UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Mark one:
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 2007
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to _______
Commission File Number 000-50065
Amaru, Inc.
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(Exact name of registrant as specified in its charter.)
Nevada 88-0490089
---------- ----------
(State of Incorporation) (IRS Employer 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
-------------------
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 whether the registrant is a shell company (as defined in
Rule 12b-2 Of the Exchange Act.
Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock $0.001 par value 154,098,528 shares
----------------------------- ---------------------------------
(Class) (Outstanding at June 15,2007)
AMARU, INC. AND SUBSIDARIES
2007 Quarterly Report on Form 10-Q
Table of Contents
PART 1: FINANCIAL INFORMATION
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ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets F-2
Consolidated Statements of Income F-3
Consolidated Statement of Stockholders' Equity and Comprehensive Income F-4
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 1
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 7
ITEM 4: CONTROLS AND PROCEDURES 8
PART 2: OTHER INFORMATION
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ITEM 1: LEGAL PROCEEDINGS
ITEM 1A: RISK FACTORS
ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITIY HOLDERS
ITEM 5: OTHER INFORMATION 9
ITEM 6: EXHIBITS 10
SIGNATURES
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
MARCH 31, DECEMBER 31,
2007 2006
------------ ------------
ASSETS
Current assets
Cash and cash equivalents $ 5,757,807 $ 2,294,984
Accounts receivable, net 413,244 2,106,647
Inventories 1,617,962 1,689,634
Other current assets 526,470 539,604
------------ ------------
Total current assets 8,315,483 6,630,869
Non-current assets
Property and equipment, net 1,266,620 1,215,744
Intangible assets, net 29,101,035 28,886,883
Associate 4,907,539 --
Investments available for sale 11,805,405 12,158,351
------------ ------------
Total non-current assets 47,080,599 42,260,978
------------ ------------
Total assets $ 55,396,082 $ 48,891,847
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 1,910,515 $ 2,101,970
Others payable 105,784 --
Income taxes payable 58,473 58,473
------------ ------------
Total current liabilities 2,074,772 2,160,443
Deferred tax liabilities 2,138,646 1,684,158
------------ ------------
Total liabilities 4,213,418 3,844,601
Minority interest 3,016,115 --
Commitments -- --
Stockholders' equity
Preferred stock (par value $0.001) 5,000,000 shares authorized;
0 shares issued and outstanding at March 31, 2007 and
December 31, 2006, respectively -- --
Common stock (par value $0.001) 200,000,000 shares authorized;
154,098,528 and 153,638,528 shares issued and outstanding at
March 31, 2007 and December 31, 2006, respectively 154,098 153,638
Additional paid-in capital 39,190,666 38,942,126
Subscribed common stock, 0 and 420,000 shares at March 31, 2007
and December 31, 2006 respectively -- 189,000
Retained earnings 2,915,158 2,084,908
Accumulated other comprehensive income 5,906,627 3,677,574
------------ ------------
Total stockholders' equity 48,166,549 45,047,246
------------ ------------
Total liabilities and stockholders' equity $ 55,396,082 $ 48,891,847
============ ============
See accompanying notes to consolidated financial statements
F-2
AMARU, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE THREE MONTHS ENDED
-------------------------------
MARCH 31, 2007 MARCH 31, 2006
-------------- --------------
Revenue:
Entertainment $ 10,249 $ 1,002,657
Digit gaming 5,476,826 5,873,694
Other income -- 786
------------- -------------
Total revenue 5,487,075 6,877,137
Cost of services (5,423,501) (5,788,393)
------------- -------------
Gross profit 63,574 1,088,744
Distribution costs (309,647) (247,434)
Administrative expenses (1,672,296) (633,677)
------------- -------------
Total expenses (1,981,943) (881,111)
(Loss) Income from operations (1,918,369) 207,633
Other income:
Interest received 13,682 17,582
Gain on dilution of interest in subsidiary 2,483,871 --
Share of profit of associate 7,539 --
------------- -------------
Income before income taxes 586,723 225,215
Benefit for income taxes 163,513 75,041
------------- -------------
Net income 750,236 $ 300,256
============= =============
Attributable to:
Equity holders of the company 830,250 300,256
Minority interest (80,014) --
------------- -------------
750,236 300,256
============= =============
Earnings per share
- basic and diluted $ 0.005 $ 0.002
============= =============
Weighted average number of common shares outstanding
- basic and diluted 153,784,306 134,776,864
============= =============
See accompanying notes to consolidated financial statements
F-3
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(UNAUDITED)
PREFERRED STOCK COMMON STOCK
------------------------- -------------------------
NUMBER PAR PAR ADDITIONAL SUBSCRIBED
OF VALUE NUMBER OF VALUE PAID-IN COMMON RETAINED
SHARES ($0.001) SHARES ($0.001) 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 equity
securities
available for
sale, net of tax -- -- -- -- -- -- --
Comprehensive
income -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at
December 31,
2006 -- -- 153,638,528 $ 153,638 $38,942,126 $ 189,000 $ 2,084,908
=========== =========== =========== =========== =========== =========== ===========
(CONTINUED ON NEXT PAGE)
F-4
(CONTINUED FROM PREVIOUS PAGE)
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 equity
securities
available for
sale, 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-4A
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(UNAUDITED)
PREFERRED STOCK COMMON STOCK
--------------------------- ---------------------------
NUMBER PAR PAR ADDITIONAL SUBSCRIBED
OF VALUE NUMBER OF VALUE PAID-IN COMMON RETAINED
SHARES ($0.001) SHARES ($0.001) 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 -- --
Contribution from
minority interest -- -- -- -- -- -- --
Gain on dilution of
interest in
subsidiary -- -- -- -- -- -- --
Net income -- -- -- -- -- -- 830,250
Change in fair value
equity securities
available for sale,
net of tax -- -- -- -- -- -- --
Comprehensive
income -- --
------------ ------------ ------------ ------------ ------------ ------------ ------------
-- -- 154,098,528 $ 154,098 $ 39,190,666 -- $ 2,915,158
