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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 10-K
(MARK ONE)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO ________
COMMISSION FILE NUMBER: 0-28560
AMARU, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 88-0490089
(STATE OR 0THER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
112 MIDDLE ROAD, #01-00 MIDLAND HOUSE, SINGAPORE 188970
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE : (011) (65) 6332 9287
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS Name of each exchange on which registered
NONE None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Title of class
COMMON STOCK
$0.001 PAR VALUE
Indicate by check mark whether the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act.
Yes |_| No |X|
Indicate by check mark whether the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.
Yes |_| No |X|
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. |_|
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer |_| Accelerated filer |_| Non-accelerated filer |_|
Smaller reporting company |X|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes |_| No |X|
As of March 20, 2009, the aggregate market value of the voting common equity
held by non-affiliates of the registrant computed by reference to the closing
sale price of the common stock as of March 20, 2009 at $0.10 per share was
$13,560,716.50.
The number of shares outstanding of registrant's common stock, $0.001 par value
per share, was 159,431,861 as of March 20, 2009.
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TABLE OF CONTENTS
Page
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PART I
Item 1 Business 1
Item 1A Risk Factors 13
Item 1B Unresolved Staff Comments 16
Item 2 Properties 16
Item 3 Legal Proceedings 17
Item 4 Submission of Matters to a Vote of Security Holders 17
PART II
Item 5 Market for registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities 17
Item 6 Selected Financial Data 20
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 21
Item 7A Quantitative and Qualitative Disclosures About Market Risk 33
Item 8 Financial Statements and Supplementary Data 35
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 35
Item 9A Controls and Procedures 36
Item 9B Other Information 38
PART III
Item 10 Directors and Executive Officers and Corporate Governance 38
Item 11 Executive Compensation 42
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters 46
Item 13 Certain Relationships and Related Transactions, and Director Independence 47
Item 14 Principal Accounting Fees and Services 48
PART IV
Item 15 Exhibits and Financial Statement Schedules 49
Signatures 50
Certification of CFO and CFO
Section 1350 Certification
PART I
ITEM 1: DESCRIPTION OF BUSINESS
BACKGROUND
Amaru, Inc., a Nevada corporation (the "Company" or "Amaru") through
its subsidiaries under the M2B and WOWtv brand names, is in the
Broadband Media Entertainment business, providing interactive
Entertainment-on-demand and e-commerce streaming over Broadband
channels, Internet portals, and 3G devices globally. The Company's
entertainment sites are available via its main website of
www.amaruinc.com. The Company is also in the business of digit gaming
(lottery), and has an 18 year license to conduct nationwide lottery in
Cambodia. The digit game lottery operations have been suspended by the
government of Cambodia in March, 2009, and it cannot be determined at
this time whether the suspension of the digit games lottery is
temporary or permanent. The Company was incorporated under the laws of
the state of Nevada in September, 1999. The Company's corporate offices
are located at 112 Middle Road, #01-00 Midland House, Singapore 188970;
telephone (65) 63329287.
As of February 25, 2004 (the "Closing Date"), Amaru acquired M2B World
Pte. Ltd. (M2B World), a Singapore corporation, in exchange for
19,500,000 newly issued "restricted" shares of common voting stock of
the Company and 143,000 "restricted" Series A Convertible Preferred
Stock shares to the M2B World shareholders on a pro rata basis for the
purpose of effecting a tax-free reorganization pursuant to sections
351, 354 and 368(a)(1)(B) of the Internal Revenue Code of 1986, as
amended pursuant to the Agreement and Plan of Reorganization by and
between the Company, M2B World and M2B World shareholders. As a
condition of the closing of the share exchange transaction, certain
shareholders of the Company cancelled a total of 1,457,500 shares of
common stock. Each one (1) ordinary share of M2B World has been
exchanged for 1.3636363 shares of the Company's Common Stock and 100
shares of the Company's Series A Convertible Preferred Stock. Each
share of the Company's Series A Convertible Preferred Stock had a
conversion rate of 38.461538 shares of the Company's common stock.
Following the Closing Date, there were 20,000,000 shares of the
Company's Common Stock outstanding and 143,000 shares of the Company's
Series A Convertible Preferred Stock outstanding. Immediately prior to
the Closing, there were 500,000 shares issued and outstanding. All of
the Series A Convertible Preferred Stock was subsequently converted
into shares of common stock of the Company.
The restructuring and re-capitalization has been treated as a reverse
acquisition with M2B World becoming the accounting acquirer. The
historical financial statements prior to the closing of the transaction
are those of M2B World.
BUSINESS OVERVIEW
The Company, through its subsidiaries under the M2B and new WOWtv brand
names, is in the Broadband Media Entertainment business, and a provider
of interactive Entertainment-on-demand and e-commerce streaming over
Broadband channels, Internet portals, and 3G (Third Generation) devices
globally.
The Company has launched multiple Broadband TV websites with
entertainment and online shopping content, with multiple content
channels designed to cater to various consumer segments and lifestyles.
Its content covers diverse genres such as movies, dramas, comedies,
documentaries, music, fashion, lifestyle and more. The Company markets
its products globally through its "M2B" and "WOWtv" brand names.
Through these brands, the Company offers access to an expansive range
of content libraries for aggregation, distribution and syndication on
Broadband and other media, including rights for merchandising, product
branding, promotion and publicity.
The Company is also in the business of digit gaming (lottery). The
Company has an 18 year license to conduct nationwide 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 in Cambodia. On March 25, 2009, the Company was
notified that the digit games were suspended by the Cambodia Government
as part of the suspension of all lotteries in Cambodia. It cannot be
determined at this time whether the suspension of the digit games is
temporary or permanent, though the Government of Cambodia is currently
closing the gaming business by the order of its Ministry of Economy and
Finance.
1
Globally, Amaru, Inc. is expanding through several of its subsidiaries,
including:
1. M2B World, Inc. - focuses on the US market and is based in
Hollywood, California
2. M2B World Asia Pacific Pte. Ltd. - oversees the Asia Pacific business and directs
the Asian markets through this office and
representative office in Chengdu, China
3. M2B Australia Pty. Ltd. - oversees Oceania markets
4. M2B Entertainment, Inc. - oversees Canadian market
5. M2B Commerce Limited - focuses on digit games in Cambodia
6. M2B World Travel Singapore Pte Ltd. - offers e-travel services
7. Amaru Holdings Limited - focuses on content syndication and distribution
in areas other than Asia Pacific region
8. M2B World Holdings Limited - focuses on content syndication and distribution
in Asia Pacific region
9. M2B World Pte. Ltd. - provides management services to fellow
subsidiaries of the Company
10. Tremax International Limited - operates as an investment holding company
11. M2B World Travel Limited - oversees online travel and related business
The Company offers consumers personalized entertainment through its
wide range of broadband streaming channels available via
www.amaruinc.com and www.wowtv.com.
BUSINESS STRATEGY
Our business strategy is to become a premier diversified media,
e-commerce and e-lifestyle company. We adopt the latest broadband,
e-commerce and communications technology and leverage on our
international premium content and programming expertise. This is how we
deliver online entertainment, lifestyle products and services to our
customers.
Our goal is to constantly identify fresh market opportunities and to
stay ahead of changes in the broadband media and related e-commerce
industry. We believe that we can accomplish this by continuing to
satisfy customers' needs for a convenient, comprehensive and
personalized source of broadband video content, services and
information with pleasant user experiences. Through our business plan
implementation, we aim to become a leading Broadband Media
Entertainment business, providing interactive Entertainment-on-demand
and e-commerce streaming over Broadband channels, Internet portals, and
3G devices globally.
We intend to continue leveraging on our competitive strengths to attain
a leadership position in the industry.
2
COMPETITIVE STRENGTHS
The Company's competitive strengths are:
o CONTENT LIBRARY
The Company owns a library of content that covers a wide range of
genres, of which the majority includes worldwide rights in perpetuity
on the broadband. This enables the Company to deliver a rich and
diverse variety of on-demand streaming video content that suit the
lifestyle and taste of different consumer segments, across different
countries - thereby massing a global base of viewers to attract
advertisers to its delivery platforms on the PC, 3G devices and TV. The
Company has built relationships with content distributors in the U.S.
and Asia that enables it to continually source for content that meet
the changing demands and taste of the customers and advertisers.
o GLOBAL VIDEO STREAMING NETWORK
The Company has also developed and implemented a global video streaming
network that enables it to deliver high quality on-demand video
streaming programs from its rich library of content rights to a
worldwide audience of broadband users. This global video streaming
network is completely integrated with firewalls, loading balancing
protocols, bandwidth and consumer monitoring systems and payment
gateways to enable worldwide billing. In addition, the Company has its
own digital post-production and design capabilities to fully manage
content rights protection, user experience and specialized programming
for all its consumer-facing delivery platforms. This end-to-end
broadband streaming infrastructure enables the Company to customize and
diversify its products and services, incorporating video-on-demand and
e-commerce services.
o MULTIPLE REVENUE STRENGTHS
The Company's diversified delivery platforms enable it to capitalize
and generate multiple revenue streams by targeting different consumer
segments over broadband, across different geographic markets. The
multiple revenue streams comprise of advertising, subscriptions,
sponsorships, online shopping and games, as well as licensing and
content syndication and turn-key broadband consulting solutions. The
Company's goal is not to be excessively dependent on any one single
revenue source. Its library of content rights combined with its
global video streaming network supports the Company's future growth
strategy that focuses on multiple growth areas and territories. The
Company can thereby cost-effectively tailor its broadband websites and
services to suit different cultures, consumer behavior and clients
needs in different geographical locations. The Company is also able to
localize its products and services to sustain loyalty of its viewers
and consumers.
o KEY ALLIANCES
The Company has entered into strategic alliances and / or agreements
with key providers to support the marketing and distribution of its
products and services in different territories. Among its key providers
are Amadeus (Global Travel GDS based in Spain), Baidu (China), PT Agis
(Indonesia), Webvisions Pte Ltd (Singapore) and Zentek Technology
(Japan). The Company will continue to forge strategic partnership
opportunities including the area of web-enabled mobile devices and
extend its accessibility to customers of its broadband websites and
services.
3
GROWTH STRATEGIES
The Company's growth strategies consist of:
o Continuing to build its library of content rights on the
broadband to provide sustained high quality on-demand
video-based entertainment and e-commerce that will maintain
and grow its worldwide base of viewers.
o Penetrating new markets to deliver M2B and WOWtv branded
content to any screen including PC, 3G and TV, as well as
wireless mobile devices like PDAs and to establish new
delivery channels to meet the changing preferences of viewers
and consumers, worldwide.
o Capitalize on its growing worldwide viewer and consumer base
by aggressively signing up subscribers, as well as advertisers
onto its on-demand interactive broadband delivery channels for
entertainment, online games and e-commerce.
Consumers access the Company's entertainment sites through its main
website, www.amarinc.com or directly go to the entertainment sites at
www.wowtv.com, www.m2btv.com and www.m2bworldtravel.com.
NEW PRODUCT OFFERINGS
In August 2007, M2B World Asia Pacific Pte Ltd, a subsidiary company of
Amaru which oversees the Asia Pacific markets, launched a new broadband
entertainment web TV service, called WOWtv. The Company intends that
WOWtv will serve as its new brand for its broadband entertainment
services, in addition to its IPTV service, M2Btv. WOWtv had therefore
combined and incorporated all the Company's previous entertainment
websites into one leading site. WOWtv streams multiple video-on-demand
channels of Hollywood and Asian entertainment.
In August 2008, a new enhanced version of WOWtv called WOWtv NEW was
launched to promote further this premier personalized broadband
entertainment channel.
The new enhanced site, WOWtv NEW is expected to customize user
experience through expanded features. These features include:
o High Definition streaming
o New Community and User Generated Content
o Live TV broadcast
o Social Networking
All these features compliment the existing extensive VOD service
available on WOWtv.
The service was also revamped into two main tiers, namely :
o Free Tier - Web TV channels are provided free to
viewers without the need to register and are
advertising supported.
o Subscription Tier - Web TV channels are provided to
registered subscribers for a pay-per-view fee.
4
The initiatives were taken to retain and expand viewership. The plan
for an extended viewership base through the expanded features is
expected to value add to the WOWtv service and potentially lead to new
revenue sources and increase advertising revenue in the years ahead.
The WOWtv service had, as of February 2009, been further developed and
relaunched on a global basis in addition to the site in Singapore. The
WOWtv global service is available on www.wowtv.com and the Singapore
service on sg.wowtv.com.
CONSUMER MARKETING
The Company's broadband entertainment websites attract viewers from all
over the world. The Company's strategy of converting visitors into
customers lies in a combination of incentives, including seasonal and
purchase-related promotions that take advantage of the Company's
customer database and broadband websites.
The Company plans to negotiate special rates and benefits to obtain
access to a superior online inventory for the customers. The increasing
scale of the business will enable the Company to negotiate on more
favorable terms. Through research with visitors and customers, the
Company is developing new programs and features (including
personalization and loyalty incentives) that would turn visitors into
customers and maintain loyalty.
The Company also employs a variety of online and traditional media
programs and promotional activities such as:
(a) Advertising
The Company invests in both online and traditional advertising
to drive traffic to our broadband websites. To generate
traffic to M2B and WOWtv's broadband websites in a cost
efficient manner, the Company purchased targeted keywords and
textlinks in reasonably high volume. The Company also
advertises in traditional print and broadcast media to
increase the awareness of its service, product enhancements
and retail offerings.
(b) Public Relations
The core of our public relations effort is media relations and
industry analyst relations. We maintain relations with
journalists and industry analysts to help secure unbiased,
third-party endorsements for the Company. We pursue coverage
by online publications, search engines and directories.
(c) Co-marketing, Promotions and Loyalty Programs
We intend to continue to establish significant co-marketing
relationships to promote our service and to sponsor contests
that offer M2B and WOWtv related prizes. These programs
typically involve participation with our partners. We intend
to enter into additional co-marketing relationships in support
of our marketing strategy. From time to time, we offer various
incentives and awards to our existing customer base. These
incentives are designed to increase customer loyalty and
awareness of the M2B and WOWtv brands.
(d) Direct Marketing
The Company maintains a database which includes customers
profiles and preferences and other key customer attributes.
This data enables us to track the effectiveness of promotions
and incentives and to understand seasonal and other trends in
order to create and quickly implement marketing programs
targeted to specific customer segments. In addition, we
regularly communicate with our customers through targeted
e-mail.
The Company, while growing the business, also aims to maintain
profitability. While it executes its growth strategies, it
also controls costs. It intends to continue to implement
programs to control the cost of revenues and reduce operating
costs through technology and productivity management,
economies of scale and financial controls. This strategy
should enable us to provide our products to customers on a
cost competitive basis.
5
BUSINESS SEGMENTS
Our principal operations are carried out through the following three
segments of our business:
1. Entertainment Services - Video on-Demand services for
entertainment, providing the Company with advertising,
subscriptions, online games and e-commerce revenues
2. Digit Games
3. E-Travel Services - Online Travel Portal
ENTERTAINMENT SERVICES
The Company provides online entertainment on-demand on Broadband
channels, Internet portals and 3G devices across the globe, for
specific and identified viewer lifestyles, demographics and interests.
Entertainment and web visit experience is maintained throughout from
the initial viewing experience to on-line purchases 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 purchases - linked interactively
to the VOD platforms on broadband. Consumers choose
to buy products online as they watch the videos.
The Company applies broadband technologies to facilitate its growth in
the broadband sector. Its main competitive advantage is derived from
its ownership of rights for various territories on broadband for its
contents i.e. movies, televisions, dramas and programs on lifestyles,
business and glamour.
The Company has built and installed its broadband streaming system
complete with firewalls, load balancing, bandwidth and consumer
monitoring systems, which include video streaming, video storage and
web servers in Singapore. The Company has also developed its streaming
applications to stream into television sets, via a set top box.
The Company has developed a capability to stream wireless broadband and
have its own digitized entertainment sites for wireless broadband
applications.
The Company offers consumers personalized entertainment through its
wide range of broadband streaming channels available at
www.amaruinc.com, www.wowtv.com, www.m2btv.com and
www.m2bworldtravel.com.
6
PRODUCTS: We offer the following products on the VOD platform:
o Entertainment - Consumers access movies, music,
glamour and fashion, lifestyle (hobbies, cooking, and
personalities), documentaries, sports, health and
fitness and others. They can choose from a large
number of different channels depending on their
interests or lifestyle preferences.
o E-Commerce - Consumers can purchase products online,
view videos on a pay-per-view basis and make payments
online.
With this strategy, the Company aims to 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
The Company is constantly in the process of redesigning and adding
improvements to its Broadband websites. The current Broadband websites
and products, which may change from time to time are highlighted below.
WOWTV - WEB TV SERVICE
WOWtv, a broadband entertainment web TV service, has embarked on
launching its site across the Asia Pacific, streaming multiple channels
of Hollywood and Asian entertainment via video on-demand and providing
E-commerce services. Its video on-demand content covers diverse genres
such as movies, television dramas, variety shows, documentaries,
fashion, lifestyle, sports, edutainment and more. WOWtv can be viewed
on www.wowtv.com.
Beginning with Singapore, WOWtv is set to expand globally with its new
global site and across the Asia Pacific. It intends to expand its
growing presence to specific territories, namely India, China,
Indonesia and Malaysia within the next 12 months. No assurance can be
given that such plans will materialize as planned.
LEVERAGING ON THE STRENGTHS OF WOWTV
WOWtv is a cutting-edge, innovative platform that will establish a
first mover advantage to become the first Pan-Asian broadband
entertainment services provider. Its strengths and competitive
advantages include:
Content Aggregation, Distribution and Syndication - with the technology
and expertise to stream with high clarity and also manage operations
and costs well.
Premium Content Portfolio - with a vast library of worldwide broadband
rights of film and content, copyright ownership and exclusivity on the
majority of broadband titles.
Strong relationships in Asia and Hollywood - with good connections to
enable it to make further in-roads to content acquisition.
Broadband Distribution Deals - with secured broadband distribution
deals with major media companies.
7
MARKETING STRATEGY OF WOWTV
WOWtv's marketing strategy is to offer viewers a plethora of video
on-demand entertainment over two segments on its website, where
consumers will get a chance to sample its products and services in
different tiers - FREE and SUBSCRIPTION (PAY-PER-VIEW).
M2BTV - GLOBAL BROADBAND TV (IPTV) SERVICE
The Company offers multiple TV channels, delivered live over the
Internet, to television sets that have a high-speed internet connection
and IP set top boxes. The service is offered to potential clients and
third parties who desire to launch IPTV services to commercial outlets
like hotels and condominiums or even to homes. Details of the service
can be viewed on www.m2btv.com.
The service offers multiple content channels to customers. Anyone
subscribing for a broadband access with local Internet service provider
is able to tune in to the service on a subscription basis. Subscribers
are provided with a set-top box that connects to their broadband modems
instead of the cable TV point at home. They are able to watch the
programs on their television sets. The Company has integrated the WOWtv
content into this IPTV service.
In 2007, the company through its subsidiary, M2B World Asia Pacific
Pte. Ltd, had signed an agreement with a Malaysian company to launch
the IPTV service in Malaysia. In 2008, M2B Asia Pacific Pte. Ltd
commenced trial launch of the service at a major hotel in Kuala Lumpur,
the capital city of Malaysia. The Company expects to extend this IPTV
service to more hotels and resorts in Malaysia in 2009. No assurance
can be given that such plans will materialize as planned.
BROADBAND SERVICES
The Company has an automated Content Management System ("CMS") to
enhance its advertising service offered to clients and to provide a new
revenue source for the Company. The system allows for the programming
of video, animation, streaming and flash content to multiple
destinations.
Linked by broadband networks and wireless set-top boxes to push content
and scheduled advertising at physical premises, the CMS allows
businesses the option of presenting targeted content on selected video
displays in multiple locations, such as on different levels of a
shopping mall, in various spots within a restaurant or club or on
separate elevators in the same building.
In store video panels can also carry individualized messages together
with customized content to reach consumers and target audiences within
the premises. This is another method by which the Company is continuing
to meet the consumer shift toward on-demand and personalized media
experiences whether at home or work and now additionally on video
screens in stores, restaurants, clubs and other business or leisure
outlets.
DIGIT GAMES
The Company has an 18-year license to conduct nation wide lottery in
Cambodia. The Company also signed an agreement with Allsports Limited,
a British Virgin Islands company, to operate, administer, and manage
the lottery digit games activities in Cambodia. On March 25, 2009, the
Company was notified that the digit games were suspended by the
Cambodia Government as part of the suspension of all lotteries in
Cambodia. It cannot be determined at this time whether the suspension
of the digit games is temporary or permanent, though the Government of
Cambodia is currently closing the gaming business by the order of its
Ministry of Economy and Finance.
8
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 will offer direct access to the
extensive range of travel options available through the Amadeus network
to their viewers around the world. The agreement extends M2B's reach
through its broadband streaming entertainment into the worldwide travel
arena.
The M2B World Travel Website aims to provide competitive rates through
its direct connection to the Amadeus System using the Elleipsis
TravelTalk(TM) integration platform, which allows M2B to access not
only the major travel providers, but an expanded roster of additional
suppliers such as low-cost carriers, cruise lines, and widened hotel
distribution channels all through one single, easy-to-use platform.
The video e-travel portal brings an extensive range of travel options
to our viewers and gives the Company an entry into the travel and
tourism market; it directly aggregates travel solutions from airlines,
hotel properties, some car rental companies as well as air, ferry,
rail, cruise, and tour operators, allowing customers to the site to
view their travel destination through video content, thus influencing
their purchasing decision.
Due to fund constraints, the Company has been unable to launch the M2B
travel site. The service is subject to the Company completing the set
up of its server farm in the US to host the travel platform. No
assurance can be made that such plans will materialize as planned.
MAJOR EVENTS IN FISCAL YEAR 2008 FOR ENTERTAINMENT SERVICES
In August 2008, following the launch of its latest broadband
entertainment service called WOWtv in Singapore in August 2007, the
Company launched an enhanced version of the site called WOWtv NEW which
included many expanded features. These features included High
Definition (HD) streaming, New Community and User Generated Content,
Live TV broadcast and Social Networking. The initiatives were taken to
retain and expand viewership, and potentially lead to new revenue
sources and increase advertising revenue in the years ahead.
On December 15, 2008, M2B World Holdings Limited, a subsidiary of M2B
World Asia Pacific Pte Ltd, entered into an agreement with PT Agis TBK,
a company in Indonesia, to set up a Joint Venture Company to launch the
full WOWtv service and content in Indonesia. The agreement would give
M2B World Holdings Limited a 49 percent equity stake in the Joint
Venture Company, which is called PT WOW Television. The extended
relationship and joint venture with PT Agis TBK in Indonesia is
expected to expand the WOWtv branding and viewership, and provide
potentially new revenue sources in Indonesia.
The agreement in 2008 with PT Agis TBK followed a previous agreement on
April 23, 2007, where M2B World Holdings Limited entered into an
agreement with PT Agis TBK to transfer and licence an IPTV platform.
The IPTV platform concerned included the hardware, software and
middleware, and the supply of content. The WOWtv content was
incorporated into this IPTV platform. The agreement with PT Agis TBK
resulted in generating entertainment revenue of $14.5 million in 2007.
On January 26, 2007, M2B World Asia Pacific Pte. Ltd signed an
agreement with a Malaysia company to launch IPTV service in Malaysia
using the Company's current set-top boxes. In October 2008, the IPTV
service was launched on a trial basis in a major hotel in Malaysia. The
Company plans to roll out the IPTV service to more hotels and resorts
in Malaysia in 2009, pending to the success of this trial service.
