UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB/A-2
(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 Midland 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) Balance Sheets F-2
(b) Statements of Operations F-3
(c) Statement of Shareholders' Equity (deficit) F-4
(d) 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 6
PART II. OTHER INFORMATION 7
Item 1. Legal Proceedings 7
Item 2. Changes in Securities and Use of Proceeds 7
Item 3. Defaults On Senior Securities 7
Item 4. Submission of Items to a Vote 7
Item 5. Other Information 7
Item 6. 7
(a) Exhibits (b) Reports on Form 8K
SIGNATURES AND CERTIFICATES 8
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 and equipment 16,576 18,866
Product development, net 270,485 297,402
Investment at equity -- 1,403,493
License 2,420,227 --
Other 2,708 2,708
----------- -----------
Total non current assets 2,709,996 1,722,469
----------- -----------
Total assets $2,829,352 $1,851,185
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 62,623 $ 64,738
Accounts payable- related parties 475,486 423,444
Line of credit 4,891 58,188
Term loan current portion -- 5,007
Income tax payable 178,914 36,994
Advances from parent 58,276 55,518
----------- -----------
Total current liabilities 780,190 643,889
Shareholders' equity
Series A convertible preferred stock (par value $0.001)
5,000,000 shares authorized: 143,000 and 0 shares
issued and outstanding at March 31, 2004 and
December 31, 2003, respectively 143 --
Common stock (par value $0.001) 20,000,000 shares
authorized; 20,000,000 shares issued and outstanding
at March 31, 2004 and 18,136,364 at December 31, 2003 20,000 18,136
Paid in capital 1,254,581 867,292
Subscribed common stock, 0 and 337,513 shares at
March 31, 2004 and December 31, 2003, respectively. -- 128,255
Retained earnings 731,722 160,696
Comprehensive gain on currency translation 42,716 32,917
----------- -----------
Total shareholders' equity 2,049,162 1,207,296
----------- -----------
Total liabilities and shareholders' equity $2,829,352 $1,851,185
=========== ===========
The accompanying notes to financial statements
are an integral part of this statement
F-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:
Licensing and advertising $ 1,005,917 $ 1,621
E-commerce 11,979 --
Other income 18,625 --
------------ ------------
Total revenue 1,036,521 1,621
Cost of services include $68,404 of services
purchased from related party at March 31, 2004) 116,034 6,797
------------- -------------
Gross profit (loss) 920,487 (5,176)
Distribution costs 8,973 3,255
Administrative expenses 180,862 51,663
------------- -------------
Total expenses 189,835 54,918
------------- -------------
Income (loss) from operations 730,652 (60,094)
Finance expenses (454) (925)
Income taxes 159,172 --
------------- -------------
Net income (loss) $ 571,026 $ (61,019)
============= =============
Earnings (loss) per share - basic and diluted $ 0.03 $ (0.00)
============= =============
Weighted average number of common shares
outstanding - basic and diluted 19,088,384 17,727,273
============= =============
The accompanying notes to financial statements
are an integral part of this statement
F-3
AMARU, INC. & SUBSIDIARY
STATEMENT OF STOCKHOLDERS' EQUITY
Series A Convertible
Preferred Stock Common Stock
----------------------- ------------------------------
Total
Additional stock-
Number Par Value Number of Par value Paid-in Subscribed Retained Translation holders'
of Shares ($0.001) shares ($0.001) capital stock Earnings gain equity
-------------------------------------------------------------------------------------------------------
Balance December 31, 2002 -- $ -- 17,727,273 $17,727 $753,701 $82,844 $121,166 $ (4,475) $ 970,963
Common stock issued for cash -- -- 409,091 409 113,591 -- -- -- 114,000
Common stock subscribed at
various dates -- -- -- -- -- 45,411 -- -- 45,411
Net income -- -- -- -- -- -- 39,530 -- 39,530
Comprehensive gain on
currency translation -- -- -- -- -- -- -- 37,392 37,392
-----------
Comprehensive income 76,922
-------------------------------------------------------------------------------------------------------
