UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 2004
( ) Transition report pursuant of Section 13 or 15(d) of the Securities
Exchange Act of 1939 for the transition period ____ to______
COMMISSION FILE NUMBER 000-32695
AMARU, INC.
(Exact name of registrant as specified in its charter)
Nevada 88-0490089
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
112 Middle Road, #08-01 Middland House, Singapore 188970 (011)(65) 6332 9287
--------------------------------------------------------------------------------
(Address of Principal Executive Offices, including Registrant's zip code
and telephone number)
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 [ ]
The number of shares of the registrant's common stock as of May 20, 2004:
20,000,000 shares.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements F-1
(a) Consolidated Balance Sheets F-2
(b) Consolidated Statements of Operations F-3
(c) Consolidated Statement of Shareholders' Equity (deficit) F-4
(d) Consolidated Statements of Cash Flows F-5
(e) Notes to Financial Statements F-6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 3
Item 3. Controls and Procedures 4
PART II. OTHER INFORMATION 5
Item 1. Legal Proceedings 5
Item 2. Changes in Securities and Use of Proceeds 5
Item 3. Defaults On Senior Securities 5
Item 4. Submission of Items to a Vote 5
Item 5. Other Information 5
Item 6. 5
(a) Exhibits
(b) Reports on Form 8K
SIGNATURES AND CERTIFICATES 6
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TABLE OF CONTENTS
Balance Sheets...............................................................F-2
Statements of Operations.....................................................F-3
Statement of Changes in Stockholders' Equity (Deficit).......................F-4
Statements of Cash Flows.....................................................F-5
Notes to Financial Statements................................................F-6
F-1
AMARU, INC. & SUBSIDIARY
BALANCE SHEETS
AS OF MARCH 31, 2004 AND DECEMBER 31, 2003
MARCH 31, 2004
(CONSOLIDATED) DECEMBER 31,
(UNAUDITED) 2003
----------- -----------
ASSETS
Current assets
Cash and cash equivalents $ 88,159 $ 60,307
Accounts receivable 12,108 14,097
Other receivable -- 20,554
Prepaid expenses 17,390 33,758
Deposits 1,699 --
----------- -----------
Total current assets 119,356 128,716
Non current assets
Property, equipment and software, net 2,436,803 18,866
Product development, net 270,485 297,402
Investment at equity -- 1,403,493
Other 2,708 2,708
----------- -----------
Total non current assets 2,709,996 1,722,469
----------- -----------
Total assets $2,829,352 $1,851,185
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 538,109 $ 64,738
Accounts payable- related parties -- 423,444
Line of credit 4,891 58,188
Term loan current portion -- 5,007
Income tax payable 178,914 36,994
Advances from parent 58,276 55,518
----------- -----------
Total current liabilities 780,190 643,889
Shareholders' equity
Series A convertible preferred stock (par value $0.001)
5,000,000 shares authorized: 143,000 and 0 shares
issued and outstanding at March 31, 2004 and
December 31, 2003, respectively 143 --
Common stock (par value $0.001) 20,000,000 shares
authorized; 20,000,000 shares issued and outstanding
at March 31, 2004 and 18,136,364 at December 31, 2003 20,000 18,136
Paid in capital 1,287,585 867,292
Subscribed common stock, 0 and 337,513 shares at
March 31, 2004 and December 31, 2003, respectively. -- 128,255
Retained earnings 698,718 160,696
Comprehensive loss on translation 42,716 32,917
----------- -----------
Total shareholders' equity 2,049,162 1,207,296
----------- -----------
Total liabilities and shareholders' equity $2,829,352 $1,851,185
=========== ===========
The accompanying notes to financial statements
are an integral part of this statement
F-2
AMARU, INC. & SUBSIDIARY
STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(UNAUDITED)
FOR THE THREE
MONTHS ENDED FOR THE THREE
MARCH 31, 2004 MONTHS ENDED
(CONSOLIDATED) MARCH 31, 2003
------------- -------------
Revenue $ 1,036,521 $ 1,621
Cost of services 116,034 6,797
------------- -------------
Gross profit (loss) 920,487 (5,176)
Distribution costs 8,973 3,255
Administrative expenses 180,862 51,663
------------- -------------
Total expenses 189,835 54,918
------------- -------------
Income (loss) from operations 730,652 (60,094)
Finance expenses (454) (925)
Income taxes (159,172) --
------------- -------------
Net income (loss) $ 571,026 $ (61,019)
============= =============