On July 10, 2007, the Company together with one of its subsidiaries,
Tremax International Limited entered into an agreement with Domaine
Group Limited for the acquisition of 80% of Cosmactive Broadband
Networks Co Ltd, which is a broadband service provider incorporated in
Taiwan. On January 22, 2009, the Company approved the termination and
rescission of the Agreement when the seller failed to comply with the
terms of the Agreement and did not deliver to the Company the shares in
Cosmactive Broadband Networks Co Ltd.
9
ONGOING DEVELOPMENTS OF 2008 INITIATIVES
Following the launch of the enhanced WOWtv NEW in August 2008, the
Company launched a new global WOWtv service in February 2009. The
Company intends to further enhance this global service in 2009, by
marketing its viewership globally, and extending the site features with
more value added services like Social Networking, User Generated
Content and High Definition streaming. The Company plans to launch more
country sites in 2009 designed to fit specific country viewerships. The
Company hopes to launch in 2009 WOWtv sites specially targeted at two
major markets in Asia, namely China and India.
The current trial of the Company's IPTV services and set-top boxes
under M2Btv in a major hotel in Malaysia is currently underway. The
Company is working towards a major roll-out of the set top boxes in
Malaysia in 2009, covering hotels, resorts and condominiums.
There can be no assurance that the above plans will materialise as
stated.
MARKETS
The business operations and financial results of the Company are
directly affected by the markets that the Company operates in.
o RISING DISPOSABLE INCOME AND USAGE OF PC AND BROADBAND TECHNOLOGY
In many other parts of the world, especially emerging markets with
growing use of PCs, Internet with fast growing number of broadband
subscribers and rising disposable incomes, these markets offer
significant growth potential.
o THE ADVENT AND INCREASING ADOPTION OF BROADBAND TECHNOLOGY
The advent of broadband technology and ever-increasing bandwidth has
pushed for the next generation of online on-demand broadband
entertainment as one of the desired applications that will meet the
needs of increasingly demanding and bandwidth hungry consumers and
enterprise. Such technology can be further enhanced by the coupling of
value added services, namely Internet telephony communication services
and E- Commerce, together with the Broadband entertainment sites.
The market consists of both the consumers and the enterprise. The
demand from consumers is rich media content, on demand, highly
interactive and fast. On the other hand the enterprise must reach out
to such demands and the next generation through the new medium, or be
left behind. To meet this demand, the Company has established
relationships with major production houses, and access to major
distributors worldwide. This is expected to put the Company in a
position to acquire high quality, original video content. Such
strategic positioning has resulted in the Company acquiring extensive
content on broadband for multiple countries and for dedicated time
periods.
The Company intends to continue to maximize on its key strength, the
packaging of our content. The Company believes that it will shape the
delivery of its content in the most cost effective manner and
innovative way.
o THE BOOMING ONLINE ADVERTISING MARKET
According to the Euromonitor International, an industry research
provider, the market for advertising is forecasted to grow by 119.1%
from 2004 to 2009, to reach a value of US$609.3 billion.
The online video is growing dramatically, with increased broadband
penetration creating a larger audience, leading more advertisers to
consider adding video to their online efforts. Jupiter Research
estimates that the online video advertising industry is worth $1.3
billion.
10
o THE GROWTH OF ONLINE TRAVEL
The travel business has already been impacted by the Internet. Travel
companies have already used the Internet as a distribution channel and
for ticketing and transaction processes. With the introduction of
online booking and online travel agencies, the travel industry has only
begun to realize the cost reduction potentials of e-business. The
growth in online travel has caused a radical change in the travel
retail market since the late 1990s, and is one area that continues to
record growth after the slump in tourism that began in 2001.
Travel as a commodity has proved ideally suited to e-commerce, as
average spending is high, and the cost of delivering the goods is
minimal.
The online global travel retail opportunity represented an $85 billion
market worth in 2004, according to Euromonitor in 2005.
o THE GROWTH OF THE VIDEO ON DEMAND MARKET
According to Jupiter Research, in 2007 the Video-on-Demand (VOD) market
is expected to be worth $1.4 billion while the Subscription VOD market
is worth $800 million.
According to ZDNet Research, there were approximately 7.5 million
worldwide cable-based VOD users at the end of 2004. VOD user growth is
projected to remain strong for the next several years. Total number of
worldwide users is 13 million at the end of 2005 and is forecasted to
ultimately reach 34 million in 2009.
A study released by Adams Media Research in 2007 forecasts that sales
of video downloads will total $427 million in 2007. $1.2 billion in
2008, $2 billion in 2009, $3.1 billion in 2010, then hit $4.1 billion
in 2011.
The same study also predicts that advertiser spending on internet video
streams to PCs and TVs will approach $1.7 billion in 2011.
COMPETITION
The Company faces intense competition in every aspect of our business,
and particularly in the acquisition of content.
In the entertainment services business, we compete with free-to-air
channels, cable operators as well as other broadband entertainment
providers for distribution rights of programs in terms of price,
quality and variety.
Traditional TV networks and cable TV operators today provide alternate
sources of entertainment in a broadcast mode. In future, it is expected
that these networks may also extend their reach to the video-on-demand
broadband service. This may put them in direct competition with us,
although their entry costs will likely be higher and both the technical
and manpower capabilities existing in these traditional companies will
make it somewhat difficult for them to transit into new broadband
media.
In our multi player online gaming business, we face competition from
the various gaming offerings on the market as well as the various
gaming portals and platforms. In the subscription based multi player
online gaming business, the Company faces vigorous competition from the
numerous games that are distributed free over the Internet. More
generically, it also competes with console based games made for
products like Playstation and X-box.
In the e-travel services business, the Company competes with the
established traditional offline travel agencies and airlines as well as
online travel players like Travelocity, Zuji, Expedia, Priceline.com.
With the trend in the travel industry moving towards a constellation of
cooperative alliances, the Company believes that there will be many
opportunities for vertical as well as horizontal growth and integration
of the various travel companies.
11
The Company also competes within the industry for advertising revenue
and viewers. More generically, the Company faces competition from other
leisure entertainment activities from Video CDs (especially in Asia),
DVDs to cinemas, home theatres and emerging mobile multi media kiosks
and display panels.
The Company believes that it is competing favorably on the factors
described above. However, the industry is evolving rapidly and is
becoming increasingly competitive. Larger, more established companies
than us are increasingly focusing on the video content, travel, and
e-commerce businesses that directly compete with us.
INTELLECTUAL PROPERTY
The Company's intellectual property consists of trademarks, patents,
copyrights, and other technology and trade secrets. In addition to
technology that we develop internally, we license software or other
technology from third parties. We also grant licenses to some of our
intellectual property, such as trademarks, patents or websites
technology, to our vendors and strategic partners.
GOVERNMENT REGULATION
The Company must comply with laws and regulations relating to our sales
and marketing activities, including those prohibiting unfair and
deceptive advertising or practices and those requiring us to register
as a service provider in the spheres of business that we operate in,
and with disclosure requirements.
Data collection, protection, security and privacy issues are a growing
concern in the U.S., and in many countries around the world. Government
regulation is evolving in these areas and could limit or restrict the
Company's ability to market its products and services to consumers,
increase the Company's costs of operation and lead to a decrease in
demand for our products and services. US Federal, state and local
governmental organizations, as well as foreign governments and
regulatory agencies, are also considering legislative and regulatory
proposals that directly govern Internet commerce, and will likely
consider additional proposals in the future.
We do not know how courts will interpret laws governing Internet
commerce or the extent to which they will apply existing laws
regulating issues such as property ownership, sales and other taxes,
libel and personal privacy to the Internet. The growth and development
of the market for online commerce has prompted calls for more stringent
consumer protection laws that may impose additional burdens on
companies that conduct business online.
COMPLIANCE WITH ENVIRONMENTAL REGULATIONS
The Company has incurred no, and does not expect to incur, material
expenditures or obligations related to environmental compliance issues.
EMPLOYEES
The Company had 21 employees as of December 31, 2008, of which 21 are
full time and 1 part-time employee. Of the 21 employees, 19 are based
in Singapore, one is based in China and another one is based in the
U.S.
12
ITEM 1A: RISK FACTORS
An investment in the Company's common stock involves a high degree of
risk. One should carefully consider the following risk factors in
evaluating an investment in the Company's common stock. If any of the
following risks actually occurs, the Company's business, financial
condition, results of operations or cash flow could be materially and
adversely affected. In such case, the trading price of the Company's
common stock could decline, and one could lose all or part of one's
investment. One should also refer to the other information set forth in
this report, including the Company's consolidated financial statements
and the related notes.
THE COMPANY CONTINUES TO USE SIGNIFICANT AMOUNTS OF CASH FOR ITS
BUSINESS OPERATIONS, WHICH COULD RESULT IN US HAVING INSUFFICIENT CASH
TO FUND THE COMPANY'S OPERATIONS AND EXPENSES UNDER OUR CURRENT
BUSINESS PLAN. THE COMPANY IS ALSO HOLDING A CONSIDERABLE AMOUNT OF
QUOTED EQUITY SECURITIES THAT IS AVAILABLE-FOR-SALE OR HELD FOR
TRADING.
The Company's liquidity and capital resources remain limited. There can
be no assurance that the Company's liquidity or capital resource
position would allow us to continue to pursue its current business
strategy. The Company's quoted equity securities held as assets are
dependent on the market value. Any fluctuations or downturn in the
securities market could adversely affect the value of these equity
securities held. As a result, without achieving growth in its business
along the lines it has projected, it would have to alter its business
plan or further augment its cash flow position through cost reduction
measures, sales of assets, additional financings or a combination of
these actions. One or more of these actions would likely substantially
diminish the value of its common stock.
THE MARKET MAY NOT BROADLY ACCEPT THE COMPANY'S BROADBAND WEBSITES AND
SERVICES, WHICH WOULD PREVENT THE COMPANY FROM OPERATING PROFITABLY.
The Company must be able to achieve broad market acceptance for its
Broadband websites and services, at a price that provides an acceptable
rate of return relative to the Company-wide costs in order to operate
profitably. There is no assurance that the market will develop
sufficiently to enable the Company to operate its Broadband business
profitably. Furthermore, there is no assurance that any of the
Company's services will become generally accepted, nor is there any
assurance that enough paying users and advertisers will ultimately be
obtained to enable us to operate these business profitably.
BROADBAND USERS MAY FAIL TO ADOPT THE COMPANY'S BROADBAND SERVICES.
The Company's Broadband services are targeted to the growing market of
Broadband users worldwide to deliver content and E-commerce in an
efficient, economical manner over the Broadband networks. The challenge
is to make the Company's business attractive to consumers, and
ultimately, profitable. To do so has required, and will require, the
Company to invest significant amounts of cash and other resources.
There is no assurance that enough paying users and advertisers will
ultimately be obtained to enable the Company to operate the business
profitably.
FAILURE TO SIGNIFICANTLY INCREASE THE COMPANY'S USERS AND ADVERTISERS
MAY RESULT IN FAILURE TO ACHIEVE CRITICAL MASS AND REVENUE TO BUILD A
SUCCESSFUL BUSINESS.
The Company incurs significant up-front costs in connection with the
acquisition of content, and bandwidth and network charges. The plan is
to obtain recurring revenues in the form of subscription and
advertising fees to use the Broadband services, either paid by the
users or advertisers.
13
There is no assurance as to whether the Company will be able to
maintain, or whether and how quickly the Company will be able to
increase its user base, or whether the Company will be able to generate
recurring subscription and advertising fees to such a level that would
enable this line of business to continue to operate profitably. If the
Company is not successful in these endeavors, the Company could be
required to revise its business model, exit or reduce the scale of the
business, or raise additional capital.
COMPETITION IN THE BROADBAND BUSINESS IS EXPECTED TO INCREASE, WHICH
COULD CAUSE THE BUSINESS TO FAIL.
The Company's Broadband services are targeted to the end user market.
As the Broadband penetration rates increase globally, an increasing
number of well-funded competitors have entered the market. Companies
that compete with the Company's business include telecommunications,
cable, content management and network delivery companies.
The Company may face increased competition as these competitors partner
with others or develop new Broadband websites and service offerings to
expand the functionality that they can offer to their customers. These
competitors may, over time, develop new technologies and acquire
content that are perceived as being more secure, effective or cost
efficient than the Company. These competitors could successfully garner
a significant share of the market, to the exclusion of the Company.
Furthermore, increased competition could result in pricing pressures,
reduced margins, or the failure of the business to achieve or maintain
market acceptance, any one of which could harm the business.
THE INABILITY TO SUCCESSFULLY EXECUTE TIMELY DEVELOPMENT AND
INTRODUCTION OF NEW AND RELATED SERVICES AND TO IMPLEMENT TECHNOLOGICAL
CHANGES COULD HARM THE BUSINESS.
The evolving nature of the Broadband business requires the Company to
continually develop and introduce new and related services and to
improve the performance, features, and reliability of the existing
services, particularly in response to competitive offerings.
The Company has under development new features and services for its
businesses. The Company may also introduce new services. The success of
new or enhanced features and services depends on several factors -
primarily market acceptance. The Company may not succeed in developing
and marketing new or enhanced features and services that respond to
competitive and technological developments and changing customer needs.
This could harm the business.
CAPACITY LIMITS ON THE COMPANY'S TECHNOLOGY AND NETWORK HARDWARE AND
SOFTWARE MAY BE DIFFICULT TO PROJECT, AND THE COMPANY MAY NOT BE ABLE
TO EXPAND AND/OR UPGRADE ITS SYSTEMS TO MEET INCREASED USE, WHICH WOULD
RESULT IN REDUCED REVENUES.
While the Company has ample through-put capacity to handle its
customers' requirements for the medium term, at some point it may be
required to materially expand and/or upgrade its technology and network
hardware and software. The Company may not be able to accurately
project the rate of increase in usage of its network. In addition, it
may not be able to expand and/or upgrade its systems and network
hardware and software capabilities in a timely manner to accommodate
increased traffic on its network. If the Company does not appropriately
expand and/or upgrade our systems and network hardware and software in
a timely fashion, it may lose customers and revenues.
14
INTERRUPTIONS TO THE DATA CENTERS AND BROADBAND NETWORKS COULD DISRUPT
BUSINESS, AND NEGATIVELY IMPACT CUSTOMER DEMAND FOR THE COMPANY.
The Company's business depends on the uninterrupted operation at the
data centers and the broadband networks run by the various service
providers. The data centers may suffer for loss, damage, or
interruption caused by fire, power loss, telecommunications failure, or
other events beyond the Company. Any damage or failure that causes
interruptions in the Company's operations could materially harm
business, financial conditions, and results of operations.
In addition, the Company's services depend on the efficient operation
of the Internet connections between customers and the data centers. The
Company depends on Internet service providers efficiently operating
these connections. These providers have experienced periodic
operational problems or outages in the past. Any of these problems or
outages could adversely affect customer satisfaction and customers
could be reluctant to use our Internet related services.
THE COMPANY MAY NOT BE ABLE TO ACQUIRE NEW CONTENT, OR MAY HAVE TO
DEFEND ITS RIGHTS IN INTELLECTUAL PROPERTY OF THE CONTENT THAT IS USED
FOR ITS SERVICES WHICH COULD BE DISRUPTIVE AND EXPENSIVE TO ITS
BUSINESS.
The Company may not be able to acquire new content, or may have to
defend its intellectual property rights or defend against claims that
it is infringing the rights of others, where its content rights are
concerned. Intellectual property litigation and controversies are
disruptive and expensive. Infringement claims could require us to
develop non-infringing services or enter onto royalty or licensing
arrangements. Royalty or licensing arrangements, if required, may not
be obtainable on terms acceptable to the Company. The business could be
significantly harmed if the Company is not able to develop or license
new content. Furthermore, it is possible that others may license
substantially equivalent content, thus enabling them to effectively
compete against us.
THE COMPANY DEPENDS ON KEY PERSONNEL.
The Company depends on the performance of its senior management team.
Its success depends on its ability to attract, retain, and motivate
these individuals. There are no binding agreements with any of its
employees that prevent them from leaving the Company at any time. There
is competition for these people. The loss of the services of any of the
key employees or failure to attract, retain, and motivate key employees
could harm the business.
THE COMPANY RELIES ON THIRD PARTIES.
If critical services and products that the Company sources from third
parties, such as content and network services were to no longer be made
available to the Company or at a considerably higher price than it
currently pays for them, and suitable alternatives could not be found,
the business could be harmed.
THE COMPANY COULD BE AFFECTED BY GOVERNMENT REGULATION.
The list of countries to which our solutions and services could not be
exported could be revised in the future. Furthermore, some countries
may in future impose restrictions on streaming of broadband contents
and related services. Failure to obtain the required governmental
approvals would preclude the sale or use of services in international
markets and therefore, harm the Company's ability to grow sales through
expansion into international markets. While regulations in almost all
countries in which our business currently operates generally permit the
broadband services, such regulations in future may not be as favorable
and may impede our ability to develop business.
15
THE COMPANY COULD BE AFFECTED BY PIRACY IN ASIA.
The Company is in the process of expanding its services globally, and
in particular is entering specific countries in Asia with customized
country sites. These country sites are designated to suit viewership
patterns and styles in the countries they are launched in, and make use
of the Company's content and intellectual property rights to the
content. The piracy of content is a significant problem in many Asian
countries, and it is not uncommon to see movies and television dramas
appearing on illegal internet sites, and sold as pirated DVDs and VCDs.
The extent of this piracy of content in the specific countries that the
Company is launching its sites will adversely affect to a certain
degree the amount of advertising and subscription revenues that the
Company intends to earn.
COUNTRY RISK IN DIGIT GAME OPERATIONS
The Company operates a nation wide digit games (lottery) service in
Cambodia. There are inherent country risks in Cambodia, where its
legal, financial and corporate governance systems have yet to be fully
established or matured. The digit games operations could also be
affected by governmental regulations and approvals that could result in
stoppages or suspension of operations.
THE COMPANY COULD BE AFFECTED BY THE GLOBAL ECONOMIC DOWNTURN.
The global economy is undergoing a massive downturn in 2009, which
commenced in the second half of 2008. Many countries are faced with
negative growth rates.. Where the media industry is concerned, major
corporations have began to reduce their advertising expenditures or
even to cut back substantially all advertising and promotional
expenditures towards the later half of 2008. The Company is heavily
reliant on advertising and syndication revenues and expects to be
significantly affected in 2008 and 2009 by the downsizing in
advertising spent, especially in countries where the WOWtv service is
expected to roll out.
ITEM 1B: UNRESOLVED STAFF COMMENTS
None.
ITEM 2: PROPERTIES
The headquarters for operations and management is located in Singapore
in an office space of about 3,927 square feet. We entered into a three
year operating lease paying a monthly rent of $4,545 (S$7,000). The
lease was not renewed in March, 2008. The headquarters is currently
located at 112 Middle Road, Midland House, #01-00.
In addition to the office which housed the management staff of the
Company, there are two other offices: located in the US and China. The
office in the US is situated on Sunset Boulevard, West Hollywood and it
consists of 2,965 square feet. The office in Singapore consists of
about 6,727 square feet and is situated in 112 Middle Road, Singapore.
The office in China consists of about 1,399 square feet and is situated
in No.5, JingLi Dong Road, #2-17-4, Chengdu, Sichuan. These two offices
are on monthly lease and the rental is $10,530 for the US office,
$10,790 (S$16,620) for the Singapore office and $779 (S$1,200) for the
Chengdu office.
The office in the US was subleased on November 1, 2007 as part of the
Company's cost reduction measures. The Company's office lease in China
was terminated on December 31, 2008 as part of the Company's cost
reduction measures.
We believe that our existing facilities are adequate to meet our
current needs and that suitable additional or alternative space will be
available in the future on commercially reasonable terms, although we
have no assurance that future terms would be as favorable as our
current terms.
The Company has not invested in any real property at this time nor does
the Company intend to do so. The Company has no formal policy with
respect to investments in real estate or investments with persons
primarily engaged in real estate activities.
16
ITEM 3: LEGAL PROCEEDINGS
On September 15, 2008, M2B Commerce Limited filed a lawsuit in the
Kingdom of Cambodia for breach of the Performance and Maintenance
Agreement dated May 20, 2005 between M2B Commerce Limited and Allsports
International Ltd, by Allsports International Ltd seeking damages in
the total amount of $793,189 and calling for the termination of the
Performance and Maintenance Agreement.
On December 4, 2008, M2B Commerce Limited filed two further lawsuits in
the Kingdom of Cambodia against the owners of Allsports International
Ltd, in support of its earlier suit of September 15, 2008 against
Allsports International Ltd for breach of the Performance and
Maintenance Agreement dated May 20, 2005. One lawsuit was against the
four principal officers of Allsports International Ltd for breach of
trust of the total amount of $793,189 owing to M2B Commerce Limited.
The other lawsuit was to get Allsports International Ltd to transfer
the shares of the Lottery Company to M2B Commerce Limited, in lieu of
the earlier lawsuit of September 15, 2008 which called for the
termination of the Performance and Maintenance Agreement.
On November 7, 2008, M2B World Asia Pacific Pte. Ltd was served a
summons in Singapore by M2B Game World Pte. Ltd, a company owned 81% by
Auston International Group Limited and 19% by M2B World Pte. Ltd,
claiming a sum of US$153,744 (S$235,229) in unpaid invoices in 2006.
Following this, M2B World Asia Pacific Pte. Ltd filed a counter claim
to dismiss the lawsuit on the basis that the invoices were
non-existent and that M2B World Asia Pacific Pte. Ltd was not yet
incorporated as a company as of the date of the invoices produced by
M2B Game World Pte. Ltd.
On February 23, 2009, M2B World Pte Ltd was served a summons in
Singapore by Auston International Group Limited, claiming a sum of
US$496,765 (S$760,050) to be paid as shortfall in Guaranteed Profit to
M2B Game World Pte. Ltd for financial years 2006 and 2007, as part of
the agreement for the acquisition of M2B Game World in December 20,
2005 between M2B World Pte Ltd and Auston International Group Limited.
On March 20, 2009 in response to this summons, M2B World Pte. Ltd filed
a counter-claim against Auston International Group Limited to claim
damages amounting to US$1,568,172 and other damages as a result of
material breaches on the part of Auston International Group Limited to
the agreement of December 20, 2005 for the acquisition of M2B Game
World Pte Ltd.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the year ended December 31, 2008.
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
PUBLIC MARKET
Our common stock trades on the National Association of Securities
Dealers' over-the counter Bulletin Board market ("OTCBB") under the
symbol "AMRU". As of March 20, 2009, there were 386 holders of our
common stock.
The price of the Company's stock as of March 20, 2009 was $0.10.
On January 19, 2007, the Company announced that its common stock is
trading on the OTCBB, effective January 19, 2007 under the symbol
"AMRU". The Company's common stock was previously trading on the Pink
Sheets Electronic Quotation System.
17
The Company's high and low closing bid and close information for the
fiscal year ended December 31, 2008 is listed as provided by the Nasdaq
website. Quotations reflect inter-dealer prices, without retail
mark-up, markdown, or commission and may not represent actual
transactions.
