--------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 8-K/A-2
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
--------------
Date of Report (Date of earliest event reported) February 25, 2004
-----------------
AMARU, INC.
-------------------------------------------------------------------------
(exact name of registrant as specified in its charter)
Nevada
----------------------------------------------------
(State or other jurisdiction of incorporation)
000-32695 88-0490089
---------------------- ----------------------------------
Commission File Number IRS Employer Identification Number
112 Middle Road, #08-01 Midland House, Singapore 188970
-------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (65) 6332 9287
--------------------------------------------------------------------------------
ITEM 8.01. OTHER EVENTS.
---------- -------------
Amaru, Inc. (the "Registrant") filed on May 12, 2004 the amendment to
its Articles of Incorporation, increasing its authorized common stock to 200
million shares.
ITEM 9.01. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
---------- -------------------------------------------------------------------
Amaru, Inc. (the "Registrant") has previously filed its Current Report
on Form 8-K dated February 25, 2004, without certain financial statements
required by Item 7 of such Form 8-K/ The Registrant hereby amends the Current
Report on Form 8-K to file such financial statements.
Item 7, subparagraph (o) of the Report dated February 25, 2004, is
hereby amended to read as follows:
Independent Auditors' Report of Mendoza Berger & Company, LLP.
Balance Sheets as of December 31, 2003 and December 31, 2002
Statements of Operations for the Fiscal Years Ended December 31, 2003
and December 31, 2002
Statement of Changes in Stockholders' Equity for the fiscal years ended
December 31, 2003 and December 31, 2002.
Statements of Cash Flows for the Fiscal Year Ended December 31, 2003 and
December 31, 2002.
Notes to Financial Statements
M2B WORLD PTE. LTD.
(FORMERLY KNOWN AS M2B.COM PTE LTD)
FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
TABLE OF CONTENTS
Independent Auditors' Report.................................................F-1
Balance Sheets...............................................................F-2
Statements of Income.........................................................F-3
Statement of Changes in Stockholders' Equity.................................F-4
Statements of Cash Flows.....................................................F-5
Notes to Financial Statements................................................F-6
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
M2B World Pte. Ltd. (Formerly known as M2B.Com Pte Ltd)
We have audited the accompanying balance sheets of M2B World Pte. Ltd. (Formerly
known as M2B.Com Pte Ltd) (a Singapore corporation) as of December 31, 2003 and
2002, and the related statements of income, stockholders' equity, and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of M2B World Pte. Ltd. as of
December 31, 2003 and 2002 and the results of its operations and cash flows for
the years then ended in conformity with accounting principles generally accepted
in the United States of America.
MENDOZA BERGER & COMPANY, LLP
Irvine, California
May 14, 2004
F-1
M2B WORLD PTE. LTD.
(FORMERLY KNOWN AS M2B.COM PTE LTD)
BALANCE SHEETS
DECEMBER 31, 2003 AND 2002
------------------------------------------------------------------------------------------------------------
ASSETS
2003 2002
------------ ------------
Current assets:
Cash and cash equivalents $ 60,307 $ 57,700
Accounts receivable 14,097 557,331
Other receivable 20,554 --
Prepaid expenses 33,758 34,304
Deposits -- 15,868
------------ ------------
Total current assets 128,716 665,203
Non-current assets:
Property and equipment, net 18,866 48,725
Product development, net 297,402 396,681
Investment at equity 1,403,493 --
Other 2,708 2,708
------------ ------------
Total assets $ 1,851,185 $ 1,113,317
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 64,738 $ 8,246
Accounts payable - related parties 423,444 476
Advances from parent 55,518 53,792
Line of credit 58,188 45,330
Term loan - current portion 5,007 14,224
Income tax payable 36,994 15,930
------------ ------------
Total current liabilities 643,889 137,998
Non-current liabilities:
Term loan - non-current portion -- 4,356
------------ ------------
Total liabilities 643,889 142,354
------------ ------------
Commitments and Contingencies -- --
Stockholders' equity:
Common stock:
Series A - $0.0171428 par value; 10,000,000 shares authorized;
10,000,000 shares issued and outstanding at December 31, 2003
and 2002, respectively 171,428 171,428
Series B - $0.10 par value; 1,000,000 shares authorized; 1,000,000
shares issued and outstanding at December 31, 2003 and 2002,
respectively 100,000 100,000
Series C - $0.25 par value; 2,000,000 shares authorized; 2,000,000
shares issued and outstanding at December 31, 2003 and 2002,
respectively 500,000 500,000
Series D - $0.38 par value; 1,300,000 and 0 shares authorized;
300,000 and 0 shares issued and outstanding at December 31, 2003
and 2002, respectively 114,000 --
Common stock subscribed, 337,513 and 218,011 shares at December
31, 2003 and 2002, respectively 128,255 82,844
Accumulated other comprehensive income (loss) 32,917 (4,475)
Retained earnings 160,696 121,166
------------ ------------
Total stockholders' equity 1,207,296 970,963
------------ ------------
Total liabilities and stockholders' equity $ 1,851,185 $ 1,113,317
============ ============
The accompanying notes are an integral part of these financial statements
F-2
M2B WORLD PTE. LTD.
