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, 2006
( ) 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 April 17, 2006:
34,419,590 shares.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements F-1
(a) Consolidated Balance Sheets F-2
(b) Consolidated Statements of Operations F-3
(c) Consolidated Statement of Shareholders' Equity F-4
(d) Consolidated Statements of Cash Flows F-5
(e) Notes to Consolidated Financial Statements F-6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 1
Item 3. Controls and Procedures 7
PART II. OTHER INFORMATION 7
Item 1. Legal Proceedings 7
Item 2. Unregistered Sales of Equity 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
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
TABLE OF CONTENTS
Consolidated Balance Sheets..................................................F-2
Consolidated Statements of Operations........................................F-3
Consolidated Statement of Changes in Stockholders' Equity ...................F-4
Consolidated Statements of Cash Flows........................................F-5
Notes to Consolidated Financial Statements...................................F-6
F-1
AMARU, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, DECEMBER 31,
2006 2005
---------------- ------------------
ASSETS
Current assets
Cash and cash equivalents $ 5,195,642 $ 4,776,819
Accounts receivable 986,055 842,371
Other receivable 71,323 --
Deposit for an investment 1,052,613 --
Other current assets 346,733 247,566
---------------- ------------------
Total current assets 7,652,366 5,866,756
Non current assets
Property and equipment, net 8,289,952 5,264,130
Product development, net 43,572 60,616
Investment at cost 571,236 441,206
Investments available for sale 2,147,580 2,147,580
License, net 6,899,532 6,964,671
---------------- ------------------
Total non current assets 17,951,872 14,878,203
---------------- ------------------
Total assets $ 25,604,238 $ 20,744,959
================ ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 737,230 $ 656,484
Deferred tax liability 82,715 157,756
Advances from related parties -- 58,392
---------------- ------------------
Total current liabilities 819,945 872,632
Commitments --
Shareholders' equity
Preferred stock (par value $0.001)
5,000,000 shares authorized: 0 shares issued and
outstanding at March 31, 2006 and December 31, 2005 -- --
Common stock (par value $0.001) 200,000,000 shares authorized;
34,419,590 and 31,397,780 shares issued and outstanding at
March 31, 2006 and December 31, 2005 respectively 34,420 31,398
Paid in capital 23,602,311 14,736,743
Subscribed common stock, 0 and 1,418,960 shares at
March 31, 2006 and December 31, 2005 respectively -- 4,256,880
Retained earnings 1,134,635 834,379
Comprehensive gain on currency translation 12,927 12,927
---------------- ------------------
Total shareholders' equity 24,784,293 19,872,327
---------------- ------------------
Total liabilities and shareholders' equity $ 25,604,238 $ 20,744,959
================ ==================
The accompanying notes to financial statements
are an integral part of this statement
F-2
AMARU, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
---------------------------------
March 31, 2006 March 31, 2005
-------------- --------------
Revenue:
Entertainment $ 1,002,657 $ 1,402,696
Digit gaming 5,873,694 --
Other income 786 527
------------ ------------
Total revenue 6,877,137 1,403,223
Cost of services (5,788,393) (878,014)
------------ ------------
Gross profit 1,088,744 525,209
Distribution costs (247,434) (59,361)
Administrative expenses (633,677) (226,051)
------------ ------------
Total expenses (881,111) (285,412)
Income from operations 207,633 239,797
Other income:
Interest received 17,582 --
------------ ------------
Income before income taxes 225,215 239,797
Benefit/(Provision) for income taxes 75,041 (67,472)
------------ ------------
Net income $ 300,256 $ 172,325
============ ============
Earnings per share-basic and diluted $ 0.01 $ 0.01
============ ============
Weighted average number of common shares outstanding
- basic and diluted 33,694,216 27,234,444
============ ============
The accompanying notes to financial statements
are an integral part of this statement
F-3
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
Preferred Stock Common Stock
--------------------- ---------------------
Additional Total
Number of Par Value Number of Par value Paid-in Subscribed Retained Translation Shareholders'
shares ($0.001) shares ($0.001) capital stock earnings gain equity
----------------------------------------------------------------------------------------------------------------
Balance
December 31, 2004 -- $ -- 27,200,000 $ 27,200 $ 2,932,751 $ -- $ 667,634 $ 9,188 $ 3,636,773
Common stock issued
for cash -- -- 4,033,000 4,033 11,309,817 -- -- -- 11,313,850
Common stock issued
for repayment of
account payable -- -- 145,000 145 434,855 -- -- -- 435,000
Stock issued for
services -- -- 19,780 20 59,320 -- -- -- 59,340
Common stock subscribed
for cash
(1,380,000 shares) -- -- -- -- -- 4,140,000 -- -- 4,140,000
Common stock subscribed
for services
(38,960 shares) -- -- -- -- -- 116,880 -- -- 116,880
Net income -- -- -- -- -- -- 166,745 -- 166,745
Comprehensive loss on
currency translation -- -- -- -- -- -- -- 3,739 3,739
----------
Comprehensive income 170,484
-------------------------------------------------------------------------------------------------------------
Balance
December 31, 2005 -- -- 31,397,780 31,398 14,736,743 4,256,880 834,379 12,927 19,872,327
Common stock issued
for cash -- -- 1,602,850 1,602 4,610,108 -- -- -- 4,611,710
Subscribed common stock
