UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 10-K/A-3
Amendment No. 3 to Form 10-K
(MARK ONE)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO ________
COMMISSION FILE NUMBER: 0-32695
AMARU, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 88-0490089
(STATE OR 0THER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
62 CECIL STREET, #06-00 TPI BUILDING, SINGAPORE 049710
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE : (65) 6332 9287
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS Name of each exchange on which registered
NONE NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Title of class
COMMON STOCK
$0.001 PAR VALUE
Indicate by check mark whether the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act.
Yes |_| No |X|
Indicate by check mark whether the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.
Yes |_| No |X|
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. |_|
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer |_| Accelerated filer |_| Non-accelerated filer |_|
Smaller reporting company |X|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes |_| No |X|
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common equity, as of
the last business day of the registrant's most recently completed second fiscal
quarter. As of March 20, 2010, the aggregate market value of the voting common
equity held by non-affiliates of the registrant computed by reference to the
closing sale price of the common stock as of March 20, 2010 at $0.10 per share
was $14,772,067.70.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date. The number of shares
outstanding of registrant's common stock, $0.001 par value per share, was
171,545,373 as of March 20, 2010.
List hereunder the following documents if incorporated by reference and the Part
of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) Any annual report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to security holders
for fiscal year ended December 24, 1980).
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TABLE OF CONTENTS
Page
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PART I
Item 1 Business 1
Item 1A Risk Factors 12
Item 1B Unresolved Staff Comments 16
Item 2 Properties 16
Item 3 Legal Proceedings 17
Item 4 Submission of Matters to a Vote of Security Holders 17
PART II
Item 5 Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities 17
Item 6 Selected Financial Data 20
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 21
Item 7A Quantitative and Qualitative Disclosures About Market Risk 36
Item 8 Financial Statements and Supplementary Data 38
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 38
Item 9A Controls and Procedures 39
Item 9B Other Information 40
PART III
Item 10 Directors and Executive Officers and Corporate Governance 40
Item 11 Executive Compensation 45
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters 48
Item 13 Certain Relationships and Related Transactions, and Director Independence 49
Item 14 Principal Accounting Fees and Services 50
PART IV
Item 15 Exhibits and Financial Statement Schedules 51
Signatures 52
Certification of CFO and CFO
Section 1350 Certification
PART I
ITEM 1: DESCRIPTION OF BUSINESS
BACKGROUND
Amaru, Inc. (the "Company") is in the business of broadband
entertainment-on-demand, streaming via computers, television sets, PDAs
(Personal Digital Assistant) and the provision of broadband services.
Its business includes channel and program sponsorship (advertising and
branding); online subscriptions, channel/portal development (digital
programming services); content aggregation and syndication, broadband
consulting services, broadband hosting and streaming services and
E-commerce.
The Company is also in the business of digit gaming (lottery). The
Company has an 18 year license to conduct nation wide lottery in
Cambodia. The Company through its subsidiary, M2B Commerce Limited,
signed an agreement with Allsports International Ltd, a British Virgin
Islands company to operate and conduct digit games in Cambodia and to
manage the digit games activities in Cambodia. On March 25, 2009, the
Company was notified that the digit game lottery operations have been
suspended by the government of Cambodia as part of the suspension of
all lotteries in Cambodia.
The Company believes at this time that the suspension of the digit
games is permanent, as the Government of Cambodia has closed the gaming
business by the order of its Ministry of Economy and Finance. See Note
14.
The key business focus of the Company is to establish itself as the
leading provider and creator of a new generation of
Entertainment-on-Demand and E-Commerce Channels on Broadband, and 3G
(Third Generation) devices.
The Company delivers both wire and wireless solutions, streaming via
computers, TV sets, PDAs and 3G hand phones.
At the same time the Company launches e-commerce channels (portals)
that provide on-line shopping and pay per view services but with a
difference, merging two leisure activities of shopping and
entertainment. The entertainment channels are designed to drive and
promote the shopping portals, and vice versa.
The Company's business model in the area of broadband entertainment
includes e-services, which would provide the Company with multiple
streams of revenue. Such revenues would be derived from advertising and
branding (channel and program sponsorship); on-line subscriptions;
online games micro-payments; channel/portal development (digital
programming services); content aggregation and syndication; broadband
consulting services; on-line shopping turnkey solutions; broadband
hosting and streaming services; E-commerce commissions and on-line
dealerships.
The Company was incorporated under the laws of the state of Nevada in
September, 1999. The Company's corporate offices are located at 62
Cecil Street, #06-00 TPI Building, Singapore 049710; telephone (65)
63329287. The corporate website is located at www.amaruinc.com.
Information included on the website is not a part of this annual
report.
As of February 25, 2004 (the "Closing Date"), Amaru acquired M2B World
Pte. Ltd. (M2B World), a Singapore corporation, in exchange for
19,500,000 newly issued "restricted" shares of common voting stock of
the Company and 143,000 "restricted" Series A Convertible Preferred
Stock shares to the M2B World shareholders on a pro rata basis for the
purpose of effecting a tax-free reorganization pursuant to sections
351, 354 and 368(a)(1)(B) of the Internal Revenue Code of 1986, as
amended pursuant to the Agreement and Plan of Reorganization by and
between the Company, M2B World and M2B World shareholders. As a
condition of the closing of the share exchange transaction, certain
shareholders of the Company cancelled a total of 1,457,500 shares of
common stock. Each one (1) ordinary share of M2B World has been
exchanged for 1.3636363 shares of the Company's Common Stock and 100
shares of the Company's Series A Convertible Preferred Stock. Each
share of the Company's Series A Convertible Preferred Stock had a
conversion rate of 38.461538 shares of the Company's common stock.
Following the Closing Date, there were 20,000,000 shares of the
Company's Common Stock outstanding and 143,000 shares of the Company's
Series A Convertible Preferred Stock outstanding. Immediately prior to
the Closing, there were 500,000 shares issued and outstanding. All of
the Series A Convertible Preferred Stock was subsequently converted
into shares of common stock of the Company.
1
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.
On May 17, 2010, the management of the Company concluded upon
accepting the recommendation of its independent registered public
accounting firm, Mendoza, Berger& Company, LLC, that the Company's
audited financial statements for the fiscal year ended December 31,
2009 should no longer be relied upon. The Company amended its financial
statements to provide that the asset of film library is fully impaired
at December 31, 2009. Due to the material nature of the impairment of
the Company's film library asset at and for the year ending December
31, 2009 and the fact that the film library failed to produce any of
the budgeted revenue for the fiscal year, management has concluded
that a full impairment of the film library was warranted and should
have been recorded at December 31, 2009. The film library was impaired
for the year ended 2009 in accordance with the requirements of
impairment of long lived assets. The management of the Company
believes that the film library as a long term asset still has an
intrinsic value, to which it cannot presently quantify.
BUSINESS OVERVIEW
The Company, through its subsidiaries under the M2B and new WOWtv brand
names, is in the Broadband Media Entertainment business, and a provider
of interactive Entertainment-on-demand and e-commerce streaming over
Broadband channels, Internet portals, and 3G (Third Generation) devices
globally.
The Company has launched multiple Broadband TV websites with
entertainment and online shopping content, with multiple content
channels designed to cater to various consumer segments and lifestyles.
Its content covers diverse genres such as movies, dramas, comedies,
documentaries, music, fashion, lifestyle and more. The Company markets
its products globally through its "M2B" and "WOWtv" brand names.
Through these brands, the Company offers access to an expansive range
of content libraries for aggregation, distribution and syndication on
Broadband and other media, including rights for merchandising, product
branding, promotion and publicity.
The Company was also in the business of digit gaming (lottery). The
Company has an 18 year license to conduct nationwide lottery in
Cambodia. The Company through its subsidiary, M2B Commerce Limited,
signed an agreement with Allsports Limited, a British Virgin Islands
company to operate and conduct digit games in Cambodia and to manage
the digit games in Cambodia. On March 25, 2009, the Company was
notified that the digit games were suspended by the Cambodia Government
as part of the suspension of all lotteries in Cambodia. The suspension
of the digit games is expected to be permanent as the Government of
Cambodia has closed the gaming business by the order of its Ministry of
Economy and Finance.
Globally, Amaru, Inc. is expanding through several of its subsidiaries,
including:
1. M2B World, Inc. - focuses on the US market and is based in
Hollywood, California
2. M2B World Asia Pacific Pte. Ltd. - oversees the Asia Pacific business and directs
the Asian markets through this office and
representative office in Chengdu, China
3. M2B Australia Pty. Ltd. - oversees Oceania markets
4. M2B Entertainment, Inc. - oversees Canadian market
5. M2B Commerce Limited - focuses on digit games in Cambodia
6. M2B World Travel
Singapore Pte Ltd.
- offers e-travel
services
7. Amaru Holdings Limited - focuses on content syndication and distribution
in areas other than Asia Pacific region
8. M2B World Holdings Limited - focuses on content syndication and distribution
in Asia Pacific region
9. M2B World Pte. Ltd. - provides management services to fellow
subsidiaries of the Company
10. Tremax International Limited - operates as an investment holding company
11. M2B World Travel Limited - oversees online travel and related business
2
The Company offers consumers personalized entertainment through its
wide range of broadband streaming channels available via
www.amaruinc.com and www.wowtv.com.
BUSINESS STRATEGY
Our business strategy is to become a premier diversified media,
e-commerce and e-lifestyle company. We adopt the latest broadband,
e-commerce and communications technology and leverage on our
international premium content and programming expertise. This is how we
deliver online entertainment, lifestyle products and services to our
customers.
Our goal is to constantly identify fresh market opportunities and to
stay ahead of changes in the broadband media and related e-commerce
industry. We believe that we can accomplish this by continuing to
satisfy customers' needs for a convenient, comprehensive and
personalized source of broadband video content, services and
information with pleasant user experiences. Through our business plan
implementation, we aim to become a leading Broadband Media
Entertainment business, providing interactive Entertainment-on-demand
and e-commerce streaming over Broadband channels, Internet portals, and
3G devices globally.
We intend to continue leveraging on our competitive strengths to attain
a leadership position in the industry.
COMPETITIVE STRENGTHS
The Company's competitive strengths are:
o CONTENT LIBRARY
The Company owns a library of content that covers a wide range of
genres, of which the majority includes worldwide rights in perpetuity
on the broadband. This enables the Company to deliver a rich and
diverse variety of on-demand streaming video content that suit the
lifestyle and taste of different consumer segments, across different
countries - thereby massing a global base of viewers to attract
advertisers to its delivery platforms on the PC, 3G devices and TV.
The Company has built relationships with content distributors in the
U.S. and Asia that enables it to continually source for content that
meet the changing demands and taste of the customers and advertisers.
Upon the Company's most recently completed impairment evaluation
(fourth quarter of fiscal year 2009), however, the film library was
determined to be impaired during the year ended December 31, 2009. In
conducting the analysis, the Company used a discounted cash flow
approach in estimating fair value as market values could not be
readily determined given the unique nature of the respective assets.
For the year ended December 31, 2009, there was an impairment loss of
$19,164,782 due to a lack of revenue the past two fiscal years. See
the Company's financial statements.
o GLOBAL VIDEO STREAMING NETWORK
The Company has also developed and implemented a global video streaming
network that enables it to deliver high quality on-demand video
streaming programs from its rich library of content rights to a
worldwide audience of broadband users. This global video streaming
network is completely integrated with firewalls, loading balancing
protocols, bandwidth and consumer monitoring systems and payment
gateways to enable worldwide billing. In addition, the Company has its
own digital post-production and design capabilities to fully manage
content rights protection, user experience and specialized programming
for all its consumer-facing delivery platforms. This end-to-end
broadband streaming infrastructure enables the Company to customize and
diversify its products and services, incorporating video-on-demand and
e-commerce services.
o MULTIPLE REVENUE STRENGTHS
The Company's diversified delivery platforms enable it to capitalize
and generate multiple revenue streams by targeting different consumer
segments over broadband, across different geographic markets. The
multiple revenue streams comprise of advertising, subscriptions,
sponsorships, online shopping and games, as well as licensing and
content syndication and turn-key broadband consulting solutions. The
Company's goal is not to be excessively dependent on any one single
revenue source. Its library of content rights combined with its global
video streaming network supports the Company's future growth strategy
that focuses on multiple growth areas and territories. The Company can
thereby cost-effectively tailor its broadband websites and services to
suit different cultures, consumer behavior and clients needs in
different geographical locations. The Company is also able to localize
its products and services to sustain loyalty of its viewers and
consumers.
3
o KEY ALLIANCES
The Company has entered into strategic alliances and / or agreements
with key providers to support the marketing and distribution of its
products and services in different territories. Among its key providers
are Baidu (China), Zingmobile Pte Ltd (Singapore), MOL Media Sdn Bhd
(Malaysia), MOL AccessPortal Berhad (Malaysia), Webvisions Pte Ltd
(Singapore), Zentek Technology (Japan)and two regional advertising
agencies, Admax Network Holdings Limited (based in Singapore) and
Innity Sdn Bhd (based in Malaysia). The Company will continue to forge
strategic partnership opportunities including the area of web-enabled
mobile devices and extend its accessibility to customers of its
broadband websites and services.
GROWTH STRATEGIES
The Company's growth strategies consist of:
o Continuing to build its library of content rights on the
broadband to provide sustained high quality on-demand
video-based entertainment and e-commerce that will maintain
and grow its worldwide base of viewers.
o Penetrating new markets to deliver M2B and WOWtv branded
content to any screen including PC, 3G and TV, as well as
wireless mobile devices like PDAs and to establish new
delivery channels to meet the changing preferences of viewers
and consumers, worldwide.
o Capitalize on its growing worldwide viewer and consumer base
by aggressively signing up subscribers, as well as advertisers
onto its on-demand interactive broadband delivery channels for
entertainment, online games and e-commerce.
Consumers access the Company's entertainment sites through its main
website, www.amarinc.com or directly go to the entertainment sites at
www.wowtv.com.
NEW PRODUCT OFFERINGS
In August 2007, M2B World Asia Pacific Pte Ltd, a subsidiary company of
Amaru which oversees the Asia Pacific markets, launched a new broadband
entertainment web TV service, called WOWtv. The Company intends that
WOWtv serve as its new brand for its broadband entertainment services.
WOWtv had therefore combined and incorporated all the Company's
previous entertainment websites into one leading site. WOWtv streams
multiple video-on-demand channels of Hollywood and Asian entertainment.
In August 2008, a new enhanced version of WOWtv called WOWtv NEW was
launched to promote further this premier personalized broadband
entertainment channel.
The new enhanced site, WOWtv NEW is expected to customize user
experience through expanded features. These features include:
o High Definition streaming
o New Community and User Generated Content
o Live TV broadcast
o Social Networking
All these features compliment the existing extensive VOD service
available on WOWtv.
The service was also revamped into two main tiers, namely :
o Free Tier - Web TV channels are provided free to
viewers without the need to register and are
advertising supported.
o Subscription Tier - Web TV channels are provided to
registered subscribers for a pay-per-view fee.
4
The initiatives were taken to retain and expand viewership. The plan
for an extended viewership base through the expanded features is
expected to value add to the WOWtv service and potentially lead to new
revenue sources and increase advertising revenue in the years ahead.
The WOWtv service had, as of February 2009, been further developed and
relaunched on a global basis in addition to the site in Singapore. In
April 2009, the WOWtv service was extended to cover China with the
launching of its Chinese site. The WOWtv global service is available on
www.wowtv.com, the Singapore service on sg.wowtv.com. and the China
service on cn.wowtv.com.
CONSUMER MARKETING
The Company's broadband entertainment websites attract viewers from all
over the world. The Company's strategy of converting visitors into
customers lies in a combination of incentives, including seasonal and
purchase-related promotions that take advantage of the Company's
customer database and broadband websites.
The Company plans to negotiate special rates and benefits to obtain
access to a superior online inventory for the customers. The increasing
scale of the business will enable the Company to negotiate on more
favorable terms. Through research with visitors and customers, the
Company is developing new programs and features (including
personalization and loyalty incentives) that would turn visitors into
customers and maintain loyalty.