(FORMERLY KNOWN AS M2B.COM PTE LTD)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
------------------------------------------------------------------------------------------
2003 2002
------------- -------------
Revenue:
Licensing and advertising $ 998,238 $ 352,744
E-commerce -- 52,342
Subscription and related services 6,800 8,777
------------- -------------
Total revenues 1,005,038 413,863
Cost of services (includes 423,444 purchased from
a related party in 2003 475,525 40,422
------------- -------------
Gross profit 529,513 373,441
Operating and administrative expenses:
Operating expenses 298,150 144,549
General and administrative 160,582 143,436
------------- -------------
Total operating and administrative expenses 458,732 287,985
Other income (expense):
(Loss) gain on sale and disposal of fixed assets (7,530) 2,283
Interest income 661 --
Other income 44 --
Interest expense (3,874) (2,380)
------------- -------------
Total other income (expenses) (10,699) (97)
------------- -------------
Income before provision for income taxes 60,082 85,359
Provision for income taxes (20,552) (15,930)
------------- -------------
Net income $ 39,530 $ 69,429
============= =============
Earnings per share $ 0.00 $ 0.01
============= =============
Weighted average number of common shares outstanding 13,033,699 12,465,753
============= =============
The accompanying notes are an integral part of these financial statements
F-3
M2B WORLD PTE. LTD.
(FORMERLY KNOWN AS M2B.COM PTE LTD)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
-----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK
--------------------------------------------------------------------------------------------
SERIES A SERIES B SERIES C SERIES D
--------------------- -------------------- -------------------- -------------------
NUMBER NUMBER NUMBER NUMBER
OF OF OF OF
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ---------- --------- --------- --------- ---------- -------- ----------
Balance at December 31, 2001 10,000,000 $ 171,428 -- $ -- 2,000,000 $ 500,000 -- $ --
Common stock issued for cash -- -- 1,000,000 100,000 -- -- -- --
Common stock subscribed at
various dates -- -- -- -- -- -- -- --
Net income -- -- -- -- -- -- -- --
Foreign currency translation
adjustments -- -- -- -- -- -- -- --
Total comprehensive income -- -- -- -- -- -- -- --
--------- ---------- --------- --------- --------- ---------- -------- ----------
Balance at December 31, 2002 10,000,000 171,428 1,000,000 100,000 2,000,000 500,000 -- --
Common stock issued for cash -- -- -- -- -- -- 300,000 114,000
Common stock subscribed at
various dates -- -- -- -- -- -- -- --
Net income -- -- -- -- -- -- -- --
Foreign currency translation
adjustments -- -- -- -- -- -- -- --
Total comprehensive income -- -- -- -- -- -- -- --
--------- ---------- --------- ---------- --------- ---------- -------- ----------
Balance at December 31, 2003 10,000,00 $ 171,428 1,000,000 $ 100,000 2,000,000 $ 500,000 300,000 $ 114,000
========= ========== ========= ========== ========= ========== ======== ==========
(continued)
ACCUMULATED
COMMON OTHER TOTAL
STOCK RETAINED COMPREHENSIVE STOCKHOLDERS'
SUBSCRIBED EARNINGS INCOME (LOSS) EQUITY
----------- ----------- ----------- -----------
Balance at December 31, 2001 $ -- $ 51,737 $ -- $ 723,165
Common stock issued for cash -- -- -- 100,000
Common stock subscribed at
various dates 82,844 -- -- 82.844
Net income -- 69,429 -- 69,429
Foreign currency translation
adjustments -- -- (4,475) (4,475)
-----------
Total comprehensive income -- -- -- 64,954
----------- ----------- ----------- -----------
Balance at December 31, 2002 82,844 121,166 (4,475) 970,963
Common stock issued for cash -- -- -- 114,000
Common stock subscribed at
various dates 45,411 -- -- 45,411
Net income -- 39,530 -- 39,530
Foreign currency translation
adjustments -- -- 37,392 37,392
-----------
Total comprehensive income -- -- -- 76,922
----------- ----------- ----------- -----------
Balance at December 31, 2003 $ 128,255 $ 160,696 $ 32,917 $ 1,207,296
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements
F-4
M2B WORLD PTE. LTD.
(FORMERLY KNOWN AS M2B.COM PTE LTD)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
------------------------------------------------------------------------------------------
2003 2002
------------ ------------
Cash flows from operating activities:
Net income $ 39,530 $ 69,429
Adjustments to reconcile net loss to net cash provided by
operating activities:
Amortization 115,914 123,126
Depreciation 24,689 32,617
(Gain) loss on disposition of fixed assets 7,530 (2,283)
Investment in CRE8 IP&P in exchange for account receivable (1,403,493) --
Changes in assets and liabilities:
Accounts receivable and other receivable 522,680 (412,312)
Prepaid expenses 546 (3,225)
Deposits 15,868 (2,629)
Accounts payable 56,492 (28,119)
Accounts payable - related party 422,968 --
Income tax payable 21,064 15,930
------------ ------------
Net cash used in operating activities (176,212) (207,466)
------------ ------------
Cash flows from investing activities:
Acquisition of fixed assets (2,360) (2,154)
Product development (16,635) (3,569)
Other assets -- (2,708)
------------ ------------
Net cash used in investing activities (18,995) (8,431)
------------ ------------
Cash flows from financing activities:
Proceeds from line of credit 12,858 45,330
Net proceeds of (payments on) bank term loan (13,573) 18,580
Issuance of common stock for cash 114,000 100,000
Common stock subscribed 45,411 82,844
Advances from parent 1,726 14,537
------------ ------------
Net cash provided by financing activities 160,422 261,291
------------ ------------
Comprehensive gain from currency translation 37,392 10,818
------------ ------------
Net increase in cash and cash equivalents 2,607 56,212
Cash and cash equivalents, beginning of year 57,700 1,488
------------ ------------
Cash and cash equivalents, end of year $ 60,307 $ 57,700
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 3,874 $ 2,380
============ ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITY:
Write-off of fully depreciated fixed assets $ 50,413 $ 3,577
============ ============
The accompanying notes are an integral part of these financial statements
F-5
M2B WORLD PTE. LTD.
