039
Charge off	12,771	4,575
Balance 6/30/03	25,543	9,150	0	34,693

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NOTE 11.SEGMENT INFORMATION

Segment information is presented in accordance with SFAS 131,Disclosures about Segments of an Enterprise and Related Information. This standard is based on a management approach, which requires segmentation based upon the Company’s internal organization and disclosure of revenue based upon internal accounting methods. Currently management divides revenue into two categories, sales of Arabic discs and sales of Spanish discs. All sales for the year 2002 were Arabic language sales.

NOTE 12.ESP AGREEMENT

On April 30, 2003, the Company entered into a Reorganization and Stock Purchase Agreement (the "Agreement") with ESP International Ltd., a Nevada corporation ("ESP Nevada") and its shareholders. ESP Nevada is a specialized educational/entertainment software marketing company. The acquisition was for the purpose of acquiring one of its main distribution channels. The $30,000 listed on the balance sheet under other assets was a prepayment on this purchase.

On August 20, 2003, the Company, ESP Nevada and its shareholders, agreed to waive all conditions that were not met as of August 20, 2003, and to waive any rights any party had as a result of any conditions not being timely met by the closing date listed in the Agreement. As a result the parties agreed that the transaction contemplated by the Agreement is closed as of August 20, 2003, with all closing conditions under the Agreement either met or waived.

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ITEM 2Management's Discussion and Analysis or Plan of Operation

The following discussion contains certain forward-looking statements that are subject to business and economic risks and uncertainties, and our actual results could differ materially from those forward-looking statements. The following discussion regarding our financial statements should be read in conjunction with the financial statements and notes thereto.

Qualified Report of Independent Certified Public Accountants

Our independent accountant has qualified his report. He states that the audited financial statements of Star E Media Corp. for the period from March 8, 2000 (inception) to December 31, 2000, and for the fiscal years ending December 31, 2001 and December 31, 2002, have been prepared assuming the company will continue as a going concern. He notes that our lack of established sources of revenue raises substantial doubt about our ability to continue in business.

Critical Accounting Policies

The Company's financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management's applications of accounting policies. The critical accounting policy for the Company is the capitalization and amortization of development (translation) costs.

One of the components of inventory is the capitalized development (translation) costs. Capitalized development costs are the translation costs that can be identified with a particular product. The Company maintains its capitalized development (translation) costs on a per-title and a per-language basis. At the end of the development (translation) of a title, the Company's management estimates the total number of expected units to be sold and a per-unit-sold amortization is established.

Three Months Ended June 30, 2003 Compared to Three Months Ended June 30, 2002

Revenues

The Company's total revenue for the three-month period ended June 30, 2003 was $271,613. The cost of sales for this period was $60,445, resulting in gross profit of $210,844 for the three-month period. The Company reported no revenues, cost of sales, or gross profit for the same period in 2002. This increase in total revenue is primarily attributable to an agreement with Spacetoon, whereby the Company agreed to provide Spacetoon with up to 10,000 units each of 10 different titles the Company has translated into Arabic. Under the agreement with Spacetoon the Company may have the opportunity to supply Spacetoon with additional units and titles in the future. With this increase in sales the Company had a corresponding increase its cost of sales and gross profit over the same three-month period in 2002.

Expenses 

Total expenses for the three months ended June 30, 2003 were $100,458, consisting of general and administrative expenses of $71,503 (71% of total expenses), interest expense of $26,485 (26% of total expenses), and depreciation expense of $2,470 (2% of total expenses). There were no sales and marketing or research and development expenses for this three-month period. For the three months ended June 30, 2002, total expenses were $100,004, consisting of sales and marketing expenses of $2,811 (3% of total expenses), general and administrative expenses of $82,979 (83% of total expenses), research and development expenses of $12,914 (13% of total expenses), and depreciation expense of $1,300 (1% of total expenses). Overall expenses for the quarter ended June 30, 2003 were about the same as overall expenses for the same quarter in the previous year, but the breakdown of those expenses has changed. General and administrative expenses decreased from $82,979 to $71,503 reflecting the slight decrease in costs associated with operating the business once several of the titles were translated and sales were being made. Interest expenses increased from zero to $26,485 for the period ended June 30, 2003 due to the Company's increase in notes payables. Research and development expenses decreased from $12,914 to zero as the Company shifted is focus from translating the CD titles to sales of the already translated CD titles.

