UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________
FORM 10-K
(MARK ONE)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007
|_| 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.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEVADA 88-0490089
------------------------------- --------------------
(State or 0ther jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
112 MIDDLE ROAD, #08-01 MIDLAND HOUSE, SINGAPORE 188970
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE : (011) (65) 6332 9287
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS Name of each exchange on which registered
NONE None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Title of class
COMMON STOCK
$0.001 PAR VALUE
Indicate by check mark whether the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act.
Yes |_| No |X|
Indicate by check mark whether the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.
Yes |_| No |X|
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not 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-K
or any amendment to this Form 10-K. |_|
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer |_| Accelerated filer |X|
Non-accelerated filer |_|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes |_| No |X|
As of March 14, 2008, 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 14, 2008 at $0.09 per share was
$12,188,534.85.
The number of shares outstanding of registrant's common stock, $0.001 par value
per share, was 159,431,861 as of March 14, 2008.
TABLE OF CONTENTS
Page
--------------
PART I
Item 1 Business 1
Item 1A Risk Factors 12
Item 1B Unresolved Staff Comments 15
Item 2 Properties 15
Item 3 Legal Proceedings 16
Item 4 Submission of Matters to a Vote of Security Holders 16
PART II
Item 5 Market for registrant's Common Equity, Related Stockholder Mattes and Issuer Purchases of
Equity Securities 17
Item 6 Selected Financial Data 19
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operation
20
Item 7A Quantitative and Qualitative Disclosures About Market Risk 31
Item 8 Financial Statements and Supplementary Data 34
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
34
Item 9A Controls and Procedures 34
Item 9B Other Information 36
PART III
Item 10 Directors and Executive Officers and Corporate Governance 36
Item 11 Executive Compensation 39
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters 42
Item 13 Certain Relationships and Related Transactions, and Director Independence 43
Item 14 Principal Accounting Fees and Services 44
PART IV
Item 15 Exhibits and Financial Statement Schedules 45
Signatures
Certification of CFO and CFO
Section 1350 Certification
PART I
ITEM 1: DESCRIPTION OF BUSINESS
BACKGROUND
Amaru, Inc. (the "Company" or "Amaru") through its subsidiaries under the M2B
and WOWtv brand names, is in the Broadband Media Entertainment business,
providing interactive Entertainment-on-demand and e-commerce streaming over
Broadband channels, Internet portals, and 3G devices globally. The Company's
entertainment sites are available via its main website of www.amaruinc.com. The
Company 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.
As of February 25, 2004 (the "Closing Date"), Amaru acquired M2B World Pte. Ltd.
(M2B World), a Singapore corporation, in exchange for 19,500,000 newly issued
"restricted" shares of common voting stock of the Company and 143,000
"restricted" Series A Convertible Preferred Stock shares to the M2B World
shareholders on a pro rata basis for the purpose of effecting a tax-free
reorganization pursuant to sections 351, 354 and 368(a)(1)(B) of the Internal
Revenue Code of 1986, as amended pursuant to the Agreement and Plan of
Reorganization 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.
BUSINESS OVERVIEW
The Company, through its subsidiaries under the M2B and new WOWtv brand names,
is in the Broadband Media Entertainment business, and a provider of interactive
Entertainment-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 and
online shopping content, with over 50 channels designed to cater to various
consumer segments and lifestyles. Its content covers diverse genres such as
movies, dramas, comedies, documentaries, music, fashion, lifestyle and more. The
Company markets its products globally through its "M2B" and "WOWtv" brand names.
Through these brands, the Company offers access to an expansive range of content
libraries for aggregation, distribution and syndication on Broadband and other
media, including rights for merchandising, product branding, promotion and
publicity.
1
Globally, Amaru, Inc. is expanding through several of its subsidiaries, including:
1. M2B World, Inc. - focuses on the US market and is based in
Hollywood, California
2. M2B World Asia Pacific Pte. Ltd. - oversees the Asia Pacific business and directs
the Asian markets through this office and
representative office in Chengdu, China
3. M2B Australia Pty. Ltd. - oversees Oceania markets
4. M2B Entertainment, Inc. - oversees Canadian market
5. M2B Commerce Limited - focuses on digit games in Cambodia
6. M2B World Travel Singapore Pte Ltd. - offers e-travel services
7. Amaru Holdings Limited - focuses on content syndication and distribution
in areas other than Asia Pacific region
8. M2B World Holdings Limited - focuses on content syndication and distribution
in Asia Pacific region
9. M2B World Pte. Ltd. - provides management services to fellow
subsidiaries of the Company
10. Tremax International Limited - operates as an investment holding company
11. M2B World Travel Limited - oversees online travel and related business
The Company offers consumers personalized entertainment through its wide range
of broadband streaming channels available via www.amaruinc.com.
BUSINESS STRATEGY
Our business strategy is to become a premier diversified media, e-commerce and
e-lifestyle company. We adopt the latest broadband, e-commerce and
communications technology and leverage on our international premium content and
programming expertise. This is how we deliver online entertainment, lifestyle
products and services to our customers.
Our goal is to constantly identify fresh market opportunities and to stay ahead
of changes in the broadband media and related e-commerce industry. We believe
that we can accomplish this by continuing to satisfy customers' needs for a
convenient, comprehensive and personalized source of broadband video content,
services and information with pleasant user experiences. Through our business
plan implementation, we aim to become a leading Broadband Media Entertainment
business, providing interactive Entertainment-on-demand and e-commerce streaming
over Broadband channels, Internet portals, and 3G devices globally.
We intend to continue leveraging on our competitive strengths to attain a
leadership position in the industry.
COMPETITIVE STRENGTHS
The Company's competitive strengths are:
o RICH CONTENT LIBRARY
The Company owns a rich library of content that covers a wide range of genres,
of which the majority includes worldwide rights in perpetuity on the broadband.
This enables the Company to deliver a rich and diverse variety of on-demand
streaming video content that suit the lifestyle and taste of different consumer
segments, across different countries - thereby massing a global base of viewers
to attract advertisers to its delivery platforms on the PC, 3G devices and TV.
The Company has built relationships with content distributors in the U.S. and
Asia that enables it to continually source for content that meet the changing
demands and taste of the customers and advertisers.
o GLOBAL VIDEO STREAMING NETWORK
The Company has also developed and implemented a global video streaming network
that enables it to deliver high quality on-demand video streaming programs from
its rich library of content rights to a worldwide audience of broadband users.
This global video streaming network is completely integrated with firewalls,
loading balancing protocols, bandwidth and consumer monitoring systems and
payment gateways to enable worldwide billing. In addition, the Company has its
own digital post-production and design capabilities to fully manage content
rights protection, user experience and specialized programming for all its
consumer-facing delivery platforms. This end-to-end broadband streaming
infrastructure enables the Company to customize and diversify its products and
services, incorporating video-on-demand and e-commerce services.
2
o MULTIPLE REVENUE STRENGTHS
The Company's diversified delivery platforms enable it to capitalize and
generate multiple revenue streams by targeting different consumer segments over
broadband, across different geographic markets. The multiple revenue streams
comprise of advertising, subscriptions, sponsorships, online shopping and games,
as well as licensing and content syndication and turn-key broadband consulting
solutions. The Company's goal is not to be excessively dependent on any one
single revenue source. Its rich library of content rights combined with its
global video streaming network supports the Company's future growth strategy
that focuses on multiple growth areas and territories. The Company can thereby
cost-effectively tailor its broadband websites and services to suit different
cultures, consumer behavior and clients needs in different geographical
locations. The Company is also able to localize its products and services to
sustain loyalty of its viewers and consumers.
o KEY ALLIANCES
The Company has entered into strategic alliances and / or agreements with key
providers to support the marketing and distribution of its products and services
in different territories. Among its key providers are Amadeus (Global Travel GDS
based in Spain), CCTV (China), KBS (Korea), Sony Pictures Television
International (SPTI) and Zentek Technology (Japan). The Company will continue to
forge strategic partnership opportunities including the area of web-enabled
mobile devices and extend its accessibility to customers of its broadband
websites and services.
GROWTH STRATEGIES
The Company's growth strategies consist of:
o Continuing to build its rich library of content rights on the broadband
to provide sustained high quality on-demand video-based entertainment
and e-commerce that will maintain and grow its worldwide base of
viewers.
o Penetrating new markets to deliver M2B and WOWtv branded content to any
screen including PC, 3G and TV, as well as wireless mobile devices like
PDAs and to establish new delivery channels to meet the changing
preferences of viewers and consumers, worldwide.
o Capitalize on its growing worldwide viewer and consumer base by
aggressively signing up subscribers, as well as advertisers onto its
on-demand interactive broadband delivery channels for entertainment,
online games and e-commerce.
Consumers access the Company's entertainment sites through its main website,
www.amarinc.com or directly go to the entertainment sites at www.wowtv.com and
www.m2btv.com.
NEW PRODUCT OFFERINGS
In August 2007, M2B World Asia Pacific Pte Ltd, a subsidiary company of Amaru
which oversees the Asia Pacific markets, launched a new broadband entertainment
web TV service, called WOWtv.
The Company intends that WOWtv will serve as its new brand for its broadband
entertainment services, in addition to its IPTV service, M2Btv. WOWtv had
therefore combined and incorporated all the Company's previous entertainment
websites into one leading site.
WOWtv streams more than 50 video-on-demand channels of Hollywood and Asian
entertainment. The service is available through three tiers, namely:
o Free Tier - Web TV channels are provided free to registered users and
are advertising supported.
o Basic Tier - Web TV channels are provided to registered subscribers for
an annual fee.
o Value Tier - Web TV premium content channels where viewers pay for
specific channels and content on a pay-per-view basis.
The WOWtv service had, as of March 2008, been launched in Singapore, Indonesia
and China. The WOWtv service is available on www.wowtv.com.
3
CONSUMER MARKETING
The Company's broadband entertainment websites, and online shopping sites
attract viewers from all over the world. The Company's strategy of converting
visitors into customers lies in a combination of incentives, including seasonal
and purchase-related promotions that take advantage of the Company's customer
database and broadband websites. The Company plans to negotiate special rates
and benefits to obtain access to a superior online inventory for the customers.
The increasing scale of the business will enable the Company to negotiate on
more favorable terms. Through research with visitors and customers, the Company
is developing new programs and features (including personalization and loyalty
incentives) that would turn visitors into customers and maintain loyalty.
The Company also employs a variety of online and traditional media programs and
promotional activities such as:
(a) Advertising
The Company invests in both online and traditional advertising to drive
traffic to our broadband websites. To generate traffic to M2B and
WOWtv's broadband websites in a cost efficient manner, the Company
purchased targeted keywords and textlinks in high volume. The Company
also advertises in traditional print and broadcast media to increase
the awareness of its service, product enhancements and retail
offerings.
(b) Public Relations
The core of our public relations effort is media relations and industry
analyst relations. We maintain relations with journalists and industry
analysts to help secure unbiased, third-party endorsements for the
Company. We pursue coverage by online publications, search engines and
directories.
(c) Co-marketing, Promotions and Loyalty Programs
We intend to continue to establish significant co-marketing
relationships to promote our service and to sponsor contests that offer
M2B and WOWtv 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 and
WOWtv brand.
(d) Direct Marketing
The Company maintains a database which includes customers profiles and
preferences and other key customer attributes. This data enables us to
track the effectiveness of promotions and incentives and to understand
seasonal and other trends in order to create and quickly implement
marketing programs targeted to specific customer segments. In addition,
we regularly communicate with our customers through targeted e-mail.
The Company, while growing the business, also maintains profitability.
While it executes its growth strategies, it also controls costs. It
intends to continue to implement programs to control the cost of
revenues and reduce operating costs through technology and productivity
management, economies of scale and financial controls. This strategy
should enable us to provide our products to customers on a cost
competitive basis.
BUSINESS SEGMENTS
Our principal operations are carried out through the following three segments of
our business:
1. Entertainment Services - Video on-Demand services for entertainment,
providing the Company with advertising, subscriptions, online games and
e-commerce revenues
2. Digit Games
3. E-Travel Services - Online Travel Portal
ENTERTAINMENT SERVICES
The Company provides online entertainment on-demand on Broadband channels,
Internet portals and 3G devices across the globe, for specific and identified
viewer lifestyles, demographics and interests. Entertainment and web visit
experience is maintained throughout from the initial viewing experience to
on-line shopping and payment checkout experience.
The Company uses Broadband technology to provide its services. Broadband
technology is defined as high speed, high-bandwidth, two-way data, voice and
video communications, delivered at high transmission rates.
4
SERVICES: Broadband technology allows us to deliver the following services::
o Video-on-demand (VOD) services that enable individuals to
select videos from a Central Server, on-demand 24 hours a day,
7 days a week, for viewing on:
o Television screens (Set top Box Technology)
o PCs (Digital Subscriber Line (DSL) Technology)
o Personal Digital Assistants(PDA), 3G hand phones (Wireless
Technology)
o E-Commerce or online shopping - linked interactively to the
VOD platforms on broadband. Consumers choose to buy products
online as they watch the videos.
The Company applies broadband technologies to facilitate its growth in the
broadband sector. Its main competitive advantage is derived from its ownership
of rights for various territories on broadband for its contents i.e. movies,
televisions, dramas and programs on lifestyles, business and glamour.
The Company has built and installed its broadband streaming system complete with
firewalls, load balancing, bandwidth and consumer monitoring systems, which
include video streaming, video storage and web servers in Singapore. 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.
The Company offers consumers personalized entertainment through its wide range
of broadband streaming channels available at www.amaruinc.com.
PRODUCTS: We offer the following products on the VOD platform:
o Entertainment - Consumers access movies, music, glamour and
fashion, lifestyle (hobbies, cooking, and personalities),
documentaries, sports, health and fitness and others. They can
choose from a large number of different channels depending on
their interests or lifestyle preferences.
o E-Commerce - Consumers can purchase products online, view
product videos and make payments online.
With this strategy, the Company generates diversified sources of revenue from:
1. Advertising i.e. program and channel sponsorship
2. Online subscriptions
3. Channel/portal development i.e. digital programming services
4. Content aggregation and syndication
5. Broadband consulting services and online shopping turnkey solutions
6. E-commerce services
7. Online games micro-payments
Currently, the Company is in the process of redesigning its Broadband websites.
The current Broadband websites and products, which may change from time to time
are highlighted below.
WOWTV - WEB TV SERVICE
WOWtv, a broadband entertainment web TV service, has embarked on launching its
site across the Asia Pacific, streaming more than 50 channels of Hollywood and
Asian entertainment via video on-demand, providing E-commerce services and an
original online games platform. Its video on-demand content covers diverse
genres such as movies, television dramas, variety shows, documentaries, fashion,
lifestyle, sports, edutainment and more. WOWtv can be viewed on www.wowtv.com.
Beginning with Singapore and Indonesia, WOWtv is set to launch across the Asia
Pacific, expanding its growing presence to an additional 5 territories, namely
Australia, China, Japan, Taiwan and Malaysia within the next 12 months. No
assurance can be given that such plans will materialize as planned.
LEVERAGING ON THE STRENGTHS OF WOWTV
WOWtv is a cutting-edge, innovative platform that will establish a first mover
advantage to become the first Pan-Asian broadband entertainment services
provider. Its strengths and competitive advantages include:
Content Aggregation, Distribution and Syndication - with the technology and
expertise to stream with high clarity and also manage operations and costs well.
5
Premium Content Portfolio - with a vast library of worldwide broadband rights of
film and content, copyright ownership and exclusivity on the majority of
broadband titles.
Strong relationships in Asia and Hollywood - with good connections to enable it
to make further in-roads to content acquisition.
Broadband Distribution Deals - with secured major broadband distribution deals
with major media companies.
Experience in Online Games - with exclusive licenses to several Korean game
titles for several Asian markets.
MARKETING STRATEGY OF WOWTV
WOWtv's marketing strategy is to offer viewers a plethora of video on-demand
entertainment over three segments on its website, where consumers will get a
chance to sample its products and services in different tiers - FREE, BASIC and
VALUE.
Since its soft launch in August 2007, WOWtv had 192,690 registered users as of
December 31, 2007.The number of registered users is extracted from the WOWtv
user registration database under the WOWtv service.
M2BTV - GLOBAL BROADBAND TV (IPTV) SERVICE
The Company offers multiple TV channels, delivered live over the Internet, to
television sets in homes that have a high-speed internet connection and IP set
top boxes. Details of the service can be viewed on www.m2btv.com.
The service has been in operation in Singapore Since the second half of 2006 and
more than 50 channels are made available to customers. Anyone subscribing for a
broadband access with local Internet service provider is able to tune in to the
service on a subscription basis. Subscribers are provided with a set-top box
that connects to their broadband modems instead of the cable TV point at home.
They are able to watch the programs on their television sets. The Company
intends to incorporate this into its WOWtv service in the near future.
BROADBAND SERVICES
The Company has an automated Content Management System ("CMS") to enhance its
advertising service offered to clients and to provide a new revenue source for
the Company. The system allows for the programming of video, animation,
streaming and flash content to multiple destinations.
Linked by broadband networks and wireless set-top boxes to push content and
scheduled advertising at physical premises, the CMS allows businesses the option
of presenting targeted content on selected video displays in multiple locations,
such as on different levels of a shopping mall, in various spots within a
restaurant or club or on separate elevators in the same building.
In store video panels can also carry individualized messages together with
customized content to reach consumers and target audiences within the premises.
This is another method by which the Company is continuing to meet the consumer
shift toward on-demand and personalized media experiences whether at home or
work and now additionally on video screens in stores, restaurants, clubs and
other business or leisure outlets.
DIGIT GAMES
The Company has an 18-year license to conduct nation wide lottery in Cambodia.
The Company also signed an agreement with Allsports Limited, a British Virgin
Islands company, to operate, administer, and manage the lottery digit games
activities in Cambodia.
E-TRAVEL SERVICES
The Company's subsidiary, M2B World Travel Limited., signed a global agreement
with Amadeus Global Travel Distribution, SA, a Spanish corporation. Through the
agreement, M2B continues to offer direct access to the extensive range of travel
options available through the Amadeus network to their viewers around the world.
The agreement extends M2B's reach through its broadband streaming entertainment
into the worldwide travel arena.
The M2B World Travel Website aims to provide competitive rates through its
direct connection to the Amadeus System using the Elleipsis TravelTalk(TM)
integration platform, which allows M2B to access not only the major travel
providers, but an expanded roster of additional suppliers such as low-cost
carriers, cruise lines, and widened hotel distribution channels all through one
single, easy-to-use platform.
The video e-travel portal brings an extensive range of travel options to our
viewers and gives the Company an entry into the travel and tourism market; it
directly aggregates travel solutions from airlines, hotel properties, some car
rental companies as well as air, ferry, rail, cruise, and tour operators,
allowing customers to the site to view their travel destination through video
content, thus influencing their purchasing decision.
6
Due to fund constraints, the Company was unable to launch the M2B travel site in
2007. The service is subject to the Company completing the set up of its server
farm to host the travel platform. No assurance can be made that such plans will
materialize as planned.
MAJOR EVENTS IN FISCAL YEAR 2007 FOR ENTERTAINMENT SERVICES
Following the launch of its latest broadband entertainment service called WOWtv
in Singapore in August 2007, the Company extended the WOWtv service to Indonesia
in December 2007 and to China in March 2008.
