UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934.
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
Commission file number: 0-28560
AMARU, INC.
(Name of small business issuer in its charter)
NEVADA 88-0490089
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
112 MIDDLE ROAD, #08-01 MIDLAND HOUSE, SINGAPORE 188970
(Address of principal executive offices)
(011) (65) 6332 9287
(Issuer's telephone number, including area code)
Securities registered under Section 12(b) of the Act:
Title of each class Name of exchange on which registered
NONE NONE
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $0.001 PAR VALUE
(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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 [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
State issuer's revenues for its most recent fiscal year: $32,573,275.
The aggregate market value of the voting common equity held by non-affiliates of
the registrant computed by reference to the closing sale price of the common
stock as of March 20, 2007 at $0.70 per share was $107,840,970.
The number of shares outstanding of the registrant's only class of common stock,
$0.001 par value per share, was 154,058,528 as of March 20, 2007. The registrant
has no outstanding non-voting common equity.
DOCUMENTS INCORPORATED BY REFERENCE:
None
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
TABLE OF CONTENTS
PART I
ITEM 1 DESCRIPTION OF BUSINESS 1
ITEM 2 DESCRIPTION OF PROPERTY 16
ITEM 3 LEGAL PROCEEDINGS 17
ITEM 4 SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS 17
PART II
ITEM 5 MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES 18
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 20
ITEM 7 CONSOLIDATED FINANCIAL STATEMENTS F-1
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE 28
ITEM 8A CONTROLS AND PROCEDURES 28
ITEM 8B OTHER INFORMATION 28
PART III
ITEM 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT 29
ITEM 10 EXECUTIVE COMPENSATION 31
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS 33
ITEM 12 CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS 35
ITEM 13 EXHIBITS 36
ITEM 14 PRINCIPAL FEES AND SERVICES 37
SIGNATURES 38
PART I
ITEM 1 DESCRIPTION OF BUSINESS
Background
Amaru, Inc. (the "Company" or "Amaru") was incorporated under the laws
of the state of Nevada in September, 1999. The Company's corporate
offices are located at 112 Middle Road, #08-01 Midland House, Singapore
188970; telephone (65) 63329287. The Company, through its subsidiaries
under the M2B brand name, is in the Broadband Media Entertainment
business, providing interactive Entertainment-on-demand,
Education-on-demand and e-commerce streaming over Broadband channels,
Internet portals, and 3G devices globally.
As of February 25, 2004 (the "Closing Date"), Amaru acquired M2B World
Pte. Ltd. (M2B World), a Singapore corporation, in exchange for
19,500,000 newly issued "restricted" shares of common voting stock of
the Company and 143,000 "restricted" Series A Convertible Preferred
Stock shares to the M2B World shareholders on a pro rata basis for the
purpose of effecting a tax-free reorganization pursuant to sections 351,
354 and 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended
("IRC") pursuant to the Agreement and Plan of Reorganization (the
"Reorganization Agreement") by and between the Company, M2B World and
M2B World shareholders. As a condition of the closing of the share
exchange transaction, certain shareholders of the Company cancelled a
total of 1,457,500 shares of common stock. Each one (1) ordinary share
of M2B World has been exchanged for 1.3636363 shares of the Company's
Common Stock and 100 shares of the Company's Series A Convertible
Preferred Stock. Each share of the Company's Series A Convertible
Preferred Stock had a conversion rate of 38.461538 shares of the
Company's common stock. Following the Closing Date, there were
20,000,000 shares of the Company's Common Stock outstanding and 143,000
shares of the Company's Series A Convertible Preferred Stock
outstanding. Immediately prior to the Closing, there were 500,000 shares
issued and outstanding. All of the Series A Convertible Preferred Stock
was subsequently converted into shares of common stock of the Company.
The restructuring and re-capitalization has been treated as a reverse
acquisition with M2B World becoming the accounting acquirer. The
historical financial statements prior to the closing of the transaction
are those of M2B World.
Company Overview
BUSINESS OVERVIEW
The Company, through its subsidiaries under the M2B brand name, is in
the Broadband Media Entertainment business, and a provider of
interactive Entertainment-on-demand, Education-on-demand and e-commerce
streaming over Broadband channels, Internet portals, and 3G devices
globally.
The Company has launched multiple Broadband TV websites with
entertainment, education and online shopping content, with over 100
channels designed to cater to various consumer segments and lifestyles.
Its content covers diverse genres such as movies, dramas, comedies,
documentaries, music, fashion, lifestyle, education, and more. The
Company markets its products globally through its "M2B" brand name. The
M2B brand offers access to an expansive range of content libraries for
aggregation, distribution and syndication on Broadband and other media,
including rights for merchandising, product branding, promotion and
publicity.
1
Globally, Amaru, Inc. is expanding through several of its subsidiaries,
including:
1. M2B World, Inc. - focuses on the US market and is based in
Hollywood, California
2. M2B World Asia Pacific Pte. Ltd. - oversees the Asia Pacific business and directs
the Asian markets through this office and
representative office in Chengdu, China
3. M2B Australia Pty. Ltd. - oversees Oceania markets
4. M2B Entertainment, Inc. - oversees Canadian market
5. M2B Commerce Limited - focuses on e-commerce and e-trading, with a
branch in Cambodia
6. M2B World Travel Singapore Pte Ltd - offers e-travel services
7. Amaru Holdings Limited - focuses on content syndication and distribution
in areas other than Asia Pacific region
8. M2B World Holdings Limited - focuses on content syndication and distribution
in Asia Pacific region
9. M2B World Pte. Ltd. - provides management services to fellow subsidiaries
of the Company
10. Tremax International Limited - operates as an investment holding company
11. M2B World Travel Limited - overseas online travel and related business
M2B offers consumers personalized entertainment through its wide range
of broadband streaming channels available at WWW.M2BWORLD.COM.
Business Strategy
Our business strategy is to become a premier diversified media,
e-commerce and e-lifestyle company. We adopt the latest broadband,
e-commerce and communications technology and leverage on our
international premium content and programming expertise. This is how we
deliver online entertainment, education, lifestyle products and services
to our customers.
Our goal is to constantly identify fresh market opportunities and to
stay ahead of changes in the broadband media and related e-commerce
industry. We believe that we can accomplish this by continuing to
satisfy customers' needs for a convenient, comprehensive and
personalized source of broadband video content, services and information
with pleasant user experiences. Through our business plan
implementation, we aim to become a leading Broadband Media Entertainment
business, providing interactive Entertainment-on-demand,
Education-on-demand and e-commerce streaming over Broadband channels,
Internet portals, and 3G devices globally.
We intend to continue leveraging on our competitive strengths to attain
a leadership position in the industry.
2
Competitive Strengths
RICH CONTENT LIBRARY
The Company owns a rich library of content that covers a wide range of
genres, of which the majority include worldwide rights in perpetuity on
the broadband. This enables the Company to deliver a rich and diverse
variety of on-demand streaming video content that suit the lifestyle and
taste of different consumer segments, across different countries -
thereby massing a global base of viewers to attract advertisers to its
delivery platforms on the PC, 3G devices and TV. The Company has built
relationships with content distributors in the U.S. and Asia that
enables it to continually source for content that meet the changing
demands and taste of the customers and advertisers.
GLOBAL VIDEO STREAMING NETWORK
The Company has also developed and implemented a global video streaming
network that enables it to deliver high quality on-demand video
streaming programs from its rich library of content rights to a
worldwide audience of broadband users. This global video streaming
network is completely integrated with firewalls, loading balancing
protocols, bandwidth and consumer monitoring systems and payment
gateways to enable worldwide billing. In addition, the Company has its
own digital post-production and design capabilities to fully manage
content rights protection, user experience and specialized programming
for all its consumer-facing delivery platforms. This end-to-end
broadband streaming infrastructure enables the Company to customize and
diversify its products and services, incorporating on-demand e-commerce
services.
MULTIPLE REVENUE STREAMS
The Company's diversified delivery platforms enable it to capitalize and
generate multiple revenue streams by targeting different consumer
segments over broadband, across different geographic markets. The
multiple revenue streams comprise of advertising, subscriptions,
sponsorships, online shopping and games, as well as licensing and
content syndication and turn-key broadband consulting solutions. The
Company's goal is not to be excessively dependent on any one single
revenue source. Its rich library of content rights combined with its
global video streaming network supports the Company's future growth
strategy that focuses on multiple growth areas and territories. The
Company can thereby cost-effectively tailor its broadband websites and
services to suit different cultures, consumer behavior and clients needs
in different geographical locations. The Company is also able to
localize its products and services to sustain loyalty of its viewers and
consumers.
KEY ALLIANCES
The Company has entered into strategic alliances with key partners to
support the marketing and distribution of its products and services in
different territories. Among its key partners are Amadeus (Global Travel
GDS based in Spain), CCTV (China), KBS (Korea), SingTel (Singapore),
Sony Pictures Television International (SPTI) and Zentek Technology
(Japan). The Company will continue to forge strategic partnership
opportunities including the area of web-enabled mobile devices and
extend its accessibility to customers of its broadband websites and
services.
3
Growth Strategies
The Company's growth strategies consist of:
o Continuing to build its rich library of content rights on the
broadband to provide sustained high quality on-demand
video-based entertainment, education and e-commerce that will
maintain and grow its worldwide base of viewers.
o Penetrating new markets to deliver M2B branded content to any
screen including PC, 3G and TV, as well as wireless mobile
devices like PDAs and to establish new delivery channels to meet
the changing preferences of viewers and consumers, worldwide.
o Capitalise on its growing worldwide viewer and consumer base by
aggressively signing up subscribers, as well as advertisers onto
its on-demand interactive broadband delivery channels for
entertainment, online games and e-commerce.
NEW PRODUCT OFFERINGS
The Company offered two key new products in fiscal 2006:
(a) Global Broadband TV (IPTV) Service
The Company through its wholly-owned subsidiaries, M2B World Inc
incorporated in the state of California and M2B World Asia
Pacific Pte. Ltd. incorporated in Singapore, offers multiple TV
channels, delivered live over the Internet, to homes that have a
high-speed internet connection and IP set top boxes.
The service has been in operation in the U.S. and Singapore
since second half of 2006 and more than 50 channels are made
available to customers. Anyone subscribing for a broadband
access with local Internet service provider is able to tune in
to the service on a subscription basis. Subscribers are provided
with a set-top box that connects to their broadband modems
instead of the cable TV point at home. They are able to watch
the programs on their TV sets. The Company plans to continue its
expansion by extending this service to broadband users worldwide
in 2007.
(b) Global Travel Portal
Global Travel Portal is the establishment of an innovative
Travel and e-commerce portal, marketing travel products through
an interactive on demand video travel portal and providing
distribution solutions for the travel industry. This travel
portal is owned by M2B World Travel Limited, a company
incorporated in the British Virgin Islands and wholly owned by
the Company.
M2B World Travel differentiates itself from other travel portals
by being a portal that provides considerable streaming travel
video content to improve user choice. The Company utilizes the
broad based viewership of the M2B World Video On Demand Network
to create innovative and high quality broadband travel Internet
services for users. The focus is to increase our user base and
to achieve deeper connection with our users on the M2B World
network, thereby enhancing the value and long-term loyalty of
that user base and increasing the spending by advertisers.
4
CONSUMER MARKETING
The Company's broadband entertainment websites, and online shopping
sites attract viewers from all over the world. The Company's strategy of
converting visitors into customers lies in a combination of incentives,
including seasonal and purchase-related promotions that take advantage
of the Company's customer database and broadband websites. The Company
plans to negotiate special rates and benefits to obtain access to a
superior online inventory for the customers. The increasing scale of the
business will enable the Company to negotiate on more favorable terms.
Through research with visitors and customers, the Company is developing
new programs and features (including personalization and loyalty
incentives) that would turn visitors into customers and maintain
loyalty.
The Company also employs a variety of online and traditional media
programs and promotional activities such as:
(a) Advertising
The Company invests in both online and traditional advertising
to drive traffic to our broadband websites. To generate traffic
to M2B's broadband websites in a cost efficient manner, the
Company purchased targeted keywords and textlinks in high
volume. The Company also advertises in traditional print and
broadcast media to increase the awareness of its service,
product enhancements and retail offerings.
(b) Public Relations
The core of our public relations effort is media relations and
industry analyst relations. We maintain relations with
journalists and industry analysts to help secure unbiased,
third-party endorsements for the Company. We pursue coverage by
online publications, search engines and directories.
(c) Co-marketing, Promotions and Loyalty Programs
We intend to continue to establish significant co-marketing
relationships to promote our service and to sponsor contests
that offer M2B related prizes. These programs typically involve
participation with our partners. We intend to enter into
additional co-marketing relationships in support of our
marketing strategy. From time to time, we offer various
incentives and awards to our existing customer base. These
incentives are designed to increase customer loyalty and
awareness of our e-commerce services and of the M2B brand.
(d) Direct Marketing
The Company maintains a database which includes customers
profiles and preferences and other key customer attributes. This
data enables us to track the effectiveness of promotions and
incentives and to understand seasonal and other trends in order
to create and quickly implement marketing programs targeted to
specific customer segments. In addition, we regularly
communicate with our customers through targeted e-mail.
The Company, while growing the business, also maintains
profitability. While it executes its growth strategies, it also
controls costs. It intends to continue to implement programs to
control the cost of revenues and reduce operating costs through
technology and productivity management, economies of scale and
financial controls. This strategy should enable us to provide
our products to customers on a cost competitive basis.
5
Business Operations
Our principal operations are carried out through the following three
segments of our business:
1. Entertainment Services - Video on-Demand services such as for entertainment
and education, providing the Company with advertising,
subscriptions, online games and e-commerce (B2B and
B2C) revenues
2. Digit Games - Physical Lottery
3. E-Travel Services - Online Travel Portal
ENTERTAINMENT SERVICES
The Company provides online entertainment and education on-demand on
Broadband channels, Internet portals and 3G devices across the globe,
for specific and identified viewer lifestyles, demographics and
interests. Entertainment and web visit experience is maintained
throughout from the initial viewing experience to on-line shopping and
payment checkout experience.
The Company uses Broadband technology to provide its services. Broadband
technology is defined as high speed, high-bandwidth, two-way data, voice
and video communications, delivered at high transmission rates.
SERVICES: Broadband technology allows us to deliver the following
services::
o Video-on-demand (VOD) services that enable individuals to select
videos from a Central Server, on-demand 24 hours a day, 7 days a
week, for viewing on:
o Television screens (Set top Box Technology)
o PCs (Digital Subscriber Line (DSL) Technology)
o Personal Digital Assistants(PDA), 3G hand phones
(Wireless Technology)
o E-Commerce or online shopping - linked interactively to
the VOD platforms on broadband. Consumers choose to buy
products online as they watch the videos.
The Company applies broadband technologies to facilitate its growth in
the broadband sector. Its main competitive advantage is derived from its
ownership of rights for various territories on broadband for its
contents i.e. movies and programs on lifestyles, education, business and
glamour.
The Company has built and installed its broadband streaming system
complete with firewalls, load balancing, bandwidth and consumer
monitoring systems, which include video streaming, video storage and web
servers in Singapore and the U.S. The Company has also developed its
streaming applications to stream into television sets, via a set top
box.
The Company has developed a capability to stream wireless broadband and
have its own digitized entertainment sites for wireless broadband
applications. In January 2005, the Company partnered with Singapore
Telecom (SingTel), to provide interactive video-on-demand streaming over
broadband channels and 3G devices, to offer various entertainment clips
as well as snippets of executive e-learning tips.
M2B offers consumers personalized entertainment through its wide range
of broadband streaming channels available at WWW.M2BWORLD.COM.
6
PRODUCTS: We offer the following products on the VOD platform:
o Entertainment - Consumers access movies, music, glamour and
fashion, lifestyle (hobbies, cooking, and personalities),
documentaries, sports, health and fitness and others. They can
choose from a large number of different channels depending on
their interests or lifestyle preferences.
o Adult Education - consumers view program on management skills,
communication skills, decision making, customer services and
sales, motivation, presentation and writing skills, counseling
and others.