The Company also employs a variety of online and traditional media
programs and promotional activities such as:
(a) Advertising
The Company invests in both online and traditional advertising
to drive traffic to our broadband websites. To generate
traffic to M2B and WOWtv's broadband websites in a cost
efficient manner, the Company purchased targeted keywords and
textlinks in reasonably high volume. The Company also
advertises in traditional print and broadcast media to
increase the awareness of its service, product enhancements
and retail offerings.
(b) Public Relations
The core of our public relations effort is media relations and
industry analyst relations. We maintain relations with
journalists and industry analysts to help secure unbiased,
third-party endorsements for the Company. We pursue coverage
by online publications, search engines and directories.
(c) Co-marketing, Promotions and Loyalty Programs
We intend to continue to establish significant co-marketing
relationships to promote our service and to sponsor contests
that offer M2B and WOWtv related prizes. These programs
typically involve participation with our partners. We intend
to enter into additional co-marketing relationships in support
of our marketing strategy. From time to time, we offer various
incentives and awards to our existing customer base. These
incentives are designed to increase customer loyalty and
awareness of the M2B and WOWtv brands.
(d) Direct Marketing
The Company maintains a database which includes customers
profiles and preferences and other key customer attributes.
This data enables us to track the effectiveness of promotions
and incentives and to understand seasonal and other trends in
order to create and quickly implement marketing programs
targeted to specific customer segments. In addition, we
regularly communicate with our customers through targeted
e-mail.
The Company, while growing the business, also aims to maintain
profitability. While it executes its growth strategies, it
also controls costs. It intends to continue to implement
programs to control the cost of revenues and reduce operating
costs through technology and productivity management,
economies of scale and financial controls. This strategy
should enable us to provide our products to customers on a
cost competitive basis.
5
BUSINESS SEGMENTS
Our principal operations are carried out through the following three
segments of our business:
1. Entertainment Services - Video on-Demand services for
entertainment, providing the Company with advertising,
subscriptions, online games and e-commerce revenues
2. Digit Games
ENTERTAINMENT SERVICES
The Company provides online entertainment on-demand on Broadband
channels, Internet portals and 3G devices across the globe, for
specific and identified viewer lifestyles, demographics and interests.
Entertainment and web visit experience is maintained throughout from
the initial viewing experience to on-line purchases and payment
checkout experience.
The Company uses Broadband technology to provide its services.
Broadband technology is defined as high speed, high-bandwidth, two-way
data, voice and video communications, delivered at high transmission
rates.
SERVICES: Broadband technology allows us to deliver the following
services::
o Video-on-demand (VOD) services that enable
individuals to select videos from a Central Server,
on-demand 24 hours a day, 7 days a week, for viewing
on:
o Television screens (Set top Box Technology)
o PCs (Digital Subscriber Line (DSL) Technology)
o Personal Digital Assistants(PDA), 3G hand phones
(Wireless Technology)
o E-Commerce or online purchases - linked interactively
to the VOD platforms on broadband. Consumers choose
to buy products online as they watch the videos.
The Company applies broadband technologies to facilitate its growth in
the broadband sector. Its main competitive advantage is derived from
its ownership of rights for various territories on broadband for its
contents i.e. movies, televisions, dramas and programs on lifestyles,
business and glamour.
The Company has built and installed its broadband streaming system
complete with firewalls, load balancing, bandwidth and consumer
monitoring systems, which include video streaming, video storage and
web servers in Singapore. The Company has also developed its streaming
applications to stream into television sets, via a set top box.
The Company has developed a capability to stream wireless broadband and
have its own digitized entertainment sites for wireless broadband
applications.
The Company offers consumers personalized entertainment through its
wide range of broadband streaming channels available at
www.amaruinc.com, www.wowtv.com, sg.wowtv.com and cn.wowtv.com.
6
PRODUCTS: We offer the following products on the VOD platform:
o Entertainment - Consumers access movies, music,
glamour and fashion, lifestyle (hobbies, cooking, and
personalities), documentaries, sports, health and
fitness and others. They can choose from a large
number of different channels depending on their
interests or lifestyle preferences.
o E-Commerce - Consumers can purchase products online,
view videos on a pay-per-view basis and make payments
online.
With this strategy, the Company aims to generates diversified sources
of revenue from:
1. Advertising i.e. program and channel sponsorship
2. Online subscriptions
3. Channel/portal development i.e. digital programming services
4. Content aggregation and syndication
5. Broadband consulting services and online shopping turnkey solutions
6. E-commerce services
The Company is constantly in the process of redesigning and adding
improvements to its Broadband websites. The current Broadband websites
and products, which may change from time to time are highlighted below.
WOWTV - WEB TV SERVICE
WOWtv, a broadband entertainment web TV service, has embarked on
launching its site across the Asia Pacific, streaming multiple channels
of Hollywood and Asian entertainment via video on-demand and providing
E-commerce services. Its video on-demand content covers diverse genres
such as movies, television dramas, variety shows, documentaries,
fashion, lifestyle, sports, edutainment and more. WOWtv can be viewed
on www.wowtv.com.
Beginning with Singapore, WOWtv is set to expand globally with its new
global site and across the Asia Pacific. Having launched its global and
China sites in 2009, it intends to expand its growing presence to
specific territories, namely India, Indonesia and Malaysia within the
next 12 months. The Company has plans to incorporate a video e-travel
portal and possibly e-travel services within its WOWtv site. No
assurance can be given that such plans will materialize as planned.
LEVERAGING ON THE STRENGTHS OF WOWTV
WOWtv is an innovative platform that will establish a first mover
advantage to become the first Pan-Asian broadband entertainment
services provider. Its strengths and competitive advantages include:
Content Aggregation, Distribution and Syndication - with the technology
and expertise to stream with high clarity and also manage operations
and costs well.
Premium Content Portfolio - with a vast library of worldwide broadband
rights of film and content, copyright ownership and exclusivity on the
majority of broadband titles.
Strong relationships in Asia and Hollywood - with good connections to
enable it to make further in-roads to content acquisition.
Broadband Distribution Deals - with secured broadband distribution
deals with major media companies.
7
MARKETING STRATEGY OF WOWTV
WOWtv's marketing strategy is to offer viewers a plethora of video
on-demand entertainment over two segments on its website, where
consumers will get a chance to sample its products and services in
different tiers - FREE and SUBSCRIPTION (PAY-PER-VIEW).
DIGIT GAMES
The Company has an 18-year license to conduct nation wide lottery in
Cambodia. The Company also signed an agreement with Allsports Limited,
a British Virgin Islands company, to operate, administer, and manage
the lottery digit games activities in Cambodia. On March 25, 2009, the
Company was notified that the digit games were suspended by the
Cambodia Government as part of the suspension of all lotteries in
Cambodia. The suspension of the digit games is expected to be permanent
as the Government of Cambodia has closed the gaming business by the
order of its Ministry of Economy and Finance.
MAJOR EVENTS IN FISCAL YEAR 2009 FOR ENTERTAINMENT SERVICES
o On March 31, 2009, the Company signed an agreement with Beijing Baidu
Network Science and Technology Co Ltd ("Baidu") to launch the WOWtv
platform in China. The agreement was a strategic partnership with Baidu
to provide content services to Baidu.com users.
o On April 17,2009, the Company signed a strategic cooperation
agreement with LTDnetwork Inc. who owns the brand name and music site
called QTRAX. QTRAX is the world's first free and legal peer-to-peer
music service. Both parties agreed to look into areas to promote each
other's site to increase internet traffic and to exploit each other's
content.
o On August 1, 2009, the Company signed an agreement with MOL
AccessPortal Berhad ("MOL") to launch the WOWtv content and services
through MOL's distribution network and implement MOLepoints as the
exclusive third party online micropayment solution for WOWtv content
and services globally. The revenue share agreement with MOL allows the
Company to have a 65% share of all payments for WOWtv's pay-per-view
content transacted via the MOL distribution network and micropayment
system.
o On October 16, 2009, the Company signed an agreement with Admax
Network Holdings Limited("Admax"), one of the leading online
advertising networks in South East Asia to include the Company's WOWtv
sites in their advertising networks. Admax will pay the Company sixty
percent (60%) of the amount due Admax Networks from advertisers for
advertisements.
o On November 2, 2009, the Company entered into an agreement with
Cyberventures Sdn Bhd, ("Cyberventures"), and MOL Media Sdn Bhd., ("MOL
Media"), both companies incorporated in Malaysia to launch the WOWtv
services and content in Malaysia. M2B shall assign the rights of the
content library for Malaysia on a non-exclusive basis for use on the
IPTV, web and mobile platforms to MOL Media for use in Malaysia and the
Friendster Community, for a fee of USD 4.5 million payable in the
shares of MOL Media. M2B intends to carry out an independent valuation
of the content library assigned to MOL Media on an annual basis. The
Agreement further provides that MOL Media and M2B shall endeavor to
raise USD 500,000/- in new offering for MOL Media to develop the
business on the IPTV, mobile and web platforms in Malaysia. This new
funding shall be raised at the same rate as the new shares to be issued
to M2B. This fund raising shall precede the issue of the new shares to
M2B, which makes it a condition that has to be met before M2B receives
the new shares. The Company expects that the agreement with MOL Media
should grow the Company's brand and its content, and contribute to the
Company's revenues.
8
o As of December 2, 2009, the Company through its subsidiary, M2B World
Asia Pacific Pte. Ltd., signed an agreement with Innity Sdn Bhd(the
"Agreement"), one of the leading online advertising networks in South
East Asia and listed on the Malaysia Stock Exchange, to include the
Company's WOWtv sites in their advertising networks. Pursuant to the
terms of the Agreement, Innity Sdn Bhd will pay the Company sixty
percent (60%) of the amount due Innity networks from advertisers for
advertisements, plus any applicable taxes for such amounts.
o As of December 15, 2009, the Company through its subsidiary, M2B
World Asia Pacific Pte. Ltd. ("M2B"), signed an agreement with
Zingmobile Pte Ltd. ("Zingmobile"), a Singapore corporation (the
"Agreement"), one of the leading companies for publishing value-added
mobile content, services and applications for mobile market. Zingmobile
is listed on Australian Stock Exchange. Pursuant to the terms of the
Agreement, Zingmobile shall launch M2B's content and services on mobile
platforms of telecommunication companies and mobile service providers
in the territories of Indonesia, Malaysia and Bangladesh. Services will
be launched first in Indonesia with Telkomsel, Indosat and XL. M2B and
Zingmobile shall share 50% of the net revenue collected with
Zingmobile.
ONGOING DEVELOPMENTS OF 2009 INITIATIVES
Following the launch of the enhanced WOWtv NEW in August 2008, the
Company launched a new global WOWtv service in February 2009 and a new
China WOWtv service in April, 2009. The Company intends to further
enhance this global services in 2010 and by marketing its viewership
globally,and extending the site features with more value added
services like Social Networking, User Generated Content and High
Definition streaming. The Company plans to launch more country sites
in 2010 designed to fit specific country viewerships. The Company
hopes to launch in 2009 WOWtv sites specially targeted at major
markets in Asia, namely India, Malaysia and Indonesia.
The current trial of the Company's IPTV services and set-top boxes in a
major hotel in Malaysia is currently underway. The Company is working
towards a roll-out of the WOWtv service and the Internet viewership of
set top boxes in Malaysia in 2010, covering hotels, resorts and
condominiums.
There can be no assurance that the above plans will materialize as
planned and stated.
MARKETS
The business operations and financial results of the Company are
directly affected by the markets that the Company operates in.
o RISING DISPOSABLE INCOME AND USAGE OF PC AND BROADBAND TECHNOLOGY
In many other parts of the world, especially emerging markets with
growing use of PCs, Internet with fast growing number of broadband
subscribers and rising disposable incomes, these markets offer
significant growth potential.
o THE ADVENT AND INCREASING ADOPTION OF BROADBAND TECHNOLOGY
The advent of broadband technology and ever-increasing bandwidth has
pushed for the next generation of online on-demand broadband
entertainment as one of the desired applications that will meet the
needs of increasingly demanding and bandwidth hungry consumers and
enterprise. Such technology can be further enhanced by the coupling of
value added services, namely Internet telephony communication services
and E- Commerce, together with the Broadband entertainment sites.
The market consists of both the consumers and the enterprise. The
demand from consumers is rich media content, on demand, highly
interactive and fast. On the other hand the enterprise must reach out
to such demands and the next generation through the new medium, or be
left behind. To meet this demand, the Company has established
relationships with major production houses, and access to major
distributors worldwide. This is expected to put the Company in a
position to acquire high quality, original video content. Such
strategic positioning has resulted in the Company acquiring extensive
content on broadband for multiple countries and for dedicated time
periods.
9
The Company intends to continue to maximize on its key strength, the
packaging of our content. The Company believes that it will shape the
delivery of its content in the most cost effective manner and
innovative way.
o THE BOOMING ONLINE ADVERTISING MARKET
According to the Euromonitor International, an industry research
provider, the market for advertising is forecasted to grow by 119.1%
from 2004 to 2009, to reach a value of US$609.3 billion.
The online video is growing dramatically, with increased broadband
penetration creating a larger audience, leading more advertisers to
consider adding video to their online efforts. Jupiter Research
estimates that the online video advertising industry is worth $1.3
billion.
o THE GROWTH OF THE VIDEO ON DEMAND MARKET
According to Jupiter Research, in 2007 the Video-on-Demand (VOD) market
is expected to be worth $1.4 billion while the Subscription VOD market
is worth $800 million.
According to ZDNet Research, there were approximately 7.5 million
worldwide cable-based VOD users at the end of 2004. VOD user growth is
projected to remain strong for the next several years. Total number of
worldwide users is 13 million at the end of 2005 and is forecasted to
ultimately reach 34 million in 2009.
A study released by Adams Media Research in 2007 forecasts that sales
of video downloads will total $427 million in 2007. $1.2 billion in
2008, $2 billion in 2009, $3.1 billion in 2010, then hit $4.1 billion
in 2011.
The same study also predicts that advertiser spending on internet video
streams to PCs and TVs will approach $1.7 billion in 2011.
COMPETITION
The Company faces intense competition in every aspect of our business,
and particularly in the acquisition of content.
In the entertainment services business, we compete with free-to-air
channels, cable operators as well as other broadband entertainment
providers for distribution rights of programs in terms of price,
quality and variety.
Traditional TV networks and cable TV operators today provide alternate
sources of entertainment in a broadcast mode. In future, it is expected
that these networks may also extend their reach to the video-on-demand
broadband service. This may put them in direct competition with us,
although their entry costs will likely be higher and both the technical
and manpower capabilities existing in these traditional companies will
make it somewhat difficult for them to transit into new broadband
media.
In our multi player online gaming business, we face competition from
the various gaming offerings on the market as well as the various
gaming portals and platforms. In the subscription based multi player
online gaming business, the Company faces vigorous competition from the
numerous games that are distributed free over the Internet. More
generically, it also competes with console based games made for
products like Playstation and X-box.
The Company also competes within the industry for advertising revenue
and viewers. More generically, the Company faces competition from other
leisure entertainment activities from Video CDs (especially in Asia),
DVDs to cinemas, home theatres and emerging mobile multi media kiosks
and display panels.
The Company believes that it is competing favorably on the factors
described above. However, the industry is evolving rapidly and is
becoming increasingly competitive. Larger, more established companies
than us are increasingly focusing on the video content, travel, and
e-commerce businesses that directly compete with us.
10
INTELLECTUAL PROPERTY
The Company's intellectual property consists of trademarks, patents,
copyrights, and other technology and trade secrets. In addition to
technology that we develop internally, we license software or other
technology from third parties. We also grant licenses to some of our
intellectual property, such as trademarks, patents or websites
technology, to our vendors and strategic partners.