============ ============ ============ ============ ============ ============ ============
(CONTINUED ON NEXT PAGE)
F-5
(CONTINUED FROM PREVIOUS PAGE)
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
Contribution from
minority interest -- -- 5,580,000 5,580,000
Gain on dilution of
interest in
subsidiary -- -- (2,483,871) (2,483,871)
Net income -- -- (80,014) 750,236
Change in fair value
equity securities
available for sale,
net of tax -- 2,229,053 -- 2,229,053
------------
Comprehensive
income -- 2,979,289
------------ ------------ ------------ ------------
$ 12,927 $ 5,893,700 $ 3,016,115 $ 51,182,664
============ ============ ============ ============
See accompanying notes to consolidated financial statements
F-5A
AMARU, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
March 31, 2007 March 31, 2006
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 750,236 $ 300,256
Share of profit of associate (7,539) --
Adjustments to reconcile net income to cash and cash
equivalents used or provided by operations:
Amortization 803,881 151,669
Depreciation 113,655 36,059
Acquisition of investment in exchange for account receivable (1,700,000) --
Gain on dilution of interest in subsidiary (2,483,871) --
Common stock issued for services 60,000 --
Changes in operation assets and liabilities
Accounts receivables 1,693,403 (143,684)
Inventories 71,672 --
Other receivables 30,841 (71,323)
Others current assets (17,707) (99,167)
Accounts payable and accrued expenses (191,455) 5,705
Other payables 105,784 --
Income tax payable (163,513) --
------------ ------------
Net cash (used in) generated from operating activities (934,613) 179,515
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment (164,531) (42,341)
Deposit paid for an investment -- (1,052,613)
Acquisition of investment available for sale -- (130,030)
Acquisition of intangible assets (1,018,033) (3,089,026)
------------ ------------
Net cash used in by investing activities (1,182,564) (4,314,010)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of balances due to related party -- (58,392)
Proceeds from issuance of common stock -- 4,611,710
Capital contributed by minority shareholders 5,580,000 --
------------ ------------
Net cash provided by financing activities 5,580,000 4,553,318
Effect of exchange rate changes on cash and cash equivalents -- --
------------ ------------
Cash flows from all activities 3,462,823 418,823
Cash and cash equivalents at beginning of period 2,294,984 4,776,819
------------ ------------
Cash and cash equivalents at end of period $ 5,757,807 $ 5,195,642
============ ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND
INVESTING ACTIVITIES:
Acquisition of investments (1) $ 1,700,000 $ --
============ ============
(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 an investment for $1.7 million in exchange for the settlement of an accounts
receivable from the investee company.
See accompanying notes to consolidated financial statements
F-6
AMARU, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED
MARCH 31, 2007 AND 2006
1. BASIS OF PRESENTATION
1.1 Description of Business
Amaru, Inc. (the Company) through its subsidiaries under the M2B
brand is in the Broadband Media Entertainment business, and a
provider of interactive Entertainment-on-demand, Education-on-demand
and E-commerce streaming over Broadband channels, Internet portals
and Third-Generation (3G) devices globally. It has launched multiple
Broadband TV and integrated shopping websites with over 100 channels
of content designed and programmed to target specific viewer
profiles and lifestyles of local and international audiences. The
Company controls substantial content libraries for aggregation,
distribution and syndication on Broadband and other media, sourced
from Hollywood and major content providers around the world.
The Company's business strategy is to be a diversified media company
specializing in the interactive media industry, using the latest
broadband, E-Commerce and communications technologies and access to
international content and programming.
The Company's goal is to provide on-line entertainment and education
on-demand on Broadband channels, Internet portals and 3G devices
across the globe; for specific and identified viewer lifestyles,
demographics and interests; and to tie the viewing experience to an
on-line shopping experience. This is to enable two leisure
activities to be rolled into one for the ultimate convenience and
reaching out to a global viewing audience.
1.2 Basis of Presentation
The financial statements included herein are unaudited. However,
such information reflects all adjustments (consisting solely of
normal occurring adjustments) which are, in the opinion of
management, necessary for a fair statement of results for the
interim periods. The results of operations for the three months
ended March 31, 2007, are not necessarily indicative of the results
to be expected for the full year.
The accompanying financial statements do not include footnote and
certain financial presentation normally required under generally
accepted accounting principles, and, therefore, should be read in
conjunction with the company's Annual report on Form 10-KSB for the
year ended December 31, 2006.
1.3 Recent Accounting Standards and Pronouncements
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 three months ended March 31, 2007.
The Company has not taken a tax position that would have a material
effect 31 March, 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-7
AMARU, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED
MARCH 31, 2007 AND 2006
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.
Licensing and advertising revenues were concentrated with Nil
customers totalling O% of these related revenues for the three
months ended March 31, 2007 and three customers totaling 100.0% of
these related revenues for the three months ended March 31, 2006.
The Company's operations are conducted over the world wide web and
some purchases are made from locations outside of Singapore.
FOR THE THREE MONTHS ENDED
-------------------------
MARCH 31, MARCH 31,
2007 2006
------------ ------------
Sales outside of the U.S. $ 5,487,030 $ 6,877,137
Services purchased outside of the U.S. $ 5,393,399 $ 5,773,846
2.5 Inventories
Inventories are carried at the lower of cost or and net realizable
value. Cost is calculated using first-in, first-out ("FIFO") method
and comprises all costs of purchase, costs of conversion and other
costs incurred in bringing the inventories to their present location
and condition.
