UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(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, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
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) (Zip Code)
(011) (65) 63329287
(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. [ ]
State issuer's revenues for its most recent fiscal year: $18,095,922.
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 15, 2006 at $4.90 per share was $138,723,008.
The number of shares outstanding of the registrant's only class of common stock,
$0.001 par value per share, was 34,119,590 as of March 15, 2006. 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 1
Item 1. Description of Business 3
Item 2. Description of Property 14
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
PART II
Item 5. Market for Common Equity, Related Stockholder Matters and
Small Business Issuer Purchases of Equity Securities 14
Item 6. Management's Discussion and Analysis or Plan of Operation 16
Item 7. Financial Statements 22
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 23
Item 8A. Controls and Procedures 23
Item 8B. Other Information 23
PART III
Item 9. Directors and Executive Officers of the Registrant 24
Item 10. Executive Compensation 25
Item 11. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters 26
Item 12. Certain Relationships and Related Transactions 26
Item 13. Exhibits 27
Item 14. Principal Accountant Fees and Services 27
2
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., 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 has established its competitive edge by offering
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.
Globally, Amaru, Inc. is expanding through several of its wholly-owned
subsidiaries, including:
1. M2B World, Inc - focuses on the US market and is based in Hollywood,
California.
2. M2B World Pte. Ltd. - directs the Asian markets through its Singapore
office and representative office in Shanghai, 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 Limited - offers e-travel services
7. Amaru Holdings Limited - focuses on content syndication and distribution
M2B offers consumers personalized entertainment through its wide range of
broadband streaming channels available at www.m2bworld.com.
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Business Strategy
-----------------
The Company's business strategy is to be a diversified media, e-commerce and
e-lifestyle company, adopting the latest broadband, e-commerce and
communications technology and leveraging on our international content and
programming expertise; to deliver online entertainment, education, lifestyle
products and services to our customers.
The Company's goal is to capitalize on the market opportunities presented by
changes in the broadband media and related e-commerce industry. The Company
believes that it can accomplish this by continuing to satisfy customers' need
for a convenient, comprehensive and personalized source of broadband video
content, services and information. The Company through its effective
implementation of its business plan has aims to become a leading Broadband Media
Entertainment business, and a major provider of interactive
Entertainment-on-demand, Education-on-demand and e-commerce streaming over
Broadband channels, Internet portals, and 3G devices globally.
The Company intends to continue leveraging on its competitive strengths to
attain a leadership position in the industry.
Competitive Strengths
1. KEY ALLIANCES.
The Company promotes its products and services as well as increases its brand
awareness by entering into strategic relationships with some of its suppliers
and online service providers. The Company had entered into agreements with Zac
Posen in New York, Amadeus GDS in Spain, Zentek Technology of Japan to cite
examples. The Company will continue to evaluate strategic opportunities such as
in the area of web-enabled mobile devices; to extend and widen its accessibility
to customers of its broadband websites and services.
2. RICH CONTENT LIBRARY
The Company owns a large library of contents that covers various genres; for
various license periods including some for life ; covering primarily broadband
rights and some for all rights on a worldwide basis. This enables the Company to
provide a rich and diverse variety of programs that suit the lifestyle and taste
of its customers spread across different countries. The Company has built strong
relationships with content distributors in the US and Asia which enables it to
continually source for contents that meet the changing demands and taste of the
customers.
3. TECHNICAL RESOURCES.
The Company is continually striving to deploy new technologies designed to make
online video viewing and e-commerce more convenient, efficient and
cost-effective for consumers and suppliers. The Company has its own content
delivery system and technical infrastructure that supports its broadband content
producers.
4. DIVERSIFIED SOURCES OF REVENUES.
The Company's diversified operations and revenue sources come from its
entertainment, multi player online gaming and broadband services and are
intended to generate multiple revenue streams. The Company's goal is not to be
dependent on any one single revenue source. The Company's growth plan for the
coming years includes a success strategy that focuses on multiple growth areas
and territories.
5. GLOBAL REACH.
The Company has tailored its broadband websites to accommodate differences in
culture, consumer behavior and supplier inventory preferences of different
geographical locations such as the US, Asia and Australia. The Company intends
to continue to operate more localized broadband websites in the near future to
provide customers with more choices and depth of services.
Growth Strategies
The Company's growth strategies consist of leveraging its strengths as a
broadband entertainment and media company to broaden its e-commerce offerings
and widen revenue and consumer base; to become a significant global player in
broadband entertainment, e-commerce and e-services. The Company intends to
capitalize on the growth trend in broadband access by providing better products,
services and features to enhance the customer experience.
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Two key new products are offered in 2006:
o GLOBAL BROADBAND TV (IPTV) SERVICE
The Company through its wholly owned subsidiaries, M2B World Inc incorporated in
the state of California and M2B World Pte Ltd incorporated in Singapore, will be
offering multiple TV channels, delivered live over the Internet, to homes that
have a high-speed internet connection.
The service will be in operation in the US and Singapore in June 2006 and it is
expected that 40 channels will be available to customers. Anyone subscribing to
a local Internet service provider will be able to tune in to the service on a
subscription basis. Subscribers will be provided with a set-top box that
connects to their broadband modems instead of the cable TV point at home. They
will be able to watch the programs on their TV sets. The Company plans to extend
this service to broadband users worldwide in the later part of 2006.
o GLOBAL TRAVEL PORTAL
Global Travel Portal is the establishment of an innovative travel e-commerce
portal, marketing travel products through a interactive on demand video travel
portal and providing distribution solutions for the travel industry. This travel
portal will be owned by M2B World Travel Limited, a company incorporated in the
British Virgin Islands on May 3, 2005 and wholly owned by the Company.
M2B World Travel differentiates itself from other travel portals by being a
portal that provides considerable streaming video content to improve user
choice. The Company utilizes the success and broad based viewership of the M2B
World Video On Demand Network to create innovative and high quality broadband
travel Internet services for users, and to provide efficient and effective
marketing services for businesses to reach these users. The focus is to increase
our user base and to achieve deeper engagement of our users on the M2B World
network, thereby enhancing the value of that user base and increasing the
spending by our advertisers.
Consumer Marketing
The Company's broadband entertainment websites, multi-player online gaming sites
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. As a part
of this effort, 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:
o 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.
o 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.
o 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.
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o DIRECT MARKETING. The Company maintains a proprietary database which
includes demographic profiles, customer preferences, shopping and buying
patterns 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 focused both on growing the business and also profitability. While
it carries out is growth strategies, it also focuses on cost control to increase
profitability. 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 will enable us to
provide our products to customers on a costs competitive basis.
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
3. E-Travel Services - Online Travel Portal
1. 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; and includes the
viewing experience to an on-line shopping 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. It allows the
following to be delivered:
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 handphones (Wireless Technology)
o E-Commerce or online shopping - linked interactively to the VOD
platforms on broadband. Consumers choose to buy products online with
digital cash 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 exclusive 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, video
streaming, video storage and web servers in Singapore and US.
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.
The Company's offers the following products on the VOD platform :
a) Entertainment - Consumers pay a monthly subscription for access to movies,
music, glamour and fashion, lifestyle (hobbies, cooking, 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.
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b) Adult Education - consumers pay a monthly subscription to 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 & 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 gaming micro-payments
Currently, the M2B Broadband websites include:
1. ENTERTAINMENT SITES
International and US 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 & subscription-based Glamour &
Fashion site for international viewers
o Highfashion7.com - an advertising and subscription based
designer Fashion site for international viewers
o Dragon78.tv - an advertising & 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
Asian Sites:
o Dimension88.com - an advertising & subscription-based Movie site
in Singapore only
o Dragon78.com - an advertising & subscription-based Mandarin
Entertainment site in Singapore only
o Joy Channel - a subscription based family entertainment site
dedicated for United Power viewers in Japan 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
US Sites:
o Wiz5.us - an advertising & subscription-based Business &
Corporate Training site for viewers in US only
Asian Sites:
o Wiz5.com - an advertising & subscription-based Business &
Corporate Training site for viewers in Singapore only
3. E-COMMERCE SITES
International Sites:
o Starzmall.com - A One-Stop Shopping Paradise
o Trotteuse.com - A Second-Hand Branded Goods Mall
o Royalhive.com - A One-Stop Health and Beauty Mall
Major events in fiscal year 2005 for Entertainment Services
In January, M2B World launched Chinois78.com for US broadband users which offers
the following channels:
o Cooking
o Travel
o Health
o Fashion
o Variety and Drama
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The Company also launched 25 VOD (video on demand) channels through its
partnership with SingTel in Singapore in 2004 and which was extended in May 2005
to cover 3G ( Third Generation) wireless mobile phones.