Balance December 31, 2003 -- -- 18,136,364 18,136 867,292 128,255 160,696 32,917 1,207,296
Shares issued for cash
Feb. 10, 2004 -- -- 1,363,636 1,364 414,636 (128,255) -- -- 287,745
Reverse acquisition 143,000 143 500,000 500 (27,347) -- -- -- (26,704)
Net income -- -- -- -- -- -- 571,026 -- 571,026
Comprehensive gain on
currency translation -- -- -- -- -- -- -- 9,799 9,799
-----------
Comprehensive income 580,825
-------------------------------------------------------------------------------------------------------
Balance March 31, 2004
(consolidated)(Unaudited) 143,000 $ 143 20,000,000 $20,000 $1,254,581 $ -- $731,722 $ 42,716 $2,049,162
=======================================================================================================
The accompanying notes to financial statements
are an integral part of this statement
F-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
Acquisition of license in exchange for
accounts receivable (1,016,734) --
Changes in operating assets and liabilities
Accounts receivable 1,989 4,549
Prepaid and other 35,223 378
Accounts payable 50,041 (1,107)
Income tax payable 141,920 (111)
------------ ------------
Net cash used in operating activities (184,309) (18,293)
CASH USED IN INVESTING ACTIVITIES
Software development cost (2,288) --
Acquisition of equipment (731) --
------------ ------------
Net cash used in investing activities (3,019) --
CASH PROVIDED FROM FINANCING ACTIVITIES
Payable to related party 2,644 (2,130)
Payments on line of credit and loans (58,304) (10,373)
Recapitalization of M2B World Pte. Ltd. (26,704) --
Proceeds from sale of stock 287,745 --
Proceeds from stock subscriptions -- 38,368
------------ ------------
Net cash provided from financing activities 205,381 25,865
Effect of exchange rate changes on cash 9,799 (8,443)
----------- ------------
Cash flow from all activities 27,852 (871)
Cash balance at beginning of period 60,307 57,700
------------ ------------
Cash balance at end of year $ 88,159 $ 56,829
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 454 $ 925
============ ============
Income taxes $ 17,535 $ --
============ ============
The accompanying notes to financial statements
are an integral part of this statement
F-5
AMARU, INC. & SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(UNAUDITED)
1. BASIS OF PRESENTATION AND REORGANIZATION
----------------------------------------
The financial information included herein is unaudited. However, such
information reflects all adjustments (consisting solely of normal
occurring adjustments) which are, in the opinion of management,
necessary for a fair statement of results for the interim periods. The
results of operations for the three months ended March 31, 2004, are
not necessarily indicative of the results to be expected for the full
year.
The accompanying financial statements do not include footnotes and
certain financial presentations normally required under generally
accepted accounting principles; and, therefore, should be read in
conjunction with the Company's Annual Report on Form 10-KSB for the
year ended December 31, 2003, and Form 8Ka, filed on May 24, 2004.
REORGANIZATION
--------------
As of February 25, 2004, the Company made an agreement which provides
for the reorganization of M2B World Pte. Ltd., a Singapore corporation
with and into Amaru, Inc. (Amaru), a Nevada corporation, with M2B World
Pte. Ltd. (M2B), becoming a wholly-owned subsidiary of Amaru. The
agreement is for the exchange of 100% of the outstanding Common Stock
of M2B World Pte. Ltd. for 19,500,000 common shares and 143,000 Series
A convertible preferred shares of Amaru, which are each convertible
into 38.461538 shares of Amaru common stock.
The exchange was accounted for as a reverse acquisition. Accordingly,
for financial statement purposes, M2B World Pte. Ltd. was considered
the accounting acquiror and the related business combination was
considered a recapitalization of M2B World Pte. Ltd. rather than an
acquisition by the Company. The historical financial statements prior
to the agreement will be those of M2B World Pte. Ltd. and the name of
the consolidated Company going forward will be Amaru, Inc. and
Subsidiary.