GOVERNMENT REGULATION
The Company must comply with laws and regulations relating to our sales
and marketing activities, including those prohibiting unfair and
deceptive advertising or practices and those requiring us to register
as a service provider in the spheres of business that we operate in,
and with disclosure requirements.
Data collection, protection, security and privacy issues are a growing
concern in the U.S., and in many countries around the world. Government
regulation is evolving in these areas and could limit or restrict the
Company's ability to market its products and services to consumers,
increase the Company's costs of operation and lead to a decrease in
demand for our products and services. US Federal, state and local
governmental organizations, as well as foreign governments and
regulatory agencies, are also considering legislative and regulatory
proposals that directly govern Internet commerce, and will likely
consider additional proposals in the future.
We do not know how courts will interpret laws governing Internet
commerce or the extent to which they will apply existing laws
regulating issues such as property ownership, sales and other taxes,
libel and personal privacy to the Internet. The growth and development
of the market for online commerce has prompted calls for more stringent
consumer protection laws that may impose additional burdens on
companies that conduct business online.
COMPLIANCE WITH ENVIRONMENTAL REGULATIONS
The Company has incurred no, and does not expect to incur, material
expenditures or obligations related to environmental compliance issues.
EMPLOYEES
The Company had 23 employees as of December 31, 2009, of which 22 are
full time and 1 part-time employee. Of the 23 employees, 22 are based
in Singapore and 1 is based in the U.S.
11
ITEM 1A: RISK FACTORS
An investment in the Company's common stock involves a high degree of risk. One
should carefully consider the following risk factors in evaluating an investment
in the Company's common stock. If any of the following risks actually occurs,
the Company's business, financial condition, results of operations or cash flow
could be materially and adversely affected. In such case, the trading price of
the Company's common stock could decline, and one could lose all or part of
one's investment. One should also refer to the other information set forth in
this report, including the Company's consolidated financial statements and the
related notes.
THE COMPANY CONTINUES TO USE SIGNIFICANT AMOUNTS OF CASH FOR ITS BUSINESS
OPERATIONS, WHICH COULD RESULT IN US HAVING INSUFFICIENT CASH TO FUND THE
COMPANY'S OPERATIONS AND EXPENSES UNDER OUR CURRENT BUSINESS PLAN. THE COMPANY
IS ALSO HOLDING A CONSIDERABLE AMOUNT OF QUOTED EQUITY SECURITIES THAT ARE
HELD FOR TRADING.
The Company's liquidity and capital resources remain limited. There can be no
assurance that the Company's liquidity or capital resource position would allow
us to continue to pursue its current business strategy. The Company's quoted
equity securities held as assets are dependent on the market value. Any
fluctuations or downturn in the securities market could adversely affect the
value of these equity securities held. As a result, without achieving growth in
its business along the lines it has projected, it would have to alter its
business plan or further augment its cash flow position through cost reduction
measures, sales of assets, additional financings or a combination of these
actions. One or more of these actions would likely substantially diminish the
value of its common stock.
THE MARKET MAY NOT BROADLY ACCEPT THE COMPANY'S BROADBAND WEBSITES AND SERVICES,
WHICH WOULD PREVENT THE COMPANY FROM OPERATING PROFITABLY.
The Company must be able to achieve broad market acceptance for its Broadband
websites and services, at a price that provides an acceptable rate of return
relative to the Company-wide costs in order to operate profitably. There is no
assurance that the market will develop sufficiently to enable the Company to
operate its Broadband business profitably. Furthermore, there is no assurance
that any of the Company's services will become generally accepted, nor is there
any assurance that enough paying users and advertisers will ultimately be
obtained to enable us to operate these business profitably.
BROADBAND USERS MAY FAIL TO ADOPT THE COMPANY'S BROADBAND SERVICES.
The Company's Broadband services are targeted to the growing market of Broadband
users worldwide to deliver content and E-commerce in an efficient, economical
manner over the Broadband networks. The challenge is to make the Company's
business attractive to consumers, and ultimately, profitable. To do so has
required, and will require, the Company to invest significant amounts of cash
and other resources. There is no assurance that enough paying users and
advertisers will ultimately be obtained to enable the Company to operate the
business profitably.
FAILURE TO SIGNIFICANTLY INCREASE THE COMPANY'S USERS AND ADVERTISERS MAY RESULT
IN FAILURE TO ACHIEVE CRITICAL MASS AND REVENUE TO BUILD A SUCCESSFUL BUSINESS.
The Company incurs significant up-front costs in connection with the acquisition
of content, and bandwidth and network charges. The plan is to obtain recurring
revenues in the form of subscription and advertising fees to use the Broadband
services, either paid by the users or advertisers.
There is no assurance as to whether the Company will be able to maintain, or
whether and how quickly the Company will be able to increase its user base, or
whether the Company will be able to generate recurring subscription and
advertising fees to such a level that would enable this line of business to
continue to operate profitably. If the Company is not successful in these
endeavors, the Company could be required to revise its business model, exit or
reduce the scale of the business, or raise additional capital.
COMPETITION IN THE BROADBAND BUSINESS IS EXPECTED TO INCREASE, WHICH COULD CAUSE
THE BUSINESS TO FAIL.
The Company's Broadband services are targeted to the end user market. As the
Broadband penetration rates increase globally, an increasing number of
well-funded competitors have entered the market. Companies that compete with the
Company's business include telecommunications, cable, content management and
network delivery companies.
12
The Company may face increased competition as these competitors partner with
others or develop new Broadband websites and service offerings to expand the
functionality that they can offer to their customers. These competitors may,
over time, develop new technologies and acquire content that are perceived as
being more secure, effective or cost efficient than the Company. These
competitors could successfully garner a significant share of the market, to the
exclusion of the Company. Furthermore, increased competition could result in
pricing pressures, reduced margins, or the failure of the business to achieve or
maintain market acceptance, any one of which could harm the business.
THE INABILITY TO SUCCESSFULLY EXECUTE TIMELY DEVELOPMENT AND INTRODUCTION OF NEW
AND RELATED SERVICES AND TO IMPLEMENT TECHNOLOGICAL CHANGES COULD HARM THE
BUSINESS.
The evolving nature of the Broadband business requires the Company to
continually develop and introduce new and related services and to improve the
performance, features, and reliability of the existing services, particularly in
response to competitive offerings.
The Company has under development new features and services for its businesses.
The Company may also introduce new services. The success of new or enhanced
features and services depends on several factors - primarily market acceptance.
The Company may not succeed in developing and marketing new or enhanced features
and services that respond to competitive and technological developments and
changing customer needs. This could harm the business.
CAPACITY LIMITS ON THE COMPANY'S TECHNOLOGY AND NETWORK HARDWARE AND SOFTWARE
MAY BE DIFFICULT TO PROJECT, AND THE COMPANY MAY NOT BE ABLE TO EXPAND AND/OR
UPGRADE ITS SYSTEMS TO MEET INCREASED USE, WHICH WOULD RESULT IN REDUCED
REVENUES.
While the Company has ample through-put capacity to handle its customers'
requirements for the medium term, at some point it may be required to materially
expand and/or upgrade its technology and network hardware and software. The
Company may not be able to accurately project the rate of increase in usage of
its network. In addition, it may not be able to expand and/or upgrade its
systems and network hardware and software capabilities in a timely manner to
accommodate increased traffic on its network. If the Company does not
appropriately expand and/or upgrade our systems and network hardware and
software in a timely fashion, it may lose customers and revenues.
INTERRUPTIONS TO THE DATA CENTERS AND BROADBAND NETWORKS COULD DISRUPT BUSINESS,
AND NEGATIVELY IMPACT CUSTOMER DEMAND FOR THE COMPANY.
The Company's business depends on the uninterrupted operation at the data
centers and the broadband networks run by the various service providers. The
data centers may suffer for loss, damage, or interruption caused by fire, power
loss, telecommunications failure, or other events beyond the Company. Any damage
or failure that causes interruptions in the Company's operations could
materially harm business, financial conditions, and results of operations.
In addition, the Company's services depend on the efficient operation of the
Internet connections between customers and the data centers. The Company depends
on Internet service providers efficiently operating these connections. These
providers have experienced periodic operational problems or outages in the past.
Any of these problems or outages could adversely affect customer satisfaction
and customers could be reluctant to use our Internet related services.
THE COMPANY MAY NOT BE ABLE TO ACQUIRE NEW CONTENT, OR MAY HAVE TO DEFEND ITS
RIGHTS IN INTELLECTUAL PROPERTY OF THE CONTENT THAT IS USED FOR ITS SERVICES
WHICH COULD BE DISRUPTIVE AND EXPENSIVE TO ITS BUSINESS.
The Company may not be able to acquire new content, or may have to defend its
intellectual property rights or defend against claims that it is infringing the
rights of others, where its content rights are concerned. Intellectual property
litigation and controversies are disruptive and expensive. Infringement claims
could require us to develop non-infringing services or enter onto royalty or
licensing arrangements. Royalty or licensing arrangements, if required, may not
be obtainable on terms acceptable to the Company. The business could be
significantly harmed if the Company is not able to develop or license new
content. Furthermore, it is possible that others may license substantially
equivalent content, thus enabling them to effectively compete against us.
13
THE COMPANY DEPENDS ON KEY PERSONNEL.
The Company depends on the performance of its senior management team. Its
success depends on its ability to attract, retain, and motivate these
individuals. There are no binding agreements with any of its employees that
prevent them from leaving the Company at any time. There is competition for
these people. The loss of the services of any of the key employees or failure to
attract, retain, and motivate key employees could harm the business.
THE COMPANY RELIES ON THIRD PARTIES.
If critical services and products that the Company sources from third parties,
such as content and network services were to no longer be made available to the
Company or at a considerably higher price than it currently pays for them, and
suitable alternatives could not be found, the business could be harmed.
THE COMPANY COULD BE AFFECTED BY GOVERNMENT REGULATION.
The list of countries to which our solutions and services could not be exported
could be revised in the future. Furthermore, some countries may in future impose
restrictions on streaming of broadband contents and related services. Failure to
obtain the required governmental approvals would preclude the sale or use of
services in international markets and therefore, harm the Company's ability to
grow sales through expansion into international markets. While regulations in
almost all countries in which our business currently operates generally permit
the broadband services, such regulations in future may not be as favorable and
may impede our ability to develop business.
THE COMPANY COULD BE AFFECTED BY PIRACY IN ASIA.
The Company is in the process of expanding its services globally, and in
particular is entering specific countries in Asia with customized country sites.
These country sites are designated to suit viewership patterns and styles in the
countries they are launched in, and make use of the Company's content and
intellectual property rights to the content. The piracy of content is a
significant problem in many Asian countries, and it is not uncommon to see
movies and television dramas appearing on illegal internet sites, and sold as
pirated DVDs and VCDs. The extent of this piracy of content in the specific
countries that the Company is launching its sites will adversely affect to a
certain degree the amount of advertising and subscription revenues that the
Company intends to earn.
THE COMPANY COULD BE AFFECTED BY ECONOMIC DOWNTURNS
The global economy underwent a massive downturn in 2009, which commenced in the
second half of 2008. Many countries were faced with negative growth rates..
Where the media industry was concerned, major corporations reduced their
advertising expenditures or even to cut back substantially all advertising and
promotional expenditures towards the later half of 2008. The Company is heavily
reliant on advertising and syndication revenues. Any future downturns in any one
country that the Company operates its WOWtv service would significantly affect
the Company's revenues.
OUR COMMON STOCK IS CONSIDERED A "PENNY STOCK". THE APPLICATION OF THE "PENNY
STOCK" RULES TO OUR COMMON STOCK COULD LIMIT THE TRADING AND LIQUIDITY OF THE
COMMON STOCK, ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK AND INCREASE
THE TRANSACTION COSTS TO SELL THOSE SHARES.
Our common stock is a "low-priced" security or "penny stock" under rules
promulgated under the Securities Exchange Act of 1934, as amended. In accordance
with these rules, broker-dealers participating in transactions in low-priced
securities must first deliver a risk disclosure document which describes the
risks associated with such stocks, the broker-dealer's duties in selling the
stock, the customer's rights and remedies and certain market and other
information. Furthermore, the broker-dealer must make a suitability
determination approving the customer for low-priced stock transactions based on
the customer's financial situation, investment experience and objectives.
Broker-dealers must also disclose these restrictions in writing to the customer,
obtain specific written consent from the customer, and provide monthly account
statements to the customer. The effect of these restrictions will likely
decrease the willingness of broker-dealers to make a market in our common stock,
will decrease liquidity of our common stock and will increase transaction costs
for sales and purchases of our common stock as compared to other securities.
14
THE STOCK MARKET IN GENERAL HAS EXPERIENCED VOLATILITY THAT OFTEN HAS BEEN
UNRELATED TO THE OPERATING PERFORMANCE OF LISTED COMPANIES. THESE BROAD
FLUCTUATIONS MAY BE THE RESULT OF UNSCRUPULOUS PRACTICES THAT MAY ADVERSELY
AFFECT THE PRICE OF OUR STOCK, REGARDLESS OF OUR OPERATING PERFORMANCE.
Shareholders should be aware that, according to SEC Release No. 34-29093 dated
April 17, 1991, the market for penny stocks has suffered in recent years from
patterns of fraud and abuse. Such patterns include (1) control of the market for
the security by one or a few broker-dealers that are often related to the
promoter or issuer; (2) manipulation of prices through prearranged matching of
purchases and sales and false and misleading press releases; (3) boiler room
practices involving high-pressure sales tactics and unrealistic price
projections by inexperienced sales persons; (4) excessive and undisclosed
bid-ask differential and markups by selling broker-dealers; and (5) the
wholesale dumping of the same securities by promoters and broker-dealers after
prices have been manipulated to a desired level, along with the resulting
inevitable collapse of those prices and with consequent investor losses. The
occurrence of these patterns or practices could increase the volatility of our
share price.
WE DO NOT EXPECT TO PAY DIVIDENDS FOR THE FORESEEABLE FUTURE, AND WE MAY NEVER
PAY DIVIDENDS. INVESTORS SEEKING CASH DIVIDENDS SHOULD NOT PURCHASE OUR COMMON
STOCK.
We currently intend to retain any future earnings to support the development of
our business and do not anticipate paying cash dividends in the foreseeable
future. Our payment of any future dividends will be at the discretion of our
Board of Directors after taking into account various factors, including but not
limited to our financial condition, operating results, cash needs, growth plans
and the terms of any credit agreements that we may be a party to at the time. In
addition, our ability to pay dividends on our common stock may be limited by
Nevada state law. Accordingly, investors must rely on sales of their common
stock after price appreciation, which may never occur, as the only way to
realize a return on their investment. Investors seeking cash dividends should
not purchase our common stock.
FUTURE SALES OF OUR COMMON STOCK COULD PUT DOWNWARD SELLING PRESSURE ON OUR
COMMON STOCK, AND ADVERSELY AFFECT THE PER SHARE PRICE. THERE IS A RISK THAT
THIS DOWNWARD PRESSURE MAY MAKE IT IMPOSSIBLE FOR AN INVESTOR TO SELL SHARE OF
COMMON STOCK AT ANY REASONABLE PRICE, IF AT ALL.
Future sales of substantial amounts of our common stock in the public market or
the perception that such sales could occur, could put downward selling pressure
on our common stock and adversely affect its market price.
THE OVER THE COUNTER BULLETIN BOARD IS A QUOTATION SYSTEM, NOT AN ISSUER LISTING
SERVICE, MARKET OR EXCHANGE. THEREFORE, BUYING AND SELLING STOCK ON THE OTC
BULLETIN BOARD IS NOT AS EFFICIENT AS BUYING AND SELLING STOCK THROUGH AN
EXCHANGE. AS A RESULT, IT MAY BE DIFFICULT FOR YOU TO SELL YOUR COMMON STOCK OR
YOU MAY NOT BE ABLE TO SELL YOUR COMMON STOCK FOR AN OPTIMUM TRADING PRICE.