In June 2005, the Company completed a deal with Japan IP provider, United Power
Co. Ltd. to distribute major entertainment content through a broadband-serviced,
voice-activated set top box. The agreement reflects a breakthrough in Japan,
where U.S.-based media companies have had difficulty securing such broad-scale
distribution partnerships, and signifies the trend toward broadband streaming
for global consumers seeking entertainment media.
Under the terms of the agreement, United Power Co. Ltd. will offer its customers
access to the set-top box, which offers voice activation, broadband streaming
and the ability to use the box to monitor activities within the home when the
owner is away. The box also offers a personal valet, an animated icon that
recognizes the user and initiates access to features such as voice-activated
e-mail retrieval, VOIP services, access to streaming content on demand and
picture storage.
These features are offered in addition to traditional Internet access and are
activated by attaching the set-top box to existing televisions. The Company has
global rights to distribute the box, and plans to offer an English version in
the United States.
The Company announced an agreement with Chengdu Happy Digital Network &
Information Technology Co, or "Happydigi", the media company of China Telecom in
June 2005. The five-year agreement, which provides for M2B to develop a
Happydigi Movies Entertainment Platform Website, represents 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
will gain access to an expansive range of Hollywood entertainment content via
streaming broadband, which is expected to drive the subscriber demand. In its
initial phase, M2B World Pte Ltd plans to offer English content including
movies, glamour, lifestyle, sitcoms, music and variety shows to the 8 million
Happydigi subscribers, with a view to gaining access to China Telecom's
broadband subscriber base of 28.3 million customers.
M2B has emerged as an early leader in gaining entrance into the Chinese market
as an entertainment content provider, offering a sophisticated and expansive
online streaming library with programs ranging from entertainment and lifestyle
to educational and gaming content.
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 latest agreement
expands M2B's reach, as Happydigi's parent company, China Telecom, currently
operates in 21 Chinese provinces and owns over 70% of fixed infrastructure.
In August 2005, the Company opened its office in Hollywood, California. The
Hollywood office will 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.
In September 2005, the Company announced the launch of "www.highfashion7.com"
(HIGHFASHION7), a lifestyle channel that will cater to a high fashion savvy
viewer base worldwide. HIGHFASHION7 will offer licensed coverage of
international fashion runway shows from some of the most well-known clothing
designers in the world, as well as a sophisticated array of fashion features,
which will be available on demand 24 hours a day, seven days a week.
HIGHFASHION7 is dedicated to bringing its viewers the latest and most compelling
fashion content from designers around the globe. Categories on the channel are
to include 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.
To celebrate the launch of the channel, HIGHFASHION7 had acquired the exclusive
broadband streaming rights for the Zac Posen Spring/Summer 2006 Fashion Show.
Being one of the most sought out runway shows of the season, the Zac Posen Show
was featured as a HIGHFASHION7 exclusive Fashion Webcast. In addition,
HIGHFASHION7 was included as one of the top sponsors for the Zac Posen runway
show in September 2005.
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HIGHFASHION7 is an important part of M2B's vision to expand its entertainment
content and provide our viewers with highly specialized programming that meets
their personal tastes.
In November 2005, the Company partnered with INTENSE ANIMATION STUDIO, in
conjunction with the Media Development Authority of Singapore to produce an
original 3D soccer themed animation for on demand access.
In December 2005, the Company launched a new on-line e-commerce mall for health
and beauty products called "www.royalhive.com" (ROYALHIVE). ROYALHIVE will
market and sell high end health and wellness products; it will be co-branded
with HIGHFASHION7 to reach the fashion savvy audience of this site.
Multi Player Online Games Services
In October 2005, the Company launched its multi-player online gaming platform
hosted on www.MagicOverLoad.com. The platform offers users the ability to secure
subscriptions to highly popular titles such as World of Warcraft, Hellbreath and
Gunbound as well as movies and merchandise. Viewers are able to access the
content through an easy to use micro payment system called "MOLePoints", which
uses virtual tokens to allow gamers to purchase gaming access as well as other
offerings on the channel.
M2B Game World holds the rights to operate the "MOLePoints" platform in 6
countries including Singapore, Indonesia, Thailand, Australia, New Zealand and a
province of China through the branding of MagicOverLoad. With the launch of
MagicOverLoad, the Company is targeting a rapidly growing gaming and
entertainment market. Online gaming is natural extension of the Company's
broadband entertainment business. M2B Game World's business model plays a key
role in the online gaming value chain as a regional distributor of online games
through its micro-payment system and planned network of cyber cafes and outlets.
On December 20, 2005, the Company sold 81% of M2B Game World to Auston
International Group ("Auston"), a public listed company in Singapore. This is a
strategic move as it enables the Company to partner with Auston who has in depth
knowledge of the Asian market and consumers. This strategic partnership will
likely provide more effective marketing and much wider reach to the Asian multi
player online games players. As a public listed company, Auston would also be
able to more effectively tap into public funds for its future growth and
expansion.
Broadband Services
The Company launched a state-of-the-art 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 highly specialized
programming of video, animation, streaming and flash content to multiple
destinations and was demonstrated 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 wide ranging 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 effectively reach consumers and target audiences within
the premises. The Company plans to introduce this integrated CMS and content
solution to U.S. clients in 2006. 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
effectively 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.
2. Digit Games
-----------
In May 2005, the Company through its subsidiary, M2B Commerce Limited, signed an
agreement with Allsports Limited, a British Virgin Islands company to operate
and conduct digit games in Cambodia and to manage the digit games activities in
Cambodia. The license to manage, conduct and operate the digit games activities
in Cambodia is for a period of eighteen years.
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3. E-Travel Services
-----------------
In December 2005, 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 will be able 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 from broadband
streaming entertainment into the worldwide travel arena.
The World Travel & Tourism Council (WTTC) recently estimated that worldwide
spending for personal travel will hit $2.8 trillion in 2005. According to
PhoCusWright, the online portion of those sales is growing particularly quickly
in the US, 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 Ltd. through its agreement
with Amadeus, is now poised to immediately access and serve this consumer
market.
The M2B World Travel Website will consistently provide the 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 innovative video e-travel portal brings an extensive range of travel options
to our viewers and giving the Company a powerful entry into the travel and
tourism market; effectively allowing consumers worldwide to tap the broad and
competitive options available no matter what their travel needs. The e-travel
portal by M2B World Travel 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.
The M2B travel site is expected to launched in 3Q 2006.
MARKET
The business operations and financial results of the Company are directly
affected by the markets that the Company operates in.
1. 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 and rising disposable incomes, these markets offer significant growth
potential.
2. 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
most desirable applications that will meet the 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, fast and on the
fly. On the other hand the enterprise must reach out to this and the next
generation through the new medium, or be left behind.
To meet this demand, the Company has strategic relationships with major
production houses, and access to major distributors worldwide. This is expected
to put the Company in a position in acquiring high quality, original video
content. Such strategic positioning has resulted in the Company acquiring
exclusive 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 of utilizing
technology.
10
3. The Booming Online Advertising Market
According to the Euromonitor, the market for advertising is forecast to grow by
119.1% from 2004 to 2009, to reach a value of US$609.3 billion. This growth will
come primarily in television and on-line advertising, which together will
represent 69.4% of total sales by 2009.
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 expects that after reaching $121 million
in 2004, online video advertising will hit $657 million in 2009.
4. The Growth of online Travel
The travel business has already been impacted profoundly by the advent of 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 continued 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 represents a USD 85.2 billion, 403%
CAGR market opportunity for M2B World Travel.
5. The Growth of multi-player online gaming
The multi player online gaming market is set for explosive growth in the coming
few years. Multi player online gaming site subscriptions will top $3.7 billion
by 2009, up from $647 million in 2004 and an expected $936 million in 2005,
according to a report by PriceWaterhouseCoopers. The number of online video game
subscribers will top 28.5 million in 2009, up from a forecast of 6.5 million in
2005 and 4.4 million in 2004. 46% of broadband households will be home to an
online video game subscriber.
6. The Growth of the Video On Demand Market
According to a report by In-Stat, Growth in Free-on-Demand (FOD) services and
content over the past year has significantly increased overall consumer
awareness of and usage of Video-on-Demand (VOD).
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 are forecasted to rise to almost 13 million at the
end of 2005, and ultimately reach 34 million in 2009.