With this strategy, the Company generates diversified sources of revenue
from:
1. Advertising i.e. program and channel sponsorship
2. Online subscriptions
3. Channel/portal development i.e. digital programming services
4. Content aggregation and syndication
5. Broadband consulting services and online shopping turnkey
solutions
6. E-commerce services
7. Online games micro-payments
Currently, the M2B Broadband websites include:
1. Entertainment Sites
INTERNATIONAL AND U.S. SITES:
o Star78.com - an advertising-based Family Entertainment
site for international viewers
o Shine8.com - an advertising-based Lifestyle site for
international viewers
o Jump29.com - an advertising-based Young Adults site for
international viewers
o Dreamstage7.com - an advertising and subscription-based
Glamour and Fashion site for international viewers
o Highfashion7.com - an advertising and subscription based
designer Fashion site for international viewers
o Dragon78.tv - an advertising and subscription-based
Mandarin Entertainment site for viewers in US only
o Chinois78.com - an advertising and subscription based
Mandarin Lifestyle site for viewers in US only
7
ASIAN SITES:
o Dimension88.com - an advertising and subscription-based
Movie site in Singapore only
o Dragon78.com - an advertising and subscription-based
Mandarin Entertainment site in Singapore only
o Ideas Broadband - four subscription based entertainment
sites (Movie Mania, Executive Online, Glamour Galore,
Dragon City providing 25 channels) dedicated for
Singapore Telecommunications Ltd Ideas Broadband viewers
in Singapore only
o Trilogy - a subscription based 3G mobile phone
entertainment site dedicated for Singapore
Telecommunications Trilogy viewers in Singapore only
o Colours78.com - an advertising and subscription based
Mandarin Lifestyle site in Singapore only
o HappyDigi.com - a subscription based Mandarin site in
China only (Movie entertainment platform)
2. Education Sites
U.S. SITES:
o Wiz5.us - an advertising and subscription-based Business
& Corporate Training site for viewers in US only
ASIAN SITES:
o Wiz5.com - an advertising and subscription-based
Business and Corporate Training site for viewers in
Singapore only
3. E-Commerce Sites
INTERNATIONAL SITES:
o Starzmall.com - A One-Stop Shopping Paradise
o Royalhive.com - A One-Stop Health and Beauty Mall
8
MAJOR EVENTS IN FISCAL YEAR 2006 FOR ENTERTAINMENT SERVICES
In January, M2B World developed a second server site to support its
broadband entertainment on-demand channels. The additional server farm,
based in San Jose, CA, will operate in tandem with the hub in Singapore
and will primarily support broadband channel offerings for US and
international markets, while increasing the Company's capacity to add
feature-rich content and allow for expanded viewership without
sacrificing the quality of the delivery. The San Jose server farm now
host all sites that can be accessed by both international and US-based
viewers.
The additional server farm allows the Company to add newly developed
applications while simultaneously increasing its US customer base
without sacrificing the high bit rates and quality of streaming that the
Company currently delivers. The dual points of origination are designed
to ensure smooth delivery of content and provide an additional layer of
reliability.
In March 2006, the company announced the launch of a new subscription
program with current partner, The Happy Digital Network & Information
Technology Co ("Happydigi"), a media company of China Telecom. The new
subscription program offers the current Happydigi subscribers the
flexibility to access M2B video on-demand programming for periods of
one, three and five days. Happydigi subscribers can allocate their paid
online credits, also known as "dragon currency", to purchase passes to
view streaming entertainment channels provided by M2B World.
In April 2006, the Company's subsidiary M2B Commerce Limited, announced
the signing of an initial five-year agreement with the leading ISP
provider in Cambodia, Cogetel Limited, a Cambodian corporation, to offer
its interactive, on-demand broadband entertainment platform and its
proprietary micro-payment system to the Cambodian-based company which
holds the Online brand.
In May 2006, M2B World, Inc. secured a multi-year deal with Sony
Pictures Television International (SPTI) for video-on-demand rights on
film titles from both Sony Pictures Entertainment and
Metro-Goldwyn-Mayer for M2B viewers. The agreement marks a significant
advance in content rights for the Company. This deal will give M2B
viewer's access to SPTI product in the window after local video release.
In May 2006, the Company announced its official launch of its much
anticipated Global Broadband TV Service, M2Btv, and its innovative PONY
set-top box, making the duo available to consumers in 2006.
PONY, is Amaru's cutting-edge set-top box. The unit, approximately the
size of a standard DVD player, can be easily added to an existing
entertainment center and will allow viewers to tap into the M2Btv
service, as well as access the internet and the corresponding full range
of benefits that internet accessibility provides. In addition, the PONY
box allows for long sought after lifestyle solutions, including
easy-to-use video conferencing, video messaging and shopping, and will
be offered for free with a monthly subscription to M2Btv. Essentially,
the two offerings have combined to bring the time-efficient benefits of
IPTV into the living room, where the content and the internet will be
directly accessible via existing hardware such as a television set and
broadband internet connection. In August 2006 the Company and its
subsidiary M2B World provided another must-have feature on its Global
Broadband TV service: Online Interactive Games.
In August 2006, the Company signed a Memorandum of Understanding (MOU)
in Singapore with KBSi, the new media arm of leading Korean Broadcaster,
KBS, for the distribution rights for several highly popular Korean
dramas for broadband access.
Following the distribution agreement signed with SONY Pictures, this MOU
represents another milestone for the Company in forming strong strategic
alliances with major content producers, both in the U.S. and Asia, and
to deliver premium quality on-demand entertainment to its viewers and
subscribers via broadband to any screen on the PC, 3G and TV.
Toward end of 2006, the Company lined up a series of events to increase
the ever-growing marketing exposure of the M2Btv service and PONY
set-top box. The American Film Market, Third Street Promenade, House of
Blues, and Universal Citywalk were among the many events the Company
participated.
9
In December 2006, the Company announced a partnership with Singapore
Press Holdings Limited ("SPH"), to launch an SPH video news on-demand
channel on Singapore's First Broadband TV service, launched by M2B
World. Under the agreement, M2B World will convert, host and stream
video news clips produced by SPH, as well as international video news
content licensed from AP Digital a division of The Associated Press
("AP").
This new SPH video news channel significantly expands the total offering
of entertainment and education on-demand content provided by M2B World
on Singapore's First Broadband TV service, reinforcing its position to
provide a comprehensive range of video on-demand content in the living
room.
ONGOING DEVELOPMENTS OF 2005 INITIATIVES
The Company continues to provide and plans to increase its VOD (video on
demand) channels through its partnership with SingTel in Singapore that
was made in 2004 which was further extended in May 2005 to cover 3G
(Third Generation) wireless mobile phones.
The Company's 5-year agreement with Chengdu Happy Digital Network &
Information Technology Co, or "Happydigi", the media company of China
Telecom, continues to allow M2B to develop the Happydigi Movies
Entertainment Platform Website. This remains an important milestone for
the Company, reflecting its continued penetration of the rapidly
expanding Chinese broadband entertainment market. China Telecom is the
largest fixed-line telecommunications operator in the country. Through
M2B, Happydigi can gain access to an expansive range of Hollywood
entertainment content via streaming broadband.
M2B has previously partnered with CITV, the sole distributor of China
Central Television Station's (CCTV) programs, to distribute Mandarin
content via broadband outside of the People's Republic of China. This
agreement expands M2B's reach.
The Company's office in Hollywood, California will continue to focus on
growing the brand within the US and will be an integral component of an
overall brand growth strategy. This will include the continued
completion of marketing, acquisition and distribution agreements with
key Hollywood entertainment and fashion companies for the rights to a
vast array of broadband streaming content.
The Company's launch of www.highfashion7.com (HIGHFASHION7), a lifestyle
channel that caters to a high fashion savvy viewer base worldwide, is
set to stay. HIGHFASHION7 offers licensed coverage of international
fashion runway shows from some of the well-known clothing designers in
the world, as well as a sophisticated array of fashion features, which
are available on demand 24 hours a day, seven days a week.
Categories on the channel are Top Designers, which offer content from a
list of fashion superstars such as Giorgio Armani, Christian Dior, Ralph
Lauren, Versace and Gucci; Top Supermodels, with features on Cindy
Crawford, Claudia Schiffer, Helena Christensen and Karen Mulder; Vintage
Fashion, a look to the past with your favorite designers; Fashion
Specials; Up Close and Personal; Fashion Feature of the Month; and a
Fashion Webcast, providing in-depth coverage of an important current
fashion event.
The Company also continues to provide through its on-line e-commerce
mall - 'www.royalhive.com' - health and beauty products. ROYALHIVE
markets and sells high end health and wellness products; it will be
co-branded with HIGHFASHION7 to reach the fashion savvy audience of this
site.
10
BROADBAND SERVICES
The Company has an automated Content Management System ("CMS") to
enhance its advertising service offered to clients and to provide a new
revenue source for the Company. The system allows for the programming of
video, animation, streaming and flash content to multiple destinations
and was demonstrated back in 2005 at the Asia Television Forum (ATF
2005), a regional platform for media buyers and sellers. As a sponsor at
the event, M2B World showcased the automated CMS on plasma screens,
together with programming from the M2B content library that includes
movies, dramas, comedies, documentaries, music, fashion, lifestyle,
learning and more.
Linked by broadband networks and wireless set-top boxes to push content
and scheduled advertising at physical premises, the CMS allows
businesses the option of presenting targeted content on selected video
displays in multiple locations, such as on different levels of a
shopping mall, in various spots within a restaurant or club or on
separate elevators in the same building.
In store video panels can also carry individualized messages together
with customized content to reach consumers and target audiences within
the premises. The Company plans to further introduce this integrated CMS
and content solution to U.S. clients in 2007. Businesses and advertisers
can then readily offer customers feature-rich content with this
versatile and easy-to-use CMS designed to advance brand-building
activities and widen the advertising options for customer outreach. This
integrated solution underscores M2B's key strength in delivering content
for viewing on PCs, 3G mobile phones, PDAs as well as television
screens. This is another method by which M2B is continuing to meet the
consumer shift toward on-demand and personalized media experiences
whether at home or work and now additionally on video screens in stores,
restaurants, clubs and other business or leisure outlets.
DIGIT GAMES
The Company has an 18-year license to conduct nation wide lottery in
Cambodia. The Company also signed an agreement with Allsports Limited, a
British Virgin Islands company, to operate, administer, and manage the
lottery digit games activities in Cambodia.
E-TRAVEL SERVICES
The Company's subsidiary, M2B World Travel Limited., signed a global
agreement with Amadeus Global Travel Distribution, SA, a Spanish
corporation. Through the agreement, M2B continues to offer direct access
to the extensive range of travel options available through the Amadeus
network to their viewers around the world. The agreement extends M2B's
reach through its broadband streaming entertainment into the worldwide
travel arena.
According to PhoCusWright, a travel industry research provider, the
online portion of those sales is growing particularly quickly in the
U.S., Europe and the Asia-Pacific region, where combined online travel
sales in those three geographic regions is estimated to top $115 billion
this year. With eMarketer reporting that broadband currently reaches
over 58 million households in Asia-Pacific alone, M2B World Travel
Limited through its agreement with Amadeus, is now poised to immediately
access and serve this consumer market.
The M2B World Travel Website aims to provide competitive rates through
its direct connection to the Amadeus System using the Elleipsis
TravelTalk(TM) integration platform, which allows M2B to access not only
the major travel providers, but an expanded roster of additional
suppliers such as low-cost carriers, cruise lines, and widened hotel
distribution channels all through one single, easy-to-use platform.
The video e-travel portal brings an extensive range of travel options to
our viewers and gives the Company an entry into the travel and tourism
market; it directly aggregates travel solutions from 500 airlines,
58,000 hotel properties, some 42 car rental companies serving over
30,000 locations, as well as widespread air, ferry, rail, cruise, and
tour operators with proprietary video content, allowing customers to the
site to view their travel destination, thus influencing their purchasing
decision.
11
The Company plans to launch the M2B travel site in early part of 2007.
No assurances can be made that such plan will materialize as planned.
Markets
The business operations and financial results of the Company are
directly affected by the markets that the Company operates in.
RISING DISPOSABLE INCOME AND USAGE OF PC AND BROADBAND TECHNOLOGY
In many other parts of the world, especially emerging markets with
growing use of PCs, Internet with fast growing number of broadband
subscribers and rising disposable incomes, these markets offer
significant growth potential.
THE ADVENT AND INCREASING ADOPTION OF BROADBAND TECHNOLOGY
The advent of broadband technology and ever-increasing bandwidth has
pushed for the next generation of online on-demand broadband
entertainment as one of the desired applications that will meet the
needs of increasingly demanding and bandwidth hungry consumers and
enterprise. Such technology can be further enhanced by the coupling of
value added services, namely Internet telephony communication services
and E-Commerce, together with the Broadband entertainment sites.
The market consists of both the consumers and the enterprise. The demand
from consumers is rich media content, on demand, highly interactive and
fast. On the other hand the enterprise must reach out to such demands
and the next generation through the new medium, or be left behind. To
meet this demand, the Company has established relationships with major
production houses, and access to major distributors worldwide. This is
expected to put the Company in a position to acquire high quality,
original video content. Such strategic positioning has resulted in the
Company acquiring extensive content on broadband for multiple countries
and for dedicated time periods.
The Company intends to continue to maximize on its key strength, the
packaging of our content. The Company believes that it will shape the
delivery of its content in the most cost effective manner and innovative
way.
THE BOOMING ONLINE ADVERTISING MARKET
According to the Euromonitor International, an industry research
provider, the market for advertising is forecasted to grow by 119.1%
from 2004 to 2009, to reach a value of US$609.3 billion.
The online video is growing dramatically, with increased broadband
penetration creating a larger audience, leading more advertisers to
consider adding video to their online efforts. Jupiter Research
estimates that the online video advertising industry is worth $1.3
billion.
THE GROWTH OF ONLINE TRAVEL
The travel business has already been impacted by the Internet. Travel
companies have already used the Internet as a distribution channel and
for ticketing and transaction processes. With the introduction of online
booking and online travel agencies, the travel industry has only begun
to realize the cost reduction potentials of e-business. The growth in
online travel has caused a radical change in the travel retail market
since the late 1990s, and is one area that continues to record growth
after the slump in tourism that began in 2001. Travel as a commodity has
proved ideally suited to e-commerce, as average spending is high, and
the cost of delivering the goods is minimal.
The online global travel retail opportunity represented a $85 billion
market worth in 2004, according to Euromonitor in 2005.
12
THE GROWTH OF THE VIDEO ON DEMAND MARKET
According to Jupiter Research, in 2007 the Video-on-Demand (VOD) market
is expected to be worth $1.4 billion while the Subscription VOD market
is worth $800 million.
According to ZDNet Research, there were approximately 7.5 million
worldwide cable-based VOD users at the end of 2004. VOD user growth is
projected to remain strong for the next several years. Total worldwide
users number 13 million at the end of 2005 and is forecasted to
ultimately reach 34 million in 2009.
A study released by Adams Media Research in 2007 forecasts that sales of
video downloads will total $427 million in 2007. $1.2 billion in 2008,
$2 billion in 2009, $3.1 billion in 2010, then hit $4.1 billion in 2011.
The same study also predicts that advertiser spending on internet video
streams to PCs and TVs will approach $1.7 billion in 2011.
Business Risks
ABILITY TO EXPAND CUSTOMER BASE
The Company's future operating results depend on our ability to expand
our customer base for broadband services and e-commerce portals. An
increase in total revenue depends on our ability to increase the number
of broadband and e-commerce portals, in the US, Europe and Asia. The
degree of success of this depends on
o our efforts to establish independent broadband sites in
countries where conditions are suitable.
o our ability to expand our offerings of content in entertainment
and education, to include more niche channels and offerings.
o our ability to provide content beyond just personal computers
but to encompass television, wireless application devices and 3G
hand phones.
ABILITY TO ACQUIRE NEW MEDIA CONTENTS
The continued ability of the Company to acquire rights to new media
contents, at competitive rates, is crucial to grow and sustain the
Company's business.