On April 23, 2007, M2B World Holdings Limited, a subsidiary of M2B World Asia
Pacific Pte Ltd, entered into an agreement with PT Agis TBK, a company in
Indonesia, to transfer and licence an IPTV platform. The IPTV platform concerned
includes the hardware, software and middleware, and the supply of content. The
WOWtv service was incorporated into this IPTV platform. The agreement with PT
Agis TBK resulted in generating entertainment revenue of $14.5 million in 2007.
On July 3, 2007, M2B World Asia Pacific Pte Ltd, through its subsidiary company,
Visual Fashion Holdings Limited, entered into four agreements with Fashion News
World. Inc, a New York Corporation. Fashion News World. Inc is the holder of the
Video Fashion brand and the licensor for Video Fashion content worldwide. The
four agreements were as follows :
o Video Fashion License Agreement whereby M2B World Asia Pacific
Pte Ltd would have the rights to use the entire library of
Video Fashion content for the Asia Pacific region, including
Australia and New Zealand, for a period of five years, from
July 1, 2007 to June 30, 2012.
o Three other agreements for a period of five years, from July
1, 2007 to June 30, 2012, on co-productions, branded
merchandising and appointed representative to market and sell
the Video Fashion content.
On July 10, 2007, the Company together with one of its subsidiaries, Tremax
International Limited entered into an agreement with Domaine Group Limited for
the acquisition of 80% of Cosmactive Broadband Networks Co Ltd, which is a
broadband service provider incorporated in Taiwan. The Company intends to extend
its broadband entertainment services in Taiwan through this investment. The
investment is however subject to the approval of the regulatory authorities in
Taiwan, which is still outstanding as of this report.
ONGOING DEVELOPMENTS OF 2007 INITIATIVES
In May 2006, the Company announced its official launch of its much anticipated
Global Broadband TV Service, M2Btv, and its innovative PONY set-top box, making
the duo available to consumers in 2006. The Company continued to roll out the
M2Btv service in 2007. Essentially, the M2Btv service brings the time-efficient
benefits of IPTV into the living room, where the content and the internet will
be directly accessible via existing hardware such as a television set and
broadband internet connection. The Company is currently looking into the
possibility on consolidating the M2Btv service with its WOWtv service.
MARKETS
The business operations and financial results of the Company are directly
affected by the markets that the Company operates in.
o RISING DISPOSABLE INCOME AND USAGE OF PC AND BROADBAND TECHNOLOGY
In many other parts of the world, especially emerging markets with growing use
of PCs, Internet with fast growing number of broadband subscribers and rising
disposable incomes, these markets offer significant growth potential.
o THE ADVENT AND INCREASING ADOPTION OF BROADBAND TECHNOLOGY
The advent of broadband technology and ever-increasing bandwidth has pushed for
the next generation of online on-demand broadband entertainment as one of the
desired applications that will meet the needs of increasingly demanding and
bandwidth hungry consumers and enterprise. Such technology can be further
enhanced by the coupling of value added services, namely Internet telephony
communication services and E- Commerce, together with the Broadband
entertainment sites. The market consists of both the consumers and the
enterprise. The demand from consumers is rich media content, on demand, highly
interactive and fast. On the other hand the enterprise must reach out to such
demands and the next generation through the new medium, or be left behind. To
meet this demand, the Company has established relationships with major
production houses, and access to major distributors worldwide. This is expected
to put the Company in a position to acquire high quality, original video
content. Such strategic positioning has resulted in the Company acquiring
extensive content on broadband for multiple countries and for dedicated time
periods.
7
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.
o THE BOOMING ONLINE ADVERTISING MARKET
According to the Euromonitor International, an industry research provider, the
market for advertising is forecasted to grow by 119.1% from 2004 to 2009, to
reach a value of US$609.3 billion.
The online video is growing dramatically, with increased broadband penetration
creating a larger audience, leading more advertisers to consider adding video to
their online efforts. Jupiter Research estimates that the online video
advertising industry is worth $1.3 billion.
o THE GROWTH OF ONLINE TRAVEL
The travel business has already been impacted by the Internet. Travel companies
have already used the Internet as a distribution channel and for ticketing and
transaction processes. With the introduction of online booking and online travel
agencies, the travel industry has only begun to realize the cost reduction
potentials of e-business. The growth in online travel has caused a radical
change in the travel retail market since the late 1990s, and is one area that
continues to record growth after the slump in tourism that began in 2001. Travel
as a commodity has proved ideally suited to e-commerce, as average spending is
high, and the cost of delivering the goods is minimal.
The online global travel retail opportunity represented an $85 billion market
worth in 2004, according to Euromonitor in 2005.
o THE GROWTH OF THE VIDEO ON DEMAND MARKET
According to Jupiter Research, in 2007 the Video-on-Demand (VOD) market is
expected to be worth $1.4 billion while the Subscription VOD market is worth
$800 million.
According to ZDNet Research, there were approximately 7.5 million worldwide
cable-based VOD users at the end of 2004. VOD user growth is projected to remain
strong for the next several years. Total number of worldwide users is 13 million
at the end of 2005 and is forecasted to ultimately reach 34 million in 2009.
A study released by Adams Media Research in 2007 forecasts that sales of video
downloads will total $427 million in 2007. $1.2 billion in 2008, $2 billion in
2009, $3.1 billion in 2010, then hit $4.1 billion in 2011. The same study also
predicts that advertiser spending on internet video streams to PCs and TVs will
approach $1.7 billion in 2011.
COMPETITION
The Company faces intense competition in every aspect of our business, and
particularly in the acquisition of content.
In the entertainment services business, we compete with free-to-air channels,
cable operators as well as other broadband entertainment providers for
distribution rights of programs in terms of price, quality and variety.
Traditional TV networks and cable TV operators today provide alternate sources
of entertainment in a broadcast mode. In future, it is expected that these
networks may also extend their reach to the video-on-demand broadband service.
This may put them in direct competition with us, although their entry costs will
likely be higher and both the technical and manpower capabilities existing in
these traditional companies will make it somewhat difficult for them to transit
into new broadband media.
In our multi player online gaming business, we face competition from the various
gaming offerings on the market as well as the various gaming portals and
platforms. In the subscription based multi player online gaming business, the
Company faces vigorous competition from the numerous games that are distributed
free over the Internet. More generically, it also competes with console based
games made for products like Playstation and X-box.
In the e-travel services business, the Company competes with the established
traditional offline travel agencies and airlines as well as online travel
players like Travelocity, Zuji, Expedia, Priceline.com. With the trend in the
travel industry moving towards a constellation of cooperative alliances, the
Company believes that there will be many opportunities for vertical as well as
horizontal growth and integration of the various travel companies.
The Company also competes within the industry for advertising revenue and
viewers. More generically, the Company faces competition from other leisure
entertainment activities from Video CDs (especially in Asia), DVDs to cinemas,
home theatres and emerging mobile multi media kiosks and display panels.
8
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
The Company'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.
COMPLIANCE WITH ENVIRONMENTAL REGULATIONS
The Company has incurred no, and does not expect to incur, material expenditures
or obligations related to environmental compliance issues.
EMPLOYEES
The Company had 48 employees as of December 31, 2007, of which 42 are full time
and 6 are part-time employees. Of the 48 employees, 41 are based in Singapore,
one is based in Cambodia and another one is based in the U.S.
ITEM 1A: RISK FACTORS
An investment in the Company's common stock involves a high degree of risk. One
should carefully consider the following risk factors in evaluating an investment
in the Company's common stock. If any of the following risks actually occurs,
the Company's business, financial condition, results of operations or cash flow
could be materially and adversely affected. In such case, the trading price of
the Company's common stock could decline, and one could lose all or part of
one's investment. One should also refer to the other information set forth in
this report, including the Company's consolidated financial statements and the
related notes.
THE COMPANY CONTINUES TO USE SIGNIFICANT AMOUNTS OF CASH FOR ITS BUSINESS
OPERATIONS, WHICH COULD RESULT IN US HAVING INSUFFICIENT CASH TO FUND THE
COMPANY'S OPERATIONS AND EXPENSES UNDER OUR CURRENT BUSINESS PLAN. THE COMPANY
IS ALSO HOLDING A CONSIDERABLE AMOUNT OF QUOTED EQUITY SECURITIES THAT IS
AVAILABLE-FOR-SALE OR HELD FOR TRADING.
The Company's liquidity and capital resources remain limited. There can be no
assurance that the Company's liquidity or capital resource position would allow
us to continue to pursue its current business strategy. The Company's quoted
equity securities held as assets are dependent on the market value. Any
fluctuations or downturn in the securities market could adversely affect the
value of these equity securities held. As a result, without achieving growth in
its business along the lines it has projected, it would have to alter its
business plan or further augment its cash flow position through cost reduction
measures, sales of assets, additional financings or a combination of these
actions. One or more of these actions would likely substantially diminish the
value of its common stock.
9
THE MARKET MAY NOT BROADLY ACCEPT THE COMPANY'S BROADBAND WEBSITES AND SERVICES,
WHICH WOULD PREVENT THE COMPANY FROM OPERATING PROFITABLY.
The Company must be able to achieve broad market acceptance for its Broadband
websites and services, at a price that provides an acceptable rate of return
relative to the Company-wide costs in order to operate profitably. There is no
assurance that the market will develop sufficiently to enable the Company to
operate its Broadband business profitably. Furthermore, there is no assurance
that any of the Company's services will become generally accepted, nor is there
any assurance that enough paying users and advertisers will ultimately be
obtained to enable us to operate these business profitably.
BROADBAND USERS MAY FAIL TO ADOPT THE COMPANY'S BROADBAND SERVICES.
The Company's Broadband services are targeted to the growing market of Broadband
users worldwide to deliver content and E-commerce in an efficient, economical
manner over the Broadband networks. The challenge is to make the Company's
business attractive to consumers, and ultimately, profitable. To do so has
required, and will require, the Company to invest significant amounts of cash
and other resources. There is no assurance that enough paying users and
advertisers will ultimately be obtained to enable the Company to operate the
business profitably.
FAILURE TO SIGNIFICANTLY INCREASE THE COMPANY'S USERS AND ADVERTISERS MAY RESULT
IN FAILURE TO ACHIEVE CRITICAL MASS AND REVENUE TO BUILD A SUCCESSFUL BUSINESS.
The Company incurs significant up-front costs in connection with the acquisition
of content, and bandwidth and network charges. The plan is to obtain recurring
revenues in the form of subscription and advertising fees to use the Broadband
services, either paid by the users or advertisers.
There is no assurance as to whether the Company will be able to maintain, or
whether and how quickly the Company will be able to increase its user base, or
whether the Company will be able to generate recurring subscription and
advertising fees to such a level that would enable this line of business to
continue to operate profitably. If the Company is not successful in these
endeavors, the Company could be required to revise its business model, exit or
reduce the scale of the business, or raise additional capital.
COMPETITION IN THE BROADBAND BUSINESS IS EXPECTED TO INCREASE, WHICH COULD CAUSE
THE BUSINESS TO FAIL.
The Company's Broadband services are targeted to the end user market. As the
Broadband penetration rates increase globally, an increasing number of
well-funded competitors have entered the market. Companies that compete with the
Company's business include telecommunications, cable, content management and
network delivery companies.
The Company may face increased competition as these competitors partner with
others or develop new Broadband websites and service offerings to expand the
functionality that they can offer to their customers. These competitors may,
over time, develop new technologies and acquire content that are perceived as
being more secure, effective or cost efficient than the Company. These
competitors could successfully garner a significant share of the market, to the
exclusion of the Company. Furthermore, increased competition could result in
pricing pressures, reduced margins, or the failure of the business to achieve or
maintain market acceptance, any one of which could harm the business.
THE INABILITY TO SUCCESSFULLY EXECUTE TIMELY DEVELOPMENT AND INTRODUCTION OF NEW
AND RELATED SERVICES AND TO IMPLEMENT TECHNOLOGICAL CHANGES COULD HARM THE
BUSINESS.
The evolving nature of the Broadband business requires the Company to
continually develop and introduce new and related services and to improve the
performance, features, and reliability of the existing services, particularly in
response to competitive offerings.
The Company has under development new features and services for its businesses.
The Company may also introduce new services. The success of new or enhanced
features and services depends on several factors - primarily market acceptance.
The Company may not succeed in developing and marketing new or enhanced features
and services that respond to competitive and technological developments and
changing customer needs. This could harm the business.
10
CAPACITY LIMITS ON THE COMPANY'S TECHNOLOGY AND NETWORK HARDWARE AND SOFTWARE
MAY BE DIFFICULT TO PROJECT, AND THE COMPANY MAY NOT BE ABLE TO EXPAND AND/OR
UPGRADE ITS SYSTEMS TO MEET INCREASED USE, WHICH WOULD RESULT IN REDUCED
REVENUES.
While the Company has ample through-put capacity to handle its customers'
requirements for the medium term, at some point it may be required to materially
expand and/or upgrade its technology and network hardware and software. The
Company may not be able to accurately project the rate of increase in usage of
its network. In addition, it may not be able to expand and/or upgrade its
systems and network hardware and software capabilities in a timely manner to
accommodate increased traffic on its network. If the Company does not
appropriately expand and/or upgrade our systems and network hardware and
software in a timely fashion, it may lose customers and revenues.
INTERRUPTIONS TO THE DATA CENTERS AND BROADBAND NETWORKS COULD DISRUPT BUSINESS,
AND NEGATIVELY IMPACT CUSTOMER DEMAND FOR THE COMPANY.
The Company's business depends on the uninterrupted operation at the data
centers and the broadband networks run by the various service providers. The
data centers may suffer for loss, damage, or interruption caused by fire, power
loss, telecommunications failure, or other events beyond the Company. Any damage
or failure that causes interruptions in the Company's operations could
materially harm business, financial conditions, and results of operations.
In addition, the Company's services depend on the efficient operation of the
Internet connections between customers and the data centers. The Company depends
on Internet service providers efficiently operating these connections. These
providers have experienced periodic operational problems or outages in the past.
Any of these problems or outages could adversely affect customer satisfaction
and customers could be reluctant to use our Internet related services.
THE COMPANY MAY NOT BE ABLE TO ACQUIRE NEW CONTENT, OR MAY HAVE TO DEFEND ITS
RIGHTS IN INTELLECTUAL PROPERTY OF THE CONTENT THAT IS USED FOR ITS SERVICES
WHICH COULD BE DISRUPTIVE AND EXPENSIVE TO ITS BUSINESS.
The Company may not be able to acquire new content, or may have to defend its
intellectual property rights or defend against claims that it is infringing the
rights of others, where its content rights are concerned. Intellectual property
litigation and controversies are disruptive and expensive. Infringement claims
could require us to develop non-infringing services or enter onto royalty or
licensing arrangements. Royalty or licensing arrangements, if required, may not
be obtainable on terms acceptable to the Company. The business could be
significantly harmed if the Company is not able to develop or license new
content. Furthermore, it is possible that others may license substantially
equivalent content, thus enabling them to effectively compete against us.
THE COMPANY DID NOT COMPLETE THE ASSESSMENT OF THE EFFECTIVENESS OF THE
COMPANY'S INTERNAL CONTROL OVER FINANCIAL REPORTING, SET FORTH BY THE COMMITTEE
OF SPONSORING ORGANIZATIONS (COSO) OF THE TREADWAY COMMISSION IN "INTERNAL
CONTROL-INTEGRATED FRAMEWORK".
Section 404 of the Sarbanes-Oxley Act of 2002 requires that management document
and test the Company's internal control over financial reporting and include in
the Annual Report on Form 10-K a report on management's assessment of the
effectiveness of our internal control over financial reporting.
In connection with the preparation of this Annual Report on Form 10K, to
evaluate the effectiveness of the design and operation of our disclosure
controls and procedures as of December 31, 2007, the Company's management did
not complete the assessment of the effectiveness of the Company's internal
control over financial reporting, implementing the criteria set forth by the
Committee of Sponsoring Organizations (COSO) of the Treadway Commission in
"Internal Control-Integrated Framework".
While the Company is taking immediate steps and dedicating substantial resources
to implement the internal controls based on the criteria established in Internal
Control - Integrated Framework issued by the COSO, they will not be considered
fully implemented until the new and improved internal controls operate for a
period of time, are tested and are found to be operating effectively.
THE COMPANY DEPENDS ON KEY PERSONNEL.
The Company depends on the performance of its senior management team. Its
success depends on its ability to attract, retain, and motivate these
individuals. There are no binding agreements with any of its employees that
prevent them from leaving the Company at any time. There is competition for
these people. The loss of the services of any of the key employees or failure to
attract, retain, and motivate key employees could harm the business.
THE COMPANY RELIES ON THIRD PARTIES.
If critical services and products that the Company sources from third parties,
such as content and network services were to no longer be made available to the
Company or at a considerably higher price than it currently pays for them, and
suitable alternatives could not be found, the business could be harmed.
11
THE COMPANY COULD BE AFFECTED BY GOVERNMENT REGULATION.
The list of countries to which our solutions and services could not be exported
could be revised in the future. Furthermore, some countries may in future impose
restrictions on streaming of broadband contents and related services. Failure to
obtain the required governmental approvals would preclude the sale or use of
services in international markets and therefore, harm the Company's ability to
grow sales through expansion into international markets. While regulations in
almost all countries in which our business currently operates generally permit
the broadband services, such regulations in future may not be as favorable and
may impede our ability to develop business.
ITEM 1B: UNRESOLVED STAFF COMMENTS
None.
ITEM 2: PROPERTIES
The headquarters for operations and management is located in Singapore in an
office space of about 3,927 square feet. We entered into a three year operating
lease paying a monthly rent of $4,545 (S$7,000). The lease will be due for
renewal in 2008 and the rent will be based on the open market rates.
In addition to the office which housed the management staff of the Company,
there are three other offices: located in the US, Singapore and China. The
office in the US is situated on Sunset Boulevard, West Hollywood and it consists
of 2,965 square feet. The office in Singapore consists of about 6,727 square
feet and is situated in 112 Middle Road, Singapore. The office in China consists
of about 1,399 square feet and is situated in No.5, JingLi Dong Road, #2-17-4,
Chengdu, Sichuan. These three offices are on monthly lease and the rental is
$10,530 for the US office, $10,790 (S$16,620) for the Singapore office and $779
(S$1,200) for the Chengdu office.
The office in the US was subleased on November 1, 2007 as part of the Company's
cost reduction measures.
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
On April 23, 2007, a company which provided public relations services filed a
lawsuit against M2B World, Inc. for breach of contract for an amount of $72,649,
which has been further amended to include Amaru, Inc. as a co-defendant. In the
opinion of management, the outcome of this legal proceeding will not have a
material effect on the Company's consolidated financial statements.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the year
ended December 31, 2007.
12
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
PUBLIC MARKET
Our common stock trades on the National Association of Securities Dealers'
over-the counter Bulletin Board market ("OTCBB") under the symbol "AMRU". As of
March 14, 2008, there were 392 holders of our common stock.
The price of the Company's stock as of March 14, 2008 was $0.09.
On January 19, 2007, the Company announced that its common stock is trading on
the OTCBB, effective January 19, 2007 under the symbol "AMRU". The Company's
common stock was previously trading on the Pink Sheets Electronic Quotation
System.