(FORMERLY KNOWN AS M2B.COM PTE LTD)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
--------------------------------------------------------------------------------
1. ORGANIZATION AND BUSINESS
-------------------------
M2B World Pte. Ltd. (the Company) was incorporated on April 27, 2000 in
Singapore, and is 76.9 % and 83.3% owned by M2B Media Pte. Ltd. (the
Parent), a Singapore corporation, at December 31, 2003 and 2002,
respectively. The Company provides broadband services including
broadband channels, webcasting, and e-commerce applications.
The Company creates and provides entertainment-on-demand,
education-on-demand channels, and on-line shopping malls on broadband.
M2B World channels and sites are delivered through both wire and
wireless solutions. Its content streams via computers, television sets,
PDAs (personal digital assistant), and in the future 3G (third
generation) devices. The channels and sites stream video-on-demand to
the consumers, which are available 24 hours a day, and seven days a
week.
The company applies broadband technologies to facilitate its growth in
the broadband sector. Broadband is high speed, high bandwidth, two-way
data, voice and video communications, and is delivered at high
transmission rates. The Company has its own broadband streaming system
for the streaming of broadband sites globally.
The company's business model in the area of broadband services aims at
providing the company with multiple streams of revenue: on-line
subscriptions, advertising and sponsorships, content syndication,
e-commerce commissions and on-line dealerships, broadband consulting
services and on-line shopping turnkey solutions.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
USE OF ESTIMATES
----------------
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Management has not made any subjective or complex judgments the
application of which would result in any material differences in
reported results.
CONCENTRATION OF CREDIT RISK
----------------------------
The credit risk is primarily attributable to the Company's trade
receivables. The credit risk on liquid funds is limited because the
counterparties are banks with high credit ratings assigned by
international credit-rating agencies. Licensing and advertising
revenues were concentrated with one customer totaling 100%of these
related revenues for 2003 and 2002, respectively.
The Company's operations are conducted over the world wide web and some
Sales and purchases are made to and from locations outside of
Singapore. However all transactions are recorded in Singapore
F-6
M2B WORLD PTE. LTD.
(FORMERLY KNOWN AS M2B.COM PTE LTD)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
--------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
------------------------------------------
CASH AND CASH EQUIVALENTS
-------------------------
Cash on hand, in banks and short-term deposits are held to maturity and
are carried at cost.
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.
For the purposes of the cash flow statement, cash and cash equivalents
consist of cash on hand and deposits in banks, net of outstanding bank
overdrafts.
REVENUES
--------
Subscription and related services revenues are recognized over the
period that services are provided. Advertising and sponsorship revenues
are recognized as the services are performed or when the goods are
delivered. Content syndication revenue is recognized as the content is
delivered. E-commerce commissions are recognized as received.
Broad-band consulting services and on-line turn-key solutions are
recognized as earned.
To date the Company has only had revenues from licensing and
advertising, E-commerce and subscriptions and related services.
COSTS OF SERVICES
-----------------
The cost of services pertaining to 1) advertising and sponsorship
revenue and 2) subscription and related services are cost of bandwidth
charges, channel design and alteration, copyright licensing, and
hardware hosting and maintenance costs. The cost of services pertaining
to E-commerce revenue are channel design and alteration, and hardware
hosting and maintenance costs. All these costs are accounted for in the
period incurred.
LICENSING RIGHTS
----------------
Licensing rights refers to the rights to use the content. These rights
are purchased for a specific period as determined in the contract. The
costs of these rights are recognized in the accounts over the life of
the contract on a straight line basis. These contents are then streamed
into the broad-band sites and the revenue earned from advertising,
sponsorship and subscription are then recognized according to our
policy on revenue.
TRADE AND OTHER RECEIVABLES
---------------------------
Trade receivables, which generally have 30 to 90 day terms, are
recognized and carried at the original invoice amount less an allowance
for any uncollectible amounts (if any). An estimate for doubtful debts
is made when collection of the full amount is no longer probable. Bad
debts are written off as incurred.
The Company has reviewed trade and other receivables and determined
that no allowance for doubtful accounts is required.
PROPERTY AND EQUIPMENT
----------------------
Property and equipment is stated at cost. Expenditures for major
improvements are capitalized, while replacements, maintenance and
repairs, which do not significantly improve or extend the useful life
of the asset, are expensed when incurred.
Depreciation of property and equipment is computed using the
straight-line method over the estimated useful lives of the assets,
which is three years.
PRODUCT DEVELOPMENT
-------------------
The Company capitalized the development and building cost related to
the broad-band sites and infrastructure for the streaming system, most
of which was developed in 2002. The Company projects that these
development costs will be useful for up to five years before additional
significant development needs to be done
IMPAIRMENT OF LONG-LIVED ASSETS
-------------------------------
The Company reviews the carrying values of its long-lived and
intangible assets for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not
be recoverable. No impairment losses were recorded in 2003 and 2002.
F-7
M2B WORLD PTE. LTD.