On this basis, the historical financial statements prior to February
28, 2004 have been restated to be those of the accounting acquirer M2B
World Pte. Ltd. The historical stockholders' equity prior to the
reverse acquisition has been retroactively restated (a
recapitalization) for the equivalent number of shares received in the
acquisition after giving effect to any difference in par value of the
issuer's and acquirer's stock.
F-6
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
USE OF ESTIMATES
----------------
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Management has not made any subjective or complex judgments the
application of which would result in any material differences in
reported results.
CONCENTRATION OF CREDIT RISK
----------------------------
The credit risk is primarily attributable to the Company's trade
receivables. The credit risk on liquid funds is limited because the
counterparties are banks with high credit ratings assigned by
international credit-rating agencies. Licensing and advertising
revenues were concentrated with one customer totaling 100% of those
related revenues for March 31, 2004.
The Company's operations are conducted over the world wide web and some
purchases are made from locations outside of Singapore. However all
transactions are recorded in Singapore
For the three months ended March 31
2004 2003
---- ----
Sales outside of Singapore - -
Services purchased outside
of Singapore (1) 68,404 -
At March 31, 2004 and 2003, all assets of the Company were located in
Singapore.
(1) Includes $68,404 purchased from a related party in Malaysia in the
quarter ended March 31, 2004 ( see Note 9)
CASH AND CASH EQUIVALENTS
-------------------------
Cash on hand, in banks and short-term deposits are held to maturity and
are carried at cost.
Cash and cash equivalents are defined as cash on hand, demand deposits
and short-term, highly liquid investments readily convertible to cash
and subject to insignificant risk of changes in value.
For the purposes of the cash flow statement, cash and cash equivalents
consist of cash on hand and deposits in banks, net of outstanding bank
overdrafts.
REVENUES
----------
Subscription and related services revenues are recognized over the
period that services are provided. Advertising and sponsorship revenues
are recognized as the services are performed or when the goods are
delivered. Content syndication revenue is recognized as the content is
delivered. E-commerce commissions are recognized as received.
Broad-band consulting services and on-line turnkey solutions are
recognized as earned.
To date the Company has only had revenues from licensing and
advertising, E-commerce and subscriptions and related services.
F-7
COSTS OF SERVICES
-----------------
The cost of services pertaining to 1) advertising and sponsorship
revenue and 2) subscription and related services are cost of bandwidth
charges, channel design and alteration, copyright licensing, and
hardware hosting and maintenance costs. The cost of services pertaining
to E-commerce revenue are channel design and alteration, and hardware
hosting and maintenance costs. All these costs are accounted for in the
period incurred.
LICENSING RIGHTS
----------------
Licensing rights refers to the rights to use the content. These rights
are purchased for a specific period as determined in the contract. The
costs of these rights are recognized in the accounts over the life of
the contract on a straight line basis. These contents are then streamed
into the broad-band sites and the revenue earned from advertising,
sponsorship and subscription are then recognized according to our
policy on revenue.
TRADE AND OTHER RECEIVABLES
---------------------------
Trade receivables, which generally have 30 to 90 day terms, are
recognized and carried at the original invoice amount less an allowance
for any uncollectible amounts (if any). An estimate for doubtful debts
is made when collection of the full amount is no longer probable. Bad
debts are written off as incurred.
The Company has reviewed trade and other receivables and determined
that no allowance for doubtful accounts is required.
PROPERTY AND EQUIPMENT
----------------------
Property and equipment is stated at cost. Expenditures for major
improvements are capitalized, while replacements, maintenance and
repairs, which do not significantly improve or extend the useful life
of the asset, are expensed when incurred.
Depreciation of property and equipment is computed using the
straight-line method over the estimated useful lives of the assets,
which is three years.
PRODUCT DEVELOPMENT
-------------------
The Company capitalized the development and building cost related to
the broad-band sites and infrastructure for the streaming system, most
of which was developed in 2002. the Company projects that these
development costs will be useful for up to five years before additional
significant development needs to be done
IMPAIRMENT OF LONG-LIVED ASSETS
-------------------------------
The Company reviews the carrying values of its long-lived and
intangible assets for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not
be recoverable. No impairment losses were recorded in the three months
ended March 31, 2004 and the year 2003.