The Over the Counter Bulletin Board (the "OTC BB") is a regulated quotation
service that displays real-time quotes, last sale prices and volume limitations
in over-the-counter securities. Because trades and quotations on the OTC
Bulletin Board involve a manual process, the market information for such
securities cannot be guaranteed. In addition, quote information, or even firm
quotes, may not be available. The manual execution process may delay order
processing and intervening price fluctuations may result in the failure of a
limit order to execute or the execution of a market order at a significantly
different price. Execution of trades, execution reporting and the delivery of
legal trade confirmations may be delayed significantly. Consequently, one may
not be able to sell shares of our common stock at the optimum trading prices.
When fewer shares of a security are being traded on the OTC Bulletin Board,
volatility of prices may increase and price movement may outpace the ability to
deliver accurate quote information. Lower trading volumes in a security may
result in a lower likelihood of an individual's orders being executed, and
current prices may differ significantly from the price one was quoted by the OTC
Bulletin Board at the time of the order entry. Orders for OTC Bulletin Board
securities may be canceled or edited like orders for other securities. All
requests to change or cancel an order must be submitted to, received and
processed by the OTC Bulletin Board. Due to the manual order processing involved
in handling OTC Bulletin Board trades, order processing and reporting may be
delayed, and an individual may not be able to cancel or edit his order.
Consequently, one may not be able to sell shares of common stock at the optimum
trading prices.
15
The dealer's spread (the difference between the bid and ask prices) may be large
and may result in substantial losses to the seller of securities on the OTC
Bulletin Board if the common stock or other security must be sold immediately.
Further, purchasers of securities may incur an immediate "paper" loss due to the
price spread. Moreover, dealers trading on the OTC Bulletin Board may not have a
bid price for securities bought and sold through the OTC Bulletin Board. Due to
the foregoing, demand for securities that are traded through the OTC Bulletin
Board may be decreased or eliminated.
WE GENERATED A NET LOSS OF $33,693,548 AND $17,229,866 BEFORE TAXES FOR THE
YEARS ENDED DECEMBER 31, 2009 AND DECEMBER 31, 2008, RESPECTIVELY. WE MAY BE
UNABLE TO CONTINUE AS A GOING CONCERN.
Our consolidated financial statements have been prepared on a going concern
basis which assumes that we will be able to realize our assets and discharge our
liabilities in the normal course of business for the foreseeable future. We
generated a consolidated net loss before taxes of $33,693,548 for the year ended
December 31, 2009 compared to a consolidated net loss before taxes of
$17,229,866 during 2008. We realized a negative cash flow from operating
activities of $1,952,720 during 2009 compared to $4,452,328 in 2008. At December
31, 2009, we had an accumulated deficit of $37,341,903 and a working capital
deficiency of $2,489,437 compared to an accumulated deficit of $9,726,413 and a
working capital surplus of $13,186,061 at December 31, 2008. At December 31,
2009, we had a stockholders' equity of $835,348 compared to a stockholders'
equity of $33,353,132 at December 31, 2008. Our ability to continue as a
going-concern is in substantial doubt as it is dependent on a number of factors
including, but not limited to, the receipt of continued financial support from
our investors, our ability to market and sell domain name assets for cash, our
ability to raise equity or debt financing as we need it, and whether we will be
able to use our securities to meet certain of our liabilities as they become
payable. The outcome of these matters is dependent on factors outside of our
control and cannot be predicted at this time.
ITEM 1B: UNRESOLVED STAFF COMMENTS
As a smaller reporting company, we are not required to provide this information.
ITEM 2: PROPERTIES
The headquarters for operations and management is located in Singapore
in an office space of about 3,928 square feet. We entered into a three
year operating lease paying a monthly rent of $8,546 (S$12,000). The
headquarters is currently located at 62 Cecil Street, TPI Building,
#06-00.
In addition to the office which housed the management staff of the
Company, there is one other office: located in the US. The office in
the US is situated on Sunset Boulevard, West Hollywood and it consists
of 2,965 square feet.
The office in the US is on a monthly lease and the rent is $10,530.
The office in the US was subleased on November 1, 2007 as part of the
Company's cost reduction measures.
We believe that our existing facilities are adequate to meet our
current needs and that suitable additional or alternative space will be
available in the future on commercially reasonable terms, although we
have no assurance that future terms would be as favorable as our
current terms.
The Company has not invested in any real property at this time nor does
the Company intend to do so. The Company has no formal policy with
respect to investments in real estate or investments with persons
primarily engaged in real estate activities.
16
ITEM 3: LEGAL PROCEEDINGS
On September 15, 2008, M2B Commerce Limited filed a lawsuit in the Kingdom of
Cambodia for breach of the Performance and Maintenance Agreement dated May 20,
2005 between M2B Commerce Limited and Allsports International Ltd, by Allsports
International Ltd seeking damages in the total amount of $794,189 and calling
for the termination of the Performance and Maintenance Agreement.
On December 4, 2008, M2B Commerce Limited filed two further lawsuits in the
Kingdom of Cambodia against the owners of Allsports International Ltd, in
support of its earlier suit of September 15, 2008 against Allsports
International Ltd for breach of the Performance and Maintenance Agreement dated
May 20, 2005. One lawsuit was against the four principal officers of Allsports
International Ltd for breach of trust of the total amount of $794,189 owing to
M2B Commerce Limited. The other lawsuit was to get Allsports International Ltd
to transfer the shares of the Lottery Company to M2B Commerce Limited, in lieu
of the earlier lawsuit of September 15, 2008 which called for the termination of
the Performance and Maintenance Agreement.
With the suspension of all digit gaming operations by the Cambodia Government in
March 2009, and which the suspension is expected to be permanent, no progress
has been made by the Cambodian Courts with respect to the three lawsuits filed
on September 15, 2008 and December 4, 2008 in the Kingdom of Cambodia. The
Company believes that the Cambodian Courts are not likely to pursue these legal
cases with the parties concerned in the light of the digit games suspension in
Cambodia.
On November 7, 2008, M2B World Asia Pacific Pte. Ltd was served a summons in
Singapore by M2B Game World Pte. Ltd, a company owned 81% by Auston
International Group Limited and 19% by M2B World Pte. Ltd, claiming a sum of
US$153,744 (S$235,229) in unpaid invoices in 2006. Following this, M2B World
Asia Pacific Pte. Ltd filed a counter claim to strike off this summons on the
basis that the invoices were non-existent and that M2B World Asia Pacific Pte.
Ltd was not yet incorporated as a company as of the date of the invoices
produced by M2B Game World Pte. Ltd.
On February 23, 2009, M2B World Pte Ltd was served a summons in Singapore by
Auston International Group Limited, claiming a sum of US$496,765 (S$760,050) to
be paid as shortfall in Guaranteed Profit to M2B Game World Pte. Ltd for
financial years 2006 and 2007, as part of the agreement for the acquisition of
M2B Game World in December 20, 2005 between M2B World Pte Ltd and Auston
International Group Limited. On March 20, 2009 in response to this summons, M2B
World Pte. Ltd filed a counter-claim against Auston International Group Limited
to claim damages amounting to US$1,568,172 and other damages as a result of
material breaches on the part of Auston International Group Limited to the
agreement of December 20, 2005 for the acquisition of M2B Game World Pte Ltd.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the year ended December 31, 2009.
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
PUBLIC MARKET
Our common stock trades on the National Association of Securities
Dealers' over-the counter Bulletin Board market ("OTCBB") under the
symbol "AMRU". As of March 20, 2010, there were 386 holders of our
common stock.
The price of the Company's stock as of March 20, 2010 was $0.10.
17
The Company's high and low closing bid and close information for the
fiscal years ended December 31, 2009 and 2008 is listed as
provided by the Nasdaq website. Quotations reflect inter-dealer prices,
without retail mark-up, markdown, or commission and may not represent
actual transactions.
Open High Low Close/Last*
---------------------------------------------------------------------
Year Ended December 31, 2009
---------------------------------------------------- ---------------- ----------------- ---------------- -----------------
First Quarter $ 0.1000 $ -- $ -- $ 0.1000
---------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Second Quarter $ 0.1000 $ 0.1000 $ 0.1000 $ 0.1000
---------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Third Quarter $ 0.0900 $ -- $ -- $ 0.0900
---------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Fourth Quarter $ 0.1000 $ 0.1000 $ 0.1000 $ 0.1000
---------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Year Ended December 31, 2008
---------------------------------------------------- ---------------- ----------------- ---------------- -----------------
First Quarter $ 0.2500 $ 0.3000 $ 0.2000 $ 0.3000
---------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Second Quarter $ 0.2400 $ 0.2400 $ 0.2000 $ 0.2000
---------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Third Quarter $ 0.1650 $ 0.1650 $ 0.1650 $ 0.1650
---------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Fourth Quarter $ 0.1500 $ 0.1500 $ 0.1500 $ 0.1500
---------------------------------------------------- ---------------- ----------------- ---------------- -----------------
* Closing price is provided as of the last day of the month.
DIVIDENDS
The Company does not expect to pay any dividends at this time. The
payment of dividends, if any, will be contingent upon the Company's
revenues and earnings, capital requirements, and general financial
condition. The payment of any dividends will be within the discretion
of the Company's Board of Directors and may be subject to restrictions
under the terms of any debt or other financing arrangements that the
Company may enter into in the future.
RECENT SALE OF UNREGISTERED SECURITIES
As of December 14, 2009, the Company issued a total of 1,500,000 shares
of common stock through its private placement of shares of common stock
at a purchase price of $0.10 per share for a total amount of $150,000,
to an "accredited investor", as that term is defined in Regulation D of
the Securities Act of 1933.
As of November 6, 2009, the Company issued a total of
1,000,000 shares of common stock through its private placement of
shares of common stock at a purchase price of $0.10 per share for a
total amount of $100,000, to an "accredited investor", as that term is
defined in Regulation D of the Securities Act of 1933.
18
In August and September, 2009, the Company issued a total of 9,257,640
shares of common stock through its private placement of shares of
common stock at a purchase price of $0.10 per share for a total amount
of $925,764.00 to "accredited investors" as that term is defined in
Regulation D of the Securities Act of 1933.
The shares of the Company's common stock in above private placements
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.
Appropriate investment representations were obtained and the securities
were issued with restrictive legends.
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.
19
EQUITY COMPENSATION PLAN
The Company's 2004 Equity Compensation Plan has 9,745,000 million
shares remaining as of December 31, 2009. In 2007 and 2008, no shares
were issued under the Company's 2004 Equity Compensation Plan. In 2006
and 2005, the Company issued 420,000 shares and 58,740 shares
respectively under the Equity Compensation Plan. There are no
outstanding options under the Equity Compensation Plan.
ITEM 6: SELECTED FINANCIAL DATA
The following selected consolidated financial data is derived from the
Company's audited financial statements. These data is not necessarily
indicative of results of future operations, and should be read in
conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations under Item 7 and, the Consolidated
Financial Statements and Notes to Consolidated Financial Statements
under Item 8.
No cash dividends were declared in any of the years shown below:
Years Ended December 31,
------------------------------
2009 2008
------------------------------
STATEMENT OF OPERATIONS DATA:
Revenues (1) $ 22,016 $ 203,066
Cost of Services 226,319 412,281
Gross Profit (Loss) (204,303) (209,215)
Operating income (loss) (33,738,846) (14,439,679)
Net Income (loss) (33,693,548) (17,229,866)
Basic and diluted income (loss) per (0.21) (0.11)
share
Shares used in computing basic and
diluted income/loss per common share 157,266,951 159,431,861
BALANCE SHEET DATA:
Working Capital (Deficit) (2,489,437) 13,186,061
Total Assets 4,232,297 37,098,032
Long-term obligations 36,924 2,354,627
Stock holders' Equity 835,348 33,353,132
20
NOTES ON SELECTED FINANCIAL DATA
(1) The digit gaming operations were suspended in March 2009 by the
Cambodia Government, as part of the suspension of all lotteries
in Cambodia, resulting in the removal of such revenues in 2008.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
ALL FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE DEEMED BY THE
COMPANY TO BE COVERED BY AND TO QUALIFY FOR THE SAFE HARBOR PROTECTION
PROVIDED BY THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
PROSPECTIVE SHAREHOLDERS SHOULD UNDERSTAND THAT SEVERAL FACTORS GOVERN
WHETHER ANY FORWARD - LOOKING STATEMENT CONTAINED HEREIN WILL BE OR CAN
BE ACHIEVED. ANY ONE OF THOSE FACTORS COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE PROJECTED HEREIN. THESE FORWARD - LOOKING
STATEMENTS INCLUDE PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTURE
OPERATIONS, INCLUDING PLANS AND OBJECTIVES RELATING TO THE PRODUCTS AND
THE FUTURE ECONOMIC PERFORMANCE OF THE COMPANY. ASSUMPTIONS RELATING TO
THE FOREGOING INVOLVE JUDGMENTS WITH RESPECT TO, AMONG OTHER THINGS,
FUTURE ECONOMIC, COMPETITIVE AND MARKET CONDITIONS, FUTURE BUSINESS
DECISIONS, AND THE TIME AND MONEY REQUIRED TO SUCCESSFULLY COMPLETE
DEVELOPMENT PROJECTS, ALL OF WHICH ARE DIFFICULT OR IMPOSSIBLE TO
PREDICT ACCURATELY AND MANY OF WHICH ARE BEYOND THE CONTROL OF THE
COMPANY. ALTHOUGH THE COMPANY BELIEVES THAT THE ASSUMPTIONS UNDERLYING
THE FORWARD - LOOKING STATEMENTS CONTAINED HEREIN ARE REASONABLE, ANY
OF THOSE ASSUMPTIONS COULD PROVE INACCURATE AND, THEREFORE,THERE CAN BE
NO ASSURANCE THAT THE RESULTS CONTEMPLATED IN ANY OF THE FORWARD -
LOOKING STATEMENTS CONTAINED HEREIN WILL BE REALIZED. BASED ON ACTUAL
EXPERIENCE AND BUSINESS DEVELOPMENT, THE COMPANY MAY ALTER ITS
MARKETING, CAPITAL EXPENDITURE PLANS OR OTHER BUDGETS, WHICH MAY IN
TURN AFFECT THE COMPANY'S RESULTS OF OPERATIONS. IN LIGHT OF THE
SIGNIFICANT UNCERTAINTIES INHERENT IN THE FORWARD - LOOKING STATEMENTS
INCLUDED THEREIN, THE INCLUSION OF ANY SUCH STATEMENT SHOULD NOT BE
REGARDED AS A REPRESENTATION BY THE COMPANY OR ANY OTHER PERSON THAT
THE OBJECTIVES OR PLANS OF THE COMPANY WILL BE ACHIEVED.
You should read the following discussion of our financial condition and results
of operations together with our consolidated financial statements and the notes
to our consolidated financial statements included elsewhere in this report.
21
General
The Company is in the business of broadband entertainment-on-demand, streaming
via computers, television sets, and 3G (Third Generation) devices and the
provision of broadband services. Its business includes channel and program
sponsorship (advertising and branding); online subscriptions, channel/portal
development (digital programming services); content aggregation and syndication,
broadband consulting services, broadband hosting and streaming services and
E-commerce.
The Company was also in the business of digit gaming (lottery). The Company had
an 18 years license to conduct nation wide lottery in Cambodia. The Company
through its subsidiary, M2B Commerce Limited, signed an agreement with Allsports
Limited, a British Virgin Islands company to operate and conduct digit games in
Cambodia and to manage the digit games activities in Cambodia. On March 25,
2009, the Company was notified that the digit games were suspended by the At
this time, the Company believes that the suspension of the digit games is
permanent as the Government of Cambodia has closed the gaming business by the
order of its Ministry of Economy and Finance.
The following discussion should be read in conjunction with selected financial
data and the financial statements and notes to financial statements.
OVERVIEW
The business focus of the Company is Entertainment-on-Demand and E-Commerce
Channels on Broadband, and 3G (Third Generation) devices.
For the broadband, the Company delivers both wire and wireless solutions,
streaming via computers, TV sets, PDAs and 3G hand phones. At the same time the
Company launches e-commerce channels (portals) that provide on-line shopping but
with a difference, merging two leisure activities of shopping and entertainment.