The Company's high and low closing bid and close information for the fiscal year
ended December 31, 2007 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.
Open High Low Close/Last*
-------------------------------------------------------------
Year Ended December 31,2007
First Quarter $ 0.6700 $ 0.7000 $ 0.6700 $ 0.7000
Second Quarter $ 0.6500 $ 0.6500 $ 0.6500 $ 0.6500
Third Quarter $ 0.5800 $ 0.6500 $ 0.5800 $ 0.6500
Fourth Quarter $ 0.3850 $ 0.5100 $ 0.3700 $ 0.5100
Year Ended December 31,2006
First Quarter $ 0.5250 $ 1.3130 $ 1.1250 $ 1.2250
Second Quarter $ 1.1250 $ 1.3750 $ 1.2500 $ 2.2000
Third Quarter $ 0.7200 $ 0.8200 $ 0.7000 $ 0.8200
Fourth Quarter $ 0.6500 $ 0.9200 $ 0.5000 $ 0.5500
Year Ended December 31,2005
March 2005 $1.2500 $1.2500 $1,2000 $1.200
Second Quarter $1.5000 $3.5000 $1.5000 $3.500
Third Quarter $3.5000 $4.5000 $1.4500 $4.000
Fourth Quarter $4.5000 $5.0500 $1.4500 $5.050
* Closing price is provided as of the last day of the month.
DIVIDENDS
The Company does not expect to pay any dividends at this time. The payment of
dividends, if any, will be contingent upon the Company's revenues and earnings,
capital requirements, and general financial condition. The payment of any
dividends will be within the discretion of the Company's Board of Directors and
may be subject to restrictions under the terms of any debt or other financing
arrangements that the Company may enter into in the future.
RECENT SALE OF UNREGISTERED SECURITIES
On July 11, 2007, the Company issued 5,333,333 million shares of common stock at
a market value of $0.70 per share for a total amount of $3,733,333. The shares
were issued to Domaine Group Limited, a company incorporated in the British
Virgin Islands and is the legal and beneficial owner of the 100% of the entire
issued and paid up capital of CBBN Holdings Limited, which the Company intends
to acquire. On March 19, 2007, the Company issued 40,000 shares of common stock
through its private placement of shares of common stock at a purchase price of
$1.50 per share for a total amount of $60,000 to "accredited investors", as that
term is defined in Regulation D of the Securities Act of 1933.
The shares of the Company's common stock were issued and sold in reliance upon
the exemption provided by Section 4(2) and/or Regulation D/Regulation S of the
Securities Act of 1933.
In January and February 2006, the Company issued a total of 5,520,000 shares of
common stock through private placement at a price of $0.75 per share for a value
of $4,140,000. These shares were subscribed and paid for before December 31,
2005 pursuant to the Company's private placement.
From January 23, 2006 to April 23, 2006, the Company issued 14,411,400 shares of
common stock through a private placement at a price of $0.75 per share for a
total amount of $10,808,550.
13
From April 24, 2006 to April 26, 2006, the Company issued 808,000 shares of
common stock through its new private placement at a price of $1.25 per share for
a total amount of $1,010,000.
From July 3, 2006 to July 24, 2006, the Company issued 120,168 shares of common
stock through private placement at a price of $1.50 per share for a total amount
of $180,249.
The total amount of funds raised through the private placement of shares of
common stock for the year ended December 31, 2006 was $11,998,799.
The shares issued in the private placements set forth above were issued in
reliance upon the exemption from registration set forth in Section 4(2) of the
Securities Act and Regulation D (Rules 505 and/or 506) and/or Regulation S
promulgated under the Securities Act. The shares were offered and sold to
investors who were "accredited investors" as defined in the Securities Act.
Appropriate investment representations were obtained and the securities were
issued with restrictive legends.
On April 27, 2006, the Company issued 6,992,000 shares of common stock through a
private placement at a price of $1.25 per share for a total amount of $8,740,000
for the acquisition of film library.
On August 15, 2006, the Company issued 40,000 shares of common stock in a
private placement at a price of $1.50 per share for a total amount of $60,000
for services to be rendered to the Company. Such services have been rendered as
of September 30, 2006.
On June 8, 2005, the Company issued 580,000 shares of common stock through a
private placement at a price of $0.75 a share for a total amount of $435,000 for
repayment of accounts payable.
On December 30, 2005, the Company approved the issue of 20,000 "restricted"
shares of common stock at a price of $0.75 per share to a consultant for
services to be rendered to the Company. The shares were issued in January 2006.
The services of the consultant pertaining to these shares issued were not
rendered as of December 31, 2005.
In the fiscal year ended December 31, 2005, the Company issued a total of
16,132,000 shares of common stock through private placement at a price of $0.75
per share for a total amount of $12,099,000.
A further 5,520,000 shares were subscribed before December 31, 2005 through
private placement at a price of $0.75 per share for a total purchase price of
$4,140,000. The shares were issued in January 2006.
The shares issued in the private placements set forth above were issued in
reliance upon the exemption from registration set forth in Section 4(2) of the
Securities Act and Regulation D (Rules 505 and/or 506) and/or Regulation S
promulgated under the Securities Act. The shares were offered and sold to
investors who were "accredited investors" as defined in the Securities Act.
Appropriate investment representations were obtained and the securities were
issued with restrictive legends.
On February 10, 2004, M2B World issued 1,363,636 shares of $0.31 par value
Series D common stock for a total cash capital contribution of $287,745 prior to
the acquisition by the Company.
On October 1, 2004, Amaru Inc. issued 400,000 "restricted" shares of common
stock for services valued at $5,000. The shares were issued without registration
in reliance upon the exemption provided by Section 4(2) of the Securities Act.
On October 25, 2004, a total of 143,000 shares of Series A Preferred Stock was
converted to 5,500,000 shares of common stock of Amaru Inc.
On October 28, 2004, Amaru Inc. issued 1,200,000 shares of common stock through
private placement at a price of $0.70 per share.
On November 20, 2004, Amaru Inc. issued 400,000 shares of common stock through
private placement at a price of $0.70 per share.
On December 10, 2004, Amaru Inc. issued 800,000 shares of common stock through
private placement at a price of $0.75 per share.
On December 11, 2004, Amaru Inc. issued 400,000 shares of common stock through
private placement at a price of $0.75 per share.
EQUITY COMPENSATION PLAN
The Company's 2004 Equity Compensation Plan has 9,745,000 million shares
remaining as of December 31, 2007. In 2007, no shares were issued under the
Company's 2004 Equity Compensation Plan. In 2006 and 2005, the Company issued
420,000 shares and 58,740 shares respectively under the Equity Compensation
Plan. There are no outstanding options under the Equity Compensation Plan.
14
ITEM 6: SELECTED FINANCIAL DATA
The following selected consolidated financial data is derived from the Company's
audited financial statements. These data is not necessarily indicative of
results of future operations, and should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations under Item 7 and, the Consolidated Financial Statements and Notes to
Consolidated Financial Statements under Item 8.
No cash dividends were declared in any of the years shown below:
Years Ended December 31,
-------------------------------------------------------------------------
2007 2006 2005 2004 2003
------------ ------------ ------------ ------------ ------------
STATEMENT OF OPERATIONS DATA:
Revenues (1) $ 37,053,269 $ 32,573,275 $ 18,095,922 $ 3,984,981 $ 1,005,038
Cost of Services (2) 23,349,404 24,302,425 16,352,048 3,053,715 475,525
Gross Profit 13,703,865 8,270,850 1,743,874 931,266 530,218
Operating income (loss) 5,659,871 1,544,082 (1,357,268) 510,457 60,082
Net gain on discontinued operations (3) -- -- 1,643,016 -- --
Net Income 5,088,792 1,250,259 166,745 512,295 39,530
Basic and diluted income (loss) per share 0.03 0.01 (0.05) 0.02 --
Shares used in computing basic and
diluted income/loss per common share 156,548,902 153,605,863 29,418,828 21,297,410 17,772,228
BALANCE SHEET DATA:
Working Capital 19,957,833 4,470,426 4,994,124 514,238 (515,173)
Total Assets 60,641,778 48,891,847 20,744,959 4,453,406 1,851,185
Long-term obligations 1,730,107 1,684,158 -- -- --
Stock holders' Equity 55,571,566 45,047,246 19,872,327 3,636,773 1,207,296
NOTES ON SELECTED FINANCIAL DATA
(1) Revenues significantly increased in 2005 due to the operations and
management of digit games (lottery) in Cambodia which was a new source
of revenue for the Company that was not available in 2004. Total digit
games revenues generated in 2005 was $14.8 million and it continuously
increased to $24.5 million and $ 22.4 million in 2006 and 2007,
respectively, as a result of the full year effect of the digit gaming
operation in Cambodia, which only commenced in May 2005. On the other
hand, entertainment services posted an increase of $ 6.5 million and $
4.7 million in 2007 and 2006, respectively, which further boosted up
revenue growth. The reasons for the increase in entertainment revenues
were the completion and delivery of IPTV platform in Indonesia for
2007, and increased licensing revenue in 2006.
(2) Cost of services in 2007, 2006 and 2005 includes direct operational
cost and gaming royalties paid for the digit games operations in
Cambodia which represents 96% of the digit games revenue.
(3) On December 20, 2005, the Company sold 81% equity interests in one of
its subsidiaries,, M2B Game World Pte. Ltd., 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 which is under gain from discontinued operations.
15
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 is in the business of broadband entertainment-on-demand, streaming
via computers, television sets, PDAs (Personal Digital Assistant) and the
provision of broadband services. Its business includes channel and program
sponsorship (advertising and branding); online subscriptions, channel/portal
development (digital programming services); content aggregation and syndication,
broadband consulting services, broadband hosting and streaming services and
E-commerce.
The Company is also in the business of digit gaming (lottery). The Company has
an 18 year license to conduct nation wide lottery in Cambodia. 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 following discussion should be read in conjunction with selected financial
data and the financial statements and notes to financial statements.
OVERVIEW
The key business focus of the Company is to establish itself as the leading
provider and creator of a new generation of Entertainment-on-Demand and
E-Commerce Channels on Broadband, and 3G (Third Generation) devices.
For the broadband, the Company delivers both wire and wireless solutions,
streaming via computers, TV sets, PDAs and 3G hand phones.
At the same time the Company launches e-commerce channels (portals) that provide
on-line shopping but with a difference, merging two leisure activities of
shopping and entertainment. The entertainment channels are designed to drive and
promote the shopping portals, and vice versa.
The Company's business model in the area of broadband entertainment includes
focuses on 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 2007, the business was reorganized under the following entities to
spearhead the expansion of the Company's business and focus on specific growth
areas and territories.
M2B WORLD PTE. LTD.
M2B World Pte. Ltd. was incorporated on April 3, 2003. This subsidiary used to
oversee the management and operation of the Company as a whole and oversees the
Asian business. With effect from September 1, 2006, the Company's Asian business
was overseen by another subsidiary, M2B World Asia Pacific Pte. Ltd.
16
The Company took an investment on May 16, 2005 for a 9.1% equity position with a
company called Activ Lifestyle Pte Ltd in Singapore to help facilitate Amaru
Inc.'s diversification into the health and wellness market. On September 27,
2005, the Company raised its investment in Activ Lifestyle Pte Ltd to 12.6%.
This was further increased to 17.4% as of December 31, 2006.
In December 2005, M2B World Pte. Ltd. sold 81% equity interests of its
wholly-owned subsidiary, M2B Game World Pte. Ltd. to Auston International Group
Ltd (Auston), a public listed company in Singapore, in exchange for 27% equity
interest in Auston. During 2006, M2B World Pte. Ltd. divested part of its
interest in Auston. As of December 31, 2007, the Company's equity interest in
Auston stands at 10.40%.
M2B WORLD, INC.
M2B World, Inc., a California corporation, was incorporated on January 24, 2005.
This subsidiary handles and oversees the Company's business in the U.S. The
Company has leased a new office on Sunset Boulevard, West Hollywood that came
into effect in August 2006. In October 2007, M2B World Inc reduced its staffing
and in November 2007 sub-leased its premise as part of the Company's cost
reduction measures.
This subsidiary oversees the new global Broadband TV (IPTV) service. A new
server farm was set up in the U.S. in San Jose California in December 2005 to
expand the broadband streaming infrastructure; in order to handle the business
in North America and also the global IPTV service.
On May 27, 2005, M2B World, Inc. entered into an agreement with Indie Vision
Films, Inc., a California corporation, to purchase 20% of the beneficial
ownership of Indie Vision Films, Inc. The investment will allow M2B World, Inc.
to access the library of programs of Indie Vision Films, Inc. The Company is
currently into negotiations with Indie Vision Films, Inc to convert its
investment into content rights, thereby giving up its 20% share of beneficial
ownership in lieu of library rights that the Company could exploit commercially
for international use.
On November 1, 2007, the Company sub-leased the office premises of M2B World
Inc, a wholly owned subsidiary of the Company in Los Angeles, California as part
of its efforts to streamline its operations and reduce operating costs. The
staffing of M2B World Inc was also reduced from 9 staff to 1 staff as of October
31, 2007. The company is in the process of consolidating the server farm with
the Singapore server farm to, optimize bandwidth and support cost.
M2B WORLD ASIA PACIFIC PTE. LTD.
M2B World Asia Pacific Pte Ltd was incorporated in the Republic of Singapore on
1 August 2006 for the purposes of handling all the business operations of the
Company in the Asia Pacific region. This company had taken over the Asian
business operations as well as the assets and liabilities of M2B World Pte. Ltd.
with effect from September 1, 2006.
On January 3, 2007, M2B World Asia Pacific Pte Ltd, issued 7,778,014 shares of
common stock through a private placement at a price of $0.77 a share for a total
amount of $6,000,000. This had effectively reduced the Company's effective
equity interest in M2B World Asia Pacific Pte. Ltd. from 100% to 81.6%.
M2B COMMERCE LIMITED
M2B Commerce Limited, a company incorporated in the British Virgin Islands on
July 25, 2002, focuses on e-commerce and digit gaming, with a branch in Cambodia
that oversees the digit gaming operation in Cambodia.
The Company has an agreement with Allsports Limited, a British Virgin Islands
company to operate, administer, and manage the lottery digit games activities in
Cambodia, as an extension of the Company's entertainment operations.
The company had entered into an investment agreement on January 12, 2006, with
Khoo Kim Leng, the beneficial owner of Dai Long Co., Ltd, which holds a valid
casino license and freehold land and intends to develop and operate an
integrated resort in the Kingdom of Cambodia. The resort will feature a hotel,
guest house, shopping arcade, entertainment and amusement center and some gaming
tables. As of December 31, 2006, the company had invested $2,402,613 in relation
to this investment. The resort was completed and is in operation subsequent to
the balance sheet date. The Company however intends to divest its stake in the
resort, and has already put up its investment for sale in the market, as the
investment is not related to the Company's core business.
M2B ENTERTAINMENT, INC.
M2B Entertainment, Inc. was incorporated on October 27, 2005. This subsidiary
will oversee the Company's Canadian market. As of December 31, 2007, this
subsidiary is dormant.
17
M2B AUSTRALIA PTY LTD
M2B Australia Pty Ltd was incorporated on June 15, 2005. This subsidiary handles
and oversees the Company's business in Australia. As of December 31, 2007, this
subsidiary is dormant.
M2B WORLD TRAVEL SINGAPORE PTE. LTD.
M2B World Travel Singapore Pte Ltd was incorporated in the Republic of Singapore
on March 7, 2006. This subsidiary of M2B World Travel Limited launches a global
online travel platform which offers global e-travel services.
The Company has completed the development of an online travel engine and travel
web applications for integration with suppliers of travel information and travel
services; and incorporating travel features with current media operations under
the M2B brand name.
M2B World Travel Limited signed a global agreement with Amadeus Global Travel
Distribution, SA, a Spanish corporation. Through the agreement, the company will
be able to offer direct access to the extensive range of travel options
available through the Amadeus network to viewers around the world.
The launch and operations of the travel service is subject to funding
considerations and the set up of the server farm to host the system.
AMARU HOLDINGS LIMITED AND M2B WORLD HOLDINGS LIMITED
Amaru Holdings Limited and M2B World Holdings Limited are incorporated in the
British Virgin Islands on February 21, 2005 and June 15, 2006, respectively.
Amaru Holdings Limited focuses on content syndication and distribution in areas
other than Asia Pacific region. M2B World Holdings Limited focuses on content
syndication and distribution in Asia Pacific region and is a subsidiary of M2B
World Asia Pacific Pte. Ltd.
TREMAX INTERNATIONAL LIMITED AND M2B WORLD TRAVEL LIMITED
Tremax International Limited and M2B World Travel Limited are both incorporated
in the British Virgin Islands on June 8, 2006 and May 3, 2005 respectively. Both
companies are investment holdings companies.
On July 10, 2007, Tremax International Limited entered into a sale and purchase
agreement (the "Agreement") with Domaine Group Limited, a British Virgin Islands
corporation (the "Vendor"), for the acquisition of CBBN Holdings Limited ("CBBN
Holdings"). CBBN Holdings is a 80% beneficial owner of Cosmactive Broadband
Networks Co. Ltd ("CBN"), which is a broadband service provider incorporated in
Taiwan. The purchase consideration is satisfied in full by the issuance of
5,333,333 of common stock of the Company. The investment is pending the approval
of the regulatory authorities in Taiwan, which is a requirement for foreign
investments in Taiwan.
CBN is a company registered in Taiwan, the Republic of China. CBN is an internet
cum broadband access provider to major residential buildings in Taiwan. The
Company believes that acquisition of CBN will be beneficial to the Company,
because CBN has a subscriber base of about 20,000 homes and should be able to
provide the Company with a ready subscriber base to roll out its services. In
2006, CBN had a revenue of $2.5 millions and fixed assets of $1.8 millions in
network and systems to enable services to the homes.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
In the preparation of the financial statements, the Company adopted the
following critical accounting policies.
INTANGIBLE ASSETS
Intangible assets consist of film library, gaming and software license and
product development costs. Intangible assets which were purchased and have
indefinite lives are stated at cost less impairment losses. Intangible assets
which were purchased for a specific period are stated at cost less accumulated
amortization and impairment losses. Such intangible assets are amortized over
the period of the contract, which is two to 18 years.
REVENUE
Subscription and related services revenues are recognized over the period that
services are provided. Advertising and sponsorship revenues are recognized as
the services are performed or when the goods are delivered. Licensing and
content syndication revenue is recognized when the license period begins, and
the contents are available for exploitation by customer, pursuant to the terms
of the license agreement. Gaming revenue is recognized as earned net of
winnings. E-commerce commissions are recognized as received. Broadband
consulting services and on-line turnkey solutions revenue are recognized as
earned.
18
The Company has adopted accounting pronouncements issued before December 31,
2007, that are applicable to the Company.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2006, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an
Interpretation of FASB Statement No. 109, Accounting for Income Taxes ("FIN
48"), to create a single model to address accounting for uncertainty in tax
positions. FIN 48 clarifies the accounting for income taxes by prescribing a
minimum recognition threshold a tax position is required to meet before being
recognized in the financial statements. FIN 48 also provides guidance on
derecognition, measurement, classification, interest and penalties, accounting
in interim periods, disclosure and transition. FIN 48 is effective for fiscal
years beginning after December 15, 2006. The Company adopted FIN 48 on January
1, 2007. The adoption of FIN 48 did not have an impact on the Company's opening
retained earnings.