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Net Income

Net income for the three-month period ended June 30, 2003 was $110,386 as compared to a net loss of ($100,004) for the three-month period ended June 30, 2002. The net income figure for the three-months ended June 30, 2003 as compared to the net loss for the same period last year is primarily a result of the revenue created by sales of the units to Spacetoon..

The earnings per share for the quarter ended June 30, 2003, based on a weighted average number of shares of 13,055,000 was $0.01 per share, compared with the loss per share of ($0.01) based on a weighted average number of shares of 12,548,437 for the quarter ended June 30, 2002.

Six months Ended June 30, 2003 Compared to Six months Ended June 30, 2002

Revenues

The Company's total revenue for the six-month period ended June 30, 2003 was $271,613. The cost of sales for this period was $60,606, resulting in gross profit of $211,007 for the six-month period. The Company reported no revenues, cost of sales, or gross profit for the same period in 2002. This significant increase in total revenue is primarily attributable to the agreement with Spacetoon. With this increase in sales the Company had a corresponding increase its cost of sales and gross profit over the same six-month period in 2002.

Expenses 

Total expenses for the six months ended June 30, 2003 was $458,801, consisting of general and administrative expenses of $346,343 (75% of total expenses), interest expense of $91,724 (20% of total expenses), sales and marketing expense of $15,796 (3% of total expenses), and depreciation expense of $4,938 (1% of total expenses). There were no research and development expenses for this six-month period. For the six months ended June 30, 2002, total expenses were $174,035, consisting of general and administrative expenses of $139,180 (80% of total expenses), research and development expenses of $27,637 (16% of total expenses), sales and marketing expenses of $4,831 (3% of total expenses), and depreciation expense of $2,387 (1% of total expenses). There was no interest expense for the six months ended June 30, 2002. Overall expenses for the quarter ended June 30, 2003 were a little over two and a half times higher than the overall expenses for the same quarter in the previous year and the breakdown of those expenses has changed. General and administrative expenses increased from $139,180 to $346,343 reflecting the increased costs associated with operating the business while actively working to increase revenues. Interest expense increased from zero to $91,724 for the period ended June 30, 2003 due to the Company's increase in notes payables. Sales and marketing expenses increased from $4,831 to $15,796 due to the Company actively marketing its titles to potential wholesalers. Research and development expenses declined from $27,637 to zero as a result of the Company shifting its focus from the translation of the various CD titles to selling the translated units.

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Net Income (Loss)

Net losses for the six-month period ended June 30, 2003 were ($247,794) as compared to a net loss of ($174,035) for the six-month period ended June 30, 2002. The increase in the net loss figure for the six-months ended June 30, 2003 as compared to the net loss for the same period last year, is primarily a result of the sales of the increase in general and administrative expenses and the addition of an interest expense for the six months ended June 30, 2003.

The loss per share for the six months ended June 30, 2003, based on a weighted average number of shares of 13,042,500 was ($0.02) per share, compared with the loss per share of ($0.01) based on a weighted average number of shares of 12,548,437 for the six months ended June 30, 2002.

Liquidity and Capital Requirements

The Company had cash of $0, accounts receivable of $220,250, and inventory of $42,576 for total current assets of $262,576 as of June 30, 2003. This represents an increase in total current assets of $136,686 as compared to December 31, 2002. This increase in total current assets since December 31, 2002 is due to the accounts receivable of $220,250, of which $200,000 is owed by SpaceToon. The Company had other assets of $188,339 as of June 30, 2003, these consisted of royalty advances of $34,693, investment in ESP of $30,000, and capitalized production costs of $123,646. This was compared to other assets of $250,028 at December 31, 2002, which consisted of royalty advances of $69,385 and net capitalized production costs of $180,643. The Company's capitalized production costs are a result of the Company increasing production in anticipation of additional future sales.