Based on an end-user survey, 25% of all US cable TV subscriber households have
tried VOD. The "Cost-per-VOD Stream," which measures the total cost of equipment
and network operations needed to deliver VOD service to a home, dropped from
$300 in mid-2004 to $250 in mid-2005. Although the majority of cable VOD service
deployments are in North America, during the past year, cable operators in Great
Britain, Japan, South Korea, and Israel have launched VOD services. Worldwide
revenues from cable VOD services totaled $526 million in 2004. While this total
was a 55% increase over 2003, cable VOD revenues continue to lag user growth as
FOD services increase in popularity.
BUSINESS RISKS
o 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
1) our efforts to establish independent broadband sites in
countries where conditions are suitable.
2) our ability to expand our offerings of content in entertainment
and education, to include more niche channels and offerings
3) Our ability to provide content beyond just personal computers
but to encompass television, wireless application devices and 3G
handphones
o 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
11
o 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.
o 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.
o 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
and 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.
o 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.
o 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.
o 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
o 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.
12
COMPETITION
The Company faces strong competition in every aspect of our business, and
particularly in the acquisition of content for our channels.
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, 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 players.
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
and home theatres.
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.
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.
13
EMPLOYEES
---------
As of December 31, 2005 we had 34 employees of which 18 are full time and 16 are
part time employees. Of the 34 employees, 33 are based in Singapore and 1 in the
United States.
Item 2. DESCRIPTION OF PROPERTY
The headquarters for operations and management is located in Singapore in an
office space of about 4,000 square feet. We entered into a three years operating
lease paying a monthly rent of $4,204. The lease will be due for renewal in 2008
and the rent will be based on the open market rates.
In addition to our Singapore office, there are two offices: one is located in
the US and the other one is in China. The office in the US consists of about 200
square feet and is situated on Sunset Boulevard, West Hollywood. The office in
China consists of about 120 square feet and is situated in Shui On Plaza, Huai
Hai Zhong Road in Central Shanghai. These two offices are on monthly lease and
the rental is $1,700 for the US office and $800 for the Shanghai 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.
Item 3. LEGAL PROCEEDINGS
As of the date of this report, we are not a party to any material pending legal
proceedings. On December 9, 2005, Los Angeles Superior Court, Central District
entered the dismissal of the lawsuit previously filed by one of the shareholders
of Amaru,
Inc. a Nevada corporation (the "Company") against the Company and its CEO. The
request to dismiss the lawsuit was filed by the Company's shareholder.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the year ended December 31, 2005 and quarter ended December 31, 2005, no
matters were submitted to a vote of our common stockholders.
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 Pink Sheets Electronic Quotation System under the
symbol "AMRU". As of March 15, 2006 there were 447 holders of our common stock.
The price of the Company's stock as of March 15, 2006 was $4.90.
The Company's high and low closing bid and close information for the fiscal year
ended December 31, 2005 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 *
------------- ------------- ------------- --------------- -----------------
MAR-05 1.2500 1.2500 1.2000 1.2000
------------- ------------- ------------- --------------- -----------------
APR-05 1.5000 1.5000 1.5000 1.5000
------------- ------------- ------------- --------------- -----------------
MAY-05 1.5000 1.7500 1.5000 1.5100
------------- ------------- ------------- --------------- -----------------
JUN-05 3.5000 3.5000 3.5000 3.5000
------------- ------------- ------------- --------------- -----------------
JUL-05 3.5000 3.5000 3.5000 3.5000
------------- ------------- ------------- --------------- -----------------
AUG-05 3.5000 3.5000 3.5000 3.5000
------------- ------------- ------------- --------------- -----------------
SEP-05 3.5000 4.5000 1.4500 4.0000
------------- ------------- ------------- --------------- -----------------
OCT-05 4.5000 4.5000 1.4500 4.0000
------------- ------------- ------------- --------------- -----------------
NOV-05 4.0000 4.2500 4.0000 4.2500
------------- ------------- ------------- --------------- -----------------
DEC-05 4.2500 5.0500 4.2500 5.0500
------------- ------------- ------------- --------------- -----------------
* Closing price is provided as of the last day of the month.
14
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. The
Company presently intends to retain all earnings, if any, for use in the
Company's business operations and accordingly, the Board does not anticipate
declaring any dividends in the foreseeable future.
RECENT SALE OF UNREGISTERED SECURITIES
--------------------------------------
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 100,000 "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 300,000 shares of common stock through
private placement at a price of $2.80 per share.
On November 20, 2004 Amaru Inc. issued 100,000 shares of common stock through
private placement at a price of $2.80 per share.
On December 10, 2004 Amaru Inc. issued 200,000 shares of common stock through
private placement at a price of $3 per share.
On December 11, 2004 Amaru Inc. issued 100,000 shares of common stock through
private placement at a price of $3 per share.
In the fiscal year ended December 31, 2005, the Company issued a total of
4,033,000 shares of common stock through private placement at a price of $3.00
per share for a total amount of $12,099,000.
A further 1,380,000 shares were subscribed before December 31, 2005 through
private placement at a price of $3.00 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 June 8, 2005, the Company issued 145,000 shares of common stock through a
private placement at a price of $3.00 a share for a total amount of $435,000 for
repayment of accounts payable.
On December 30, 2005, the Company approved the issue of 5,000 "restricted"
shares of common stock at a price of $3.00 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 at December 31, 2005.
15
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.
The following discussion should be read in conjunction with selected financial
data and the financial statements and notes to financial statements.
RESULTS OF OPERATIONS
---------------------
For the fiscal year ended December 31, 2005 compared with the fiscal year ended
December 31,2004
16
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 handphones.
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 2005, the Company embarked on its plans to restructure its operations
to meet fully its global expansion initiatives. 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. The Company will
continue its restructuring exercise in 2006 to enhance its competitiveness and
efficiency in a growing global business.
M2B WORLD INC.(USA)
-------------------
M2B WORLD, INC., a California corporation, was incorporated on January 24, 2005.
This subsidiary handles and oversees the Company's business in the USA. The
Company has leased a new office on Sunset Boulevard, West Hollywood that comes
into effect from April 1, 2005. M2B World Pte Ltd (Singapore) had completed the
transfer of its US broadband sites and some international sites to M2B World,
Inc by the end of the second quarter of 2005.
This subsidiary oversees the new global Broadband TV (IPTV) service. A new
server farm was set up in the US 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.
The company handled the launch of the "www.highfashion7.com", which is a
lifestyle and glamour channel catering to high fashion savvy viewers worldwide.
The launch was done in conjunction with the Company's sponsorship of the Zac
Posen Spring/Summer 2006 Fashion Show in New York in September 2005.
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. As of the date of this report, the
Company's investment in Indie Vision Films, Inc stands at 14.9%. The investment
will allow M2B World, Inc. to access the library of programs of Indie Vision
Films, Inc.
M2B WORLD PTE LTD (SINGAPORE)
-----------------------------
This subsidiary will continue to oversee the management and operation of the
Company as a whole and oversee the Asian business.
A CHINA REPRESENTATIVE OFFICE has been set up in Shanghai. This representative
office is under M2B World Pte Limited and handles the Company's China business.
The representative office has leased office space in the Shui On Plaza on Huai
Hai Zhong Road in Central Shanghai with effect from March 15, 2005.
In addition to having its own entertainment and education sites, the Company had
signed two contracts previously with service providers in Asia, namely Singapore
Telecommunications Ltd of Singapore and United Power of Japan. On March 18,2005,
the Company signed a contract with United Power of Japan to launch 8 broadband
channels on television sets in Japan via streaming through the set top boxes.
The Company on May 23, 2005 extended its contract of July 26, 2004 with
Singapore Telecommunications Ltd to provide four broadband entertainment sites
with 26 channels for an exclusive high megabit broadband service; the service
was extended to cover 3G wireless mobile phones. The new 3G wireless mobile
phone entertainment service provided by the Company was launched in Singapore on
September 1, 2005.
17
The Company extended its reach to China when it entered into an agreement on May
10, 2005 with Chengdu Happy Digital Network Information Technology of China for
the development of an entertainment platform on broadband. The new site in China
is targeted for launch in December 2005.
A new online e-commerce mall for health and beauty products was designed and
built; the new mall called "www.Royalhive.com" was launched and promoted in
December 2005.
The Company took an investment on May 16, 2005 for a 8.4% 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 15.6% on January 25, 2006.