Earnings (net loss) per share $ 0.03 $ (0.00)
============= =============
Weighted average number of common shares outstanding 19,088,384 17,727,273
============= =============
The accompanying notes to financial statements
are an integral part of this statement
F-3
AMARU, INC. & SUBSIDIARY
STATEMENT OF STOCKHOLDERS' EQUITY
AS OF DECEMBER 31, 2003 AND MARCH 31, 2004
Series A Convertible
Preferred Stock Common Stock
----------------------- ------------------------------
Accumulated
Total
Additional stock-
Number Par Value Number of Par value Paid-in Subscribed Retained Translation holders'
of Shares ($0.001) shares ($0.001) capital stock Earnings gain equity
-------------------------------------------------------------------------------------------------------
Balance December 31, 2002 -- $ -- 17,727,273 $17,727 $753,701 $82,844 $121,166 $ (4,475) $ 970,963
Common stock issued for cash -- -- 409,091 409 113,591 -- -- -- 114,000
Common stock subscribed at
various dates -- -- -- -- -- 45,411 -- -- 45,411
Net income -- -- -- -- -- -- 39,530 -- 39,530
Comprehensive gain on
translation -- -- -- -- -- -- -- 37,392 37,392
-----------
Comprehensive income 76,922
-------------------------------------------------------------------------------------------------------
Balance December 31, 2003 -- -- 18,136,364 18,136 867,292 128,255 160,696 32,917 1,207,296
Shares issued for cash
Feb. 10, 2004 -- -- 1,363,636 1,364 414,636 (128,255) -- -- 287,745
Reverse acquisition 143,000 143 500,000 500 5,657 -- (33,004) -- (26,704)
Net income -- -- -- -- -- -- 571,026 -- 571,026
Comprehensive gain on
translation -- -- -- -- -- -- -- 9,799 9,799
-----------
Comprehensive income 580,825
-------------------------------------------------------------------------------------------------------
Balance March 31, 2004
(Unaudited) 143,000 $ 143 20,000,000 $20,000 $1,287,585 $ -- $698,718 $ 42,716 $2,049,162
=======================================================================================================
The accompanying notes to financial statements
are an integral part of this statement
F-4
AMARU, INC. & SUBSIDIARY
STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(UNAUDITED)
FOR THE THREE
MONTHS ENDED FOR THE THREE
MARCH 31, 2004 MONTHS ENDED
(CONSOLIDATED) MARCH 31, 2003
------------ ------------
CASH FLOW FROM OPERATING ACTIVITIES
Net income (loss) $ 571,026 $ (61,019)
Adjustments to reconcile net income (loss)
to cash (used) or provided by operations
Amortization 29,205 30,643
Depreciation 3,021 8,374
Changes in operating assets and liabilities
Accounts receivable 1,989 4,549
Prepaid and other 35,223 378
Pccounts payable 50,041 (1,107)
Income tax payable 141,920 (111)
Other 9,799 (8,443)
------------ ------------
Cash provided from operating activities 842,224 (26,736)
CASH USED IN INVESTING ACTIVITIES
Software development cost (2,288) --
Acquisition of software (1,016,734) --
Acquisition of equipment (731) --
------------ ------------
Cash used in investing activities (1,019,753) --
CASH PROVIDED FROM FINANCING ACTIVITIES
Payable to related party 2,644 (2,130)
Payments on line of credit and loans (58,304) (10,373)
Recapitalization of M2B World Pte. Ltd. (33,004) --
Proceeds from sale of stock 294,045 --
Proceeds from stock subscriptions -- 38,368
------------ ------------
Total provide from financing activities 205,381 25,865
Cash flow from all activities 27,852 (871)
Cash balance at beginning of period 60,307 57,700
------------ ------------
Cash balance at end of year $ 88,159 $ 56,829
============ ============
The accompanying notes to financial statements
are an integral part of this statement
F-5
AMARU, INC. & SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(UNAUDITED)
BASIS OF PRESENTATION
---------------------
The financial information included herein is unaudited. However, such
information reflects all adjustments (consisting solely of normal occurring
adjustments) which are, in the opinion of management, necessary for a fair
statement of results for the interim periods. The results of operations for the
three months ended March 31, 2004, are not necessarily indicative of the results
to be expected for the full year.
The accompanying financial statements do not include footnotes and certain
financial presentations normally required under generally accepted accounting
principles; and, therefore, should be read in conjunction with the Company's
Annual Report on Form 10-KSB for the year ended December 31, 2003, and Form 8Ka,
filed on May 24, 2004.