The entertainment channels are designed to drive and promote the shopping
portals, and vice versa.
The Company's business model in the area of broadband entertainment includes
e-services, which would provide the Company with multiple streams of revenue.
Such revenues would be derived from advertising and branding (channel and
program sponsorship); on-line subscriptions; online games micro-payments;
channel/portal development (digital programming services); content aggregation
and syndication; broadband consulting services; on-line shopping turnkey
solutions; broadband hosting and streaming services; E-commerce commissions and
on-line dealerships; and digit game operations.
In fiscal 2008, the business was reorganized under the following entities to
spearhead the expansion of the Company's business and focus on specific growth
areas and territories.
M2B WORLD PTE. LTD.
M2B World Pte. Ltd. was incorporated on April 3, 2003. This subsidiary used to
oversee the management and operation of the Company as a whole and oversees the
Asian business. With effect from September 1, 2006, the Company's Asian business
was overseen by another subsidiary, M2B World Asia Pacific Pte. Ltd.
The Company took an investment on May 16, 2005 for a 9.1% equity position with a
company called Activ Lifestyle Pte Ltd in Singapore to help facilitate Amaru
Inc.'s diversification into the health and wellness market.On September 27,
2005, the Company raised its investment in Activ Lifestyle Pte Ltd to 12.6%.
This was further increased to 17.4% as of December 31, 2006.
In December 2005, M2B World Pte. Ltd. sold 81% equity interests of its
wholly-owned subsidiary, M2B Game World Pte. Ltd. to Auston International Group
Ltd (Auston), a public listed company in Singapore, in exchange for 27% equity
interest in Auston. As of December 31, 2008, the Company disposed all of its
common shares in Auston. As of the date of this report, the Company holds no
shares in Auston.
M2B WORLD, INC.
M2B World, Inc., a California corporation, was incorporated on January 24, 2005.
This subsidiary handles and oversees the Company's business in the U.S. The
Company has leased a new office on Sunset Boulevard, West Hollywood that came
into effect in August 2006, which offices are currently being subleased (see
below). In October 2007, M2B World Inc reduced its staffing and in November 2007
sub-leased its premise as part of the Company's cost reduction measures.
On May 27, 2005, M2B World, Inc. entered into an agreement with Indie Vision
Films, Inc., a California corporation, to purchase 20% of the beneficial
ownership of Indie Vision Films, Inc. The investment will allow M2B World,
Inc.to access the library of programs of Indie Vision Films, Inc. The Company
entered into an agreement on December 22, 2009 with Indie Vision Films, Inc to
convert its investment into content rights, thereby giving up its 20% share of
beneficial ownership in lieu of library rights that the Company could exploit
commercially for international use.
22
On November 1, 2007, the Company sub-leased the office premises of M2B World
Inc, a wholly owned subsidiary of the Company in Los Angeles, California as part
of its efforts to streamline its operations and reduce operating costs. The
staffing of M2B World Inc was also reduced from 9 staff to 1 staff as of October
31, 2007, and remains as 1 staff as of the date of this report. The company has
transferred its server farm to the Singapore server farm to, optimize bandwidth
and support cost.
M2B WORLD ASIA PACIFIC PTE. LTD.
M2B World Asia Pacific Pte Ltd was incorporated in the Republic of Singapore on
1 August 2006 for the purposes of handling all the business operations of the
Company in the Asia Pacific region. This company had taken over the Asian
business operations as well as the assets and liabilities of M2B World Pte. Ltd.
with effect from September 1, 2006.
On January 3, 2007, M2B World Asia Pacific Pte Ltd, issued 7,778,014 shares of
common stock through a private placement at a price of $0.77 a share for a total
amount of $6,000,000. This had effectively reduced the Company's effective
equity interest in M2B World Asia Pacific Pte. Ltd from 100% to 81.6%.
On July 8, 2008, M2B World Asia Pacific Pte Ltd signed a two year convertible
loan agreement with a third party to raise $2,500,000 in funding. The loan
allows the borrower to convert the loan into shares of the Company at the issue
price of $0.942 per share at the end of the two years period. The loan bears an
interest rate of 5.0% per annum, and will mature in June 2010. The note was
obtained from a company in which a board of director is the Joint Company
Secretary of the lender.
M2B COMMERCE LIMITED
M2B Commerce Limited, a company incorporated in the British Virgin Islands on
July 25, 2002, focuses on e-commerce and digit gaming, with a branch in Cambodia
that oversees the digit gaming operation in Cambodia.
The Company has an agreement with Allsports Limited, a British Virgin Islands
company to operate, administer, and manage the lottery digit game activities in
Cambodia, as an extension of the Company's entertainment operations. On March
25, 2009, the Company was notified that the digit game were suspended by the
Cambodia Government as part of the suspension of all lotteries in Cambodia. At
this time, the Company believes that the suspension of the digit game is
permanent as the Government of Cambodia has closed the gaming business by the
order of its Ministry of Economy and Finance.
23
The company had entered into an investment agreement on January 12, 2006, with
Khoo Kim Leng, the beneficial owner of Dai Long Co., Ltd, which holds a valid
casino license and freehold land and intends to develop and operate an
integrated resort in the Kingdom of Cambodia. The resort will feature a hotel,
guest house, shopping arcade, entertainment and amusement center and some gaming
tables. As of December 31, 2006, the company had invested $2,402,613 in relation
to this investment. The resort was completed and is in operation.
M2B ENTERTAINMENT, INC.
M2B Entertainment, Inc. was incorporated on October 27, 2005. This subsidiary
will oversee the Company's Canadian market. As of September 30 , 2009, this
subsidiary is dormant.
M2B AUSTRALIA PTY LTD
M2B Australia Pty Ltd was incorporated on June 15, 2005. This subsidiary handles
and oversees the Company's business in Australia. As of September 30, 2009 this
subsidiary is dormant.
M2B WORLD TRAVEL SINGAPORE PTE. LTD.
M2B World Travel Singapore Pte Ltd was incorporated in the Republic of Singapore
on March 7, 2006. This subsidiary of M2B World Travel Limited launches a global
online travel platform which offers global e-travel services.
The Company has completed the development of an online travel engine and travel
web applications for integration with suppliers of travel information and travel
services; and incorporating travel features with current media operations under
the M2B brand name.
M2B World Travel Limited signed a global agreement with Amadeus Global Travel
Distribution, SA, a Spanish corporation. Through the agreement, the company will
be able to offer direct access to the extensive range of travel options
available through the Amadeus network to viewers around the world.
AMARU HOLDINGS LIMITED AND M2B WORLD HOLDINGS LIMITED
Amaru Holdings Limited and M2B World Holdings Limited are incorporated in the
British Virgin Islands on February 21, 2005 and June 15, 2006, respectively.
Amaru Holdings Limited focuses on content syndication and distribution in areas
other than Asia Pacific region. M2B World Holdings Limited focuses on content
syndication and distribution in Asia Pacific region and is a subsidiary of M2B
World Asia Pacific Pte. Ltd.
TREMAX INTERNATIONAL LIMITED AND M2B WORLD TRAVEL LIMITED
Tremax International Limited and M2B World Travel Limited are both incorporated
in the British Virgin Islands on June 8, 2006 and May 3, 2005 respectively. Both
companies are investment holdings companies.
On July 10, 2007, Tremax International Limited entered into a sale and purchase
agreement (the "Agreement") with Domaine Group Limited, a British Virgin Islands
corporation (the "Vendor"), for the acquisition of CBBN Holdings Limited ("CBBN
Holdings"). CBBN Holdings is a 80% beneficial owner of Cosmactive Broadband
Networks Co. Ltd ("CBN"), which is a broadband service provider incorporated in
Taiwan. The purchase consideration is satisfied in full by the issuance of
5,333,333 of common stock of the Company.
On January 22, 2009, the Company approved the termination and rescission of the
Agreement, because the seller failed to comply with the terms of the Agreement
and did not deliver to the Company or Purchaser the consideration for the
issuance of the Amaru Shares. The Company further approved the cancellation of
the Amaru Shares.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
In the preparation of the financial statements, the Company adopted the
following critical accounting policies.
FILM LIBRARY
Investment in the Company's film library includes movies, dramas,
comedies and documentaries in which the Company has acquired
distribution rights from a third party. For acquired films, these
capitalized costs consist of minimum guarantee payments to acquire the
distribution rights. Costs of acquiring the Company's film libraries
are amortized using the individual-film-forecast method,
whereby these costs are amortized and participations and residuals
costs are accrued in the proportion that current year's revenue bears
to management's estimate of ultimate revenue at the beginning of the
current year expected to be recognized from the exploitation,
exhibition or sale of the films. Ultimate revenue for acquired films
includes estimates over a period not to exceed twenty years following
the date of acquisition. Investments in films are stated at the lower
of amortized cost or estimated fair value.
24
The valuation of investment in films is reviewed on a overall basis,
when an event or change in circumstances indicates that the fair value
of the film library is less than its unamortized cost. The fair value
of the film is determined using management's future revenue and cost
estimates and a discounted cash flow approach. Additional amortization
is recorded in the amount by which the unamortized costs exceed the
estimated fair value of the film. Estimates of future revenue involve
measurement uncertainty and it is therefore possible that reductions in
the carrying value of investment in films may be required as a
consequence of changes in management's future revenue estimates.
The Company most recently completed an impairment evaluation in the
fourth quarter of fiscal year 2009. The film library was determined to
be impaired during the year ended December 31, 2009. In conducting the
analysis, the Company used a discounted cash flow approach in
estimating fair value as market values could not be readily determined
given the unique nature of the respective assets.
INTANGIBLE ASSETS
Intangible assets consist of gaming licenses, software licenses
and product development costs. Intangible assets which were purchased
and have indefinite lives are stated at cost less impairment losses.
Intangible assets which were purchased for a specific period are stated
at cost less accumulated amortization and impairment losses. Such
intangible assets are amortized over the period of the contract, which
is 2 to 18 years.
REVENUE
Subscription and related services revenues are recognized over the
period that services are provided. Advertising and sponsorship revenues
are recognized as the services are performed or when the goods are
delivered. Licensing and content syndication revenue is recognized when
the license period begins, and the contents are available for
exploitation by customer, pursuant to the terms of the license
agreement. Gaming revenue is recognized as earned net of winnings.
E-commerce commissions are recognized as received. Broadband consulting
services and on-line turnkey solutions revenue are recognized as
earned.
The Company has adopted accounting pronouncements issued before
December 31, 2009, that are applicable to the Company.
25
RESULTS OF OPERATIONS
For the fiscal year ended December 31, 2009 compared with the fiscal
year ended December 31, 2008.
FINANCIAL STATEMENT
- Revenue for the year ended December 31, 2009 was $22,016 compared
with $203,066 in 2008.
- Loss from operations was $33,738,846 in 2009 compared with loss of
$14,439,679 in 2008.
- Net loss was $33,693,548 in 2009 compared with loss of $17,229,866 in
2008.
- The Company's cash balance was $356,477 at December 31, 2009 compared
with $1,484,945 at December 31 2008.
Revenue
The following table sets forth a year-over-year comparison of the key
components of the Company's revenues :
YEAR ENDED DECEMBER 31 VARIANCE
2009 VS. 2008
2009 2008 $ %
---- ---- - -
ENTERTAINMENT $ 22,016 $203,066 $ (181,050) (89%)
DIGIT GAMES $ -- $ -- $ -- 0%
OTHER -- $ -- $ -- -%
TOTAL REVENUES $ 22,016 $203,066 $ (181,050) (89%)
Entertainment revenue for the year ended December 31, 2009 at $22,016
was lower than entertainment revenue of $203,066 for year ended
December 31, 2008 by $181,050 (89%).It was insignificant mainly due to
no new advertising or content syndication contracts being secured.
26
For the year ended December 31, 2008, the Company was involved in the
redevelopment of WOWtv, the Company's broadband entertainment web TV
service. The redevelopment was done to incorporate a new social
networking service, and a user generated content service. These new
services, combined with the video streaming services on WOWtv, were
needed to upgrade the site to attract and sustain higher viewership.
This in turn would provide the Company with a bigger potential for
attracting advertising and syndication revenues to WOWtv. The new WOWtv
was initially launched in July, 2008, with full operation expected by
year end.
The Company's current site was designed with a heavy bias to
subscription and pay per view services. The current design was not
optimised for free content supported by advertising revenues. The
viewership also needed to be expanded in terms of unique visitors, page
views and hits to attract advertising. The Company focused its efforts
on redeveloping WOWtv to overcome these setbacks, and to provide it
with a better potential in the future to attract advertisers.
The Company felt that it would be a sound business strategy to launch
the newly designed WOWtv first, and then to focus on obtaining
advertising revenues in the next six months of the year. The Company
was able to secure new advertising, subscription and content
syndication contracts for its broadband entertainment service in the
last quarter of 2009.
COST OF SERVICES
The following table sets forth a year-over-year comparison of the
Company's cost of services :
YEAR ENDED DECEMBER 31 VARIANCE
2009 VS. 2008
2009 2008 $ %
---- ---- - -
COST OF SERVICES $226,319 $412,281 $(185,962) (45%)
Cost of services for the years ended December 31, 2009 was $226,319 which
decreased by $185,962 (45%) from $412,281 for the year ended December 31, 2008.
The decrease in cost of services of $185,962 (45%) was significant and was
attributed to cost reduction measures to reduce operating costs in terms of
bandwidth and co-location costs.
As a proportion of revenue the cost of the services for the year ended December
31, 2009 was 1028% (cost of sales at $226,319 and revenue of $22,016) as
compared to 203% (cost of sales at $412,281 and revenue of $203,066) for the
year ended December 31, 2008.
27
DISTRIBUTION EXPENSES
The following table sets forth a year-over-year comparison of the
Company's distribution expenses :
YEAR ENDED DECEMBER 31 VARIANCE
2009 VS. 2008
2009 2008 $ %
---- ---- - -
TOTAL $299,881 $1,144,771 $(844,890) (74%)
DISTRIBUTION
EXPENSES
DISTRIBUTION EXPENSES FOR THE YEAR ENDED DECEMBER 31, 2009 AT $299,881
WERE LOWER BY $844,890 (74%) AS COMPARED TO THE AMOUNT OF $1,144,771
INCURRED FOR THE YEAR ENDED DECEMBER 31,2008.
THE LOWER DISTRIBUTION EXPENSES were attributed to the write off of the
digit games of $861,186 receivables FOR THE YEAR ENDED DECEMBER 31,
2008.
BAD DEBTS WRITTEN OFF
The following table sets forth a year-over-year comparison of the
Company's bad debts written off:
YEAR ENDED DECEMBER 31 VARIANCE
2009 VS. 2008
2009 2008 $ %
---- ---- - -
BAD DEBTS
WRITTEN OFF $9,641,508 $60,647 $9,580,861 15,798%
Bad debts written off for the year ended December 31, 2009 at
$9,641,508 were higher by $9,580,861 (15,798%) as compared to the
amount of $60,647 incurred for the year ended December 31,2008.
The higher bad debts written off were primarily attributed to the
write off of the outstanding balance of $9,500,000 receivables from
sale of IPTV platform for the year ended December 31, 2009.
GENERAL AND ADMINISTRATIVE EXPENSES
The following table sets forth a year-over-year comparison of the
Company's general and administrative expenses :
YEAR ENDED DECEMBER 31 VARIANCE
2009 VS. 2008
2009 2008 $ %
---- ---- - -
TOTAL GENERAL AND $1,701,341 $3,876,263 $(2,174,922) (56%)
ADMINISTRATIVE
EXPENSES
28
ADMINISTRATION EXPENSES FOR THE YEAR ENDED DECEMBER 31, 2009 AT
$1,701,341 WERE LOWER BY $2,174,922 (56 %) AS COMPARED TO THE AMOUNT OF
$3,876,263 INCURRED FOR THE YEAR ENDED DECEMBER 31, 2008.