issued -- -- 1,418,960 1,420 4,255,460 (4,256,880) -- -- --
Net income -- -- -- -- -- -- 300,256 -- 300,256
Comprehensive loss on
currency translation -- -- -- -- -- -- -- -- --
----------
Comprehensive income 300,256
-------------------------------------------------------------------------------------------------------------
Balance March 31, 2006 -- $ -- 34,419,590 $ 34,420 $ 23,602,311 $ -- $ 1,134,635 $ 12,927 $ 24,784,293
=============================================================================================================
The accompanying notes to financial statements are an integral part of this statement
F-4
AMARU, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
March 31, 2006 March 31, 2005
----------- -----------
CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 300,256 $ 172,325
Adjustments to reconcile net income to cash and cash
equivalents used or provided by operations:
Amortization 82,183 33,751
Depreciation 105,545 4,841
Changes in operation assets and liabilities
Accounts receivables (143,684) (516,713)
Other receivables (71,323) 140,737
Other current assets (99,167) (30,650)
Accounts payable and accrued expenses 5,705 68,784
----------- -----------
Net cash from operating activities 179,515 (126,925)
CASH FLOWS FROM INVESTING ACTIVITIES
Software development cost -- (17,460)
Acquisition of equipment (3,131,367) (251,466)
Deposit paid for an investment (1,052,613) --
Acquisition of investment (130,030) --
----------- -----------
Net cash (used in) investing activities (4,314,010) (268,926)
CASH PROVIDED FROM FINANCING ACTIVITIES
Repayment of balances due to related party (58,392) (43,203)
Proceeds from issuance of common stock 4,611,710 544,625
----------- -----------
Net cash provided by financing activities 4,553,318 501,422
Effect of exchange rate changes on cash and cash equivalents -- 3,739
----------- -----------
Cash flow from all activities 418,823 109,310
Cash and cash equivalents at beginning of period 4,776,819 644,319
----------- -----------
Cash and cash equivalents at end of period $ 5,195,642 $ 753,629
=========== ===========
The accompanying notes to financial statements
are an integral part of this statement
F-5
AMARU, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED
MARCH 31, 2006 AND 2005
(UNAUDITED)
1. BASIS OF PRESENTATION AND REORGANISATION
-------------------------------------------
DESCRIPTION OF BUSINESS
-----------------------
Amaru, Inc. (the "Company") through its subsidiaries under the M2B brand is in
the Broadband Media Entertainment business, and a provider of interactive
Entertainment-on-demand, Education-on-demand and e-commerce streaming over
Broadband channels, Internet portals and Third-Generation (3G) devices globally.
It has launched multiple Broadband TV and integrated shopping websites with over
100 channels of content designed and programmed to effectively target specific
viewer profiles and lifestyles of local and international audiences.
The Company controls substantial content libraries for aggregation, distribution
and syndication on Broadband and other media, sourced from Hollywood and major
content providers around the world.
The Company's business strategy is to be a diversified media company
specializing in the interactive media industry, using the latest broadband,
E-Commerce and communications technologies and access to international content
and programming.
The Company's goal is to provide on-line entertainment and education on-demand
on Broadband channels, Internet portals and 3G devices across the globe; for
specific and identified viewer lifestyles, demographics and interests; and to
tie the viewing experience to an on-line shopping experience. This is to enable
two leisure activities to be rolled into one for the ultimate convenience and
reaching out to a global viewing audience.
REORGANIZATION
--------------
As of February 25, 2004, an agreement was entered into 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 was 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
were 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
Subsidiaries.
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.
BASIS OF PRESENTATION
---------------------
The financial statements included herein are unaudited. However, such
information reflects all adjustments (consisting solely of normal occurring
adjustments) which are, in the opinion of management, necessary for a fair
statement of results for the interim periods. The results of operations for the
three months ended March 31, 2006, are not necessarily indicative of the results
to be expected for the full year.
The accompanying financial statements do not include footnote and certain
financial presentation normally required under generally accepted accounting
principles, and, therefore, should be read in conjunction with the company's
Annual report on Form 10-KSB for the year ended December 31, 2005.
F-6
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------
PRINCIPLES OF CONSOLIDATION
---------------------------
The consolidated financial statements include the accounts of Amaru, Inc. and
its wholly owned subsidiaries. All significant transactions among the
consolidated entities have been eliminated upon consolidation.
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 three customers
totaling 100% of these related revenues for the three months ended March 31,
2006 and two customers totaling 100% of these revenues for the three months
ended March 31, 2005.
The Company's operations are conducted over the world wide web and some
purchases are made from locations outside of Singapore. The Company had been
transacting primarily through its Singapore operating entity.