In March 2006, the Emerging Issues Task Force ("EITF") reached a tentative
consensus on Issue No. 06-3, How Sales Taxes Collected from Customers and
Remitted to Governmental Authorities Should Be Presented in the Income Statement
(That Is, Gross Versus Net Presentation) ("EITF 06-3"). EITF 06-3 addresses
income statement classification and disclosure requirements of
externally-imposed taxes on revenue-producing transactions. EITF 06-3 is
effective for periods beginning after December 15, 2006. We do not expect the
implementation of EITF 06-3 to have a material impact on our consolidated
financial position, results of operations or cash flows.
In September 2006, the FASB issued Statement of Financial Accounting Standard
("SFAS") No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 defines fair
value, establishes a market-based framework or hierarchy for measuring fair
value, and expands disclosures about fair value measurements. SFAS 157 is
applicable whenever another accounting pronouncement requires or permits assets
and liabilities to be measured at fair value. SFAS 157 does not expand or
require any new fair value measures; however the application of this statement
may change current practice. The requirements of SFAS 157 are first effective
for the Company fiscal year beginning January 1, 2008. However, in February 2008
the FASB decided that an entity need not apply this standard to nonfinancial
assets and liabilities that are recognized or disclosed at fair value in the
financial statements on a nonrecurring basis until the subsequent year.
Accordingly, the Company's adoption of this standard on January 1, 2008, is
limited to financial assets and liabilities. The Company does not believe the
initial adoption of SFAS 157 will have a material effect on its financial
condition or results of operations. However, the Company is still in the process
of evaluating this standard with respect to its effect on nonfinancial assets
and liabilities and therefore has not yet determined the impact that it will
have on the Company's financial statements upon full adoption.
In February 2007, the FASB issued Statement of Financial Accounting Standards
No. 159, The Fair Value Option for Financial Assets and Financial Liabilities.
SFAS No. 159 permits entities to choose to measure many financial assets and
financial liabilities at fair value. Unrealized gains and losses on items for
which the fair value option has been elected are reported in net income. SFAS
No. 159 is effective for fiscal years beginning after November 15, 2007 and
interim periods within those fiscal years. The Company is currently evaluating
the impact that SFAS No. 159 will have on its financial position and results of
operations.
In December 2007, the FASB issued Statement of Financial Accounting Standards
No. 141 (revised 2007), Business Combinations ("SFAS 141R"). SFAS 141R
established principles and requirements for how an acquiring company recognizes
and measures in its financial statements the identifiable assets acquired, the
liabilities assumed, any noncontrolling interest if the acquired company and the
goodwill acquired. SFAS 141R also established disclosure requirements to enable
the evaluation of the nature and financial effects of the business combination.
SFAS 141R is effective for fiscal periods beginning after December 15, 2008. The
Company is currently evaluating the impact that SFAS 141R will have on its
financial position and results of operations.
In December 2007, the FASB issued Statement of Financial Accounting Standards
No. 160, Noncontrolling Interests in Consolidated Financial Statements-an
amendment of Accounting Research Bulletin No. 51 ("SFAS . 160"). SFAS 160
establishes accounting and reporting standards of ownership interests in
subsidiaries held by parties other than the parent, the amount of consolidated
net income attributable to the parent and to the noncontrolling interest,
changes in a parent's ownership interest and the valuation of retained
noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160
also establishes disclosure requirements that clearly identify and distinguish
between the interests of the parent and the interests of the noncontrolling
owners. SFAS 160 is effective for fiscal periods beginning after December 15,
2008. The Company is currently evaluating the impact that SFAS 160 will have on
its financial position and results of operations.
19
RESULTS OF OPERATIONS
For the fiscal year ended December 31, 2007 compared with the fiscal year ended
December 31, 2006 and December 2005.
FINANCIAL STATEMENT
- Revenue for the year ended December 31, 2007 was $37,053,269 compared
with $32,573,275 in 2006 and $18,095,922 in 2005 for the same period.
- Income from operations was $5,659,871 in 2007 compared with $1,544,082
in 2006 and loss of $1,354,894 in 2005.
- Net income was $5,088,792 in 2007 compared with $1,250,259 in 2006 and
$166,745 in 2005.
- The Company's cash balance was $2,322,541 at December 31, 2007 compared
with $2,294,984 at December 31 2006 and $4,776,819 at December 31,
2005.
REVENUE
The following table sets forth a year-over-year comparison of the key components
of the Company's revenues:
Variance Variance
Year Ended December 31 2007 vs. 2006 2006 vs. 2005
--------------------------------------- ------------------------- --------------------------
2007 2006 2005 $ % $ %
----------- ----------- ----------- ----------- ----------- ----------- -----------
Entertainment $14,568,379 $ 8,053,146 3,278,833 $ 6,515,233 81% 4,774,313 146%
Digit games $22,451,970 $24,505,465 14,813,629 $(2,053,495) (8%) 9,691,836 65%
Other $ 32,920 $ 14,664 3,460 $ 18,256 124% 11,204 324%
Total revenues $37,053,269 $32,573,275 18,095,922 $ 4,479,994 14% 14,477,353 80%
Revenue for the year ended December 31, 2007 increased by $4,479,994 (13.75%),
from $32,573,275 for the year ended December 31, 2006 to $37,053,269 for the
year ended December 31, 2007.
This increase in revenue for the year ended December 31, 2007 was mainly
contributed by the entertainment segment which included the completion and
delivery of the IPTV platform in Indonesia. This resulted in a revenue of $14.5
million in the twelve months ended December 31, 2007. The completion and
delivery of the IPTV platform in Indonesia comprised of the hardware, software
and middleware, and supply and programming of content.
The digit games in Cambodia incurred a decrease in revenue of $2,053,495 (a drop
of 8.38%) for the year ended December 31, 2007 from $24,505,465 in December 31,
2006 to $22,451,970 in December 31, 2007, mainly due to more holidays and
increased competition from new digit games players in the market in the year
2007 as compared in the year 2006.
Our revenue for the year ended December 31, 2006 (FY2006) increased by
$14,477,353 or 80.0% to $32,573,275 from $18,095,922 for the year ended December
31, 2005 (FY2005) mainly due to the full year effect of the operation of the
digit gaming activities in Cambodia and the increase in content syndication and
licensing revenue.
The main bulk of the revenue for FY2006 was from the entertainment services and
digit gaming operations. Entertainment services revenue registered an increase
of $4,774,313 or 145.6% from $3,278,833 in FY2005 to $8,053,146 in FY2006 while
the digit gaming revenue registered an increase of $9,691,836 or 65.4% from
$14,813,629 in FY2005 to $24,505,465 in FY2006.
The increase was contributed by an increase in licensing revenue as well as the
full year effect of the operations of the digit gaming (lottery) operations in
Cambodia, which only commenced in May 2005.
COST OF SERVICES
The following table sets forth a year-over-year comparison of the Company's cost
of services:
Variance Variance
Year Ended December 31 2007 vs. 2006 2006 vs. 2005
--------------------------------------- ------------------------- --------------------------
2007 2006 2005 $ % $ %
----------- ----------- ----------- ----------- ----------- ----------- -----------
Cost of services $23,349,404 $24,302,425 $16,352,048 $ (953,021) (4%) $ 7,950,377 49%
20
Cost of services for the year ended December 31, 2007 was $23,349,404 which
decreased by $953,021 (3.92%) from $24,302,425 for the year ended December 31,
2006.
Decrease in cost of services of $953,021 for the year ended December 31, 2007
was mainly attributed to the delivery of the IPTV platform in Indonesia, which
included the hardware, software and middleware, and supply and programming of
content, and the launch of the new web TV service (called WOWtv) in Singapore.
As a proportion of revenue, the cost of services for the year ended December 31,
2007 was 63.01% as compared to 74.61% for the year ended December 31, 2006. This
was due to an increase in the entertainment segment revenue resulting from the
delivery of the IPTV platform in Indonesia.
Cost of services for FY2006 was $24,302,425 which increased by $7,950,377 or
48.6% from $16,352,048 in FY2005. As a proportion of revenue, the cost of
services for FY2006 was 74.6% (cost of services at $24,302,425 and revenue of
$32,573,275) as compared to 90.4% (cost of services at $16,352,048 and revenue
at $18,095,922) in FY2005. This improvement was mainly due to the licensing
revenue generated during the year which have a higher margin.
The significant increase in cost of services was mainly attributed to the cost
of managing and operating the operations and game centers in Cambodia for the
digit games and the payment of royalties for the lottery license. This accounted
for $23,673,958 of the total cost of $24,302,425 (97.4%).
DISTRIBUTION EXPENSES
The following table sets forth a year-over-year comparison of the Company's
distribution expenses :
Variance Variance
Year Ended December 31 2007 vs. 2006 2006 vs. 2005
--------------------------------------- ------------------------- --------------------------
2007 2006 2005 $ % $ %
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total $ 891,484 $ 1,446,990 $ 1,102,339 $ (555,506) (38%) $ 344,651 31%
distribution
expenses
Distribution expenses for the year ended December 31, 2007 at $891,484 were
lower by $555,506 (38.39%) as compared to the amount of $1,446,990 incurred for
the year ended December 31, 2006.
The lower distribution expenses were attributed to decreased spending for
marketing and promotions which decreased by $528,258 (49.28%), from $1,072,010
for the year ended December 31, 2006 to $543,752 for the year ended December 31,
2007.
Distribution expenses increased by $344,651 or 31.3% in FY2006 from $1,102,339
in FY2005 to $1,446,990 in FY2006. The increase in distribution expenses were
mainly due to increased spending on the branding of the M2B brand, marketing and
promoting the Global Broadband TV Service, which increased by $190,439 or 21.6%
from $881,572 in FY2005 to $1,072,011 in FY2006 as well as the increased
traveling expenses to promote the Global Broadband TV Service.
GENERAL AND ADMINISTRATIVE EXPENSES
The following table sets forth a year-over-year comparison of the Company's
general and administrative expenses :
Variance Variance
Year Ended December 31 2007 vs. 2006 2006 vs. 2005
--------------------------------------- ------------------------- --------------------------
2007 2006 2005 $ % $ %
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total general and $ 7,152,510 $ 5,279,778 $ 1,998,803 $ 1,872,732 35% $ 3,280,975 164%
administrative
expenses
Administration expenses for the year ended December 31, 2007 at $7,152,510 were
higher by $1,872,732 (35.47%) as compared to the amount of $5,279,778 incurred
for the year ended December 31, 2006.
The increase in administrative expenses for the year ended December 31, 2007 was
attributed mainly to increase in license amortization.
21
License amortization had increased by $2,171,816 (191.66%), from $1,133,184 for
the year ended December 31, 2006 to $3,305,000 for the year ended December 31,
2007. The increase was mainly attributed to the increase in license amortization
of the movies content which have a definite life and which were acquired for the
newly launched M2Btv and WOWtv services.
Administration expenses for FY2006 increased by $3,280,975 or 164.1% from
$1,998,803 in FY2005 to $5,279,778 in FY2006.
The increase in administration expenses in FY2006 were attributed mainly to
increases in:
(a) Staff costs
Staff costs had increased by $1,066,344 or 129.1% from $825,956 in FY2005 to
$1,892,300 in FY2006 as a result of the increase in the number of professional
employees hired to cater to the expanding and growing business.
(b) Depreciation and amortization.
The increase in depreciation was attributed to the leasehold improvements for
the expansion of the offices, new editing suites and laptops provided to staff
to cater to the demands of the growing business as well as the Pony set-top
boxes installed in the homes and offices of the customers. Depreciation expense
increased by $173,100 or 275.2% from $62,893 in FY2005 to $235,993 in FY2006.
The increase in license amortization came from the film library, on-line games
license and gaming license in Cambodia. Amortization charged in FY2006 increased
by $772,835 or 214.5% from $360,349 in FY2005 to $1,133,184 in FY2006.
(c) Legal and professional fees.
The increase were mainly due to the higher costs of the quarterly review and
accrual of audit fees as a result of the expansion of the business, legal fees
incurred in review of contracts and filing and professional fees incurred in the
valuation of the film library of the Company. Legal and professional fees
increase by $665,480 or 196.0% from $339,491 in FY2005 to $1,004,971 in FY2006.
INCOME FROM OPERATIONS
The following table sets forth a year-over-year comparison of the Company's
income from operations:
Year Ended December 31
-------------------------------------------
2007 2006 2005
----------- ----------- -----------
Income from operations $ 5,659,871 $ 1,544,082 $(1,357,268)
The Company reported an income from operations of $5,659,871 for the year ended
December 31, 2007 as compared to the income from operations of $1,544,082 for
the year ended December 31, 2006. The significant increase in the income from
operations for the year ended December 31, 2007 was due to the significant
increase in the entertainment segment revenue for the year.
The profit from operations was $1,544,082 in FY2006 as compared to a loss of
$1,357,268 in FY2005. The profit from operations in FY2006 was mainly attributed
to the revenue generated from the licensing income and lower cost of services as
compared to FY2005 as well as from the gain on sale of available for sale
investment.
NET INCOME
The following table sets forth a year-over-year comparison of the Company's net
income:
Year Ended December 31
-------------------------------------------
2007 2006 2005
----------- ----------- -----------
Net income $ 5,088,792 $ 1,250,529 $ 166,745
For the year ended December 31, 2007, net income was $5,088,792 which increased
by $3,838,263 (307%) from $1,250,529 for the year ended December 31, 2006.
The significant increase in net income for the year ended December 31, 2007 was
mainly attributed to the increase in the entertainment segment revenue. The
increase was partly attributed to the gain on dilution of the Company's interest
in a subsidiary, M2B World Asia Pacific Pte. Ltd. by issuing shares to the
private investors at a premium. The increase in net income was partly offset by
the write off of an intangible asset, and by the loss of the fair value of an
investment (equity securities) held for trading, due to a drop in the market
value of the shares.
22
Net income increased by $1,083,784 or 650.0% from $166,745 in FY2005 to
$1,250,529 in FY2006 mainly due to the increase in licensing income and lower
cost of services offset by higher distribution and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash of $2,322,541 at December 31, 2007 as compared to cash of
$2,294,984 at December 31, 2006.
The Company does not finance its operations through short-term bank credit nor
long-term bank loans as it believes that cash generated from its operations will
be able to cover its daily running cost and overheads.
During the year ended December 31, 2007, the Company had not entered into any
transactions using derivative financial instruments or derivative commodity
instruments. Accordingly the Company believes its exposure to market interest
rate risk is not material.
Cash generated from operations will not be able to cover the Company's intended
growth and expansion. The Company has plans in 2007 to expand its broadband
coverage by launching new broadband sites in Asia Pacific region and Australia.
No assurances can be made that such plans will be carried out in a timely
manner.
The Company intends to raise additional funds, to fund its business expansion;
however no assurances can be made that the Company will raise sufficient funds
as planned.
NEW CONTRACTS
o On January 3, 2007, M2B World Asia Pacific Pte Ltd, issued 7,778,014
shares of common stock through a private placement at a price of $0.77
a share for a total amount of $6,000,000. This had effectively reduced
the Company's effective equity interest in M2B World Asia Pacific Pte.
Ltd. from 100% to 81.6%.
o On January 15, 2007, the Company through its subsidiary, Amaru Holdings
Limited (Amaru Holdings), a British Virgin Islands corporation, entered
into a sale and purchase agreement together with other sellers (the
"Agreement") with Auston International Group Ltd., a Singapore company
(Auston) to sell to Auston its majority owned subsidiary, M2B World
Asia Pacific Pte Ltd., together with its subsidiary, M2B World Holdings
Limited (collectively, M2B Asia). The Agreement provided for the sale
of 42,459,978 shares of M2B World Asia Pacific Pte. Ltd., its total
issued and outstanding capital. As the consideration for M2B World Asia
Pacific Pte. Ltd. shares, Auston agreed to issue a total of 660 million
new ordinary shares of Auston to M2B World Asia Pacific Pte. Ltd.
shareholders. The Auston shares were valued at S$0.25 per share.
The Agreement was subject to certain conditions precedent, including, but not
limited to the shareholder approval of the transaction by Auston shareholders,
the approval of the Singapore Stock Exchange and other related regulatory
approvals of both parties.
Amaru Holdings was required to deliver a valuation report by an independent
auditor to Auston confirming that the value of the assets of M2B World Asia
Pacific Pte. Ltd. was no less than that of the amount of consideration to be
paid by Auston.
This agreement expired as of December 31, 2007. On February 19, 2008, the
Company decided that it was in the best interest of the Company not to extend
the Agreement The Company intends to list the securities of M2B World Asia
Pacific Pte Ltd on the Singapore Stock Exchange.
o On April 23, 2007, M2B World Holdings Limited ("M2B World"), a British
Virgin Islands corporation entered into a sale and purchase agreement
(the "Agreement") with P T Agis TBK, a company incorporated in
Indonesia ("Agis") to sell to Agis certain assets, including the domain
name under which the IPTV business will operate in Indonesia and the
transfer and license of IPTV platform (collectively, the "Assets"). M2B
World is a wholly-owned subsidiary of M2B World Asia Pacific Pte Ltd.
which is an 81.7% owned by Amaru Holdings Limited. Amaru Holdings
Limited is a wholly-owned subsidiary of Amaru Inc., a Nevada
corporation (the "Company"). Agis is trading on the Indonesia Stock
Exchange. The Agreement provides for the consideration of US$15 million
for the sale of the Assets based on the mutually agreed valuation of
such Assets. Such consideration is to be provided through the issuance
of 75 million of Agis shares at an agreed price of IDR 1300 per share,
and such number of shares of a to be formed investment holding
wholly-owned subsidiary of Agis that shall equal to 50% of beneficial
holdings of such subsidiary. The sale had been completed by September
30, 2007.
23
o On July 10, 2007, the Company together with one of the subsidiaries of
the Company, Tremax International Limited entered into a sale and
purchase agreement (the "Agreement") with Domaine Group Limited, a
British Virgin Islands corporation (the "Vendor"), for the acquisition
of CBBN Holdings Limited ("CBBN Holdings"). CBBN Holdings is a 80%
beneficial owner of Cosmactive Broadband Networks Co. Ltd ("CBN"),
which is a broadband service provider incorporated in Taiwan. The
purchase consideration shall be satisfied in full by the issuance of
5,333,333 of common stock of the Company. The investment is awaiting
the approval of the Investment Committee of Taiwan and any other
regulatory or government approvals that may be needed for a foreign
investment in Taiwan.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary objective of our investment activities is to preserve principal
while concurrently maximizing the income we receive from our investments without
significantly increasing risk. Some of the securities that we may invest in may
be subject to market risk. This means that a change in prevailing interest rates
may cause the principal amount of the investment to fluctuate. For example, if
we hold a security that was issued with a fixed interest rate at the
then-prevailing rate and the prevailing interest rate later rises, the current
value of the principal amount of our investment will decline. To minimize this
risk in the future, we intend to maintain our portfolio of cash equivalents and
short-term investments in a variety of securities, including commercial paper,
money market funds, high-grade corporate bonds, government and non- government
debt securities and certificates of deposit. In general, money market funds are
not subject to market risk because the interest paid on such funds fluctuates
with the prevailing interest rate. The Company held $10,237,958 and $12,158,351
in marketable securities as of December 31, 2007 and December 31, 2006
respectively.