(FORMERLY KNOWN AS M2B.COM PTE LTD)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
--------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
------------------------------------------
INVESTMENTS
-----------
Investments in unconsolidated subsidiaries in which the Company has a
20% to 50% interest or otherwise exercises significant influence are
carried at cost, adjusted for the Company's proportionate share of
their undistributed earnings or losses.
ADVANCES FROM PARENT
--------------------
Advances from parent are unsecured, non-interest bearing and carry no
fixed terms of repayment.
FOREIGN CURRENCY TRANSLATION
----------------------------
Transactions in foreign currencies are measured and recorded in the
functional currency Singapore dollars using the exchange rate in effect
at the date of the transaction. The reporting currency is U.S. dollars.
At each balance sheet date, recorded monetary balances that are
denominated in a foreign currency are adjusted to reflect the rate at
the balance sheet date and the income statement accounts using the
average exchange rates throughout the period. Translation gains and
losses are recorded in stockholders' equity as other comprehensive
income and realized gains and losses are reflected in operations.
ADVERTISING COSTS
-----------------
The cost of advertising is expensed as incurred. For the years ended
December 31, 2003 and 2002, the Company incurred advertising expenses
of $1,067 and $1,339, respectively.
F-8
M2B WORLD PTE. LTD.
(FORMERLY KNOWN AS M2B.COM PTE LTD)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
--------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
------------------------------------------
INCOME TAXES
------------
Deferred income taxes are reported using the liability method. Deferred
tax assets are recognized for deductible temporary differences and
deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax
laws and rates on the date of enactment.
EARNINGS PER SHARE
------------------
In February 1997, the Financial Accounting Standards Board (FASB)
issued SFAS No. 128 "Earnings Per Share" which requires the Company to
present basic and diluted earnings per share, for all periods
presented. The computation of earnings per common share (basic and
diluted) is based on the weighted average number of shares actually
outstanding during the period. The Company has no common stock
equivalents, which would dilute earnings per share.
FINANCIAL INSTRUMENTS
---------------------
The carrying amounts for the Company's cash, other current assets,
accounts payable, accrued expenses, notes payable, and other
liabilities approximate their fair value.
3. PROPERTY AND EQUIPMENT
----------------------
Property and equipment consist of the following at December 31:
2003 2002
---------- ----------
Office equipment $ 58,857 $ 86,170
Furniture, fixture and fittings 396 26,611
---------- ----------
59,253 112,781
Accumulated depreciation (40,387) (64,056)
---------- ----------
$ 18,866 $ 48,725
========== ==========
F-9
M2B WORLD PTE. LTD.
(FORMERLY KNOWN AS M2B.COM PTE LTD)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
--------------------------------------------------------------------------------
3. PROPERTY AND EQUIPMENT (Continued)
----------------------
Depreciation expense was $24,689 and $32,617 for the years ended
December 31, 2003 and 2002, respectively
4. PRODUCT DEVELOPMENT
-------------------
Product development consists of the following at December 31:
2003 2002
---------- ----------
Development expenditures $ 595,413 $ 578,778
Accumulated amortization (298,011) (182,097)
---------- ----------
$ 297,402 $ 396,681
========== ==========
Amortization expense was $115,914 and $123,126 for the years ended
December 31, 2003 and 2002, respectively
5. INVESTMENT AT EQUITY
--------------------
CRE8 IP&P held the license to operate an E-commerce platform in
Singapore as well as the first right of refusal in various Asian
countries. The company had not commenced operations when it was
acquired by M2B World.
In December 2003, M2B World acquired 50% of CRE8 IP&P in exchange for
account receivable from CRE8 IP&P's parent, CRE8 International. Since
M2B World did not have control over the license for Singapore, it
recorded the acquisition as an investment at cost at December 31, 2003.
The company gained control of CRE8 IP&P in January 2004 when they
acquired the remaining 50% of the company in exchange for an account
receivable from CRE8 IP&P's parent, CRE8 International and obtained
complete control over the license acquired. The basis of the license
has been recorded at the Company's acquisition purchase price in
accordance with the "Push Down" accounting as required by SAB No 54.
The subsidiary had no activities or operations during the period. (The
Company plans to start up the subsidiary operation in the fourth
quarter of 2004 or the first quarter of 2005.)
6. BANK FINANCING
--------------
TERM LOAN
---------
At January 29, 2002, the Company obtained a $27,275 term loan repayable
over 2 years under Local Enterprise Finance (LEF) Scheme Loan (Micro
Loan), which bears interest at 5% per annum or such other rates as may
be approved by the Singapore Productivity and Standards Board under the
LEF Micro Loan Scheme. This loan is secured by a personal guarantee of
a director. The monthly installment payment is $1,288 including
principal and interest commencing in April 2002.
F-10
M2B WORLD PTE. LTD.
(FORMERLY KNOWN AS M2B.COM PTE LTD)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
--------------------------------------------------------------------------------
6. BANK FINANCING (Continued)
--------------
TERM LOAN (Continued)
---------
The following are amounts outstanding at December 31:
2003 2002
--------- ---------
Total outstanding balance $ 5,007 $ 18,580
Less: current portion (5,007) (14,224)
--------- ---------
$ -- $ 4,356
========= =========
LINE OF CREDIT
--------------
The Company has a $58,188 line of credit, repayable on demand, used to
fund the Group's short-term working capital requirements. The line of
credit bears interest at prime lending rate plus 1% per annum (6% at
December 31, 2003). This loan is secured by a certificate of deposit of
$58,188 and a personal guarantee of a director. Interest is payable
monthly. The outstanding balance was $58,188 and $45,330 at December
31, 2003 and 2002, respectively.