For the three months
ended March 31
--------------------------
2006 2005
----------- -----------
Sales outside Singapore $ 6,853,694 $ --
Services purchased outside
of Singapore $ 5,742,563 $ 878,014
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 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. 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 are recognized as earned.
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.
F-7
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 to five
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, 2006 and the year ended
December 31, 2005.
ADVANCES FROM RELATED PARTY
----------------------------
Advances from related party are unsecured, non-interest bearing and payable on
demand.
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 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 from foreign currency transactions are
reflected in operations.
INVESTMENTS
-----------
Investments in companies 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.
Investments in which the Company does not have a controlling interest or is
unable to exert significant influence are accounted for at market value if the
investments are publicly traded and any resale restrictions are less than one
year are accounted for as available for sale securities.
F-8
ADVERTISING
-----------
The cost of advertising is expensed as incurred. For the three months ended
March 31, 2006 and 2005 the Company incurred advertising expenses of $190,130
and $20,144 respectively.
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 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.
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.
RECLASSIFICATIONS
-----------------
Certain amounts in the previous periods presented have been reclassified to
conform to the current year financial statement presentation.
3. PROPERTY AND EQUIPMENT
-------------------------
Property and equipment consist of the following:
March 31, December 31,
2006 2005
----------- -----------
Office equipment $ 469,308 $ 431,791
Film library 7,994,092 4,905,066
Motor vehicle 11,000 11,000
Furniture, fixture and fittings 101,325 96,501
----------- -----------
8,575,725 5,444,358
Accumulated depreciation (285,773) (180,228)
----------- -----------
$ 8,289,952 $ 5,264,130
=========== ===========
Depreciation expense was $105,545 for the three months ended March 31,
2006 and $4,841 for the three months ended March 31, 2005
4. PRODUCT DEVELOPMENT
----------------------
Product development consists of the following:
March 31, December 31,
2006 2005
--------- ---------
Development expenditures $ 618,561 $ 618,561
Accumulated amortization (574,989) (557,945)
--------- ---------
$ 43,572 $ 60,616
========= =========
Amortization expense was $17,044 for the three months ended March 31,
2006 and $33,751 for the three months ended March 31, 2005.
F-9
5. LICENSE
----------
License consists of the following:
March 31, December 31,
2006 2005
----------- -----------
Software license $ 2,420,227 $ 2,420,227
Gaming license 4,690,000 4,690,000
----------- -----------
7,110,227 7,110,227
Accumulated amortization (210,695) (145,556)
----------- -----------
$ 6,899,532 $ 6,964,671
=========== ===========
Amortization expense was $65,139 for the three months ended March 31,
2006 and $0 for the three months ended March 31, 2005.
6. COMMITMENTS
--------------
LEASES
------
The Company renewed its lease with a larger office space of about 4,000
square feet, at a monthly rental of $4,204. The new lease period is for
three years, expiring on March 16, 2008.
Rent expense totaled $32,217 for the three months ended March 31, 2006
and $7,781 for the three months ended March 31, 2005.
Minimum lease payments for the noncancellable operating leases for the
years ending December 31,
2006 2007 2008 Total
-------------- --------------- --------------- ---------------
$ 37,836 $ 50,450 $ 10,510 $ 98,796
============== =============== =============== ===============
7. GAMING SERVICES
------------------
The Company's wholly owned subsidiary, M2B Commerce Limited purchased 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.
8. CAPITAL STOCK
----------------
COMMON STOCK FOR CASH
---------------------
>From January 23, 2006, to March 31, 2006 the Company issued 1,602,850 shares of
common stock through private placement at a price of $3 per share for a total
amount of $4,808,550. Consulting fees of $196,840 associated with the issuance
of these shares of common stock were deducted from paid-in capital.
In January and February 2006, the Company issued 1,418,960 shares of common
stock which had been subscribed. The Company reclassified 4,255,460 from common
stock subscribed to common stock and additional paid in capital.
COMMON STOCK ISSUED TO EMPLOYEES
--------------------------------
On December 30, 2005, 33,960 shares of common stock were approved for issue at a
price of $3 a share to employees. These shares were issued in January 2006.
These shares were issued to the employees for their services to the Company
pursuant to the Company's 2004 Equity Compensation Plan (the "Plan"). The shares
of Common stock issued to the employees pursuant to the Plan have been
registered on the registration statement on Form S-8.
COMMON STOCK ISSUED FOR CONSULTING SERVICES
-------------------------------------------
On December 30, 2005, the Company approved the issue of 5,000 shares of common
stock at a price of $3 a 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 at December
31, 2005.
F-10
9. INCOME TAXES
----------------
The Company files separate tax returns for Singapore and the United States of
America.
The Company operated primarily in Singapore and incurred no United States
federal or state income taxes as of March 31, 2006 and 2005.
The Company had available approximately $1,811,000 of unused Federal net
operating loss carry-forwards at March 31, 2006, that may be applied against
future taxable income. These net operating loss carry-forwards expire for
Federal purposes in 2025. There is no assurance that 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. At March 31, 2005, a valuation allowance for the full amount of the
net deferred tax asset was established due to the uncertainties as to the amount
of the taxable income that would be realized.