2.6 Property and Equipment
Property and equipment are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of
the assets for financial reporting purposes. Expenditures for major
renewals and betterments that extend the useful lives are
capitalized. Expenditures for normal maintenance and repairs are
expensed as incurred. The cost of assets sold or abandoned and the
related accumulated depreciation are eliminated from the accounts
and any gains or losses are reflected in the accompanying
consolidated statement of income of the respective period. The
estimated useful lives of the assets range from 3 to 5 years.
F-8
AMARU, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED
MARCH 31, 2007 AND 2006
2.7 Intangible Assets
Intangible assets consist of film library, gaming and software
licence and product development costs. Intangible assets which were
purchased and have indefinite lives are stated at cost less
impairment losses and are tested for impairment at least annually
in accordance with the provisions of FASB Statement No. 142,
Goodwill and Other Intangible Assets.
Intangible assets which were purchased for a specific period are
stated at cost less accumulated amortization and impairment losses.
Such intangible assets are reviewed for impairment in accordance
with FASB Statement No. 144, Accounting for Impairment or Disposal
of Long-Lived Assets. Such intangible assets are amortized over the
period of the contract, which is two to 18 years.
Included in the gaming license are the rights to a digit games
license in Cambodia. The license is for a minimum period of 18 years
commencing from June 1, 2005, with an option to extend for a further
5 years or such other period as may be mutually agreed.
The Company capitalized the development and building cost related to
the broad-band sites and infrastructure for the streaming system,
most of which was developed in 2002 as product development costs.
The Company projects that these development costs will be useful for
up to five years before additional significant development needs to
be done.
2.8 Associate
An associate is an entity over which the group 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 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 group'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 group's net investment in the
associate) are not recognised, 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 group's share of the
net fair value of the identifiable assets, liabilities and
contingent liabilities of the associate recognised at the date of
acquisition is recognised 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 group's
share of the net fair value of the identifiable assets, liabilities
and contingent liabilities over the cost of acquisition, after
reassessment, is recognised 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"). There are no investments classified as trading or
held-to-maturity as of March 31, 2007 and December 31, 2006.
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.
F-9
AMARU, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED
MARCH 31, 2007 AND 2006
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 three months ended March 31, 2007 and
the year ended December 31, 2006.
2.11 Advances from Related Party
Advances from related party are unsecured, non-interest bearing and
payable on demand.
2.12 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.
2.13 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.
2.14 Costs of Services
The cost of services pertaining to advertising and sponsorship
revenue and subscription and related services are cost of bandwidth
charges, channel design and alteration, copyright licensing, and
hardware hosting and maintenance costs. The cost of services
pertaining to E-commerce revenue is channel design and alteration,
and hardware hosting and maintenance costs. The cost of services
pertaining to gaming is for managing and operating the operations
and gaming centers. All these costs are accounted for in the period
its was incurred.
2.15 Income Taxes
Deferred income taxes are determined using the liability method in
accordance with Statement of Financial Accounting Standards ("SFAS")
No. 109, Accounting for Income Taxes. Deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred income taxes are measured using enacted tax rates
expected to apply to taxable income in years in which such temporary
differences are expected to be recovered or settled. The effect on
deferred income taxes of a change in tax rates is recognized in the
statement of income of the period that includes the enactment date.
In addition, a valuation allowance is established to reduce any
deferred tax asset for which it is determined that it is more likely
than not that some portion of the deferred tax asset will not be
realized.
2.16 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.
2.17 Financial Instruments
The carrying amounts for the Company's cash, other current assets,
accounts payable, accrued expenses and other liabilities approximate
their fair value.
F-10
AMARU, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED
MARCH 31, 2007 AND 2006
2.18 Advertising
The cost of advertising is expensed as incurred. For the three
months ended March 31, 2007 and 2006, the Company incurred
advertising expenses of $205,429 and $190,130 respectively.
2.19 Reclassifications
Certain amounts in the previous periods presented have been
reclassified to conform to the current year financial statement
presentation.
3. 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 party is
reflected in these financial statements. The balances are unsecured,
interest-free and repayable on demand unless otherwise stated.
During the period, the Group entered into the following transactions with
the associate:
MARCH 31, DECEMBER 31,
2007 2006
------------ ------------
Marketing $ 42,216 $ --
============ ===========
4. OTHER CURRENT ASSETS
Other current assets consist of the following:
MARCH 31, DECEMBER 31,
2007 2006
------------ ------------
Prepayments $ 193,893 $ 177,278
Deposits 173,974 172,882
Other receivables 158,603 189,444
------------ ------------
$ 526,470 $ 539,604
============ ============
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
MARCH 31, DECEMBER 31,
2007 2006
------------ ------------
Office equipment $ 736,979 $ 721,085
Motor vehicle 32,372 11,000
Furniture, fixture and fittings 583,036 556,069
Set-top boxes 365,979 265,681
------------ ------------
1,718,366 1,553,835
Accumulated depreciation (451,746) (338,091)
------------ ------------
$ 1,266,620 $ 1,215,744
============ ============
Depreciation expense was $113,655 for the three months ended March 31,
2007 and $36,059 for the three months ended March 31, 2006.