AVAILABILITY OF TECHNOLOGICALLY RELIABLE NEW GENERATION OF BROADBAND
DEVICES
The growth of demand for broadband services is dependent on the wide
availability of technologically reliable new generation of broadband
devices, at affordable prices to prospective customers of broadband
services. The early and widespread availability and market adoption of
new generation broadband devices, will significantly impact demand for
broadband services and the growth of the Company's business.
CAPITAL INVESTMENT IN BROADBAND INFRASTRUCTURE BY GOVERNMENT AND TELCOS
The growth of demand for broadband services is dependent on the capital
investment in broadband infrastructure by governments and Telcos. A
significant source of demand for the Company's broadband services could
be from homes and enterprises with access to high-speed broadband
connections. The ability of countries to invest in public broadband
infrastructure to offer public accessibility is subject to countries'
economic health. The Company's prospects for business growth in Asia
especially would be impacted by overall economic conditions in the
territories that we seek to expand into.
13
COMPETITION FROM BROADBAND CABLE AND TV NETWORKS OPERATORS
The competition of services provided by broadband cable network
operators and TV networks. As traditional TV networks and cable TV
operators provide alternate supply of entertainment and on-demand
broadband services, they are in competition with the Company, for market
share. The Company, nevertheless, will continue to leverage on its
advantage of ownership rights to its own portfolio of media content and
its ability to provide broadband services over both the cable and
wireless networks, at competitive rates.
The Company's business is reliant on complex information technology
systems and networks. Any significant system or network disruption could
have a material adverse impact on our operations and operating results.
The Company's nature of business is highly dependent on the efficient
and uninterrupted operation of complex information technology systems
networks, may they, either be that of ours, or our Telco/ ISP partners.
All information technology systems are potentially vulnerable to damage
or interruption from a variety of sources, including but not limited to
computer viruses, security breach, energy blackouts, natural disasters
and terrorism, war and telecommunication failures.
System or network disruptions may arise if new systems or upgrades are
defective or are not installed properly. The Company has implemented
various measures to manage our risks related to system and network
disruptions, but a system failure or security breach could negatively
impact our operations and financial results.
LAW AND REGULATIONS GOVERNING INTERNET
Increased regulation of the Internet or differing application of
existing laws might slow the growth of the use of the Internet and
online services, which could decrease demand for our services. The added
complexity of the law may lead to higher compliance costs resulting in
higher costs of doing business.
UNAUTHORIZED USE OF PROPRIETARY RIGHTS
Our copyrights, patents, trademarks, including our rights to certain
domain names are very important to M2B's brand and success. While we
make every effort to protect and stop unauthorized use of our
proprietary rights, it may still be possible for third parties to obtain
and use the intellectual property without authorization. The validity,
enforceability and scope of protection of intellectual property in
Internet-related industries remain uncertain and still evolving.
Litigation may be necessary in future to enforce these intellectual
property rights. This will result in substantial costs and diversion of
the Company's resources and could disrupt its business, as well as have
a material adverse effect on its business.
LAW AND REGULATIONS GOVERNING BUSINESS
As the Company continues to expand its business internationally across
different geographical locations there are risks inherent including:
1) Trade barriers and changes in trade regulations
2) Local labor laws and regulations
3) Currency exchange rate fluctuations
4) Political, social or economic unrest
5) Potential adverse tax regulation
6) Changes in governmental regulations
14
OUTBREAK OF BIRD FLU PANDEMIC OR SIMILAR PUBLIC HEALTH DEVELOPMENTS
Any future outbreak of the bird flu pandemic or similar adverse public
health developments may have a material adverse effect on the Company's
business operations, financial condition and results of operations.
Competition
The Company faces intense competition in every aspect of our business,
and particularly in the acquisition of content.
In the entertainment services business, we compete with free-to-air
channels, cable operators as well as other broadband entertainment
providers for distribution rights of programs in terms of price, quality
and variety.
Traditional TV networks and cable TV operators today provide alternate
sources of entertainment and education in a broadcast mode. In future,
it is expected that these networks may also extend their reach to the
video-on-demand broadband service. This may put them in direct
competition with us, although their entry costs will likely be higher
and both the technical and manpower capabilities existing in these
traditional companies will make it somewhat difficult for them to
transit into new broadband media.
In our multi player online gaming business, we face competition from the
various gaming offerings on the market as well as the various gaming
portals and platforms. In the subscription based multi player online
gaming business, the Company faces vigorous competition from the
numerous games that are distributed free over the Internet. More
generically, it also competes with console based games made for products
like Playstation and X-box.
In the e-travel services business, the Company competes with the
established traditional offline travel agencies and airlines as well as
online travel players like Travelocity, Zuji, Expedia, Priceline.com.
With the trend in the travel industry moving towards a constellation of
cooperative alliances, the Company believes that there will be many
opportunities for vertical as well as horizontal growth and integration
of the various travel companies.
The Company also competes within the industry for advertising revenue
and viewers. More generically, the Company faces competition from other
leisure entertainment activities from Video CDs (especially in Asia),
DVDs to cinemas, home theatres and emerging mobile multi media kiosks
and display panels.
The Company believes that it is competing favorably on the factors
described above. However, the industry is evolving rapidly and is
becoming increasingly competitive. Larger, more established companies
than us are increasingly focusing on the video content, travel, and
e-commerce businesses that directly compete with us.
Intellectual Property
M2B's intellectual property consists of trademarks, patents, copyrights,
and other technology and trade secrets. In addition to technology that
we develop internally, we license software or other technology from
third parties. We also grant licenses to some of our intellectual
property, such as trademarks, patents or websites technology, to our
vendors and strategic partners.
15
Government Regulation
The Company must comply with laws and regulations relating to our sales
and marketing activities, including those prohibiting unfair and
deceptive advertising or practices and those requiring us to register as
a service provider in the spheres of business that we operate in, and
with disclosure requirements.
Data collection, protection, security and privacy issues are a growing
concern in the U.S., and in many countries around the world. Government
regulation is evolving in these areas and could limit or restrict the
Company's ability to market its products and services to consumers,
increase the Company's costs of operation and lead to a decrease in
demand for our products and services. US Federal, state and local
governmental organizations, as well as foreign governments and
regulatory agencies, are also considering legislative and regulatory
proposals that directly govern Internet commerce, and will likely
consider additional proposals in the future.
We do not know how courts will interpret laws governing Internet
commerce or the extent to which they will apply existing laws regulating
issues such as property ownership, sales and other taxes, libel and
personal privacy to the Internet. The growth and development of the
market for online commerce has prompted calls for more stringent
consumer protection laws that may impose additional burdens on companies
that conduct business online.
Employees
As of December 31, 2006, the Company had a total 66 employees of which
53 are full time and 16 are part-time employees. Of the 66 employees, 54
are based in Singapore, two are based in Thailand and one is based in
Cambodia and nine are based in the U.S.
ITEM 2 DESCRIPTION OF PROPERTY
The headquarters for operations and management is located in Singapore
in an office space of about 3,927 square feet. We entered into a three
year operating lease paying a monthly rent of $4,545 (S$7,000). The
lease will be due for renewal in 2008 and the rent will be based on the
open market rates.
In addition to the office which housed the management staff of the
Company, there are three other offices: located in the US, Singapore and
China. The office in the US is situated on Sunset Boulevard, West
Hollywood and it consists of 2,965 square feet. The office in Singapore
consists of about 6,727 square feet and is situated in 112 Middle Road,
Singapore. The office in China consists of about 1,399 square feet and
is situated in No.5, JingLi Dong Road, #2-17-4, Chengdu, Sichuan. These
three offices are on monthly lease and the rental is $10,530 for the US
office, $10,790 (S$16,620) for the Singapore office and $779 (S$1,200)
for the Chengdu office.
We believe that our existing facilities are adequate to meet our current
needs and that suitable additional or alternative space will be
available in the future on commercially reasonable terms, although we
have no assurance that future terms would be as favorable as our current
terms.
The Company has not invested in any real property at this time nor does
the Company intend to do so. The Company has no formal policy with
respect to investments in real estate or investments with persons
primarily engaged in real estate activities.
16
ITEM 3 LEGAL PROCEEDINGS
As of the date of this report, we are not a party to any material
pending legal proceedings.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the year ended December 31, 2006 and quarter ended December 31,
2006, no matters were submitted to a vote of our common stockholders.
17
PART II
ITEM 5 MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
ISSUER PURCHASES OF EQUITY SECURITIES
PUBLIC MARKET
Our common stock trades on the National Association of Securities
Dealers' over-the-counter Bulletin Board market ("OTCBB") under the
symbol "AMRU". As of March 20, 2007, there were 438 holders of our
common stock.
The price of the Company's stock as of March 20, 2007 was $0.70.
On January 19, 2007, the Company announced that its common stock is
trading on the OTCBB, effective January 19, 2007 under the symbol
"AMRU". The Company's common stock was previously trading on the Pink
Sheets Electronic Quotation System.
The Company's high and low closing bid and close information for the
fiscal year ended December 31, 2006 is listed as provided by the Nasdaq
website. Quotations reflect inter-dealer prices, without retail mark-up,
markdown, or commission and may not represent actual transactions.
Date Open High Low Close/Last*
March 2005 1.2500 1.2500 1.2000 1.2000
Second Quarter 2005 1.5000 3.5000 1.5000 3.5000
Third Quarter 2005 3.5000 4.5000 1.4500 4.0000
Fourth Quarter 2005 4.5000 5.0500 1.4500 5.0500
First Quarter 2006 0.5250 1.3130 1.1250 1.2250
Second Quarter 2006 1.1250 1.3750 1.2500 2.2000
Third Quarter 2006 2.5200 2.0400 0.9000 0.7000
Fourth Quarter 2006 0.6500 0.9200 0.5000 0.5500
* Closing price is provided as of the last day of the month.
DIVIDENDS
The Company does not expect to pay any dividends at this time. The
payment of dividends, if any, will be contingent upon the Company's
revenues and earnings, if any, capital requirements, and general
financial condition. The payment of any dividends will be within the
discretion of the Company's Board of Directors and may be subject to
restrictions under the terms of any debt or other financing arrangements
that the Company may enter into in the future.
RECENT SALE OF UNREGISTERED SECURITIES
In January and February 2006, the Company issued a total of 5,520,000
shares of common stock through private placement at a price of $0.75 per
share for a value of $4,140,000. These shares were subscribed and paid
for before December 31, 2005 pursuant to the Company's private
placement.
From January 23, 2006 to April 23, 2006, the Company issued 14,411,400
shares of common stock through a private placement at a price of $0.75
per share for a total amount of $10,808,550.
18
From April 24, 2006 to April 26, 2006, the Company issued 808,000 shares
of common stock through its new private placement at a price of $1.25
per share for a total amount of $1,010,000.
From July 3, 2006 to July 24, 2006, the Company issued 120,168 shares of
common stock through private placement at a price of $1.50 per share for
a total amount of $180,249.
The total amount of funds raised through the private placement of shares
of common stock for the year ended December 31, 2006 was $11,998,799.
The shares issued in the private placements set forth above were issued
in reliance upon the exemption from registration set forth in Section
4(2) of the Securities Act and Regulation D (Rules 505 and/or 506)
and/or Regulation S promulgated under the Securities Act. The shares
were offered and sold to investors who were "accredited investors" as
defined in the Securities Act. Appropriate investment representations
were obtained and the securities were issued with restrictive legends.
On April 27, 2006, the Company issued 6,992,000 shares of common stock
through a private placement at a price of $1.25 per share for a total
amount of $8,740,000 for the acquisition of film library.
On August 15, 2006, the Company issued 40,000 shares of common stock in
a private placement at a price of $1.50 per share for a total amount of
$60,000 for services to be rendered to the Company. Such services have
been rendered as of September 30, 2006.
On June 8, 2005, the Company issued 580,000 shares of common stock
through a private placement at a price of $0.75 a share for a total
amount of $435,000 for repayment of accounts payable.
On December 30, 2005, the Company approved the issue of 20,000
"restricted" shares of common stock at a price of $0.75 per share to a
consultant for services to be rendered to the Company. The shares were
issued in January 2006. The services of the consultant pertaining to
these shares issued were not rendered as of December 31, 2005.
In the fiscal year ended December 31, 2005, the Company issued a total
of 16,132,000 shares of common stock through private placement at a
price of $0.75 per share for a total amount of $12,099,000.
A further 5,520,000 shares were subscribed before December 31, 2005
through private placement at a price of $0.75 per share for a total
purchase price of $4,140,000. The shares were issued in January 2006.
The shares issued in the private placements set forth above were issued
in reliance upon the exemption from registration set forth in Section
4(2) of the Securities Act and Regulation D (Rules 505 and/or 506)
and/or Regulation S promulgated under the Securities Act. The shares
were offered and sold to investors who were "accredited investors" as
defined in the Securities Act. Appropriate investment representations
were obtained and the securities were issued with restrictive legends.
On February 10, 2004, M2B World issued 1,363,636 shares of $0.31 par
value Series D common stock for a total cash capital contribution of
$287,745 prior to the acquisition by the Company.
On October 1, 2004, Amaru Inc. issued 400,000 "restricted" shares of
common stock for services valued at $5,000. The shares were issued
without registration in reliance upon the exemption provided by Section
4(2) of the Securities Act.
On October 25, 2004, a total of 143,000 shares of Series A Preferred
Stock was converted to 5,500,000 shares of common stock of Amaru Inc.
On October 28, 2004, Amaru Inc. issued 1,200,000 shares of common stock
through private placement at a price of $0.70 per share.
On November 20, 2004, Amaru Inc. issued 400,000 shares of common stock
through private placement at a price of $0.70 per share.
On December 10, 2004, Amaru Inc. issued 800,000 shares of common stock
through private placement at a price of $0.75 per share.
On December 11, 2004, Amaru Inc. issued 400,000 shares of common stock
through private placement at a price of $0.75 per share.
19
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS ALL
FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE DEEMED BY THE COMPANY TO
BE COVERED BY AND TO QUALIFY FOR THE SAFE HARBOR PROTECTION PROVIDED BY
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. 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 THE COMPANY
BELIEVES 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
COMPANY'S RESULTS OF OPERATIONS. IN LIGHT OF THE SIGNIFICANT
UNCERTAINTIES INHERENT IN THE FORWARD - LOOKING STATEMENTS INCLUDED
THEREIN, 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.
General
The Company through its subsidiaries under the M2B brand name is in the
Broadband Media Entertainment business, providing interactive
Entertainment-on-demand, Education-on-demand and e-commerce streaming
over Broadband channels, Internet portals, and 3G devices. Its business
includes channel and program sponsorship (advertising and branding);
online subscriptions, channel/portal development (digital programming
services); content aggregation and syndication, and broadband consulting
services and E-commerce.
As of February 25, 2004 (the "Closing Date"), the Company acquired M2B
World in exchange for 19,500,000 newly issued restricted" shares of
common voting stock of the Company and 143,000 "restricted" Series A
Convertible Preferred Stock shares to the M2B World shareholders on a
pro rata basis for the purpose of effecting a tax-free reorganization
pursuant to sections 351, 354 and 368(a)(1)(B) of the Internal Revenue
Code of 1986, as amended ("IRC") pursuant to the Agreement and Plan of
Reorganization (the "Reorganization Agreement") by and between the
Company, M2B World and M2B World shareholders. As a condition of the
closing of the share exchange transaction, certain shareholders of the
Company cancelled a total of 1,457,500 shares of common stock. Each one
(1) ordinary share of M2B World has been exchanged for 1.3636363 shares
of the Company's Common Stock and 100 shares of the Company's Series A
Convertible Preferred Stock. Each share of the Company's Series A
Convertible Preferred Stock had a conversion rate of 38.461538 shares of
the Company's common stock.
Following the Closing Date, there were 20,000,000 shares of the
Company's Common Stock outstanding and 143,000 shares of the Company's
Series A Convertible Preferred Stock outstanding. Immediately prior to
the Closing, there were 500,000 shares issued and outstanding. Series A
Convertible Preferred Stock was subsequently converted to the Company's
common stock.
The restructuring and re-capitalization has been treated as a reverse
acquisition with M2B World becoming the accounting acquirer. The
historical financial statements prior to the closing of the transaction
are those of M2B World.