REORGANIZATION
--------------
As of February 25, 2004, the Company made an agreement which provides for the
reorganization of M2B World Pte. Ltd., a Singapore corporation with and into
Amaru, Inc. (Amaru), a Nevada corporation, with M2B World Pte. Ltd. (M2B),
becoming a wholly-owned subsidiary of Amaru. The agreement is for the exchange
of 100% of the outstanding Common Stock of M2B World Pte. Ltd. for 19,500,000
common shares and 143,000 Series A convertible preferred shares of Amaru, which
are each convertible into 38.461538 shares of Amaru common stock.
The exchange was accounted for as a reverse acquisition. Accordingly, for
financial statement purposes, M2B World Pte. Ltd. was considered the accounting
acquiror and the related business combination was considered a recapitalization
of M2B World Pte. Ltd. rather than an acquisition by the Company. The historical
financial statements prior to the agreement will be those of M2B World Pte. Ltd.
and the name of the consolidated Company going forward will be Amaru, Inc. and
Subsidiary.
On this basis, the historical financial statements prior to February 28, 2004
have been restated to be those of the accounting acquirer M2B World Pte. Ltd.
The historical stockholders' equity prior to the reverse acquisition has been
retroactively restated (a recapitalization) for the equivalent number of shares
received in the acquisition after giving effect to any difference in par value
of the issuer's and acquirer's stock.
F-6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
ALL FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE DEEMED BY THE COMPANY TO BE
COVERED BY AND TO QUALIFY FOR THE SAFE HARBOR PROTECTION PROVIDED BY THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. PROSPECTIVE SHAREHOLDERS SHOULD
UNDERSTAND THAT SEVERAL FACTORS GOVERN WHETHER ANY FORWARD - LOOKING STATEMENT
CONTAINED HEREIN WILL BE OR CAN BE ACHIEVED. ANY ONE OF THOSE FACTORS COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED HEREIN. THESE
FORWARD - LOOKING STATEMENTS INCLUDE PLANS AND OBJECTIVES OF MANAGEMENT FOR
FUTURE OPERATIONS, INCLUDING PLANS AND OBJECTIVES RELATING TO THE PRODUCTS AND
THE FUTURE ECONOMIC PERFORMANCE OF THE COMPANY. ASSUMPTIONS RELATING TO THE
FOREGOING INVOLVE JUDGMENTS WITH RESPECT TO, AMONG OTHER THINGS, FUTURE
ECONOMIC, COMPETITIVE AND MARKET CONDITIONS, FUTURE BUSINESS DECISIONS, AND THE
TIME AND MONEY REQUIRED TO SUCCESSFULLY COMPLETE DEVELOPMENT PROJECTS, ALL OF
WHICH ARE DIFFICULT OR IMPOSSIBLE TO PREDICT ACCURATELY AND MANY OF WHICH ARE
BEYOND THE CONTROL OF THE COMPANY. ALTHOUGH THE COMPANY BELIEVES THAT THE
ASSUMPTIONS UNDERLYING THE FORWARD - LOOKING STATEMENTS CONTAINED HEREIN ARE
REASONABLE, ANY OF THOSE ASSUMPTIONS COULD PROVE INACCURATE AND, THEREFORE,
THERE CAN BE NO ASSURANCE THAT THE RESULTS CONTEMPLATED IN ANY OF THE FORWARD -
LOOKING STATEMENTS CONTAINED HEREIN WILL BE REALIZED. BASED ON ACTUAL EXPERIENCE
AND BUSINESS DEVELOPMENT, THE COMPANY MAY ALTER ITS MARKETING, CAPITAL
EXPENDITURE PLANS OR OTHER BUDGETS, WHICH MAY IN TURN AFFECT THE COMPANY'S
RESULTS OF OPERATIONS. IN LIGHT OF THE SIGNIFICANT UNCERTAINTIES INHERENT IN THE
FORWARD - LOOKING STATEMENTS INCLUDED THEREIN, THE INCLUSION OF ANY SUCH
STATEMENT SHOULD NOT BE REGARDED AS A REPRESENTATION BY THE COMPANY OR ANY OTHER
PERSON THAT THE OBJECTIVES OR PLANS OF THE COMPANY WILL BE ACHIEVED.
General
As of February 25, 2004 (the "Closing Date"), Amaru, Inc. (the "Company")
acquired M2B World Pte Ltd., a Singapore corporation ("M2B World") in exchange
for 19,500,000 newly issued "restricted" shares of common voting stock of the
Company and 143,000 "restricted" Series A Convertible Preferred Stock shares to
the M2B World shareholders on a pro rata basis for the purpose of effecting a
tax-free reorganization pursuant to sections 351, 354 and 368(a)(1)(B) of the
Internal Revenue Code of 1986, as amended ("IRC") pursuant to the Agreement and
Plan of Reorganization (the "Reorganization Agreement") by and between the
Company, M2B World and M2B World shareholders. As a condition of the closing of
the share exchange transaction, certain shareholders of the Company cancelled a
total of 1,457,500 shares of common stock. Each one (1) ordinary share of M2B
World has been exchanged for 1.3636363 shares of the Company's Common Stock and
100 shares of the Company's Series A Convertible Preferred Stock. Each share of
newly issued Company's Series A Convertible Preferred Stock can be converted to
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.