F-11
AMARU, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED
MARCH 31, 2007 AND 2006
6. INTANGIBLE ASSETS
Intangible assets consist of the following:
MARCH 31, DECEMBER 31,
2007 2006
------------ ------------
INDEFINITE LIVES
Film library $ 17,683,099 $ 17,674,378
Software license 2,420,227 2,420,227
------------ ------------
20,103,326 20,094,605
DEFINITE USEFUL LIVES
Film library 3,947,789 2,947,564
Gaming license 7,090,000 7,090,000
Product development expenditures 678,616 669,529
------------ ------------
11,716,405 10,707,093
Accumulated amortization (2,718,696) (1,914,815)
------------ ------------
8,997,709 8,792,278
------------ ------------
$ 29,101,035 $ 28,886,883
============ ============
Amortization expense was $803,881 for the three months ended March 31,
2007 and $151,669 for the three months ended March 31, 2006.
7. ASSOCIATE
MARCH 31, DECEMBER 31,
2007 2006
------------ ------------
Cost of investment in associate $ 4,900,000 $ --
Share of post-acquisition profit 7,539 --
------------ ------------
$ 4,907,539 $ --
============ ============
Details of the Group's associate at March 31, 2007 are as follows:
Place of Proportion of
Name of incorporation ownership Principal
associate and operation interest activity
--------- ------------- --------- ---------
MARCH 31, DECEMBER 31,
2007 2006
--------- -------------
% %
121 View Corporation
British Virgin 29.9 25.0 --
(SEA) Ltd
Islands
One of the directors of the Company has interests in the associated
company.
Summarised financial information in respect of the Group's associate is
set out below:
MARCH 31, DECEMBER 31,
2007 2006
------------ ------------
Total assets $ 9,381,105 $ --
Total liabilities (22,108) --
------------ ------------
Net assets $ 9,358,997 $ --
============ ============
Group's share of associate's net assets 2,798,340 --
============ ============
Revenue 64,451 --
============ ============
Profit for the year 26,855 --
============ ============
Group's share of associate's profit for the
year 7,539 --
============ ============
F-12
AMARU, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED
MARCH 31, 2007 AND 2006
8. INVESTMENTS AVAILABLE FOR SALE
Investments available for sale consist of the following:
MARCH 31, DECEMBER 31,
2007 2006
------------ ------------
Quoted equity securities $ 8,523,128 $ 5,676,074
Unquoted equity securities 3,282,277 6,482,277
------------ ------------
$11,805,405 $ 12,158,351
============ ============
The investments in quoted equity securities comprised of 36,428,571 common
shares of Auston International Group Ltd (Auston). As of March 31, 2007,
the market value of the shares was $0.23 (S$0.36).
The unquoted equity securities classified as available-for-sale, with a
carrying value of $3,282,277 and $6,482,277 as of March 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:
MARCH 31, DECEMBER 31,
2007 2006
------------ ------------
CAPITAL COMMITMENTS:
Contracted but not provided for
Film library $ 471,124 $ 4,254,372
Set-top boxes 2,562,000 2,562,000
Other equipments 328,000 --
------------ ------------
$ 3,361,124 $ 6,816,372
============ ============
The Company has several noncancelable operating leases, primarily for
office spaces, that expire over the next five years.
As of March 31, 2006, the Company has commitments for future minimum
lease payments under non-cancellable operating leases (with initial or
remaining lease terms in excess of one year) as follows:
OPERATING
LEASES
-----------
Year ending December 31,
2007 226,744
2008 262,426
2009 178,675
2010 126,360
2011 80,504
-----------
Total minimum lease payments $ 874,709
===========
Rent expense totaled $71,379 for the three months ended March 31, 2007 and
$32,217 for the three months ended March 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.
F-13
AMARU, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED
MARCH 31, 2007 AND 2006
11. INCOME TAXES
The Company files separate tax returns for Singapore and the United
States of America.
The Company had available approximately $4,847,587 of unused U.S. net
operating loss carry-forwards at March 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 March 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 $950,091 of unused Singapore
capital allowance carry-forwards at March 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.
2007
Entertainment Digit Gaming Other Total
------------ ------------ ------------ ------------
Revenues from external customers $ 10,249 $ 5,476,826 $ -- $ 5,487,075
Interest revenue $ 13,682 $ -- $ -- $ 13,682
Depreciation and amortization $ 842,897 $ 74,639 $ -- $ 917,536
Segment profit (loss) $ (1,842,101) $ 64,275 $ -- $ (1,777,826)
Segment assets $ 45,544,336 $ 7,361,956 $ 2,482,251 $ 55,388,543
Expenditures for segment assets $ 1,182,564 $ -- $ -- $ 1,182,564
Reconciliation :-
REVENUES
Total revenues for reportable segments $ 5,487,075
Other revenue $ --
-------------
Total consolidated revenues $ 5,487,075
-------------
INTEREST REVENUE
Total interest revenue for reportable segments $ 13,658
Corporate interest revenue $ 24
-------------
Total consolidated interest revenue $ 13,682
-------------
PROFIT OR LOSS
Total loss for reportable segments $ (1,777,826)
Corporate expenses $ (126,861)
Gain on dilution of interest in subsidiary $ 2,483,871
Share of profit of associate $ 7,539
-------------
Profit before income tax $ 586,723
-------------
ASSETS
Total assets for reportable segments $ 52,906,292
Other assets $ 2,482,251
-------------
Total consolidated assets $ 55,388,543
-------------
EXPENDITURES FOR SEGMENT ASSETS
Total expenditures for assets for reportable segments $ 1,182,564
-------------
F-14
AMARU, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED
MARCH 31, 2007 AND 2006
12. SEGMENT REPORTING (Cont'd)
2006
Entertainment Digit Gaming Other Total
------------ ------------ ------------ ------------
Revenues from external customers $ 1,002,657 $ 5,873,694 $ 786 $ 6,877,137
Interest revenue $ 17,582 $ -- $ -- $ 17,582
Depreciation and amortization $ 113,089 $ 74,639 $ -- $ 187,728
Segment profit $ 212,922 $ 82,977 $ 786 $ 296,685
Segment assets $ 14,843,096 $ 6,530,580 $ 4,230,562 $ 25,604,238
Expenditures for segment assets $ 3,131,367 $ -- $ -- $ 3,131,367
Reconciliation :-
REVENUES
Total revenues for reportable segments $ 6,876,351
Other revenue $ 786
-------------
Total consolidated revenues $ 6,877,137
-------------
INTEREST REVENUE
Total interest revenue for reportable segments $ 11,471
Corporate interest revenue $ 6,111
-------------
Total consolidated interest revenue $ 17,582
-------------
PROFIT OR LOSS
Total profit for reportable segments $ 296,685
Corporate expenses $ (71,470)
-------------
Profit before income tax $ 225,215
-------------
ASSETS
Total assets for reportable segments $ 21,373,676
Other assets $ 4,230,562
-------------
Total consolidated assets $ 25,604,238
-------------
EXPENDITURES FOR SEGMENT ASSETS
Total expenditures for assets for reportable segments $ 3,131,367
-------------
Following table presents revenues earned from customers located in
different geographic areas. Property and equipment is grouped by its
location.