Open High Low Close/Last*
----------------------------------------------------------------------
Year Ended December 31, 2008
---------------------------------------------------- ---------------- ----------------- ---------------- -----------------
First Quarter $ 0.2500 $ 0.3000 $ 0.2000 $ 0.3000
---------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Second Quarter $ 0.2400 $ 0.2400 $ 0.2000 $ 0.2000
---------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Third Quarter $ 0.1650 $ 0.1650 $ 0.1650 $ 0.1650
---------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Fourth Quarter $ 0.1500 $ 0.1500 $ 0.1500 $ 0.1500
---------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Year Ended December 31, 2007
---------------------------------------------------- ---------------- ----------------- ---------------- -----------------
First Quarter $ 0.6700 $ 0.7000 $ 0.6700 $ 0.7000
---------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Second Quarter $ 0.6500 $ 0.6500 $ 0.6500 $ 0.6500
---------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Third Quarter $ 0.5800 $ 0.6500 $ 0.5800 $ 0.6500
---------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Fourth Quarter $ 0.3850 $ 0.5100 $ 0.3700 $ 0.5100
---------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Year Ended December 31, 2006
---------------------------------------------------- ---------------- ----------------- ---------------- -----------------
First Quarter $ 0.5250 $ 1.3130 $ 1.1250 $ 1.2250
---------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Second Quarter $ 1.1250 $ 1.3750 $ 1.2500 $ 2.2000
---------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Third Quarter $ 0.7200 $ 0.8200 $ 0.7000 $ 0.8200
---------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Fourth Quarter $ 0.6500 $ 0.9200 $ 0.5000 $ 0.5500
---------------------------------------------------- ---------------- ----------------- ---------------- -----------------
* Closing price is provided as of the last day of the month.
DIVIDENDS
The Company does not expect to pay any dividends at this time. The
payment of dividends, if any, will be contingent upon the Company's
revenues and earnings, capital requirements, and general financial
condition. The payment of any dividends will be within the discretion
of the Company's Board of Directors and may be subject to restrictions
under the terms of any debt or other financing arrangements that the
Company may enter into in the future.
RECENT SALE OF UNREGISTERED SECURITIES
On July 11, 2007, the Company issued 5,333,333 million shares of common
stock at a market value of $0.70 per share for a total amount of
$3,733,333. The shares were issued to Domaine Group Limited, a company
incorporated in the British Virgin Islands and is the legal and
beneficial owner of the 100% of the entire issued and paid up capital
of CBBN Holdings Limited, which the Company intends to acquire.
On March 19, 2007, the Company issued 40,000 shares of common stock
through its private placement of shares of common stock at a purchase
price of $1.50 per share for a total amount of $60,000 to "accredited
investors", as that term is defined in Regulation D of the Securities
Act of 1933.
The shares of the Company's common stock were issued and sold in
reliance upon the exemption provided by Section 4(2) and/or Regulation
D/Regulation S of the Securities Act of 1933.
In January and February 2006, the Company issued a total of 5,520,000
shares of common stock through private placement at a price of $0.75
per share for a value of $4,140,000. These shares were subscribed and
paid for before December 31, 2005 pursuant to the Company's private
placement.
18
From January 23, 2006 to April 23, 2006, the Company issued 14,411,400
shares of common stock through a private placement at a price of $0.75
per share for a total amount of $10,808,550.
From April 24, 2006 to April 26, 2006, the Company issued 808,000
shares of common stock through its new private placement at a price of
$1.25 per share for a total amount of $1,010,000.
From July 3, 2006 to July 24, 2006, the Company issued 120,168 shares
of common stock through private placement at a price of $1.50 per share
for a total amount of $180,249.
The total amount of funds raised through the private placement of
shares of common stock for the year ended December 31, 2006 was
$11,998,799.
The shares issued in the private placements set forth above were issued
in reliance upon the exemption from registration set forth in Section
4(2) of the Securities Act and Regulation D (Rules 505 and/or 506)
and/or Regulation S promulgated under the Securities Act. The shares
were offered and sold to investors who were "accredited investors" as
defined in the Securities Act. Appropriate investment representations
were obtained and the securities were issued with restrictive legends.
On April 27, 2006, the Company issued 6,992,000 shares of common stock
through a private placement at a price of $1.25 per share for a total
amount of $8,740,000 for the acquisition of film library.
On August 15, 2006, the Company issued 40,000 shares of common stock in
a private placement at a price of $1.50 per share for a total amount of
$60,000 for services to be rendered to the Company. Such services have
been rendered as of September 30, 2006.
On June 8, 2005, the Company issued 580,000 shares of common stock
through a private placement at a price of $0.75 a share for a total
amount of $435,000 for repayment of accounts payable.
On December 30, 2005, the Company approved the issue of 20,000
"restricted" shares of common stock at a price of $0.75 per share to a
consultant for services to be rendered to the Company. The shares were
issued in January 2006. The services of the consultant pertaining to
these shares issued were not rendered as of December 31, 2005.
In the fiscal year ended December 31, 2005, the Company issued a total
of 16,132,000 shares of common stock through private placement at a
price of $0.75 per share for a total amount of $12,099,000.
A further 5,520,000 shares were subscribed before December 31, 2005
through private placement at a price of $0.75 per share for a total
purchase price of $4,140,000. The shares were issued in January 2006.
The shares issued in the private placements set forth above were issued
in reliance upon the exemption from registration set forth in Section
4(2) of the Securities Act and Regulation D (Rules 505 and/or 506)
and/or Regulation S promulgated under the Securities Act. The shares
were offered and sold to investors who were "accredited investors" as
defined in the Securities Act. Appropriate investment representations
were obtained and the securities were issued with restrictive legends.
On February 10, 2004, M2B World issued 1,363,636 shares of $0.31 par
value Series D common stock for a total cash capital contribution of
$287,745 prior to the acquisition by the Company.
On October 1, 2004, Amaru Inc. issued 400,000 "restricted" shares of
common stock for services valued at $5,000. The shares were issued
without registration in reliance upon the exemption provided by Section
4(2) of the Securities Act.
On October 25, 2004, a total of 143,000 shares of Series A Preferred
Stock was converted to 5,500,000 shares of common stock of Amaru Inc.
19
On October 28, 2004, Amaru Inc. issued 1,200,000 shares of common stock
through private placement at a price of $0.70 per share.
On November 20, 2004, Amaru Inc. issued 400,000 shares of common stock
through private placement at a price of $0.70 per share.
On December 10, 2004, Amaru Inc. issued 800,000 shares of common stock
through private placement at a price of $0.75 per share.
On December 11, 2004, Amaru Inc. issued 400,000 shares of common stock
through private placement at a price of $0.75 per share.
EQUITY COMPENSATION PLAN
The Company's 2004 Equity Compensation Plan has 9,745,000 million
shares remaining as of December 31, 2008. In 2007 and 2008, no shares
were issued under the Company's 2004 Equity Compensation Plan. In 2006
and 2005, the Company issued 420,000 shares and 58,740 shares
respectively under the Equity Compensation Plan. There are no
outstanding options under the Equity Compensation Plan.
ITEM 6: SELECTED FINANCIAL DATA
The following selected consolidated financial data is derived from the
Company's audited financial statements. These data is not necessarily
indicative of results of future operations, and should be read in
conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations under Item 7 and, the Consolidated
Financial Statements and Notes to Consolidated Financial Statements
under Item 8.
No cash dividends were declared in any of the years shown below:
Years Ended December 31,
---------------------------------------------------------------------------------------------
2008 2007 2006 2005 2004 2003
---------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA:
Revenues (1) $203,066 $37,053,269 $32,573,275 $18,095,922 $ 3,984,981 $ 1,005,038
Cost of Services (2) 869,781 23,349,404 24,302,425 16,352,048 3,053,715 475,525
Gross Profit (Loss) (666,715) 13,703,865 8,270,850 1,743,874 931,266 530,218
Operating income (loss) (14,439,679) 5,659,871 1,544,082 (1,357,268) 510,457 60,082
Net gain on discontinued operations -- -- -- 1,643,016 -- --
(3)
Net Income (loss) (17,229,866) 5,088,792 1,250,259 166,745 512,295 39,530
Basic and diluted income (loss) per (0.11) 0.03 0.01 (0.05) 0.02 --
share
Shares used in computing basic and
diluted income/loss per common share 159,431,861 156,548,902 153,605,863 29,418,828 21,297,410 17,772,228
BALANCE SHEET DATA:
Working Capital 13,186,061 19,957,833 4,470,426 4,994,124 514,238 (515,173)
Total Assets 37,098,032 60,641,778 48,891,847 20,744,959 4,453,406 1,851,185
Long-term obligations 2,354,627 1,730,107 1,684,158 -- -- --
Stock holders' Equity 33,353,132 55,571,566 45,047,246 19,872,327 3,636,773 1,207,296
20
NOTES ON SELECTED FINANCIAL DATA
(1) Revenues significantly increased in 2005 due to the operations
and management of digit games (lottery) in Cambodia which was
a new source of revenue for the Company that was not available
in 2004. Total digit games revenues generated in 2005 was
$14.8 million and it continuously increased to $24.5million
and $ 22.4 million in 2006 and 2007, respectively, as a result
of the full year effect of the digit gaming operation in
Cambodia, which only commenced in May 2005. The digit games
was suspended in March 2009 by the Cambodia Government, as
part of the suspension of all lotteries in Cambodia, resulting
in the removal of such revenues in 2008. On the other hand,
entertainment services posted an increase of $ 6.5 million and
$ 4.7 million in 2007 and 2006, respectively, which further
boosted up revenue growth. The reasons for the increase in
entertainment revenues were the completion and delivery of
IPTV platform in Indonesia for 2007, and increased licensing
revenue in 2006.
(2) Cost of services in 2007, 2006 and 2005 includes direct
operational cost and gaming royalties paid for the digit games
operations in Cambodia which represents 96% of the digit games
revenue.
(3) On December 20, 2005, the Company sold 81% equity interests in
one of its subsidiaries,, M2B Game World Pte. Ltd., a public
listed company in Singapore for 71,428,571 shares of common
stock of Auston and the investment was valued at $2,147,580.
The gain from this sale was $1,643,016 which is under gain
from discontinued operations.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
ALL FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE DEEMED BY THE
COMPANY TO BE COVERED BY AND TO QUALIFY FOR THE SAFE HARBOR PROTECTION
PROVIDED BY THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
PROSPECTIVE SHAREHOLDERS SHOULD UNDERSTAND THAT SEVERAL FACTORS GOVERN
WHETHER ANY FORWARD - LOOKING STATEMENT CONTAINED HEREIN WILL BE OR CAN
BE ACHIEVED. ANY ONE OF THOSE FACTORS COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE PROJECTED HEREIN. THESE FORWARD - LOOKING
STATEMENTS INCLUDE PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTURE
OPERATIONS, INCLUDING PLANS AND OBJECTIVES RELATING TO THE PRODUCTS AND
THE FUTURE ECONOMIC PERFORMANCE OF THE COMPANY. ASSUMPTIONS RELATING TO
THE FOREGOING INVOLVE JUDGMENTS WITH RESPECT TO, AMONG OTHER THINGS,
FUTURE ECONOMIC, COMPETITIVE AND MARKET CONDITIONS, FUTURE BUSINESS
DECISIONS, AND THE TIME AND MONEY REQUIRED TO SUCCESSFULLY COMPLETE
DEVELOPMENT PROJECTS, ALL OF WHICH ARE DIFFICULT OR IMPOSSIBLE TO
PREDICT ACCURATELY AND MANY OF WHICH ARE BEYOND THE CONTROL OF THE
COMPANY. ALTHOUGH THE COMPANY BELIEVES THAT THE ASSUMPTIONS UNDERLYING
THE FORWARD - LOOKING STATEMENTS CONTAINED HEREIN ARE REASONABLE, ANY
OF THOSE ASSUMPTIONS COULD PROVE INACCURATE AND, THEREFORE,THERE CAN BE
NO ASSURANCE THAT THE RESULTS CONTEMPLATED IN ANY OF THE FORWARD -
LOOKING STATEMENTS CONTAINED HEREIN WILL BE REALIZED. BASED ON ACTUAL
EXPERIENCE AND BUSINESS DEVELOPMENT, THE COMPANY MAY ALTER ITS
MARKETING, CAPITAL EXPENDITURE PLANS OR OTHER BUDGETS, WHICH MAY IN
TURN AFFECT THE COMPANY'S RESULTS OF OPERATIONS. IN LIGHT OF THE
SIGNIFICANT UNCERTAINTIES INHERENT IN THE FORWARD - LOOKING STATEMENTS
INCLUDED THEREIN, THE INCLUSION OF ANY SUCH STATEMENT SHOULD NOT BE
REGARDED AS A REPRESENTATION BY THE COMPANY OR ANY OTHER PERSON THAT
THE OBJECTIVES OR PLANS OF THE COMPANY WILL BE ACHIEVED.
21
GENERAL
The Company is in the business of broadband entertainment-on-demand,
streaming via computers, television sets, and 3G (Third Generation)
devices 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. On March 25, 2009, the Company
was notified that the digit games were suspended by the Cambodia
Government as part of the suspension of all lotteries in Cambodia. It
cannot be determined at this time whether the suspension of the digit
games is temporary or permanent, though the Government of Cambodia is
currently closing the gaming business by the order of its Ministry of
Economy and Finance.
The following discussion should be read in conjunction with selected
financial data and the financial statements and notes to financial
statements.
OVERVIEW
The business focus of the Company is Entertainment-on-Demand and
E-Commerce Channels on Broadband, and 3G (Third Generation) devices.
For the broadband, the Company delivers both wire and wireless
solutions, streaming via computers, TV sets, PDAs and 3G hand phones.
At the same time the Company launches e-commerce channels (portals)
that provide on-line shopping but with a difference, merging two
leisure activities of shopping and entertainment. The entertainment
channels are designed to drive and promote the shopping portals, and
vice versa.
The Company's business model in the area of broadband entertainment
includes focuses on e-services, which would provide the Company with
multiple streams of revenue. Such revenues would be derived from
advertising and branding (channel and program sponsorship); on-line
subscriptions; online games micro-payments; channel/portal development
(digital programming services); content aggregation and syndication;
broadband consulting services; on-line shopping turnkey solutions;
broadband hosting and streaming services; E-commerce commissions and
on-line dealerships; and digit games operations.
In fiscal 2008, the business was reorganized under the following
entities to spearhead the expansion of the Company's business and focus
on specific growth areas and territories.
M2B WORLD PTE. LTD.
M2B World Pte. Ltd. was incorporated on April 3, 2003. This subsidiary
used to oversee the management and operation of the Company as a whole
and oversees the Asian business. With effect from September 1, 2006,
the Company's Asian business was overseen by another subsidiary, M2B
World Asia Pacific Pte. Ltd.
The Company took an investment on May 16, 2005 for a 9.1% equity
position with a company called Activ Lifestyle Pte Ltd in Singapore to
help facilitate Amaru Inc.'s diversification into the health and
wellness market.On September 27, 2005, the Company raised its
investment in Activ Lifestyle Pte Ltd to 12.6%. This was further
increased to 17.4% as of December 31, 2006.
In December 2005, M2B World Pte. Ltd. sold 81% equity interests of its
wholly-owned subsidiary, M2B Game World Pte. Ltd. to Auston
International Group Ltd (Auston), a public listed company in Singapore,
in exchange for 27% equity interest in Auston. As of December 31, 2007,
the Company's equity interest in Auston was at 10.40%. In 2008, the
Company disposed all of its common shares in Auston. As of the date of
this report, the Company holds no shares in Auston.
22
M2B WORLD, INC.
M2B World, Inc., a California corporation, was incorporated on January
24, 2005. This subsidiary handles and oversees the Company's business
in the U.S. The Company has leased a new office on Sunset Boulevard,
West Hollywood that came into effect in August 2006, which offices are
currently being subleased (see below). In October 2007, M2B World Inc
reduced its staffing and in November 2007 sub-leased its premise as
part of the Company's cost reduction measures.
On May 27, 2005, M2B World, Inc. entered into an agreement with Indie
Vision Films, Inc., a California corporation, to purchase 20% of the
beneficial ownership of Indie Vision Films, Inc. The investment will
allow M2B World, Inc.to access the library of programs of Indie Vision
Films, Inc. The Company is currently into negotiations with Indie
Vision Films, Inc to convert its investment into content rights,
thereby giving up its 20% share of beneficial ownership in lieu of
library rights that the Company could exploit commercially for
international use. As of the date of this report, the Company had
received the list of content titles from Indie Vision Films, Inc for
evaluation and selection in order to convert its investment into
content rights.
On November 1, 2007, the Company sub-leased the office premises of M2B
World Inc, a wholly owned subsidiary of the Company in Los Angeles,
California as part of its efforts to streamline its operations and
reduce operating costs. The staffing of M2B World Inc was also reduced
from 9 staff to 1 staff as of October 31, 2007, and remains as 1 staff
as of the date of this report. The company has transferred its server
farm to the Singapore server farm to, optimize bandwidth and support
cost.
M2B WORLD ASIA PACIFIC PTE. LTD.
M2B World Asia Pacific Pte Ltd was incorporated in the Republic of
Singapore on 1 August 2006 for the purposes of handling all the
business operations of the Company in the Asia Pacific region. This
company had taken over the Asian business operations as well as the
assets and liabilities of M2B World Pte. Ltd. with effect from
September 1, 2006.
On January 3, 2007, M2B World Asia Pacific Pte Ltd, issued 7,778,014
shares of common stock through a private placement at a price of $0.77
a share for a total amount of $6,000,000. This had effectively reduced
the Company's effective equity interest in M2B World Asia Pacific Pte.
Ltd from 100% to 81.6%.
On July 8, 2008, M2B World Asia Pacific Pte Ltd signed a two year
convertible loan agreement with a third party to raise $2,500,000 in
funding. The loan allows the borrower to convert the loan into shares
of the Company at the issue price of $0.942 per share at the end of the
two years period. The loan bears an interest rate of 5.0% per annum,
and will mature in June 2010.
M2B COMMERCE LIMITED
M2B Commerce Limited, a company incorporated in the British Virgin
Islands on July 25, 2002, focuses on e-commerce and digit gaming, with
a branch in Cambodia that oversees the digit gaming operation in
Cambodia.
The Company has an agreement with Allsports Limited, a British Virgin
Islands company to operate, administer, and manage the lottery digit
games activities in Cambodia, as an extension of the Company's
entertainment operations. On March 20, 2009, the Company was notified
that the digit games were suspended by the Cambodia Government as part
of the suspension of all lotteries in Cambodia. It cannot be determined
at this time whether the suspension of the digit games is temporary or
permanent, though the Government of Cambodia is currently closing the
gaming business by the order of its Ministry of Economy and Finance.
23
The company had entered into an investment agreement on January 12,
2006, with Khoo Kim Leng, the beneficial owner of Dai Long Co., Ltd,
which holds a valid casino license and freehold land and intends to
develop and operate an integrated resort in the Kingdom of Cambodia.
The resort will feature a hotel, guest house, shopping arcade,
entertainment and amusement center and some gaming tables. As of
December 31, 2006, the company had invested $2,402,613 in relation to
this investment. The resort was completed and is in operation
subsequent to the balance sheet date.
M2B ENTERTAINMENT, INC.
M2B Entertainment, Inc. was incorporated on October 27, 2005. This
subsidiary will oversee the Company's Canadian market. As of June 30,
2008, this subsidiary is dormant.
M2B AUSTRALIA PTY LTD
M2B Australia Pty Ltd was incorporated on June 15, 2005. This
subsidiary handles and oversees the Company's business in Australia. As
of June 30, 2008 this subsidiary is dormant.
M2B WORLD TRAVEL SINGAPORE PTE. LTD.
M2B World Travel Singapore Pte Ltd was incorporated in the Republic of
Singapore on March 7, 2006. This subsidiary of M2B World Travel Limited
launches a global online travel platform which offers global e-travel
services.
The Company has completed the development of an online travel engine
and travel web applications for integration with suppliers of travel
information and travel services; and incorporating travel features with
current media operations under the M2B brand name.
M2B World Travel Limited signed a global agreement with Amadeus Global
Travel Distribution, SA, a Spanish corporation. Through the agreement,
the company will be able to offer direct access to the extensive range
of travel options available through the Amadeus network to viewers
around the world.
The company has entered into an agreement with Elleipsis, Inc to host
the travel site and the travel software platform in the US with effect
from June 30, 2008, The Company plans to have the travel service and
the site operational before the end of the year. The launch and
operations of the travel service is subject to funding considerations,
and there can be no guarantee that the service can be operational as
planned.
AMARU HOLDINGS LIMITED AND M2B WORLD HOLDINGS LIMITED
Amaru Holdings Limited and M2B World Holdings Limited are incorporated
in the British Virgin Islands on February 21, 2005 and June 15, 2006,
respectively. Amaru Holdings Limited focuses on content syndication and
distribution in areas other than Asia Pacific region. M2B World
Holdings Limited focuses on content syndication and distribution in
Asia Pacific region and is a subsidiary of M2B World Asia Pacific Pte.
Ltd.
24
TREMAX INTERNATIONAL LIMITED AND M2B WORLD TRAVEL LIMITED
Tremax International Limited and M2B World Travel Limited are both
incorporated in the British Virgin Islands on June 8, 2006 and May 3,
2005 respectively. Both companies are investment holdings companies.
On July 10, 2007, Tremax International Limited entered into a sale and
purchase agreement (the "Agreement") with Domaine Group Limited, a
British Virgin Islands corporation (the "Vendor"), for the acquisition
of CBBN Holdings Limited ("CBBN Holdings"). CBBN Holdings is a 80%
beneficial owner of Cosmactive Broadband Networks Co. Ltd ("CBN"),
which is a broadband service provider incorporated in Taiwan. The
purchase consideration is satisfied in full by the issuance of
5,333,333 of common stock of the Company.
On January 22, 2009, the Company approved the termination and recission
of the Agreement, because the seller failed to comply with the terms of
the Agreement and did not deliver to the Company or Purchaser the
consideration for the issuance of the Amaru Shares. The Company further
approved the cancellation of the Amaru Shares.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
In the preparation of the financial statements, the Company adopted the
following critical accounting policies.
INTANGIBLE ASSETS
Intangible assets consist of film library, gaming and software license
and product development costs. Intangible assets which were purchased
and have indefinite lives are stated at cost less impairment losses.
Intangible assets which were purchased for
a specific period are stated at cost less accumulated amortization and
impairment losses. Such intangible assets are amortized over the period
of the contract, which is two to 18 years.
REVENUE
Subscription and related services revenues are recognized over the
period that services are provided. Advertising and sponsorship revenues
are recognized as the services are performed or when the goods are
delivered. Licensing and content syndication revenue is recognized when
the license period begins, and the contents are available for
exploitation by customer, pursuant to the terms of the license
agreement. Gaming revenue is recognized as earned net of winnings.
E-commerce commissions are recognized as received. Broadband consulting
services and on-line turnkey solutions revenue are recognized as
earned.
The Company has adopted accounting pronouncements issued before
December 31, 2007, that are applicable to the Company.
25
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2006, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an
Interpretation of FASB Statement No. 109, Accounting for Income Taxes
("FIN 48"), to create a single model to address accounting for
uncertainty in tax positions. FIN 48 clarifies the accounting for
income taxes by prescribing a minimum recognition threshold a tax
position is required to meet before being recognized in the financial
statements. FIN 48 also provides guidance on derecognition,
measurement, classification, interest and penalties, accounting in
interim periods, disclosure and transition. FIN 48 is effective for
fiscal years beginning after December 15, 2006. The Company adopted FIN
48 on January 1, 2007. The adoption of FIN 48 did not have an impact on
the Company's opening retained earnings.
In September 2006, the FASB issued Statement of Financial Accounting
Standard ("SFAS") No. 157, "Fair Value Measurements" ("SFAS No. 157").
SFAS No. 157 clarifies the principle that fair value should be based on
the assumptions market participants would use when pricing an asset or
liability and establishes a fair value hierarchy that prioritizes the
information used to develop those assumptions.