THE DECREASE IN ADMINISTRATIVE EXPENSES FOR THE YEAR ENDED DECEMBER 31,
2009 WAS ATTRIBUTED MAINLY TO THE DECREASE IN:
o DEPRECIATION AND AMORTIZATION. EQUIPMENT DEPRECIATION AND
LICENSE AMORTIZATION HAD DECREASED BY $1,178,286 (67%), FROM
$1,767,929 FOR THE YEAR ENDED DECEMBER 31,2008 TO $589,643 FOR
THE YEAR ENDED DECEMBER 31,2009. THE DECREASE WAS MAINLY DUE
TO MOST OF THE INTANGIBLE ASSETS AND EQUIPMENT BEING FULLY
AMORTIZED AND WRITTEN OFF DURING END OF DECEMBER 31, 2008.
o LEGAL AND PROFESSIONAL FEES. FEES HAD DECREASED BY $89,240
(24%), FROM $366,896 FOR THE YEAR ENDED DECEMBER 31, 2008 TO
$277,656 FOR THE YEAR ENDED DECEMBER 31, 2009. THE DECREASE
WAS MAINLY DUE AS A RESULT OF COSTS REDUCTION MEASURES TO
REDUCE OPERATING COSTS
o STAFF COSTS. STAFF COSTS HAD DECREASED BY $455,872 (56%), FROM
$812,933 FOR THE YEAR ENDED DECEMBER 31, 2008 TO $357,061 FOR
THE YEAR ENDED DECEMBER 31, 2009.THE DECREASE WAS MAINLY DUE
AS A RESULT OF COSTS REDUCTION MEASURES TO REDUCE OPERATING
COSTS
INVENTORIES WRITTEN OFF
The following table sets forth a year-over-year comparison of the
Company's inventories written off :
YEAR ENDED DECEMBER 31 VARIANCE
2009 VS. 2008
2009 2008 $ %
-------- -------- -------- ---
INVENTORIES
WRITTEN OFF $642,267 $457,500 $184,767 40%
Inventories were fully written off for the year ended December 31,
2009.
IMPAIRMENT LOSS ON FILM LIBRARY
For the year ended December 31, 2009, there was an impairment loss of
$19,164,782 due to a lack of revenue the past two fiscal years.
IMPAIRMENT LOSS ON INTANGIBLE ASSET
For the year ended December 31, 2009, there was an impairment loss of
$2,084,764 on intangible asset. There was an impairment loss on
intangible asset of $3,762,777 for the year ended December 31, 2008.
29
The impairment loss of $2,084,764 for the year ended December 31, 2009
was due to the impairment of online game license which has yet to
commence its operations.
The impairment loss of $3,762,777 for the year ended December 31, 2008
was due to the impairment on the digit games lottery license, resulting
from the suspension of the lottery operations by the Cambodia
Government. This also resulted in all digit games revenues in the year
2008 being reversed since such revenues did not meet the criteria for
recording the revenues.
IMPAIRMENT LOSS ON ASSOCIATE
For the year ended December 31, 2009, there was no impairment losses on
associate. There was an impairment loss on associate of $4,928,506 for
the year ended December 31, 2008.
The impairment loss of $4,928,506 for the year ended December 31, 2008
was due to the Company's Equity Method Investment of 30.1% ownership
interest in 121 View Corporation (SEA) Ltd being impaired as a result
of the associate's inability to generate any reasonable revenues or
profit to sustain its operations for the year ended December 31, 2008.
(LOSS) INCOME FROM OPERATIONS
The following table sets forth a year-over-year comparison of the
Company's income from operations:
Year Ended December 31
2009 2008
---- ----
(LOSS) INCOME FROM OPERATIONS $(33,378,846) $(14,439,679)
THE COMPANY INCURRED A LOSS FROM OPERATIONS OF $33,378,846 FOR THE YEAR
ENDED DECEMBER 31, 2009 AS COMPARED TO THE LOSS FROM OPERATIONS OF
$14,439,679 FOR THE YEAR ENDED DECEMBER 31, 2008. THIS WAS MAINLY DUE
TO THE WRITE OFF OF THE OUTSTANDING BALANCE $9,500,000 RECEIVABLES FROM
SALE OF IPTV PLATFORM, IMPAIRMENT LOSS ON THE FILM LIBRARY OF
$19,164,782, AND IMPAIRMENT LOSS OF INTANGIBLE ASSET OF $2,084,764.
NET INCOME ( LOSS )
The following table sets forth a year-over-year comparison of the
Company's net income (loss) :
Year Ended December 31
2009 2008
---- ----
Net income ( Loss ) $(33,693,548) $(17,229,866)
NET LOSS FOR THE YEAR ENDED DECEMBER 31, 2009, WAS $33,693,548 WHICH
INCREASED BY $16,463,682 (95%) FROM NET LOSS OF $17,229,866 FOR THE
YEAR ENDED DECEMBER 31, 2008.
The significant decrease in net loss for the year ended December 31
2009 was mainly attributed to the following :
o an increase in the loss from operations of $18,939,167 as
explained above under Loss From Operations for the year ended
December 31, 2009.
o Non operational losses totaling $2,536,751 in the year ended
December 31, 2008 comprising mainly of loss on sale of
investment securities of $750,421,and impairment loss in the
fair value of investments (equity securities) held for trading
amounting to $2,744,380 offset by the benefit for income taxes
of $958,050
30
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash of $356,477 at December 31, 2009 as compared to
cash of $1,484,945 at December 31, 2008.
The Company does not finance its operations through short-term bank
credit nor long-term bank loans as it believes that cash generated from
its operations will be able to cover its daily running cost and
overheads.
During the year ended December 31, 2009, 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.
In summary of the sources and use of cash, the Company had raised
$1,175,764 through equity financing for fiscal year 2009. The cash
generated from financing activities totaling $1,242,446 was used to
cover the Company's operations and to reduce the Company's current debt
levels by $529,565 for fiscal year 2009.
There was net cash used in operating activities of $1,952,720 and
$4,452,328, for each of the two years in 2009 and 2008, respectively.
The decrease of $2,499,608 for net cash used in operating activities in
2009 as compared to 2008 was mainly due to reduction of payments to the
Company's suppliers.
There was net cash used in investing activities of $293,194 in 2009,
and net cash generated by investing activities of $1,423,980 in 2008.
The decrease of $1,717,174 resulting in net cash used in investing
activities in 2009 as compared to 2008 was mainly due to no inflow of
funds generated by investing activities.
31
There was net cash provided by financing activities of $1,117,446 and
$2,190,752 for each of the two years in 2009 and 2008, respectively.
The decrease of $1,073,306 for net cash provided by financing
activities in 2009 as compared to 2008 was mainly due to a smaller sum
of financing raised through issuance of common stock for cash.
The Company's intention in fiscal year 2010 is to raise additional
funds through new equity placements with investors to fund its
business, and the intended growth plans. To date, the Company has
raised $187,822.40 in new funding for 2010, and is expected to raise
more new funding during the year. This new funding coupled with its
cash as at December 31, 2009 should be able to cover operating expenses
for the fiscal year 2010, and the Company is confident of raising
additional funding for the next fiscal year.
The Company has taken steps in 2009 to contain its operating expenses
through various cost reductions measures which include reductions in
staff costs, legal and professional fees and cost of services. The
Company has entered into agreements with partners in China, Indonesia
and Malaysia, for the rollout of WOWtv sites in these territories, and
plans to enter into new agreements for other territories in the next
six months. The Company has signed new agreements in the later part of
2009 for advertising, subscription and content syndication revenues.
When implemented in 2010, these agreements are expected to generate
revenues for its broadband business. The Company plans in 2010 to
expand its broadband coverage by launching new broadband sites in the
Asia Pacific region. No assurance can be made that such plans will be
carried out in a timely manner.
We expect that the broadband business segment would be able to generate
sufficient cash to cover its operations by Year 2010. Cash generated
from operations meanwhile will not be able to cover the Company's
intended growth and expansion. The Company intends to raise additional
funds to fund its business expansion until its revenue generation is
self sufficient to fund the business. However no assurances can be made
that the Company will raise sufficient funds as planned.
NEW CONTRACTS
o On March 31, 2009, the Company signed an agreement with Beijing
Baidu Network Science and Technology Co Ltd ("Baidu") to launch
the WOWtv platform in China. The agreement was a strategic
partnership with Baidu to provide content services to Baidu.com
users.
o On April 17,2009, the Company signed a strategic cooperation
agreement with LTDnetwork Inc. who owns the brand name and music
site called QTRAX. QTRAX is the world's first free and legal
peer-to-peer music service. Both parties agreed to look into
areas to promote each other's site to increase internet traffic
and to exploit each other's content.
32
o On August 1, 2009, the Company signed an agreement with MOL
AccessPortal Berhad ("MOL") to launch the WOWtv content and
services through MOL's distribution network and implement
MOLepoints as the exclusive third party online micropayment
solution for WOWtv content and services globally. The revenue
share agreement with MOL allows the Company to have a 65% share
of all payments for WOWtv's pay-per-view content transacted via
the MOL distribution network and micropayment system.
o On October 16, 2009, the Company signed an agreement with Admax
Network Holdings Limited("Admax"), one of the leading online
advertising networks in South East Asia to include the Company's
WOWtv sites in their advertising networks. Admax will pay the
Company sixty percent (60%) of the amount due Admax Networks from
advertisers for advertisements.
o On November 2, 2009, the Company entered into an agreement with
Cyberventures Sdn Bhd, ("Cyberventures"), and MOL Media Sdn Bhd.,
("MOL Media"), both companies incorporated in Malaysia to launch
the WOWtv services and content in Malaysia. M2B shall assign the
rights of the content library for Malaysia on a non-exclusive
basis for use on the IPTV, web and mobile platforms to MOL Media
for use in Malaysia and the Friendster Community, for a fee of
USD 4.5 million payable in the shares of MOL Media. M2B intends
to carry out an independent valuation of the content library
assigned to MOL Media on an annual basis. The Agreement further
provides that MOL Media and M2B shall endeavor to raise USD
500,000/- in new offering for MOL Media to develop the business
on the IPTV, mobile and web platforms in Malaysia. This new
funding shall be raised at at the same rate as the new shares to
be issued to M2B. This fund raising shall precede the issue of
the new shares to M2B, which makes it a condition that has to be
met before M2B receives the new shares. The Company expects that
the agreement with MOL Media should grow the Company's brand and
its content, and contribute to the Company's revenues.
o As of December 2, 2009, the Company, through its subsidiary, M2B
World Asia Pacific Pte. Ltd., signed an agreement with Innity Sdn
Bhd(the "Agreement"), one of the leading online advertising
networks in South East Asia and listed on the Malaysia Stock
Exchange, to include the Company's WOWtv sites in their
advertising networks. Pursuant to the terms of the Agreement,
Innity Sdn Bhd will pay the Company sixty percent (60%) of the
amount due Innity networks from advertisers for advertisements,
plus any applicable taxes for such amounts.
o As of December 15, 2009, the Company , through its subsidiary,
M2B World Asia Pacific Pte. Ltd. ("M2B"), signed an agreement
with Zingmobile Pte Ltd. ("Zingmobile"), a Singapore corporation
(the "Agreement"), one of the leading companies for publishing
value-added mobile content, services and applications for mobile
market. Zingmobile is listed on Australian Stock Exchange.
Pursuant to the terms of the Agreement, Zingmobile shall launch
M2B's content and services on mobile platforms of
telecommunication companies and mobile service providers in the
territories of Indonesia, Malaysia and Bangladesh. Services will
be launched first in Indonesia with Telkomsel, Indosat and XL.
M2B and Zingmobile shall share 50% of the net revenue collected
with Zingmobile.
33
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary objective of our investment activities is to preserve
principal while concurrently maximizing the income we receive from our
investments without significantly increasing risk. Some of the
securities that we may invest in may be subject to market risk. This
means that a change in prevailing interest rates may cause the
principal amount of the investment to fluctuate. For example, if we
hold a security that was issued with a fixed interest rate at the
then-prevailing rate and the prevailing interest rate later rises, the
current value of the principal amount of our investment will decline.
To minimize this risk in the future, we intend to maintain our
portfolio of cash equivalents and short-term investments in a variety
of securities, including commercial paper, money market funds,
high-grade corporate bonds, government and non- government debt
securities and certificates of deposit. In general, money market funds
are not subject to market risk because the interest paid on such funds
fluctuates with the prevailing interest rate. The Company held
$3,045,729 and $3,198,369 in marketable securities as of December 31,
2009 and 2008 respectively.
The Company does not believe that it faces material market risk with
respect to its cash and cash equivalents which totaled $356,477 and
$1,484,945 at December 31, 2009 and 2008, respectively.
The Company has no material long-term obligations or hedging
activities.
ABILITY TO EXPAND CUSTOMER BASE
The Company's future operating results depend on our ability to expand
our customer base for broadband services and e-commerce portals. An
increase in total revenue depends on our ability to increase the number
of broadband and e-commerce portals, in the US, Europe and Asia. The
degree of success of this depends on:
o our efforts to establish independent broadband sites in
countries where conditions are suitable.
o our ability to expand our offerings of content in
entertainment to include more niche channels and offerings.
o our ability to provide content beyond just personal computers
but to encompass television, wireless application devices and
3G hand phones.
ABILITY TO ACQUIRE NEW MEDIA CONTENTS
The continued ability of the Company to acquire rights to new media
contents, at competitive rates, is crucial to grow and sustain the
Company's business.
AVAILABILITY OF TECHNOLOGICALLY RELIABLE NEW GENERATION OF BROADBAND
DEVICES
The growth of demand for broadband services is dependent on the wide
availability of technologically reliable new generation of broadband
devices, at affordable prices to prospective customers of broadband
services. The early and widespread availability and market adoption of
new generation broadband devices, will significantly impact demand for
broadband services and the growth of the Company's business.
34
CAPITAL INVESTMENT IN BROADBAND INFRASTRUCTURE BY GOVERNMENT AND TELCOS
The growth of demand for broadband services is dependent on the capital
investment in broadband infrastructure by governments and Telcos. A
significant source of demand for the Company's broadband services could
be from homes and enterprises with access to high-speed broadband
connections. The ability of countries to invest in public broadband
infrastructure to offer public accessibility is subject to countries'
economic health. The Company's prospects for business growth in Asia
especially would be impacted by overall economic conditions in the
territories that we seek to expand into.
COMPETITION FROM BROADBAND CABLE AND TV NETWORKS OPERATORS
The competition of services provided by broadband cable network
operators and TV networks. As traditional TV networks and cable TV
operators provide alternate supply of entertainment and on-demand
broadband services, they are in competition with the Company, for
market share. The Company, nevertheless, will continue to leverage on
its advantage of ownership rights to its own portfolio of media content
and its ability to provide broadband services over both the cable and
wireless networks, at competitive rates.
The Company's business is reliant on complex information technology
systems and networks. Any significant system or network disruption
could have a material adverse impact on our operations and operating
results. The Company's nature of business is highly dependent on the
efficient and uninterrupted operation of complex information technology
systems networks, may they, either be that of ours, or our Telco/ ISP
partners.
All information technology systems are potentially vulnerable to damage
or interruption from a variety of sources, including but not limited to
computer viruses, security breach, energy blackouts, natural disasters
and terrorism, war and telecommunication failures. System or network
disruptions may arise if new systems or upgrades are defective or are
not installed properly. The Company has implemented various measures to
manage our risks related to system and network disruptions, but a
system failure or security breach could negatively impact our
operations and financial results.
LAW AND REGULATIONS GOVERNING INTERNET
Increased regulation of the Internet or differing application of
existing laws might slow the growth of the use of the Internet and
online services, which could decrease demand for our services. The
added complexity of the law may lead to higher compliance costs
resulting in higher costs of doing business.
UNAUTHORIZED USE OF PROPRIETARY RIGHTS
Our copyrights, patents, trademarks, including our rights to certain
domain names are very important to M2B and WOWtv's brand and success.