20
The following discussion should be read in conjunction with selected
financial data and the financial statements and notes to financial
statements.
Overview
The key business focus of the Company is to establish itself as the
leading provider and creator of a new generation Of
Entertainment-on-Demand, Education-on-Demand and E-Commerce Channels on
Broadband, and 3G (Third Generation) devices.
For the broadband, the Company delivers both wire and wireless
solutions, streaming via computers, TV sets, PDAs and 3G hand phones.
At the same time the Company launches e-commerce channels (portals) that
provide on-line shopping but with a difference, merging two leisure
activities of shopping and entertainment. The entertainment channels are
designed to drive and promote the shopping portals, and vice versa.
The Company's business model in the area of broadband entertainment
includes both education on-demand and e-services, which would provide
the Company with multiple streams of revenue. Such revenues would be
derived from advertising and branding (channel and program sponsorship);
on-line subscriptions; online games micro-payments; channel/portal
development (digital programming services); content aggregation and
syndication; broadband consulting services; on-line shopping turnkey
solutions; broadband hosting and streaming services; E-commerce
commissions and on-line dealerships; and digit games operations.
In fiscal 2006, the Company restructured its operations to meet fully
its global expansion initiatives, enhancing its competitiveness and
efficiency in a growing global business. The business was reorganized
under the following entities to spearhead the expansion of the Company's
business and focus on specific growth areas and territories.
M2B WORLD PTE. LTD.
M2B World Pte. Ltd. was incorporated on April 3, 2003. This subsidiary
used to oversee the management and operation of the Company as a whole
and overseas the Asian business. With effect from September 1, 2006, the
Company's Asian business was overseen by another subsidiary, M2B World
Asia Pacific Pte. Ltd.
The Company took an investment on May 16, 2005 for a 9.1% equity
position with a company called Activ Lifestyle Pte Ltd in Singapore to
help facilitate Amaru Inc.'s diversification into the health and
wellness market. On September 27, 2005, the Company raised its
investment in Activ Lifestyle Pte Ltd to 12.6%. This was further
increased to 17.4% as of December 31, 2006.
In December 2005, M2B World Pte. Ltd. sold 81% equity interests of its
wholly-owned subsidiary, M2B Game World Pte. Ltd. to Auston
International Group Ltd (Auston), a public listed company in Singapore,
in exchange for 27% equity interest in Auston. During 2006, M2B World
Pte. Ltd. divested part of its interest in Auston. As of December 31,
2006, the Company's equity interest in Auston stands at 12.5%.
M2B WORLD, INC.
M2B World, Inc., a California corporation, was incorporated on January
24, 2005. This subsidiary handles and oversees the Company's business in
the U.S. The Company has leased a new office on Sunset Boulevard, West
Hollywood that came into effect in August 2006.
This subsidiary oversees the new global Broadband TV (IPTV) service. A
new server farm was set up in the U.S. in San Jose California in
December 2005 to expand the broadband streaming infrastructure; in order
to handle the business in North America and also the global IPTV
service.
21
On May 27, 2005, M2B World, Inc. entered into an agreement with Indie
Vision Films, Inc., a California corporation, to purchase 20% of the
beneficial ownership of Indie Vision Films, Inc. The investment will
allow M2B World, Inc. to access the library of programs of Indie Vision
Films, Inc.
M2B WORLD ASIA PACIFIC PTE. LTD.
M2B World Asia Pacific Pte Ltd was incorporated in the Republic of
Singapore on 1 August 2006 for the purposes of handling all the business
operations of the Company in the Asia Pacific region. This company had
taken over the Asian business operations as well as the assets and
liabilities of M2b World Pte. Ltd. with effect from September 1, 2006.
M2B COMMERCE LIMITED
M2B Commerce Limited, a company incorporated in the British Virgin
Islands on July 25, 2002, focuses on e-commerce and e-trading, with a
branch in Cambodia that oversees the digit gaming operation in Cambodia.
The Company has an agreement with Allsports Limited, a British Virgin
Islands company to operate, administer, and manage the lottery digit
games activities in Cambodia, as an extension of the Company's
entertainment operations.
The company has entered into an investment agreement on January 12,
2006, with Khoo Kim Leng, the beneficial owner of Dai Long Co., Ltd,
which holds a valid casino license and freehold land and intends to
develop and operate an integrated resort in the Kingdom of Cambodia. The
resort is targeted at families as it will feature a hotel, guest house,
shopping arcade, entertainment and amusement center and some gaming
tables. As of December 31, 2006, the company had invested $2,402,613 in
relation to this investment. The resort was completed and is in
operation subsequent to the balance sheet date.
M2B ENTERTAINMENT, INC.
M2B Entertainment, Inc. was incorporated on October 27, 2005 and is
dormant as of December 31, 2006. This subsidiary will oversee the
Company's Canadian market. As of December 31, 2006, this subsidiary is
dormant.
M2B AUSTRALIA PTY LTD
M2B Australia Pty Ltd was incorporated on June 15, 2005. This subsidiary
handles and oversees the Company's business in Australia. As of December
31, 2006, this subsidiary is dormant.
M2B WORLD TRAVEL SINGAPORE PTE. LTD.
M2B World Travel Singapore Pte Ltd was incorporated in the Republic of
Singapore on March 7, 2006. This subsidiary of M2B World Travel Limited
launches a global online travel platform which offers global e-travel
services.
The Company has completed the development of an online travel engine and
travel web applications for integration with suppliers of travel
information and travel services; and incorporating travel features with
current media operations under the M2B brand name in 2006. It has
launched its e-travel services at the beginning of 2007.
M2B World Travel Limited signed a global agreement with Amadeus Global
Travel Distribution, SA, a Spanish corporation. Through the agreement,
the company will be able to offer direct access to the extensive range
of travel options available through the Amadeus network to viewers
around the world.
22
AMARU HOLDINGS LIMITED AND M2B WORLD HOLDINGS LIMITED
Amaru Holdings Limited and M2B World Holdings Limited are incorporated
in the British Virgin Islands on February 21, 2005 and June 15, 2006,
respectively. Amaru Holdings Limited focuses on content syndication and
distribution in areas other than Asia Pacific region. M2B World Holdings
Limited focuses on content syndication and distribution in Asia Pacific
region and is a subsidiary of M2B World Asia Pacific Pte. Ltd.
TREMAX INTERNATIONAL LIMITED AND M2B WORLD TRAVEL LIMITED
Tremax International Limited and M2B World Travel Limited are both
incorporated in the British Virgin Islands on June 8, 2006 and May 3,
2005 respectively. Both companies are investment holdings companies.
In the preparation of the financial statements, the Company adopted the
following critical accounting policies.
INTANGIBLE ASSETS
Intangible assets consist of film library, gaming and software license
and product development costs. Intangible assets which were purchased
and have indefinite lives are stated at cost less impairment losses.
Intangible assets which were purchased for a specific period are stated
at cost less accumulated amortization and impairment losses. Such
intangible assets are amortized over the period of the contract, which
is two to 18 years.
REVENUE
Subscription and related services revenues are recognized over the
period that services are provided. Advertising and sponsorship revenues
are recognized as the services are performed or when the goods are
delivered. Licensing and content syndication revenue is recognized when
the license period begins, and the contents are available for
exploitation by customer, pursuant to the terms of the license
agreement. Gaming revenue is recognized as earned net of winnings.
E-commerce commissions are recognized as received. Broadband consulting
services and on-line turnkey solutions revenue are recognized as earned.
The Company has adopted accounting pronouncements issued before December
31, 2006, that are applicable to the Company.
In September 2006, the SEC published Staff Accounting Bulletin Topic 1N,
Financial Statements -- Considering the Effects of Prior Year
Misstatements When Quantifying Misstatements in Current Year Financial
Statements ("SAB 108"). SAB 108 addresses how a company should quantify
the effect of an error on the financial statements. The SEC staff
concludes in SAB 108 that a dual approach should be used to compute the
amount of a misstatement. Specifically, the amount should be computed
using both the "rollover" (current year income statement perspective)
and "iron curtain" (year-end balance sheet perspective) methods. SAB 108
does not address how to evaluate materiality, that is, how to assess the
quantitative and qualitative effects of a misstatement on the financial
statements. The SEC staff's views on evaluating the materiality of an
error are covered in SAB Topic 1M, Financial Statements -- Materiality
("SAB 99"). Companies that will need to change their method for
computing the amount of an error must adopt the dual approach for fiscal
years ending after November 15, 2006, which is effective with our year
ended December 31, 2006. A change in the method of quantifying errors
represents a change in accounting policy. Under FAS 154, changes in
accounting policy generally are accounted for using retrospective
application; however, SAB 108 permits public companies to report the
cumulative effect of the new policy as an adjustment to opening retained
earnings. The adoption of SAB 108 did not impact our consolidated
financial position, results of operations or cash flows for the year
ended December 31, 2006.
23
Recent Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an
Interpretation of FASB Statement No. 109, Accounting for Income Taxes
("FIN 48"), to create a single model to address accounting for
uncertainty in tax positions. FIN 48 clarifies the accounting for income
taxes by prescribing a minimum recognition threshold a tax position is
required to meet before being recognized in the financial statements.
FIN 48 also provides guidance on derecognition, measurement,
classification, interest and penalties, accounting in interim periods,
disclosure and transition. FIN 48 is effective for fiscal years
beginning after December 15, 2006. The Company will adopt FIN 48 as of
January 1, 2007, as required. The cumulative effect of adopting FIN 48
will be recorded in retained earnings and other accounts as applicable.
The Company has not determined the effect, if any, the adoption of FIN
48 will have on the Company's financial position and results of
operations.
In March 2006, the Emerging Issues Task Force ("EITF") reached a
tentative consensus on Issue No. 06-3, How Sales Taxes Collected from
Customers and Remitted to Governmental Authorities Should Be Presented
in the Income Statement (That Is, Gross Versus Net Presentation) ("EITF
06-3"). EITF 06-3 addresses income statement classification and
disclosure requirements of externally-imposed taxes on revenue-producing
transactions. EITF 06-3 is effective for periods beginning after
December 15, 2006. We do not expect the implementation of EITF 06-3 to
have a material impact on our consolidated financial position, results
of operations or cash flows.
In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements, which defines fair value, establishes a framework for
measuring fair value and requires enhanced disclosures about fair value
measurements. SFAS 157 requires companies to disclose the fair value of
their financial instruments according to a fair value hierarchy, as
defined and may require companies to provide additional disclosures
based on that hierarchy. SFAS 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years. We are currently evaluating the
impact adoption of SFAS 157 may have on our consolidated financial
statements.
Results of Operations
For the fiscal year ended December 31, 2006 compared with the fiscal
year ended December 31, 2005
REVENUE
Our revenue for the year ended December 31, 2006 (FY2006) increased by
$14,477,353 or 80.0% to $32,573,275 from $18,095,922 for the year ended
December 31, 2005 (FY2005) mainly due to the full year effect of the
operation of the digit gaming activities in Cambodia and the increase in
content syndication and licensing revenue.
The main bulk of the revenue for FY2006 was from the entertainment
services and digit gaming operations. Entertainment services revenue
registered an increase of $4,774,313 or 145.6% from $3,278,833 in FY2005
to $8,053,146 in FY2006 while the digit gaming revenue registered an
increase of $9,691,836 or 65.4% from $14,813,629 in FY2005 to
$24,505,465 in FY2006.
The increase was contributed by an increase in licensing revenue as well
as the full year effect of the operations of the digit gaming (lottery)
operations in Cambodia, which only commenced in May 2005.
24
COST OF SERVICES
Cost of services for FY2006 was $24,302,425 which increased by
$7,950,377 or 48.6% from $16,352,048 in FY2005. As a proportion of
revenue, the cost of services for FY2006 was 74.6% (cost of services at
$24,302,425 and revenue of $32,573,275) as compared to 90.4% (cost of
services at $16,352,048 and revenue at $18,095,922) in FY2005. This
improvement was mainly due to the licensing revenue generated during the
year which tends to have a higher margin.
The significant increase in cost of services was mainly attributed to
the cost of managing and operating the operations and game centers in
Cambodia for the digit games and the payment of royalties for the
lottery license. This accounted for $23,673,958 of the total cost of
$24,302,425 (97.4%).
DISTRIBUTION COSTS
Distribution costs increased by $344,651 or 31.3% in FY2006 from
$1,102,339 in FY2005 to $1,446,990 in FY2006. The increase in
distribution costs were mainly due to increased spending on the branding
of the M2B brand, marketing and promoting the Global Broadband TV
Service, which increased by $190,439 or 21.6% from $881,572 in FY2005 to
$1,072,011 in FY2006 as well as the increased in traveling expenses to
promote the Global Broadband TV Service.
GENERAL AND ADMINISTRATIVE EXPENSES
Administration expenses for FY2006 increased by $3,280,975 or 164.1%
from $1,998,803 in FY2005 to $5,279,778 in FY2006.
The increase in administration expenses in FY2006 were attributed mainly
to increases in:
(a) Staff costs
Staff costs had increased by $1,066,344 or 129.1% from $825,956
in FY2005 to $1,892,300 in FY2006 as a result of the increase in
the number of professional employees hired to cater to the
expanding and growing business.
(b) Depreciation and amortization.
The increase in depreciation was attributed to the leasehold
improvements for the expansion of the offices, new editing
suites and laptops provided to staff to cater to the demands of
the growing business as well as the Pony set-top boxes installed
in the homes and offices of the customers. Depreciation expense
increased by $173,100 or 275.2% from $62,893 in FY2005 to
$235,993 in FY2006.
The increase in license amortization came from the film library,
on-line games license and gaming license in Cambodia.
Amortization charged in FY2006 increased by $772,835 or 214.5%
from $360,349 in FY2005 to $1,133,184 in FY2006.
(c) Legal and professional fees.
The increase were mainly due to the higher costs of the
quarterly review and accrual of audit fees as a result of the
expansion of the business, legal fees incurred in review of
contracts and filing and professional fees incurred in the
valuation of the film library of the Company. Legal and
professional fees increase by $665,480 or 196.0% from $339,491
in FY2005 to $1,004,971 in FY2006.
25
OTHER INCOME
Other income increased by $372,786 from $2,374 in FY2005 to $375,160 in
FY2006 mainly due to the gain on disposal of investment available for
sale, interest income from deposit placed with financial institutions
and management fee income received.
INCOME (LOSS) FROM OPERATIONS
The profit from operations was $1,544,082 in FY2006 as compared to a
loss of $1,357,268 in FY2005. The profit from operations in FY2006 was
mainly attributed to the revenue generated from the licensing income and
lower cost of services as compared to FY2005 as well as from the gain on
sale of available for sale investment.
SALE OF M2B GAME WORLD PTE. LTD.
On December 20, 2005, the Company sold 81% of M2B Game World Pte. Ltd.
to Auston for $2,147,580. The gain from this sale was $1,643,016 and
included in gain from discontinued operations. This is a strategic move
as it enables the Company to partner Auston who has in depth knowledge
of the Asian market and consumers.
NET INCOME
Net income increased by $1,083,784 or 650.0% from $166,745 in FY2005 to
$1,250,529 in FY2006 mainly due to the increase in licensing income and
lower cost of services offset by higher distribution and administrative
expenses.
Liquidity and Capital Resources
The Company had cash of $2,294,984 as of December 31 2006 as compared to
cash of $4,776,819 as of December 31, 2005.
The Company does not finance its operations through short-term bank
credit, long-term bank loans nor leasing arrangements with financial
institutions as it believes that cash generated from its operations will
be able to cover its daily running cost and overheads.
During the financial year ended December 31, 2006, the Company has not
entered into any transactions using derivative financial instruments or
derivative commodity instruments. Accordingly, the Company believes its
exposure to market interest rate risk is not material.
Cash generated from operations will not be able to cover the Company's
intended growth and expansion. The Company has plans in 2007 to expand
its broadband coverage by launching new broadband sites in Asia Pacific
region and Australia. No assurances can be made that such plans will be
carried out in a timely manner.