The Company had available approximately $2,525,370 of unused Singapore capital
allowance carry-forwards at March 31, 2006, 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.
10. 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.
2006
Entertainment Digit Gaming Other Total
------------ ------------ ------------ ------------
Revenues from external customers $ 1,002,657 $ 5,873,694 $ 786 $ 6,877,137
Interest revenue $ 17,582 $ -- $ -- $ 17,582
Interest expense $ -- $ -- $ -- $ --
Depreciation and amortization $ 113,089 $ 74,639 $ -- $ 187,728
Segment (loss) profit $ 212,922 $ 82,977 $ 786 $ 296,685
Segment assets $ 14,843,096 $ 6,530,580 $ 4,230,562 $ 25,604,238
Expenditures for segment assets $ 3,131,367 $ -- $ -- $ 3,131,367
Reconciliation :-
REVENUES
--------
Total revenues for reportable segments $ 6,876,351
Other revenue $ 786
-------------
Total consolidated revenues $ 6,877,137
-------------
INTEREST REVENUE
----------------
Total interest revenue for reportable segments $ 11,471
Corporate interest revenue $ 6,111
-------------
Total consolidated interest revenue $ 17,582
-------------
PROFIT OR LOSS
--------------
Total profit for reportable segments $ 296,685
Corporate expenses $ (71,470)
-------------
Profit before income tax $ 225,215
-------------
ASSETS
------
Total assets for reportable segments $ 21,373,676
Other assets $ 4,230,562
-------------
Total consolidated assets $ 25,604,238
-------------
EXPENDITURES FOR SEGMENT ASSETS
-------------------------------
Total expenditures for assets for reportable segments $ 3,131,367
-------------
F-11
2005
Entertainment Digit Gaming Other Total
------------ ------------ ------------ ------------
Revenues from external customers $ 1,402,696 $ -- $ 527 $ 1,403,223
Interest revenue $ -- $ -- $ -- $ --
Interest expense $ -- $ -- $ -- $ --
Depreciation and amortization $ 38,592 $ -- $ -- $ 38,592
Segment profit $ 255,240 $ -- $ 527 $ 255,767
Segment assets $ 2,759,449 $ -- $ 2,440,227 $ 5,199,676
Expenditures for segment assets $ 268,926 $ -- $ -- $ 268,926
Reconciliation :-
REVENUES
--------
Total revenues for reportable segments $ 1,402,696
Other revenue $ 527
-------------
Total consolidated revenues $ 1,403,223
-------------
PROFIT OR LOSS
--------------
Total profit for reportable segments $ 255,767
Corporate expenses $ (15,970)
-------------
Income before income tax $ 239,797
-------------
ASSETS
------
Total assets for reportable segments $ 2,759,449
Other assets $ 2,440,227
-------------
Total consolidated assets $ 5,199,676
-------------
EXPENDITURES FOR SEGMENT ASSETS
-------------------------------
-------------
Total expenditures for assets for reportable segments $ 268,926
-------------
11. SUBSEQUENT EVENTS
---------------------
COMMON STOCK ISSUED FOR CASH
On April 3, 2006, the Company issued 2,000,000 shares of common stock through
private placement at a price of $3 per share for a total amount of $6,000,000.
Consulting fees approximating $510,000 associated with the issuance of these
shares of common stock were accrued.
>From April 24, 2006 to April 26, 2006 the Company issued 202,000 shares of
common stock through private placement at a price of $5 per share for a total
amount of $1,010,000.
COMMON STOCK ISSUED FOR REPAYMENT OF ACCOUNTS PAYABLE
On April 27, 2006, the Company issued 1,748,000 shares of common stock through a
private placement at a price of $5 a share for a total amount of $8,740,000 for
repayment of accounts payable.