Under the standard, fair value measurements would be separately
disclosed by level within the fair value hierarchy. In February 2008,
the FASB issued two Staff Positions that amend SFAS No. 157. The first
FASB Staff Position (FSP), No. FAS 157-1, excludes from the scope of
SFAS No. 157 accounting pronouncements that address fair value
measurements for purposes of lease classification and measurement. The
second FSP, No. FAS 157-2, delays the effective date of SFAS No. 157
for nonfinancial assets and nonfinancial liabilities, except for items
that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually). SFAS 157 is
effective for the Company on January 1, 2008, except for nonfinancial
assets and nonfinancial liabilities that are not recognized or
disclosed at fair value on a recurring basis for which its effective
date is January 1, 2009. The adoption of this statement did not have a
material impact on its Consolidated Financial Statements.
In December 2007, the FASB issued Statement of Financial Accounting
Standards No. 141 (revised 2007), Business Combinations ("SFAS 141R").
SFAS 141R established principles and requirements for how an acquiring
company recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, any
noncontrolling interest if the acquired company and the goodwill
acquired. SFAS 141R also established disclosure requirements to enable
the evaluation of the nature and financial effects of the business
combination. SFAS 141R is effective for fiscal periods beginning after
December 15, 2008. The Company is currently evaluating the impact that
SFAS 141R will have on its financial position and results of
operations.
In December 2007, the FASB issued Statement of Financial Accounting
Standards No. 160, Noncontrolling Interests in Consolidated Financial
Statements-an amendment of Accounting Research Bulletin No. 51 ("SFAS
.160"). SFAS 160 establishes accounting and reporting standards of
ownership interests in subsidiaries held by parties other than the
parent, the amount of consolidated net income attributable to the
parent and to the noncontrolling interest, changes in a parent's
ownership interest and the valuation of retained noncontrolling equity
investments when a subsidiary is deconsolidated. SFAS 160 also
establishes disclosure requirements that clearly identify and
distinguish between the interests of the parent and the interests of
the noncontrolling owners. SFAS 160 is effective for fiscal periods
beginning after December 15, 2008. The Company is currently evaluating
the impact that SFAS 160 will have on its financial position and
results of operations.
In March 2008, the FASB issued SFAS No. 161, "Disclosures about
Derivative Instruments and Hedging Activities -- an amendment of FASB
Statement No. 133". This statement amends SFAS No. 133 by requiring
enhanced disclosures about an entity's derivative instruments and
hedging activities, but does not change SFAS No. 133's scope or
accounting. SFAS No. 161 requires increased qualitative, quantitative
and credit-risk disclosures about the entity's derivative instruments
and hedging activities. SFAS 161 is effective for fiscal years, and
interim periods within those fiscal years, beginning after November 15,
2008, with earlier adoption permitted. The Company is currently
evaluating the impact that SFAS 161 will have on its financial position
and results of operations.
26
RESULTS OF OPERATIONS
For the fiscal year ended December 31, 2008 compared with the fiscal
year ended December 31, 2007 and December 2006.
FINANCIAL STATEMENT
- Revenue for the year ended December 31, 2008 was $203,066 compared
with $37,053,269 in 2007 and $32,573,275 in 2006 for the same period.
- Loss from operations was $14,439,679 in 2008 compared with income of
$5,659,871 in 2007 and income of $1,544,082 in 2006.
- Net loss was $17,229,866 in 2008 compared with income of $5,088,792
in 2007 and income of $1,250,259 in 2006.
- The Company's cash balance was $1,484,945 at December 31, 2008
compared with $2,322,541 at December 31 2007 and $2,294,984 at
December 31, 2006.
Revenue
The following table sets forth a year-over-year comparison of the key
components of the Company's revenues :
YEAR ENDED DECEMBER 31 VARIANCE VARIANCE
2008 VS. 2007 2007 VS. 2006
2008 2007 2006 $ % $ %
---- ---- ---- - - - -
ENTERTAINMENT $ 203,066 $14,568,379 8,053,146 $(14,365,313) (99%) 6,515,233 81%
DIGIT GAMES $ -- $22,451,970 24,505,465 $(22,451,970) (100%) (2,053,495) (8%)
OTHER -- $32,920 14,664 $(32,920) (100%) 18,256 124%
TOTAL REVENUES $ 203,066 $37,053,269 32,573,275 $(36,850,203) (99%) 4,479,994 14%
Digit gaming revenue for the year ended December 31, 2008 at NIL was
lower than $22,451,970 at December 31, 2007 by $22,451,970 (100%). This
was mainly due to the suspension of the lottery operations by the
Cambodian Government which resulted in all revenues in the year 2008 to
be reversed since such revenues did not meet the criteria for
recognizing the revenues.
Entertainment revenue for the year ended December 31, 2008 at $203,066
was lower than entertainment revenue of $14,568,379 for year ended
December 31, 2007 by $14,365,313 (99%).
For the year ended December 31, 2007, the entertainment revenue was
attributed to the completion and delivery of the IPTV platform in
Indonesia. The completion and delivery of the IPTV platform comprised
of the hardware, software and middleware, and supply and programming of
content. Since the IPTV platform was sold, the Company did not derive
nor earn any further revenues from that source. The Management has
entered into a Joint Venture agreement as of December 15, 2008 with the
buyer for the IPTV business in Indonesia.
27
For the year ended December 31, 2008, the Company was involved in the
redevelopment of WOWtv, the Company's broadband entertainment web TV
service. The redevelopment was done to incorporate a new social
networking service, and a user generated content service. These new
services, combined with the video streaming services on WOWtv, were
needed to upgrade the site to attract and sustain higher viewership.
This in turn would provide the Company with a bigger potential for
attracting advertising and syndication revenues to WOWtv. The new WOWtv
was initially launched in July, 2008, with full operation expected by
year end.
The Company's current site was designed with a heavy bias to
subscription and pay per view services. The current design was not
optimised for free content supported by advertising revenues. The
viewership also needed to be expanded in terms of unique visitors, page
views and hits to attract advertising. The Company focused its efforts
on redeveloping WOWtv to overcome these setbacks, and to provide it
with a better potential in the future to attract advertisers.
The Company felt that it would be a sound business strategy to launch
the newly designed WOWtv first, and then to focus on obtaining
advertising revenues in the next six months of the year. The Company
was not able to secure any new advertising or content syndication
contracts for its broadband entertainment service for the year ended
December 31, 2008.
Revenue for the year ended December 31, 2007 increased by $4,479,994
(13.75%), from $32,573,275 for the year ended December 31, 2006 to
$37,053,269 for the year ended December 31, 2007.
This increase in revenue for the year ended December 31, 2007 was
mainly contributed by the entertainment segment which included the
completion and delivery of the IPTV platform in Indonesia. This
resulted in a revenue of $14.5 million in the twelve months ended
December 31, 2007. The completion and delivery of the IPTV platform in
Indonesia comprised of the hardware, software and middleware, and
supply and programming of content.
The digit games in Cambodia incurred a decrease in revenue of
$2,053,495 (a drop of 8.38%) for the year ended December 31, 2007 from
$24,505,465 in December 31, 2006 to $22,451,970 in December 31, 2007,
mainly due to more holidays and increased competition from new digit
games players in the market in the year 2007 as compared in the year
2006.
COST OF SERVICES
The following table sets forth a year-over-year comparison of the Company's cost of services :
YEAR ENDED DECEMBER 31 VARIANCE VARIANCE
2008 VS. 2007 2007 VS. 2006
2008 2007 2006 $ % $ %
---- ---- ---- - - - -
COST OF SERVICES $869,781 $23,349,404 $24,302,425 $(22,479,623) (96%) $(953,021) (4%)
Cost of services for the year ended December 31, 2008 was $869,781 which
decreased by $22,479,623(96%) from $23,349,404 for the year ended December 31,
2007.
The decrease in the cost of services of $22,479,623 (96%) for year ended
December 31, 2008 was attributed to the reversal of the cost in managing and
operating the digit games, resulting from the reversal of the digit games
revenue.
As a proportion of revenue, the cost of services for the year ended 2008 was
428% (cost of services at $869,781 and revenue of $203,066 as compared to 63%
(cost of services at $23,349,404 and revenue of $37,053,269) for the year ended
December 31, 2007. This was due to a write off of $457,500 attributed to the
inventory of set top boxes held by the company.
28
Cost of services for the year ended December 31, 2007 was $23,349,404
which decreased by $953,021 (3.92%) from $24,302,425 for the year ended
December 31, 2006.
Decrease in cost of services of $953,021 for the year ended December
31, 2007 was mainly attributed to the delivery of the IPTV platform in
Indonesia, which included the hardware, software and middleware, and
supply and programming of content, and the launch of the new web TV
service (called WOWtv) in Singapore.
As a proportion of revenue, the cost of services for the year ended
December 31, 2007 was 63.01% as compared to 74.61% for the year ended
December 31, 2006. This was due to an increase in the entertainment
segment revenue resulting from the delivery of the IPTV platform
in Indonesia.
DISTRIBUTION EXPENSES
The following table sets forth a year-over-year comparison of the
Company's distribution expenses :
YEAR ENDED DECEMBER 31 VARIANCE VARIANCE
2008 VS. 2007 2007 VS. 2006
2008 2007 2006 $ % $ %
---- ---- ---- - - - -
TOTAL $1,205,418 $891,484 $1,446,990 $313,934 35% $(555,506) (38%)
DISTRIBUTION
EXPENSES
Distribution expenses for the year ended December 31, 2008 at
$1,205,418 were higher by $313,934 (35%) as compared to the amount of
$891,484 incurred for the year ended December 31, 2007.
The higher distribution expenses were attributed to the write off of
digit games working capital amounting to $861,186 for 2008, offset by
decreased spending of marketing and promotions which decreased by
$463,592 (85%), from $543,752 for the year ended December 31, 2007 to
$80,160 for the year ended December 31, 2008.
Distribution expenses for the year ended December 31, 2007 at $891,484
were lower by $555,506 (38.39%) as compared to the amount of $1,446,990
incurred for the year ended December 31, 2006.
The lower distribution expenses were attributed to decreased spending
for marketing and promotions which decreased by $528,258 (49.28%), from
$1,072,010 for the year ended December 31, 2006 to $543,752 for the
year ended December 31, 2007.
29
GENERAL AND ADMINISTRATIVE EXPENSES
The following table sets forth a year-over-year comparison of the
Company's general and administrative expenses :
YEAR ENDED DECEMBER 31 VARIANCE VARIANCE
2008 VS. 2007 2007 VS. 2006
2008 2007 2006 $ % $ %
---- ---- ---- - - - -
TOTAL GENERAL AND $3,876,263 $7,152,510 $5,279,778 $(3,276,247) (46%) $1,872,732 35%
ADMINISTRATIVE
EXPENSES
Administration expenses for the year ended December 31, 2008 at
$3,876,263 were lower by $3,276,247 (46%) as compared to the amount of
$7,152,510 incurred for the year ended December 31, 2007.
The decrease in administrative expenses for the year ended December 31,
2008 was attributed mainly to the decrease in:
o Amortization. License amortization had decreased by $2,172,190
(66%), from $3,305,000 for the year ended December 31, 2007 to
$1,132,810 for the year ended December 31, 2008. The decrease
was mainly due to most of the intangible assets being fully
depreciated by end of December 31, 2007.
o Staff costs. Staff costs had decreased by $662,845 (45%), from
$1,475,778 for the year ended December 31, 2007 to $812,933
for the year ended December 31, 2008. The decrease was mainly
due as a result of cost reduction measures to reduce operating
costs.
Administration expenses for the year ended December 31, 2007 at
$7,152,510 were higher by $1,872,732 (35.47%) as compared to the amount
of $5,279,778 incurred for the year ended December 31, 2006.
The increase in administrative expenses for the year ended December 31,
2007 was attributed mainly to increase in license amortization.
License amortization had increased by $2,171,816 (191.66%), from
$1,133,184 for the year ended December 31, 2006 to $3,305,000 for the
year ended December 31, 2007. The increase was mainly attributed to the
increase in license amortization of the movies content which have a
definite life and which were acquired for the newly launched M2Btv and
WOWtv services.
IMPAIRMENT LOSS ON INTANGIBLE ASSET
For the year ended December 31, 2008, there was an impairment loss on
intangible asset of $3,762,777. No impairment losses on intangible
asset was recorded for the year ended December 31, 2007 and the year
ended December 31, 2006.
The impairment loss of $3,762,777 for the year ended December 31, 2008
was due to the impairment on the digit games lottery license, resulting
from the suspension of the lottery operations by the Cambodia
Government. This also resulted in all digit games revenues in the year
2008 being reversed since such revenues did not meet the criteria for
recording the revenues.
IMPAIRMENT LOSS ON ASSOCIATE
For the year ended December 31, 2008, there was an impairment loss on
associate of $4,928,506. No impairment losses on associate was recorded
for the year ended December 31, 2007 and the year ended December 31,
2006.
The impairment loss of $4,928,506 for the year ended December 31, 2008
was due to the Company's Equity Method Investment of 30.1% ownership
interest in 121 View Corporation (SEA) Ltd being impaired as a result
of the associate's inability to generate any reasonable revenues or
profit to sustain its operations for the year ended December 31, 2008.
30
(LOSS) INCOME FROM OPERATIONS
The following table sets forth a year-over-year comparison of the
Company's income from operations:
Year Ended December 31
2008 2007 2006
---- ---- ----
(LOSS) INCOME FROM OPERATIONS $(14,439,679) $5,659,871 $1,544,082
The Company incurred a loss from operations of $14,439,679 for the year
ended December 31, 2008 as compared to the income from operations of
$5,659,871 for the year ended December 31, 2007. This was due to the
significant decrease in the entertainment and digit games revenues,
impairment loss in the fair value of an associate of $4,928,506 and
impairment loss on the digit game license of $3,762,777 for the year
ended December 31, 2008.
The Company reported an income from operations of $5,659,871 for the
year ended December 31, 2007 as compared to the income from operations
of $1,544,082 for the year ended December 31, 2006. The significant
increase in the income from operations for the year ended December 31,
2007 was due to the significant increase in the entertainment segment
revenue for the year.
NET INCOME ( LOSS )
The following table sets forth a year-over-year comparison of the
Company's net income :
Year Ended December 31
2008 2007 2006
---- ---- ----
Net income ( Loss ) $(17,229,866) $5,088,792 $1,250,529
Net loss for the year ended December 31, 2008, was $17,229,866 which
decreased by $22,318,658 (439%) from net income of $5,088,792 for the
year ended December 31, 2007.
The significant decrease in net income for the year ended December 31,
2008 was mainly attributed to the following :
o a loss from operations of $14,439,679 due to decrease in the
entertainment and digit games revenues, impairment loss in the
fair value of an associate of $4,928,506 and impairment loss
on the digit game license of $3,762,777 for the year ended
December 31, 2008.
o Non operational losses totaling $3,748,240 in the year ended
December 31, 2008 comprising mainly of loss on sale of
investment securities of $750,421, and impairment loss in the
fair value of investments (equity securities) held for trading
amounting to $2,744,380, offset by the net loss of $486,893 as
of December 31, 2007 in the same investment.
o The tax benefit of $958,050 for income taxes to offset loss
from operations and non operational lossses.
The decrease was also partly attributed to the net gain of $2,483,871
as of March 31, 2007 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
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%.
31
For the year ended December 31, 2007, net income was $5,088,792 which
increased by $3,838,263 (307%) from $1,250,529 for the year ended
December 31, 2006.
The significant increase in net income for the year ended December 31,
2007 was mainly attributed to the increase in the entertainment segment
revenue. The increase was partly attributed to the gain on dilution of
the Company's interest in a subsidiary, M2B World Asia Pacific Pte.
Ltd. by issuing shares to the private investors at a premium. The
increase in net income was partly offset by the write off of an
intangible asset, and by the loss of the fair value of an investment
(equity securities) held for trading, due to a drop in the market value
of the shares.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash of $1,484,945 at December 31, 2008 as compared to
cash of $2,322,541 at December 31, 2007.
The Company does not finance its operations through short-term bank
credit nor long-term bank loans as it believes that cash generated from
its operations will be able to cover its daily running cost and
overheads.
During the year ended December 31, 2008, the Company had not entered
into any transactions using derivative financial instruments or
derivative commodity instruments. Accordingly the Company believes its
exposure to market interest rate risk is not material.
Cash generated from operations will not be able to cover the Company's
intended growth and expansion. The Company has plans in 2007 to expand
its broadband coverage by launching new broadband sites in Asia Pacific
region and Australia. No assurances can be made that such plans will be
carried out in a timely manner.
The Company intends to raise additional funds, to fund its business
expansion; however no assurances can be made that the Company will
raise sufficient funds as planned.
NEW CONTRACTS
o On July 8, 2008, M2B World Asia Pacific Pte Ltd signed a two
year convertible loan agreement with a third party to raise
$2,500,000 in funding. The loan allows the borrower to convert
the loan into shares of the Company at the issue price of
$0.942 per share at the end of the two years period. The loan
bears an interest rate of 5.0% per annum, and will mature in
June 2010.
o On October 3, 2008, M2B World Asia Pacific Pte Ltd signed an
agreement with a Malaysia Company to launch an IPTV service
using the Company's set top box and system, on a trial basis
in a major hotel in Kuala Lumpur, the capital city of
Malaysia.
o On December 15, 2008, M2B World Holdings Limited, a subsidiary
of M2B World Asia Pacific Pte Ltd, entered into an agreement
with PT Agis TBK, a company in Indonesia, to set up a Joint
Venture Company to launch the full WOWtv service and content
in Indonesia. The agreement would give M2B World Holdings
Limited a 49 percent equity stake in the Joint Venture
Company, which is called PT WOW Television. The extended
relationship and joint venture with PT Agis TBK in Indonesia
is expected to expand the WOWtv branding and viewership, and
provide potentially new revenue sources in Indonesia.
32
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary objective of our investment activities is to preserve
principal while concurrently maximizing the income we receive from our
investments without significantly increasing risk. Some of the
securities that we may invest in may be subject to market risk. This
means that a change in prevailing interest rates may cause the
principal amount of the investment to fluctuate. For example, if we
hold a security that was issued with a fixed interest rate at the
then-prevailing rate and the prevailing interest rate later rises, the
current value of the principal amount of our investment will decline.
To minimize this risk in the future, we intend to maintain our
portfolio of cash equivalents and short-term investments in a variety
of securities, including commercial paper, money market funds,
high-grade corporate bonds, government and non- government debt
securities and certificates of deposit. In general, money market funds
are not subject to market risk because the interest paid on such funds
fluctuates with the prevailing interest rate. The Company held
$3,198,369 and $10,237,958 in marketable securities as of December 31,
2008 and December 31, 2007 respectively.
The Company does not believe that it faces material market risk with
respect to its cash and cash equivalents which totaled $1,484,945 and
$2,322,541 at December 31, 2008 and 2007, respectively.
The Company has no long-term obligations or hedging activities.
ABILITY TO EXPAND CUSTOMER BASE
The Company's future operating results depend on our ability to expand
our customer base for broadband services and e-commerce portals. An
increase in total revenue depends on our ability to increase the number
of broadband and e-commerce portals, in the US, Europe and Asia. The
degree of success of this depends on:
o our efforts to establish independent broadband sites in
countries where conditions are suitable.
o our ability to expand our offerings of content in
entertainment to include more niche channels and offerings.
o our ability to provide content beyond just personal computers
but to encompass television, wireless application devices and
3G hand phones.
ABILITY TO ACQUIRE NEW MEDIA CONTENTS
The continued ability of the Company to acquire rights to new media
contents, at competitive rates, is crucial to grow and sustain the
Company's business.
AVAILABILITY OF TECHNOLOGICALLY RELIABLE NEW GENERATION OF BROADBAND
DEVICES
The growth of demand for broadband services is dependent on the wide
availability of technologically reliable new generation of broadband
devices, at affordable prices to prospective customers of broadband
services. The early and widespread availability and market adoption of
new generation broadband devices, will significantly impact demand for
broadband services and the growth of the Company's business.
33
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.
LAW AND REGULATIONS GOVERNING INTERNET
Increased regulation of the Internet or differing application of
existing laws might slow the growth of the use of the Internet and
online services, which could decrease demand for our services. The
added complexity of the law may lead to higher compliance costs
resulting in higher costs of doing business.
UNAUTHORIZED USE OF PROPRIETARY RIGHTS
Our copyrights, patents, trademarks, including our rights to certain
domain names are very important to M2B and WOWtv's brand and success.
While we make every effort to protect and stop unauthorized use of our
proprietary rights, it may still be possible for third parties to
obtain and use the intellectual property without authorization. The
validity, enforceability and scope of protection of intellectual
property in Internet-related industries remain uncertain and still
evolving. Litigation may be necessary in future to enforce these
intellectual property rights. This will result in substantial costs and
diversion of the Company's resources and could disrupt its business, as
well as have a material adverse effect on its business.
34
LAW AND REGULATIONS GOVERNING BUSINESS
As the Company continues to expand its business internationally across
different geographical locations there are risks inherent including:
1) Trade barriers and changes in trade regulations
2) Local labor laws and regulations
3) Currency exchange rate fluctuations
4) Political, social or economic unrest
5) Potential adverse tax regulation
6) Changes in governmental regulations
OUTBREAK OF BIRD FLU PANDEMIC OR SIMILAR ADVERSE PUBLIC HEALTH
DEVELOPMENTS
Any future outbreak of the bird flu pandemic or similar adverse public
health developments may have a material adverse effect on the Company's
business operations, financial condition and results of operations.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Financial Statements and Notes thereto commencing on Page F-1.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE
--------------------
Report of Independent Registered Public Accounting Firm F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Income F-3
Consolidated Statements of Stockholders' Equity and Comprehensive
Income F-4 - F-6
Consolidated Statements of Cash Flows F-7 - F-8
Notes to Consolidated Financial Statements F-9 - F-26
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On July 21, 2008, the Board of Directors of the Company determined that
it was in the best interest of the Registrant to change its auditors,
Nexia Court & Co., to Mendoza Berger & Company, LLP. Nexia Court & Co.
elected not to stand for reappointment as the Registrant's Auditors.
The Board of Directors of the Company accepted Nexia Court's decision
as of the date hereof and appointed Mendoza Berger & Co., LLP. as its
new certified accountants and auditors.
During the Company's fiscal years 2006-2007, and during the interim
period from January 1, 2008 through the date March 31, 2008, there have
been no past disagreements between the Company and Nexia Court & Co.,
on any matter of accounting principles or practices, financial
statement disclosure or auditing, scope or procedure.
The audit reports provided by the Company's auditors, Nexia Court & Co.
for the fiscal years ended December 31, 2006 and 2007 did not contain
any adverse opinion or disclaimer of opinion nor was any report
modified as to uncertainty, audit scope or accounting principles.
The Board of Directors approved the appointment of Mendoza Berger &
Company, LLP. of Irvine, California as its new auditors on July 21,
2008. During the two most recent fiscal years and through the date
hereof, neither the Company nor any one on behalf of the Company has
consulted with Mendoza Berger & Company, LLP., regarding the
application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be
rendered on the Company's financial statements, or any other matters or
reportable events required to be disclosed under Items 304(a)(2)(i)and
(ii) of Regulation S-K.