F-8
INVESTMENTS
-----------
Investments in unconsolidated subsidiaries in which the Company has a
20% to 50% interest or otherwise exercises significant influence are
carried at cost, adjusted for the Company's proportionate share of
their undistributed earnings or losses.
On December 27, 2002, the Company acquired a 9.76% interest in a joint
venture entity, FSBM M2B Sdn Bhd, which it accounts for at cost. The
investment of $2,708 is included in other assets at March 31,2004 and
December 31,2003.
On January 30, 2004, the Company acquired 100% of the outstanding
common stock of CRE8 IP&P in exchange for $2,420,227 of accounts
receivable from CRE8 International Limited. CRE8 IP&P was incorporated
in the British Virgin Islands to hold a license to operate an
E-commerce platform. The company anticipates that the acquisition of
CRE8 IP&P will allow M2B World to provide on-line trading opportunities
for consumers and companies to barter and/or purchase goods.
The Company accounted for its acquisition of CRE8 IP&P under the
purchase method of accounting and in accordance with SFAS No. 141
"Business Combinations", which requires the acquirer to identify all of
the assets acquired and liabilities assumed. As of January 30, 2004,
CRE8 IP&P had no assets or liabilities on its books and has had no
operations since its inception on July 25, 2002. However, the Company
did identify a license owned by CRE8 IP&P that meets the separable and
contractual recognition criteria of SFAS 141 for acquired intangible
assets. The Company has allocated the entire cost of the acquisition of
$2,420,227 to the license based on its fair value as determined by a
third party valuation.
CRE8 IP&P has recorded this license in its financial statements at
$2,420,227 in accordance with SAB No. 54, "Push Down Basis Of
Accounting Required In Certain Limited Circumstances". The license has
an indefinite life and is not subject to amortization.
ADVANCES FROM PARENT
--------------------
Advances from parent are unsecured, non-interest bearing and carry no
fixed terms of repayment.
FOREIGN CURRENCY TRANSLATION
----------------------------
Transactions in foreign currencies are measured and recorded in the
functional currency Singapore dollars using the exchange rate in effect
at the date of the transaction. The reporting currency is U.S. dollars.
At each balance sheet date, recorded monetary balances that are
denominated in a foreign currency are adjusted to reflect the rate at
the balance sheet date and the income statement accounts using the
average exchange rates throughout the period. Translation gains and
losses are recorded in stockholders' equity as other comprehensive
income and realized gains and losses are reflected in operations.
INCOME TAXES
------------
Deferred income taxes are reported using the liability method. Deferred
tax assets are recognized for deductible temporary differences and
deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax
laws and rates on the date of enactment.
EARNINGS PER SHARE
------------------
In February 1997, the Financial Accounting Standards Board (FASB)
issued SFAS No. 128 "Earnings Per Share" which requires the Company to
present basic and diluted earnings per share, for all periods
presented. The computation of earnings per common share (basic and
diluted) is based on the weighted average number of shares actually
outstanding during the period. The Company has no common stock
equivalents, which would dilute earnings per share.
FINANCIAL INSTRUMENTS
---------------------
The carrying amounts for the Company's cash, other current assets,
accounts payable, accrued expenses, notes payable, and other
liabilities approximate their fair value.
F-9
3. PROPERTY AND EQUIPMENT
----------------------
Property and equipment consist of the following at March 31, 2004 and
December 31,2003.
December 31, March 31,
2003 2004
---------- ----------
Office equipment $ 58,857 $ 59,422
Furniture, fixture and fittings 396 562
---------- ----------
59,253 59,984
Accumulated depreciation (40,387) (43,408)
---------- ----------
$ 18,866 $ 16,576
========== ==========
Depreciation expense was $24,689 the year ended December 31, 2003 and
$3,021 for the three months ended March 31, 2004.