2007 ASIA PACIFIC UNITED STATES OTHER TOTAL
------------ ------------- ------------ ------------
Revenues from external customers $ 5,487,030 $ 45 $ - $ 5,487,075
Property and equipment, net $ 893,249 $ 277,971 $ 95,400 $ 1,266,620
2006 ASIA PACIFIC UNITED STATES OTHER TOTAL
------------ ------------- ------------ ------------
Revenues from external customers $ 6,877,137 $ - $ - $ 6,877,137
Property and equipment, net $ 305,844 $ 52,633 $ 85,000 $ 443,477
13. SUBSEQUENT EVENTS
On April 20, 2007, M2B World Asia Pacific Pte. Ltd. subscribed for additional
interest in an investee company for $66,000.
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 a 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 is contemplated to be
completed by June 30, 2007.
On April 23, 2007, a supplier filed a lawsuit against M2B World, Inc. for breach
of contract for an amount of $72,649.
F-15
On July 10, 2007, the Company entered into an share sale and purchase agreement
(the "Agreement") by and between Tremax International Limited, a British Virgin
Islands corporation and the Company's wholly-owned subsidiary (the "Purchaser")
and Domaine Group Limited, a British Virgin Islands corporation (the "Vendor"),
and a 100% beneficial owner of CBBN Holdings Limited ("CBBN Holdings"). CBBN
Holdings is a 80% beneficial owner of Cosmactive Broadband Networks Co. Ltd
("CBN"). According to the terms of the Agreement, the Vendor shall sell, and the
Purchaser or its nominee(s) shall purchase the shares held by Vendor in CBBN
Holdings, in exchange for the issuance of 5,333,333 newly issued restricted
shares of common stock of the Company. 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 and has a subscriber base of about 20,000 homes.
Item 2. 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
M2B World is in the business of broadband entertainment and education-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.
RESULTS OF OPERATIONS
---------------------
For the quarter ended March 31, 2007 compared with the quarter ended March 31,
2006
OVERVIEW
The key business focus of the Company is to establish itself as the
leading provider and creator of a new generation Of
Entertainment-on-Demand, Education-on-Demand and E-Commerce Channels on
Broadband, and 3G (Third Generation) devices.
For the broadband, the Company delivers both wire and wireless
solutions, streaming via computers, TV sets, PDAs and 3G hand phones.
At the same time the Company launches e-commerce channels (portals) that
provide on-line shopping but with a difference, merging two leisure
activities of shopping and entertainment. The entertainment channels are
designed to drive and promote the shopping portals, and vice versa.
The Company's business model in the area of broadband entertainment
includes both education on-demand and e-services, which would provide
the Company with multiple streams of revenue. Such revenues would be
derived from advertising and branding (channel and program sponsorship);
on-line subscriptions; online games micro-payments; channel/portal
development (digital programming services); content aggregation and
syndication; broadband consulting services; on-line shopping turnkey
solutions; broadband hosting and streaming services; E-commerce
commissions and on-line dealerships; and digit games operations.
1
Business Operations
-------------------
Our principal operations are carried out through the following three segments of
our business:
1. Entertainment Services - Video on-Demand services such as for
entertainment and education, providing the Company with advertising,
subscriptions, online games and e-commerce ( B2B and B2C) revenues
2. Digit Games
3. E-Travel Services - Online Travel Portal
1. Entertainment Services
----------------------
The Company provides online entertainment and education on-demand on
Broadband channels, Internet portals and 3G devices across the globe,
for specific and identified viewer lifestyles, demographics and
interests. Entertainment and web visit experience is maintained
throughout from the initial viewing experience to on-line shopping and
payment checkout experience.
The Company uses Broadband technology to provide its services. Broadband
technology is defined as high speed, high-bandwidth, two-way data, voice
and video communications, delivered at high transmission rates.
SERVICES: Broadband technology allows us to deliver the following
services::
o Video-on-demand (VOD) services that enable individuals to select
videos from a Central Server, on-demand 24 hours a day, 7 days a
week, for viewing on:
o Television screens (Set top Box Technology)
o PCs (Digital Subscriber Line (DSL) Technology)
o Personal Digital Assistants(PDA), 3G hand phones
(Wireless Technology)
o E-Commerce or online shopping - linked interactively to
the VOD platforms on broadband. Consumers choose to buy
products online as they watch the videos.