The Company does not believe that it faces material market risk with respect to
its cash and cash equivalents which totaled $2,322,541 and $2,294,984 at
December 31, 2007 and 2006, respectively.
The Company has no long-term obligations or hedging activities.
ABILITY TO EXPAND CUSTOMER BASE
The Company's future operating results depend on our ability to expand our
customer base for broadband services and e-commerce portals. An increase in
total revenue depends on our ability to increase the number of broadband and
e-commerce portals, in the US, Europe and Asia. The degree of success of this
depends on:
o our efforts to establish independent broadband sites in countries where
conditions are suitable.
o our ability to expand our offerings of content in entertainment to
include more niche channels and offerings.
o our ability to provide content beyond just personal computers but to
encompass television, wireless application devices and 3G hand phones.
ABILITY TO ACQUIRE NEW MEDIA CONTENTS
The continued ability of the Company to acquire rights to new media contents, at
competitive rates, is crucial to grow and sustain the Company's business.
AVAILABILITY OF TECHNOLOGICALLY RELIABLE NEW GENERATION OF BROADBAND DEVICES
The growth of demand for broadband services is dependent on the wide
availability of technologically reliable new generation of broadband devices, at
affordable prices to prospective customers of broadband services. The early and
widespread availability and market adoption of new generation broadband devices,
will significantly impact demand for broadband services and the growth of the
Company's business.
CAPITAL INVESTMENT IN BROADBAND INFRASTRUCTURE BY GOVERNMENT AND TELCOS
The growth of demand for broadband services is dependent on the capital
investment in broadband infrastructure by governments and Telcos. A significant
source of demand for the Company's broadband services could be from homes and
enterprises with access to high-speed broadband connections. The ability of
countries to invest in public broadband infrastructure to offer public
accessibility is subject to countries' economic health. The Company's prospects
for business growth in Asia especially would be impacted by overall economic
conditions in the territories that we seek to expand into.
24
COMPETITION FROM BROADBAND CABLE AND TV NETWORKS OPERATORS
The competition of services provided by broadband cable network operators and TV
networks. As traditional TV networks and cable TV operators provide alternate
supply of entertainment and on-demand broadband services, they are in
competition with the Company, for market share. The Company, nevertheless, will
continue to leverage on its advantage of ownership rights to its own portfolio
of media content and its ability to provide broadband services over both the
cable and wireless networks, at competitive rates.
The Company's business is reliant on complex information technology systems and
networks. Any significant system or network disruption could have a material
adverse impact on our operations and operating results. The Company's nature of
business is highly dependent on the efficient and uninterrupted operation of
complex information technology systems networks, may they, either be that of
ours, or our Telco/ ISP partners.
All information technology systems are potentially vulnerable to damage or
interruption from a variety of sources, including but not limited to computer
viruses, security breach, energy blackouts, natural disasters and terrorism, war
and telecommunication failures. System or network disruptions may arise if new
systems or upgrades are defective or are not installed properly. The Company has
implemented various measures to manage our risks related to system and network
disruptions, but a system failure or security breach could negatively impact our
operations and financial results.
LAW AND REGULATIONS GOVERNING INTERNET
Increased regulation of the Internet or differing application of existing laws
might slow the growth of the use of the Internet and online services, which
could decrease demand for our services. The added complexity of the law may lead
to higher compliance costs resulting in higher costs of doing business.
UNAUTHORIZED USE OF PROPRIETARY RIGHTS
Our copyrights, patents, trademarks, including our rights to certain domain
names are very important to M2B and WOWtv's brand and success. While we make
every effort to protect and stop unauthorized use of our proprietary rights, it
may still be possible for third parties to obtain and use the intellectual
property without authorization. The validity, enforceability and scope of
protection of intellectual property in Internet-related industries remain
uncertain and still evolving. Litigation may be necessary in future to enforce
these intellectual property rights. This will result in substantial costs and
diversion of the Company's resources and could disrupt its business, as well as
have a material adverse effect on its business.
LAW AND REGULATIONS GOVERNING BUSINESS
As the Company continues to expand its business internationally across different
geographical locations there are risks inherent including:
1) Trade barriers and changes in trade regulations
2) Local labor laws and regulations
3) Currency exchange rate fluctuations
4) Political, social or economic unrest
5) Potential adverse tax regulation
6) Changes in governmental regulations
OUTBREAK OF BIRD FLU PANDEMIC OR SIMILAR ADVERSE PUBLIC HEALTH DEVELOPMENTS
Any future outbreak of the bird flu pandemic or similar adverse public health
developments may have a material adverse effect on the Company's business
operations, financial condition and results of operations.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Financial Statements and Notes thereto commencing on Page F-1.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE
-----------
Report of Independent Registered Public Accounting Firm F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Income F-3
Consolidated Statements of Stockholders' Equity and Comprehensive
Income F-4 - F-5
Consolidated Statements of Cash Flows F-6 - F-7
Notes to Consolidated Financial Statements F-8 - F-25
25
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A: CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
A system of disclosure controls and procedures (as defined in Rule 13a-15(e)
under the Securities Exchange Act of 1934, as amended [the "Exchange Act"]) are
controls and other procedures that are designed to provide reasonable assurance
that the information that the Company is required to disclose in the reports
that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms, and that such information is accumulated and communicated to the
Company's management, including the Chief Executive Officer and Chief Financial
Officer, as appropriate to allow timely decisions regarding required disclosure.
There are inherent limitations to the effectiveness of any system of disclosure
controls and procedures, including the possibility of human error and the
circumvention or overriding of the controls and procedures. Accordingly, even
effective disclosure controls and procedures can only provide reasonable
assurance of achieving their control objectives, and management necessarily is
required to use its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. In addition, the design of any system of
controls is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. Moreover, over
time, controls may become inadequate because of changes in conditions, or the
degree of compliance with policies or procedures may deteriorate. Because of the
inherent limitations in a control system, misstatements due to error or fraud
may occur and not be detected.
Notwithstanding the issues described below, the current management has concluded
that the consolidated financial statements for the periods covered by and
included in this Annual Report on Form 10-K are fairly stated in all material
respects in accordance with generally accepted accounting principles in the
United States for each of the periods presented herein.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Section 404 of the Sarbanes-Oxley Act of 2002 requires that management document
and test the Company's internal control over financial reporting and include in
this Annual Report on Form 10-K a report on management's assessment of the
effectiveness of our internal control over financial reporting.
The Company's management is responsible for establishing and maintaining
adequate internal control over the Company's financial reporting, as such term
is defined in Exchange Act Rule 13a-15(f). Internal control over financial
reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with United States of America generally
accepted accounting principles. A Company's internal control over financial
reporting includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles and that receipts and expenditures of the Company are
being made only in accordance with authorization of management and directors of
the Company and (iii) provide reasonable assurance regarding the prevention or
timely detection of unauthorized acquisition, use or disposition of the
Company's assets that could have a material effect on our consolidated financial
statements.
In connection with the preparation of this Annual Report on Form 10K, to
evaluate the effectiveness of the design and operation of our disclosure
controls and procedures as of December 31, 2007, the Company's management did
not complete the assessment of the effectiveness of the Company's internal
control over financial reporting, implementing the criteria set forth by the
Committee of Sponsoring Organizations (COSO) of the Treadway Commission in
"Internal Control-Integrated Framework". Management has concluded as a result
that its disclosure controls and procedures may not be effective at the
reasonable assurance level as of December 31, 2007. Specifically, its control
environment possibly may not sufficiently promote effective internal control
over financial reporting through the management structure to prevent a material
misstatement.
The Company needs to complete implementing the internal controls based on the
criteria established in Internal Control -- Integrated Framework issued by the
COSO. The management is fully committed to implement the internal controls based
on these criteria in 2008 and the management believes that it is taking the
steps that will properly address any issue.
26
Subsequent to December 31, 2007, the Company plans to hire a Chief Financial
Officer and is utilizing several full time accounting contractors serving in
senior and staff level accounting positions. The Company is actively recruiting
high-level competent accounting personnel.
While we are taking immediate steps and dedicating substantial resources to
implement the internal controls based on the criteria established in Internal
Control - Integrated Framework issued by the COSO, they will not be considered
fully implemented until the new and improved internal controls operate for a
period of time, are tested and are found to be operating effectively.
The Company's registered public accountant has not conducted an audit of the
Company's controls and procedures regarding internal control over financial
reporting. Consequently, the registered public accounting firm expresses no
opinion with regards to the effectiveness or implementation of the Company's
controls and procedures with regards to internal control over financial
reporting.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in the Company's internal control over financial
reporting during the most recently completed fiscal quarter that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
ITEM 9B: OTHER INFORMATION
None.
PART III
ITEM 10: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Our directors, executive officers and key employees as of March 14, 2008 were as
follows:
Name Age Position
-------- ------- -----------
Sakae Torisawa 62 Chairman of the Board of Directors
Zee Moey Ngiam 52 Director
Colin St.Gerard Binny 54 Chief Executive Officer, President,
Interim Acting Chief Financial Officer and
Director
SAKAE TORISAWA
Mr. Torisawa has served as a director of the Company since January 2007, and as
the Chairman of the Company's Board of Directors since March 5, 2007. Mr.
Torisawa graduated from the Journalism Course of Law Department at Nippon
University, Japan. In 1973, Mr. Torisawa joined Hockmetals Group in Tokyo, which
is a worldwide trading and mining firm. He worked as a trader for non-ferrous
metals and raw materials, especially copper, zinc, lead, tungsten, and antimony.
In 1976, Hockmetals closed its Tokyo office, and he joined Union Carbide, USA as
a representative in Tokyo office for the Metal Division. In 1977, Mr. Torisawa
joined Glencore Far East Ag in Switzerland, an international trading and
industrial firm, specializing in oil, coal, metals and minerals. He served as a
partner in charge of Tokyo office. He continued in trading copper, zinc and lead
metals and raw materials. Due to nature of business, he was involved in mining
and smelting green field projects. Presently Mr. Torisawa works for C & P Asia
Pte Ltd, Singapore as a Senior Advisor.
ZEE MOEY NGIAM
Mr. Ngiam has served as a director of the Company since March 5, 2007. He is a
Fellow Member of the Institute of Certified Public Accountants of Singapore; he
is a Member of Marketing Institute of Singapore, and a Fellow of Association of
Chartered Certified Accountants UK. From 1987 - March, 2005 he has been Group
Financial Controller for Lauw & Sons Group of Companies. He was responsible for
all financial matters of the Group's Singapore operation, development and
implementation of marketing programs of the Group's Properties and
identification and development of investment opportunities. He also reviewed
quarterly financial and Management reports of overseas Companies in USA, Taiwan
and Australia. From 2004 until present, he has been Joint Company Secretary for
AEI Corporation Ltd.
COLIN BINNY
Mr. Binny has served as the Chairman of the Board, Chief Executive Officer and
Director since 2000. He held various senior management positions with local and
global companies over the last 25 years. He is also the Chairman of B Media Pte
Ltd (formerly known as M2B Media Pte Ltd). 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.
27
As of March 14, 2008, the following directors and executive officers have
resigned from the Company:
Name Age Position Resignation Date
--------------------------- ------ ------------------------------------------- -----------------------
Bee Leng Ho 35 Director and former Chief Financial Officer December 21, 2007
Lewis Marks 57 Director December 24, 2007
Francis Keong Kwong Foong 48 Director and former Chief Financial Officer February 10, 2008
10.1 COMMITTEES
The Board of Directors of the Company has established the following committees
on April 30, 2007:
o Audit Committee
The Audit Committee's responsibilities include:
o appointing, retaining, approving the compensation of and assessing the
independence of our independent registered public accounting firm,
including pre-approval of all services performed by our independent
registered public accounting firm;
o overseeing the work of our independent registered public accounting
firm, including the receipt and consideration of certain reports from
the firm;
o reviewing and discussing with management and the independent registered
public accounting firm our annual and quarterly consolidated financial
statements and related disclosures;
o monitoring our internal control over financial reporting, disclosure
controls and procedures and code of business conduct and ethics;
o establishing procedures for the receipt and retention of accounting
related complaints and concerns;
o meeting independently with our independent registered public accounting
firm and management; and
o preparing the audit committee report required by SEC rules.
The members of the Audit Committee are Ngaim Zee Moey, Colin Binny and Francis
Foong (resigned on February 10, 2008)
o Nominating and Governance Committee
The Nominating and Corporate Governance Committee's responsibilities include:
o identifying individuals qualified to become directors;
o reviewing with the board the standards to be applied in making
determinations regarding independence of board members;
o reviewing and making recommendations to the board with respect to size,
composition and structure;
o developing and recommending to the board our code of business conduct
and ethics;
o developing and recommending to the board Corporate Governance
Guidelines;
o overseeing an annual evaluation of the board; and
o providing general advice to the board on corporate governance matters.
The members of the Nominating and Corporate Governance Committee are Sakae
Torisawa, Lewis Marks (resigned on December 24, 2007) and Ho Bee Leng (resigned
on December 21, 2007)
o Compensation Committee
The Compensation Committee's responsibilities include:
o annually reviewing and approving corporate goals and objectives
relevant to chief executive officer compensation and the compensation
structure for our officers;
o approving the chief executive officer's compensation;
o reviewing and approving, or making recommendations to the board of
directors with respect to, the compensation of our other executive
officers;
28
o overseeing and administering our equity incentive plans; and
o preparing the annual executive compensation report
The members of the Compensation Committee are Sakae Torisawa, Ngiam Zee Moey and
Lewis Marks (resigned on December 24, 2007)
10.2 CODE OF BUSINESS CONDUCT AND ETHICS
Our code of business conduct and ethics, as approved by our board of directors,
and it can be obtained from our Website, at www.amaruinc.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.
10.3 SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, or the
Exchange Act, requires our executive officers and directors, and persons who
beneficially own more than 10% of a registered class of our common stock, to
file initial reports of ownership and reports of changes in ownership with the
Securities and Exchange Commission, or the SEC. These officers, directors and
stockholders are required by SEC regulations to furnish us with copies of all
such reports that they file.
Based solely upon a review of copies of such reports furnished to us during the
fiscal year ended December 31, 2007 and thereafter, or any written
representations received by us from reporting persons that no other reports were
required, we believe that, during our fiscal 2007, not all Section 16(a) filing
requirements applicable to our reporting persons were met. We will use our best
efforts to ensure that any outstanding filings are filed as soon as possible.
ITEM 11: EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the annual and long-term
compensation for services rendered during the last three fiscal years to our
company in all capacities as an employee by our Chief Executive Officer and our
other executive officers whose aggregate compensation exceeded $100,000
(collectively, the "named executive officers") during fiscal year ended 2007
shown below.
Change in
Pension
Non-Equity Value and
Incentive Non-qualitative
Stock Option Plan Deferred All Other
Name and Principal Awards Awards Compensation Compensation Compensation Total
Position Year Salary($) Bonus($) ($) ($) ($) Earnings($) ($) ($)
------------------------ ---- --------- ------- ------- ------ ------------ ------------ ------------ ----------
Colin Binny, CEO 2007 44,949 -- -- -- -- -- 810 45,759
2006 110,065 83,725 -- -- -- -- 142,828 336,618
2005 92,537 31,847 21,900 -- -- -- 110,598 256,882
Francis Foong, 2007 -- -- -- -- - -- - --
former CFO (Resigned 2006 50,799 52,054 54,000 -- - -- 16,718 173,571
on August 31, 2006) 2005 52,878 18,628 70,500 -- - -- 74,776 216,782
Bee Leng Ho, 2007 26,093 -- -- -- - -- 81,482 107,575
former CFO (Resigned 2006 45,908 24,411 40,500 -- - -- 5,713 116,532
on April 2, 2007)
(1) Bonus awarded based on performance.
(2) No officers received or will receive any long term incentive plan payouts
or other payouts during financial years ended December 31, 2006 and
December 31, 2007.
(3) Subsequent to December 31, 2006, Francis Foong had voluntarily returned
to the Company an amount of $161,999 paid to him as director's fees in
relation to FY2005 and FY2006.
29
In December 2006, a total of 120,000 shares of common stock were approved by the
Board of Directors to be issued to Francis Foong, the Company's former CFO for
services rendered valued at $54,000 pursuant to the Company's 2004 Equity
Compensation Plan. In December 2006, a total of 90,000 shares of common stock
were approved by the Board of Directors to be issued to Bee Leng Ho, the
Company's then CFO for services rendered valued at $40,500 pursuant to the
Company's 2004 Equity Compensation Plan.
In December 2005, a total of 7,300 shares of common stock were issued to Colin
Binny, the Company's CEO for services rendered valued at $21,900 pursuant to the
Company's 2004 Equity Compensation Plan. In December, 2005, a total of 4,700
shares of common stock were issued and 18,800 shares of common stock were
approved by the Board of Directors to be issued to Francis Foong, the Company's
then CFO for services rendered to the Company valued at $70,500 pursuant to the
Company's 2004 Equity Compensation Plan.
As of December 31 2007, 9,745,040 million shares of common stock are left unused
in the Company's 2004 Equity Compensation Plan.
Outstanding Equity Awards at Fiscal Year-End Table
---------------------------------------------------------------------- ----------------------------------
Option Awards Stock Awards
------------- ------------- ---------- -------- --------- ------------ ------ ------- --------- ---------
Name Number Number Equity Option Option Number Market Equity Equity
of of IncentiveExercise Expiration of Value Incentive Incentive
Securities Securities Plan Price Date Shares of Plan Plan
Underlying Underlying Awards: ($) or Shares Awards: Awards:
Unexercised Unexercised Number Units or Number Market
Options Options of of Units of or
(#) (#) Securities Stock of Unearned Payout
Exercisable Unexercisab Underlying That Stock Shares, Value
Unexercised Have That Units of
Unearned Not Have or Unearned
Options Vested Not Other Shares,
(#) (#) Vested Rights Units
($) That or
Have Other
Not Rights
Vested That
(#) Have
Not
Vested
($)
NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL
------------- ------------- ---------- -------- --------- ------------ ------ ------- --------- ---------
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth equity compensation plan information as of
December 31, 2007:
NUMBER OF SHARES WEIGHTED AVERAGE NUMBER OF
TO BE ISSUED EXERCISE PRICE SHARES REMAINING
UPON EXERCISE OF OF OUTSTANDING AVAILABLE FOR
PLAN CATEGORY OUTSTANDING OPTIONS OPTIONS FUTURE ISSUANCE
-------------- ------------------- ------------------ -----------------
2004 Equity compensation plans approved by NIL NIL 9,745,040
stockholders
REIMBURSEMENT OF EXPENSES
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.