35
ITEM 9A : CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
A system of disclosure controls and procedures (as defined in Rule
13a-15(e) and 15d-15(e)) under the Securities Exchange Act of 1934, as
amended [the "Exchange Act"]) are controls and other procedures that
are designed to provide reasonable assurance that the information that
the Company is required to disclose in the reports that it files or
submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and
forms, and that such information is accumulated and communicated to the
Company's management, including the Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding
required disclosure. There are inherent limitations to the
effectiveness of any system of disclosure controls and procedures,
including the possibility of human error and the circumvention or
overriding of the controls and procedures. Accordingly, even effective
disclosure controls and procedures can only provide reasonable
assurance of achieving their control objectives, and management
necessarily is required to use its judgment in evaluating the
cost-benefit relationship of possible controls and procedures. In
addition, the design of any system of controls is based in part upon
certain assumptions about the likelihood of future events, and there
can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions. Moreover, over
time, controls may become inadequate because of changes in conditions,
or the degree of compliance with policies or procedures may
deteriorate. Because of the inherent limitations in a control system,
misstatements due to error or fraud may occur and not be detected.
Notwithstanding the issues described below, the current management has
concluded that the consolidated financial statements for the periods
covered by and included in the Annual Report on Form 10-K for the
period ended December 31, 2008 are fairly stated in all material
respects in accordance with generally accepted accounting principles in
the United States for each of the periods presented herein.
36
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company's management is responsible for establishing and
maintaining adequate internal control over the Company's financial
reporting, as such term is defined in Exchange Act Rule 13a-15(f).
Internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with United States of America generally accepted
accounting principles. A Company's internal control over financial
reporting includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles and that
receipts and expenditures of the Company are being made only in
accordance with authorization of management and directors of the
Company and (iii) provide reasonable assurance regarding the prevention
or timely detection of unauthorized acquisition, use or disposition of
the Company's assets that could have a material effect on our
consolidated financial statements.
In connection with the preparation of this Annual Report on Form 10K,
under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, we
have assessed the effectiveness of the design and operation of our
disclosure controls and procedures as of December 31, 2008. Due to the
inherent issue of segregation of duties in a small company, we have
relied heavily on entity or management review controls to lessen the
issue of segregation of duties.
Based on this assessment and those criteria, our Management has
concluded as a result that its disclosure controls and procedures may
not be effective at the reasonable assurance level as of December 31,
2008. Specifically, its control environment possibly may not
sufficiently promote effective internal control over financial
reporting through the management structure to prevent a material
misstatement.
Subsequent to December 31, 2008, the Company plans to hire a Chief
Financial Officer and is utilizing several full time accounting
contractors serving in senior and staff level accounting positions. The
Company is actively recruiting high-level competent accounting
personnel.
Due to the current size of the Company it does not intend to add more
independent board members or audit committee members at this time. This
deficiency will be addressed if the Company shows substantial growth
moving forward.
The Company needs to complete implementing in 2009 the internal
controls based on the criteria established in INTERNAL CONTROL -
INTEGRATED FRAMEWORK issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), pursuant to the
timetable set up by the SEC for non-accelerated filers and smaller
reporting company filers. The management is fully committed to
implement the internal controls based on these criteria in 2009 and the
management believes that it is taking the steps that will properly
address any issue.
While we are taking immediate steps and dedicating substantial
resources to implement the internal controls, they will not be
considered fully implemented until the new and improved internal
controls operate for a period of time, are tested and are found to be
operating effectively.
The Company's predecessor registered public accountant had not
conducted an audit of the Company's controls and procedures regarding
internal control over financial reporting during the reporting period
when the Company was an accelerated filer. Consequently, the registered
public accounting firm expressed no opinion with regards to the
effectiveness or implementation of the Company's controls and
procedures with regards to internal control over financial reporting
during that period of time. The Company's current registered public
accountant has not conducted an audit of the Company's controls and
procedures regarding internal control over financial reporting at this
time.
37
Our Chief Executive Officer and Chief Financial Officer (our principal
executive officer and principal financial officer, respectively) has
concluded, based on their evaluation as of December, 2008, that the
design and operation of our "disclosure controls and procedures" (as
defined in Rule 13a-15(e) and 15d-15(e)) under the Securities Exchange
Act of 1934, as amended ("Exchange Act")) are effective to ensure that
information required to be disclosed by us in the reports filed or
submitted by us under the Exchange Act is accumulated, recorded,
processed, summarized and reported to our management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate to
allow timely decisions regarding whether or not disclosure is required.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the year ended December 31,2008, there have been no changes in
the Company's internal control over financial reporting during the most
recently completed fiscal quarter that have materially affected, or are
reasonably likely to materially affect, the Company's internal control
over financial reporting.
ITEM 9B: OTHER INFORMATION
None.
PART III
ITEM 10: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Our directors, executive officers and key employees as of February 27,
2009 were as follows:
Name Age Position
-------- ------- -----------
Sakae Torisawa 63 Chairman of the Board of Directors
Zee Moey Ngiam 53 Director
Colin St.Gerard Binny 54 Chief Executive Officer, President,
Interim Acting Chief Financial
Officer and Director
SAKAE TORISAWA
Mr. Torisawa has served as a director of the Company since January
2007, and as the Chairman of the Company's Board of Directors since
March 5, 2007. Mr. Torisawa graduated from the Journalism Course of Law
Department at Nippon University, Japan. In 1973, Mr. Torisawa joined
Hockmetals Group in Tokyo, which is a worldwide trading and mining
firm. He worked as a trader for non-ferrous metals and raw materials,
especially copper, zinc, lead, tungsten, and antimony. In 1976,
Hockmetals closed its Tokyo office, and he joined Union Carbide, USA as
a representative in Tokyo office for the Metal Division. In 1977, Mr.
Torisawa joined Glencore Far East Ag in Switzerland, an international
trading and industrial firm, specializing in oil, coal, metals and
minerals. He served as a partner in charge of Tokyo office. He
continued in trading copper, zinc and lead metals and raw materials.
Due to nature of business, he was involved in mining and smelting green
field projects. Presently Mr. Torisawa works for C & P Asia Pte Ltd,
Singapore as a Senior Advisor.
38
ZEE MOEY NGIAM
Mr. Ngiam has served as a director of the Company since March 5, 2007.
He is a Fellow Member of the Institute of Certified Public Accountants
of Singapore; he is a Member of Marketing Institute of Singapore, and a
Fellow of Association of Chartered Certified Accountants UK. From 1987
- March, 2005 he has been Group Financial Controller for Lauw & Sons
Group of Companies. He was responsible for all financial matters of the
Group's Singapore operation, development and implementation of
marketing programs of the Group's Properties and identification and
development of investment opportunities. He also reviewed quarterly
financial and Management reports of overseas Companies in USA, Taiwan
and Australia. From 2004 until present, he has been Joint Company
Secretary for AEI Corporation Ltd.
COLIN BINNY
Mr. Binny has served as the Chairman of the Board, Chief Executive
Officer and Director since 2000. He held various senior management
positions with local and global companies over the last 25 years. He is
also the Chairman of B Media Pte Ltd (formerly known as M2B Media Pte
Ltd). From 1996 through 1999, Mr. Binny was the President and CEO of
UTV International (Singapore). Mr. Binny obtained his marine
engineering diploma from the Singapore Polytechnic in 1975.
As of February 27, 2009, the following directors and executive officers
have resigned from the Company:
Name Age Position Resignation Date
-------------------------- -------- ------------------------------------------- ------------------------------------
Francis Keong Kwong 48 Director and former Chief Financial Officer February 10, 2008
Foong
CORPORATE GOVERNANCE
BOARD OF DIRECTORS
BOARD MEMBERS WHO ARE DEEMED INDEPENDENT
Our board of directors has determined that with exception of Ngiam Zee
Moey, none of our directors are "independent" as that term is defined
by the National Association of Securities Dealers Automated Quotations
("NASDAQ"). See below the NASDAQ definition of "Independent Director."
Ngiam Zee Moey has been determined as an "independent" director. Under
the National Association of Securities Dealers Automated Quotations
definition, an "independent director means a person other than an
officer or employee of the Company or its subsidiaries or any other
individuals having a relationship that, in the opinion of the Company's
board of directors, would interfere with the exercise of independent
judgment in carrying out the responsibilities of the director. The
39
board's discretion in determining director independence is not
completely unfettered. Further, under the NASDAQ definition, an
independent director is a person who (1) is not currently (or whose
immediate family members are not currently), and has not been over the
past three years (or whose immediate family members have not been over
the past three years), employed by the company; (2) has not (or whose
immediate family members have not) been paid more than $60,000 during
the current or past three fiscal years; (3) has not (or whose
immediately family has not) been a partner in or controlling
shareholder or executive officer of an organization which the company
made, or from which the company received, payments in excess of the
greater of $200,000 or 5% of that organizations consolidated gross
revenues, in any of the most recent three fiscal years; (4) has not (or
whose immediate family members have not), over the past three years
been employed as an executive officer of a company in which an
executive officer of the Company has served on that company's
compensation committee; or (5) is not currently (or whose immediate
family members are not currently), and has not been over the past three
years (or whose immediate family members have not been over the past
three years) a partner of the Company's outside auditor.
Our board of directors has determined that Ngiam Zee Moey fulfilled the
definition of "Financial Expert". The term "Financial Expert" is
defined as a person who has the following attributes: an understanding
of generally accepted accounting principles and financial statements;
has the ability to assess the general application of such principles in
connection with the accounting for estimates, accruals and reserves;
experience preparing, auditing, analyzing or evaluating financial
statements that present a breadth and level of complexity of accounting
issues that are generally comparable to the breadth and complexity of
issues that can reasonably be expected to be raised by the company's
financial statements, or experience actively supervising one or more
persons engaged in such activities; an understanding of internal
controls and procedures for financial reporting; and an understanding
of audit committee functions.
COMMITTEES
The Board of Directors of the Company has established the following
committees on April 30, 2007:
o Audit Committee
The Audit Committee's responsibilities include:
o appointing, retaining, approving the compensation of and
assessing the independence of our independent registered
public accounting firm, including pre-approval of all services
performed by our independent registered public accounting
firm;
o overseeing the work of our independent registered public
accounting firm, including the receipt and consideration of
certain reports from the firm;
o reviewing and discussing with management and the independent
registered public accounting firm our annual and quarterly
consolidated financial statements and related disclosures;
o monitoring our internal control over financial reporting,
disclosure controls and procedures and code of business
conduct and ethics;
o establishing procedures for the receipt and retention of
accounting related complaints and concerns;
o meeting independently with our independent registered public
accounting firm and management; and
o preparing the audit committee report required by SEC rules.
The members of the Audit Committee are Ngiam Zee Moey, Colin Binny and
Francis Foong (resigned on February 10, 2008)
o Nominating and Governance Committee
40
The Nominating and Corporate Governance Committee's responsibilities
include:
o identifying individuals qualified to become directors;
o reviewing with the board the standards to be applied in making
determinations regarding independence of board members;
o reviewing and making recommendations to the board with respect
to size, composition and structure;
o developing and recommending to the board our code of business
conduct and ethics;
o developing and recommending to the board Corporate Governance
Guidelines;
o overseeing an annual evaluation of the board; and
o providing general advice to the board on corporate governance
matters.
The members of the Nominating and Corporate Governance Committee are
Sakae Torisawa, and Ngiam Zee Moey.
o Compensation Committee
The Compensation Committee's responsibilities include:
o annually reviewing and approving corporate goals and
objectives relevant to chief executive officer compensation
and the compensation structure for our officers;
o approving the chief executive officer's compensation;
o reviewing and approving, or making recommendations to the
board of directors with respect to, the compensation of our
other executive officers;
o overseeing and administering our equity incentive plans; and
o preparing the annual executive compensation report
The members of the Compensation Committee are Sakae Torisawa and Ngiam
Zee Moey.
CODE OF BUSINESS CONDUCT AND ETHICS
Our code of business conduct and ethics, as approved by our board of
directors, and it can be obtained from our Website, at www.amaruinc.com
We intend to satisfy the disclosure requirement relating to amendments
to or waivers from provisions of the code that relate to one or more of
the items set forth in Regulations S-K, by describing on our Internet
Website, within five business days following the date of a waiver or a
substantive amendment, the date of the waiver or amendment, the nature
of the amendment or waiver, and the name of the person to whom the
waiver was granted.
Information on our Internet website is not, and shall not be deemed to
be, a part of this report or incorporated into any other filings we
make with the Securities and Exchange Commission.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, or
the Exchange Act, requires our executive officers and directors, and
persons who beneficially own more than 10% of a registered class of our
common stock, to file initial reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission, or
the SEC. These officers, directors and stockholders are required by SEC
regulations to furnish us with copies of all such reports that they
file.
Based solely upon a review of copies of such reports furnished to us
during the fiscal year ended December 31, 2008 and thereafter, or any
written representations received by us from reporting persons that no
other reports were required, to the best of our knowledge, during our
fiscal 2008, all Section 16(a) filing requirements applicable to our
reporting persons were met.
41
ITEM 11: EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the annual and
long-term compensation for services rendered during the last three
fiscal years to our company in all capacities as an employee by our
Chief Executive Officer and our other executive officers whose
aggregate compensation exceeded $100,000 (collectively, the "named
executive officers") during fiscal year ended 2008 shown below.
Name and Principal Year Salary Bonus Stock Options Non-Equity Change in All Other Total
Position ($) ($) Awards Awards Incentive Pension Compensation ($)
($) ($) Plan Value and ($)
Compensation Non-qualitative
($) Deferred
Compensation
Earnings
($)
------------------------------------------------------------------------------------------------------------------------
Colin Binny, CEO 2008 -- -- -- - - - - -
2007 44,949 -- -- - - - 810 45,759
2006 110,065 83,725 -- - - - 142,828 336,618
2005 92,537 31,847 21,900 - - - 110,598 256,882
Francis Foong, former 2007 -- -- -- - - - - --
CFO(Resigned on August 2006 50,799 52,054 54,000 - - - 16,718 173,571
31, 2006) 2005 52,878 18,628 70,500 - - - 74,776 216,782
Bee Leng Ho, former 2007 26,093 -- -- - - - 81,482 107,575
CFO (Resigned on April 2006 45,908 24,411 40,500 - - - 5,713 116,532
2, 2007)
(1) Bonus awarded based on performance.
(2) No officers received or will receive any long term incentive plan
payouts or other payouts during financial years ended December 31,
2006, December 31, 2007 and December 2008.
(3) Subsequent to December 31, 2006, Francis Foong had voluntarily
returned to the Company an amount of $161,999 paid to him as
director's fees in relation to FY2005 and FY2006.
In December 2006, a total of 120,000 shares of common stock were
approved by the Board of Directors to be issued to Francis Foong, the
Company's former CFO for services rendered valued at $54,000 pursuant
to the Company's 2004 Equity Compensation Plan. In December 2006, a
total of 90,000 shares of common stock were approved by the Board of
Directors to be issued to Bee Leng Ho, the Company's then CFO for
services rendered valued at $40,500 pursuant to the Company's 2004
Equity Compensation Plan.
In December 2005, a total of 7,300 shares of common stock were issued
to Colin Binny, the Company's CEO for services rendered valued at
$21,900 pursuant to the Company's 2004 Equity Compensation Plan. In
December, 2005, a total of 4,700 shares of common stock were issued and
18,800 shares of common stock were approved by the Board of Directors
to be issued to Francis Foong, the Company's then CFO for services
rendered to the Company valued at $70,500 pursuant to the Company's
2004 Equity Compensation Plan.
42
As of December 31 2008, 9,745,040 million shares of common stock
remain unused in the Company's 2004 Equity Compensation Plan.
Outstanding Equity Awards at Fiscal Year-End Table
---------------------------------------------------------------------- ------------------------------------
Option Awards Stock Awards
------------- ------------- ---------- -------- --------- ------------ ------ ------- --------- ---------
Name Number Number Equity Option Option Number Market Equity Equity
of of Incentive Exercise Expiration of Value Incentive Incentive
Securities Securities Plan Price Date Shares of Plan Plan
Underlying Underlying Awards: ($) or Shares Awards: Awards:
Unexercised Unexercised Number Units or Number Market
Options Options of of Units of or
(#) (#) Securities Stock of Unearned Payout
Exercisable Unexercisabe Underlying That Stock Shares, Value
Unexercised Have That Units of
Unearned Not Have or Unearned
Options Vested Not Other Shares,
(#) (#) Vested Rights Units
($) That or
Have Other
Not Rights
Vested That
(#) Have
Not
Vested
($)
NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL
------------- ------------- ---------- -------- --------- ------------ ------ ------- --------- ---------
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth equity compensation plan information as
of December 31, 2008:
NUMBER OF SHARES WEIGHTED AVERAGE NUMBER OF
TO BE ISSUED EXERCISE PRICE SHARES REMAINING
UPON EXERCISE OF OF OUTSTANDING AVAILABLE FOR
PLAN CATEGORY OUTSTANDING OPTIONS OPTIONS FUTURE ISSUANCE
-------------- ------------------- ------------------ -----------------
2004 Equity compensation plans approved by NIL NIL 9,745,040
stockholders
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
There are no employment agreements with the Company's key employees at
this time.
DIRECTOR COMPENSATION
STOCK OPTIONS
Stock options and equity compensation awards to our non-employee /
non-executive director are at the discretion of the Board. To date, no
options or equity awards have been made to our non-employee /
non-executive director.
CASH COMPENSATION
Our non-employee / non-executive director is eligible to receive a fee
to be paid for attending each Board meeting; however, no fees were paid
in 2008.
TRAVEL EXPENSES
All directors shall be reimbursed for their reasonable out of pocket
expenses associated with attending the meeting.
43
DIRECTOR COMPENSATION
The following table shows the overall compensation earned for the 2008
fiscal year with respect to each non-employee and non-executive
director as of December 31, 2008.
DIRECTOR COMPENSATION
------------------------------------------------------------------------------------------
FEES
EARNED NON-EQUITY NONQUALIFIED
NAME AND OR PAID OPTION INCENTIVE PLAN DEFERRED ALL OTHER
PRINCIPAL IN CASH STOCK AWARDS COMPENSATION COMPENSATION COMPENSATION ($)
POSITION ($) AWARDS ($) (1) ($)(2) EARNINGS($) (3) TOTAL ($)
--------------------------- ------- ---------- ---------- ------------- ------------- ---------------- ---------
Sakae Torisawa, Director -- -- -- -- -- -- --
Zee Moey Ngiam, Director -- -- -- -- -- -- --
Colin Binny, Director -- -- -- -- -- -- --
-----------------------
(1) Reflects dollar amount expensed by the company during applicable
fiscal year for financial statement reporting purposes pursuant to
FAS 123R. FAS 123R requires the company to determine the overall
value of the options as of the date of grant based upon the
Black-Scholes method of valuation, and to then expense that value
over the service period over which the options become exercisable
(vest). As a general rule, for time-in-service-based options, the
company will immediately expense any option or portion thereof
which is vested upon grant, while expensing the balance on a pro
rata basis over the remaining vesting term of the option. For a
description FAS 123 R and the assumptions used in determining the
value of the options under the Black-Scholes model of valuation,
see the notes to the financial statements included with this Form
10-K.
(2) Excludes awards or earnings reported in preceding columns.
(3) Includes all other compensation not reported in the preceding
columns, including (i) perquisites and other personal benefits, or
property, unless the aggregate amount of such compensation is less
than $10,000; (ii) any "gross-ups" or other amounts reimbursed
during the fiscal year for the payment of taxes; (iii) discounts
from market price with respect to securities purchased from the
company except to the extent available generally to all security
holders or to all salaried employees; (iv) any amounts paid or
accrued in connection with any termination (including without
limitation through retirement, resignation, severance or
44
constructive termination, including change of responsibilities) or
change in control; (v) contributions to vested and unvested
defined contribution plans; (vi) any insurance premiums paid by,
or on behalf of, the company relating to life insurance for the
benefit of the director; (vii) any consulting fees earned, or paid
or payable; (viii) any annual costs of payments and promises of
payments pursuant to a director legacy program and similar
charitable awards program; and (ix) any dividends or other
earnings paid on stock or option awards that are not factored into
the grant date fair value required to be reported in a preceding
column.
LIMITATION OF LIABILITY OF DIRECTORS
The laws of the State of Nevada and the Company's By-laws provide for
indemnification of the Company's directors for liabilities and expenses
that they may incur in such capacities. In general, directors and
officers are indemnified with respect to actions taken in good faith in
a manner reasonably believed to be in, or not opposed to, the best
interests of the Company, and with respect to any criminal action or
proceeding, actions that the indemnitee had no reasonable cause to
believe were unlawful.
45
The Company has been advised that in the opinion of the Securities and
Exchange Commission, indemnification for liabilities arising under the
Securities Act is against public policy as expressed in the Securities
Act and is, therefore, unenforceable.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
GENERAL
As of March 20, 2009, a total of 159,431,861 shares of our common stock
were outstanding. The following table set forth information as of that
date regarding the beneficial ownership of our common stocks by:
o Each of our directors
o Each of our named executive officers
o All of our directors and executive officers as a group; and
o Each person known by us to beneficially own 5% or more of the
outstanding shares of our common stock as of the date of the
table
Name and Address Amount and Nature of Beneficial Percent of Class of
of Beneficial Owner Ownership of Common Stock Common Stock
-------------------------- -------------------------------- ----------------------
Colin St.Gerard Binny 22,111,888 (1) 13.87%
112 Middle Road #08-01 (Indirect)
Midland House
Singapore 188970
Sakae Torisawa 1,712,808 1.07%
112 Middle Road #08-01 (Direct)
Midland House
Singapore 188970
Zee Moey Ngiam 0 0.06%
112 Middle Road #08-01 (Direct)
Midland House
Singapore 188970
Francis Foong 0 0.00%
Former officer and director (Direct)
112 Middle Road #08-01
Midland House
Singapore 188970
All Directors and Officers 23,824,696 15%
As A Group (4 persons)
46
1) Except as otherwise indicated, the Company believes that the
beneficial owners of Common Stock listed below, based on
information furnished by such owners, have sole investment and
voting power with respect to such shares, subject to community
property laws where applicable. Beneficial ownership is determined
in accordance with the rules of the Securities and Exchange
Commission and generally includes voting or investment power with
respect to securities. Shares of Common Stock subject to options
or warrants currently exercisable, or exercisable within 60 days,
are deemed outstanding for purposes of computing the percentage of
the person holding such options or warrants, but are not deemed
outstanding for purposes of computing the percentage of any other
person.
2) Based on a total of 22,111,888 shares of common stock of Amaru,
Inc held by Mr. Binny and his wife, Chew Bee Lian, indirectly as
100% shareholders of B Media Pte Ltd (formerly known as M2B Media
Pte Ltd).
3) Information on former officers and directors who have resigned are
available in Item 10.
ITEM 13: CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS
o On January 15, 2007, Amaru Holdings Limited ("Amaru Holdings"), a
British Virgin Islands corporation and a wholly-owned subsidiary of
Amaru, Inc., a Nevada corporation (the "Company") entered into a sale
and purchase agreement together with other sellers (the "Agreement")
with Auston International Group, Ltd., a Singapore company ("Auston")
to sell to Auston its majority owned subsidiary, M2B World Asia Pacific
Pte Ltd., together with its subsidiary, M2B World Holdings Limited
(collectively, "M2B Asia"). Auston is a company trading on the
Singapore Stock Exchange. The Agreement provides for the sale of
42,459,978 shares of M2B Word Asia Pacific Pte Ltd, its total issued
and outstanding capital. As the consideration for M2B World Asia
Pacific Pte Ltd shares, Auston agreed to issue a total of 660 million
new ordinary shares of Auston to M2B World Asia Pacific Pte Ltd
shareholders. The Auston shares are valued at S$0.25 per share.
The Agreement is subject to certain conditions precedent, including,
but not limited to the shareholder approval of the transaction by
Auston shareholders, the approval of the Singapore Stock Exchange and
other related regulatory approvals of both parties.