26
In North America, the Company had launched new broadband entertainment
and business training content sites in 2006. A new server farm had been
built in the U.S. to handle the North American business and the global
IPTV service. The Company plans to offer multiple TV channels, delivered
live over the Internet, to homes that have a high-speed internet
connection. This service is to be available in the U.S. and Singapore in
July 2006 with about 50 channels available to customers. The Company
intends to provide a similar service to broadband users worldwide in
early part of 2007. No assurances can be made that such plans will be
carried out in a timely manner.
The Company plans to launch an innovative travel e-commerce portal,
marketing travel products and services available through a on-demand
video travel portal and providing distribution and technology solutions
for the travel industry in 2007. No assurances can be made that such
plan will materialize as planned.
The Company is continuing to raise additional funds through its private
placement of equity to fund its business expansions and working
capital. In FY2006, the Company raised a total of $11,270,743, net of
issuance costs of $728,056.
The Company believes that it can continue to raise funds through private
placement of its securities to fund its growth and expansion, however,
no assurances can be made that the Company will raise sufficient funds
as planned.
New Contracts entered into in fiscal year 2006
(a) On January 12, 2006, the Company through its subsidiary, M2B
Commerce Limited entered into an investment agreement with Khoo
Kim Leng. Khoo Kim Leng is the beneficial owner of Dai Long Co
who intends to develop and operate an integrated resort in the
Kingdom of Cambodia consisting of hotel, guest house, shopping
arcade, entertainment and amusement centre and some gaming
tables. Pursuant to the terms of the Agreement, M2B Commerce
Limited will acquire 25% beneficial ownership in Dai Long for
$3million. A downpayment of $1.24 million shall be paid within
30 days from signing of the Agreement. The initial downpayment
of $1.24 million shall be converted into 5% equity of Dai Long.
The remaining $1.76 million of the agreed payment shall be made
within 90 days of the signing of the Agreement, pursuant to the
results of the feasibility and land valuation study as stated in
the Agreement.
In the event, M2B Commerce Limited is not able to continue with
the investment, all monies invested shall be converted into
equity as follows: $1.24 million for 5% equity shares of Dai
Long, $1.76 million for 20% equity shares of Dai Long, prorated
accordingly in the event of partial payment by M2B Commerce
Limited.
(b) On March 14, 2006, the Company through its subsidiary, M2B
Commerce Limited (British Virgin Islands) entered into a five
year agreement with an ISP provider in Cambodia, Cogetel
Limited, a Cambodian corporation, to offer its interactive,
on-demand broadband entertainment platform and its proprietary
micro-payment system to the Cambodian-based company which holds
the Online brand.
(c) On March 15, 2006, the Company through its subsidiary, M2B World
Travel Ltd. entered into an agreement with a travel service
provider in China, China International Travel Services (CITS,
Sichuan Province) that will facilitate the linking of the M2B
World Travel platform with the CITS network within the major
tourist hubs in China beginning with Sichuan.
(d) On April 24, 2006, the Company through its subsidiary, Amaru
Holdings Limited, entered into a License Agreement with Sony
Pictures Television International, a division of CPT Holdings, a
Delaware corporation, to obtain a limited non-exclusive license
with respect to providing the Company's private residential
Video-on Demand television programming service. The programs
included in the License Agreement will be selected from the
available Sony and MGM film library as set forth in the License
Agreement.
27
ITEM 7 CONSOLIDATED FINANCIAL STATEMENTS
OUR CONSOLIDATED FINANCIAL STATEMENTS ARE INCLUDED HEREIN.
TABLE OF CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS PAGE
Report of Independent Registered Public Accounting Firm F-2 - F-3
Consolidated Balance Sheets F-4
Consolidated Statements of Income F-5
Consolidated Statements of Stockholders' Equity and
Comprehensive Income F-6 - F-7
Consolidated Statements of Cash Flows F-8 - F-9
Notes to Consolidated Financial Statements F-10
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Amaru, Inc.
We have audited the accompanying consolidated balance sheet of Amaru, Inc. and
subsidiaries, as of December 31, 2006, and the related consolidated statements
of income, changes in stockholders' equity and cash flows for the year ended
December 31, 2006. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to,
nor have we been engaged to perform, an audit of its internal control over
financial reporting. An audit includes consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Amaru,
Inc. and subsidiaries at December 31, 2006, and the consolidated results of
their operations and their cash flows for the year ended December 31, 2006, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Nexia Court & Co.
Level 29, Australia Square
264 George Street
Sydney NSW 2000
PO Box H195
Australia Square NSW 1215
April 11, 2007
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Amaru, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Amaru, Inc. and
Subsidiaries (the Company) as of December 31, 2005, and the related
consolidated statement of operations, stockholders' equity and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Amaru,
Inc. and Subsidiary as of December 31, 2005, and the consolidated
results of its operations and cash flows for the year then ended in conformity
with accounting principles generally accepted in the United States of America.
/s/ MENDOZA BERGER & COMPANY, LLP
Irvine, California
March 15, 2006
F-3
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2006 AND 2005
DECEMBER 31, DECEMBER 31,
2006 2005
-------------- --------------
ASSETS
Current assets
Cash and cash equivalents $ 2,294,984 $ 4,776,819
Accounts receivable, net 2,106,647 842,371
Inventories 1,689,634 12,280
Other current assets 539,604 235,286
-------------- --------------
Total current assets 6,630,869 5,866,756
Non-current assets
Property and equipment, net 1,215,744 437,194
Intangible assets, net 28,886,883 11,852,223
Investments available for sale 12,158,351 2,588,786
-------------- --------------
Total non-current assets 42,260,978 14,878,203
-------------- --------------
Total assets $ 48,891,847 $ 20,744,959
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 2,101,970 $ 656,484
Income taxes payable 58,473 --
Advances from related parties -- 58,392
-------------- --------------
Total current liabilities 2,160,443 714,876
Deferred tax liabilities 1,684,158 157,756
-------------- --------------
Total liabilities 3,844,601 872,632
Commitments -- --
Stockholders' equity
Preferred stock (par value $0.001) 5,000,000 shares authorized;
0 shares issued and outstanding at December 31, 2006 and
2005, respectively -- --
Common stock (par value $0.001) 200,000,000 shares authorized;
153,638,528 and 125,591,120 shares issued and outstanding at
December 31, 2006 and 2005, respectively 153,638 125,591
Additional paid-in capital 38,942,126 14,642,550
Subscribed common stock, 420,000 and 5,675,840 shares at
December 31, 2006 and 2005 respectively 189,000 4,256,880
Retained earnings 2,084,908 834,379
Accumulated other comprehensive income 3,677,574 12,927
-------------- --------------
Total stockholders' equity 45,047,246 19,872,327
-------------- --------------
Total liabilities and stockholders' equity $ 48,891,847 $ 20,744,959
============== ==============
See accompanying notes to consolidated financial statements
F-4
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2006 AND 2005
FOR THE YEAR ENDED
---------------------------------
DECEMBER 31, DECEMBER 31,
2006 2005
-------------- --------------
Revenue:
Entertainment $ 8,053,146 $ 3,278,833
Digit gaming 24,505,465 14,813,629
Other 14,664 3,460
-------------- --------------
Total revenue 32,573,275 18,095,922
Cost of services 24,302,425 16,352,048
-------------- --------------
Gross profit 8,270,850 1,743,874
Distribution costs 1,446,990 1,102,339
General and administrative expenses 5,279,778 1,998,803
-------------- --------------
Total expenses 6,726,768 3,101,142
-------------- --------------
Income (loss) from operations 1,544,082 (1,357,268)
Other (income) expense:
Gain on disposal of property and equipment -- (151)
Gain on sale of investment available for sale (185,686) --
Management fee income (60,247) --
Interest income (129,227) (2,223)
-------------- --------------
Income (ioss) before income taxes 1,919,242 (1,354,894)
Provision for income taxes 668,713 121,377
-------------- --------------
Income (loss) before discontinued operations 1,250,529 (1,476,271)
Discontinued operations:
Income from operations of discontinued component,
including income from disposal of discontinued operations -- 1,643,016
Income tax -- --
-------------- --------------
Net gain on discontinued operations -- 1,643,016
-------------- --------------
Net income $ 1,250,529 $ 166,745
============== ==============
Income (loss) per share before discontinued operations
- basic and diluted $ 0.01 $ (0.01)
============== ==============
Income per share from discontinued operations
- basic and diluted $ -- $ 0.01
============== ==============
Net income per share
- basic and diluted $ 0.01 $ 0.00
============== ==============
Weighted average number of common shares outstanding
- basic and diluted 148,346,686 117,675,312
============== ==============
See accompanying notes to consolidated financial statements
F-5
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
FOR THE YEAR ENDED DECEMBER 31, 2006 AND 2005
ACCUMULATED OTHER
PREFERRED STOCK COMMON STOCK COMPREHENSIVE INCOME
------------------ ---------------------------------- -----------------------
NUMBER PAR PAR ADDITIONAL SUBSCRIBED CURRENCY TOTAL
OF VALUE NUMBER OF VALUE PAID-IN COMMON RETAINED TRANSLATION FAIR VALUE SHAREHOLDERS'
SHARES ($0.001) SHARES ($0.001) CAPITAL STOCK EARNINGS RESERVE RESERVE EQUITY
-------- -------- ----------- -------- ----------- ---------- ---------- ---------- ---------- -----------
Balance at
December 31,
2004 -- -- 108,800,000 $108,800 $ 2,851,151 $ -- $ 667,634 $ 9,188 $ -- $ 3,636,773
Common stock
issued for
cash -- -- 16,132,000 16,132 11,297,719 -- -- -- -- 11,313,851
Common stock
issued for
repayment of
trade account
payable -- -- 580,000 580 434,420 -- -- -- -- 435,000
Common stock
issued for
services -- -- 79,120 79 59,260 -- -- -- -- 59,339
Common stock
subscribed
for cash
(5,520,000
shares) -- -- -- -- -- 4,140,000 -- -- -- 4,140,000
Common stock
subscribed
for services
(155,840
shares) -- -- -- -- -- 116,880 -- -- -- 116,880
Net income -- -- -- -- -- -- 166,745 -- -- 166,745
Comprehensive
loss on
currency
translation -- -- -- -- -- -- -- 3,739 -- 3,739
-----------
Comprehensive
income -- -- 170,484
-------- -------- ----------- -------- ----------- ---------- ---------- ---------- ---------- -----------
Balance at
December 31,
2005 -- -- 125,591,120 $125,591 $14,642,550 $4,256,880 $ 834,379 $ 12,927 $ -- $19,872,327
======== ======== =========== ======== =========== ========== ========== ========== ========== ===========
See accompanying notes to consolidated financial statements
F-6
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
FOR THE YEAR ENDED DECEMBER 31, 2006 AND 2005
ACCUMULATED OTHER
PREFERRED STOCK COMMON STOCK COMPREHENSIVE INCOME
------------------ ---------------------------------- ------------------------
NUMBER PAR PAR ADDITIONAL SUBSCRIBED CURRENCY TOTAL
OF VALUE NUMBER OF VALUE PAID-IN COMMON RETAINED TRANSLATION FAIR VALUE SHAREHOLDERS'
SHARES ($0.001) SHARES ($0.001) CAPITAL STOCK EARNINGS RESERVE RESERVE EQUITY
-------- -------- ----------- -------- ----------- ---------- ---------- ---------- ---------- -----------
Balance at
December 31,
2005 -- -- 125,591,120 $125,591 $14,642,550 $4,256,880 $ 834,379 $ 12,927 $ -- $19,872,327
Common stock
issued for
cash -- -- 15,339,568 15,339 11,255,404 -- -- -- -- 11,270,743
Common stock
issued for
services -- -- 40,000 40 59,960 -- -- -- -- 60,000
Subscribed
common stock
issued -- -- 5,675,840 5,676 4,251,204 (4,256,880) -- -- -- --
Common stock
issued in
exchange for
acquisition
of film
library -- -- 6,992,000 6,992 8,733,008 -- -- -- -- 8,740,000
Common stock
subscribed
for services
(420,000
shares) -- -- -- -- -- 189,000 -- -- -- 189,000
Net income -- -- -- -- -- -- 1,250,529 -- -- 1,250,529
Change in
fair value
of equity
securities
available for
sale, net of tax -- -- -- -- -- -- -- -- 3,664,647 3,664,647
-----------
Comprehensive
income -- -- 4,915,176
-------- -------- ----------- -------- ----------- ---------- ---------- ---------- ---------- -----------
Balance at
December 31,
2006 -- -- 153,638,528 $153,638 $38,942,126 $ 189,000 $2,084,908 $ 12,927 $3,664,647 $45,047,246
======== ======== =========== ======== =========== ========== ========== ========== ========== ===========
See accompanying notes to consolidated financial statements
F-7
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2006 AND 2005
FOR THE YEAR ENDED
---------------------------------
DECEMBER 31, DECEMBER 31,
2006 2005
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,250,529 $ 166,745
Adjustments to reconcile net income to cash and
cash equivalents used or provided by operations:
Amortization 1,133,184 360,349
Depreciation 235,993 62,893
Gain on disposal of property and equipment -- (151)
Gain on sale of investment available for sale (185,686) --
Gain on sale of discontinued operations -- (1,643,016)
Acquisition of investment in exchange for account receivable (3,000,000) --
Common stock issued and subscribed for services 249,000 176,219
Changes in operation assets and liabilities
Accounts receivable (1,264,276) (842,132)
Inventories (1,677,354) (12,280)
Other current assets (304,318) 451,027
Accounts payable and accrued expenses 1,445,486 612,343
Income tax payable 668,713 --
-------------- --------------
Net cash used in operating activities (1,448,729) (668,003)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment -- 151
Proceeds from sale of investment available for sale 1,238,001 --
Product development expenditures (50,968) (17,460)
Acquisition of property and equipment (1,014,543) (482,176)
Acquisition of software and gaming licenses and film library (9,376,876) (9,090,488)
Acquisition of investments available for sale (3,041,071) (945,770)
-------------- --------------
Net cash used in by investing activities (12,245,457) (10,535,743)
CASH FLOWS FROM FINANCING ACTIVITIES
Payable to related parties (58,392) (121,344)
Issuance of common stock for cash 11,270,743 11,313,851
Proceeds from stock subscriptions -- 4,140,000
-------------- --------------
Net cash provided by financing activities 11,212,351 15,332,507
Effect of exchange rate changes on cash and cash equivalents -- 3,739
-------------- --------------
CASH FLOWS FROM ALL ACTIVITIES (2,481,835) 4,132,500
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,776,819 644,319
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,294,984 $ 4,776,819
============== ==============
See accompanying notes to consolidated financial statements
F-8
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2006 AND 2005
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES:
Common stock issued for repayment of trade accounts payable $ -- $ 435,000
Common stock issued for acquisition of film library $ 8,740,000 $ --
Acquisition of film library and content (1) $ 2,100,000 $ --
Acquisition of investments (2) $ 3,000,000 $ 2,147,580
Write off of fully depreciated fixed assets $ -- $ 7,962
============== ==============
(1) On June 6, 2006, the Company through its subsidiary, M2B Commerce Limited, entered into a licensing
agreement for a licensing fee of $2.1 million on sale of licensing rights for its Pony set-top
boxes on a non-exclusive basis in four Asian countries. This $2.1 million receivable was set off
against payable for the acquisition of a gaming license by the Company. This is a license for
operating multi-player online games for a period of twenty years commencing from June 2006. The
gaming license was acquired at a cost of $2.4 million. The balance of $0.3 million payable to the
supplier was settled in cash.
(2) On August 22, 2006, the Company through its subsidiary, M2B World Asia Pacific Pte. Ltd. subscribed
for 25% interest in an investment for $3.2 million. On September 1, 2006, the investee company
entered into a licensing agreement with M2B World Asia Pacific Pte. Ltd. for $3 million worth of
film library. On September 1, 2006, both parties agreed to set-off the outstanding balances with
the balance of $0.2 million being paid in cash.