M2B GAME WORLD PTE LTD (SINGAPORE)
----------------------------------
M2B GAME WORLD PTE LTD (SINGAPORE) was incorporated in Singapore on January 24,
2005. This company functions as a wholly-owned subsidiary company of M2B World
Pte Ltd and handles the Company's venture into multi player online games.
The Company has already secured an online games franchise for six countries
(Australia, New Zealand, Thailand, Indonesia, China and Singapore). The online
games platform and micro-payment gateway was operational in Singapore in October
2005. The promotional launch of its new multi player online games site was
carried out over a three months period from October 2005 to December 2005.
On December 20, 2005, the Company sold 81% of M2B Game World to Auston
International Group ("Auston"), a public listed company in Singapore. This is a
strategic move as it enables the Company to partner Auston who has in depth
knowledge of the Asian market and consumers. This will enable us to more
effectively market and reach to the Asian multi player online games players. As
a public listed company, Auston would also be able to more effectively tap into
public funds for its future growth and expansion.
AMARU HOLDINGS LIMITED (BVI)
----------------------------
AMARU HOLDINGS LIMITED (BVI) was incorporated in the British Virgin Islands on
February 21, 2005. All rights and licenses for the entertainment and education
content (like movies, dramas, lifestyles, corporate training, and others) will
be held under this company.
M2B COMMERCE LIMITED (BVI)
--------------------------
M2B World has a wholly-owned subsidiary, M2B Commerce Limited, registered in the
British Virgin Islands. M2B World intends to consolidate all its e-commerce
operations and possibly launch new e-trading type initiatives under M2B Commerce
Limited. With effect from January 11, 2005, the ownership of this company has
been transferred from M2B World Pte Ltd to Amaru Inc. and is wholly owned
subsidiary of Amaru, Inc.
On May 31, 2005, M2B Commerce Limited entered into an agreement with Allsports
Limited, a British Virgin Islands company to operate and conduct digit games in
Cambodia, as an extension of the Company's entertainment operations. The service
was operational from June 2005.
M2B WORLD TRAVEL LIMITED (BVI)
------------------------------
M2B WORLD TRAVEL LIMITED (BVI) was incorporated in the British Virgin Islands on
May 3, 2005. This subsidiary of the Company will be used to launch a global
online travel platform, which is expected to be ready for operation by the 3Q
of 2006.
The Company is currently developing in the USA 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.
M2B AUSTRALIA PTY LTD
---------------------
M2B AUSTALIA PTY LTD was incorporated on June 15, 2005. This subsidiary will
handle and oversee the Company's business in Australia.
18
REVENUE
-------
The revenue for the year ended December 31, 2005 was $18,095,922, up $14,110,941
(354%) from $3,984,981 in the year ended December 31, 2004.
The main bulk of the revenue for the year ended December 31, 2005 was from
entertainment services and digit gaming. Entertainment services revenue for the
year ended December 31,2005 was $3,278,833 and Digit gaming revenue was
$14,813,629.
Entertainment services revenue registered a decrease of $634,620 (16.2%) from
$3,913,453 for the year ended December 31, 2004 to $3,278,833 for the year ended
December 31, 2005.
The decrease was due mainly to lower advertising and licensing revenue as a
result of the reorganization and redesigning of the broadband sites as part of
the restructuring of the Company. This entailed re-organising of the broadband
sites under different territories so as to diversify customer base and
advertising revenues.
The digit gaming revenue was from the operation and management of digit games
(lottery) in Cambodia, and this is a new source of revenue for the Company that
was not available in 2004.
COST OF SALES
-------------
Cost of sales for the year ended December 31, 2005 was $16,352,048 which
increased by $13,298,333 (435%) from $3,053,715 for the year ended December 31,
2004.
As a proportion of revenue, the cost of sales for the year ended December 31,
2005 was 90% (cost of sales at $16,352,048 and revenue at $18,095,922) as
compared to 77% for the year ended December 31, 2004 (cost of sales at
$3,053,715 and revenue at $3,984,981).
The significant increase in cost of sales of $13,298,333 (435%) for the year
ended December 31, 2005 was mainly attributed to the cost of managing and
operating the operations and game centers in Cambodia for the digit games
(lottery) and the payment of royalties for the lottery license. This accounted
for $14,271,767 of the total cost of $16,352,048 (87%).
This was partly offset by the lower cost of acquisition of contents license
rights for the Company's broadband sites. The costs decreased by $971,449 from
$3,000,134 for the year ended December 31, 2004 to $2,028,685 for the year ended
December 31, 2005.
The cost of managing and operating the operations and game centers in Cambodia,
and acquisition of contents license rights for the year ended December 31, 2005
accounted for the 90% proportion of cost of sales to revenue.
The proportion of 90% for the year ended December 31, 2005 compared to the 77%
for the year ended December 3, 2004, was higher as the Company did not incur the
cost of managing and operating the operations and game centers in Cambodia in
the year ended December 31, 2004 as this activity only commenced in June 2005.
DISTRIBUTION EXPENSES
---------------------
Distribution expenses for the year ended December 31, 2005 at $1,102,339 was
higher by $818,807 (289%) as compared to the amount of $283,532 incurred for the
year ended December 31, 2004.
19
The higher expenses in the year ended December 31, 2005 was attributed to higher
spending on the branding of the M2B name, advertising on broadband sites and
travel. The higher amounts spent on travel was to open new markets, explore
overseas business opportunities and service new contracts. The higher amount
spent on M2B name branding and advertisements for the year ended December 31,
2005 as compared to the year ended December 31, 2004 was $670,531. On the same
year on year comparison, the higher amounts spent on travel was $119,852.
GENERAL AND ADMINISTRATIVE EXPENSES
-----------------------------------
Administration expenses for the year ended December 31, 2005 at $1,998,803 was
higher by $1,418,780 (245%) as compared to the amount of $580,023 incurred for
the year ended December 31, 2004.
The increase in administration expenses for the year ended December 31, 2005
were attributed mainly to increases in:
o staff costs from the increasing number of professional employees
to cater to the expanding and growing business. The increase in
staff went from 13 for the year ended December 31, 2004 to 34
for the year ended December 31, 2005. The increase in headcount
resulted in staff costs for the year ended December 31, 2005
increasing by $680,778.
o depreciation and license amortization. The increase in
depreciation was attributed to the leasehold improvements for
the expansion of the office, new editing suites and laptops
provided to staff to cater to the demands of the growing
business. The increase in license amortization came from the
on-line games license and gaming license in Cambodia. The
increase for the year ended December 31, 2005 as compared to the
year ended December 31, 2004 was $279,938.
o Legal and professional fees. The increase was due to the higher
costs of the quarterly review and accrual of audit fees as a
result of the expansion of the business and also legal fees
incurred in review of contracts and filing. The increase for the
year ended December 31, 2005 as compared to the year ended
December 31, 2004 was $179,554.
OPERATING INCOME /(LOSS)
------------------------
For the year ended December 31, 2005, the loss from operations was ($1,357,268)
as compared to a income of $67,711 for the year ended December 31, 2004.
The loss from operations for the year ended December 31, 2005 was attributed to
higher amounts spent on extending the M2B brand, funding greater levels of
product development including global Broadband TV (IPTV) service and global
travel portal, opening new markets, building of a new server farm in San Jose,
California and to recruit, train and retain our talent pool.
Though these investments affect the Company's profitability currently, it would
in the future strengthen our position and market share in the broadband media
entertainment business.
SALE OF M2B GAME WORLD
----------------------
On December 20, 2005, the Company sold 81% of M2B Game World to Auston
International Group (Auston), a public listed company in Singapore 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 decreased from $512,295 for the year ended December 31, 2004 to
$166,745 for the year ended December 31, 2005. The decrease of $345,550 ( 67%)
was due mainly to the operating loss.
20
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company had cash at $4,776,819 at December 31 2005 as compared to cash of
$644,319 at December 31, 2004.
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 fiscal year ended December 31, 2005, 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 2006 to expand its broadband
coverage by launching new broadband sites in North America, Europe and
Australia.
In North America, the Company intends to launch new broadband entertainment and
business training content sites in 2006. A new server farm will be built in the
US to handle the North American business and the global IPTV service. In early
2006, the Company plans to establish an innovative travel e-commerce portal,
marketing travel products through a revolutionary world first video travel
portal and providing distribution and technology solutions for the travel
industry. By the second quarter of 2006, 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 US and Singapore in
June 2006 with about 40 channels available to customers. The Company intends to
provide a similar service to broadband users worldwide in later part of 2006.