ITEM 3 Controls and Procedures

The Company's Chief Executive Officer and Chief Financial Officer (or those persons performing similar functions), after evaluating the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended) as of a date within 90 days of the filing of this quarterly report (the "Evaluation Date"), have concluded that, as of the Evaluation Date, the Company's disclosure controls and procedures were effective to ensure the timely collection, evaluation and disclosure of information relating to the Company that would potentially be subject to disclosure under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. There were no significant changes in the Company's internal controls or in other factors that could significantly affect the internal controls subsequent to the Evaluation Date.

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PART II

ITEM 1 Legal Proceedings

We have the following legal proceedings pending against us:

MultiMedia Zone, Inc. et al vs. Star E Media Corp. et al, U.S. Federal District Court, Central District of California, Case No. SA CV 03-1151 - JVS (ANx). The case was filed on or about July 21, 2003. In the lawsuit, the plaintiff alleges the following causes of action against the Company: copyright infringement, trademark infringement, tradedress infringement, unfair competition, and breach of contract. On or about August 19, 2003, a preliminary injunction was entered against the Company prohibiting it from using or distributing any titles that contain the plaintiff’s alleged trademarks, which include: Math 2; Beginning Sounds; Same or Different; and Reading Readiness. The Company believes the plaintiff’s claims are without merit and plans to vigorously defend itself against these allegations. The Company is in the process of determining whether to file a cross-complaint against plaintiffs. The Company has not had to file an Answer yet in this litigation, but intends to timely do so.

In the ordinary course of business, the Company is from time to time involved in various pending or threatened legal actions. The litigation process is inherently uncertain and it is possible that the resolution of such matters might have a material adverse effect upon the financial condition and/or results of operations of the Company. However, in the opinion of the Company's management, matters currently pending or threatened against the Company are not expected to have a material adverse effect on the financial position or results of operations of the Company.

ITEM 2 Changes in Securities and Use of Proceeds

There have been no events which are required to be reported under this Item.

ITEM 3 Defaults Upon Senior Securities

There have been no events which are required to be reported under this Item.

ITEM 4 Submission of Matters to a Vote of Security Holders

There have been no events which are required to be reported under this Item.

ITEM 5 Other Information

On April 30, 2003, the Company entered into a Reorganization and Stock Purchase Agreement (the "Agreement") with ESP International Ltd., a Nevada corporation ("ESP Nevada") and its shareholders. ESP Nevada is a specialized educational/entertainment software marketing company.

Under the terms of the Agreement, the sole shareholder of ESP Nevada, Mike Gaunt, agreed to sell, and the Company agreed to purchase, all of ESP Nevada's outstanding shares in exchange for 350,000 shares of the Company's common stock. In addition, and as part of the consideration, the Company acquired all rights under eight (8) existing and all future licensing representative agreements to which ESP Nevada, Mr. Gaunt, and his affiliated companies are a party. The consideration paid was determined by arms length negotiations.

On or about August 20, 2003, ESP Nevada, Mike Gaunt, and the Company agreed to waive all conditions that were not met as of August 20, 2003, and to waive any rights any party had as a result of any conditions not being timely met by the closing date listed in the Agreement. As a result the parties agreed that the transaction contemplated by the Agreement is closed as of August 20, 2003, with all closing conditions under the Agreement either met or waived.

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A prior agreement by and between Star E Media Corp and Educational Software Promotions International, a corporation controlled by Mr. Gaunt, dated June 21, 2002 was terminated in connection with this transaction.

ITEM 6 Exhibits and Reports on Form 8-K

(a)Exhibits

2.1(1)	Reorganization and Stock Purchase Agreement
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1	Chief Executive Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Chief Financial Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(1) Incorporated by reference from our Current Report on Form 8-K filed with the Commission on May 8, 2003.

(b)Reports on Form 8-K

On May 8, 2003, the Company filed a Report on Form 8-K describing the Company’s acquisition ofESP International Ltd., a Nevada corporation.

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SIGNATURES

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

	Star E Media Corp.
Dated: August 26, 2003	/s/ E.G. Abbadessa
	By: E.G. Abbadessa
	Its: President

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