The Company applies broadband technologies to facilitate its growth in
the broadband sector. Its main competitive advantage is derived from its
ownership of rights for various territories on broadband for its
contents i.e. movies and programs on lifestyles, education, business and
glamour.
The Company has built and installed its broadband streaming system
complete with firewalls, load balancing, bandwidth and consumer
monitoring systems, which include video streaming, video storage and web
servers in Singapore and the U.S. The Company has also developed its
streaming applications to stream into television sets, via a set top
box.
The Company has developed a capability to stream wireless broadband and
have its own digitized entertainment sites for wireless broadband
applications.
M2B offers consumers personalized entertainment through its wide range
of broadband streaming channels available at WWW.M2BWORLD.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 Adult Education - consumers view program on management skills,
communication skills, decision making, customer services and
sales, motivation, presentation and writing skills, counseling
and others.
2
With this strategy, the Company generates diversified sources of revenue
from:
1. Advertising i.e. program and channel sponsorship
2. Online subscriptions
3. Channel/portal development i.e. digital programming services
4. Content aggregation and syndication
5. Broadband consulting services and online shopping turnkey
solutions
6. E-commerce services
7. Online games micro-payments
Currently, the M2B Broadband websites include:
1. Entertainment Sites
INTERNATIONAL AND U.S. SITES:
o Star78.com - an advertising-based Family Entertainment
site for international viewers
o Shine8.com - an advertising-based Lifestyle site for
international viewers
o Jump29.com - an advertising-based Young Adults site for
international viewers
o Dreamstage7.com - an advertising and subscription-based
Glamour and Fashion site for international viewers
o Highfashion7.com - an advertising and subscription based
designer Fashion site for international viewers
o Dragon78.tv - an advertising and subscription-based
Mandarin Entertainment site for viewers in US only
o Chinois78.com - an advertising and subscription based
Mandarin Lifestyle site for viewers in US only
ASIAN SITES:
o Dimension88.com - an advertising and subscription-based
Movie site in Singapore only
o Dragon78.com - an advertising and subscription-based
Mandarin Entertainment site in Singapore only
o Ideas Broadband - four subscription based entertainment
sites (Movie Mania, Executive Online, Glamour Galore,
Dragon City providing 25 channels) dedicated for
Singapore Telecommunications Ltd Ideas Broadband viewers
in Singapore only
o Trilogy - a subscription based 3G mobile phone
entertainment site dedicated for Singapore
Telecommunications Trilogy viewers in Singapore only
o Colours78.com - an advertising and subscription based
Mandarin Lifestyle site in Singapore only
2. Education Sites
U.S. SITES:
o Wiz5.us - an advertising and subscription-based Business
& Corporate Training site for viewers in US only
ASIAN SITES:
o Wiz5.com - an advertising and subscription-based
Business and Corporate Training site for viewers in
Singapore only
3. E-Commerce Sites
INTERNATIONAL SITES:
o Starzmall.com - A One-Stop Shopping Paradise
o Royalhive.com - A One-Stop Health and Beauty Mall
3
BROADBAND SERVICES
The Company has an automated Content Management System ("CMS") to
enhance its advertising service offered to clients and to provide a new
revenue source for the Company. The system allows for the programming of
video, animation, streaming and flash content to multiple destinations
and was demonstrated back in 2005 at the Asia Television Forum (ATF
2005), a regional platform for media buyers and sellers. As a sponsor at
the event, M2B World showcased the automated CMS on plasma screens,
together with programming from the M2B content library that includes
movies, dramas, comedies, documentaries, music, fashion, lifestyle,
learning and more.
Linked by broadband networks and wireless set-top boxes to push content
and scheduled advertising at physical premises, the CMS allows
businesses the option of presenting targeted content on selected video
displays in multiple locations, such as on different levels of a
shopping mall, in various spots within a restaurant or club or on
separate elevators in the same building.
In store video panels can also carry individualized messages together
with customized content to reach consumers and target audiences within
the premises. The Company plans to further introduce this integrated CMS
and content solution to U.S. clients in 2007. Businesses and advertisers
can then readily offer customers feature-rich content with this
versatile and easy-to-use CMS designed to advance brand-building
activities and widen the advertising options for customer outreach. This
integrated solution underscores M2B's key strength in delivering content
for viewing on PCs, 3G mobile phones, PDAs as well as television
screens. This is another method by which M2B is continuing to meet the
consumer shift toward on-demand and personalized media experiences
whether at home or work and now additionally on video screens in stores,
restaurants, clubs and other business or leisure outlets.
DIGIT GAMES
The Company has an 18-year license to conduct nation wide lottery in
Cambodia. The Company also signed an agreement with Allsports Limited, a
British Virgin Islands company, to operate, administer, and manage the
lottery digit games activities in Cambodia.
E-TRAVEL SERVICES
The Company's subsidiary, M2B World Travel Limited., signed a global
agreement with Amadeus Global Travel Distribution, SA, a Spanish
corporation. Through the agreement, M2B continues to offer direct access
to the extensive range of travel options available through the Amadeus
network to their viewers around the world. The agreement extends M2B's
reach through its broadband streaming entertainment into the worldwide
travel arena.
According to PhoCusWright, a travel industry research provider, the
online portion of those sales is growing particularly quickly in the
U.S., Europe and the Asia-Pacific region, where combined online travel
sales in those three geographic regions is estimated to top $115 billion
this year. With eMarketer reporting that broadband currently reaches
over 58 million households in Asia-Pacific alone, M2B World Travel
Limited through its agreement with Amadeus, is now poised to immediately
access and serve this consumer market.