30
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
GENERAL
As of March 14, 2008, a total of 159,431,861 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 of Beneficial Percent of Class of
of Beneficial Owner Ownership of Common Stock Common Stock
-------------------------- ------------------------------- -------------------
Colin St.Gerard Binny 22,111,888 (1) 13.87%
112 Middle Road #08-01 (Indirect)
Midland House
Singapore 188970
Bee Leng Ho 90,000 0.06%
Former officer and director (Direct)
112 Middle Road #08-01
Midland House
Singapore 188970
Sakae Torisawa 1,712,808 1.07%
112 Middle Road #08-01 (Direct)
Midland House
Singapore 188970
Lewis Marks 89,000 0.06%
Former officer and director (Direct)
112 Middle Road #08-01
Midland House
Singapore 188970
Zee Moey Ngiam 0 0.00%
112 Middle Road #08-01 (Direct)
Midland House
Singapore 188970
Francis Foong 0 0.00%
Former officer and director (Direct)
112 Middle Road #08-01
Midland House
Singapore 188970
All Directors and Officers 24,003,696 15.21%
As A Group (6 persons)
1) Except as otherwise indicated, the Company believes that the beneficial
owners of Common Stock listed below, based on information furnished by
such owners, have sole investment and voting power with respect to such
shares, subject to community property laws where applicable. Beneficial
ownership is determined in accordance with the rules of the Securities
and Exchange Commission and generally includes voting or investment power
with respect to securities. Shares of Common Stock subject to options or
warrants currently exercisable, or exercisable within 60 days, are deemed
outstanding for purposes of computing the percentage of the person
holding such options or warrants, but are not deemed outstanding for
purposes of computing the percentage of any other person.
2) Based on a total of 22,111,888 shares of common stock of Amaru, Inc held
by Mr. Binny and his wife, Chew Bee Lian, indirectly as 100% shareholders
of B Media Pte Ltd (formerly known as M2B Media Pte Ltd).
3) Information on former officers and directors who have resigned are
available in Item 10.
ITEM 13: CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS
o On January 15, 2007, Amaru Holdings Limited ("Amaru Holdings"), a British
Virgin Islands corporation and a wholly-owned subsidiary of Amaru, Inc.,
a Nevada corporation (the "Company") entered into a sale and purchase
agreement together with other sellers (the "Agreement") with Auston
International Group, Ltd., a Singapore company ("Auston") to sell to
Auston its majority owned subsidiary, M2B World Asia Pacific Pte Ltd.,
together with its subsidiary, M2B World Holdings Limited (collectively,
"M2B Asia"). Auston is a company trading on the Singapore Stock Exchange.
The Agreement provides for the sale of 42,459,978 shares of M2B Word Asia
Pacific Pte Ltd, its total issued and outstanding capital. As the
consideration for M2B World Asia Pacific Pte Ltd shares, Auston agreed to
issue a total of 660 million new ordinary shares of Auston to M2B World
Asia Pacific Pte Ltd shareholders. The Auston shares are valued at S$0.25
per share.
31
The Agreement is subject to certain conditions precedent, including, but
not limited to the shareholder approval of the transaction by Auston
shareholders, the approval of the Singapore Stock Exchange and other
related regulatory approvals of both parties.
Amaru Holdings is required to deliver a valuation report by an
independent auditor to Auston confirming that the value of the assets of
M2B Asia is no less than that of the amount of consideration to be paid
by Auston. Following the completion of the transaction, the Company would
hold more than 50% of the shares of Auston. The Company believes that
prior to entering into the Agreement, there were no material
relationships between or among M2B Asia, the Company or any of its
affiliates, officers or directors, or associates of any such officers or
directors, on the one hand, and the shareholders or their respective
affiliates, on the other. The Company, through one of its subsidiaries
owns 11.1% of Auston, and Auston has no ownership in the Company. One of
the Company's directors is also a director of Auston, however, said
director did not vote on the approval of the transaction.
The Agreement expired by its terms as of December 31, 2007. On February
19, 2008, the Company decided that it is in the best interest of the
Company not to extend the Agreement and intends to list the securities of
M2B World Asia Pacific Pte Ltd on the Singapore Stock Exchange.
o On September 1, 2006, M2B World Asia Pacific Pte. Ltd entered into a
licensing agreement with its investee, 121 View Corporation (Sea) Ltd
(121 View). The company licensed $3 million worth of film library to 121
View. On December 20, 2006, the company licensed additional $1.7 million
worth of film library to 121 View.
See also Note 13 to the Financial Statements.
ITEM 14: PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table presents fees for professional audit services rendered by
our auditors for the year ended December 31, 2007 and December 31, 2006.
2007 2006
---------- ----------
Audit fees (1) $ 281,431 $ 187,557
-- --
---------- ----------
Total $ 281,431 $ 187,557
========== ==========
(1) Audit Fees: These are fees paid and payable for professional services
performed for the financial year ended December 31, 2007 by Nexia Court &
Co. and Nexia Tan & Sitoh. In 2006, these fees were paid and payable for
professional services performed by Nexia Tan & Sitoh and Mendoza, Berger
& Co. LLP. These are fees paid or payable for the audit of the annual
financial statements and review of financial statements included in our
10-QSB filings, and services that are normally provided in connection
with statutory and regulatory filings.
ITEM 15: EXHIBITS
The following exhibits are included herein or incorporated by reference:
Exhibit Number Description
-------------- --------------------------------------------------------------
2.1 Agreement and Plan of Reorganization with M2B World Pte. Ltd..**
3.1 Articles of Incorporation*
3.2 Amendment to the Articles of Incorporation***
3.3 Bylaws*
4.1 Form of Subscription Agreement executed by investors in the Private
Placement*
10.1 Sale and Purchase Agreement dated January 15, 2007.**
14.1 Code of Ethics of the Company*
14.2 Code of Ethics of Senior Officers of the Company*
21 Company's Subsidiaries
31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act
31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act
32
32.1 Certification of Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act
32.2 Certification of 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.
33
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Amaru, Inc.
BY: /s/ Colin Binny
-------------------------------
Colin Binny, President and CEO
Date: March 31, 2008
Pursuant to the requirements of the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
/s/ Colin Binny President, CEO, Interim CFO and Director Date: March 31, 2008
-------------------- (Principal Executive Officer and Principal
Colin Binny Financial officer)
/s/ Sakae Torisawa Director and Chairman of the Board of Date: March 31, 2008
-------------------- Directors
Sakae Torisawa
/s/ Zee Moey Ngiam Director Date: March 31, 2008
--------------------
Zee Moey Ngiam
34
AMARU, INC.
TABLE OF CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS PAGE
Report of Independent Registered Public Accounting Firm F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Income F-3
Consolidated Statements of Stockholders' Equity and
Comprehensive Income F-4 - F-6
Consolidated Statements of Cash Flows F-7 - F-8
Notes to Consolidated Financial Statements F-9 - F-25
35
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Amaru, Inc.
Report of Independent Registered Public Accounting Firm
We were engaged to audit the effectiveness of Amaru Inc's internal control over
financial reporting as at 31 December 2007 based on the criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Amaru Inc's management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying of Annual Report of Amaru Inc for the
year ended 31 December 2007.
A company's internal controls over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
process and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A companys internal
control over financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles and that receipts and expenditures of the Company are
being made only in accordance with authorization of management and directors of
the Company and (iii) provide reasonable assurance regarding the prevention or
timely detection of unauthorized acquisition, use or disposition of the
Company's assets that could have a material effect on our consolidated financial
statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deterioriate.
Since management has not completed their assessment of internal controls over
financial reporting and we were unable to apply other procedures to satisfy
ourselves as to the effectiveness of the company's internal control over
financial reporting, the scope of our work was not sufficient to enable us to
express, and we do not express, an opinion on the effectiveness of the company's
internal control over financial reporting.
We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States) the accompanying consolidated balance
sheet of Amaru Inc. as at 31 December 2007, and the related statements of
operations, changes in stockholders' equity, and cash flows for the year then
ended in our audit report dated 31 March 2008. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
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
audit provides a reasonable basis for our opinion.
In our opinion, the 2007 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Amaru Inc at 31
December 2007, and the consolidated results of its operations and its cash flows
for the year then ended, in conformity with U.S. generally accepted accounting
principles.
/s/ Nexia Court & Co
Nexia Court & Co
Chartered Accountants
Sydney, Australia
31 March 2008
F-1
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2007 AND 2006
DECEMBER 31, DECEMBER 31,
2007 2006
----------- -----------
ASSETS
Current assets
Cash and cash equivalents $ 2,322,541 $ 2,294,984
Accounts receivable, net of allowance of
$54,154 and nil in 2007 and 2006 10,244,589 2,106,647
Equity securities held for trading 2,924,000 --
Other current assets 4,246,947 539,604
Inventories 1,157,248 1,689,634
Investments available for sale 2,402,613 --
----------- -----------
Total current assets 23,297,938 6,630,869
Non-current assets
Property and equipment, net 1,797,146 1,215,744
Intangible assets, net 25,693,066 28,886,883
Associate 4,942,283 --
Investments available for sale 4,911,345 12,158,351
----------- -----------
Total non-current assets 37,343,840 42,260,978
----------- -----------
Total assets $60,641,778 $48,891,847
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 3,068,613 $ 2,101,970
Other payables 100,005 --
Advances from related party 155,313 --
Finance lease liabilities 10,746 --
Income taxes payable 5,428 58,473
----------- -----------
Total current liabilities 3,340,105 2,160,443
Non-current liabilities
Deferred tax liabilities 1,672,801 1,684,158
Hire purchase creditor 57,306 --
----------- -----------
Total non-current liabilities 1,730,107 1,684,158
----------- -----------
Total liabilities 5,070,212 3,844,601
Minority Interests 4,619,381 --
Commitments -- --
Stockholders' equity
Preferred stock (par value $0.001) 5,000,000 shares
authorized; 0 shares issued and outstanding at
December 31, 2007 and 2006, respectively -- --
Common stock (par value $0.001) 200,000,000 shares
authorized; 159,431,861 and 153,638,528 shares
issued and outstanding at December 31, 2007 and
2006, respectively 159,431 153,638
Additional paid-in capital 42,918,666 38,942,126
Subscribed common stock, 0 and 420,000 shares at December
31, 2007 and 2006 respectively -- 189,000
Retained earnings 5,650,447 2,084,908
Accumulated other comprehensive income 2,223,641 3,677,574
----------- -----------
Total stockholders' equity 55,571,566 45,047,246
----------- -----------
Total liabilities and stockholders' equity $60,641,778 $48,891,847
=========== ===========
See accompanying notes to consolidated financial statements
F-2
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2007, 2006 AND 2005
FOR THE YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2007 2006 2005
------------- ------------- -------------
Revenue:
Entertainment $ 14,568,379 $ 8,053,146 $ 3,278,833
Digit gaming 22,451,970 24,505,465 14,813,629
Other 32,920 14,664 3,460
------------- ------------- -------------
Total revenue 37,053,269 32,573,275 18,095,922
Cost of services 23,349,404 24,302,425 16,352,048
------------- ------------- -------------
Gross profit 13,703,865 8,270,850 1,743,874
Distribution costs 891,484 1,446,990 1,102,339
Administrative expenses 7,152,510 5,279,778 1,998,803
------------- ------------- -------------
Total expenses 8,043,994 6,726,768 3,101,142
------------- ------------- -------------
Income (loss) from operations 5,659,871 1,544,082 (1,357,268)
Other (income) expense:
Interest 1,378 -- --
expenses
Interest income (45,819) (129,227) (2,223)
Gain/Loss on disposal of equipment 10,230 -- (151)
Gain on sale of investment available for sale -- (185,686) --
Management fee income -- (60,247) --
Intangible asset written off 2,420,227 -- --
Gain on dilution of interest in subsidiary (2,483,872) -- --
Net change in fair value of financial assets at
fair value through Profit or Loss-held for
trading 466,000 -- --
Share of loss of associate 23,832 -- --
------------- ------------- -------------
Income (loss) before income taxes 5,267,895 1,919,242 (1,354,894)
Provision for income taxes 179,103 668,713 121,377
Discontined operations:
Income from operations of discontinued component, -- -- 1,643,016
including income from disposal of discontinued
operations
------------- ------------- -------------
Net Income $ 5,088,792 $ 1,250,529 $ 166,745
============= ============= =============
Attributable to:
Equity holders of the Company $ 3,565,539 $ 1,250,529 $ 166,745
Minority interests 1,523,253 -- --
------------- ------------- -------------
Net income $ 5,088,792 $ 1,250,529 $ 166,745
============= ============= =============
Net income per share $ 0.03 $ 0.01 $ 0.00
- - basic and diluted ============= ============= =============
Weighted average number of common shares outstanding
- - basic and diluted 156,548,902 153,605,863 117,675,312
============= ============= =============
See accompanying notes to consolidated financial statements
F-3
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
FOR THE YEAR ENDED DECEMBER 31, 2007, 2006 AND 2005
PREFERRED STOCK COMMON STOCK
------------------------- -------------------------
NUMBER PAR NUMBER PAR ADDITIONAL SUBSCRIBED
OF VALUE OF VALUE PAID-IN COMMON RETAINED
SHARES ($0.001) SHARES ($0.001) CAPITAL STOCK EARNINGS
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at December
31, 2004 -- -- 108,800,000 $ 108,800 $ 2,851,151 -- $ 667,634
Common stock issued
for cash -- -- 16,132,000 16,132 11,297,719 -- --
Repayment of trade account
payable -- -- 580,000 580 434,420 -- --
Subscribed common
stock issued -- -- -- -- -- -- --
Common stock issued
for services
-- -- 79,120 79 59,260 -- --
Common stock
subscribed for
cash(5,520,000
shares) -- -- -- -- -- 4,140,000 --
Common stock
subscribed for
services(155,840 -- -- -- -- -- 116,880 --
shares)
Net income -- -- -- -- -- -- 166,745
Comprehensive loss on
currency translation
----------- ----------- ----------- ----------- ----------- ----------- -----------
Comprehensive
income -- -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at December
31, 2005 -- -- 125,591,120 $ 125,591 $14,642,550 $ 4,256,880 $ 834,379
=========== =========== =========== =========== =========== =========== ===========
(CONTINUED)
ACCUMULATED OTHER
COMPREHENSIVE INCOME
-------------------------
CURRENCY TOTAL
TRANSLATION FAIR VALUE MINORITY SHAREHOLDERS'
RESERVE RESERVE INTEREST EQUITY
----------- ------------ ------------ -----------
Balance at December
31, 2004 $ 9,188 $ -- $ -- $ 3,636,773
Common stock issued
for cash -- -- -- 11,313,851
Repayment of trade account
payable -- -- -- 435,000
Subscribed common
stock issued -- -- -- --
Common stock issued
for services -- -- -- 59,339
Common stock
subscribed for
cash(5,520,000
shares) -- -- -- 4,140,000
Common stock
subscribed for
services(155,840
shares) -- -- -- 116,880
Net income -- -- -- 166,745
Comprehensive loss on
currency translation 3,739 -- -- 3,739
Comprehensive
income -- -- -- 170,484
----------- ------------ ------------ -----------
Balance at December
31, 2005 $ 12,927 $ -- $ -- $19,872,327
=========== ============ ============ ===========
See accompanying notes to consolidated financial statements
F-4
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
FOR THE YEAR ENDED DECEMBER 31, 2007, 2006 AND 2005
PREFERRED STOCK COMMON STOCK
------------------------- -------------------------
NUMBER PAR NUMBER PAR SUBSCRIBED
OF VALUE OF VALUE ADDITIONAL PAID- COMMON RETAINED
SHARES ($0.001) SHARES ($0.001) IN CAPITAL STOCK EARNINGS
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at December
31, 2005 -- -- 125,591,120 $ 125,591 $14,642,550 $ 4,256,880 $ 834,379
Common stock issued
for cash -- -- 15,339,568 15,339 11,255,404 -- --
Common stock issued
for services -- -- 40,000 40 59,960 -- --
Subscribed common
stock issued -- -- 5,675,840 5,676 4,251,204 (4,256,880) --
Common stock issued
in exchange for
acquisition of
film library -- -- 6,992,000 6,992 8,733,008 -- --
Common stock
subscribed for
services (420,000
shares) -- -- -- -- -- 189,000 --
Net income -- -- -- -- -- -- 1,250,529
Change in fair value
of available
for-sale-equity
securities, net
of tax -- -- -- -- -- -- --
Comprehensive
income -- -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at December
31, 2006 -- -- 153,638,528 $ 153,638 $38,942,126 $ 189,000 $ 2,084,908
=========== =========== =========== =========== =========== =========== ===========
(CONTINUED)
ACCUMULATED OTHER
COMPREHENSIVE INCOME
-------------------------
CURRENCY TOTAL
TRANSLATION FAIR VALUE MINORITY SHAREHOLDERS'
RESERVE RESERVE INTEREST EQUITY
----------- ----------- ----------- -----------
Balance at December
31, 2005 $ 12,927 $ -- $ -- $19,872,327
Common stock issued
for cash -- -- -- 11,270,743
Common stock issued
for services -- -- -- 60,000
Subscribed common
stock issued -- -- -- --
Common stock issued
in exchange for
acquisition of
film library -- -- -- 8,740,000
Common stock
subscribed for
services (420,000
shares) -- -- -- 189,000
Net income -- -- -- 1,250,529
Change in fair value
of available
for-sale-equity
securities, net
of tax -- 3,664,647 -- 3,664,647
Comprehensive
income -- -- -- 4,915,176
----------- ----------- ----------- -----------
Balance at December
31, 2006 $ 12,927 $ 3,664,647 $ -- $45,047,246
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements
F-5
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
FOR THE YEAR ENDED DECEMBER 31, 2007, 2006 AND 2005
PREFERRED STOCK COMMON STOCK
--------------------------- ---------------------------
NUMBER PAR NUMBER PAR SUBSCRIBED
OF VALUE OF VALUE ADDITIONAL PAID- COMMON RETAINED
SHARES ($0.001) SHARES ($0.001) IN CAPITAL STOCK EARNINGS
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at December
31, 2006 -- -- 153,638,528 $ 153,638 $38,942,126 $ 189,000 $ 2,084,908
Subscribed common
stock issued -- -- 420,000 420 188,580 (189,000) --
Common stock issued
for services -- -- 40,000 40 59,960 -- --
Common stock issued
in exchange for
prepayment of
investment -- -- 5,333,333 5,333 3,728,000 -- --
Contribution from
minority interest -- -- -- -- -- -- --
Gain on dilution of
interest in
subsidiary -- -- -- -- -- -- --
Net income -- -- -- -- -- -- 3,565,539
Change in fair value
of available
for-sale-equity
securities, net
of tax -- -- -- -- -- -- --
Comprehensive
income -- -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at December
31, 2007 -- -- 159,431,861 $ 159,431 $42,918,666 $ -- $ 5,650,447
=========== =========== =========== =========== =========== =========== ===========
(CONTINUED)
ACCUMULATED OTHER
COMPREHENSIVE INCOME
---------------------------
CURRENCY TOTAL
TRANSLATION FAIR VALUE MINORITY SHAREHOLDERS'
RESERVE RESERVE INTEREST EQUITY
------------ ------------ ------------ ------------
Balance at December
31, 2006 $ 12,927 $ 3,664,647 $ -- $ 45,047,246
Subscribed common
stock issued -- -- -- --
Common stock issued
for services -- -- -- 60,000
Common stock issued
in exchange for
prepayment of
investment -- -- -- 3,733,333
Contribution from
minority interest -- -- 5,580,000 5,580,000
Gain on dilution of
interest in
subsidiary -- -- (2,483,872) (2,483,872)
Net income -- -- 1,523,253 5,088,792
Change in fair value
of available
for-sale-equity
securities, net
of tax -- (1,453,933) -- (1,453,933)
Comprehensive
income -- -- -- 3,634,859
------------ ------------ ------------ ------------
Balance at December
31, 2007 $ 12,927 $ 2,210,714 $ 4,619,381 $ 55,571,566
============ ============ ============ ============
See accompanying notes to consolidated financial statements
F-6
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2007, 2006 AND 2005
FOR THE YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31
2007 2006 2005
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,088,792 $ 1,250,529 $ 166,745
Adjustments for:
Amortization 3,305,000 1,133,184 360,349
Depreciation 575,015 235,993 62,893
Allowance for doubtful debts 54,154
Loss on disposal of equipment 10,230 --
Intangible asset written off 2,420,227 --
Gain on disposal of property and equipment -- -- (151)
Gain on sale of investment available for sale -- (185,686)
Gain on dilution of interest in subsidiary (2,483,872) --
Gain on sale of discontinued operations (1,643,016)
Net change in fair value of financial assets at fair
value through Profit or Loss-held for trading 466,000 --
Acquisition of investment in exchange for account receivable (5,090,000) (3,000,000)
Common stock issued and subscribed for services 60,000 249,000 176,219
Common stock issued in exchange for prepayment of investment 3,733,333 --
Deferred tax 179,103 --
Share of loss of associate 23,832 --
Changes in operation assets and liabilities
Accounts receivable (8,192,096) (1,264,276) (842,132)
Inventories 532,386 (1,677,354) (12,280)
Other current assets (3,707,343) (304,318) 451,027
Accounts payable and accrued expenses 966,643 1,445,486 612,343
Other payables 100,005
Income tax payable (53,045) 668,713 --
------------ ------------ ------------
Net cash used in operating activities
(2,011,636) (1,448,729) (668,003)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposal of equipment 885 --
Proceeds from sale of property and equipment 151
Proceeds from sale of investment available for sale -- 1,238,001
Product development expenditures (17,460)
Acquisition of equipment (1,167,532) (1,014,543) 482,176
Acquisition of intangible assets (2,531,410) (9,427,844)
Acquisition of associate (66,115) --
Acquisition of software and gaming licenses and film library (9,090,488)
Acquisition of investments available for sale -- (3,041,071) (945,770)
------------ ------------ ------------
Net cash used in by investing activities (3,764,172) (12,245,457) (10,535,743)
CASH FLOWS FROM FINANCING ACTIVITIES
Payable to related parties -- (58,392) (121,344)
Advance from related party 155,313 --
Proceeds from hire purchase creditor 68,052 --
Proceeds from stock subscriptions 4,140,000
Issuance of common stock for cash -- 11,270,743 11,313,851
Capital contributed by minority shareholders 5,580,000 --
------------ ------------ ------------
Net cash provided by financing activities 5,803,365 11,212,351 15,332,507
Effect of exchange rate changes on cash and cash equivalents -- -- 3,739
------------ ------------ ------------
CASH FLOWS FROM ALL ACTIVITIES 27,557 (2,481,835) 4,132,500
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,294,984 4,776,819 644,319
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,322,541 $ 2,294,984 4,776,819
============ ============ ============
F-7
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING
AND INVESTING ACTIVITIES:
Acquisition of investments (1) $ 5,090,000 $ -- $ --
============ ============ ============
Common stock in exchange for acquisition of film library $ -- $ 8,740,000 $ --
============ ============ ============
Common stock in exchange for prepayment of investment (2) $ 3,733,333 $ -- $ --
============ ============ ============
Subscribed common stock issued $ -- $ 4,256,880 $ --
============ ============ ============
(1) On February 15, 2007, the Company through its subsidiary, M2B World Asia
Pacific Pte. Ltd. subscribed for additional 4% interest in an investment
for $1.7 million in exchange for the settlement of accounts receivables
from the investee company.