F-9
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
1. BASIS OF PRESENTATION AND REORGANIZATION
1.1 Description of Business
Amaru, Inc. (the Company) through its subsidiaries under the M2B
brand is in the Broadband Media Entertainment business, and a
provider of interactive Entertainment-on-demand, Education-on-demand
and E-commerce streaming over Broadband channels, Internet portals
and Third-Generation (3G) devices globally. It has launched multiple
Broadband TV and integrated shopping websites with over 100 channels
of content designed and programmed to target specific viewer
profiles and lifestyles of local and international audiences. The
Company controls substantial content libraries for aggregation,
distribution and syndication on Broadband and other media, sourced
from Hollywood and major content providers around the world.
The Company's business strategy is to be a diversified media company
specializing in the interactive media industry, using the latest
broadband, E-Commerce and communications technologies and access to
international content and programming.
The Company's goal is to provide on-line entertainment and education
on-demand on Broadband channels, Internet portals and 3G devices
across the globe; for specific and identified viewer lifestyles,
demographics and interests; and to tie the viewing experience to an
on-line shopping experience. This is to enable two leisure
activities to be rolled into one for the ultimate convenience and
reaching out to a global viewing audience.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
2.1 Principles of Consolidation
The consolidated financial statements include the financial
statements of Amaru, Inc. and its majority owned subsidiaries. All
significant intercompany balances and transactions have been
eliminated in consolidation. In addition, the Company evaluates its
relationships with other entities to identify whether they are
variable interest entities as defined by FASB Interpretation No. 46
(R) Consolidation of Variable Interest Entities ("FIN 46R") and to
assess whether it is the primary beneficiary of such entities. If
the determination is made that the Company is the primary
beneficiary, then that entity is included in the consolidated
financial statements in accordance with FIN 46(R).
2.2 Use of Estimates
The preparation of the consolidated financial statements in
accordance with generally accepted accounting principles requires
management to make estimates and assumptions relating to the
reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and
expenses during the period. Significant items subject to such
estimates and assumptions include carrying amount of property and
equipment, intangibles, valuation allowances of receivables and
inventories. Actual results could differ from those estimates.
Management has not made any subjective or complex judgments the
application of which would result in any material differences in
reported results.
2.3 Cash and Cash Equivalents
Cash and cash equivalents are defined as cash on hand, demand
deposits and short-term, highly liquid investments readily
convertible to cash and subject to insignificant risk of changes in
value.
Cash in banks and short-term deposits are held to maturity and are
carried at cost. For the purposes of the consolidated statements of
cash flows, cash and cash equivalents consist of cash on hand and
deposits in banks, net of outstanding bank overdrafts.
The Company monitors its liquidity risk and maintains a level of
cash and cash equivalents deemed adequate by management to finance
the Company's operations and to mitigate the effects of fluctuations
in cash flows.
F-10
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
2.4 Trade Accounts Receivable
Trade accounts receivable, which generally have 30 to 90 day terms,
are recorded at the invoiced amount less an allowance for any
uncollectible amounts (if any) and do not bear interest. Amounts
collected on trade accounts receivable are included in net cash
provided by operating activities in the consolidated statements of
cash flows. The allowance for doubtful accounts is the Company's
best estimate of the amount of probable credit losses in the
Company's existing accounts receivable. Account balances are charged
off against the allowance after all means of collection have been
exhausted and the potential for recovery is considered remote. Bad
debts are written off as incurred. The Company does not have any
off-balance sheet credit exposure related to its customers.
The Company's primary exposure to credit risk arises through its
trade accounts receivable. The credit risk on liquid funds is
limited because the counterparties are banks with high credit
ratings assigned by international credit-rating agencies.
Licensing and advertising revenues were concentrated with five
customers totalling 99.8% of these related revenues for the year
ended December 31, 2006 and six customers totaling 97.6% of these
related revenues for the year ended December 31, 2005.
The Company's operations are conducted over the world wide web and
some purchases are made from locations outside of Singapore.
FOR THE YEAR ENDED
-------------------------
DECEMBER 31, DECEMBER 31,
2006 2005
------------ ------------
Sales outside of the U.S. $ 32,573,155 $ 18,095,922
Services purchased outside of the U.S. $ 24,153,201 $ 16,284,120
2.5 Inventories
Inventories are carried at the lower of cost or and net realizable
value. Cost is calculated using first-in, first-out ("FIFO") method
and comprises all costs of purchase, costs of conversion and other
costs incurred in bringing the inventories to their present location
and condition.
2.6 Property and Equipment
Property and equipment are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of
the assets for financial reporting purposes. Expenditures for major
renewals and betterments that extend the useful lives are
capitalized. Expenditures for normal maintenance and repairs are
expensed as incurred. The cost of assets sold or abandoned and the
related accumulated depreciation are eliminated from the accounts
and any gains or losses are reflected in the accompanying
consolidated statement of income of the respective period. The
estimated useful lives of the assets range from 3 to 5 years.
2.7 Intangible Assets
Intangible assets consist of film library, gaming and software
licence and product development costs. Intangible assets which were
purchased and have indefinite lives are stated at cost less
impairment losses and are tested for impairment at least annually
in accordance with the provisions of FASB Statement No. 142,
Goodwill and Other Intangible Assets.
Intangible assets which were purchased for a specific period are
stated at cost less accumulated amortization and impairment losses.
Such intangible assets are reviewed for impairment in accordance
with FASB Statement No. 144, Accounting for Impairment or Disposal
of Long-Lived Assets. Such intangible assets are amortized over the
period of the contract, which is two to 18 years.
Included in the gaming license are the rights to a digit games
license in Cambodia. The license is for a minimum period of 18 years
commencing from June 1, 2005, with an option to extend for a further
5 years or such other period as may be mutually agreed.
F-11
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
The Company capitalized the development and building cost related to
the broad-band sites and infrastructure for the streaming system,
most of which was developed in 2002 as product development costs.
The Company projects that these development costs will be useful for
up to five years before additional significant development needs to
be done.
2.8 Investments
The Company classifies its investments in marketable equity and debt
securities as "available-for-sale", "held to maturity" or "trading"
at the time of purchase in accordance with the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities"
("SFAS No. 115"). There are no investments classified as trading or
held-to-maturity as of December 31, 2006 and 2005.
Available-for-sale securities are carried at fair value with
unrealized gains and losses, net of related tax, if any, reported as
a component of other comprehensive income (loss) until realized.
Realized gains and losses from the sale of available-for-sale
securities are determined on a specific-identification basis. A
decline in the market value of any available-for-sale security below
cost that is deemed to be other than temporary will result in an
impairment, which is charged to earnings.
Available-for-sale securities that are not publicly traded or have
resale restrictions greater than one year are accounted for at cost.
The Company's cost method investments include companies involved in
the broadband and entertainment industry. The Company uses available
qualitative and quantitative information to evaluate all cost method
investment impairments at least annually.
2.9 Valuation of Long-Lived Assets
The Company evaluates the carrying value of long-lived assets to be
held and used, other than intangible assets with indefinite lives,
when events or circumstances warrant such a review. No impairment
losses were recorded for the years ended December 31, 2006 and 2005.
2.10 Advances from Related Party
Advances from related party are unsecured, non-interest bearing and
payable on demand.
2.11 Foreign Currency Translation
Transactions in foreign currencies are translated at foreign
exchange rates ruling at the dates of the transactions. Monetary
assets and liabilities denominated in foreign currencies at the
balance sheet date are translated into US dollars at foreign
exchange rate ruling at that date. Non-monetary assets and
liabilities measured at cost in a foreign currency are translated
using exchange rates at the date of the transaction. Foreign
currency transaction gains and losses are included in determining
net income and were not significant.
2.12 Revenues
Subscription and related services revenues are recognized over the
period that services are provided. Advertising and sponsorship
revenues are recognized as the services are performed or when the
goods are delivered. Licensing and content syndication revenue is
recognized when the license period begins, and the contents are
available for exploitation by customer, pursuant to the terms of the
license agreement. Gaming revenue is recognized as earned net of
winnings. E-commerce commissions are recognized as received.
Broadband consulting services and on-line turnkey solutions revenue
are recognized as earned.
F-12
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
2.13 Costs of Services
The cost of services pertaining to advertising and sponsorship
revenue and subscription and related services are cost of bandwidth
charges, channel design and alteration, copyright licensing, and
hardware hosting and maintenance costs. The cost of services
pertaining to E-commerce revenue is channel design and alteration,
and hardware hosting and maintenance costs. The cost of services
pertaining to gaming is for managing and operating the operations
and gaming centers. All these costs are accounted for in the period
its was incurred.
2.14 Income Taxes
Deferred income taxes are determined using the liability method in
accordance with Statement of Financial Accounting Standards ("SFAS")
No. 109, Accounting for Income Taxes. Deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred income taxes are measured using enacted tax rates
expected to apply to taxable income in years in which such temporary
differences are expected to be recovered or settled. The effect on
deferred income taxes of a change in tax rates is recognized in the
statement of income of the period that includes the enactment date.
In addition, a valuation allowance is established to reduce any
deferred tax asset for which it is determined that it is more likely
than not that some portion of the deferred tax asset will not be
realized.
2.15 Earnings (Loss) Per Share
In February 1997, the Financial Accounting Standards Board (FASB)
issued FAS No. 128 "Earnings Per Share" which requires the Company
to present basic and diluted earnings per share, for all periods
presented. The computation of earnings per common share (basic and
diluted) is based on the weighted average number of shares actually
outstanding during the period. The Company has no common stock
equivalents, which would dilute earnings per share.
2.16 Financial Instruments
The carrying amounts for the Company's cash, other current assets,
accounts payable, accrued expenses and other liabilities approximate
their fair value.
2.17 Advertising
The cost of advertising is expensed as incurred. For the years ended
December 31, 2006 and 2005, the Company incurred advertising
expenses of $1,072,011 and $881,572 respectively.
2.18 Reclassifications
Certain prior year amounts have been reclassified to conform to the
current year presentation.
2.19 Recent Accounting Pronouncements
The Company has adopted accounting pronouncements issued before
December 31, 2006, that are applicable to the Company.
In September 2006, the SEC published Staff Accounting Bulletin Topic
1N, Financial Statements -- Considering the Effects of Prior Year
Misstatements When Quantifying Misstatements in Current Year
Financial Statements ("SAB 108"). SAB 108 addresses how a company
should quantify the effect of an error on the financial statements.
The SEC staff concludes in SAB 108 that a dual approach should be
F-13
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
used to compute the amount of a misstatement. Specifically, the
amount should be computed using both the "rollover" (current year
income statement perspective) and "iron curtain" (year-end balance
sheet perspective) methods. SAB 108 does not address how to evaluate
materiality, that is, how to assess the quantitative and qualitative
effects of a misstatement on the financial statements. The SEC
staff's views on evaluating the materiality of an error are covered
in SAB Topic 1M, Financial Statements -- Materiality ("SAB 99").
Companies that will need to change their method for computing the
amount of an error must adopt the dual approach for fiscal years
ending after November 15, 2006, which is effective with our year
ended December 31, 2006. A change in the method of quantifying
errors represents a change in accounting policy. Under FAS 154,
changes in accounting policy generally are accounted for using
retrospective application; however, SAB 108 permits public companies
to report the cumulative effect of the new policy as an adjustment
to opening retained earnings. The adoption of SAB 108 did not impact
our consolidated financial position, results of operations or cash
flows for the year ended December 31, 2006.
In June 2006, the Financial Accounting Standards Board ("FASB")
issued Interpretation No. 48, Accounting for Uncertainty in Income
Taxes, an Interpretation of FASB Statement No. 109, Accounting for
Income Taxes ("FIN 48"), to create a single model to address
accounting for uncertainty in tax positions. FIN 48 clarifies the
accounting for income taxes by prescribing a minimum recognition
threshold a tax position is required to meet before being recognized
in the financial statements. FIN 48 also provides guidance on
derecognition, measurement, classification, interest and penalties,
accounting in interim periods, disclosure and transition. FIN 48 is
effective for fiscal years beginning after December 15, 2006. The
Company will adopt FIN 48 as of January 1, 2007, as required. The
cumulative effect of adopting FIN 48 will be recorded in retained
earnings and other accounts as applicable. The Company has not
determined the effect, if any, the adoption of FIN 48 will have on
the Company's financial position and results of operations.
In March 2006, the Emerging Issues Task Force ("EITF") reached a
tentative consensus on Issue No. 06-3, How Sales Taxes Collected
from Customers and Remitted to Governmental Authorities Should Be
Presented in the Income Statement (That Is, Gross Versus Net
Presentation) ("EITF 06-3"). EITF 06-3 addresses income statement
classification and disclosure requirements of externally-imposed
taxes on revenue-producing transactions. EITF 06-3 is effective for
periods beginning after December 15, 2006. We do not expect the
implementation of EITF 06-3 to have a material impact on our
consolidated financial position, results of operations or cash
flows.
In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements, which defines fair value, establishes a framework for
measuring fair value and requires enhanced disclosures about fair
value measurements. SFAS 157 requires companies to disclose the fair
value of their financial instruments according to a fair value
hierarchy, as defined and may require companies to provide
additional disclosures based on that hierarchy. SFAS 157 is
effective for financial statements issued for fiscal years beginning
after November 15, 2007 and interim periods within those fiscal
years. We are currently evaluating the impact adoption of SFAS 157
may have on our consolidated financial statements.
3. OTHER CURRENT ASSETS
Other current assets consist of the following:
DECEMBER 31, DECEMBER 31,
2006 2005
------------ ------------
Prepayments $ 177,278 $ 212,097
Deposits 172,882 16,016
Other receivables 189,444 7,173
------------ ------------
$ 539,604 $ 235,286
============ ============
F-14
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
DECEMBER 31, DECEMBER 31,
2006 2005
------------ ------------
Office equipment $ 721,085 $ 431,791
Motor vehicle 11,000 11,000
Furniture, fixture and fittings 556,069 96,501
Pony set-top boxes 265,681 --
------------ ------------
1,553,835 539,292
Accumulated depreciation (338,091) (102,098)
------------ ------------
$ 1,215,744 $ 437,194
============ ============
Depreciation expense was $235,993 for the year ended December 31, 2006 and
$62,893 for the year ended December 31, 2005.
5. INTANGIBLE ASSETS
Intangible assets consist of the following:
DECEMBER 31, DECEMBER 31,
2006 2005
------------ ------------
INDEFINITE LIVES
Film library $ 17,674,378 $ 4,389,668
Software license 2,420,227 2,420,227
------------ ------------
20,094,605 6,809,895
DEFINITE USEFUL LIVES
Film library 2,947,564 515,398
Gaming license 7,090,000 4,690,000
Product development expenditures 669,529 618,561
------------ ------------
10,707,093 5,823,959
Accumulated amortization (1,914,815) (781,631)
------------ ------------
8,792,278 5,042,328
------------ ------------
$ 28,886,883 $ 11,852,223
============ ============
Amortization expense was $1,133,184 for the year ended December 31, 2006
and $360,349 for the year ended December 31, 2005. Estimated amortization
expense related to intangible assets subject to amortization at December
31, 2006 for each of the years in the five year period ending December 31,
2011 and thereafter is: 2007 - $1,391,539; 2008 - $871,236; 2009 -
$478,600; 2010 - $338,225, 2011 - $315,925 and thereafter - $5,396,753.
F-15
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
6. INVESTMENTS AVAILABLE FOR SALE
Investments available for sale consist of the following:
DECEMBER 31, DECEMBER 31,
2006 2005
------------ ------------
Quoted equity securities $ 5,676,074 $ 2,147,580
Unquoted equity securities 6,482,277 441,206
------------ ------------
$ 12,158,351 $ 2,588,786
============ ============
The investments in quoted equity security with unrealized gains of
$4,580,809 as of December 31, 2006, comprised of 36,428,571 common shares
of Auston International Group Ltd (Auston). The Company purchased
71,428,571 common shares of Auston in December 2005 at a cost of $0.03
(S$0.055) per share. During the financial year ended December 31, 2006,
the Company disposed of 35,000,000 common shares of Auston for an amount
of $1,238,001; gross realized gains included in other income in 2006 were
$185,686. As of December 31, 2006, the market value of the shares was
$0.16 (S$0.24).