Amaru Holdings is required to deliver a valuation report by an
independent auditor to Auston confirming that the value of the assets
of M2B Asia is no less than that of the amount of consideration to be
paid by Auston. Following the completion of the transaction, the
Company would hold more than 50% of the shares of Auston. The Company
believes that prior to entering into the Agreement, there were no
material relationships between or among M2B Asia, the Company or any of
its affiliates, officers or directors, or associates of any such
officers or directors, on the one hand, and the shareholders or their
respective affiliates, on the other. The Company, through one of its
subsidiaries owns 11.1% of Auston, and Auston has no ownership in the
Company. One of the Company's directors is also a director of Auston,
however, said director did not vote on the approval of the transaction.
The Agreement expired by its terms as of December 31, 2007. On February
19, 2008, the Company decided that it is in the best interest of the
Company not to extend the Agreement and intends to list the securities
of M2B World Asia Pacific Pte Ltd on the Singapore Stock Exchange.
o On September 1, 2006, M2B World Asia Pacific Pte. Ltd entered into a
licensing agreement with its investee, 121 View Corporation (Sea) Ltd
(121 View). The company licensed $3 million worth of film library to
121 View. On December 20, 2006, the company licensed additional $1.7
million worth of film library to 121 View.
47
ITEM 14: PRINCIPAL ACCOUNTING FEES AND SERVICES
AUDIT FEES
The following table presents fees for professional audit services
rendered by our auditors for the year ended December 31, 2008 and
December 31, 2007.
2008 2007
------------- --------------
Audit fees (1) $ 139,491 $ 281,431
-- --
------------- --------------
Total $ 139,491 $ 281,431
============= ==============
(1) Audit Fees: These are fees paid and payable for professional
services performed for the financial year ended December 31,
2008 by Nexia Court & Co.,Nexia Tan & Sitoh, Horwath First
Trust and Mendoza, Berger & Co. LLP.
In 2007, these fees were paid and payable for professional
services performed by Nexia Court & Co., Nexia Tan & Sitoh and
Horwath First Trust. These are fees paid or payable For the
audit of the annual financial statements and review of
financial statements included in our 10-QSB filings, and
services that are normally provided in connection with
statutory and regulatory filings.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
For the fiscal years ended December 31, 2008 and 2007, there were $-0-
in fees billed for professional services by the Company's independent
auditors rendered in connection with, directly or indirectly, operating
or supervising the operation of its information system or managing its
local area network.
ALL OTHER FEES
For the fiscal years ended December 31, 2008 and 2007, there were no
fees paid or billed for preparation of corporate tax returns, tax
research and other professional services rendered by the Company's
independent auditors.
48
ITEM 15: EXHIBITS
The following exhibits are included herein or incorporated by
reference:
Exhibit Number Description
---------------------- ------------------------------------------------------------------------------------------------
2.1 Agreement and Plan of Reorganization with M2B World Pte. Ltd..**
3.1 Articles of Incorporation*
3.2 Amendment to the Articles of Incorporation***
3.3 Bylaws*
4.1 Form of Subscription Agreement executed by investors in the
Private Placement*
10.1 Sale and Purchase Agreement dated January 15, 2007.**
14.1 Code of Ethics of the Company*
14.2 Code of Ethics of Senior Officers of the Company*
21.1 Company's Subsidiaries
23.1 Consent of Nexia Court & Co.
31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act
31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act
32.1 Certification of Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act
32.2 Certification of Chief Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act
* Previously filed with the Securities and Exchange Commission
onForm 10-SB.
** Previously filed with the Securities and Exchange Commission
onForm 8-K.
*** Previously filed with the Securities and Exchange Commission
on Schedule 14C.
49
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Amaru, Inc.
BY: /s/ Colin Binny
-------------------
Colin Binny, President and CEO
Date: March 31, 2009
Pursuant to the requirements of the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
/s/ Colin Binny President, CEO, Interim CFO and Director Date: March 31, 2009
---------------------- (Principal Executive Officer and
Colin Binny Principal Financial officer)
/s/ Sakae Torisawa Director and Chairman of the Date: March 31, 2009
---------------------- Board of Directors
Sakae Torisawa
/s/ Zee Moey Ngiam Director Date: March 31, 2009
----------------------
Zee Moey Ngiam
50
AMARU, INC.
FINANCIAL STATEMENTS AND SCHEDULES
DECEMBER 31, 2008 AND 2007
AMARU, INC.
TABLE OF CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS PAGE
Report of Independent Registered Public Accounting Firm F-1 - F2
Consolidated Balance Sheets F-3
Consolidated Statements of Income F-4
Consolidated Statements of Stockholders' Equity and Comprehensive
Income F-5 - F-7
Consolidated Statements of Cash Flows F-8 - F-9
Notes to Consolidated Financial Statements F-10 - F-27
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
of Amaru, Inc.
We have audited the accompanying consolidated balance sheet of Amaru, Inc. (a
Nevada corporation) (the "Company") as of December 31, 2008, and the related
consolidated statements of income, stockholders' equity and cash flows for the
year then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit. The consolidated financial
statements of Amaru, Inc. as of December 31,2007 were audited by other auditors
whose report dated March 31,2008 , included an explanatory paragraph that
described that management had not completed their assessment of internal
controls over financial reporting and were unable to apply other procedures to
satisfy themselves as to the effectiveness of the Company's internal control
over financial reporting , the scope of their work was not sufficient to enable
them to express an opinion on the effectiveness of the Company's internal
control over financial reporting.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Amaru, Inc. as of
December 31, 2008 , and the results of its operations and its cash flows for the
years then ended, in conformity with accounting principles generally accepted in
the United States of America.
/s/ MENDOZA BERGER & COMPANY, LLP
MENDOZA BERGER & COMPANY, LLP
Irvine, California
March 31, 2009
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Amaru, Inc.
We were engaged to audit the effectiveness of Amaru Inc's internal control over
financial reporting as at 31 December 2007 based on the criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Amaru Inc's management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying of Annual Report of Amaru Inc for the
year ended 31 December 2007.
A company's internal controls over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
process and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles and that receipts and expenditures of the Company are
being made only in accordance with authorization of management and directors of
the Company and (iii) provide reasonable assurance regarding the prevention or
timely detection of unauthorized acquisition, use or disposition of the
Company's assets that could have a material effect on our consolidated financial
statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Since management has not completed their assessment of internal controls over
financial reporting and we were unable to apply other procedures to satisfy
ourselves as to the effectiveness of the company's internal control over
financial reporting, the scope of our work was not sufficient to enable us to
express, and we do not express, an opinion on the effectiveness of the company's
internal control over financial reporting.
We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States) the accompanying consolidated balance
sheet of Amaru Inc. as at 31 December 2007, and the related statements of
operations, changes in stockholders' equity, and cash flows for the year then
ended in our audit report dated 31 March 2008. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the 2007 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Amaru Inc. at
31 December 2007, and the consolidated results of its operations and its cash
flows for the year then ended, in conformity with U.S. generally accepted
accounting principles.
/S/NEXIA COURT & CO.
Nexia Court & Co.
Chartered Accountants
Sydney, Australia
31 March 2008
F-2
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2008 AND 2007
DECEMBER 31, DECEMBER 31,
2008 2007
------------ ------------
ASSETS
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 1,484,945 $ 2,322,541
ACCOUNTS RECEIVABLE, NET OF ALLOWANCE OF
$1,055,855 AND $54,154 AT DECEMBER 31,
2008 AND 2007 RESPECTIVELY 134,710 744,589
PREPAYMENT ON PURCHASE -- 3,733,333
ACCOUNTS RECEIVABLE FROM SALE OF IPTV PLATFORM 9,500,000 9,500,000
EQUITY SECURITIES HELD FOR TRADING 179,620 2,924,000
OTHER CURRENT ASSETS 230,293 513,614
INVENTORIES 644,153 1,157,248
INVESTMENTS AVAILABLE FOR SALE 2,402,613 2,402,613
------------ ------------
TOTAL CURRENT ASSETS 14,576,334 23,297,938
NON-CURRENT ASSETS
PROPERTY AND EQUIPMENT, NET 1,033,506 1,797,146
INTANGIBLE ASSETS, NET 20,872,056 25,693,066
EQUITY METHOD INVESTMENT -- 4,942,283
INVESTMENTS AVAILABLE FOR SALE 616,136 4,911,345
------------ ------------
TOTAL NON-CURRENT ASSETS 22,521,698 37,343,840
------------ ------------
TOTAL ASSETS $ 37,098,032 $ 60,641,778
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 1,319,897 $ 3,068,613
OTHER PAYABLES 5,458 100,005
ADVANCES FROM RELATED PARTIES 48,681 155,313
CAPITAL LEASE PAYABLE - SHORT TERM 10,809 10,746
INCOME TAXES PAYABLE 5,428 5,428
------------ ------------
TOTAL CURRENT LIABILITIES 1,390,273 3,340,105
NON-CURRENT LIABILITIES
DEFERRED TAX LIABILITIES -- 1,672,801
CONVERTIBLE TERM LOAN 2,307,796 --
HIRE PURCHASE CREDITOR 46,831 57,306
------------ ------------
TOTAL NON-CURRENT LIABILITIES 2,354,627 1,730,107
------------ ------------
Total liabilities 3,744,900 5,070,212
Commitments -- --
Stockholders' equity
Preferred stock (par value $0.001) 5,000,000 shares
authorized; 0 shares issued and outstanding at
December 31, 2008 and 2007, respectively -- --
Common stock (par value $0.001) 200,000,000 shares
authorized; 159,431,861 and 159,431,861 shares
issued and outstanding at December 31, 2008 and
2007, respectively 154,098 159,431
Additional paid-in capital 39,190,666 42,918,666
Retained earnings (9,726,413) 5,650,447
Accumulated other comprehensive income 968,406 2,223,641
Minority interest 2,766,375 4,619,381
------------ ------------
Total stockholders' equity 33,353,132 55,571,566
------------ ------------
Total liabilities and stockholders' equity $ 37,098,032 $ 60,641,778
============ ============
See accompanying notes to consolidated financial statements
F-3
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2008, 2007 AND 2006
FOR THE YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2008 2007 2006
------------- ------------- -------------
Revenue:
Entertainment $ 203,066 $ 14,568,379 $ 8,053,146
Digit gaming -- 22,451,970 24,505,465
Other -- 32,920 14,664
------------- ------------- -------------
Total revenue 203,066 37,053,269 32,573,275
Cost of services (869,781) (23,349,404) (24,302,425)
------------- ------------- -------------
Gross profit (loss) (666,715) 13,703,865 8,270,850
Distribution costs (1,205,418) (891,484) (1,446,990)
Administrative expenses (3,876,263) (7,152,510) (5,279,778)
Impairment loss on intangible asset (3,762,777) -- --
Impairment loss on associate (4,928,506) -- --
------------- ------------- -------------
Total expenses (13,772,964) (8,043,994) (6,726,768)
------------- ------------- -------------
Income (loss) from operations (14,439,679) 5,659,871 1,544,082
Other income (expense):
Interest expenses (60,027) (1,378) --
Interest income 14,183 45,819 129,227
Gain (Loss) on disposal of equipment (193,814) (10,230) --
Gain (Loss) on sale of investment securities (750,421) -- 185,686
Management fee income -- -- 60,247
Intangible asset written off -- (2,420,227) --
Gain on dilution of interest in subsidiary -- 2,483,872 --
Net change in fair value of financial assets at
fair value securities for trading (2,744,380) (466,000) --
Share of loss of associate (13,778) (23,832) --
------------- ------------- -------------
Income (loss) before income taxes (18,187,916) 5,267,895 1,919,242
(Provision) benefit for income taxes 958,050 (179,103) (668,713)
------------- ------------- -------------
Net Income (loss) $ (17,229,866) $ 5,088,792 $ 1,250,529
============= ============= =============
Attributable to:
Equity holders of the Company $ (15,376,860) $ 3,565,539 $ 1,250,259
Minority interests (1,853,006) 1,523,253 --
------------- ------------- -------------
Net income $ (17,229,866) $ 5,088,792 $ 1,250,529
============= ============= =============
Net income per share $ (0.11) $ 0.03 $ 0.01
- - basic and diluted ============= ============= =============
Weighted average number of common shares outstanding
- - basic and diluted 159,431,861 156,548,902 153,605,863
============= ============= =============
See accompanying notes to consolidated financial statements
F-4
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
FOR THE YEAR ENDED DECEMBER 31, 2008, 2007 AND 2006
PREFERRED STOCK COMMON STOCK
------------------------- -------------------------
NUMBER PAR NUMBER PAR SUBSCRIBED
OF VALUE OF VALUE ADDITIONAL PAID- COMMON RETAINED
SHARES ($0.001) SHARES ($0.001) IN CAPITAL STOCK EARNINGS
----------- ----------- ----------- ----------- ------------- ----------- -----------
Balance at December
31, 2005 -- -- 125,591,120 $ 125,591 $ 14,642,550 $ 4,256,880 $ 834,379
Common stock issued
for cash -- -- 15,339,568 15,339 11,255,404 -- --
Common stock issued
for services -- -- 40,000 40 59,960 -- --
Subscribed common
stock issued -- -- 5,675,840 5,676 4,251,204 (4,256,880) --
Common stock issued
In exchange for
Acquisition of film library -- -- 6,992,000 6,992 8,733,008 -- --
Common stock
subscribed for
services(420,000
shares) -- -- -- -- -- 189,000 --
Net income -- -- -- -- -- -- 1,250,529
Change in fair value
of available for-sale-equity
securities, net of tax -- -- -- -- -- -- --
Comprehensive
income -- -- -- -- -- -- --
----------- ----------- ----------- ----------- ------------- ----------- -----------
Balance at December
31, 2006 -- -- 153,638,528 $ 153,638 $ 38,942,126 $ 189,000 $ 2,084,908
=========== =========== =========== =========== ============= =========== ===========
(CONTINUED)
F-5a
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 libabry -- -- -- 8,740,000
Common stock
subscribed for
services (420,000
shares) -- -- -- 189,000
Net income -- -- -- 1,250,529
Comprehensive in fair value
of available for-sale-equity
securities, net of tax -- 3,664,647 -- 3,664,647
Comprehensive
income -- -- -- 4,915,176
----------- ----------- ----------- -----------
Balance at December
31, 2006 $ 12,927 $ 3,664,647 $ -- $45,047,246
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements
F-5b
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
FOR THE YEAR ENDED DECEMBER 31, 2008, 2007 AND 2006
PREFERRED STOCK COMMON STOCK
------------------------- -------------------------
NUMBER PAR NUMBER PAR SUBSCRIBED
OF VALUE OF VALUE ADDITIONAL PAID- COMMON RETAINED
SHARES ($0.001) SHARES ($0.001) IN CAPITAL STOCK EARNINGS
----------- ----------- ----------- ----------- ------------- ----------- -----------
Balance at December
31, 2006 -- -- 153,638,528 $ 153,638 $ 38,942,126 $ 189,000 $ 2,084,908
Subscribed common
stock issued -- -- 420,000 420 188,580 (189,000) --
Common stock issued
for services -- -- 40,000 40 59,960 -- --
Common stock issued
in exchange for repayment
of investment -- -- 5,333,333 5,333 3,728,000 -- --
Contribution from
Minority interest -- -- -- -- -- -- --
Gain on dilution of
Interest in subsidiary -- -- -- -- -- -- --
Net income -- -- -- -- -- -- 3,565,539
Change in fair value
of available
for-sale-equity
securities, net
of tax -- -- -- -- -- -- --
Comprehensive
income -- -- -- -- -- -- --
----------- ----------- ----------- ----------- ------------- ----------- -----------
Balance at December
31, 2007 -- -- 159,431,861 $ 159,431 $ 42,918,666 $ -- $ 5,650,447
=========== =========== =========== =========== ============= =========== ===========
(CONTINUED)
F-6a
ACCUMULATED OTHER
COMPREHENSIVE INCOME
-------------------------
CURRENCY TOTAL
TRANSLATION FAIR VALUE MINORITY SHAREHOLDERS'
RESERVE RESERVE INTEREST EQUITY
----------- ----------- ----------- -----------
Balance at December
31, 2006 $ 12,927 $ 3,664,647 $ -- $ 45,047,246
Subscribed common
Stock issued -- -- -- --
Common stock issued
for services -- -- -- 60,000
Common stock issued
in exchange for prepayment
of investment -- -- -- 3,733,333
Contribution from minority
Interest -- -- 5,580,000 5,580,000
Gain on dilution
Interest in subsidiary -- -- (2,483,872) (2,483,872)
Net income -- -- 1,523,253 5,088,792
Change in fair value
of available
for-sale-equity
securities, net
of tax -- (1,453,933) -- (1,453,933)
Comprehensive
income -- -- -- 3,634,859
----------- ----------- ----------- -----------
Balance at December
31, 2007 $ 12,927 $ 2,210,714 $ 4,619,381 $55,571,566
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements
F-6b
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
FOR THE YEAR ENDED DECEMBER 31, 2008, 2007 AND 2006
PREFERRED STOCK COMMON STOCK
--------------------------- ---------------------------
NUMBER PAR NUMBER PAR COMMON STOCK
OF VALUE OF VALUE HELD FOR ADDITIONAL PAID- RETAINED
SHARES ($0.001) SHARES ($0.001) CANCELLATION IN CAPITAL EARNINGS
------------ ------------ ------------ ------------ ------------ -------------- ------------
Balance at December
31, 2007 -- -- 159,431,861 $ 159,431 -- $ 42,918,666 $ 5,650,447
Net loss -- -- -- -- -- -- (15,376,860)
Change in fair value
of available
for-sale-equity
securities, net
of tax -- -- -- -- -- -- --
Common stock
received in
cancellation of
exchange for repayment
of investment -- -- (5,333,333) (5,333) 5,333,333 (3,278,000) --
Comprehensive
income -- -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ -------------- ------------
Balance at December
31, 2008 -- -- 154,098,528 $ 154,098 5,333,333 $ 39,190,666 $ (9,726,413)
============ ============ ============ ============ ============ ============== ============
F-7a
ACCUMULATED OTHER
COMPREHENSIVE INCOME
---------------------------
CURRENCY TOTAL
TRANSLATION FAIR VALUE MINORITY SHAREHOLDERS'
RESERVE RESERVE INTEREST EQUITY
------------ ------------ ------------ ------------
Balance at December
31, 2007 $ 12,927 $ 2,210,714 $ 4,619,381 $ 55,571,566
Net loss -- -- (1,853,006) (17,229,866)
Change in fair value
of available
for-sale-equity
securities, net
of tax -- (1,255,235) -- (1,255,235)
Common stock received
received in
cancellation of
exchange for
repayment of
investment -- -- -- (3,733,333)
Comprehensive
loss -- -- -- (22,218,434)
------------ ------------ ------------ ------------
Balance at December
31, 2008 $ 12,927 $ 955,479 $ 2,766,375 $ 33,353,132
============ ============ ============ ============
See accompanying notes to consolidated financial statements
F-7b
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2008, 2007 AND 2006
FOR THE YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31
2008 2007 2006
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(17,229,866) $ 5,088,792 $ 1,250,529
Adjustments for:
Amortization 1,132,810 3,305,000 1,133,184
Depreciation 635,119 575,015 235,993
Allowance for doubtful debts -- 54,154 --
(Gain) loss on disposal of equipment 193,814 10,230 --
Intangible asset written off -- 2,430,227 --
Impairment loss on associate 4,928,506 -- --
Impairment loss on intangible asset 3,762,777 -- --
(Gain) loss on sale of investment available for sale 750,421 -- (185,686)
Gain on dilution of interest in subsidiary -- (2,483,872) --
Net change in fair value of financial assets at fair
value through Profit or Loss-held for trading 2,744,380 466,000 --
Acquisition of investment in exchange for account receivable -- (5,090,000) (3,000,000)
Common stock issued and subscribed for services -- 60,000 249,000
Common stock issued in exchange for prepayment of investment -- 3,733,333 --
Deferred tax (947,099) 179,103 --
Share of loss of associate 13,778 23,832 --
Changes in operation assets and liabilities
Accounts receivable 609,879 (8,192,096) (1,264,276)
Inventories 513,095 532,386 (1,677,354)
Other current assets 283,321 (3,707,343) (304,318)
Accounts payable and accrued expenses (1,748,716) 966,643 1,445,486
Other payables (94,547) 100,005 --
Income tax payable -- (53,045) 668,713
------------ ------------ ------------
Net cash used in operating activities
(4,452,328) (2,011,636) (1,448,729)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposal of equipment 87,068 885 --
Proceeds from sale of investment available for sale 1,563,852 -- 1,238,001
Acquisition of equipment (152,364) (1,167,532) (1,014,543)
Acquisition of intangible assets (74,576) (2,531,410) (9,427,844)
Acquisition of associate -- (66,115) --
Acquisition of investments available for sale -- -- (3,041,071)
------------ ------------ ------------
Net cash generated (used) in by investing activities 1,423,980 (3,764,172) (12,245,457)
CASH FLOWS FROM FINANCING ACTIVITIES
Payable to related parties (106,632) -- (58,392)
Advance from related party -- 155,313 --
Proceeds from hire purchase creditor -- 68,052 --
Repayment of obligation under capital lease (10,412) -- --
Receipts from convertible term loan 2,307,796 -- --
Issuance of common stock for cash -- -- 11,270,743
Capital contributed by minority shareholders -- 5,580,000 --
------------ ------------ ------------
Net cash provided by financing activities 2,190,752 5,803,365 11,212,351
Effect of exchange rate changes on cash and cash equivalents -- -- --
------------ ------------ ------------
CASH FLOWS FROM ALL ACTIVITIES (837,596) 27,557 (2,481,835)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,322,541 2,294,984 4,776,819
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,484,945 $ 2,322,541 2,294,984
============ ============ ============
F-8
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING
AND INVESTING ACTIVITIES:
Acquisition of investments (1) $ -- $ 5,090,000 $ --
============ ============ ============
Common stock in exchange for acquisition of film library $ -- $ -- $ 8,740,000
============ ============ ============
Common stock in exchange for prepayment of investment (2) $ -- $ 3,733,333 $ --
============ ============ ============
Cancellation of stock issued for prepayment of investment (3,733,333) $ -- $ --
============ ============ ============
Subscribed common stock issued $ -- $ -- $ 4,256,880
============ ============ ============
(1) On February 15, 2007, the Company through its subsidiary, M2B World Asia
Pacific Pte. Ltd. subscribed for additional 4% interest in an investment
for $1.7 million in exchange for the settlement of accounts receivables
from the investee company.
On June 27, 2007, M2B World Holdings Limited, a wholly owned subsidiary
of M2B World Asia Pacific Pte. Ltd., received $2.7 million in quoted
equity securities in exchange for accounts receivable from a company, as
part of the sales and purchase agreement with the company. Subsequent to
June 27, 2007, the remaining shares were received.
(2) On July 11, 2007, Tremax International Limited, a wholly owned subsidiary
of Amaru Inc., issued 5,333,333 shares of common stock in exchange for an
investment in a company, as part of the sales and purchase agreement with
the company.
See accompanying notes to consolidated financial statements
F-9
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
1. BASIS OF PRESENTATION AND REORGANIZATION
1.1 DESCRIPTION OF BUSINESS
AMARU, INC. (THE "COMPANY") IS IN THE BUSINESS OF BROADBAND
ENTERTAINMENT-ON-DEMAND, STREAMING VIA COMPUTERS, TELEVISION SETS, PDAS
(PERSONAL DIGITAL ASSISTANT) AND THE PROVISION OF BROADBAND SERVICES.