7. COMMITMENTS AND CONTINGENCIES
-----------------------------
LEASES
------
The Company leases its office space under a one year operating lease
which expires in February 2005 with a monthly payment of $1,856. Rent
expense totaled $10,344 and $11,198 for the years ended December 31,
2003 and 2002, respectively.
Future minimum lease payments due are as follows for the years ended
December 31:
2004 $ 18,597
2005 3,712
------------
$ 22,309
============
F-11
M2B WORLD PTE. LTD.
(FORMERLY KNOWN AS M2B.COM PTE LTD)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
--------------------------------------------------------------------------------
8. CAPITAL STOCK
-------------
COMMON STOCK
------------
Series A, B, C and D common stock all have the same right and
privileges except for their respective par values.
In July 2002, the Company issued 1,000,000 shares of $0.10 par value
Series B common stock for a cash capital contribution of $100,000.
In November 2003, the Company issued 300,000 shares of $0.38 par value
Series D common stock for a cash capital contribution of $114,000.
In February 2004, the Company issued 1,000,000 shares of $0.38 par
value Series D common stock for a total cash capital contribution of
$416,000.
9. INCOME TAXES
------------
The Company files separate tax returns. Reconciliation of the
differences between the statutory tax and the effective income tax are
as follows
DECEMBER 31, 2003 DECEMBER 31, 2002
----------------- ----------------
U.S. Federal statutory tax -% -%
U.S. State taxes, net of federal tax -% -%
Foreign statutory tax rate 22.0% 22.0%
Non-deductible items 23.4% 4.4%
Tax exemptions (11.2%) (7.7%)
----------------- ----------------
Effective income tax rate 34.2% 18.7%
================= ================
F-12
M2B WORLD PTE. LTD.
(FORMERLY KNOWN AS M2B.COM PTE LTD)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
--------------------------------------------------------------------------------
9. INCOME TAXES (Continued)
------------
The components of income tax expense consist of the following for the
years ended December 31:
2003 2002
------- -------
Current:
Federal $ -- $ --
State -- --
Foreign 20,552 15,930
------- -------
$20,552 $15,930
======= =======
The Company operated primarily in Singapore and incurred no United
States federal or state income taxes as of December 31, 2003 and
December 31, 2002. The Company had no significant deferred tax assets
or liabilities as of December 31, 2003 and December 31, 2002.
10. RELATED PARTY TRANSACTIONS
--------------------------
During the year ended December 31, 2003 the Company purchased services
from a related party in the amount of $423,444.
11. SUBSEQUENT EVENT
----------------
REORGANIZATION
--------------
As of February 25, 2004, the Company made an agreement which provides
for the reorganization of M2B World Pte. Ltd., a Singapore corporation
with and into Amaru, Inc. (Amaru), a Nevada corporation, with M2B World
Pte. Ltd. becoming a wholly-owned subsidiary of Amaru. The agreement is
for the exchange of 100% of the outstanding Common Stock of M2B World
Pte. Ltd. for 19,500,000 common shares and 143,000 Series A convertible
preferred shares of Amaru, which are each convertible into 38.461538
shares of Amaru common stock.
The exchange was accounted for as a reverse acquisition. Accordingly,
for financial statement purposes, M2B World Pte. Ltd. was considered
the accounting acquiror and the related business combination was
considered a recapitalization of M2B World Pte. Ltd. rather than an
acquisition by the Company. The historical financial statements prior
to the agreement will be those of M2B World Pte. Ltd. and the name of
the consolidated Company going forward will be Amaru, Inc. and
Subsidiary.
F-13
AMARU, INC. & SUBSIDIARY
BALANCE SHEETS
AS OF MARCH 31, 2004 AND DECEMBER 31, 2003
MARCH 31, 2004
(CONSOLIDATED) DECEMBER 31,
(UNAUDITED) 2003
----------- -----------
ASSETS
Current assets
Cash and cash equivalents $ 88,159 $ 60,307
Accounts receivable 12,108 14,097
Other receivable -- 20,554
Prepaid expenses 17,390 33,758
Deposits 1,699 --
----------- -----------
Total current assets 119,356 128,716
Non current assets
Property and equipment, net 16,576 18,866
Product development, net 270,485 297,402
Investment at equity -- 1,403,493
License 2,420,227 --
Other 2,708 2,708
----------- -----------
Total non current assets 2,709,996 1,722,469
----------- -----------
Total assets $2,829,352 $1,851,185
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 62,623 $ 64,738
Accounts payable- related parties 475,486 423,444
Line of credit 4,891 58,188
Term loan current portion -- 5,007
Income tax payable 178,914 36,994
Advances from parent 58,276 55,518
----------- -----------
Total current liabilities 780,190 643,889
Shareholders' equity
Series A convertible preferred stock (par value $0.001)
5,000,000 shares authorized: 143,000 and 0 shares issued and
outstanding at March 31, 2004 and December 31, 2003,
respectively 143 --
Common stock (par value $0.001) 20,000,000 shares
authorized; 20,000,000 shares issued and outstanding
at March 31, 2004 and 18,136,364 at December 31, 2003 20,000 18,136
Paid in capital 1,254,581 867,292
Subscribed common stock, 0 and 337,513 shares at
March 31, 2004 and December 31, 2003, respectively. -- 128,255
Retained earnings 731,722 160,696
Comprehensive gain on currency translation 42,716 32,917
----------- -----------
Total shareholders' equity 2,049,162 1,207,296
----------- -----------