To achieve its plans, the Company is seeking to fund its new growth activities
through equity financing. The Company plans to use the proceeds of such
financing for expansion of its operations.
For the year ended December 31, 2005, the Company raised a total of $15,453,850
net of consultancy fees of $785,150 and an additional amount of $3,711,710 net
of consultancy fees of $196,840 from January 23, 2006 to March 15, 2006.
The Company believes that it can continue to raise funds through private
placement of its securities to fund its growth and expansion.
NEW CONTRACTS
-------------
o Contract with United Power of Japan signed on March 18, 2005.
M2B plans to launch 8 broadband channels in Japan that will be
available on television sets in Japanese households. The
contract has an option for United Power to exercise within 6
months that will give M2B a minimum guarantee of 50,000
subscribers for $1.2 million a year. Thereafter for every
subscriber, M2B will be paid $2.50 per subscriber per month.
o Contract with Sapphire Management, a company of Echelon
Entertainment, a California company, signed on March 6, 2005 for
distribution of DVDs worldwide. This is on a revenue sharing
basis.
o Letter of agreement signed with Singapore Telecommunications Ltd
on May 23, 2005 to extend the original contract dated July 26,
2004 pursuant to which M2B agreed to provide certain content
services via Internet platforms, including the provision of four
broadband entertainment sites with 26 channels for an exclusive
high megabit broadband service with Singapore Telecommunications
Ltd. This service has now been extended to cover 3G (Third
Generation) wireless mobile phones.
o Cooperation Agreement signed on May 10, 2005 on the Development
of Movies Entertainment Platform with Chengdu Happy Digital
Network & Information Technology Co Ltd, a subsidiary of China
Telecom, of the People's Republic of China for the cooperation
between parties on the development of the Happydigi Movies
Entertainment Platform Website.
21
o Contract with Allsports Limited, a British Virgin Islands
company signed on May 31, 2005 to operate and conduct digit
games in Cambodia and to manage the digit games activities in
Cambodia. In exchange for the license to M2B to enable M2B to
manage, operate and conduct digit games activities in Cambodia
for a minimum period of eighteen (18) years, M2B agreed to pay a
total of $4.69 million. Under the terms of the agreement,
Allsports Limited is entitled to 1.5% royalty fees.
o Global Agreement with Amadeus Global Travel Distribution, S.A.,
a Spanish company. 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.
Item 7. FINANCIAL STATEMENTS
Our consolidated financial statements are included herein.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
1. Report of Independent Registered Public Accounting Firm F-1
2. Consolidated Financial Statements
Consolidated Balance sheet as of December 31, 2004 and 2003 F-2
Consolidated Statement of Operations for the years ended
December 31, 2005 and 2004 F-3
Consolidated Statement of Stockholders' Equity and
Comprehensive Loss for the year ended December 31, 2004
and 2003 F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 2005 and 2004 F-5
Notes to Consolidated Financial Statements F-6
22
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 2004, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years 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 2004, and the consolidated
results of its operations and cash flows for the years 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-1
AMARU, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, DECEMBER 31,
2005 2004
----------- -----------
ASSETS
Current assets
Cash and cash equivalents $ 4,776,819 $ 644,319
Accounts receivable 842,371 239
Other receivable -- 680,737
Other current assets 247,566 5,576
----------- -----------
Total current assets 5,866,756 1,330,871
Non current assets
Property and equipment, net 5,264,130 520,360
Product development, net 60,616 181,948
Investment at cost 441,206 --
Investments available for sale 2,147,580 --
License, net 6,964,671 2,420,227
----------- -----------
Total non current assets 14,878,203 3,122,535
----------- -----------
Total assets $20,744,959 $ 4,453,406
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 656,484 $ 126,345
Accounts payable- related parties -- 473,792
Deferred tax liability 157,756 36,760
Advances from related parties 58,392 179,736
----------- -----------
Total current liabilities 872,632 816,633
Commitments -- --
Shareholders' equity
Series A convertible preferred stock (par value $0.001)
5,000,000 shares authorized: 0 shares issued and
outstanding at December 31, 2005 and 2004, respectively -- --
Common stock (par value $0.001) 200,000,000 shares authorized;
31,397,780 and 27,200,000 shares issued and outstanding at
December 31, 2005 and 2004 respectively 31,398 27,200
Paid in capital 14,736,743 2,932,751
Subscribed common stock, 1,418,960 and 0 shares at
December 31, 2005 and 2004 respectively 4,256,880 --
Retained earnings 834,379 667,634
Comprehensive gain on currency translation 12,927 9,188
----------- -----------
Total shareholders' equity 19,872,327 3,636,773
----------- -----------
Total liabilities and shareholders' equity $20,744,959 $ 4,453,406
=========== ===========
The accompanying notes to financial statements
are an integral part of this statement
F-2
AMARU, INC. & SUBSIDIARIES
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED
December 31, December 31,
2005 2004
------------ ------------
Revenue:
Entertainment
(including advertising, licensing and subscription)
(including $0 and $2,700,000 to a related party for
the year ended December 31, 2005 and 2004 respectively) 3,278,833 3,913,453
Digit gaming 14,813,629 --
Other income 3,460 71,528
------------ ------------
Total revenue 18,095,922 3,984,981
Cost of services
(including $0 and $2,966,350 of services purchased from
related party for the year ended December 31, 2005
and 2004 respectively) 16,352,048 3,053,715
------------ ------------
Gross profit 1,743,874 931,266
Distribution costs 1,102,339 283,532
Administrative expenses 1,998,803 580,023
------------ ------------
Total expenses 3,101,142 863,555
Income (Loss) from operations (1,357,268) 67,711
Other (income) expense:
Expenses related to public listing -- 152,582
Gain on disposal of fixed assets (151) --
Gain on sale of investment -- (597,292)
Interest expenses -- 1,964
Interest received (2,223) --
------------ ------------
Income (loss) before income taxes (1,354,894) 510,457
Provision (benefit)for Income taxes 121,377 (1,838)
------------ ------------
Income (loss) before discontinued operations (1,476,271) 512,295
Discontinued operations:
Income from operations of discontinued component,
including income from disposal of $2,147,580 1,643,016 --
Income tax -- --
------------ ------------
Net gain on discontinued operation 1,643,016 --
------------ ------------
Net income $ 166,745 $ 512,295
============ ============
Income (loss) per share before discontinued operations
- basic and diluted $ (0.05) $ 0.02
Income per share from discontinued operations
- basic and diluted 0.01 --
Net income per share-basic and diluted 0.01 0.02
Weighted average number of common shares outstanding
- basic and diluted 29,418,828 21,297,410
The accompanying notes to financial statements
are an integral part of this statement
F-3
AMARU, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Series A Convertible
Preferred Stock Common Stock
---------------------------- ------------------------------------------
Additional
Number Par Value Number of Par value Paid-in
of Shares ($0.001) shares ($0.001) capital
------------ ------------ ------------ ------------ ------------
Balance December 31, 2003 -- $ -- 18,136,364 $ 18,136 $ 867,292
Shares issued for cash
Feb. 10, 2004 -- -- 1,363,636 1,364 414,636
Reverse acquisition 143,000 143 500,000 500 (27,347)
Stock issued for services -- -- 1,000,000 1,000 49,000
Common stock issued for cash -- -- 700,000 700 1,629,170
Stock converted (143,000) (143) 5,500,000 5,500 --
Net income -- -- -- -- --
Comprehensive loss on
currency translation -- -- -- -- --
Comprehensive income
------------ ------------ ------------ ------------ ------------
Balance December 31, 2004 -- -- 27,200,000 $ 27,200 $ 2,932,751
Common stock issued for cash -- -- 4,033,000 4,033 11,309,817
Common stock issued for
repayment of account payable -- -- 145,000 145 434,855
Stock issued for services -- -- 19,780 20 59,320
Common stock subscribed for
cash (1,380,000 shares) -- -- -- -- --
Common stock subscribed for
services (38,960 shares) -- -- -- -- --
Net income -- -- -- -- --
Comprehensive gain on
currency translation -- -- -- -- --
Comprehensive income
------------ ------------ ------------ ------------ ------------
Balance December 31, 2005 -- $ -- 31,397,780 $ 31,398 $ 14,736,743
============ ============ ============ ============ ============
The accompanying notes to financial statements are an integral part of this statement
F-4a
continued on next page
continued from last page
AMARU, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Total
Subscribed Retained Translation Shareholders'
stock Earnings gain equity
------------ ------------ ------------ ------------
Balance December 31, 2003 $ 128,255 $ 160,696 $ 32,917 $ 1,207,296
Shares issued for cash
Feb. 10, 2004 (128,255) -- -- 287,745
Reverse acquisition -- -- -- (26,704)