The M2B World Travel Website aims to provide competitive rates through
its direct connection to the Amadeus System using the Elleipsis
TravelTalk(TM) integration platform, which allows M2B to access not only
the major travel providers, but an expanded roster of additional
suppliers such as low-cost carriers, cruise lines, and widened hotel
distribution channels all through one single, easy-to-use platform.
The video e-travel portal brings an extensive range of travel options to
our viewers and gives the Company an entry into the travel and tourism
market; it directly aggregates travel solutions from 500 airlines,
58,000 hotel properties, some 42 car rental companies serving over
30,000 locations, as well as widespread air, ferry, rail, cruise, and
tour operators with proprietary video content, allowing customers to the
site to view their travel destination, thus influencing their purchasing
decision.
The Company plans to launch the M2B travel site in 2007. No assurances
can be made that such plan will materialize as planned.
4
REVENUE
Revenue for the three months ended March 31, 2007 at $5,487,075 was lower than
revenue of $6,877,137 for the three months ended March 31, 2006 by $1,390,062
(20.2%).
Entertainment revenue for the three months ended 31 March 2007 at $10,249 was
lower than entertainment revenue of $1,002,657 for the three months ended March
31, 2006. The decrease in entertainment revenue by $992,408 was mainly due to
the reorganization and redesigning of the broadband sites as a part of the
restructuring of the Company.
Digit gaming revenue for the three months ended March 31, 2007 at $5,476,826 was
lower than $5,873,694 at March 31, 2006 by $396,868 mainly due to more holidays
in the first quarter of 2007 as compared to 2006.
COST OF SALES
Cost of sales for the three months ended March 31, 2007 was $5,423,501 which
decreased by $364,892 (6.3%) from $5,788,393 for the three months ended March
31, 2006.
As a proportion of revenue, the cost of sales for the three months ended March
31, 2007 was 98.8% (cost of sales at $5,423,501 and revenue of $5,487,075) as
compared to 84.2% for the three months ended March 31, 2006 (cost of sales at
$5,788,393 and revenue at $6,877,137).
The decrease in cost of sales of $364,892 (6.3%) was mainly attributed to the
cost of managing and operating the operations and game centers in Cambodia
for the digit games (lottery).
DISTRIBUTION EXPENSES
Distribution expenses for the three months ended March 31, 2007 at $309,647 was
higher by $62,213 (25.1%) as compared to the amount of $247,434 incurred for the
three months ended March 31, 2006.
The higher distribution expenses was attributed to increased spending on the
branding of the M2B brand, marketing and promoting the global Broadband TV which
increased by $15,299 (8.0%) from $190,130 for the three months ended March 31,
2006 to $205,429 for the three months ended March 31, 2007.
GENERAL AND ADMINISTRATIVE EXPENSES
Administration expenses for the three months ended March 31, 2007 at $1,672,296
at was higher by $1,038,619 (163.9%) as compared to the amount of $633,677
incurred for the three months ended March 31, 2006.
The increase in administrative expenses were attributed mainly to the increase
in:
o Staff costs. Staff costs had increased by $307,164 (152.7%) from $201,193
for the three months ended March 31, 2006 to $508,357 for the three months
ended March 31, 2007 as a result of the increase in the number of
professional employees hired to cater to the expanding and growing
business; and
o Depreciation and license amortization. The increase in depreciation was
attributed to the leasehold improvements for the expansion of the offices,
and laptops provided to staff to cater to the demands of the growing
business. The increase in license amortization came from the the movie
contents which have a definite life. The amount increased by $729,808
(388.8%) from $187,728 for the three months ended March 31, 2006 to
$917,536 for the three months ended March 31, 2007.
(LOSS) INCOME FROM OPERATIONS
The Company incurred a loss from operations of $1,918,369 for the three months
ended 31 March 2007 as compared to the income from operations of $207,633 for
the three months ended March 31, 2006 due to the significant reduction in
entertainment business for the three months ended March 31, 2007.
NET INCOME
Net income for the three months ended March 31, 2007 was $750,236 which
increased by $449,980 (149.9%) from $300,256 for the three months ended March
31, 2006.
The increase was mainly 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. On January 3, 2007, M2B World Asia Pacific
Pte. Ltd., issued 7,778,014 shares of common stock through a private placement
at a price of $0.77 a share for a total amount of $6,000,000. This had
effectively reduced the Company's effective equity interest in M2B World Asia
Pacific Pte. Ltd. from 100% to 81.7%.
5
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash at $5,757,807 at March 31, 2007 as compared to cash of
$5,195,642 at March 31, 2006.
The Company does not finance its operations through short-term bank credit,
long-term bank loans nor leasing arrangements with financial institutions as it
believes that cash generated from its operations will be able to cover its daily
running cost and overheads.
During the three months ended March 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 an be made that such plans will be carried out in a timely manner.
In North America, the Company had launched new broadband entertainment and
business training content sites in 2006. A new server farm had been built in the
US to handle the North American business and the global Broadband TV service
The Company is continuing to raise additional funds through its private
placement of its subsidiary's securities to fund its business expansion, however
no assurances can be made that the Company will raise sufficient funds as
planned.
NEW CONTRACTS
On January 15, 2007, the Company through its subsidiary, Amaru Holdings Limited
(Amaru Holdings), a British Virgin Islands corporation, entered into a sale and
purchase agreement together with other sellers (the "Agreement") with Auston
International Group Ltd., a Singapore company (Auston) to sell to Auston its
majority owned subsidiary, M2B World Asia Pacific Pte Ltd., together with its
subsidiary, M2B World Holdings Limited (collectively, M2B Asia). Auston is a
company trading on the Singapore Stock Exchange. The Agreement provides for the
sale of 42,459,978 shares of M2B World Asia Pacific Pte. Ltd., its total issued
and outstanding capital. As the consideration for M2B World Asia Pacific Pte.