Total liabilities and shareholders' equity $2,829,352 $1,851,185
=========== ===========
The accompanying notes to financial statements
are an integral part of this statement
F-14
AMARU, INC. & SUBSIDIARY
STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(UNAUDITED)
FOR THE THREE
MONTHS ENDED FOR THE THREE
MARCH 31, 2004 MONTHS ENDED
(CONSOLIDATED) MARCH 31, 2003
------------- -------------
Revenue:
Licensing and advertising $ 1,005,917 $ 1,621
E-commerce 11,979 --
Other income 18,625 --
------------ ------------
Total revenue 1,036,521 1,621
Cost of services (include $68,404 purchased from a
related party for the three months ended March 31, 2004) 116,034 6,797
------------- -------------
Gross profit (loss) 920,487 (5,176)
Distribution costs 8,973 3,255
Administrative expenses 180,862 51,663
------------- -------------
Total expenses 189,835 54,918
------------- -------------
Income (loss) from operations 730,652 (60,094)
Finance expenses (454) (925)
Income taxes (159,172) --
------------- -------------
Net income (loss) $ 571,026 $ (61,019)
============= =============
Earnings (loss) per share - basic and diluted $ 0.03 $ (0.00)
============= =============
Weighted average number of common shares
outstanding - basic and diluted 19,088,384 17,727,273
============= =============
The accompanying notes to financial statements
are an integral part of this statement
F-15
AMARU, INC. & SUBSIDIARY
STATEMENT OF STOCKHOLDERS' EQUITY
Series A Convertible
Preferred Stock Common Stock
----------------------- ------------------------------
Total
Additional stock-
Number Par Value Number of Par value Paid-in Subscribed Retained Translation holders'
of Shares ($0.001) shares ($0.001) capital stock Earnings gain equity
-------------------------------------------------------------------------------------------------------
Balance December 31, 2002 -- $ -- 17,727,273 $17,727 $753,701 $82,844 $121,166 $ (4,475) $ 970,963
Common stock issued for cash -- -- 409,091 409 113,591 -- -- -- 114,000
Common stock subscribed at
various dates -- -- -- -- -- 45,411 -- -- 45,411
Net income -- -- -- -- -- -- 39,530 -- 39,530
Comprehensive gain on
currency translation -- -- -- -- -- -- -- 37,392 37,392
-----------
Comprehensive income 76,922
-------------------------------------------------------------------------------------------------------
Balance December 31, 2003 -- -- 18,136,364 18,136 867,292 128,255 160,696 32,917 1,207,296
Shares issued for cash
Feb. 10, 2004 -- -- 1,363,636 1,364 414,636 (128,255) -- -- 287,745
Reverse acquisition 143,000 143 500,000 500 (27,347) -- -- -- (26,704)
Net income -- -- -- -- -- -- 571,026 -- 571,026
Comprehensive gain on
currency translation -- -- -- -- -- -- -- 9,799 9,799
-----------
Comprehensive income 580,825
-------------------------------------------------------------------------------------------------------
Balance March 31, 2004
(Consolidated)(Unaudited) 143,000 $ 143 20,000,000 $20,000 $1,254,581 $ -- $731,722 $ 42,716 $2,049,162
=======================================================================================================
The accompanying notes to financial statements
are an integral part of this statement
F-16
AMARU, INC. & SUBSIDIARY
STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(UNAUDITED)
FOR THE THREE
MONTHS ENDED FOR THE THREE
MARCH 31, 2004 MONTHS ENDED
(CONSOLIDATED) MARCH 31, 2003
------------ ------------
CASH FLOW FROM OPERATING ACTIVITIES
Net income (loss) $ 571,026 $ (61,019)
Adjustments to reconcile net income (loss)
to cash (used) or provided by operations
Amortization 29,205 30,643
Depreciation 3,021 8,374
Acquisition of license (1,016,734) --
Changes in operating assets and liabilities
Accounts receivable 1,989 4,549
Prepaid and other 35,223 378
Accounts payable 50,041 (1,107)
Income tax payable 141,920 (111)
------------ ------------
Net cash used in operating activities (184,309) (18,293)
CASH USED IN INVESTING ACTIVITIES
Software development cost (2,288) --
Acquisition of equipment (731) --
------------ ------------
Net cash used in investing activities (3,019) --
CASH PROVIDED FROM FINANCING ACTIVITIES
Payable to related party 2,644 (2,130)
Payments on line of credit and loans (58,304) (10,373)
Recapitalization of M2B World Pte. Ltd. 26,704) --
Proceeds from sale of stock 287,745 --
Proceeds from stock subscriptions -- 38,368
------------ ------------
Net cash provided from financing activities 205,381 25,865
Effects of exchange rate changes on cash 9,799 (8,443)
---------- -------------
Cash flow from all activities 27,852 (871)
Cash balance at beginning of period 60,307 57,700
------------ ------------
Cash balance at end of year $ 88,159 $ 56,829
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 454 $ 925
============ ============
Income taxes $ 17,535 $ --
============ ============
The accompanying notes to financial statements
are an integral part of this statement
F-17
AMARU, INC. & SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(UNAUDITED)
1. BASIS OF PRESENTATION AND REORGANIZATION
----------------------------------------
The financial information included herein is 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, 2004, are
not necessarily indicative of the results to be expected for the full
year.
The accompanying financial statements do not include footnotes and
certain financial presentations 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, 2003, and Form 8Ka, filed on May 24, 2004.