ITS BUSINESS INCLUDES CHANNEL AND PROGRAM SPONSORSHIP (ADVERTISING AND
BRANDING); ONLINE SUBSCRIPTIONS, CHANNEL/PORTAL DEVELOPMENT (DIGITAL
PROGRAMMING SERVICES); CONTENT AGGREGATION AND SYNDICATION, BROADBAND
CONSULTING SERVICES, BROADBAND HOSTING AND STREAMING SERVICES AND
E-COMMERCE.
THE COMPANY IS ALSO IN THE BUSINESS OF DIGIT GAMING (LOTTERY). THE
COMPANY HAS AN 18 YEAR LICENSE TO CONDUCT NATION WIDE LOTTERY IN
CAMBODIA. THE COMPANY THROUGH ITS SUBSIDIARY, M2B COMMERCE LIMITED,
SIGNED AN AGREEMENT WITH ALLSPORTS INTERNATIONAL LTD, A BRITISH VIRGIN
ISLANDS COMPANY TO OPERATE AND CONDUCT DIGIT GAMES IN CAMBODIA AND TO
MANAGE THE DIGIT GAMES ACTIVITIES IN CAMBODIA. THE LICENSE HAS BEEN
SUSPENDED, SEE NOTE 15.
THE KEY BUSINESS FOCUS OF THE COMPANY IS TO ESTABLISH ITSELF AS THE
LEADING PROVIDER AND CREATOR OF A NEW GENERATION OF
ENTERTAINMENT-ON-DEMAND AND E-COMMERCE CHANNELS ON BROADBAND, AND 3G
(THIRD GENERATION) DEVICES.
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 AND PAY PER VIEW SERVICES 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 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.
1.2 Recent Accounting Standards and Pronouncements
In June 2006, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an
Interpretation of FASB Statement No. 109, Accounting for Income Taxes
("FIN 48"), to create a single model to address accounting for
uncertainty in tax positions. FIN 48 clarifies the accounting for
income taxes by prescribing a minimum recognition threshold a tax
position is required to meet before being recognized in the financial
statements. FIN 48 also provides guidance on derecognition,
measurement, classification, interest and penalties, accounting in
interim periods, disclosure and transition. FIN 48 is effective for
fiscal years beginning after December 15, 2006. The Company adopted FIN
48 on January 1, 2007. The adoption of FIN 48 did not have an impact on
the Company's opening retained earnings.
In September 2006, the FASB issued Statement of Financial Accounting
Standard ("SFAS") No. 157, "Fair Value Measurements" ("SFAS No. 157").
SFAS No. 157 clarifies the principle that fair value should be based on
the assumptions market participants would use when pricing an asset or
liability and establishes a fair value hierarchy that prioritizes the
information used to develop those assumptions.
F-10
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
Under the standard, fair value measurements would be separately
disclosed by level within the fair value hierarchy. In February 2008,
the FASB issued two Staff Positions that amend SFAS No. 157. The first
FASB Staff Position (FSP), No. FAS 157-1, excludes from the scope of
SFAS No. 157 accounting pronouncements that address fair value
measurements for purposes of lease classification and measurement. The
second FSP, No. FAS 157-2, delays the effective date of SFAS No. 157
for nonfinancial assets and nonfinancial liabilities, except for items
that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually). SFAS 157 is
effective for the Company on January 1, 2008, except for nonfinancial
assets and nonfinancial liabilities that are not recognized or
disclosed at fair value on a recurring basis for which its effective
date is January 1, 2009. The adoption of this statement did not have a
material impact on its Consolidated Financial Statements.
IN DECEMBER 2007, THE FASB ISSUED STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS NO. 141 (REVISED 2007), BUSINESS COMBINATIONS ("SFAS 141R").
SFAS 141R ESTABLISHED PRINCIPLES AND REQUIREMENTS FOR HOW AN ACQUIRING
COMPANY RECOGNIZES AND MEASURES IN ITS FINANCIAL STATEMENTS THE
IDENTIFIABLE ASSETS ACQUIRED, THE LIABILITIES ASSUMED, ANY
NONCONTROLLING INTEREST IF THE ACQUIRED COMPANY AND THE GOODWILL
ACQUIRED. SFAS 141R ALSO ESTABLISHED DISCLOSURE REQUIREMENTS TO ENABLE
THE EVALUATION OF THE NATURE AND FINANCIAL EFFECTS OF THE BUSINESS
COMBINATION. SFAS 141R IS EFFECTIVE FOR FISCAL PERIODS BEGINNING AFTER
DECEMBER 15, 2008. THE COMPANY IS CURRENTLY EVALUATING THE IMPACT THAT
SFAS 141R WILL HAVE ON ITS FINANCIAL POSITION AND RESULTS OF
OPERATIONS.
IN DECEMBER 2007, THE FASB ISSUED STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS NO. 160, NONCONTROLLING INTERESTS IN CONSOLIDATED FINANCIAL
STATEMENTS-AN AMENDMENT OF ACCOUNTING RESEARCH BULLETIN NO. 51 ("SFAS .
160"). SFAS 160 ESTABLISHES ACCOUNTING AND REPORTING STANDARDS OF
OWNERSHIP INTERESTS IN SUBSIDIARIES HELD BY PARTIES OTHER THAN THE
PARENT, THE AMOUNT OF CONSOLIDATED NET INCOME ATTRIBUTABLE TO THE
PARENT AND TO THE NONCONTROLLING INTEREST, CHANGES IN A PARENT'S
OWNERSHIP INTEREST AND THE VALUATION OF RETAINED NONCONTROLLING EQUITY
INVESTMENTS WHEN A SUBSIDIARY IS DECONSOLIDATED. SFAS 160 ALSO
ESTABLISHES DISCLOSURE REQUIREMENTS THAT CLEARLY IDENTIFY AND
DISTINGUISH BETWEEN THE INTERESTS OF THE PARENT AND THE INTERESTS OF
THE NONCONTROLLING OWNERS. SFAS 160 IS EFFECTIVE FOR FISCAL PERIODS
BEGINNING AFTER DECEMBER 15, 2008. THE COMPANY IS CURRENTLY EVALUATING
THE IMPACT THAT SFAS 160 WILL HAVE ON ITS FINANCIAL POSITION AND
RESULTS OF OPERATIONS.
IN MARCH 2008, THE FASB ISSUED SFAS NO. 161, "DISCLOSURES ABOUT
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES -- AN AMENDMENT OF FASB
STATEMENT NO. 133". THIS STATEMENT AMENDS SFAS NO. 133 BY REQUIRING
ENHANCED DISCLOSURES ABOUT AN ENTITY'S DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES, BUT DOES NOT CHANGE SFAS NO. 133'S SCOPE OR
ACCOUNTING. SFAS NO. 161 REQUIRES INCREASED QUALITATIVE, QUANTITATIVE
AND CREDIT-RISK DISCLOSURES ABOUT THE ENTITY'S DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES. SFAS 161 IS EFFECTIVE FOR FISCAL YEARS, AND
INTERIM PERIODS WITHIN THOSE FISCAL YEARS, BEGINNING AFTER NOVEMBER 15,
2008, WITH EARLIER ADOPTION PERMITTED. THE COMPANY IS CURRENTLY
EVALUATING THE IMPACT THAT SFAS 161 WILL HAVE ON ITS FINANCIAL POSITION
AND RESULTS OF OPERATIONS.
F-11
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
2.1 PRINCIPLES OF CONSOLIDATION
THE CONSOLIDATED FINANCIAL STATEMENTS INCLUDE THE FINANCIAL STATEMENTS
OF AMARU, INC. AND ITS MAJORITY OWNED SUBSIDIARIES. ALL SIGNIFICANT
INTERCOMPANY BALANCES AND TRANSACTIONS HAVE BEEN ELIMINATED IN
CONSOLIDATION. IN ADDITION, THE COMPANY EVALUATES ITS RELATIONSHIPS
WITH OTHER ENTITIES TO IDENTIFY WHETHER THEY ARE VARIABLE INTEREST
ENTITIES AS DEFINED BY FASB INTERPRETATION NO. 46 (R) CONSOLIDATION OF
VARIABLE INTEREST ENTITIES ("FIN 46R") AND TO ASSESS WHETHER IT IS THE
PRIMARY BENEFICIARY OF SUCH ENTITIES. IF THE DETERMINATION IS MADE THAT
THE COMPANY IS THE PRIMARY BENEFICIARY, THEN THAT ENTITY IS INCLUDED IN
THE CONSOLIDATED FINANCIAL STATEMENTS IN ACCORDANCE WITH FIN 46(R).
2.2 Use of Estimates
The preparation of the consolidated financial statements in accordance
with generally accepted accounting principles requires management to
make estimates and assumptions relating to the reported amounts of
assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and
the reported amounts of revenues and expenses during the period.
Significant items subject to such estimates and assumptions include
carrying amount of property and equipment, intangibles, valuation
allowances of receivables and inventories. Actual results could differ
from those estimates.
Management has not made any subjective or complex judgments the
application of which would result in any material differences in
REPORTED RESULTS.
2.3 CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS ARE DEFINED AS CASH ON HAND, DEMAND DEPOSITS
AND SHORT-TERM, HIGHLY LIQUID INVESTMENTS READILY CONVERTIBLE TO CASH
AND SUBJECT TO INSIGNIFICANT RISK OF CHANGES IN VALUE.
CASH IN BANKS AND SHORT-TERM DEPOSITS ARE HELD TO MATURITY AND ARE
CARRIED AT COST. FOR THE PURPOSES OF THE CONSOLIDATED STATEMENTS OF
CASH FLOWS, CASH AND CASH EQUIVALENTS CONSIST OF CASH ON HAND AND
DEPOSITS IN BANKS, NET OF OUTSTANDING BANK OVERDRAFTS.
THE COMPANY MONITORS ITS LIQUIDITY RISK AND MAINTAINS A LEVEL OF CASH
AND CASH EQUIVALENTS DEEMED ADEQUATE BY MANAGEMENT TO FINANCE THE
COMPANY'S OPERATIONS AND TO MITIGATE THE EFFECTS OF FLUCTUATIONS IN
CASH FLOWS.
2.4 Accounts Receivable
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
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
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.
F-12
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
The Company's operations are conducted over the world wide web and some
purchases are made from locations outside of Singapore.
FOR THE YEAR ENDED
-----------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31
2008 2007 2006
----------- ----------- -----------
SALES OUTSIDE OF THE U.S. $203,066 $37,052,863 $32,573,155
SERVICES PURCHASED OUTSIDE OF THE U.S. $771,660 $23,231,423 $24,153,201
2.5 Inventories
Inventories are carried at the lower of cost or and net realizable
value. Cost is calculated using first-in, first-out ("FIFO") method and
comprises all costs of purchase, costs of conversion and other costs
incurred in bringing the inventories to their present location and
condition. Inventories comprised primarily of finished products used in
the Company's IPTV service.
2.6 Property and Equipment
Property and equipment are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the
assets for financial reporting purposes. Expenditures for major
renewals and betterments that extend the useful lives are capitalized.
Expenditures for normal maintenance and repairs are expensed as
incurred. The cost of assets sold or abandoned and the related
accumulated depreciation are eliminated from the accounts and any gains
or losses are reflected in the accompanying consolidated statement of
income of the respective period. The estimated useful lives of the
assets range from 3 to 5 years.
2.7 Intangible Assets
Intangible assets consist of film library, gaming and software licence
and product development costs. Intangible assets which were purchased
and have indefinite lives are stated at cost less impairment losses and
are tested for impairment at least annually in accordance with the
provisions of FASB Statement No. 142, Goodwill and Other Intangible
Assets.
Intangible assets which were purchased for a specific period are stated
at cost less accumulated amortization and impairment losses. Such
intangible assets are reviewed for impairment in accordance with FASB
Statement No. 144, Accounting for Impairment or Disposal of Long-Lived
Assets. Such intangible assets are amortized over the period of the
contract, which is 2 to 18 years.
The film library, which are classified as indefinite lives, relate to
film library rights that are acquired for perpetuity by the Company.
The film library, which are classified as having definite lives, relate
to film library rights that are generally acquired for one to ten years
by the Company.
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 license was suspended,
see Note 15.
The Company capitalized the development and building cost related to
the broad-band sites and infrastructure for the streaming system, most
of which was developed in 2002 as product development costs. The
Company projects that these development costs will be useful for up to
5 years before additional significant development needs to be done.
F-13
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
2.8 Equity Method Investment
An Equity Method Investment 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 Equity Method Investment are incorporated in
these financial statements using the equity method of accounting. Under
the equity method, investments 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 Equity Method Investment, less any
impairment in the value of individual investments. Losses of an Equity
Method Investment in excess of the group's interest in that Equity
Method Investment (which includes any long-term interests that, in
substance, form part of the Company's net investment in the Equity
Method Investment) are not recognised, unless the group has incurred
legal or constructive obligations or made payments on behalf of the
Equity Method Investment.
Any excess of the cost of acquisition over the Company's share of the
net fair value of the identifiable assets, liabilities and contingent
liabilities of the Equity Method Investment recognized 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 Company'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 Equity Method Investment of the
group, profits and losses are eliminated to the extent of the group's
interest in the relevant associate.
2.9 Investments
The Company classifies its investments in marketable equity and debt
securities as "available-for-sale", "held to maturity" or "trading" at
the time of purchase in accordance with the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" ("SFAS No. 115").
Equity securities held for trading as of December 31, 2008 totaled
$179,620 and December 31, 2007 totaled $2,924,000. The changes relate
to fair value adjustments of $2,744,380 for the year ended December 31,
2008 and $466,000 for the year ended December 31, 2007.
Available-for-sale securities are carried at fair value with unrealized
gains and losses, net of related tax, if any, reported as a component
of other comprehensive income (loss) until realized. Realized gains and
losses from the sale of available-for-sale securities are determined on
a specific-identification basis. A decline in the market value of any
available-for-sale security below cost that is deemed to be other than
temporary will result in an impairment, which is charged to earnings.
Available-for-sale securities that are not publicly traded or have
resale restrictions greater than one year are accounted for at cost.
The Company's cost method investments include companies involved in the
broadband and entertainment industry. The Company uses available
qualitative and quantitative information to evaluate all cost method
investment impairments at least annually.
2.10 Valuation of Long-Lived Assets
The Company evaluates the carrying value of long-lived assets to be
held and used, other than intangible assets with indefinite lives, when
events or circumstances warrant such a review. No impairment losses
were recorded for the years ended december 31, 2008 and 2007.
F-14
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
2.11 INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
AN INSTRUMENT IS CLASSIFIED AS AT FAIR VALUE THROUGH PROFIT OR LOSS IF
IT IS HELD FOR TRADING OR IS DESIGNATED AS SUCH UPON INITIAL
RECOGNITION. FINANCIAL INSTRUMENTS ARE DESIGNATED AS FAIR VALUE THROUGH
PROFIT OR LOSS IF THE COMPANY MANAGES SUCH INVESTMENTS AND MAKES
PURCHASE AND SALES DECISIONS BASED ON THEIR FAIR VALUE. UPON INITIAL
RECOGNITION, ATTRIBUTABLE TRANSACTION COSTS ARE RECOGNISED IN THE
INCOME STATEMENT WHEN INCURRED. FINANCIAL INSTRUMENTS AT FAIR VALUE
THROUGH PROFIT OR LOSS ARE MEASURED AT FAIR VALUE, AND CHANGES THEREIN
ARE RECOGNIZED IN THE INCOME STATEMENT.
FINANCIAL ASSETS RECORDED AT FAIR VALUE ON THE CONSOLIDATED BALANCE
SHEETS ARE CATEGORIZED AS FOLLOWS:
LEVEL 1: QUOTED PRICES (UNADJUSTED) IN ACTIVE MARKETS FOR
IDENTICAL ASSETS OR LIABILITIES, AS APPLICABLE, THAT THE
REPORTING ENTITY HAS THE ABILITY TO ACCESS AT THE
MEASUREMENT DATE.
LEVEL 2: QUOTED PRICES IN MARKETS, OTHER THAN QUOTED PRICES
INCLUDED IN LEVEL 1, THAT ARE NOT ACTIVE OR INPUTS THAT
ARE OBSERVABLE EITHER DIRECTLY OR INDIRECTLY FOR
SUBSTANTIALLY THE FULL TERM OF THE ASSET OR LIABILITY, AS
APPLICABLE, LEVEL 2 INPUTS INCLUDE THE FOLLOWING:
a) QUOTED PRICES FOR SIMILAR ASSETS OR LIABILITIES IN
ACTIVE MARKETS;
b) QUOTED PRICES FOR IDENTICAL OR SIMILAR ASSETS OR
LIABILITIES IN NON-ACTIVE MARKETS;
c) INPUTS OTHER THAN QUOTED MARKET PRICES WHICH ARE
OBSERVABLE FOR THE ASSET OR LIABILITY; AND
d) INPUTS THAT ARE DERIVED PRINCIPALLY FROM OR
CORROBORATED BY OBSERVABLE MARKET DATA BY CORRELATION OR
OTHER MEANS.
LEVEL 3: PRICES OR VALUATION TECHNIQUES THAT REQUIRE INPUTS
WHICH ARE BOTH UNOBSERVABLE AND SIGNIFICANT TO THE OVERALL
FAIR VALUE MEASUREMENT OF THE ASSET OR LIABILITY, AS
APPLICABLE. THEY MAY REFLECT MANAGEMENT'S OWN ASSUMPTIONS
ABOUT THE ASSUMPTIONS A MARKET PARTICIPANT WOULD USE IN
PRICING THE ASSET OR LIABILITY.
THE FOLLOWING TABLE SHOWS HOW OUR INVESTMENTS ARE CATEGORIZED.
FAIR VALUE MEASUREMENT AT DECEMBER 31, 2008 USING:
--------------------------------------------------
PRICES OR FAIR VALUE QUOTED PRICES IN VALUATION
MEASUREMENTS AT ACTIVE MARKETS TECHNIQUES
DECEMBER 31, 2008 (LEVEL 1) (LEVEL 3)
DESCRIPTION ($) ($) ($)
-----------------------------------------------------------------------------------------------------------
EQUITY SECURITIES HELD FOR TRADING 179,620 179,620 --
INVESTMENTS AVAILABLE FOR SALE - CURRENT 2,402,613 -- 2,402,613
INVESTMENTS AVAILABLE FOR SALE - NON CURRENT -- -- 616,136
F-15
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
The table below sets forth a summary of changes in the fair value of
the Company's Level 3 financial assets (Investments Available for Sale)
for the year ended December 31, 2008.
For year ended
December 31, 2008
------------------
Balance at the beginning of the period $ 7,313,958
Change in fair value of Investments
Available for Sale - unrealized (1,980,936)
Loss on disposal of Investments
Available for Sale - realized (750,421)
Proceeds from sale of Investments
Available for Sale (1,563,852)
-----------
Balance at the end of the period $ 3,018,749
===========
In February 2007, the FASB issued Statement of Financial Accounting
Standards No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities. SFAS No. 159 permits entities to choose to
measure many financial assets and financial liabilities at fair value.
Unrealized gains and losses on items for which the fair value option
has been elected are reported in net income. SFAS No. 159 is effective
for fiscal years beginning after November 15, 2007 and interim periods
within those fiscal years. Upon adoption of this Statement, the Company
did not elect SFAS No. 159 option for existing financial assets and
liabilities and therefore adoption of SFAS No. 159 did not have any
impact on its Consolidated Financial Statements.
2.12 Advances from Related Party
Advances from director and related party of $48,681 are unsecured,
non-interest bearing and payable on demand.
2.13 Leases
The Company is the lessee of equipment under a capital lease expiring
in 2014. The assets and liabilities under capital leases are recorded
at the lower of the present value of the minimum lease payments or the
fair value of the asset. The assets are amortized over the lower of
their related lease terms or their estimated productive lives.
Amortization of assets under capital leases is included in depreciation
expense for the year ended December 31, 2008 and 2007.
On November 1, 2007, the Company sub-leased the office premises of M2B
World Inc, a wholly owned subsidiary of the Company in Los Angeles,
California as part of its efforts to streamline its operations and
reduce operating costs.
2.14 Foreign Currency Translation
Transactions in foreign currencies are measured and recorded in the
functional currency, U.S. dollars, using the Company's prevailing month
exchange rate. The Company's reporting currency is also in U.S.
dollars. At the balance sheet date, recorded monetary balances that are
denominated in a foreign currency are adjusted to reflect the rate at
the balance sheet date and the income statement accounts using the
average exchange rates throughout the period. Translation gains and
losses are recorded in stockholders' equity as other Comprehensive
income and realized gains and losses from foreign currency transactions
are reflected in operations.
2.15 Revenues
Subscription and related services revenues are recognized over the
period that services are provided. Advertising and sponsorship revenues
are recognized as the services are performed or when the goods are
delivered. Licensing and content syndication revenue is recognized when
the license period begins, and the contents are available for
exploitation by customer, pursuant to the terms of the license
agreement. Gaming revenue is recognized as earned net of winnings.
E-commerce commissions are recognized as received. Broadband consulting
services and on-line turnkey solutions revenue are recognized as
earned.
F-16
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
2.16 Costs of Services
The cost of services pertaining to advertising and sponsorship revenue
and subscription and related services are cost of bandwidth charges,
channel design and alteration, copyright licensing, and hardware
hosting and maintenance costs. The cost of services pertaining to
E-commerce revenue is channel design and alteration, and hardware
hosting and maintenance costs. The cost of services pertaining to
gaming is for managing and operating the operations and gaming centers.
All these costs are accounted for in the period its was incurred.
2.17 Income Taxes
Deferred income taxes are determined using the liability method in
accordance with Statement of Financial Accounting Standards ("SFAS")
No. 109, Accounting for Income Taxes. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred income taxes are measured using enacted tax rates expected to
apply to taxable income in years in which such temporary differences
are expected to be recovered or settled. The effect on deferred income
taxes of a change in tax rates is recognized in the statement of income
of the period that includes the enactment date. In addition, a
valuation allowance is established to reduce any deferred tax asset for
which it is determined that it is more likely than not that some
portion of the deferred tax asset will not be realized.
During the year ended December 31, 2007, the Company adopted Financial
Accounting Standards Board (FASB) Interpretation No. 48, "Accounting
for Uncertainty in Income Taxes" (FIN 48), which supplements SFAS No.
109, "Accounting for Income Taxes," by defining the confidence level
that a tax position must meet in order to be recognized in the
financial statements. The Interpretation requires that the tax effects
of a position be recognized only if it is "more-likely-than-not" to be
sustained based solely on its technical merits as of the reporting
date. The more-likely-than-not threshold represents a positive
assertion by management that a company is entitled to the economic
benefits of a tax position, If a tax position is not considered
more-likely-than-not to be sustained based solely on its technical
merits. No benefits of the tax position are to be recognized. Moreover,
the more-likely-than-not threshold must continue to be met in each
reporting period to support continued recognition of a benefit. With
the adoption of FIN 48, companies are required to adjust their
financial statements to reflect only those tax positions that are
more-likely-than-not to be sustained. Any necessary adjustment would be
recorded directly to retained earnings and reported as a change in
accounting principle.
Upon adoption of FIN 48 as of January 1, 2007, the Company had no gross
unrecognized tax benefits that, if recognized, would favorably affect
the effective income tax rate in future periods. At December 31, 2007
the amount of gross unrecognized tax benefits before valuation
allowances and the amount that would favorably affect the effective
income tax rate in future periods after valuation allowances were $0.
These amounts consider the guidance in FIN 48-1, "Definition of
Settlement in FASB Interpretation No. 48".The Company has not accrued
any additional interest or penalties as a result of the adoption of FIN
48.