While we make every effort to protect and stop unauthorized use of our
proprietary rights, it may still be possible for third parties to
obtain and use the intellectual property without authorization. The
validity, enforceability and scope of protection of intellectual
property in Internet-related industries remain uncertain and still
evolving. Litigation may be necessary in future to enforce these
intellectual property rights. This will result in substantial costs and
diversion of the Company's resources and could disrupt its business, as
well as have a material adverse effect on its business.
35
LAW AND REGULATIONS GOVERNING BUSINESS
As the Company continues to expand its business internationally across
different geographical locations there are risks inherent including:
1) Trade barriers and changes in trade regulations 2) Local labor laws
and regulations 3) Currency exchange rate fluctuations 4) Political,
social or economic unrest 5) Potential adverse tax regulation 6)
Changes in governmental regulations
OUTBREAK OF BIRD FLU PANDEMIC OR SIMILAR ADVERSE PUBLIC HEALTH
DEVELOPMENTS
Any future outbreak of the bird flu pandemic or similar adverse public
health developments may have a material adverse effect on the Company's
business operations, financial condition and results of operations.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Financial Statements and Notes thereto commencing on Page F-1.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE
--------------------
Report of Independent Registered Public Accounting Firm F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Income F-3
Consolidated Statements of Stockholders' Equity and Comprehensive
Income F-4 - F-6
Consolidated Statements of Cash Flows F-7 - F-8
Notes to Consolidated Financial Statements F-9 - F-26
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On July 21, 2008, Nexia Court & Co. resigned as the Company's auditors. The
Board of Directors of the Company accepted Nexia Court's decision as of the
date hereof and appointed Mendoza Berger & Co., LLP. as its new certified
accountants and auditors.
During the Company's fiscal years 2006-2007, and during the interim period from
January 1, 2008 through the date of July 21, 2008, there have been no past
disagreements between the Company and Nexia Court & Co., on any matter of
accounting principles or practices, financial statement disclosure or auditing,
scope or procedure.
The audit reports provided by the Company's auditors, Nexia Court & Co. for the
fiscal years ended December 31, 2006 and 2007 did not contain any adverse
opinion or disclaimer of opinion nor was any report modified as to uncertainty,
audit scope or accounting principles.
The Board of Directors approved the appointment of Mendoza Berger & Company,
LLP. of Irvine, California as its new auditors on July 21, 2008. During the two
most recent fiscal years and through the date hereof, neither the Company nor
any one on behalf of the Company has consulted with Mendoza Berger & Company,
LLP., regarding the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on the Company's financial statements, or any other matters or
reportable events required to be disclosed under Items 304 (a)(2)(i)and (ii) of
Regulation S-K.
36
ITEM 9A(T): CONTROLS AND PROCEDURES
RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
On May 28, 2010 on Form 8-K, the Company announced that its previously issued
financial statements for the year ended December 31, 2009 included in the
Company's Form 1O-K, should no longer be relied upon.
Management began a review of its reporting policies with respect to its film
library and concluded that its film library should have been impaired at
December 31, 2009 based upon a lack of historical revenue from which to
calculate a fair value in accordance with ASC 926, "Entertainment - Films."
This form 10-K/A includes the changes and restatement of the December 31, 2009
year ended financial statements.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
A system of disclosure controls and procedures (as defined in Rule 13a-15(e) and
15d-l5(e)) under the Securities Exchange Act of 1934,as amended [the "Exchange
Act"]) are controls and other procedures that are designed to provide reasonable
assurance that the information that the Company is required to disclose in the
reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms, and that such information is accumulated and communicated to the
Company's management, including the Chief Executive Officer and Chief Financial
Officer, as appropriate to allow timely decisions regarding required disclosure.
There are inherent limitations to the effectiveness of any system of disclosure
controls and procedures, including the possibility of human error and the
circumvention or overriding of the controls and procedures. Accordingly, even
effective disclosure controls and procedures can only provide reasonable
assurance of achieving their control objectives, and management necessarily is
required to use its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. In addition, the design of any system of
controls is based in pan upon certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed in achieving
its stated goals under all potential future conditions. Moreover, over time,
controls may become inadequate because of changes in conditions, or the degree
of compliance with policies or procedures may deteriorate. Because of the
inherent limitations in a control system, misstatements due to error or fraud
may occur and not be detected.
At the time of our Annual Report on Form 10-K for the fiscal year ended
December 31, 2009, which was filed on March 31, 2010, our Chief Executive
officer and Chief Financial Officer concluded that our disclosure controls and
procedures were effective as of December 31, 2009. Subsequent to that
evaluation, our management, including our Chief Executive Officer and Chief
Financial Officer, have re-evaluated the effectiveness of the design and
operation of our disclosure controls and procedures (as defined under Rules
13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1943,
as amended) as of the period covered by this report. Based upon that
evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures were not effective to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements because of the identification of
the material weakness in our internal control over financial reporting of the
film library from the misinterpretation of accounting literature in accordance
with generally accepted accounting principles ("GAAP"). "). It has become
apparent that the Company does lack the experience of the United States GAAP
knowledge in our staff. The Company will provide continuing professional
education for the existing staff. It is the Company's intent to have senior
accounting staff attend classes in US GAAP for a minimum of forty hours per
calendar year. This corrective action will demonstrates the appropriate
competence in the Company's internal control over financial reporting.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company's management is responsible for establishing and maintaining
adequate internal control over the Company's financial reporting, as such term
is defined in Exchange Act Rule 13a-15(f). Internal control over financial
reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with United States of America generally
accepted accounting principles. A Company's internal control over financial
reporting includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles and that receipts and expenditures of the Company are
being made only in accordance with authorization of management and directors of
the Company and (iii) provide reasonable assurance regarding the prevention or
timely detection of unauthorized acquisition, use or disposition of the
Company's assets that could have a material effect on our consolidated financial
statements.
37
In connection with the preparation of this Annual Report on Form 10K, under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we conducted an evaluation of the
effectiveness of internal control over financial reporting based on criteria
established in the framework in Internal Control - Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission
("COSO"), as supplemented by the COSO publication Internal Control over
Financial Reporting - Guidance for Smaller Public Companies. Based on their
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our internal control over financial reporting was not effective as of
December 31, 2009, based on these criteria. Management believes that this
material weakness has no affect on our ability to present GAAP-compliant
financial statements. Management does not believe that the weakness with respect
to its procedures and controls had a pervasive effect upon the financial
reporting and overall control environment due to our ability to make the
necessary adjustments to our financial statements. Management is also aware that
there is a lack of segregation of duties at the Company due to the fact that
there are only four people dealing with financial and accounting matters.
However, at this time, management has decided that considering the experience
and abilities of the employees involved and the low quantity of transactions
processed, the risks associated with such lack of segregation are low and the
potential benefits of adding employees to clearly segregate duties do not
justify the substantial expenses associated with such increases. Management
will periodically reevaluate this situation.
This annual report does not include an attestation report of our registered
independent auditors regarding internal control over financial reporting.
Management's report was not subject to attestation by our registered independent
auditors pursuant to temporary rules of the SEC that permit us to provide only
management's report in this annual report.
Our management, including the Chief Executive Officer and Chief Financial
Officer, does not expect that our disclosure controls and procedures or our
internal control over financial reporting will prevent all errors and all fraud.
A control system, no matter how well designed and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the company have been detected.
MANAGEMENT'S REMEDIATION INITIATIVES
In addition to the re-evaluation discussed above, management has, subsequent to
December 31, 2009, implemented the following procedures to address the material
weakness noted above, including the following:
o Enhanced the access to accounting literature, research materials and
documents.
o Identified third party professionals with whom to consult regarding
complex accounting applications
o Looking to additional staff to supplement our current accounting
professionals with the requisite experience and training
The elements of our remediation plan can only be accomplished over time and we
can offer no assurance that these initiatives will ultimately have the intended
effects.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in the Company's internal control over financial
reporting during the most recently completed fiscal quarter that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
ITEM 9B: OTHER INFORMATION
None.
PART III
ITEM 10: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Our directors, executive officers and key employees as of March 20,
2010 were as follows:
Name Age Position
-------- ------- -----------
Sakae Torisawa 64 Chairman of the Board of Directors
Zee Moey Ngiam 53 Director
Colin St.Gerard Binny 55 Chief Executive Officer, President,
Interim Acting Chief Financial
Officer and Director
Chua Leong Hin 51 Director
38
SAKAE TORISAWA
Mr. Torisawa has served as a director of the Company since January
2007, and as the Chairman of the Company's Board of Directors since
March 5, 2007. Mr. Torisawa graduated from the Journalism Course of Law
Department at Nippon University, Japan. In 1973, Mr. Torisawa joined
Hockmetals Group in Tokyo, which is a worldwide trading and mining
firm. He worked as a trader for non-ferrous metals and raw materials,
especially copper, zinc, lead, tungsten, and antimony. In 1976,
Hockmetals closed its Tokyo office, and he joined Union Carbide, USA as
a representative in Tokyo office for the Metal Division. In 1977, Mr.
Torisawa joined Glencore Far East Ag in Switzerland, an international
trading and industrial firm, specializing in oil, coal, metals and
minerals. He served as a partner in charge of Tokyo office. He
continued in trading copper, zinc and lead metals and raw materials.
Due to nature of business, he was involved in mining and smelting green
field projects. Presently Mr. Torisawa works for C & P Asia Pte Ltd,
Singapore as a Senior Advisor.
ZEE MOEY NGIAM
Mr. Ngiam has served as a director of the Company since March 5, 2007.
He is a Fellow Member of the Institute of Certified Public Accountants
of Singapore; he is a Member of Marketing Institute of Singapore, and a
Fellow of Association of Chartered Certified Accountants UK. From 1987
- March, 2005 he has been Group Financial Controller for Lauw & Sons
Group of Companies. He was responsible for all financial matters of the
Group's Singapore operation, development and implementation of
marketing programs of the Group's Properties and identification and
development of investment opportunities. He also reviewed quarterly
financial and Management reports of overseas Companies in USA, Taiwan
and Australia. From 2004 until present, he has been Joint Company
Secretary for AEI Corporation Ltd.
COLIN BINNY
Mr. Binny has served as the Chairman of the Board, Chief Executive
Officer and Director since 2000. He held various senior management
positions with local and global companies over the last 25 years. He is
also the Chairman of B Media Pte Ltd (formerly known as M2B Media Pte
Ltd). From 1996 through 1999, Mr. Binny was the President and CEO of
UTV International (Singapore). Mr. Binny obtained his marine
engineering diploma from the Singapore Polytechnic in 1975.
CHUA LEONG HIN
Mr. Chua Leong Hin has served as a director of the Company since April
2, 2009. He graduated from the National University of Singapore in 1983
with a Bachelor of Law degree. He was admitted as an advocate and
solicitor of the Supreme Court of Singapore to practice law in
Singapore in February 1984.
He was initially employed by the law firm of Thomas Tham & Partners as
a legal assistant, and subsequently in October 1984, together with Mr.
Leong Keng Kheong, started the firm Leong Chua & Associates which is
now known as Leong Chua & Wong. The firm currently has 4 partners and
about 15 employees. The firm specializes in the field of litigation and
commercial law.
Mr. Chua Leong Hin is a shareholder of M2B World Asia Pacific Pte. Ltd,
a subsidiary of the Company. He holds 1,296,336 ordinary shares (3.05%)
of the total shares outstanding of 42,459, 976 ordinary shares in M2B
World Asia Pacific Pte. Ltd.
The following directors and executive officers have resigned from the
Company as of the effective date set forth below:
39
Name Age Position Resignation Date
-------------------------- -------- ------------------------------------------- ------------------------------------
Colin St.Gerard Binny 55 Chief Executive Officer, President April 02, 2010
Interim Acting Chief Financial
Officer and Director
CORPORATE GOVERNANCE
BOARD OF DIRECTORS
BOARD MEMBERS WHO ARE DEEMED INDEPENDENT
Our board of directors has determined that with exception of Ngiam Zee Moey,
none of our directors are "independent" as that term is defined by the National
Association of Securities Dealers Automated Quotations ("NASDAQ"). See "Lack of
Committees" for the NASDAQ definition of "Independent Director."
Ngiam Zee Moey has been determined as an "independent" director. Under the
National Association of Securities Dealers Automated Quotations definition, an
"independent director means a person other than an officer or employee of the
Company or its subsidiaries or any other individuals having a relationship that,
in the opinion of the Company's board of directors, would interfere with the
exercise of independent judgment in carrying out the responsibilities of the
director. The board's discretion in determining director independence is not
completely unfettered. Further, under the NASDAQ definition, an independent
director is a person who (1) is not currently (or whose immediate family members
are not currently), and has not been over the past three years (or whose
immediate family members have not been over the past three years), employed by
the company; (2) has not (or whose immediate family members have not) been paid
more than $60,000 during the current or past three fiscal years; (3) has not (or
whose immediately family has not) been a partner in or controlling shareholder
or executive officer of an organization which the company made, or from which
the company received, payments in excess of the greater of $200,000 or 5% of
that organizations consolidated gross revenues, in any of the most recent three
fiscal years; (4) has not (or whose immediate family members have not), over the
past three years been employed as an executive officer of a company in which an
executive officer of the Company has served on that company's compensation
committee; or (5) is not currently (or whose immediate family members are not
currently), and has not been over the past three years (or whose immediate
family members have not been over the past three years) a partner of the
Company's outside auditor.
Our board of directors has determined that Ngiam Zee Moey fulfilled the
definition of "Financial Expert". The term "Financial Expert" is defined as a
person who has the following attributes: an understanding of generally accepted
accounting principles and financial statements; has the ability to assess the
general application of such principles in connection with the accounting for
estimates, accruals and reserves; experience preparing, auditing, analyzing or
evaluating financial statements that present a breadth and level of complexity
of accounting issues that are generally comparable to the breadth and complexity
of issues that can reasonably be expected to be raised by the company's
financial statements, or experience actively supervising one or more persons
engaged in such activities; an understanding of internal controls and procedures
for financial reporting; and an understanding of audit committee functions.
40
COMMITTEES
The Board of Directors of the Company has established the following
committees on April 30, 2007:
o Audit Committee
The Audit Committee's responsibilities include:
o appointing, retaining, approving the compensation of and
assessing the independence of our independent registered
public accounting firm, including pre-approval of all services
performed by our independent registered public accounting
firm;
o overseeing the work of our independent registered public
accounting firm, including the receipt and consideration of
certain reports from the firm;
o reviewing and discussing with management and the independent
registered public accounting firm our annual and quarterly
consolidated financial statements and related disclosures;
o monitoring our internal control over financial reporting,
disclosure controls and procedures and code of business
conduct and ethics;
o establishing procedures for the receipt and retention of
accounting related complaints and concerns;
o meeting independently with our independent registered public
accounting firm and management; and
o preparing the audit committee report required by SEC rules.
The members of the Audit Committee are Ngiam Zee Moey and Colin Binny
resigned on April 02, 2010
o Nominating and Governance Committee
The Nominating and Corporate Governance Committee's responsibilities
include:
o identifying individuals qualified to become directors;
o reviewing with the board the standards to be applied in making
determinations regarding independence of board members;
o reviewing and making recommendations to the board with respect
to size, composition and structure;
o developing and recommending to the board our code of business
conduct and ethics;
o developing and recommending to the board Corporate Governance
Guidelines;
o overseeing an annual evaluation of the board; and
o providing general advice to the board on corporate governance
matters.
The members of the Nominating and Corporate Governance Committee are
Sakae Torisawa, and Ngiam Zee Moey.
o Compensation Committee
The Compensation Committee's responsibilities include:
o annually reviewing and approving corporate goals and
objectives relevant to chief executive officer compensation
and the compensation structure for our officers;
o approving the chief executive officer's compensation;
o reviewing and approving, or making recommendations to the
board of directors with respect to, the compensation of our
other executive officers;
o overseeing and administering our equity incentive plans; and
o preparing the annual executive compensation report
The members of the Compensation Committee are Sakae Torisawa and Ngiam
Zee Moey.