Stock issued for services -- -- -- 50,000
Common stock issued for cash -- -- -- 1,629,870
Stock converted -- (5,357) -- --
Net income -- 512,295 -- 512,295
Comprehensive loss on
currency translation -- -- (23,729) (23,729)
------------
Comprehensive income 488,566
------------ ------------ ------------ ------------
Balance December 31, 2004 -- $ 667,634 $ 9,188 $ 3,636,773
Common stock issued for cash -- -- -- 11,313,850
Common stock issued for
repayment of account payable -- -- -- 435,000
Stock issued for services -- -- -- 59,340
Common stock subscribed for
cash (1,380,000 shares) 4,140,000 -- -- 4,140,000
Common stock subscribed for
services (38,960 shares) 116,880 -- -- 116,880
Net income -- 166,745 -- 166,745
Comprehensive gain on
currency translation -- -- 3,739 3,739
------------
Comprehensive income 170,484
------------ ------------ ------------ ------------
Balance December 31, 2005 $ 4,256,880 $ 834,379 $ 12,927 $ 19,872,327
============ ============ ============ ============
The accompanying notes to financial statements are an integral part of this statement
F-4b
AMARU, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED
December 31, December 31,
2005 2004
------------ ------------
CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 166,745 512,295
Adjustments to reconcile net income to cash and
cash equivalents used or provided by operations:
Amortization 284,348 121,142
Depreciation 138,894 14,339
(Gain) / loss on disposal of fixed assets (151) 7,823
Gain on sale of discontinued operations (1,643,016) (597,292)
Acquisition of license in exchange for account
receivable -- (1,016,734)
Common stock issued and subscribed for services 176,220 50,000
Changes in operation assets and liabilities
Accounts receivable (842,132) 13,858
Other receivables 680,737 (660,183)
Other current assets (241,990) 28,182
Accounts payable and accrued expenses 612,343 111,955
Income tax payable -- (234)
------------ ------------
Net cash used by operating activities (668,002) (1,414,849)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment 151 --
Proceeds from sale of investment -- 600,000
Software development reduction (17,460) (5,688)
Acquisition of equipment (4,882,664) (523,656)
Acquisition of license (4,690,000) --
Acquisition of investments (945,770) --
------------ ------------
Net cash provided by/ (used in) investing activities (10,535,743) 70,656
CASH PROVIDED FROM FINANCING ACTIVITIES
Payable to related party (121,344) 124,218
Payments on line of credit -- (58,188)
Net payment on bank term loan -- (5,007)
Re-capitalization of M2B World Pte. Ltd -- (26,704)
Issuance of common stock for cash 11,313,850 1,917,615
Proceeds from stock subscriptions 4,140,000 --
------------ ------------
Net cash provided by financing activities 15,332,506 1,951,934
Effect of exchange rate changes on cash and cash equivalents 3,739 (23,729)
------------ ------------
Cash flow from all activities 4,132,500 584,012
Cash and cash equivalents at beginning of period 644,319 60,307
------------ ------------
Cash and cash equivalents at end of period $ 4,776,819 644,319
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ -- $ 1,964
Income taxes $ -- $ 103,974
SUPPLEMENTAL DISCLOSURE OF CASH FLOW ACTIVITIES:
Common stock in exchange for repayment of accounts payable $ 435,000 $ --
============ ============
Write off of fully depreciated fixed assets $ 7,962 $ --
============ ============
Acquisition of Investments $ 2,147,580 $ --
============ ============
The accompanying notes to the financial statements are an integral part of
this statement
F-5
AMARU, INC. & SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
1. BASIS OF PRESENTATION AND REORGANIZATION
-------------------------------------------
DESCRIPTION OF BUSINESS
-----------------------
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.
REORGANIZATION
--------------
As of February 25, 2004, an agreement was entered into which provides for the
reorganization of M2B World Pte. Ltd., a Singapore corporation with and into
Amaru, Inc. (Amaru), a Nevada corporation, with M2B World Pte. Ltd. (M2B),
becoming a wholly-owned subsidiary of Amaru. The agreement is for the exchange
of 100% of the outstanding Common Stock of M2B World Pte. Ltd. for 19,500,000
common shares and 143,000 Series A convertible preferred shares of Amaru, which
were each convertible into 38.461538 shares of Amaru common stock.
The exchange was accounted for as a reverse acquisition. Accordingly for
financial statement purposes, M2B World Pte. Ltd. was considered the accounting
acquiror and the related business combination was considered a recapitalization
of M2B World Pte. Ltd. rather than an acquisition by the Company. The historical
financial statements prior to the agreement will be those of M2B World Pte. Ltd.
and the name of the consolidated Company going forward will be Amaru, Inc. and
Subsidiaries.
On this basis, the historical financial statements prior to February 28, 2004
have been restated to be those of the accounting acquirer M2B World Pte. Ltd.
The historical stockholders' equity prior to the reverse acquisition has been
retroactively restated (a recapitalization) for the equivalent number of shares
received in the acquisition after giving effect to any difference in par value
of the issuer's and acquirer's stock.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------
PRINCIPLES OF CONSOLIDATION
---------------------------
The consolidated financial statements include the accounts of Amaru Inc and its
wholly owned subsidiaries. All significant transactions among the consolidated
entities have been eliminated upon consolidation.
F-6
USE OF ESTIMATES
----------------
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities and the reported amounts of revenues and
expenses during the reporting period. 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.
CONCENTRATION OF CREDIT RISK
----------------------------
The credit risk is primarily attributable to the Company's trade receivables.
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 six customers totaling
100% of these related revenues for the year ended December 31, 2005 and three
customer totaling 100% of these related revenues for the year ended December 31,
2004.
The Company's operations are conducted over the world wide web and some
purchases are made from locations outside of Singapore. The Company had been
transacting primarily through its Singapore operating entity.
For the years
ended December 31
-----------------------------
2005 2004
------------ ------------
Sales outside of Singapore $ 15,756,879 $ --
Services purchased outside
of Singapore (1) $ 16,792,472 $ 3,166,350
(1) Includes nil and $2,966,350 purchased from a related party in Malaysia for
the year ended December 31, 2005 and 2004, respectively.
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 cash flow statement, cash and cash equivalents
consist of cash on hand and deposits in banks, net of outstanding bank
overdrafts.
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 are recognized as earned.
COSTS OF SERVICES
-----------------
The cost of services pertaining to 1) advertising and sponsorship revenue and
2)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 are 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 incurred.
F-7
LICENSING RIGHTS
----------------
Licensing rights refers to the rights to use the content. These rights are
purchased for a specific period as determined in the contract. The costs of
these rights are recognized in the accounts over the life of the contract on a
straight line basis. These contents are then streamed into the broadband sites
and the revenue earned from advertising, sponsorship and subscription are then
recognized according to our policy on revenue.
TRADE AND OTHER RECEIVABLES
---------------------------
Trade receivables, which generally have 30 to 90 day terms, are recognized and
carried at the original invoice amount less an allowance for any uncollectible
amounts (if any). An estimate for doubtful debts is made when collection of the
full amount is no longer probable. Bad debts are written off as incurred.
The Company has reviewed trade and other receivables and determined that no
allowance for doubtful accounts is required.
PROPERTY AND EQUIPMENT
----------------------
Property and equipment is stated at cost. Expenditures for major improvements
are capitalized, while replacements, maintenance and repairs, which do not
significantly improve or extend the useful life of the asset, are expensed when
incurred.
Depreciation of property and equipment is computed using the straight-line
method over the estimated useful lives of the assets, which is three to five
years.
PRODUCT DEVELOPMENT
-------------------
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. The Company projects that these development costs will be
useful for up to five years before additional significant development needs to
be done.
IMPAIRMENT OF LONG-LIVED ASSETS
-------------------------------
The Company reviews the carrying values of its long-lived and intangible assets
for possible impairment whenever events or changes in circumstances indicate
that the carrying amount of the assets may not be recoverable. No impairment
losses were recorded for the years ended December 31, 2005 and 2004.
ADVANCES FROM RELATED PARTY
----------------------------
Advances from related party are unsecured, non-interest bearing and payable on
demand.