4. PRODUCT DEVELOPMENT
-------------------
Product development consists of the following at December 31, 2003 and
March 31, 2004:
December 31, March 31,
2003 2004
---------- ----------
Development expenditures $ 595,413 $ 597,701
Accumulated amortization (298,011) (327,216)
---------- ----------
$ 297,402 $ 270,485
========== ==========
Amortization expense was $115,914 for the year ended December 31, 2003
and $29,205 for the three months ended March 31, 2004.
F-10
5. LINE OF CREDIT
--------------
The Company has a $58,188 line of credit, repayable on demand, used to
fund the Group's short-term working capital requirements. The line of
credit bears interest at prime lending rate plus 1% per annum (6% at
December 31, 2003). This loan is secured by a certificate of deposit of
$58,188 and a personal guarantee of a director. Interest is payable
monthly. The outstanding balance was $58,188 at December 31, 2003 and
$4,891 at March 31, 2004.
6. COMMITMENTS AND CONTINGENCIES
-----------------------------
LEASES
------
The Company leases its office space under a one year operating lease
which expires in February 2005 with a monthly payment of $1,856. Rent
expense totaled $10,344 for the year ended December 31, 2003 and $1,893
for the three months ended March 31, 2004
Future minimum lease payments due are as follows for the years ended
December 31, 2004 and 2005
2004 $ 16,704
2005 3,712
------------
$ 20,416
============
F-11
7. CAPITAL STOCK
-------------
COMMON STOCK
------------
On February 10, 2004 the Company issued 1,363,636 shares of $0.31 par
value Series D common Stock for a total cash capital contribution of
$416,000.
8. INCOME TAXES
------------
The Company files separate tax returns for Singapore and the United
States of America. Reconciliation of the differences between the
statutory tax and the effective income tax are as follows
MARCH 31, 2003 MARCH 31, 2004
----------------- ----------------
U.S. Federal statutory tax -% -%
U.S. State taxes, net of federal tax -% -%
Foreign statutory tax rate 22.0% 22.0%
Non-deductible items -% (0.22%)
Tax exemptions -% -%
----------------- ----------------
Valuation allowance 22.0% -%
Effective income tax rate -% 21.78%
================= ================
F-12
The components of income tax expense consist of the following for the
three months ended March 31, 2003 and 2004
March 31, 2003 March 31, 2004
-------------- --------------
Current:
Federal $ -- $ --
State -- --
Foreign -- 159,172
-------------- --------------
$ -- $ 159,172
============== ==============
The Company operated primarily in Singapore and incurred no United
States federal or state income taxes as of March 31, 2003 and 2004. The
Company had no significant deferred tax assets or liabilities as of
March 31, 2004 and 2003.
9. RELATED PARTY TRANSACTIONS
--------------------------
During the quarter ended March 31, 2004 and 2003, the Company purchased
services from a related party in the amount of $68,404 and $0,
respectively. The related party is FSBM M2B Sdn Bhd ( FSBM ) which is
registered in Malaysia. FSBM is a joint venture between M2B World and
FSBM Holdings Berhad ( formerly known as Fujitsu System Business
Malaysia Berhad). FSBM serves as a production base for M2B World,
having digital post-production suites for content production and
reporting. M2B World owns a 9.76% equity stake in FSBM
On December 29 2004, the Company sold the 9.76% equity stake in FSBM
M2B Sdn Bhd to a third party for $600,000 at a gain of $597,292.
F-13
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
OVERVIEW
The key business focus of M2B will be to establish itself as the leading
provider and creator of a new generation of Entertainment-on-Demand,
Education-on-Demand and E-Commerce Channels on Broadband, and 3G (Third
Generation) devices.
M2B owns exclusive rights in the broadband media for various contents. M2B will
apply broadband technologies to facilitate its growth in the broadband and
internet sector.