F-12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
ALL FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE DEEMED BY THE COMPANY TO BE
COVERED BY AND TO QUALIFY FOR THE SAFE HARBOR PROTECTION PROVIDED BY THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. PROSPECTIVE SHAREHOLDERS SHOULD
UNDERSTAND THAT SEVERAL FACTORS GOVERN WHETHER ANY FORWARD - LOOKING STATEMENT
CONTAINED HEREIN WILL BE OR CAN BE ACHIEVED. ANY ONE OF THOSE FACTORS COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED HEREIN. THESE
FORWARD - LOOKING STATEMENTS INCLUDE PLANS AND OBJECTIVES OF MANAGEMENT FOR
FUTURE OPERATIONS, INCLUDING PLANS AND OBJECTIVES RELATING TO THE PRODUCTS AND
THE FUTURE ECONOMIC PERFORMANCE OF THE COMPANY. ASSUMPTIONS RELATING TO THE
FOREGOING INVOLVE JUDGMENTS WITH RESPECT TO, AMONG OTHER THINGS, FUTURE
ECONOMIC, COMPETITIVE AND MARKET CONDITIONS, FUTURE BUSINESS DECISIONS, AND THE
TIME AND MONEY REQUIRED TO SUCCESSFULLY COMPLETE DEVELOPMENT PROJECTS, ALL OF
WHICH ARE DIFFICULT OR IMPOSSIBLE TO PREDICT ACCURATELY AND MANY OF WHICH ARE
BEYOND THE CONTROL OF THE COMPANY. ALTHOUGH THE COMPANY BELIEVES THAT THE
ASSUMPTIONS UNDERLYING THE FORWARD - LOOKING STATEMENTS CONTAINED HEREIN ARE
REASONABLE, ANY OF THOSE ASSUMPTIONS COULD PROVE INACCURATE AND, THEREFORE,
THERE CAN BE NO ASSURANCE THAT THE RESULTS CONTEMPLATED IN ANY OF THE FORWARD -
LOOKING STATEMENTS CONTAINED HEREIN WILL BE REALIZED. BASED ON ACTUAL EXPERIENCE
AND BUSINESS DEVELOPMENT, THE COMPANY MAY ALTER ITS MARKETING, CAPITAL
EXPENDITURE PLANS OR OTHER BUDGETS, WHICH MAY IN TURN AFFECT THE COMPANY'S
RESULTS OF OPERATIONS. IN LIGHT OF THE SIGNIFICANT UNCERTAINTIES INHERENT IN THE
FORWARD - LOOKING STATEMENTS INCLUDED THEREIN, THE INCLUSION OF ANY SUCH
STATEMENT SHOULD NOT BE REGARDED AS A REPRESENTATION BY THE COMPANY OR ANY OTHER
PERSON THAT THE OBJECTIVES OR PLANS OF THE COMPANY WILL BE ACHIEVED.
General
M2B World is in the business of broadband entertainment and education-on-demand,
streaming via computers, television sets, PDAs (Personal Digital Assistant) and
the provision of broadband services. Its business includes channel and program
sponsorship (advertising and branding); online subscriptions, channel/portal
development (digital programming services); content aggregation and syndication,
broadband consulting services, broadband hosting and streaming services and
E-commerce.
The following discussion should be read in conjunction with selected financial
data and the financial statements and notes to financial statements.
RESULTS OF OPERATIONS
---------------------
For the quarter ended March 31, 2006 compared with the quarter ended March 31,
2005
OVERVIEW
The Company, through its subsidiaries under the M2B brand name is in the
Broadband Media Entertainment business, and a provider of interactive
Entertainment-on-demand, Education-on-demand and e-commerce streaming over
Broadband channels, Internet portals, and 3G devices globally.
The Company has launched multiple Broadband TV websites with entertainment,
education and online shopping content, with over 100 channels designed to cater
to various consumer segments and lifestyles. Its content covers diverse genres
such as movies, dramas, comedies, documentaries, music, fashion, lifestyle,
education, and more. The Company markets its products globally through its "M2B"
brand name. The M2B brand has established its competitive edge by offering
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.
1
Business Operations
-------------------
Our principal operations are carried out through the following three segments of
our business:
1. Entertainment Services - Video on-Demand services such as for
entertainment and education, providing the Company with advertising,
subscriptions, online games and e-commerce ( B2B and B2C) revenues
2. Digit Games
3. E-Travel Services - Online Travel Portal
1. Entertainment Services
----------------------
The Company provides online entertainment and education on-demand on Broadband
channels, Internet portals and 3G devices across the globe, for specific and
identified viewer lifestyles, demographics and interests; and includes the
viewing experience to an on-line shopping 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. It allows the
following to be delivered:
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 handphones (Wireless Technology)
o E-Commerce or online shopping - linked interactively to the VOD
platforms on broadband. Consumers choose to buy products online with
digital cash 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 exclusive rights for various territories on broadband for its contents i.e.
movies and programs on lifestyles, education, business and glamour.
The Company has built and installed its broadband streaming system complete with
firewalls, load balancing, bandwidth and consumer monitoring systems, video
streaming, video storage and web servers in Singapore and US.
The Company has also developed its streaming applications to stream into
television sets, via a set top box.
The Company has developed a capability to stream wireless broadband and have its
own digitized entertainment sites for wireless broadband applications.
M2B offers consumers personalized entertainment through its wide range of
broadband streaming channels available at www.m2bworld.com.
The Company's offers the following products on the VOD platform :
a) Entertainment - Consumers pay a monthly subscription for access to movies,
music, glamour and fashion, lifestyle (hobbies, cooking, 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.
b) Adult Education - consumers pay a monthly subscription to view program on
management skills, communication skills, decision making, customer services
and sales, motivation, presentation and writing skills, counseling and
others.