FOREIGN CURRENCY TRANSLATION
----------------------------
Transactions in foreign currencies are measured and recorded in the functional
currency U.S. dollars, using the Company's prevailing month exchange rate. The
Company's reporting currency is also in U.S. dollars. At balance sheet date,
recorded monetary balances that are denominated in a foreign currency are
adjusted to reflect the rate at the balance sheet date and the income statement
accounts using the average exchange rates throughout the period. Translation
gains and losses are recorded in stockholders' equity as other Comprehensive
income and realized gains and losses from foreign currency transactions are
reflected in operations.
F-8
INVESTMENTS
-----------
Investments in companies 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.
Investments in which the Company does not have a controlling interest or is
unable to exert significant influence are accounted for at market value if the
investments are publicly traded and any resale restrictions are less than one
year are accounted for as available for sale securities.
ADVERTISING
-----------
The cost of advertising is expensed as incurred. For the year ended December 31,
2005 and 2004, the Company incurred advertising expenses of $881,572 and
$209,944 respectively.
INCOME TAXES
------------
Deferred income taxes are reported using the liability method. Deferred tax
assets are recognized for deductible temporary differences and deferred tax
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effects of changes in tax laws
and rates on the date of enactment.
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.
FINANCIAL INSTRUMENTS
---------------------
The carrying amounts for the Company's cash, other current assets, accounts
payable, accrued expenses, notes payable, and other liabilities approximate
their fair value.
RECLASSIFICATIONS
-----------------
Certain amounts in the prior year presented have been reclassified to conform to
the current years financial statement presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
The Company has adopted accounting pronouncements issued before December 31,
2005, that are applicable to the Company. The Company has determined as of
December 31, 2005 there are no recent pronouncements that if adopted would have
a material effect on the financial statements.
F-9
3. PROPERTY AND EQUIPMENT
-------------------------
Property and equipment consist of the following:
December 31, December 31,
2005 2004
----------- -----------
Office equipment $ 431,791 $ 65,078
Film Library 4,905,066 500,000
Motor vehicle 11,000 --
Furniture, fixture and fittings 96,501 4,578
----------- -----------
5,444,358 569,656
Accumulated depreciation (180,228) (49,296)
----------- -----------
$ 5,264,130 $ 520,360
=========== ===========
Depreciation expense was $138,894 the year ended December 31, 2005 and
$14,339 for the year ended December 31, 2004.
4. PRODUCT DEVELOPMENT
----------------------
Product development consists of the following:
December 31, December 31,
2005 2004
----------- -----------
Development expenditures $ 618,561 $ 601,101
Accumulated amortization (557,945) (419,153)
----------- -----------
$ 60,616 $ 181,948
=========== ===========
Amortization expense was $138,792 for the year ended December 31, 2005
and $121,142 for the year ended December 31, 2004.
5. LICENSE
----------
License consists of the following:
December 31, December 31,
2005 2004
----------- -----------
Software license $ 2,420,227 $ 2,420,227
Gaming license 4,690,000 --
----------- -----------
7,110,227 2,420,227
Accumulated amortization (145,556) --
----------- -----------
$ 6,964,671 $ 2,420,227
=========== ===========
Amortization expense was $145,556 for the year ended December 31, 2005
and $0 for the year ended December 31, 2004.
6. LINE OF CREDIT
-----------------
The Company does not have a line of credit at December 31, 2005. The line of
credit was cancelled by management on October 5, 2005. The Company and its
subsidiaries do not need the line of credit to fund its short term working
capital requirements since the funds generated from its operations are
sufficient for this purpose
The line of credit at December 31, 2004 was $61,267 repayable on demand. The
outstanding balance at December 31, 2005 was zero.
F-10
7. OTHER RECEIVABLE
-------------------
Other receivable at December 31, 2004 consist mainly of balance proceeds from
sale of investment that represented 95% of the sales consideration which 5% of
the sales consideration is repayable on the date of expiring 30 working days
from December 29, 2004 and balance 90% of the sale consideration to be repayable
on the date expiring 90 working days from December 29, 2004.
8. COMMITMENTS
--------------
LEASES
------
The Company renewed its lease with a larger office space of about 4,000 square
feet, at a monthly rental of $4,204. The new lease period is for three years,
expiring on March 16, 2008.
Rent expense totaled $79,814 for the year ended December 31, 2005 and $18,946
for the year ended December 31, 2004.
Minimum lease payments for the noncancellable operating lease for the years
ending December 31,
2006 2007 2008 Total
-------------- --------------- --------------- ---------------
$ 50,450 $ 50,450 $ 10,510 $ 111,410
============== =============== =============== ===============
9. GAMING SERVICES
------------------
The Company's wholly owned subsidiary, M2B Commerce Limited purchased 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.
10. CAPITAL STOCK
----------------
COMMON STOCK ISSUED FOR CASH
----------------------------
For the year ended December 31, 2005, Amaru, Inc issued 4,033,000 shares of
common stock through private placement at a price of $3 per share for a total
amount of $12,099,000.
A further 1,380,000 shares were subscribed for before December 31, 2005 through
private placement at a price of $3 a share for a total of $4,140,000. The shares
were issued in January 2006.
This brings the total amount of cash raised through the private placement of
shares of common stock at a price of $3 a share for the year ended December 31,
2005 to $16,239,000.
Consulting fees of $785,150 associated with the issuance of common stock were
deducted from additional paid-in capital for the year ended December 31, 2005.
COMMON STOCK ISSUED FOR REPAYMENT OF ACCOUNTS PAYABLE
-----------------------------------------------------
On June 8, 2005, the Company issued 145,000 shares of common stock through a
private placement at a price of $3 a share for a total amount of $435,000 for
repayment of accounts payable.
F-11
COMMON STOCK ISSUED TO EMPLOYEES
--------------------------------
On December 1, 2005, the Company issued 19,780 shares of common stock at a price
of $3 a share to its employees. On December 30, 2005 a further 33,960 shares of
common stock were approved for issue at a price of $3 a share to employees.
These shares were issued in January 2006. These shares were issued 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.
COMMON STOCK ISSUED FOR CONSULTING SERVICES
-------------------------------------------
On December 30, 2005, the Company approved the issue of 5,000 shares of common
stock at a price of $3 a 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 at December
31, 2005.
11. SALE OF M2B GAME WORLD
-------------------------
On December 20, 2005, the Company sold 81% of M2B Game World to Auston
International Group (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. The Company's beneficial ownership of Auston is 27% of
Auston's outstanding shares.
12. INCOME TAXES
----------------
Current and deferred income taxes (tax benefits) provided are as
follows:
2005 2004
----------- -----------
Federal:
Current $ -- $ --
Deferred 372,150 52,200
State:
Current -- --
Deferred -- --
Foreign:
Current -- (38,598)
Deferred 121,377 36,760
Change in valuation allowance (372,150) (52,200)
----------- -----------
Total $ 121,377 $ (1,838)
=========== ===========
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, 2005, the Company does not have
US income tax from foreign operations.