The equity securities classified as available-for-sale, with a carrying
value of $6,482,277 and $441,206 as of December 31, December 2006 and
2005, respectively, are measured at cost less impairment losses as there
is no quoted market price in an active market and other methods of
determining fair value do not result in a reasonable estimate.
7. COMMITMENTS
As of the balance sheet date, the Group has the following capital
commitments:
DECEMBER 31, DECEMBER 31,
2006 2005
------------ ------------
CAPITAL COMMITMENTS:
Contracted but not provided for
Film library $ 4,254,372 $ --
Pony set-top boxes 2,562,000 3,660,000
------------ ------------
$ 6,816,372 $ 3,660,000
============ ============
The Company has several noncancelable operating leases, primarily for
office spaces, that expire over the next five years.
As of December 31, 2006, the Company has commitments for future minimum
lease payments under non-cancellable operating leases (with initial or
remaining lease terms in excess of one year) as follows:
OPERATING
LEASES
-----------
Year ending December 31,
2007 302,366
2008 262,426
2009 178,675
2010 126,360
2011 80,504
-----------
Total minimum lease payments $ 950,331
===========
Rent expense totaled $238,744 for the year ended December 31, 2006 and
$79,814 for the year ended December 31, 2005.
F-16
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
8. CAPITAL STOCK
(a) Common stock issued for cash
In January and February 2006, the Company issued a total of
5,520,000 shares of common stock for a value of $4,140,000. These
shares were subscribed and paid for before December 31, 2005
pursuant to the Company's private placement.
From January 23, 2006 to April 23, 2006, the Company issued
14,411,400 shares of common stock through a private placement at a
price of $0.75 per share for a total amount of $10,808,550.
From April 24, 2006 to April 26, 2006, the Company issued 808,000
shares of common stock through its new private placement at a price
of $1.25 per share for a total amount of $1,010,000.
From July 3, 2006 to July 24, 2006, the Company issued 120,168
shares of common stock through private placement at a price of $1.50
per share for a total amount of $180,249.
The total amount of cash raised through the private placement of
shares of common stock for the year ended December 31, 2006 was
$11,998,799.
Consulting fees of $728,056 incurred in connection with the private
placement were deducted from paid-in-capital for the year ended
December 31, 2006.
(b) Common stock issued for acquisition of film library
On April 27, 2006, the Company issued 6,992,000 shares of common
stock at a price of $1.25 per share for a total amount of $8,740,000
for the acquisition of film library.
(c) Common stock issued for services
In January and February 2006, the Company issued a total of 155,840
shares of common stock for value of $116,880 for services rendered.
These shares were subscribed and paid for before December 31, 2005.
On August 15, 2006, the Company issued 40,000 shares of common stock
in a private placement at a price of $1.50 per share for a total
amount of $60,000 for services rendered to the Company.
(d) Common stock issued to employees
On December 20, 2006, 420,000 shares of common stock were approved
for issue at a price of $0.45 a share to its employees. These shares
were issued in March 2007 to the employees for their services to the
Company pursuant to the Company's 2004 Equity Compensation Plan (the
"Plan"). The shares of Common stock issued to the employees pursuant
to the Plan have been registered on the registration statement on
Form S-8.
(e) Stock split
On May 16, 2006, the Company effected a 1-for-4 forward stock split
of its outstanding shares of common stock. A total of 38,369,590
shares of common stock of the Company issued and outstanding as of
the effective date had been changed into shares of common stock of
the Company at the ratio of 1 pre-split share to 4 post-split
shares.
After the forward stock split and as of December 31, 2006, the
Company had 153,638,528 shares of common stock issued and
outstanding.
All references to per share amounts in the consolidated financial
statements reflect the forward stock split.
F-17
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
9. SALE OF M2B GAME WORLD PTE. LTD.
On December 20, 2005, the Company sold 81% equity interests in one of its
subsidiaries, M2B Game World Pte. Ltd., to Auston, a public listed company
in Singapore for 71,428,571 shares of common stock of Auston and the
investment was valued at $2,147,580. The gain from this sale was
$1,643,016 and included in gain from discontinued operations.
10. INCOME TAXES
Current and deferred income taxes (tax benefits) provided is as follows:
2006 2005
------------ ------------
Federal:
Current $ -- $ --
Deferred (1,064,579) 372,150
State:
Current -- --
Deferred -- --
Foreign:
Current 58,473 --
Deferred 610,240 121,377
Change in valuation allowance 1,064,579 (372,150)
------------ ------------
Total $ 668,713 $ 121,377
============ ============
The Company recorded no income tax expense on discontinued operations in
2005, as the gain from disposition was not taxable. The gain from
disposition is also not subject to foreign tax on the basis that it is a
non-taxable capital. As of December 31, 2006 and 2005, the Company does
not have US income tax from foreign operations.
Reconciliation of the differences between the statutory tax and the
effective income tax is as follows:
2006 2005
------------ ------------
Tax computed at U.S. federal statutory rate $ 95,233 $ 778,681
State and local taxes -- --
Non-deductible items 25,221 --
Effect of foreign income taxes (462,529) (285,124)
Others (53,791) --
Valuation allowance 1,064,579 (372,180)
------------ ------------
Total $ 668,713 $ 121,377
============ ============
F-18
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
Significant components of the Company's net deferred tax liabilities are
as follows:
2006 2005
------------ ------------
Investments available for sale $ 916,162 --
Depreciation and amortization 862,770 679,681
------------ ------------
Deferred tax liability 1,778,932 679,681
Loss carry forwards (1,617,653) (993,075)
Others (12,850) --
Valuation allowance 1,535,729 471,150
------------ ------------
Deferred tax asset (94,774) (521,925)
------------ ------------
Net deferred tax liability $ 1,684,158 $ 157,756
============ ============
The Company had available approximately $4,479,057 of unused U.S. net
operating loss carry-forwards at December 31, 2006, that may be applied
against future taxable income. These net operating loss carry-forwards
expire for U.S. income tax purposes in 2026. There is no assurance the
Company will realize the benefit of the net operating loss carry-forwards.
SFAS No. 109 requires a valuation allowance to be recorded when it is more
likely than not that some or all of the deferred tax assets will not be
realized. As of December 31, 2006 the Company maintained a valuation
allowance for the U.S. deferred tax asset due to uncertainties as to the
amount of the taxable income from U.S. operations that will be realized.
The Company had available approximately $473,868 of unused Singapore
capital allowance carry-forwards at December 31, 2006, that may be applied
against future Singapore taxable income indefinitely provided the company
satisfies the shareholdings test for carry-forward of tax losses and
capital allowances.
11. SEGMENT REPORTING
The Company classifies its business into reportable segments. The segments
consists principally of entertainment and digit gaming. Information as to
the operations of the Company in each of its business segments is set
forth below based on the nature of the products and services offered.
The Company has provided a summary of operating income by segment. The
accounting policies of the business segments are the same as those
described in the summary of significant accounting policies in Note 2.
YEAR 2006 ENTERTAINMENT DIGIT GAMING OTHER TOTAL
------------- ------------ ------------ ------------
Revenues from external customers $ 8,053,146 $ 24,505,465 $ 14,664 $ 32,573,275
Interest revenue $ 55,038 $ -- $ 74,189 $ 129,227
Depreciation and amortization $ 1,070,621 $ 298,556 $ -- $ 1,369,177
Segment profit $ 2,325,859 $ 317,476 $ 14,664 $ 2,657,999
Segment assets $ 38,984,965 $ 7,390,339 $ 2,516,543 $ 48,891,847
Expenditures for segment assets $ 19,182,387 $ -- $ -- $ 19,182,387
F-19
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
Reconciliation:-
REVENUES
Total revenues for reportable segments $ 32,558,611
Other revenue $ 14,664
---------------
Total consolidated revenues $ 32,573,275
===============
INTEREST REVENUE
Total interest revenue for reportable segments $ 55,038
Corporate interest revenue $ 74,189
---------------
Total consolidated interest revenue $ 129,227
===============
PROFIT OR LOSS
Total profit for reportable segments $ 2,657,999
Corporate loss $ (738,757)
---------------
Profit before income tax and discontinued operations $ 1,919,242
===============
ASSETS
Total assets for reportable segments $ 46,375,304
Other assets $ 2,516,543
---------------
Total consolidated assets $ 48,891,847
===============
EXPENDITURES FOR SEGMENT ASSETS
Total expenditures for assets for reportable segments $ 19,182,387
===============
YEAR 2005 ENTERTAINMENT DIGIT GAMING OTHER TOTAL
------------- ------------ ------------ ------------
Revenues from external customers $ 3,278,833 $ 14,813,629 $ 3,460 $ 18,095,922
Interest revenue $ 2,223 $ -- $ -- $ 2,223
Depreciation and amortization $ 254,826 $ 168,416 $ -- $ 423,242
Segment (loss) profit $ (634,798) $ (309,158) $ 3,460 $ (940,496)
Segment assets $ 9,568,104 $ 5,057,195 $ 6,119,660 $ 20,744,959
Expenditures for segment assets $ 4,781,124 $ 4,809,000 $ -- $ 9,590,124
Reconciliation:-
REVENUES
Total revenues for reportable segments $ 18,092,462
Other revenue $ 3,460
---------------
Total consolidated revenues $ 18,095,922
===============
INTEREST REVENUE
Total interest revenue for reportable segments $ 1,551
Corporate interest revenue $ 672
---------------
Total consolidated interest revenue $ 2,223
===============
F-20
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
PROFIT OR LOSS
Total loss for reportable segments $ (940,496)
Corporate expenses $ (414,398)
---------------
Loss before income tax and discontinued operations $ (1,354,894)
===============
ASSETS
Total assets for reportable segments $ 14,625,299
Other assets $ 6,119,660
---------------
Total consolidated assets $ 20,744,959
===============
EXPENDITURES FOR SEGMENT ASSETS
Total expenditures for assets for reportable segments $ 9,590,124
===============
Following table presents revenues earned from customers located in
different geographic areas. Property and equipment is grouped by its
location.
YEAR 2006 ASIA PACIFIC UNITED STATES OTHER TOTAL
------------ ------------- ------------ ------------
Revenues from external customers $ 27,872,976 $ 299 $ 4,700,000 $ 32,573,275
Property and equipment, net $ 825,322 $ 295,021 $ 95,400 $ 1,215,744
YEAR 2005 ASIA PACIFIC UNITED STATES OTHER TOTAL
------------ ------------- ------------ ------------
Revenues from external customers $ 18,056,522 $ 33,000 $ 6,400 $ 18,095,922
Property and equipment, net $ 323,851 $ 28,343 $ 85,000 $ 437,194
12. SUBSEQUENT EVENTS
(a) On January 3, 2007, M2B World Asia Pacific Pte Ltd, issued 7,778,014
shares of common stock through a private placement at a price of
$0.77 a share for a total amount of $6,000,000. This had effectively
reduced the Company's effective equity interest in M2B World Asia
Pacific Pte. Ltd. from 100% to 81.7%.
(b) On January 15, 2007, the Company through its subsidiary, Amaru
Holdings Limited (Amaru Holdings), a British Virgin Islands
corporation, entered into a sale and purchase agreement together
with other sellers (the "Agreement") with Auston International Group
Ltd., a Singapore company (Auston) to sell to Auston its majority
owned subsidiary, M2B World Asia Pacific Pte Ltd., together with its
subsidiary, M2B World Holdings Limited (collectively, M2B Asia).
Auston is a company trading on the Singapore Stock Exchange. The
Agreement provides for the sale of 42,459,978 shares of M2B World
Asia Pacific Pte. Ltd., its total issued and outstanding capital. As
the consideration for M2B World Asia Pacific Pte. Ltd. shares,
Auston agreed to issue a total of 660 million new ordinary shares of
Auston to M2B World Asia Pacific Pte. Ltd. shareholders. The Auston
shares are valued at S$0.25 per share.
The Agreement is subject to certain conditions precedent, including,
but not limited to the shareholder approval of the transaction by
Auston shareholders, the approval of the Singapore Stock Exchange
and other related regulatory approvals of both parties.
Amaru Holdings is required to deliver a valuation report by an
independent auditor to Auston confirming that the value of the
assets of M2B World Asia Pacific Pte. Ltd. is no less than that of
the amount of consideration to be paid by Auston.
(c) On January 19, 2007, the Company announced that its common stock is
trading on the Over-The-Counter Bulletin Board (OTC BB), effective
January 19, 2007 under the symbol "AMRU". The Company's common stock
was previously trading on the Pink Sheets Electronic Quotation
System.
F-21
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
(d) On February 15, 2007, the Company through its subsidiary, M2B World
Asia Pacific Pte. Ltd. subscribed for additional 4.9% interest in an
investment for $1.7 million in exchange for the settlement of an
accounts receivable from the investee company.
(e) On March 19, 2007, the Company issued 40,000 shares of common stock
through private placement at a price of $1.50 per share for a total
amount of $60,000 for services to be rendered to the Company.
F-22
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Board of directors of the Company approved the engagement of Nexia
Court & Co. on October 3, 2006 to serve as the Company's independent
public auditor and to conduct the audit of the Company's financial
statements for the financial year ended December 31, 2006. The Company's
independent public auditors for the financial year ended December 31,
2005 was Mendoza, Berger & Co. LLP.
The audit report for the financial year ended December 31, 2006 provided
by the Company's auditor, Nexia Court & Co. did not contain any adverse
opinion or disclaimer of opinion nor was any report modified as to
uncertainty, audit scope or accounting principles. There have been no
past disagreements between the Company and Nexia Court & Co, on any
matter of accounting principles or practices, financial statement
disclosure or auditing, scope or procedure.
The audit report for the financial year ended December 31, 2005 provided
by the Company's auditor, Mendoza, Berger & Co. LLP, did not contain any
adverse opinion or disclaimer of opinion nor was any report modified as
to uncertainty, audit scope or accounting principles. There have been no
past disagreements between the Company and Nexia Court & Co, on any
matter of accounting principles or practices, financial statement
disclosure or auditing, scope or procedure.
ITEM 8A CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief Financial Officer (our principal
executive officer and principal financial officer, respectively) have
concluded, based on their evaluation as of December 31, 2006, that the
design and operation of our "disclosure controls and procedures" (as
defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as
amended ("Exchange Act")) are effective to ensure that the information
required to be disclosed by us in the reports filed or submitted by us
under the Exchange Act is accumulated, recorded, processed, summarized
and reported to our management, including our Chief Executive Officer
and Chief Financial Officer, as appropriate to allow timely decisions
regarding whether or not disclosure is required.
During the quarter ended December 31, 2006, there were no changes in our
internal controls over financial reporting (as defined in Rule 13a-15(f)
under the Exchange Act) that have materially affected, or are reasonably
likely to materially affect, our internal controls over financial
reporting.
ITEM 8B OTHER INFORMATION
Sales of Unregistered Securities
On March 19, 2007, the Company issued 40,000 shares of common stock
through private placement at a price of $1.50 per share for a total
amount of $60,000 for services to be rendered to the Company.
The shares issued in the private placements set forth above were issued
in reliance upon the exemption from registration set forth in Section
4(2) of the Securities Act and Regulation D (Rules 505 and/or 506)
and/or Regulation S promulgated under the Securities Act. The shares
were offered and sold to investors who were "accredited investors" as
defined in the Securities Act.
Appropriate investment representations were obtained and the securities
were issued with restrictive legends.
28
PART III
ITEM 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Our directors, executive officers and key employees as of April 11,
2007 were as follows:
Name Age Position
---- --- --------
Sakae Torisawa 61 Chairman of the Board of Directors
Lewis Marks 56 Director
Zee Moey Ngiam 51 Director
Colin St.Gerard Binny 53 Chief Executive Officer, President,
Interim Acting Chief Financial Officer
and Director
Francis Keong Kwong Foong 47 Director and former Chief Financial
Officer
Bee Leng Ho 34 Director and former Chief Financial
Officer
SAKAE TORISAWA has served as a director of the Company since January
2007, and as the Chairman of the Company's Board of Directors since
March 5, 2007. Mr. Torisawa graduated from the Journalism Course of Law
Department at Nippon University, Japan. In 1973, Mr. Torisawa joined
Hockmetals Group in Tokyo, which is a worldwide trading and mining firm.