M2B World is in the business of broadband entertainment and education-on-demand,
streaming via computers, television sets, PDAs (Personal Digital Assistant) and
in the near future through 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 and E-commerce.
The restructuring and re-capitalization has been treated as a reverse
acquisition with M2B World becoming the accounting acquirer. The historical
financial statements prior to the closing of the transaction are those of M2B
World.
The following discussion should be read in conjunction with selected financial
data and the financial statements and notes to financial statements.
3
RESULTS OF OPERATIONS
---------------------
Three Months Ended March 31, 2004 Compared With Three months Ended March
31,2003.
Revenues for the three months ended March 31, 2004 increased to $1,036,521 from
$1,621 for the three months ended March 31, 2003. The increase of $1,034,900
resulted primarily from advertising and content syndication revenues arising out
of the launch of newly enhanced broadband sites in the last four months of 2003,
from September 2003 to December 2003. The Company was in the process of
constructing and enhancing some of its broadband sites for the period ended 31
March 2003.
The cost of services for the three months ended March 2004 increased to $116,034
from $6,797 in the three months ended March 2003. The increase of $109,237
resulted primarily from the acquisition of license rights for the broadband
sites.
Administrative expenses for the three months ended March 2004 increased to
$180,862 from $51,663 for the three months ended March 2003. The increase of
$129,199 resulted primarily from legal and other professional fees paid in the
three months ended March 2004.
LIQUIDITY AND SOURCES OF CAPITAL
---------------------------------
The Company had cash of S$88,159 at March 31, 2004, as compared to cash of
S$56,829 at March 31, 2003.
The Company believes that cash generated from its operations which is able to
cover its daily running cost and overheads.
Cash generated from operations will not be able to cover the Company's intended
growth and expansion. The Company has plans in 2004 to expand its broadband
coverage by launching new broadband sites in North America and Asia.
In North America, the Company intends to launch new entertainment and business
training content sites in 2004. In Asia, the Company plans to launch new health
and wellness, and business training content sites in 2004. At least one
broadband entertainment site is also planned for launching streaming content on
a worldwide basis in 2004. In the area of E-Commerce, the Company plans to
launch one shopping mall for health and wellness products online.
To achieve its plans, the Company will seek to fund its new growth activities
through equity financing.
ITEM 3. Controls and Procedures
Our President and Treasurer/Chief Financial Officer (the "Certifying Officer")
is responsible for establishing and maintaining disclosure controls and
procedures and internal controls and procedures for financial reporting for the
Company. The Certifying Officer has designed such disclosure controls and
procedures and internal controls and procedures for financial reporting to
ensure that material information is made known to him, particularly during the
period in which this report was prepared. The Certifying Officer has evaluated
the effectiveness of the Company's disclosure controls and procedures and
internal controls and procedures for financial reporting as of March 31, 2004
and believes that the Company's disclosure controls and procedures and internal
controls and procedures for financial reporting are effective based on the
required evaluation. There have been no significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
4
PART II. OTHER INFORMATION
Item 1. Legal proceedings
No disclosures are required pursuant to Item 103 of Regulation S-B, taking into
account Instruction 1 to that Item.
Item 2. Changes in securities and use of proceeds
During the quarter ended March 31, 2004, the Company issued 19,500,000
"restricted" shares of common voting stock of the Company and 143,000
"restricted" Series A Convertible Preferred Stock to the shareholders of M2B
World pursuant to the Agreement and Plan Reorganization by and between the
Company, M2B World and the shareholders of M2B World. The shares of the
Company's common stock and preferred stock were issued and sold in reliance upon
the exemption provided by Section 4(2) and Section 505 and 506 of Regulation D
of the Securities Act of 1933.
Item 3. Defaults on senior securities NONE
Item 4. Submission of items to a vote NONE
Item 5. Other information NONE
Item 6.
(a) Exhibits
--------
Exhibit No. Description
----------- -----------
Exhibit 31 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF
FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT
Exhibit 32 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF
FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT
b) Reports on 8K during the quarter: Form 8-K (Items 1,2 and 7).
5
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMARU, INC.
Date: May 24, 2004
By /s/ Colin Binny
--------------------------------------------
President and Chief Financial Officer
6