With this strategy, the Company generates diversified sources of revenue from:
1. Advertising i.e. program & channel sponsorship
2. Online subscriptions
3. Channel/portal development i.e. digital programming services
4. Content aggregation and syndication
5. Broadband consulting services and online shopping turnkey solutions
6. E-commerce services
7. Online gaming micro-payments
2
Currently, the M2B Broadband websites include:
1. ENTERTAINMENT SITES
-------------------
International and US Sites:
o Star78.com - an advertising-based Family Entertainment site for
international viewers
o Shine8.com - an advertising-based Lifestyle site for
international viewers
o Jump29.com - an advertising-based Young Adults site for
international viewers
o Dreamstage7.com - an advertising & subscription-based Glamour &
Fashion site for international viewers
o Highfashion7.com - an advertising and subscription based
designer Fashion site for international viewers
o Dragon78.tv - an advertising & subscription-based Mandarin
Entertainment site for viewers in US only
o Chinois78.com - an advertising and subscription based Mandarin
Lifestyle site for viewers in US only
Asian Sites:
o Dimension88.com - an advertising & subscription-based Movie site
in Singapore only
o Dragon78.com - an advertising & subscription-based Mandarin
Entertainment site in Singapore only
o Joy Channel - a subscription based family entertainment site
dedicated for United Power viewers in Japan only
o Ideas Broadband - four subscription based entertainment sites
(Movie Mania, Executive Online, Glamour Galore, Dragon City
providing 25 channels) dedicated for Singapore
Telecommunications Ltd Ideas Broadband viewers in Singapore only
o Trilogy - a subscription based 3G mobile phone entertainment
site dedicated for Singapore Telecommunications Trilogy viewers
in Singapore only
o Colours78.com - an advertising and subscription based Mandarin
Lifestyle site in Singapore only
o HappyDigi.com - a subscription based Mandarin site in China only
(Movie entertainment platform)
2. EDUCATION SITES
US Sites:
o Wiz5.us - an advertising & subscription-based Business &
Corporate Training site for viewers in US only
Asian Sites:
o Wiz5.com - an advertising & subscription-based Business &
Corporate Training site for viewers in Singapore only
3. E-COMMERCE SITES
International Sites:
o Starzmall.com - A One-Stop Shopping Paradise
o Trotteuse.com - A Second-Hand Branded Goods Mall
o Royalhive.com - A One-Stop Health and Beauty Mall
Broadband Services
a) Content Management System
The Company launched a state-of-the-art 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 highly
specialized programming of video, animation, streaming and flash content to
multiple destinations and was demonstrated at the Asia Television Forum (ATF
2005), a regional platform for media buyers and sellers. As a sponsor at the
event, M2B World showcased the automated CMS on plasma screens, together with
programming from the wide ranging M2B content library that includes movies,
dramas, comedies, documentaries, music, fashion, lifestyle, learning and
more.
Linked by broadband networks and wireless set-top boxes to push content and
scheduled advertising at physical premises, the CMS allows businesses the
option of presenting targeted content on selected video displays in multiple
locations, such as on different levels of a shopping mall, in various spots
within a restaurant or club or on separate elevators in the same building.
In store video panels can also carry individualized messages together with
customized content to effectively reach consumers and target audiences within
the premises. The Company plans to introduce this integrated CMS and content
solution to U.S. clients in 2006. Businesses and advertisers can then readily
offer customers feature-rich content with this versatile and easy-to-use CMS
designed to advance brand-building activities and widen the advertising
options for customer outreach. As a frontrunner in broadband media, this
integrated solution underscores M2B's key strength in delivering content for
viewing on PCs, 3G mobile phones, PDAs as well as television screens. This is
another method by which M2B is continuing to effectively 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.
3
b) Global Broadband TV Service
The Company through its wholly owned subsidiaries, M2B World Inc incorporated
in the state of California and M2B World Pte. Ltd. incorporated in Singapore,
will be offering multiple TV channels, delivered live over the Internet, to
homes that have a high-speed internet connection.
The service will be in operation in the US and Singapore in June 2006 and it
is expected that 40 channels will be available to customers. Anyone
subscribing to a local Internet service provider will be able to tune in to
the service on a subscription basis. Subscribers will be provided with a
set-top box that connects to their broadband modems instead of the cable TV
point at home. They will be able to watch the programs on their TV sets. The
Company plans to extend this service to broadband users worldwide in the
later part of 2006.
2. Digit Games
-----------
In May 2005, the Company through its subsidiary, M2B Commerce Limited, signed an
agreement with Allsports Limited, a British Virgin Islands company to operate
and conduct digit games in Cambodia and to manage the digit games activities in
Cambodia. The license to manage, conduct and operate the digit games activities
in Cambodia is for a period of eighteen years.
3. E-Travel Services
-----------------
In December 2005, 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 be able to offer direct access to
the extensive range of travel options available through the Amadeus network to
their viewers around the world. The agreement extends M2B's reach from broadband
streaming entertainment into the worldwide travel arena.
The World Travel & Tourism Council (WTTC) recently estimated that worldwide
spending for personal travel will hit $2.8 trillion in 2005. According to
PhoCusWright, the online portion of those sales is growing particularly quickly
in the US, Europe and the Asia-Pacific region, where combined online travel
sales in those three geographic regions is estimated to top $115 billion this
year. With eMarketer reporting that broadband currently reaches over 58 million
households in Asia-Pacific alone, M2B World Travel Ltd. through its agreement
with Amadeus, is now poised to immediately access and serve this consumer
market.