REORGANIZATION
--------------
As of February 25, 2004, the Company made an agreement which provides
for the reorganization of M2B World Pte. Ltd., a Singapore corporation
with and into Amaru, Inc. (Amaru), a Nevada corporation, with M2B World
Pte. Ltd. (M2B), becoming a wholly-owned subsidiary of Amaru. The
agreement is for the exchange of 100% of the outstanding Common Stock
of M2B World Pte. Ltd. for 19,500,000 common shares and 143,000 Series
A convertible preferred shares of Amaru, which are each convertible
into 38.461538 shares of Amaru common stock.
The exchange was accounted for as a reverse acquisition. Accordingly,
for financial statement purposes, M2B World Pte. Ltd. was considered
the accounting acquiror and the related business combination was
considered a recapitalization of M2B World Pte. Ltd. rather than an
acquisition by the Company. The historical financial statements prior
to the agreement will be those of M2B World Pte. Ltd. and the name of
the consolidated Company going forward will be Amaru, Inc. and
Subsidiary.
On this basis, the historical financial statements prior to February
28, 2004 have been restated to be those of the accounting acquirer M2B
World Pte. Ltd. The historical stockholders' equity prior to the
reverse acquisition has been retroactively restated (a
recapitalization) for the equivalent number of shares received in the
acquisition after giving effect to any difference in par value of the
issuer's and acquirer's stock.
F-18
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
USE OF ESTIMATES
----------------
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Management has not made any subjective or complex judgements the
application of which would result in any material differences in
reported results.
CONCENTRATION OF CREDIT RISK
----------------------------
The credit risk is primarily attributable to the Company's trade
receivables. The credit risk on liquid funds is limited because the
counterparties are banks with high credit ratings assigned by
international credit-rating agencies. License and advertising revenues
were concentrated with one customer totaling 100% of these related
revenues for March 31, 2004.
The Company's operations are conducted over the world wide web and some
Sales and purchases are made to and from locations outside of
Singapore. However all transactions are recorded in Singapore
CASH AND CASH EQUIVALENTS
-------------------------
Cash on hand, in banks and short-term deposits are held to maturity and
are carried at cost.
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.
For the purposes of the cash flow statement, cash and cash equivalents
consist of cash on hand and deposits in banks, net of outstanding bank
overdrafts.
REVENUES
--------
Subscription and related services revenues are recognized over the
period that services are provided. Advertising and sponsorship revenues
are recognized as the services are performed or when the goods are
delivered. Content syndication revenue is recognized as the content is
delivered. E-commerce commissions are recognized as received.
Broad-band consulting services and on-line turnkey solutions are
recognized as earned.
F-19
To date the Company has only had revenues from licensing and
advertising, E-commerce and subscriptions and related services.
COSTS OF SERVICES
-----------------
The cost of services pertaining to 1) advertising and sponsorship
revenue and 2) subscription and related services are cost of bandwidth
charges, channel design and alteration, copyright licensing, and
hardware hosting and maintenance costs. The cost of services pertaining
to E-commerce revenue are channel design and alteration, and hardware
hosting and maintenance costs. All these costs are accounted for in the
period incurred.
LICENSING RIGHTS
----------------
Licensing rights refers to the rights to use the content. These rights
are purchased for a specific period as determined in the contract. The
costs of these rights are recognized in the accounts over the life of
the contract on a straight line basis. These contents are then streamed
into the broad-band sites and the revenue earned from advertising,
sponsorship and subscription are then recognized according to our
policy on revenue.
TRADE AND OTHER RECEIVABLES
---------------------------
Trade receivables, which generally have 30 to 90 day terms, are
recognized and carried at the original invoice amount less an allowance
for any uncollectible amounts (if any). An estimate for doubtful debts
is made when collection of the full amount is no longer probable. Bad
debts are written off as incurred.
The Company has reviewed trade and other receivables and determined
that no allowance for doubtful accounts is required.
PROPERTY AND EQUIPMENT
----------------------
Property and equipment is stated at cost. Expenditures for major
improvements are capitalized, while replacements, maintenance and
repairs, which do not significantly improve or extend the useful life
of the asset, are expensed when incurred.
Depreciation of property and equipment is computed using the
straight-line method over the estimated useful lives of the assets,
which is three years.
PRODUCT DEVELOPMENT
-------------------
The Company capitalized the development and building cost related to
the broad-band sites and infrastructure for the streaming system, most
of which was developed in 2002. the Company projects that these
development costs will be useful for up to five years before additional
significant development needs to be done
F-20
IMPAIRMENT OF LONG-LIVED ASSETS
-------------------------------
The Company reviews the carrying values of its long-lived and
intangible assets for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not
be recoverable. No impairment losses were recorded in the three months
ended March 31, 2004 and the year 2003.
INVESTMENTS
-----------
Investments in unconsolidated subsidiaries in which the Company has a
20% to 50% interest or otherwise exercises significant influence are
carried at cost, adjusted for the Company's proportionate share of
their undistributed earnings or losses.
ADVANCES FROM PARENT
--------------------
Advances from parent are unsecured, non-interest bearing and carry no
fixed terms of repayment.
FOREIGN CURRENCY TRANSLATION
----------------------------
Transactions in foreign currencies are measured and recorded in the
functional currency Singapore dollars using the exchange rate in effect
at the date of the transaction. The reporting currency is U.S. dollars.