He worked as a trader for non-ferrous metals and raw materials,
especially copper, zinc, lead, tungsten, and antimony. In 1976,
Hockmetals closed its Tokyo office, and he joined Union Carbide, USA as
a representative in Tokyo office for the Metal Division. In 1977, Mr.
Torisawa joined Glencore Far East Ag in Switzerland, an international
trading and industrial firm, specializing in oil, coal, metals and
minerals. He served as a partner in charge of Tokyo office. He continued
in trading copper, zinc and lead metals and raw materials. Due to nature
of business, he was involved in mining and smelting green field
projects. Presently Mr. Torisawa works for C & P Asia Pte Ltd, Singapore
as a Senior Advisor.
LEWIS MARKS has served as a director of the Company since March 5, 2007.
Mr. Marks graduated from the Georgetown University of Foreign Service
(B.S.F.S. 1973) and S.U.N.Y. Buffalo School of Law (1977). Mr. Lewis
Marks is fluent in Mandarin Chinese and Japanese. Since 2003 until
present, Mr. Marks has been a Director of CBH Resources Co., Ltd.,
Sydney, Australia; since 2002 until present Mr. Lewis Marks has been a
Director of Coeau Vert Co., Ltd., Tokyo, Japan; and since 2002 until
present, he has been a Managing Member of M.I.C. Global Partners, LLC.
ZEE MOEY NGIAM has served as a director of the Company since March 5,
2007. Mr. Ngiam is a Fellow Member of the Institute of Certified Public
Accountants of Singapore; he is a Member of Marketing Institute of
Singapore, and a Fellow of Association of Chartered Certified
Accountants UK. From 1987 - March, 2005 he has been Group Financial
Controller for Lauw & Sons Group of Companies. He was responsible for
all financial matters of the Group's Singapore operation, development
and implementation of marketing programs of the Group's Properties and
identification and development of investment opportunities. He also
reviewed quarterly financial and Management reports of overseas
Companies in USA, Taiwan and Australia . From 2004 until present, he has
been Joint Company Secretary for AEI Corporation Ltd.
29
COLIN BINNY has served as the Chairman of the Board, Chief Executive
Officer and Director since 2000. Mr. Binny held various senior
management positions with local and global companies over the last 25
years. He is also the Chairman of B Media Pte Ltd (formerly known as M2B
Media Pte Ltd) and the Chairman of M Media Pte Ltd (formerly known as
Metromedia Productions Pte Ltd), a regional event company. From 1996
through 1999, Mr. Binny was the President and CEO of UTV International
(Singapore ). Mr. Binny obtained his marine engineering diploma from the
Singapore Polytechnic in 1975.
FRANCIS FOONG KEONG KWONG, has served as the Company's Chief Financial
Officer since October 1, 2004. He stepped down as Chief Financial
Officer with effect from August 31, 2006. Mr. Foong has served as a
director of the Company since April 11, 2007. Prior to joining M2B
World, Mr. Foong was a Principal Consultant with Quality Vision
Consultants. Prior to being a Principal Consultant, Mr. Foong had worked
19 years as a finance professional. From 1993 to 1996 he was Financial
Controller of Natco Singapore Pte Ltd, a subsidiary of a large oil and
gas company based in Houston. From November 2002 to February 2003 he was
the Asean/ India Financial Controller for IBM Business Consulting
Services. From May 1996 to November 2002 he was the Regional Finance
Director for PwC East Asia Consulting (IBM Consulting merged with PwC
East Asia Consulting in November 2002). He managed the regional finance
function based in Singapore and the finance departments in the eight
countries of China, Taiwan, Hong Kong, Thailand, Philippines, Malaysia,
Singapore and Indonesia. From the years 1999 to 2002 he sat in the East
Asia Board of Directors acting as a financial adviser to the Business
sector leaders on business decisions, risks management and financial
analysis on various business and strategy issues. Mr. Foong received
Bachelor of Accountancy, National University of Singapore, is a Member,
Singapore Institute of Certified Public Accountants since 1987. In 2004
he became a Fellow of the Institute. Mr. Foong received Master in
Business Administration, University of Hull (UK) in 1995.
BEE LENG HO, has served as the Company's Chief Financial Officer
effective September 1, 2006. Ms Ho was appointed as the Company's
director in January, 2007. She stepped down as Chief Financial Officer
with effect from April 2, 2007. Prior to joining the Company, she was a
Senior Audit Manager with KPMG and her responsibilities included
managing a department, managing portfolios of clients, managing initial
public offerings as well as business development activities. She started
her professional career in 1997 as an audit assistant with KPMG
Singapore, and was promoted to Senior Audit Manager in 2005. She is a
member of the Institute of Certified Public Accountants of Singapore and
the Association of Chartered Certified Accountants, UK.
9.1 Committees
The Company does not currently have standing audit, nominating or
compensation committees of the Board of Directors, or committees
performing similar functions.
30
9.2 Code of Business Conduct and Ethics
Our code of business conduct and ethics, as approved by our board of
directors, and it can be obtained from our Website, at www.m2bworld.com
We intend to satisfy the disclosure requirement under Item 10 of Form
8-K relating to amendments to or waivers from provisions of the code
that relate to one or more of the items set forth in Item 406(b) of
Regulation S-B, by describing on our Internet Website, within five
business days following the date of a waiver or a substantive amendment,
the date of the waiver or amendment, the nature of the amendment or
waiver, and the name of the person to whom the waiver was granted.
Information on our Internet website is not, and shall not be deemed to
be, a part of this report or incorporated into any other filings we make
with the Securities and Exchange Commission.
9.3 Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, or the
Exchange Act, requires our executive officers and directors, and persons
who beneficially own more than 10% of a registered class of our common
stock, to file initial reports of ownership and reports of changes in
ownership with the Securities and Exchange Commission, or the SEC. These
officers, directors and stockholders are required by SEC regulations to
furnish us with copies of all such reports that they file.
Based solely upon a review of copies of such reports furnished to us
during the fiscal year ended December 31, 2006 and thereafter, or any
written representations received by us from reporting persons that no
other reports were required, we believe that, during our fiscal 2006,
all Section 16(a) filing requirements applicable to our reporting
persons were met.
ITEM 10 EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning the annual and
long-term compensation for services rendered during the last three
fiscal years to our company in all capacities as an employee by our
Chief Executive Officer and our other executive officers whose aggregate
compensation exceeded $100,000 (collectively, the "named executive
officers") during fiscal year ended 2006 shown below.
31
Director's Other
Name and Principal Position Year Salary Bonus Others Fees Compensation
--------------------------------- ------ -------- ------- -------- ---------- ------------
Colin Binny, CEO 2006 110,065 83,725 7,620 135,208 --
2005 92,537 31,847 7,589 103,009 21,900
2004 44,358 7,393 5,651 8,280 7,500
Francis Foong, former CFO 2006 50,799 52,054 7,938 8,780 36,000
(Resigned on August 31, 2006) 2005 52,878 18,628 6,171 68,605 70,500
2004 8,280 4,140 422 -- 5,000
Bee Leng Ho, former CFO 2006 45,908 24,411 5,713 -- 40,500
(Resigned on April 2, 2007)
(1) Bonus awarded based on performance.
(2) No officers received or will receive any long term incentive plan payouts
or other payouts during financial year ended December 31, 2006.
(3) Shares issued as compensation for services rendered to the Company. On
December 20, 2006, 90,000 shares of common stock were approved by the
Board of Directors to be issued to Bee Leng Ho, the Company's former CFO
for services rendered valued at $40,500 and 80,000 shares of common stock
to be issued to Francis Foong, the Company's consultant and former CFO for
services rendered valued at $36,000, pursuant to the Company's 2004 Equity
Compensation Plan.
(4) Subsequent to December 31, 2006, Francis Foong had voluntarily returned to
the Company an amount of $65,000 paid to him as directors fee in relation
to FY2005.
32
In December 2005, a total of 7,300 shares of common stock were issued to
Colin Binny, the Company's CEO for services rendered valued at $21,900
pursuant to the Company's 2004 Equity Compensation Plan. In December,
2005, a total of 4,700 shares of common stock were issued and 18,800
shares of common stock were approved by the Board of Directors to be
issued to Francis Foong, the Company's then CFO for services rendered to
the Company valued at $70,500 pursuant to the Company's 2004 Equity
Compensation Plan.
Compensation of Directors
The Company reimburses each Director for reasonable expenses (such as
travel and out-of-pocket expenses) in attending meetings of the Board of
Directors. Directors are not separately compensated for their services
as Directors.
Employment Agreements, Termination of Employment and Change-in-Control
Arrangements
There are no employment agreements with the Company's key employees at
this time.
Limitation of Liability of Directors
The laws of the State of Nevada and the Company's By-laws provide for
indemnification of the Company's directors for liabilities and expenses
that they may incur in such capacities. In general, directors and
officers are indemnified with respect to actions taken in good faith in
a manner reasonably believed to be in, or not opposed to, the best
interests of the Company, and with respect to any criminal action or
proceeding, actions that the indemnitee had no reasonable cause to
believe were unlawful.
The Company has been advised that in the opinion of the Securities and
Exchange Commission, indemnification for liabilities arising under the
Securities Act is against public policy as expressed in the Securities
Act and is, therefore, unenforceable.
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
General
As of March 20, 2007, a total of 154,058,528 shares of our common stock
were outstanding. The following table set forth information as of that
date regarding the beneficial ownership of our common stocks by:
o Each of our directors
o Each of our named executive officers
o All of our directors and executive officers as a group; and
o Each person known by us to beneficially own 5% or more of the
outstanding shares of our common stock as of the date of the
table.
33
Amount and Nature Percent of
Name and Address of Beneficial Ownership Class of
of Beneficial Owner of Common Stock Common Stock
-------------------------- ----------------------- --------------
Colin St.Gerard Binny 629,200 14.76%
112, Middle Road #08-01 (Direct)
Midland House 22,111,888 (1)
Singapore 188970 (Indirect)
Bee Leng Ho 90,000 0.06%
112, Middle Road #08-01 (Direct)
Midland House
Singapore 188970
Sakae Torisawa 1,329,808 0.86%
112, Middle Road #08-01 (Direct)
Midland House
Singapore 188970
Lewis Marks 89,000 0.06%
112, Middle Road #08-01 (Direct)
Midland House
Singapore 188970
All Directors and Officers
As A Group (4 persons) 24,249,896 15.74%
1) Except as otherwise indicated, the Company believes that the beneficial
owners of Common Stock listed below, based on information furnished by
such owners, have sole investment and voting power with respect to such
shares, subject to community property laws where applicable. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. Shares of Common Stock subject to options or
warrants currently exercisable, or exercisable within 60 days, are deemed
outstanding for purposes of computing the percentage of the person holding
such options or warrants, but are not deemed outstanding for purposes of
computing the percentage of any other person.
2) Based on a total of 22,111,888 shares of common stock of Amaru, Inc held
by Mr. Binny and his wife, Chew Bee Lian, indirectly as 100% shareholders
of B Media Pte Ltd (formerly known as M2B Media Pte Ltd).
34
ITEM 12 CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS
On January 15, 2007, Amaru Holdings Limited ("Amaru Holdings"), a
British Virgin Islands corporation and a wholly-owned subsidiary of
Amaru, Inc., a Nevada corporation the "Company") entered into a sale and
purchase agreement together with other sellers (the "Agreement") with
Auston International Group, Ltd., a Singapore company ("Auston") to sell
to Auston its majority owned subsidiary, M2B World Asia Pacific Pte
Ltd., together with its subsidiary, M2B World Holdings Limited
(collectively, "M2B Asia"). Auston is a company trading on the Singapore
Stock Exchange. The Agreement provides for the sale of 42,459,978 shares
of M2B Word Asia Pacific Pte Ltd, its total issued and outstanding
capital. As the consideration for M2B World Asia Pacific Pte Ltd shares,
Auston agreed to issue a total of 660 million new ordinary shares of
Auston to M2B World Asia Pacific Pte Ltd shareholders. The Auston shares
are valued at S$0.25 per share.
The Agreement is subject to certain conditions precedent, including, but
not limited to the shareholder approval of the transaction by Auston
shareholders, the approval of the Singapore Stock Exchange and other
related regulatory approvals of both parties.
Amaru Holdings is required to deliver a valuation report by an
independent auditor to Auston confirming that the value of the assets of
M2B Asia is no less than that of the amount of consideration to be paid
by Auston. Following the completion of the transaction, the Company
would hold more than 50% of the shares of Auston. The Company believes
that prior to entering into the Agreement, there were no material
relationships between or among M2B Asia, the Company or any of its
affiliates, officers or directors, or associates of any such officers or
directors, on the one hand, and the shareholders or their respective
affiliates, on the other. The Company, through one of its subsidiaries
owns 11.1% of Auston, and Auston has no ownership in the Company. One of
the Company's directors is also a director of Auston, however, said
director did not vote on the approval of the transaction.
On September 1, 2006, M2B World Asia Pacific Pte. Ltd entered into a
licensing agreement with its investee, 121 View Corporation (Sea) Ltd
(121 View). The company licensed $3 million worth of film library to 121
View. On December 20, 2006, the company licensed additional $1.7 million
worth of film library to 121 View.
35
ITEM 13 EXHIBITS
Exhibit Number Description
-------------- -----------
2.1 Agreement and Plan of Reorganization with M2B World
Pte. Ltd..**
3.1 Articles of Incorporation*
3.2 Amendment to the Articles of Incorporation***
3.3 Bylaws*
4.1 Form of Subscription Agreement executed by investors
in the Private Placement*
10.1 Sale and Purchase Agreement dated January 15, 2007.**
14.1 Code of Ethics of the Company*
14.2 Code of Ethics of Senior Officers of the Company*
21 Company's Subsidiaries
31.1 Certification of Chief Executive Officer and Chief
Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act
31.2 Certification of Chief Executive Officer and Chief
Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act
32.1 Certification of Chief Executive Officer and Chief
Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act
32.2 Certification of Chief Executive Officer and Chief
Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act
* Previously filed with the Securities and Exchange Commission on
Form 10-SB.
** Previously filed with the Securities and Exchange Commission on
Form 8-K.
*** Previously filed with the Securities and Exchange Commission on
Schedule 14C.
36
ITEM 14 PRINCIPAL FEES AND SERVICES
The following table presents fees for professional audit services
rendered by our auditors for the year ended December 31, 2006 and
December 31, 2005.
2006 2005
------------ ------------
Audit fees (1) $ 187,557 $ 76,800
Tax fees (2) 103,239 5,000
------------ ------------
Total $ 290,796 $ 81,800
============ ============
(1) Audit Fees: These are fees paid and payable for professional
services performed for the financial years ended December 31,
2006 by Nexia Court & Co. and Nexia Tan & Sitoh and Mendoza,
Berger & Co LLP. In 2005, these fees were paid and payable for
professional services performed by PG Wee and Partners and
Mendoza, Berger & Co. LLP. These are fees paid or payable for
the audit of the annual financial statements and review of
financial statements included in our 10-QSB filings, and
services that are normally provided in connection with statutory
and regulatory filings.
(2) Tax Fees: These are fees paid or payable to Advisors
Incorporated and Mendoza, Berger & Co. LLP relating to tax
compliance, preparation and filing of returns for the Company.
37
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Amaru, Inc.
BY: /s/ Colin Binny
-------------------
Colin Binny, President and CEO
Date: June 14, 2007
Pursuant to the requirements of the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
/s/ Colin Binny President, CEO, Interim CFO and Director Date: April 12, 2007
--------------- (principal executive officer and principal financial officer)
Colin Binny
/s/ Sakae Torisawa Director Date: June 19, 2007
------------------
Sakae Torisawa
/s/ Lewis Marks Director Date: June 19, 2007
---------------
Lewis Marks
/s/ Zee Moey Ngiam Director Date: June 19, 2007
------------------
Ngiam Zee Moey
/s/ Francis Foong Director (Former Chief Date: June 19, 2007
--------------- Financial Officer)
Francis Foong
/s/ Bee Leng Ho Director (Former Chief Date: June 19, 2007
--------------- Financial Officer)
Bee Leng Ho
38