Broadband technology is high speed, high-bandwidth two-way data, voice and video
communications, delivered at high transmission rates up to 12 Mbps. This will
encompass:
o Digital Subscriber Line (DSL) technology for delivery into computers o
Set-top box technology for delivery into TV screens
o Wireless technology for delivery into PDAs and 3G handphones
The immediate plan of M2B in the next three years is to launch high impact, rich
media, entertainment and education content channels globally over the broadband
and 3G, comprising:
o On-line "Television" on subscription basis - Broadband access premium
sites
o Advertising and Sponsorship - supporting the online broadband
subscription sites
o On-line shopping malls - E-commerce platforms, and alongside the
broadband sites, on an interactive basis.
M2B's broadband sites will consist of :
o ENTERTAINMENT SITES (CURRENT)
Music, movies, glamour and fashion, lifestyle (hobbies, cooking,
personalities), documentaries, sports, health and fitness, and others.
o EDUCATION SITES
BUSINESS AND CORPORATE TRAINING (CURRENT)
Management skills, communication skills, decision making, customer
services and sales, motivation, presentation and writing skills,
counseling and others.
SCHOOL LEARNING CURRICULUMS (FUTURE)
HEALTH AND WELLNESS (FUTURE)
For the broadband, M2B plans to deliver both wire and wireless solutions,
streaming via computers, TV sets, PDAs and 3G handphones.
At the same time M2B plans to launch e-commerce channels (portals) that provide
on-line shopping but with a difference, merging two leisure activities of
shopping and entertainment, delivering the ultimate on-line experience. The
entertainment channels are to drive and promote the shopping portals, and vice
versa.
M2B World has a wholly owned subsidiary, M2B Commerce Limited ( formerly known
as CRE8 IP&P ), registered in the British Virgin Islands. The acquisition of the
entity, M2B Commerce Limited with the license to operate an E-Commerce Platform
augurs well for M2B World. With this license M2B World can operate an E-Commerce
platform in Singapore and also has the first right of refusal in certain Asian
countries.
Through this E-Commerce platform M2B World will be able to provide a massive
on-line trading opportunities for consumers and companies to barter and/or
purchase goods. The marketing of this E-Commerce platform can be done through
its entertainment channels
M2B World also operates online shopping portals along side broadband
entertainment sites, this gives M2B World the added advantage of being able to
inter-link the E-Commerce platform with the online shopping portal and broadband
entertainment sites to provide an interactive experience of the
consumers/viewers. This means that consumers/viewers can "pause" watching of
videos; in order to shop or go to the E-Commerce platform to conduct a trade.
The combination of this will provide M2B World with an attractive package to
offer to the consumers/ viewers and put the company on a competitive edge.
The intention therefore is for M2B World to transfer and consolidate all of its
online shopping portals under M2B Commerce Limited.
The online shopping portal together with the E-Commerce platform which comprised
E-Commerce business of M2B World is estimated to account for 10% of total
revenue with the rest coming from subscription, advertising and E-services. The
E-Commerce platform will likely be launch in the first quarter/early second
quarter of 2005.
M2B has built and installed its broadband streaming system complete with
firewalls, load balancing, bandwidth and consumer monitoring systems, and video
streaming, video storage and web servers in Singapore.
4
M2B has a joint venture with FSBM Holdings Berhad (formerly known as Fujitsu
System Business Malaysia Berhad) in Malaysia. The company is registered in
Malaysia as FSBM M2B Sdn Bhd. The joint venture has been given pioneer shares in
Malaysia, and its incentives include an investment tax allowance of up to five
years. The joint venture serves as the production base for M2B, having digital
post-production suites for content production and repurposing. M2B World owns a
9.76% equity stake in FSBM M2B Sdn Bhd.
M2B is currently developing its streaming applications to stream into television
sets, through a copper wire or telephone cable and via a set top box. Testing of
set top boxes was successfully completed in 2003.
By the end of 2003, M2B had developed a capability to stream wireless broadband
and have its own digitized entertainment sites for wireless broadband
applications. In 2004, M2B will be ready to launch its broadband content sites
in the modified form for the 2.75/3G handphones.