The Company files income tax returns in the United States federal
jurisdiction and certain states in the United States and certain other
foreign jurisdictions. With a few exceptions, the Company is no longer
subject to U. S. federal, state or foreign income tax examination by
tax authorities on income tax returns filed before December 31, 2004.
U. S. federal. State and foreign income returns filed for years after
December 31, 2004 are considered open tax years as of the date of these
consolidated financial statements. No income tax returns are currently
under examination by any tax authorities.
F-17
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
2.18 Earnings (Loss) Per Share
In February 1997, the Financial Accounting Standards Board (FASB)
issued FAS No. 128 "Earnings Per Share" which requires the Company to
present basic and diluted earnings per share, for all periods
presented. The computation of earnings per common share (basic and
diluted) is based on the weighted average number of shares actually
outstanding during the period. The Company has no common stock
equivalents, which would dilute earnings per share.
2.19 Financial Instruments
The carrying amounts for the Company's cash, other current assets,
accounts payable, accrued expenses and other liabilities approximate
their fair value.
2.20 Advertising
The cost of advertising is expensed as incurred. For the year ended
December 31, 2008 and 2007, the Company incurred advertising expenses
of $80,160 and $543,752 respectively.
2.21 Reclassifications
Certain amounts in the previous periods presented have been
reclassified to conform to the current year financial statement
presentation.
3. EQUITY SECURITIES HELD FOR TRADING INVESTMENT
DECEMBER 31, DECEMBER 31,
2008 2007
---------- -----------
Quoted equity security, at fair value $179,620 $2,924,000
========== ===========
The fair value of quoted security is based on the quoted closing market
price on the date of Sale and Purchase agreement. The investment in
quoted equity security at fair value includes an impairment loss of
approximately US$2.74 million for the year ended December 31, 2008 and
US$3.24 million for the year ended December 31, 2007.
The investments in quoted equity securities comprised of 34,000,000
common shares of PT Agis at the market value of approximately US$0.005
per share.
The Company's equity securities held for trading investment is
denominated in Indonesian Ruppiah.
4. OTHER CURRENT ASSETS
Other current assets consist of the following:
DECEMBER 31, DECEMBER 31,
2008 2007
----------- -----------
Prepayments $ 70,108 $ 169,641
Deposits 69,995 171,095
Other receivables 90,190 172,878
----------- -----------
$ 230,293 $ 513,614
=========== ===========
F-18
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
DECEMBER 31, DECEMBER 31,
2008 2007
----------- -----------
Office equipment $ 1,004,504 $ 1,148,013
Motor vehicle 91,190 112,563
Furniture, fixture and fittings 313,208 596,790
Pony set-top boxes 843,946 842,494
----------- -----------
2,252,848 2,699,860
Accumulated depreciation (1,219,342) (902,714)
----------- -----------
$ 1,033,506 $ 1,797,146
=========== ===========
Depreciation expense was $635,119 for the year ended December 31, 2008
and $575,015 for the year ended December 31, 2007.
6. INTANGIBLE ASSETS
Intangible assets consist of the following:
DECEMBER 31, DECEMBER 31,
2008 2007
------------ ------------
INDEFINITE LIVES
Film library $ 17,763,716 $ 17,759,080
------------ -----------
17,763,716 17,759,080
DEFINITE USEFUL LIVES
Film library 5,400,410 5,331,930
Gaming license 7,090,000 7,090,000
Product development expenditures 719,220 719,220
Software license 12,649 12,649
------------ ------------
13,222,279 13,153,799
Accumulated amortization (6,351,162) (5,219,813)
------------ ------------
6,871,117 7,933,986
------------ ------------
$ 24,634,833 $ 25,693,066
Impairment loss (3,762,777) --
----------- ------------
$ 20,872,056 $ 25,693,066
============ ============
Amortization expense was $1,132,810 for the year ended December 31,2008
and $3,305,000 for the year ended December 31, 2007
Intangible assets purchased and have indefinite lives are stated at
cost less impairment losses are tested for impairment at least annually
in accordance with the provisions of FASB Statement No. 142, Goodwill
and Other Intangible Assets.
FILM LIBRARY WITH INDEFINITE LIVES
Intangible assets of the Company which have been classified as having
indefinite useful lives relate to film library rights acquired for
perpetuity by the Company.
Film costs are stated at the lower of estimated net realizable value
determined on an individual film basis, or cost. Film costs represent
the acquisition of film rights for cash.
The Company maintains distribution rights to these films for which it
has no financial obligations to third parties.
The Company is currently directing all its time and efforts towards
building its broadband business.
The Company evaluates the recoverability of its long lived assets in
accordance with the provisions of Statement of Financial Accounting
Standards No. 142 "Goodwill and the Intangible Assets," in which
intangible assets purchased and which have indefinite lives are stated
at cost less impairment losses and are tested for impairment at least
annually.
F-19
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
Recoverable amount is the higher of fair value less costs to sell and
value in use. In assessing value in use, the estimated future cash
flows are discounted to their present value using a pre-tax discount
rate that reflects current market assessments of the time value of
money and the risks specific to the asset. The use of a discounted cash
flow model often involves the use of significant estimates and
assumptions. Estimates are based upon assumptions about future demand
and market conditions and can vary significantly. When necessary, the
Company uses internal cash flow estimates, quoted market prices or
appraisals, as appropriate, to determine fair value. If the recoverable
amount of an asset is estimated to be less than its carrying amount,
the carrying amount of the asset is reduced to its recoverable amount.
An impairment loss is recognized immediately in the profit and loss
statement, unless the relevant asset is carried at a revalued amount,
in which case the impairment loss is treated as a revaluation decrease.
The estimation of fair value is in accordance with AICPA Statement of
Position 00-2, Accounting by Producers and Distributors of Film. Actual
results may differ from estimates and as a result the estimation of
fair values may be adjusted in the future.
Valuations were performed on January 4, 2007 for the assessments of
impairment of the Company's 100% ownership of the film library, which
reflected a higher value from its cost. The methods of valuation used
by the Company consisted of a discounted cash flow model, as well as
sales transactions comparison method and market earnings/multiples
method. Based on careful analysis of information available, the
estimation for the investment value of the film library currently
ranges from $400 million to $663 million. Management does not feel that
there have been any material changes to affect this valuation during
the year ended December 31, 2008.
ASSETS WITH DEFINITE USEFUL LIVES
Intangible assets which were purchased for a specific period are stated
at cost less accumulated amortization and impairment losses. Such
intangible assets are reviewed for impairment in accordance with FASB
Statement No. 144, Accounting for Impairment or Disposal of Long-Lived
Assets. Such intangible assets are amortized over the period of the
contract, which is 2 to 18 years.
The film library, which are classified as having definite lives, relate
to film library rights that are generally acquired for one to ten years
by the Company.
Included in the gaming license are the rights to a digit games license
in Cambodia. The license is for a minimum period of 18 years commencing
from June 1, 2005, with an option to extend for a further 5 years or
such other period as may be mutually agreed. The Company capitalized
the development and building cost related to the broad-band sites and
infrastructure for the streaming system, most of which was developed in
2002 as product development costs. The Company projects that these
developments costs will be useful for up to five years before
additional significant development needs to be done.
7. EQUITY METHOD INVESTMENT
DECEMBER 31, DECEMBER 31,
2008 2007
----------- -----------
Fair value of investment in associate $ 3,693,650 $ 3,693,650
Goodwill 1,272,465 1,272,465
Share of post-acquisition loss (37,609) (23,832)
----------- -----------
$ 4,928,506 $ 4,942,283
Impairement loss (4,928,506) --
----------- -----------
-- $ 4,942,283
=========== ===========
Details of the Company's Equity Method Investment as at December 31,
2008 are as follows:
Name of Business: 121 View Corporation (SEA) Ltd
Place of Incorporation: British Virgin Islands
Principle of Activity: Digital signage solutions
Proportion of : DECEMBER 31, 2008 DECEMBER 31, 2007
Ownership Interest ----------------- -----------------
30.1% 30.1%
One of the directors of the Company has an interest in the Equity
Method Investment Company. One of the directors of the Company is also
a director in the Equity Method Investment.
F-20
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
Summarized financial information in respect of the Company's Equity
Method Investment is set out below:
DECEMBER 31, DECEMBER 31,
2008 2007
----------- -----------
Total assets $ 9,337,368 $ 9,353,100
Total liabilities (42,978) (23,562)
----------- -----------
Net assets 9,294,390 9,329,538
=========== ===========
Company's share of Equity Method $ 2,797,611 $ 2,808,191
investment's net assets
=========== ===========
Revenue $ 21,678 $ 163,574
=========== ===========
Loss for the period $ 14,601 $ (77,735)
=========== ===========
Company's share of Equity Method
Investment's loss for the period $ 4,395 $ (23,832)
=========== ===========
8. INVESTMENTS AVAILABLE-FOR-SALE
Investments available-for-sale consist of the following:
DECEMBER 31, DECEMBER 31,
2008 2007
----------- -----------
Non Current :
Quoted equity securities $ - $ 4,031,681
Unquoted equity securities 616,136 879,664
----------- -----------
616,136 4,911,345
Current :
Unquoted equity securities 2,402,613 2,402,613
----------- -----------
$ 3,018,749 $ 7,313,958
=========== ===========
The unquoted equity securities classified as available-for-sale, with a
carrying value of $616,136 as of December 31, 2008 and 2007, are
measured at cost less impairment losses as there is no quoted market
price in an active market and other methods of determining fair value
do not result in a reasonable estimate.
The Company explores other alternatives and considers using other
valuation techniques to establish the fair value. Valuation techniques
include using recent arm's length market transactions between
knowledgeable and willing parties. However, as the key investments held
by the Company operate in Singapore, there are no established markets
in Singapore for similar investments for the Company to obtain
comparables and observable data to carry out a reliable fair valuation.
9. COMMITMENTS
As of the balance sheet date, the Group has the following capital
commitments:
December 31, DECEMBER 31,
2008 2007
---------- ----------
CAPITAL COMMITMENTS:
Contracted but not provided for
Film library $ 111,687 $ 118,073
Set-top boxes $2,074,825 $2,074,825
Contents 110,171 --
---------- ----------
$2,303,069 $2,192,898
========== ==========
F-21
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
Capital Leases
The following summarizes the Company's capital lease obligations at
September 30, 2008:
2008 2007
-------- --------
Future minimum lease payments $ 69,140 $ 81,628
Less: amounts representing interest (11,500) (13,576)
-------- --------
Present value of net minimum lease payments 57,640 68,052
Less: current portion (10,809) (10,746)
-------- --------
$ 46,831 $ 57,306
======== ========
The Company is the lessee of equipment under capital leases expiring in
various years through 2014. The assets and liabilities under capital
leases are recorded at the lower of the present value of the minimum
lease payments or the fair value of the asset. The assets are amortized
over the lower of their related lease terms or their estimated
productive lives. Depreciation of assets under capital leases is
included in depreciation expense for 2008 and 2007. Interest rates on
capitalized leases is fixed at 2.85%.
Operating Leases
The Company leases facilities and equipment under operating leases
expiring through 2012. Total rental expense on operating leases for the
year ended December 31, 2008 and 2007 was $373,893 and $341,212,
respectively. As of December 31, 2008, the future minimum lease
payments are as follows:
For the Year Ended
December 31, Operating Capital
--------------------- --------- --------
2009 222,879 10,809
2010 19,205 10,809
2011 -- 10,809
2012 -- 25,215
-------- --------
$242,084 $ 57,642
======== ========
10. INCOME TAXES
The Company files separate tax returns for Singapore and the United
States of America.
The Company had available approximately $6,813,612 of unused U.S. net
operating loss carry-forwards at December 31, 2008, that may be applied
against future taxable income. These net operating loss carry-forwards
expire for U.S. income tax purposes beginning in 2026. There is no
assurance the Company will realize the benefit of the net operating
loss carry-forwards.
SFAS No. 109 requires a valuation allowance to be recorded when it is
more likely than not that some or all of the deferred tax assets will
not be realized. As of December 31, 2008 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 $5,081,450 of unused Singapore
tax losses and capital allowance carry-forwards at December 31, 2008,
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.
F-22
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
11. SEGMENT REPORTING
The Company classifies its business into reportable segments. The
segments consists principally of entertainment and digit gaming.
Information as to the operations of the Company in each of its business
segments is set forth below based on the nature of the products and
services offered.
The Company has provided a summary of operating income by segment. The
accounting policies of the business segments are the same as those
described in the summary of significant accounting policies in Note 2.
Year 2008 ENTERTAINMENT DIGIT GAMING OTHER TOTAL
------------- ------------ --------- ------------
Revenues from external customers $ 203,066 $ -- $ -- $ 203,066
Interest revenue $ 14,183 $ -- $ -- $ 14,183
Interest expense $ 60,027 $ -- $ -- $ 60,027
Depreciation and amortization $ 1,472,540 $ 295,389 $ -- $ 1,767,929
Segment profit (loss) $ (4,429,453) $ (1,226,649) $ -- $ (5,656,102)
Segment assets $ 34,686,359 $ 2,409,456 $ 2,217 $ 37,098,032
Expenditures for segment
assets $ 152,364 $ -- $ -- $ 152,364
Reconcilliation: -
REVENUES
Total revenues for reportable segments $ 203,066
Other revenue $ --
------------
Total consolidated revenues $ 203,066
INTEREST REVENUE
Total interest revenue for reportable segments $ 14,183
Corporate interest revenue $ --
------------
Total consolidated interest revenue $ 14,183
============
INTEREST EXPENSES
Total interest revenue for reportable segments $ 60,027
Corporate interest revenue $ --
------------
Total consolidated interest expenses $ 60,027
============
PROFIT OR LOSS
Total (loss) for reportable segments $ (5,656,102)
Corporate loss $ (331,952)
Impairment loss on associate $ (4,928,506)
Impairment loss on intangible asset $ (3,762,777)
Loss on disposal of investment available for sale $ (750,421)
Loss on valuation of held for trading investment $ (2,744,380)
Share of loss of associate $ (13,778)
------------
Loss before income tax $(18,187,916)
============
ASSETS
Total assets for reportable segments $ 37,095,815
Other assets $ 2,217
------------
Total consolidated assets $ 37,098,032
============
EXPENDITURES FOR SEGMENT ASSETS
Total expenditures for assets for
reportable segments $ 152,364
============
F-23
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
Year 2007 ENTERTAINMENT DIGIT GAMING OTHER TOTAL
------------ ------------ ------------ ------------
Revenues from external customers $ 14,601,299 $ 22,451,970 $ -- $ 37,053,269
Interest revenue $ 45,819 $ -- $ -- $ 45,819
Interest expenses $ 1,378 $ -- $ -- $ 1,378
Depreciation and amortization $ 3,581,459 $ 298,556 $ -- $ 3,880,015
Segment profit (loss) $ 5,570,096 $ 471,763 $ -- $ 6,041,859
Segment assets $ 53,215,524 $ 7,349,053 $ 77,201 $ 60,641,778
Expenditures for segment assets $ 3,698,942 $ -- $ -- $ 3,698,942
Reconciliation:-
REVENUES
Total revenues for reportable segments $ 37,053,269
Other revenue --
------------
Total consolidated revenues $ 37,053,269
============
INTEREST REVENUE
Total interest revenues for reportable segments $ 45,784
Corporate interest revenue
35
------------
Total consolidated interest revenue $ 45,819
============
INTEREST EXPENSES
Total interest expenses for reportable segments $ 1,378
Corporate interest expenses --
------------
Total consolidated interest expenses $ 1,378
============
PROFIT OR LOSS
Total profit for reportable segments $ 6,041,859
Corporate loss $ (347,777)
Intangible asset written off $ (2,420,227)
Gain on dilution of interest in subsidiary $ 2,483,872
Loss on valuation for held for trade investment $ (466,000)
Share of loss of associate $ (23,832)
------------
Income before income tax $ 5,267,895
------------
ASSETS
Total assets for reportable segments $ 60,564,577
Other assets $ 77,201
------------
Total consolidated assets $ 60,641,778
============
EXPENDITURES FOR SEGMENT ASSETS
Total expenditures for assets for reportable segments $ 3,698,942
============
Year 2006 ENTERTAINMENT DIGIT GAMING OTHER TOTAL
------------- ----------- ----------- -----------
Revenues from external
customers $ 8,053,146 $24,505,465 $ 14,664 $32,573,275
Interest revenue $ 55,038 $ -- $ 74,189 $ 129,227
Depreciation and
amortization $ 1,070,621 $ 298,556 $ -- $ 1,369,177
Segment profit $ 2,325,859 $ 317,476 $ 14,664 $ 2,657,999
Segment assets $ 38,984,965 $ 7,390,339 $ 2,516,543 $48,891,847
Expenditures for segment
assets $ 19,182,387 $ -- $ -- $19,182,387
F-24
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
Reconciliation:-
REVENUES
Total revenues for reportable segments $ 32,558,611
Other revenue $ 14,664
------------
Total consolidated revenues $ 32,573,275
============
INTEREST REVENUE
Total interest revenues for reportable segments $ 55,038
Corporate interest revenue $ 74,189
------------
Total consolidated interest revenue $ 129,227
============
PROFIT OR LOSS
Total profit for reportable segments $ 2,657,999
Corporate loss $ (738,757)
------------
Income before income tax and discontinued operations $ 1,919,242
------------
ASSETS
Total assets for reportable segments $ 46,375,304
Other assets $ 2,516,543
------------
Total consolidated assets $ 48,891,847
============
EXPENDITURES FOR SEGMENT ASSETS
Total expenditures for assets for reportable segments $ 19,182,387
============
12. RELATED PARTY TRANSACTIONS
Related parties are entities with common direct or indirect
shareholders and/or directors. Parties are considered to be related if
one party has the ability to control the other party or exercise
significant influence over the other party in making financial and
operating decisions.
Some of the Company's transactions and arrangements are with the
related party and the effect of these on the basis determined between
the parties is reflected in these financial statements. The balances
are unsecured, interest-free and repayable on demand unless otherwise
stated.
During the period, the Company entered into the following transactions
with the related parties:
FOR THE YEAR ENDED
------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2008 2007 2006
----------- ----------- ------------
Associate :
Marketing $ 2,467 $ 110,537 $ --
=========== =========== ============
Other Related Party :
Consultancy fee $ 2,467 $ 80,339 $ --
=========== =========== ============
F-25
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
13. SALE OF IPTV PLATFORM
In April 2007 the Company through its subsidiary M2B World Holdings
Limited entered into an agreement to sell its IPTV platform to a
company in Indonesia (buyer) for $15,000,000. The total amount of the
consideration was to be received in shares of the buyer and a 50% share
of a newly incorporated entity. The Company has received $5,000,000 in
cash and publicly-traded securities. The balance outstanding receivable
of $9,500,000 is included as "Receivable from sale of IPTV platform" at
June 30, 2008 and December 31, 2007, respectively, which comprises of
two portions: the first portion of $2 million to be settled fully in
publicly-traded shares of the buyer and the other portion of $7,500,000
million will be reinvested in the form of joint venture with the buyer
as stated in the terms of the sale agreement.
On December 15, 2008, M2B World Holdings entered into a further
agreement with PT Agis to set up a Joint Venture Company to launch
WOWtv in Indonesia. The agreement with PT Agis TBK would give M2B World
Holdings a 49 percent equity stake in the Joint Venture Company called
PT WOW Television Management is in the process of completing this
transaction and has determined that the entire amount of $9,500,000 is
recoverable and no allowances are necessary. In accordance with the
agreement, the JV Company is expected to be capitalized and go into
operations by July 2009.
14. PURCHASE OF CBBN HOLDINGS LIMITED
The Company through its wholly owned subsidiary, Tremax International
Limited, entered into a sale and purchase agreement dated July 10, 2007
with Domaine Group Limited which has not yet been consummated. Per the
agreement the Company through its wholly owned subsidiary, Tremax
International Limited would transfer 5,333,333 shares of the Company
valued at $3,733,333 which is included as "Prepayment on purchase" at
June 30, 2008 and December 31, 2007, respectively, in exchange for
Domaine Group Limited transferring its 100% shares in CBBN Holdings
Limited, a company incorporated in the British Virgin Islands. The
transaction has not been consummated and the agreement had expired and
was not extended. The Management of the Company had decided not to
proceed with this agreement.
On January 22, 2009, the Company approved the termination and recission
of the Agreement where the seller failed to comply with the terms of
the Agreement and did not deliver to the Company or Purchaser the
consideration for the issuance of the Amaru Shares. The Company further
approved the cancallation of the Amaru Shares.
15. IMPAIRMENT OF DIGIT GAMES LICENSE
The digit game license has been impaired due to the digit game
operations being suspended and all operations stopped by the Cambodia
Government. The company, Allsports managing the digit games in the
Kingdom of Cambodia had also not released the profit to M2B Commerce,
Ltd. from 2007 to present. Management has been recording revenues based
on information provided by Allsports's staff throughout the years and
have verified and adjusted them to actual as of year end. Due to lack
of access as stated above, all revenues for the year ended 2008 will be
reversed since the Company's recognition criteria related to the
associated revenues were not met. The suspension of the digit game
operations is disclosed in footnote 17.
16. LOAN AND BORROWINGS
SEPTEMBER 30, DECEMBER 31,
2008 2007
------------- -----------
Non-current
Convertible loan $2,500,000 --
Less: Future interest charges $ (192,204) --
---------- ----------
$2,307,796 --
Term loans held by the Company at balance sheet date are as follows:
(a) $2,500,000 represents a two years convertible loan drawn down by a
subsidiary company. It bears interest at a fixed rate of 5.0% per
annum. The loan allows the borrower the option to convert the loan
into shares of the subsidiary company at the issue price of $0.942
per share at the end of the two years period. The loan commenced
in July 2008 and will mature in June 2010.
F-26
17. SUBSEQUENT EVENTS
The Management of the Company had decided not to proceed with sale and
purchase agreement of July 10, 2007 entered between Tremax
International Limited, its wholly owned subsidiary and Domaine Group
Limited for the acquisition of CBBN Holdings Limited, ("CBBN
Holdings"). CBB Holdings is a 80% beneficial owner of Cosmactive
Broadband Networks Co Ltd ("CBN") which is a broadband service provider
in Taiwan. The transaction has not been consummated and the agreement
had expired on July 10, 2007.
On January 22, 2009, the Company approved the termination and recission
of the Agreement where the seller failed to comply with the terms of
the Agreement and did not deliver to the Company or Purchaser the
consideration for the issuance of the Amaru Shares. The Company further
approved the cancallation of the Amaru Shares.
The Management of the Company intends to convert its investment in the
Indie Vision Films, Inc, a California Corporation, into content rights
from the library of content owned by Indie Vision Films, Inc. The
Company has received the list of content titles from Indie Vision
Films, Inc, and is currently evaluating and selecting the content
titles.
On March 25, 2009, the Company was officially notified that the digit
games were suspended by the Cambodia Government as part of the
suspension of all lotteries in Cambodia. It cannot be determined at
this time whether the suspension of the digit games is temporary or
permanent, though the Government of Cambodia is currently closing the
gaming business by the order of its Ministry of Economy and Finance.
Due to the lack of access to the digit game operations, the digit games
lottery operations resulting from the holding of the digit games
lottery license were impaired as of December 31, 2008, and all revenues
for the year ended 2008 will have to be reversed since the Company's
recognition criteria related to the associated revenues were not met .
On March 31, 2009, the Company signed an agreement with Beijing Baidu
Network Science and Technology Co Ltd ("Baidu") to launch the WOWtv
platform in China. The agreement was a strategic partnership with Baidu
to provide content services to Baidu.com users.
F-27