Reconciliation of the differences between the statutory tax rate and
the effective income tax rate is as follows:
2005 2004
----------- -----------
U.S. federal statutory rate -- --
State and local taxes -- --
Depreciation and amortization 39.4% 28.3%
Loss carry-forwards (56.6%) (33.6%)
Foreign tax rate -- (13.4%)
Valuation allowance 26.3% 18.1%
----------- -----------
Total 9.0% (0.6%)
=========== ===========
F-12
Significant components of the Company's net deferred tax liabilities are
as follows:
2005 2004
----------- -----------
Depreciation and amortization $ 679,681 $ 146,186
----------- -----------
Deferred tax liability 679,681 146,186
Loss carryforwards (993,075) (208,426)
Valuation allowance 471,150 99,000
----------- -----------
Deferred tax asset (521,925) (109,426)
----------- -----------
Net deferred tax liability
$ 157,756 $ 36,760
=========== ===========
The Company had available approximately $1,570,500 of unused U.S. net
operating loss carry-forwards at December 31, 2005, that may be applied
against future taxable income. These net operating loss carry-forwards
expire for U.S. income tax purposes in 2025. 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, 2005 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 $2,609,000 of unused Singapore
capital allowance carry-forwards at December 31, 2005, 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
13. 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 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
Interest expense -- -- -- --
Depreciation and amortization $ 254,826 $ 168,416 -- $ 423,242
Segment (loss) profit $ (634,798) $ (309,158) $ 3,460 $ (940,496)
Segment assets $ 10,427,139 $ 5,057,195 $ 6,119,660 $ 21,603,994
Expenditures for segment assets $ 4,781,124 $ 4,809,000 -- $ 9,590,124
F-13
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
-------------
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 $ 15,484,334
Other assets $ 6,119,660
-------------
Total consolidated assets $ 21,603,994
-------------
EXPENDITURES FOR SEGMENT ASSETS
-------------------------------
-------------
Total expenditures for assets for reportable segments $ 9,590,124
-------------
F-14
YEAR 2004
Entertainment Digit Gaming Other Total
------------ ------------ ------------ ------------
Revenues from external customers $ 3,913,453 -- $ 71,528 $ 3,984,981
Interest revenue -- -- -- --
Interest expense $ 1,964 -- -- $ 1,964
Depreciation and amortization $ 135,481 -- -- $ 135,481
Segment profit $ 608,423 -- $ 71,528 $ 679,951
Segment assets $ 2,033,179 -- $ 2,420,227 $ 4,453,406
Expenditures for segment assets $ 529,344 -- -- $ 529,344
Reconciliation :-
REVENUES
--------
Total revenues for reportable segments $ 3,913,453
Other revenue $ 71,528
-------------
Total consolidated revenues $ 3,984,981
-------------
PROFIT OR LOSS
--------------
Total profit for reportable segments $ 608,423
Other profit $ 71,528
Corporate expenses $ (169,494)
-------------
Income before income tax $ 510,457
-------------
ASSETS
------
Total assets for reportable segments $ 2,033,179
Other assets $ 2,420,227
-------------
Total consolidated assets $ 4,453,406
-------------
EXPENDITURES FOR SEGMENT ASSETS
-------------------------------
-------------
Total expenditures for assets for reportable segments $ 529,344
-------------
14. SUBSEQUENT EVENT
--------------------
On January 3, 2006 the Company's Cambodian representative office has been
changed to a branch office of M2B Commerce Limited (British Virgin Islands).
On January 12, 2006, the Company through its subsidiary, M2B Commerce Limited
(British Virgin Islands) 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 $1.24million shall be paid within 30 days from signing of the Agreement. The
initial downpayment of $1.24million shall be converted into 5% equity of Dai
Long. The remaining $1.76million 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 : $1.24million for
5% equity shares of Dai Long, US$1.76million for 20% equity shares of Dai Long,
prorated accordingly in the event of partial payment by M2B Commerce Limited.
On January 27, 2006, the Company issued a press release indicating the launch of
a Global IPTV service designed to offer consumers 40 channels of video-on-demand
content delivered to their television screens via a broadband connection.
F-15
From January 23, 2006, to March, 15, 2006 the Company issued 1,302,850 shares of
common stock through private placement at a price of $3 per share for a total
amount of $3,908,550. Consulting fees of $196,840 associated with the issuance
of these shares of common stock were deducted from paid-in capital.
On January 20, 2006 the Company raised its equity position in Activ Lifestyle
Pte Ltd, a company incorporated in Singapore to 15.6% from 12.6% by the payment
of $30,000. Activ Lifestyle is in the distribution and trading of health and
lifestyle products.
On February 6,2006 the Company increased its equity position in Indie Vision
Films, Inc from 11.1% to 14.9% by the payment of $100,000. The business of Indie
Vision Films, Inc is in the distribution of films.
F-16
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Board of Directors of the Company approved the engagement of Mendoza, Berger
& Co. LLP. ("MB") on November 17, 2003 to serve as the Company's independent
public auditor and to conduct the audit of the Company's financial statements
for fiscal year 2003. MB was reappointed auditors for the audit of fiscal year
2004 and 2005.
The audit reports provided by the Company's auditor, MB, for the previous fiscal
years 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 MB, C.P.A., 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, 2005, 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, 2005, 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
From January 23, 2006, to March 15, 2006 the Company issued 1,302,850 shares of
common stock through private placement at a price of $3.00 per share for a total
amount of $3,908,550.
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.
Investment Agreement.
---------------------
On January 12, 2006, the Company through its subsidiary, M2B Commerce Limited (
British Virgin Islands ) 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 $1.24million shall be paid within 30 days from signing of the Agreement. The
initial downpayment of $1.24million shall be converted into 5% equity of Dai
Long. The remaining $1.76million 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 : $1.24million for 5% equity shares of Dai
Long, US$1.76million for 20% equity shares of Dai Long, prorated accordingly in
the event of partial payment by M2B Commerce Limited.
23
PART III
Item 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Our directors, executive officers and key employees as of December 31, 2005 were
as follows:
Name Age Position
---- --- --------
Colin St.Gerard Binny 51 Chairman of the Board, Chief Executive
Officer and Director
Francis Keong Kwong Foong 45 Chief Financial Officer
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
M2B Media Group and the Chairman of Metromedia Productions, 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. 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.
COMMITTEES
The Company does not currently have standing audit, nominating or compensation
committees of the Board of Directors, or committees performing similar
functions.
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.
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.
24
Based solely upon a review of copies of such reports furnished to us during the
fiscal year ended December 31, 2005 and thereafter, or any written
representations received by us from reporting persons that no other reports were
required, we believe that, during our fiscal 2005, 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 cash compensation exceeded $100,000
(collectively, the "named executive officers") during fiscal 2005 shown below.
Name and Principal Position Year Salary (1) Annual Awards (2) Bonus(3) Other Compensation(4)
--------------------------- ---- ---------- ----------------- -------- --------
Colin Binny, CEO 2005 221,324 -- -- 21,900
2004 60,534 -- -- 7,500
2003 27,831 -- -- --
Francis Foong, CFO 2005 136,471 -- -- 70,500
2004 12,883 -- -- 5,000
1. No officers received or will receive any bonus or other annual
compensation other than salaries during fiscal year 2005, other
than stated above.
2. No officers received or will receive any long term incentive
plan payouts or other payouts during fiscal year 2005.
3. Bonus awarded based on performance
4. Shares issued as compensation for services rendered to the
Company. 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 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.
25
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
General
As at December 31, 2005, 31,397,780 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.
Name and Address Amount and Nature Percent of
Of Beneficial Owner of Beneficial Ownership Class of
of Common Stock Common Stock
Colin St.Gerard Binny 157,300 18.1%
112, MIDDLE ROAD #08-01 (Direct)
MIDLAND HOUSE 5,527,972 (2)
SINGAPORE 188970 (Indirect)
Francis Keong Kwong Foong 104,700 0.3%
112, MIDDLE ROAD #08-01 (Direct)
MIDLAND HOUSE
SINGAPORE 188970
All Directors and Officers
As A Group (2 persons) 5,789,972 18.4%
(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 5,527,972 shares of common stock of Amaru, Inc held
by Mr. Binny and his wife, Chew Bee Lian, indirectly as 100%
shareholders of M2B Media Pte Ltd.
Item 12. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS
For the year ended December 31, 2004, M2B World sold $2,700,000 of advertising
services to a related party, FSBM M2B Sdn Bhd.
For the year ended December 31, 2004, M2B World acquired content license rights
of $2,966,350 from the same related party.
The related party is FSBM M2B Sdn Bhd which is registered in Malaysia. FSBM M2B
was a joint venture between M2B World and FSBM Holdings Berhad (formerly known
as Fujitsu System Business Malaysia Berhad). FSBM M2B serves as a production
base for M2B World, having digital post-production suites for content
production. M2B World owned a 9.76% equity stake in FSBM.
On December 29, 2004, the Company sold its entire 9.76% equity stake in FSBM M2B
Sdn Bhd to a third party for $600,000 at a gain of $597,292.
26
Item 13. EXHIBITS
(a) 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*
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.
ITEM 14. PRINCIPAL FEES AND SERVICES.
The following table presents fees for professional audit services rendered by P
G Wee & Partners and Mendoza Berger Company LLP for the year ended December 31,
2005 and December 31, 2004.
2005 2004
--------- ---------
Audit Fees: (1) $ 76,800 $ 109,130
Tax Fees: (2) 5,000 5,000
--------- ---------
Total $ 81,800 $ 114,130
========= =========
(1) Audit Fees: In the years 2005 and 2004, fees were for professional services
performed by PG Wee and Partners and Mendoza Berger Company, LLP 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: In the years 2005 and 2004, fees were for professional services
performed by Mendoza Berger Company, LLP relating to tax compliance, preparation
and filing of returns for the company.
27
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, Chairman, President and Secretary
Date: 4/11/06
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 Chairman, President, Secretary and Director Date: 4/11/06
------------------------ (principal executive officer)
Colin Binny
/s/ Francis Foong Chief Financial Officer Date: 4/11/06
------------------------
Francis Foong
28