On June 27, 2007, M2B World Holdings Limited, a wholly owned subsidiary
of M2B World Asia Pacific Pte. Ltd., received $2.7 million in quoted
equity securities in exchange for accounts receivable from a company, as
part of the sales and purchase agreement with the company. Subsequent to
June 27, 2007, the remaining shares were received.
(2) On July 11, 2007, Tremax International Limited, a wholly owned subsidiary
of Amaru Inc., issued 5,333,333 shares of common stock in exchange for an
investment in a company, as part of the sales and purchase agreement with
the company.
See accompanying notes to consolidated financial statements
F-8
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
1. BASIS OF PRESENTATION AND REORGANIZATION
Description of Business
Amaru, Inc. (the Company) through its subsidiaries under the M2B and
new WOWtv brand is in the Broadband Media Entertainment business, and a
provider of interactive Entertainment-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-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.
1.2 Recent Accounting Standards and Pronouncements
The Company has adopted accounting pronouncements issued before
December 31, 2007, that are applicable to the company.
In 2006, the FASB issued Interpretation No. 48 (FIN 48), "Accounting
for Uncertainty in Income Taxes - an Interpretation of FASB Statement
No. 109 Accounting for Income Taxes." FIN 48 clarifies the accounting
for uncertainty in income taxes recognized in an enterprise's financial
statements in accordance with SFAS 109. FIN 48 also prescribes a
recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 provides guidance on
de-recognition, classification, interest and penalties, accounting in
interim periods, disclosure and transition. The Company adopted FIN 48
as of January 1, 2007, as required.
The current Company policy classifies any interest recognized on an
underpayment of income taxes as interest expense and classifies any
statutory penalties recognized on a tax position taken as selling,
general and administrative expense. There were no interest or selling,
general and administrative expenses accrued or recognized related to
income taxes for the year ended December 31, 2007. The Company has not
taken a tax position that would have a material effect on December 31,
2007 or during the prior three years applicable under FIN 48. It is
determined not to be reasonably possible for the amounts of
unrecognized tax benefits to significantly increase or decrease within
12 months of the adoption of FIN 48. The Company is currently subject
to a three year statute of limitations by major tax jurisdictions.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
2.1 Principles of Consolidation
The consolidated financial statements include the financial statements
of Amaru, Inc. and its majority owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation. In addition, the Company evaluates its relationships
with other entities to identify whether they are variable interest
entities as defined by FASB Interpretation No. 46 (R) Consolidation of
Variable Interest Entities ("FIN 46R") and to assess whether it is the
primary beneficiary of such entities. If the determination is made that
the Company is the primary beneficiary, then that entity is included in
the consolidated financial statements in accordance with FIN 46(R).
F-9
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
2.2 Use of Estimates
The preparation of the consolidated financial statements in accordance
with generally accepted accounting principles requires management to
make estimates and assumptions relating to the reported amounts of
assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and
the reported amounts of revenues and expenses during the period.
Significant items subject to such estimates and assumptions include
carrying amount of property and equipment, intangibles, valuation
allowances of receivables and inventories. Actual results could differ
from those estimates.
Management has not made any subjective or complex judgments the
application of which would result in any material differences in
reported results.
2.3 Cash and Cash Equivalents
Cash and cash equivalents are defined as cash on hand, demand deposits
and short-term, highly liquid investments readily convertible to cash
and subject to insignificant risk of changes in value.
Cash in banks and short-term deposits are held to maturity and are
carried at cost. For the purposes of the consolidated statements of
cash flows, cash and cash equivalents consist of cash on hand and
deposits in banks, net of outstanding bank overdrafts.
The Company monitors its liquidity risk and maintains a level of cash
and cash equivalents deemed adequate by management to finance the
Company's operations and to mitigate the effects of fluctuations in
cash flows.
2.4 Trade Accounts Receivable
Trade accounts receivable, which generally have 30 to 90 day terms, are
recorded at the invoiced amount less an allowance for any uncollectible
amounts (if any) and do not bear interest. Amounts collected on trade
accounts receivable are included in net cash provided by operating
activities in the consolidated statements of cash flows. The allowance
for doubtful accounts is the Company's best estimate of the amount of
probable credit losses in the Company's existing accounts receivable.
Account balances are charged off against the allowance after all means
of collection have been exhausted and the potential for recovery is
considered remote. Bad debts are written off as incurred. The Company
does not have any off-balance sheet credit exposure related to its
customers.
The Company's primary exposure to credit risk arises through its trade
accounts receivable. The credit risk on liquid funds is limited because
the counterparties are banks with high credit ratings assigned by
international credit-rating agencies.
Entertainment revenues were concentrated with one customer totaling
99.53% of these related revenues for the year ended December 31, 2007
and four customers totaling 97.18% of these related revenues for the
year ended December 31, 2006.
F-10
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
The Company's operations are conducted over the world wide web and some
purchases are made from locations outside of Singapore.
FOR THE YEAR ENDED
--------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31
2007 2006 2005
----------- ----------- -----------
Sales outside of the U.S. $37,052,863 $32,573,155 $18,095,922
Services purchased outside of the U.S. $23,231,423 $24,153,201 $16,284,120
2.5 Inventories
Inventories are carried at the lower of cost or and net realizable
value. Cost is calculated using first-in, first-out ("FIFO") method and
comprises all costs of purchase, costs of conversion and other costs
incurred in bringing the inventories to their present location and
condition. Inventories comprised primarily of finished products used in
the Company's IPTV service.
2.6 Property and Equipment
Property and equipment are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the
assets for financial reporting purposes. Expenditures for major
renewals and betterments that extend the useful lives are capitalized.
Expenditures for normal maintenance and repairs are expensed as
incurred. The cost of assets sold or abandoned and the related
accumulated depreciation are eliminated from the accounts and any gains
or losses are reflected in the accompanying consolidated statement of
income of the respective period. The estimated useful lives of the
assets range from 3 to 5 years.
2.7 Intangible Assets
Intangible assets consist of film library, gaming and software licence
and product development costs. Intangible assets which were purchased
and have indefinite lives are stated at cost less impairment losses and
are tested for impairment at least annually in accordance with the
provisions of FASB Statement No. 142, Goodwill and Other Intangible
Assets.
Intangible assets which were purchased for a specific period are stated
at cost less accumulated amortization and impairment losses. Such
intangible assets are reviewed for impairment in accordance with FASB
Statement No. 144, Accounting for Impairment or Disposal of Long-Lived
Assets. Such intangible assets are amortized over the period of the
contract, which is 2 to 18 years.
Included in the gaming license are the rights to a digit games license
in Cambodia. The license is for a minimum period of 18 years commencing
from June 1, 2005, with an option to extend for a further 5 years or
such other period as may be mutually agreed.
The Company capitalized the development and building cost related to
the broad-band sites and infrastructure for the streaming system, most
of which was developed in 2002 as product development costs. The
Company projects that these development costs will be useful for up to
5 years before additional significant development needs to be done.
2.8 Associate
An associate is an entity over which the Company has significant
influence and that is neither a subsidiary nor an interest in a joint
venture. Significant influence is the power to participate in the
financial and operating policy decisions of the investee but is not
control or joint control over those policies. The results and assets
and liabilities of associates are incorporated in these financial
F-11
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
statements using the equity method of accounting. Under the equity
method, investments in associates are carried in the consolidated
balance sheet at cost as adjusted for post-acquisition changes in the
Company's share of the net assets of the associate, less any impairment
in the value of individual investments. Losses of an associate in
excess of the group's interest in that associate (which includes any
long-term interests that, in substance, form part of the Company's net
investment in the associate) are not recognized, unless the group has
incurred legal or constructive obligations or made payments on behalf
of the associate.
Any excess of the cost of acquisition over the Company's share of the
net fair value of the identifiable assets, liabilities and contingent
liabilities of the associate recognized at the date of acquisition is
recognized as goodwill. The goodwill is included within the carrying
amount of the investment and is assessed for impairment as part of the
investment. Any excess of the Company's share of the net fair value of
the identifiable assets, liabilities and contingent liabilities over
the cost of acquisition, after reassessment, is recognized immediately
in the consolidated profit and loss statement.
Where a group entity transacts with an associate of the group, profits
and losses are eliminated to the extent of the group's interest in the
relevant associate.
2.9 Investments
The Company classifies its investments in marketable equity and debt
securities as "available-for-sale", "held to maturity" or "trading" at
the time of purchase in accordance with the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" ("SFAS No. 115").
Equity securities held for trading as of December 31, 2007 totaled
$2,924,000.
Available-for-sale securities are carried at fair value with unrealized
gains and losses, net of related tax, if any, reported as a component
of other comprehensive income (loss) until realized. Realized gains and
losses from the sale of available-for-sale securities are determined on
a specific-identification basis. A decline in the market value of any
available-for-sale security below cost that is deemed to be other than
temporary will result in an impairment, which is charged to earnings.
Available-for-sale securities that are not publicly traded or have
resale restrictions greater than one year are accounted for at cost.
The Company's cost method investments include companies involved in the
broadband and entertainment industry. The Company uses available
qualitative and quantitative information to evaluate all cost method
investment impairments at least annually.
2.10 Valuation of Long-Lived Assets
The Company evaluates the carrying value of long-lived assets to be
held and used, other than intangible assets with indefinite lives, when
events or circumstances warrant such a review. No impairment losses
were recorded for the years ended December 31, 2007 and 2006.
2.11 Investments at fair value through profit or loss
An instrument is classified as at fair value through profit or loss if
it is held for trading or is designated as such upon initial
recognition. Financial instruments are designated as fair value through
profit or loss if the Company manages such investments and makes
purchase and sales decisions based on their fair value. Upon initial
recognition, attributable transaction costs are recognized in the
income statement when incurred. Financial instruments at fair value
through profit or loss are measured at fair value, and changes therein
are recognized in the income statement.
2.12 Advances from Related Party
Advances from related party are unsecured, non-interest bearing and
payable on demand.
F-12
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
2.13 Leases
Leased assets in which the Company assumes substantially all the risks
and rewards of ownership are classified as finance leases. Upon initial
recognition, property, plant and equipment acquired through finance
leases are capitalized at the lower of its fair value and the present
value of the minimum lease payments. Subsequent to recognition, the
asset is accounted for in accordance with the accounting policy
applicable to that asset. Leased assets are depreciated over the
shorter of the lease term and their useful lives. Lease payments are
apportioned between finance expense and reduction of the lease
liability. The finance expense is allocated to each period during the
lease term so as to produce a constant periodic rate of interest on the
remaining balance of the liability. Contingent lease payments are
accounted for by revising the minimum lease payments over the remaining
term of the lease when the lease adjustment is confirmed.
On November 1, 2007, the Company sub-leased the office premises of M2B
World Inc, a wholly owned subsidiary of the Company in Los Angeles,
California as part of its efforts to streamline its operations and
reduce operating costs.
2.14 Foreign Currency Translation
Transactions in foreign currencies are translated at foreign exchange
rates ruling at the dates of the transactions. Monetary assets and
liabilities denominated in foreign currencies at the balance sheet date
are translated into US dollars at foreign exchange rate ruling at that
date. Non-monetary assets and liabilities measured at cost in a foreign
currency are translated using exchange rates at the date of the
transaction. Foreign currency transaction gains and losses are included
in determining net income and were not significant.
2.15 Revenues
Subscription and related services revenues are recognized over the
period that services are provided. Advertising and sponsorship revenues
are recognized as the services are performed or when the goods are
delivered. Licensing and content syndication revenue is recognized when
the license period begins, and the contents are available for
exploitation by customer, pursuant to the terms of the license
agreement. Gaming revenue is recognized as earned net of winnings.
E-commerce commissions are recognized as received. Broadband consulting
services and on-line turnkey solutions revenue are recognized as
earned.
2.16 Costs of Services
The cost of services pertaining to advertising and sponsorship revenue
and subscription and related services are cost of bandwidth charges,
channel design and alteration, copyright licensing, and hardware
hosting and maintenance costs. The cost of services pertaining to
E-commerce revenue is channel design and alteration, and hardware
hosting and maintenance costs. The cost of services pertaining to
gaming is for managing and operating the operations and gaming centers.
All these costs are accounted for in the period it was incurred.
2.17 Income Taxes
Deferred income taxes are determined using the liability method in
accordance with Statement of Financial Accounting Standards ("SFAS")
No. 109, Accounting for Income Taxes. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred income taxes are measured using enacted tax rates expected to
apply to taxable income in years in which such temporary differences
are expected to be recovered or settled. The effect on deferred income
taxes of a change in tax rates is recognized in the statement of income
of the period that includes the enactment date. In addition, a
valuation allowance is established to reduce any deferred tax asset for
which it is determined that it is more likely than not that some
portion of the deferred tax asset will not be realized.
F-13
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
2.18 Earnings (Loss) Per Share
In February 1997, the Financial Accounting Standards Board (FASB)
issued FAS No. 128 "Earnings Per Share" which requires the Company to
present basic and diluted earnings per share, for all periods
presented. The computation of earnings per common share (basic and
diluted) is based on the weighted average number of shares actually
outstanding during the period. The Company has no common stock
equivalents, which would dilute earnings per share.
2.19 Financial Instruments
The carrying amounts for the Company's cash, other current assets,
accounts payable, accrued expenses and other liabilities approximate
their fair value.
2.20 Advertising
The cost of advertising is expensed as incurred. For the year ended
December 31, 2007 and 2006, the Company incurred advertising expenses
of $543,752 and $1,072,011 respectively.
2.21 Reclassifications
Certain amounts in the previous periods presented have been
reclassified to conform to the current year financial statement
presentation.
3. EQUITY SECURITIES HELD FOR TRADING INVESTMENT
DECEMBER 31, DECEMBER 31,
2007 2006
---------- -----------
Quoted equity security, at fair value $2,924,000 $ --
========== ===========
The fair value of quoted security is based on the quoted closing market
price on the date of Sale and Purchase agreement. The investment in
quoted equity security at fair value includes an impairment loss of
US$3.24 million.
The investments in quoted equity securities comprised of 34,000,000
common shares of PT Agis at the market value of $0.086 per share.
The Company's equity securities held for trading investment is
denominated in Indonesian Ruppiah.
4. OTHER CURRENT ASSETS
Other current assets consist of the following:
DECEMBER 31, DECEMBER 31,
2007 2006
----------- -----------
Prepayments $ 169,641 $ 177,278
Prepayments for investments 3,733,333 --
Deposits 171,095 172,882
Other receivables 172,878 189,444
----------- -----------
$ 4,246,947 $ 539,604
=========== ===========
F-14
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
DECEMBER 31, DECEMBER 31,
2007 2006
----------- -----------
Office equipment $ 1,148,013 $ 721,085
Motor vehicle 112,563 11,000
Furniture, fixture and fittings 596,790 556,069
Pony set-top boxes 842,494 265,681
----------- -----------
2,699,860 1,553,835
Accumulated depreciation (902,714) (338,091)
----------- -----------
$ 1,797,146 $ 1,215,744
=========== ===========
Depreciation expense was $575,015 for the year ended December 31, 2007
and $235,993 for the year ended December 31, 2006.