Ltd. shares, Auston agreed to issue a total of 660 million new ordinary shares
of Auston to M2B World Asia Pacific Pte. Ltd. shareholders. The Auston shares
are valued at S$0.25 per share.
The Agreement is subject to certain conditions precedent, including, but not
limited to the shareholder approval of the transaction by Auston shareholders,
the approval of the Singapore Stock Exchange and other related regulatory
approvals of both parties.
Amaru Holdings is required to deliver a valuation report by an independent
auditor to Auston confirming that the value of the assets of M2B World Asia
Pacific Pte. Ltd. is no less than that of the amount of consideration to be paid
by Auston.
6
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ABILITY TO EXPAND CUSTOMER BASE
The Company's future operating results depend on our ability to expand
our customer base for broadband services and e-commerce portals. An
increase in total revenue depends on our ability to increase the number
of broadband and e-commerce portals, in the US, Europe and Asia. The
degree of success of this depends on
o our efforts to establish independent broadband sites in
countries where conditions are suitable.
o our ability to expand our offerings of content in entertainment
and education, to include more niche channels and offerings.
o our ability to provide content beyond just personal computers
but to encompass television, wireless application devices and 3G
hand phones.
ABILITY TO ACQUIRE NEW MEDIA CONTENTS
The continued ability of the Company to acquire rights to new media
contents, at competitive rates, is crucial to grow and sustain the
Company's business.
AVAILABILITY OF TECHNOLOGICALLY RELIABLE NEW GENERATION OF BROADBAND
DEVICES
The growth of demand for broadband services is dependent on the wide
availability of technologically reliable new generation of broadband
devices, at affordable prices to prospective customers of broadband
services. The early and widespread availability and market adoption of
new generation broadband devices, will significantly impact demand for
broadband services and the growth of the Company's business.
CAPITAL INVESTMENT IN BROADBAND INFRASTRUCTURE BY GOVERNMENT AND TELCOS
The growth of demand for broadband services is dependent on the capital
investment in broadband infrastructure by governments and Telcos. A
significant source of demand for the Company's broadband services could
be from homes and enterprises with access to high-speed broadband
connections. The ability of countries to invest in public broadband
infrastructure to offer public accessibility is subject to countries'
economic health. The Company's prospects for business growth in Asia
especially would be impacted by overall economic conditions in the
territories that we seek to expand into.
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.
7
LAW AND REGULATIONS GOVERNING INTERNET
Increased regulation of the Internet or differing application of
existing laws might slow the growth of the use of the Internet and
online services, which could decrease demand for our services. The added
complexity of the law may lead to higher compliance costs resulting in
higher costs of doing business.
UNAUTHORIZED USE OF PROPRIETARY RIGHTS
Our copyrights, patents, trademarks, including our rights to certain
domain names are very important to M2B's brand and success. While we
make every effort to protect and stop unauthorized use of our
proprietary rights, it may still be possible for third parties to obtain
and use the intellectual property without authorization. The validity,
enforceability and scope of protection of intellectual property in
Internet-related industries remain uncertain and still evolving.
Litigation may be necessary in future to enforce these intellectual
property rights. This will result in substantial costs and diversion of
the Company's resources and could disrupt its business, as well as have
a material adverse effect on its business.
LAW AND REGULATIONS GOVERNING BUSINESS
As the Company continues to expand its business internationally across
different geographical locations there are risks inherent including:
1) Trade barriers and changes in trade regulations
2) Local labor laws and regulations
3) Currency exchange rate fluctuations
4) Political, social or economic unrest
5) Potential adverse tax regulation
6) Changes in governmental regulations
OUTBREAK OF BIRD FLU PANDEMIC OR SIMILAR PUBLIC HEALTH DEVELOPMENTS
Any future outbreak of the bird flu pandemic or similar adverse public
health developments may have a material adverse effect on the Company's
business operations, financial condition and results of operations.
ITEM 4: CONTROLS AND PROCEDURES
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). 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 risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
An evaluation was conducted under the supervision and with the participation of
the Company's management, including its Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the Company's disclosure controls and
procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that the Company's disclosure controls and
procedure were effective as of March 31, 2007.. There has been no change in the
company's internal control over financial reporting that occurred during the
quarter ended March 31, 2007, that has materially affected, or is reasonably
likely to materially affect, the Company's internal control over financial
reporting.
The Company's annual report on Form 10-KSB for the year ended December 31, 2006
did not include (nor does this quarterly report on Form 10-Q include) an
attestation report of the Company's registered public accounting firm regarding
internal control over financial reporting. Management's report in the annual
report was not subject to attestation by the Company's registered public
accounting firm pursuant to rules of the Securities and Exchange Commission that
permit the Company to provide only management's report in the annual report.
8
PART 2:
ITEM 1: LEGAL PROCEEDINGS
On April 23, 2007, a supplier filed a lawsuit against M2B World, Inc. for breach
of contract for an amount of $72,649.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the quarter ended March 31, 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.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5: OTHER INFORMATION
None
9
ITEM 6: EXHIBITS:
A - Exhibits:
Exhibit 31 CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT
Exhibit 32 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF
FINANCIAL OFFICER PURSUANT TO RULE 13A-14(b) OF THE
EXCHANGE ACT AND 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Amaru, Inc.
---------------------------------------
(Registrant)
July 31, 2007 /s/ Colin Binny
---------------- ---------------------------------------
Date President, CEO & CFO
11