At each balance sheet date, recorded monetary balances that are
denominated in a foreign currency are adjusted to reflect the rate at
the balance sheet date and the income statement accounts using the
average exchange rates throughout the period. Translation gains and
losses are recorded in stockholders' equity as other comprehensive
income and realized gains and losses are reflected in operations.
INCOME TAXES
------------
Deferred income taxes are reported using the liability method. Deferred
tax assets are recognized for deductible temporary differences and
deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax
laws and rates on the date of enactment.
EARNINGS PER SHARE
------------------
In February 1997, the Financial Accounting Standards Board (FASB)
issued SFAS 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.
F-21
FINANCIAL INSTRUMENTS
---------------------
The carrying amounts for the Company's cash, other current assets,
accounts payable, accrued expenses, notes payable, and other
liabilities approximate their fair value.
3. PROPERTY AND EQUIPMENT
----------------------
Property and equipment consist of the following at December 31,2003 and
March 31, 2004.
December 31, March 31,
2003 2004
---------- ----------
Office equipment 58,857 59,422
Furniture, fixture and fittings 396 562
---------- ----------
59,253 59,984
Accumulated depreciation (40,387) (43,408)
---------- ----------
$ 18,866 $ 16,576
========== ==========
Depreciation expense was $24,689 the year ended December 31, 2003 and
$3,021 for the three months ended March 31, 2004.
4. PRODUCT DEVELOPMENT
-------------------
Product development consists of the following at December 31, 2003 and
March 31, 2004:
December 31, March 31,
2003 2004
---------- ----------
Development expenditures $ 595,413 $ 597,701
Accumulated amortization (298,011) (327,216)
---------- ----------
$ 297,402 $ 270,485
========== ==========
Amortization expense was $115,914 for the year ended December 31, 2003
and $29,205 for the three months ended March 31, 2004.
5. INVESTMENT AT EQUITY
--------------------
CRE8 IP&P held the license to operate an E-commerce platform in
Singapore as well as the first right of refusal in various Asian
countries. The company had not commenced operations when it was
acquired by M2B World.
In December 2003, M2B World acquired 50% of CRE8 IP&P in exchange for
account receivable from CRE8 IP&P's parent, CRE8 International. Since
M2B World did not have control over the license for Singapore, it
recorded the acquisition as an investment at cost at December 31, 2003.
The company gained control of CRE8 IP&P in January 2004 when they
acquired the remaining 50% of the company in exchange for account
receivable from CRE8 IP&P's parent, CRE8 International and obtained
complete control over the license acquired. The basis of the license
has been recorded at the Company's acquisition purchase price in
accordance with the "Push Down" accounting as required by SAB No 54.
The subsidiary had no activities or operations during the period. (The
Company plans to start up the subsidiary operation in the fourth
quarter of 2004 or the first quarter of 2005.)
F-22
The company gained control of CRE8 IP&P in January 2004 when they
acquired the remaining 50% of the company in exchange for account
receivable from CRE8 IP&P's parent, CRE8 International and obtained
complete control over the license acquired. The basis of the license
has been recorded at the Company's acquisition purchase price in
accordance with the "Push Down" accounting as required by SAB No 54.
6. LINE OF CREDIT
--------------
The Company has a $58,188 line of credit, repayable on demand, used to
fund the Group's short-term working capital requirements. The line of
credit bears interest at prime lending rate plus 1% per annum (6% at
December 31, 2003). This loan is secured by a certificate of deposit of
$58,188 and a personal guarantee of a director. Interest is payable
monthly. The outstanding balance was $58,188 at December
31, 2003 and $4,891 at March 31, 2004.
7. COMMITMENTS AND CONTINGENCIES
-----------------------------
LEASES
------
The Company leases its office space under a one year operating lease
which expires in February 2005 with a monthly payment of $1,856. Rent
expense totaled $10,344 for the year ended December 31, 2003 and $1,893
for the three months ended March 31, 2004
Future minimum lease payments due are as follows for the period ended
March 31, 2004 and the year ended December 31, 2005
2004 $ 16,704
2005 3,712
------------
$ 20,416
============
F-23
8. CAPITAL STOCK
-------------
COMMON STOCK
------------
On February 10, 2004 the Company issued 1,363,636 shares of $0.31 par
value Series D common stock for a total amount of cash of $416,000.
9. INCOME TAXES
------------
The Company files separate tax returns for Singapore and the United
States of America. Reconciliation of the differences between the
statutory tax and the effective income tax are as follows
March 31, 2004 March 31, 2003
-------------- --------------
U.S. Federal statutory tax -% -%
U.S. State taxes, net of federal tax -% -%
Foreign statutory tax rate 22.0% (22.0%)
Non-deductible items (0.22%) -%
Tax exemptions -% -%
-------------- --------------
Valuation allowance -% 22.0%
Effective income tax rate 21.78% -%
============== ==============
The components of income tax expense consist of the following for the
three month ended March 31:
March 31, 2004 March 31, 2003
-------------- --------------
Current:
Federal $ -- $ --
State -- --
Foreign 159,172 --
-------------- --------------
$ 159,172 $ --
============== ==============
The Company operated primarily in Singapore and incurred no United
States federal or state income taxes as of March 31, 2004 and 2003. The
Company had no significant deferred tax assets or liabilities as of
March 31, 2004 and 2003.
10. RELATED PARTY TRANSACTIONS
--------------------------
During the three months ended March 31, 2004 the Company purchased
services from a related party in the amount of $68,404.
F-24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act or 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: October 19, 2004 AMARU, INC.
By: /s/ Colin Binny
--------------------------
Colin Binny
President