6. INTANGIBLE ASSETS
Intangible assets consist of the following:
DECEMBER 31, DECEMBER 31,
2007 2006
------------ ------------
INDEFINITE LIVES
Film library $ 17,759,080 $ 17,674,378
Software license -- 2,420,227
------------ ------------
17,771,729 20,094,605
DEFINITE USEFUL LIVES
Film library 5,331,930 2,947,564
Gaming license 7,090,000 7,090,000
Product development expenditures 719,220 669,529
Software license 12,649 --
------------ ------------
13,153,799 10,707,093
Accumulated amortization (5,219,813) (1,914,815)
------------ ------------
7,933,986 8,792,278
------------ ------------
$ 25,693,066 $ 28,886,883
============ ============
Intangible assets purchased and have indefinite lives are stated at
cost less impairment losses are tested for impairment at least annually
in accordance with the provisions of FASB Statement No. 142, Goodwill
and Other Intangible Assets.
The software license with an indefinite life of $2,420,227, acquired in
January 2004, was written off on December 31, 2007. The license refers
to the license to operate a B2B trading platform in Singapore as well
as the first right of refusal in some of the Asian countries, whereby
the Company would be able to use the platform consisting of the Trading
Programs, the System and the Intellectual Property in the designated
territory should it exercise the license. The Company wrote off the
license because it had decided not to venture into this kind of
business.
F-15
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
FILM LIBRARY WITH INDEFINITE LIVES
Intangible assets of the Company which have been classified as having
indefinite useful lives relate to film library rights acquired for
perpetuity by the Company.
Film costs are stated at the lower of estimated net realizable value
determined on an individual film basis, or cost. Film costs represent
the acquisition of film rights for cash.
The Company maintains distribution rights to these films for which it
has no financial obligations to third parties.
The Company is currently directing all its time and efforts towards
building its broadband business.
The Company evaluates the recoverability of its long lived assets in
accordance with the provisions of Statement of Financial Accounting
Standards No. 142 "Goodwill and the Intangible Assets," in which
intangible assets purchased and which have indefinite lives are stated
at cost less impairment losses and are tested for impairment at least
annually.
Recoverable amount is the higher of fair value less costs to sell and
value in use. In assessing value in use, the estimated future cash
flows are discounted to their present value using a pre-tax discount
rate that reflects current market assessments of the time value of
money and the risks specific to the asset. The use of a discounted cash
flow model often involves the use of significant estimates and
assumptions. Estimates are based upon assumptions about future demand
and market conditions and can vary significantly. When necessary, the
Company uses internal cash flow estimates, quoted market prices or
appraisals, as appropriate, to determine fair value. If the recoverable
amount of an asset is estimated to be less than its carrying amount,
the carrying amount of the asset is reduced to its recoverable amount.
An impairment loss is recognized immediately in the profit and loss
statement, unless the relevant asset is carried at a revalued amount,
in which case the impairment loss is treated as a revaluation decrease.
The estimation of fair value is in accordance with AICPA Statement of
Position 00-2, Accounting by Producers and Distributors of Film. Actual
results may differ from estimates and as a result the estimation of
fair values may be adjusted in the future.
Valuations were performed on January 4, 2007 for the assessments of
impairment of the Company's 100% ownership of the film library, which
reflected a higher value from its cost. The methods of valuation used
by the Company consisted of a discounted cash flow model, as well as
sales transactions comparison method and market earnings/multiples
method. Based on careful analysis of information available, the
estimation for the investment value of the film library currently
ranges from $400 million to $663 million.
ASSETS WITH DEFINITE USEFUL LIVES
Intangible assets which were purchased for a specific period are stated
at cost less accumulated amortization and impairment losses. Such
intangible assets are reviewed for impairment in accordance with FASB
Statement No. 144, Accounting for Impairment or Disposal of Long-Lived
Assets. Such intangible assets are amortized over the period of the
contract, which is 2 to 18 years.
Included in the gaming license are the rights to a digit games license
in Cambodia. The license is for a minimum period of 18 years commencing
from June 1, 2005, with an option to extend for a further 5 years or
such other period as may be mutually agreed. The Company capitalized
the development and building cost related to the broad-band sites and
infrastructure for the streaming system, most of which was developed in
2002 as product development costs. The Company projects that these
developments costs will be useful for up to five years before
additional significant development needs to be done.
Amortization expense was $3,305,000 for the year ended December 31,
2007 and $1,133,184 for the year ended December 31, 2006. Estimated
amortization expense related to intangible assets subject to
amortization at December 31, 2007 for each of the years in the five
year period ending December 31, 2012 and thereafter is: 2008 -
$1,095,361; 2009 - $889,623; 2010 - $662,719, 2011 - $629,159, 2012 -
$524,642 and thereafter $4,385,432.
F-16
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
7. ASSOCIATE
DECEMBER 31, DECEMBER 31,
2007 2006
----------- ----------
Fair value of investment in associate $ 3,693,650 $ --
Goodwill 1,272,465 --
Share of post-acquisition loss (23,832) --
----------- ----------
$ 4,942,283 $ --
=========== ==========
Details of the Company's associate as at December 31, 2007 are as
follows:
Name of Business: 121 View Corporation (SEA) Ltd
Place of Incorporation: British Virgin Islands
Principle of Activity: Digital signage solutions
Proportion of : DECEMBER 31, 2007 DECEMBER 31, 2006
Ownership Interest ----------------- -----------------
30.1% 25.0%
One of the directors of the Company has interests in the associated
company and one of the directors of the Company is also a director in
the associated company.
On April 20, 2007, M2B World Asia Pacific Pte. Ltd. subscribed for
additional 0.2% interest in the investee company, for an investment of
$66,115.
Summarized financial information in respect of the Company's associate
is set out below:
DECEMBER 31, DECEMBER 31,
2007 2006
----------- -----------
Total assets $ 9,353,100 $ --
Total liabilities (23,562) --
----------- -----------
Net assets 9,329,538 --
=========== ===========
Company's share of associate's net assets $ 2,808,191 $ --
=========== ===========
Revenue $ 163,574 $ --
=========== ===========
Loss for the period $ (77,735) $ --
=========== ===========
Company's share of associate's loss for
the period $ (23,832) $ --
=========== ===========
F-17
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
8. AVAILABLE-FOR-SALE EQUITY SECURITIES
Available-for-sale equity securities consist of the following:
DECEMBER 31, DECEMBER 31,
2007 2006
----------- -----------
Non Current :
Quoted equity securities $ 4,031,681 $ 5,676,074
Unquoted equity securities 879,664 6,482,277
----------- -----------
4,911,345 12,158,351
Current :
Unquoted equity securities 2,402,613 --
----------- -----------
$ 7,313,958 $12,158,351
=========== ===========
The investments in quoted equity securities comprised of 36,428,571
common shares of Auston International Group Ltd (Auston). As of
December 31, 2007, the market value of the Auston shares was S$0.16
(2006 :S$0.16) per share.
The unquoted equity securities classified as available-for-sale, with a
carrying value of $3,282,277 and $6,482,277 as of December 31, 2007 and
December 31, 2006, respectively, are measured at cost less impairment
losses as there is no quoted market price in an active market and other
methods of determining fair value do not result in a reasonable
estimate.
The Company explores other alternatives and considers using other
valuation techniques to establish the fair value. Valuation techniques
include using recent arm's length market transactions between
knowledgeable and willing parties. However, as the key investments held
by the Company operate in Singapore, there are no established markets
in Singapore for similar investments for the Company to obtain
comparables and observable data to carry out a reliable fair valuation.
9. COMMITMENTS
As of the balance sheet date, the Group has the following capital
commitments:
DECEMBER 31, DECEMBER 31,
2007 2006
---------- ----------
CAPITAL COMMITMENTS:
Contracted but not provided for
Film library $ 118,073 $4,254,372
Set-top boxes 2,074,825 2,562,000
---------- ----------
$2,192,898 $6,816,372
========== ==========
The Company has several noncancelable operating leases, primarily for
office spaces, that expire over the next five years.
F-18
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
As of December 31, 2007, the Company has commitments for future minimum
lease payments under non-cancellable operating leases (with initial or
remaining lease terms in excess of one year) as follows:
OPERATING
LEASES
--------
Year ending December 31,
2008 $262,426
2009 126,025
2010 3,976
--------
Total minimum lease payments $690,817
========
Rent expense totaled $341,211 for the year ended December 31, 2007 and
$238,744 for the year ended December 31, 2006.
10. CAPITAL STOCK
(a) Common stock issued for services
On March 19, 2007, the Company issued 40,000 shares of common stock in
a private placement at a price of $1.50 per share for a total amount of
$60,000 for services rendered to the Company.
(b) Common stock issued to employees
On December 20, 2006, 420,000 shares of common stock were approved for
issuance at a price of $0.45 a share to its employees. These shares
were issued on March 2, 2007 to the employees for their services to the
Company pursuant to the Company's 2004 Equity Compensation Plan (the
"Plan"). The shares of common stock issued to the employees pursuant to
the Plan have been registered on the registration statement on Form
S-8.
(c) Common stock issued for acquisition of investment
On July 11, 2007, 5,333,333 shares of common stock of the Company were
approved for issuance for the acquisition of an equity investment in a
company. The market value of the Company's shares at July 11, 2007 was
$0.70 per share.
F-19
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
11. INCOME TAXES
The Company files separate tax returns for Singapore and the United
States of America.
Current and deferred income taxes (tax benefits) provided is as
follows:
2007 2006 2005
----------- ----------- --------
Federal:
Current $ -- $ -- $ --
Deferred (432,121) (1,064,579) 372,150
State:
Current -- -- --
Deferred -- -- --
Foreign:
Current -- 58,473 --
Deferred 179,103 610,240 121,377
Change in valuation allowance 432,121 1,064,579 (372,150)
----------- ----------- -----------
Total $ 179,103 $ 668,713 $ 121,377)
=========== =========== ============
The Company recorded no income tax expense on discontinued operations
in 2005, as the gain from disposition was not taxable. The gain from
disposition is also not subject to foreign tax on the basis that it is
a non-taxable capital. As of December 31, 2007 and 2006, the Company
does not have US income tax from foreign operations.
Reconciliation of the differences between the statutory tax and the
effective income tax is as follows:
2007 2006 2005
----------- ----------- -----------
Tax computed at U.S. federal statutory rate $ 1,791,084 $ 95,233 $ 778,681
State and local taxes -- -- --
Non-deductible items (1,318,726) 25,221 --
Effect of foreign income taxes (775,825) (462,529) (285,124)
Others 50,449 (53,791) --
Valuation allowance 432,121 1,064,579 (372,180)
----------- ----------- -----------
Total $ 179,103 $ 668,713 $ 121,377
=========== =========== ===========
F-20
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
Significant components of the Company's net deferred tax liabilities
are as follows:
2007 2006 2005
----------- ----------- -----------
Investments available for sale $ 725,702 $ 916,162 $ --
Depreciation and amortization 725,157 862,770 679,681
Others 12,008 -- --
----------- ----------- -----------
Deferred tax liability 1,462,867 1,778,932 679,681
----------- ----------- -----------
Loss carry forwards (1,757,916) (1,617,653) (993,075)
Others -- (12,850) --
Valuation allowance 1,967,850 1,535,729 471,150
----------- ----------- -----------
Deferred tax asset $ 209,934 $ (94,774) $ (521,925)
----------- ----------- -----------
Net deferred tax liability $ 1,672,801 $ 1,684,158 $ 157,756
=========== =========== ===========
The Company had available approximately $5,832,966 of unused U.S. net
operating loss carry-forwards at December 31, 2007, that may be applied
against future taxable income. These net operating loss carry-forwards
expire for U.S. income tax purposes beginning in 2026. There is no
assurance the Company will realize the benefit of the net operating
loss carry-forwards.
SFAS No. 109 requires a valuation allowance to be recorded when it is
more likely than not that some or all of the deferred tax assets will
not be realized. As of December 31, 2007 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 $3,922,621 of unused Singapore
capital allowance carry-forwards at December 31, 2007, 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.
12. 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 2007 ENTERTAINMENT DIGIT GAMING OTHER TOTAL
------------ ------------ ------------ ------------
Revenues from external customers $ 14,601,299 $ 22,451,970 $ -- $ 37,053,269
Interest revenue $ 45,819 $ -- $ -- $ 45,819
Interest expenses $ 1,378 $ -- $ -- $ 1,378
Depreciation and amortization $ 3,581,459 $ 298,556 $ -- $ 3,880,015
Segment profit (loss) $ 5,570,096 $ 471,763 $ -- $ 6,041,859
Segment assets $ 53,215,524 $ 7,349,053 $ 77,201 $ 60,641,778
Expenditures for segment assets $ 3,698,942 $ -- $ -- $ 3,698,942
F-21
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
Reconciliation:-
REVENUES
Total revenues for reportable segments $ 37,053,269
Other revenue --
------------
Total consolidated revenues $ 37,053,269
============
INTEREST REVENUE
Total interest revenues for reportable segments $ 45,784
Corporate interest revenue
35
------------
Total consolidated interest revenue $ 45,819
============
INTEREST EXPENSES
Total interest expenses for reportable segments $ 1,378
Corporate interest expenses --
------------
Total consolidated interest expenses $ 1,378
============
PROFIT OR LOSS
Total profit for reportable segments $ 6,041,859
Corporate loss $ (347,777)
Intangible asset written off $ (2,420,227)
Gain on dilution of interest in subsidiary $ 2,483,872
Loss on valuation for held for trade investment $ (466,000)
Share of loss of associate $ (23,832)
------------
Income before income tax $ 5,267,895
------------
ASSETS
Total assets for reportable segments $ 60,564,577
Other assets $ 77,201
------------
Total consolidated assets $ 60,641,778
============
EXPENDITURES FOR SEGMENT ASSETS
Total expenditures for assets for reportable segments $ 3,698,942
============
Year 2006 ENTERTAINMENT DIGIT GAMING OTHER TOTAL
------------- ----------- ----------- -----------
Revenues from external
customers $ 8,053,146 $24,505,465 $ 14,664 $32,573,275
Interest revenue $ 55,038 $ -- $ 74,189 $ 129,227
Depreciation and
amortization $ 1,070,621 $ 298,556 $ -- $ 1,369,177
Segment profit $ 2,325,859 $ 317,476 $ 14,664 $ 2,657,999
Segment assets $ 38,984,965 $ 7,390,339 $ 2,516,543 $48,891,847
Expenditures for segment
assets $ 19,182,387 $ -- $ -- $19,182,387
F-22
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
Reconciliation:-
REVENUES
Total revenues for reportable segments $ 32,558,611
Other revenue $ 14,664
------------
Total consolidated revenues $ 32,573,275
============
INTEREST REVENUE
Total interest revenues for reportable segments $ 55,038
Corporate interest revenue $ 74,189
------------
Total consolidated interest revenue $ 129,227
============
PROFIT OR LOSS
Total profit for reportable segments $ 2,657,999
Corporate loss $ (738,757)
------------
Income before income tax and discontinued operations $ 1,919,242
------------
ASSETS
Total assets for reportable segments $ 46,375,304
Other assets $ 2,516,543
------------
Total consolidated assets $ 48,891,847
============
EXPENDITURES FOR SEGMENT ASSETS
Total expenditures for assets for reportable segments $ 19,182,387
============
Year 2005 ENTERTAINMENT DIGIT GAMING OTHER TOTAL
------------- ----------- ----------- -----------
Revenues from external
customers $ 3,278,833 $14,813,629 $ 3,460 $18,095,922
Interest revenue $ 2,223 $ -- $ -- $ 2,223
Depreciation and
amortization $ 254,826 $ 168,416 $ -- $ 423,242
Segment (loss) profit $ (634,798) $ (309,158) $ 3,460 $ (940,496)
Segment assets $ 9,568,104 $ 5,057,195 $ 6,119,660 $20,744,959
Expenditures for segment
assets $ 4,781,124 $ 4,809,000 $ -- $ 9,590,124
Reconciliation:-
REVENUES
Total revenues for reportable segments $ 18,092,462
Other revenue $ 3,460
------------
Total consolidated revenues $ 18,095,922
============
INTEREST REVENUE
Total interest revenues for reportable segments $ 1,551
Corporate interest revenue $ 672
------------
Total consolidated interest revenue $ 2,223
============
Following table presents revenues earned from customers located in
different geographic areas. Property and equipment is grouped by its
location.
YEAR 2007 ASIA PACIFIC UNITED STATES OTHER TOTAL
----------- ----------- ----------- -----------
Revenues from external
customers $37,052,863 $ 406 $ -- $37,053,269
Property and equipment, net $ 1,495,417 $ 206,329 $ 95,400 $ 1,797,146
YEAR 2006 ASIA PACIFIC UNITED STATES OTHER TOTAL
----------- ----------- ----------- -----------
Revenues from external
customers $27,872,976 $ 299 $ 4,700,000 $32,573,275
Property and equipment, net $ 825,322 $ 295,021 $ 95,400 $ 1,215,743
F-23
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
YEAR 2005 ASIA PACIFIC UNITED STATES OTHER TOTAL
----------- ----------- ----------- -----------
Revenues from external
customers $18,056,522 $ 33,000 $ 6,400 $18,095,275
Property and equipment, net $ 825,322 $ 295,021 $ 95,400 $ 1,215,743
13. RELATED PARTY TRANSACTIONS
Related parties are entities with common direct or indirect
shareholders and/or directors. Parties are considered to be related if
one party has the ability to control the other party or exercise
significant influence over the other party in making financial and
operating decisions.
Some of the Company's transactions and arrangements are with the
related party and the effect of these on the basis determined between
the parties is reflected in these financial statements. The balances
are unsecured, interest-free and repayable on demand unless otherwise
stated.
F-24
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
During the period, the Company entered into the following transactions
with the related parties:
FOR THE YEAR ENDED
------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2007 2006 2005
----------- ---------- ------------
Associate :
Marketing $ 110,537 $ -- $ --
=========== ========== ============
Other Related Party :
Consultancy fee $ 80,339 $ -- $ --
=========== ========== ============
14. SUBSEQUENT EVENTS
As of February 19, 2008, the Board of Directors of Amaru, Inc., a
Nevada corporation (the "Company") ratified the decision of the
Company's executive officers that a Sale and Purchase Agreement (the
"Agreement") with Auston International Group Limited ("Auston"), a
Singapore company listed on the Singapore Stock Exchange was terminated
by its terms as of December 31, 2007 and the Company did not decide to
extend it. The Agreement provided for the sale to Auston of the
Company's majority owned subsidiary, M2B World Asia Pacific Pte Ltd.,
together with its subsidiary, M2B World Holdings Limited and for the
sale of 42,459,978 shares of M2B Word Asia Pacific Pte Ltd, its total
issued and outstanding capital.
As the consideration for M2B World Asia Pacific Pte Ltd shares, Auston
agreed to issue a total of 660 million new ordinary shares of Auston
(valued at S$0.25 per share) to M2B World Asia Pacific Pte Ltd
shareholders.
The Agreement was subject to certain conditions precedent, including,
but not limited to the shareholder approval of the transaction by
Auston shareholders, the approval of the Singapore Stock Exchange and
other related regulatory approvals of both parties. According to the
terms of the Agreement, if the conditions set forth in Clause 3.1
(Conditions Precedent) were not satisfied or waived by the parties to
the Agreement by the completion date of December 31, 2007, the
Agreement shall cease (Clause 3.4 of the Agreement). Accordingly, since
the conditions precedent were not met by the parties, the Agreement was
terminated.
Although the Agreement is terminated, the Company's Board of Directors
decided to list the securities of M2B World Asia Pacific Pte Ltd on the
Singapore Stock Exchange.
F-25