M2B World Travel Ltd. will now be able to offer consumers access to the huge
range of content available through the Amadeus system, including 500 airlines,
58,000 hotels, and a whole range of other travel content.
The M2B World Travel Website will consistently provide the most 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 based on the M2B website,
www.m2bworld.com.
The innovative video e-travel portal brings an extensive range of travel options
to our viewers and giving the Company a powerful entry into the travel and
tourism market; effectively allowing consumers worldwide to tap the broad and
competitive options available no matter what their travel needs. The e-travel
portal by M2B World Travel directly aggregates travel solutions from 500
airlines, 58,000 hotel properties, some 42 car rental companies serving over
30,000 locations, as well as widespread air, ferry, rail, cruise, and tour
operators with proprietary video content, allowing customers to the site to view
their travel destination, thus influencing their purchasing decision.
The M2B travel site is expected to launched in third quarter of2006.
REVENUE
The revenue for the three months ended March 31, 2006 was $6,877,137.
Revenue for the three months ended March 31, 2006 at $6,877,137 was higher than
revenue of $1,403,223 for the three months ended March 31, 2005 by $5,473,914
(390%). This increase in revenue was mainly contributed by the digit games in
Cambodia which commenced operations in June 2005.
4
COST OF SALES
Cost of sales for the three months ended March 31, 2006 was $5,788,393 which
increased by $4,910,379 (559%) from $878,014 for the three months ended March
31, 2005.
As a proportion of revenue, the cost of sales for the three months ended March
31, 2006 was 84% (cost of sales at $5,788,393 and revenue of $6,877,137) as
compared to 63% for the three months ended March 31, 2005 (cost of sales at
$878,014 and revenue at $1,403,223).
The significant increase in cost of sales of $4,910,379 (559%) was mainly
attributed to the cost of managing and operating the operations and game centers
in Cambodia for the digit games (lottery).
The proportion of 84% for the three months ended March 31, 2006 compared to the
63% for the three months ended March 31, 2005 was higher as the Company did not
incur the cost of managing and operating the operations and game centers in
Cambodia for the three months ended March 31, 2005.
DISTRIBUTION EXPENSES
Distribution expenses for the three months ended March 31, 2006 at $247,434 was
higher by $188,073 (317%) as compared to the amount of $59,361 incurred for the
three months ended March 31, 2005.
The higher distribution expenses was attributed to increased spending on the
branding of the M2B brand, marketing and promoting the global Broadband TV which
increased by $169,986 (844%) from $20,144 for the three months ended March 31,
2005 to $190,130 for the three months ended March 31, 2006.
GENERAL AND ADMINISTRATIVE EXPENSES
Administration expenses for the three months ended March 31, 2006 at $633,677
was higher by $407,626 (180%) as compared to the amount of $226,051 incurred for
the three months ended March 31, 2005.
The increase in administrative expenses were attributed mainly to the increase
in:-
o Staff costs. Staff costs had increased by $140,320 (233%) from $60,326 for
the three months ended March 31, 2005 to $200,646 for the three months
ended March 31, 2006 as a result of the increase in the number of
professional employees hired to cater to the expanding and growing
business;
o Depreciation and license amortization. The increase in depreciation was
attributed to the leasehold improvements for the expansion of the office,
new editing suites and laptops provided to staff to cater to the demands of
the growing business. The increase in license amortization came from the
gaming license in Cambodia and the movie contents which have a definite
life. The amount increased by $149,136 (386%) from $38,592 for the three
months ended March 31, 2005 to $187,728 for the three months ended March
31, 2006; and
o Professional fees incurred for the valuation of a subsidiary and
recruitment fees incurred in connection with the hiring of senior staff.
The amount of professional fees increased by $39,001 (70%) from $55,515 for
the three months ended March 31, 2005 to $94,516 for the three months ended
March 31, 2006.
INCOME FROM OPERATIONS
Income from operations registered a slight decrease of $32,164 (13%) from
$239,797 for the three months ended March 31, 2005 to $207,633 for the three
months ended March 31, 2006.
NET INCOME
Net income for the three months ended March 31, 2006 was $300,256 which
increased by $127,931 (74%) from $172,325 for the three months ended March 31,
2005.
The increase was mainly attributed to interest income earned and write back of
deferred tax.
5
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash at $5,195,642 at March 31, 2006 as compared to cash of
$753,629 at March 31, 2005.
The Company does not finance its operations through short-term bank credit,
long-term bank loans nor leasing arrangements with financial institutions as it
believes that cash generated from its operations will be able to cover its daily
running cost and overheads.
During the three months ended March 31, 2006, 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 2006 to expand its broadband
coverage by launching new broadband sites in North America, Europe and
Australia.
In North America, the Company intends to launch new broadband entertainment and
business training content sites in 2006. The server farm will be expanded in the
US to handle the North American business and the global Broadband TV service. By
the second quarter of 2006, the Company plans to offer multiple TV channels,
delivered live over the Internet, to homes that have a high-speed internet
connection. This service is to be available in the US and Singapore in June 2006
with about 40 channels available to customers. The Company intends to provide a
similar service to broadband users worldwide in later part of 2006.