BUSINESS MODEL
The business model in the area of broadband entertainment and services is to
provide the company with multiple streams of revenue; from Channel and program
sponsorship (advertising and branding); on-line subscriptions; channel/portal
development (digital programming services); content aggregation and syndication;
broadband consulting services; on-line shopping turnkey solutions; E-commerce
commissions; and on-line dealership.
REVENUE
Revenue 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.
Beginning August and September and for the last quarter of 2003, the company
launched new broadband sites in US and Singapore. These sites included Chinese
entertainment sites as well as business and corporate training sites, in the US
and Singapore. One more new movie site was also launched in Singapore.
At the same time in the first three quarters of 2003 the company enhanced its
existing broadband content and e-commerce sites, with better design and content
mix. Hence no or little revenue was earned in the three months ended March 31,
2003.
These enhancements to the existing broadband sites, and the launch of the new
Broadband sites as highlighted above, saw the first reasonably significant
revenues from advertising and content syndication materializing in the last
quarter of 2003.
By March 2004, the company had secured mainly advertising revenues with some
e-commerce and subscription revenues, totaling $1,036,521. The new Chinese
sites, movie sites, business and corporate training sites attracted the bulk of
the advertising revenue due to their content which comprised of television
dramas, movies, documentaries, and corporate training videos.
COST OF SALES
Cost of sales for the three months ended March 31, 2004 was $116,034, which
constitutes 11% of the company's revenue for the three months period ended March
31, 2004, of $1,036,521. The percentage of cost to revenue represents a
significant decrease from the 419% for the three months period ended March 31,
2003 (cost at $6,797 and revenue at $1,621) and the 47% for the year ended
December 31, 2003 (cost at $475,525 and revenue at $1,005,038).
For the three months ended March 31, 2003 the company had very little revenue as
the advertising and content syndication revenue had not been secured. This was
due to the fact that new broadband sites were being developed and existing
broadband sites were being enhanced. Additionally, costs were incurred for the
maintenance of the servers and websites. This resulted in a disproportional
percentage between the cost of sales and revenue of 419%.
For the year ended December 31 2003, revenue came mainly in the last quarter
from advertising and content syndication from the launch of new broadband sites
and existing sites that were enhanced. The cost related to the acquisition of
contents license rights for the broadband sites was incurred in the last two
quarters of 2003 as in the first two quarters no new acquisition of contents was
undertaken, as the broadband sites were still in the process of enhancements and
development. As the increase in cost in the last two quarters of 2003 lagged
behind the increase in revenue, cost of sales as a proportion of revenue for the
year ended December 31, 2003 decreased to 47%.
The revenue stream continued into the first quarter ended March 31, 2004 when
revenue came mainly from advertising and content syndication arising out of the
launch of newly enhanced broadband sites. The company did not incur large
expenditures on purchase of contents. The lower cost resulted in the percentage
as a proportion of revenue decreasing to 11%.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the three months ended March 31 2004
increased to $180,862 from $51,663 for the three months ended March 31 2003. The
increase was due to legal and professional fees incurred in the reverse merger
and reorganization of M2B World and Amaru Inc.
OPERATING INCOME
For the three months ended March 31, 2004, the income from operations was
US$730,652 which increased by US$790,746 from a loss of US$60,094 for the three
months ended March 31, 2003. The profit came mainly from the strong revenue
growth in the three months ended March 31, 2004.
5
LIQUIDITY AND SOURCES OF CAPITAL
The company had cash of $88,159 at March 31, 2004, as compared to cash of
$56,829 at March 31, 2003.
The company believes that cash generated from its operations 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 intends to seek to fund its new growth
activities through equity financing.
In the three months ended March 31, 2004 the M2BWorld Pte, Ltd. raised $416,000
of equity financing to fund its growth activities prior to acquisition of Amaru,
Inc.
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.
6
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).
7
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: February 7, 2005
By /s/ Colin Binny
--------------------------------------------
President
By /s/ Francis Foong Keong Kwong
--------------------------------------------
Chief Financial Officer
8