In the third quarter of 2006, the Company plans to launch an innovative travel
e-commerce portal, marketing travel products through a revolutionary world first
video travel portal and providing distribution and technology solutions for the
travel industry.
The Company is continuing to raise additional funds through its private
placement of equity to fund all business expansions and working capital. For the
three months ended March 31, 2006, the Company raised a total of $4,611,710, net
of issuance costs of $196,840.
The Company believes that it can continue to raise funds through private
placement of its securities to fund its growth and expansion.
NEW CONTRACTS
There are three new contracts entered into in the quarter ended March 31, 2006:
On January 12, 2006, the Company through its subsidiary, M2B Commerce Limited
(British Virgin Islands)entered into an investment agreement with Khoo Kim Leng.
Khoo Kim Leng is the beneficial owner of Dai Long Co who intends to develop and
operate an integrated resort in the Kingdom of Cambodia consisting of hotel,
guest house, shopping arcade, entertainment and amusement centre and some gaming
tables. Pursuant to the terms of the Agreement, M2B Commerce Limited will
acquire 25% beneficial ownership in Dai Long for $3million. A downpayment of
$1.24million shall be paid within 30 days from signing of the Agreement. The
initial downpayment of $1.24million shall be converted into 5% equity of Dai
Long. The remaining $1.76million of the agreed payment shall be made within 90
days of the signing of the Agreement, pursuant to the results of the feasibility
and land valuation study as stated in the Agreement.
In the event, M2B Commerce Limited is not able to continue with the investment,
all monies invested shall be converted into equity as follows : $1.24million for
5% equity shares of Dai Long, US$1.76million for 20% equity shares of Dai Long,
prorated accordingly in the event of partial payment by M2B Commerce Limited.
On March 14, 2006, the Company through its subsidiary, M2B Commerce Limited
(British Virgin Islands) entered into a five year agreement with an ISP provider
in Cambodia, Cogetel Limited, a Cambodian corporation, to offer its interactive,
on-demand broadband entertainment platform and its proprietary micro-payment
system to the Cambodian-based company which holds the Online brand.
On March 15, 2006, the Company through its subsidiary, M2B World Travel Ltd.
entered into an agreement with a travel service provider in China, China
International Travel Services (CITS, Sichuan Province) that will facilitate the
linking of the M2B World Travel platform with the CITS network within the major
tourist hubs in China beginning with Sichuan.
6
ITEM 3. Controls and Procedures
Our President and Treasurer/Chief Financial Officer (the "Certifying Officers")
are responsible for establishing and maintaining disclosure controls and
procedures and internal controls and procedures for financial reporting for the
Company. The Certifying Officers have designed such disclosure controls and
procedures and internal controls and procedures for financial reporting to
ensure that material information are made known to them, particularly during the
period in which this report was prepared. The Certifying Officers have evaluated
the effectiveness of the Company's disclosure controls and procedures and
internal controls and procedures for financial reporting as of March 31, 2006
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.
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. Unregistered sales of equity securities and use of proceeds
During the quarter ended March 31,2006, the Company issued 1,602,850 shares of
common stock through its private placement of shares of common stock at a
purchase price of $3 per share for a total amount of $4,808,550 to "accredited
investors", as that term is defined in Regulation D of the Securities Act of
1933. Consulting fees of $196,840 associated with the issuance of these shares
of common stock were deducted from paid-in capital. The proceeds of the sale
were used for growth and expansion of the business.
The shares of the Company's common stock were issued and sold in reliance upon
the exemption provided by Section 4(2) and/or Regulation D/Regulation S of the
Securities Act of 1933.
Item 3. Defaults on senior securities NONE
Item 4. Submission of items to a vote NONE
Item 5. Other information
Sales of Unregistered Securities
On April 3, 2006, the Company issued 2,000,000 shares of common stock through
private placement at a price of $3 per share for a total amount of $6,000,000 to
accredited investors only. The Company completed its private placement which
commenced in February, 2005.
>From April 24, 2006 to April 26, 2006 the Company issued 202,000 shares of
common stock through its new private placement of up to $10 million at a
purchase price of $5 per share for a total amount sold of $1,010,000. On April
27, 2006, the Company issued 1,748,000 shares of common stock in the same
private placement at a purchase price of $5 a share for a total amount of
$8,740,000 for repayment of accounts payable. The use of proceeds includes
working capital and business expansion of the Company.
The shares issued in the private placements set forth above were issued in
reliance on Section 506 of the Regulation D and/or Regulation S of the
Securities Act of 1933.
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 filed on January 4, 2006
Form 8-K filed on January 9, 2006
Form 8-K filed on January 18, 2006
Form 8-K filed on January 30, 2006
Form 8-K/A filed on February 22, 2006
Form 8-K filed on March 9, 2006
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: May 11, 2006
By /s/ Colin Binny
--------------------------------------------
President
By /s/ Francis Foong
--------------------------------------------
Chief Financial Officer
8