41
CODE OF BUSINESS CONDUCT AND ETHICS
Our code of business conduct and ethics, as approved by our board of
directors, and it can be obtained from our Website, at www.amaruinc.com
We intend to satisfy the disclosure requirement relating to amendments
to or waivers from provisions of the code that relate to one or more of
the items set forth in Regulations S-K, by describing on our Internet
Website, within five business days following the date of a waiver or a
substantive amendment, the date of the waiver or amendment, the nature
of the amendment or waiver, and the name of the person to whom the
waiver was granted.
Information on our Internet website is not, and shall not be deemed to
be, a part of this report or incorporated into any other filings we
make with the Securities and Exchange Commission.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, or
the Exchange Act, requires our executive officers and directors, and
persons who beneficially own more than 10% of a registered class of our
common stock, to file initial reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission, or
the SEC. These officers, directors and stockholders are required by SEC
regulations to furnish us with copies of all such reports that they
file.
Based solely upon a review of copies of such reports furnished to us
during the fiscal year ended December 31, 2009 and thereafter, or any
written representations received by us from reporting persons that no
other reports were required, to the best of our knowledge, during our
fiscal 2009, some of Section 16(a) filing requirements applicable to
our reporting persons were not met in a timely manner.
42
ITEM 11: EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the annual and
long-term compensation for services rendered during the last three
fiscal years to our company in all capacities as an employee by our
Chief Executive Officer and our other executive officers whose
aggregate compensation exceeded $100,000 (collectively, the "named
executive officers") during fiscal year ended 2009 shown below.
Name and Principal Year Salary Bonus Stock Options Non-Equity Change in All Other Total
Position ($) ($) Awards Awards Incentive Pension Compensation ($)
($) ($) Plan Value and ($)
Compensation Non-qualitative
($) Deferred
Compensation
Earnings
($)
------------------------------------------------------------------------------------------------------------------------
Colin Binny, CEO and CFO 2009 -- -- -- - - - - -
2008 -- -- -- - - - - -
2007 44,949 -- -- - - - 810 45,759
Francis Foong, former 2007 -- -- -- - - - - --
CFO
Bee Leng Ho, former 2007 26,093 -- -- - - - 81,482 107,575
CFO
(1) Bonus awarded based on performance.
(2) No officers received or will receive any long term incentive plan
payouts or other payouts during financial years ended December 31,
2007, December 31, 2008 and December 2009.
In December 2006, a total of 120,000 shares of common stock were
approved by the Board of Directors to be issued to Francis Foong, the
Company's former CFO for services rendered valued at $54,000 pursuant
to the Company's 2004 Equity Compensation Plan. In December 2006, a
total of 90,000 shares of common stock were approved by the Board of
Directors to be issued to Bee Leng Ho, the Company's then CFO for
services rendered valued at $40,500 pursuant to the Company's 2004
Equity Compensation Plan.
In December 2005, a total of 7,300 shares of common stock were issued
to Colin Binny, the Company's CEO for services rendered valued at
$21,900 pursuant to the Company's 2004 Equity Compensation Plan. In
December, 2005, a total of 4,700 shares of common stock were issued and
18,800 shares of common stock were approved by the Board of Directors
to be issued to Francis Foong, the Company's then CFO for services
rendered to the Company valued at $70,500 pursuant to the Company's
2004 Equity Compensation Plan.
43
As of December 31 2009, 9,745,040 million shares of common stock remain
unused in the Company's 2004 Equity Compensation Plan.
Outstanding Equity Awards at Fiscal Year-End Table
The following table sets forth certain information concerning unexercised stock
options for each named executive officer above. There were no stock awards
outstanding as of end of fiscal year 2009.
---------------------------------------------------------------------- ------------------------------------
Option Awards Stock Awards
------------- ------------- ---------- -------- --------- ------------ ------ ------- --------- ---------
Name Number Number Equity Option Option Number Market Equity Equity
of of Incentive Exercise Expiration of Value Incentive Incentive
Securities Securities Plan Price Date Shares of Plan Plan
Underlying Underlying Awards: ($) or Shares Awards: Awards:
Unexercised Unexercised Number Units or Number Market
Options Options of of Units of or
(#) (#) Securities Stock of Unearned Payout
Exercisable Unexercisabe Underlying That Stock Shares, Value
Unexercised Have That Units of
Unearned Not Have or Unearned
Options Vested Not Other Shares,
(#) (#) Vested Rights Units
($) That or
Have Other
Not Rights
Vested That
(#) Have
Not
Vested
($)
Colin Binny NIL NIL NIL NIL NIL NIL NIL NIL NIL
------------- ------------- ---------- -------- --------- ------------ ------ ------- --------- ---------
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth equity compensation plan information as
of December 31, 2009:
NUMBER OF SHARES WEIGHTED AVERAGE NUMBER OF
TO BE ISSUED EXERCISE PRICE HARES REMAINING
UPON EXERCISE OF OF OUTSTANDING SAVAILABLE FOR
PLAN CATEGORY OUTSTANDING OPTIONS OPTIONS FUTURE ISSUANCE
-------------- ------------------- ------------------ -----------------
2004 Equity Compensation Plan approved by NIL NIL 9,745,040
stockholders
Our Board of Directors administers the Plan. Our Board of Directors has the
authority to determine, at its discretion, the number and type of awards that
will be granted, the recipients of the awards, and the exercise or purchase
price required to be paid, when options may be exercised and the term of the
option grants. Options granted under the Plan may not be exercised after 10
years from the date the option is granted. A total of 9,745,040 shares of common
stock were reserved for awards granted under the Plan.
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
There are no employment agreements with the Company's key employees at this
time.
DIRECTOR COMPENSATION
STOCK OPTIONS
Stock options and equity compensation awards to our non-employee / non-executive
director are at the discretion of the Board. To date, no options or equity
awards have been made to our non-employee / non-executive director.
CASH COMPENSATION
Our non-employee / non-executive director is eligible to receive a fee to be
paid for attending each Board meeting; however, no fees were paid in 2009.
TRAVEL EXPENSES
All directors shall be reimbursed for their reasonable out of pocket expenses
associated with attending the meeting.
44
DIRECTOR COMPENSATION
The following table shows the overall compensation earned for the 2009 fiscal
year with respect to each non-employee and non-executive director as of December
31, 2009.
DIRECTOR COMPENSATION
------------------------------------------------------------------------------------------
FEES
EARNED NON-EQUITY NONQUALIFIED
NAME AND OR PAID OPTION INCENTIVE PLAN DEFERRED ALL OTHER
PRINCIPAL IN CASH STOCK AWARDS COMPENSATION COMPENSATION COMPENSATION ($)
POSITION ($) AWARDS ($) (1) ($)(2) EARNINGS($) (3) TOTAL ($)
--------------------------- ------- ---------- ---------- ------------- ------------- ---------------- ---------
Colin Binny Director -- -- -- -- -- --
Sakae Torisawa Director -- -- -- -- -- --
Zee Moe Ngiam Director -- -- -- -- -- --
Chua Leong Hin Director -- -- -- -- -- --
-----------------------
(1) Reflects dollar amount expensed by the company during applicable fiscal
year for financial statement reporting purposes pursuant to FAS 123R. FAS
123R requires the company to determine the overall value of the options as
of the date of grant based upon the Black-Scholes method of valuation, and
to then expense that value over the service period over which the options
become exercisable (vest). As a general rule, for time-in-service-based
options, the company will immediately expense any option or portion thereof
which is vested upon grant, while expensing the balance on a pro rata basis
over the remaining vesting term of the option. For a description FAS 123 R
and the assumptions used in determining the value of the options under the
Black-Scholes model of valuation, see the notes to the financial statements
included with this Form 10-K.
(2) Excludes awards or earnings reported in preceding columns.
(3) Includes all other compensation not reported in the preceding columns,
including (i) perquisites and other personal benefits, or property, unless
the aggregate amount of such compensation is less than $10,000; (ii) any
"gross-ups" or other amounts reimbursed during the fiscal year for the
payment of taxes; (iii) discounts from market price with respect to
securities purchased from the company except to the extent available
generally to all security holders or to all salaried employees; (iv) any
amounts paid or accrued in connection with any termination (including
without limitation through retirement, resignation, severance or
constructive termination, including change of responsibilities) or change
in control; (v) contributions to vested and unvested defined contribution
plans; (vi) any insurance premiums paid by, or on behalf of, the company
relating to life insurance for the benefit of the director; (vii) any
consulting fees earned, or paid or payable; (viii) any annual costs of
payments and promises of payments pursuant to a director legacy program and
similar charitable awards program; and (ix) any dividends or other earnings
paid on stock or option awards that are not factored into the grant date
fair value required to be reported in a preceding column.
LIMITATION OF LIABILITY OF DIRECTORS
The laws of the State of Nevada and the Company's By-laws provide for
indemnification of the Company's directors for liabilities and expenses
that they may incur in such capacities. In general, directors and
officers are indemnified with respect to actions taken in good faith in
a manner reasonably believed to be in, or not opposed to, the best
interests of the Company, and with respect to any criminal action or
proceeding, actions that the indemnitee had no reasonable cause to
believe were unlawful.
45
The Company has been advised that in the opinion of the Securities and
Exchange Commission, indemnification for liabilities arising under the
Securities Act is against public policy as expressed in the Securities
Act and is, therefore, unenforceable.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
GENERAL
As of March 20, 2010, a total of 171,545,373 shares of our common stock
were outstanding. The following table set forth information as of that
date regarding the beneficial ownership of our common stocks by:
o Each of our directors
o Each of our named executive officers
o All of our directors and executive officers as a group; and
o Each person known by us to beneficially own 5% or more of the
outstanding shares of our common stock as of the date of the
table
Name and Address Amount and Nature of Beneficial Percent of Class of
of Beneficial Owner Ownership of Common Stock Common Stock
-------------------------- -------------------------------- ----------------------
Colin St.Gerard Binny
CEO, CFO and Director 22,111,888 (1) 13.87%
62 Cecil Street #06-00 (Indirect)
TPI Building
Singapore 049710
Sakae Torisawa, Chairman 1,712,808 1.07%
62 Cecil Street #06-00 (Direct)
TPI Building
Singapore 049710
Zee Moey Ngiam, Director 0 0%
62 Cecil Street #06-00 (Direct)
TPI Building
Singapore 049710
Chua Leong Hin, Director 0
62 Cecil Street #06-00 (Direct) 0%
TPI Building
Singapore 049710
All Directors and Officers 23,824,696 15%
As a Group (4 persons)
46
1) Except as otherwise indicated, the Company believes that the
beneficial owners of Common Stock listed below, based on
information furnished by such owners, have sole investment and
voting power with respect to such shares, subject to community
property laws where applicable. Beneficial ownership is determined
in accordance with the rules of the Securities and Exchange
Commission and generally includes voting or investment power with
respect to securities. Shares of Common Stock subject to options
or warrants currently exercisable, or exercisable within 60 days,
are deemed outstanding for purposes of computing the percentage of
the person holding such options or warrants, but are not deemed
outstanding for purposes of computing the percentage of any other
person.
2) Based on a total of 22,111,888 shares of common stock of Amaru,
Inc held by Mr. Binny and his wife, Chew Bee Lian, indirectly as
100% shareholders of B Media Pte Ltd (formerly known as M2B Media
Pte Ltd).
3) Mr. Chua Leong Hin is a shareholder of M2B World Asia
Pacific Pte. Ltd, a subsidiary of the Company. He holds 1,296,336
ordinary shares (3.05%) of the total shares outstanding of 42,459,
976 ordinary shares in M2B World Asia Pacific Pte. Ltd.
ITEM 13: CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS
o On January 15, 2007, Amaru Holdings Limited ("Amaru Holdings"), a
British Virgin Islands corporation and a wholly-owned subsidiary of
Amaru, Inc., a Nevada corporation (the "Company") entered into a sale
and purchase agreement together with other sellers (the "Agreement")
with Auston International Group, Ltd., a Singapore company ("Auston")
to sell to Auston its majority owned subsidiary, M2B World Asia
Pacific Pte Ltd., together with its subsidiary, M2B World Holdings
Limited (collectively, "M2B Asia"). Auston is a company trading on the
Singapore Stock Exchange. The Agreement provides for the sale of
42,459,978 shares of M2B Word Asia Pacific Pte Ltd, its total issued
and outstanding capital. As the consideration for M2B World Asia
Pacific Pte Ltd shares, Auston agreed to issue a total of 660 million
new ordinary shares of Auston to M2B World Asia Pacific Pte Ltd
shareholders. The Auston shares are valued at S$0.25 per share.
The Agreement is subject to certain conditions precedent, including,
but not limited to the shareholder approval of the transaction by
Auston shareholders, the approval of the Singapore Stock Exchange and
other related regulatory approvals of both parties.
Amaru Holdings is required to deliver a valuation report by an
independent auditor to Auston confirming that the value of the assets
of M2B Asia is no less than that of the amount of consideration to be
paid by Auston. Following the completion of the transaction, the
Company would hold more than 50% of the shares of Auston. The Company
believes that prior to entering into the Agreement, there were no
material relationships between or among M2B Asia, the Company or any of
its affiliates, officers or directors, or associates of any such
officers or directors, on the one hand, and the shareholders or their
respective affiliates, on the other. The Company, through one of its
subsidiaries owns 11.1% of Auston, and Auston has no ownership in the
Company. One of the Company's directors is also a director of Auston,
however, said director did not vote on the approval of the transaction.
The Agreement expired by its terms as of December 31, 2007. On February
19, 2008, the Company decided that it is in the best interest of the
Company not to extend the Agreement and intends to list the securities
of M2B World Asia Pacific Pte Ltd on the Singapore Stock Exchange.
o On September 1, 2006, M2B World Asia Pacific Pte. Ltd entered into a
licensing agreement with its investee, 121 View Corporation (Sea) Ltd
(121 View). The company licensed $3 million worth of film library to
121 View. On December 20, 2006, the company licensed additional $1.7
million worth of film library to 121 View.
47
ITEM 14: PRINCIPAL ACCOUNTING FEES AND SERVICES
AUDIT FEES
The following table presents fees for professional audit services
rendered by our auditors for the year ended December 31, 2009 and
December 31, 2008.
2009 2008
------------- --------------
Audit fees (1) $ 245,857 $ 281,431
-- --
------------- --------------
Total $ 245,857 $ 281,431
============= ==============
(1) Audit Fees: These are fees paid and payable for professional
services performed for the financial year ended December 31,
2009 by Nexia Court & Co.,Nexia Tan & Sitoh, Horwath First
Trust and Mendoza, Berger & Co. LLP.
In 2007, these fees were paid and payable for professional
services performed by Nexia Court & Co., Nexia Tan & Sitoh and
Horwath First Trust. These are fees paid or payable For the
audit of the annual financial statements and review of
financial statements included in our 10-QSB filings, and
services that are normally provided in connection with
statutory and regulatory filings.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
For the fiscal years ended December 31, 2009 and 2008, there were $-0- in fees
billed for professional services by the Company's independent auditors rendered
in connection with, directly or indirectly, operating or supervising the
operation of its information system or managing its local area network.
ALL OTHER FEES
For the fiscal years ended December 31, 2009 and 2008, there were no fees paid
or billed for preparation of corporate tax returns, tax research and other
professional services rendered by the Company's independent auditors.
48
ITEM 15: EXHIBITS
The following exhibits are included herein or incorporated by reference:
Exhibit Number Description
---------------------- ------------------------------------------------------------------------------------------------
2.1 Agreement and Plan of Reorganization with M2B World Pte. Ltd..**
3.1 Articles of Incorporation*
3.2 Amendment to the Articles of Incorporation***
3.3 Bylaws*
4.1 Form of Subscription Agreement executed by investors in the
Private Placement*
10.1 Sale and Purchase Agreement dated January 15, 2007.**
14.1 Code of Ethics of the Company*
14.2 Code of Ethics of Senior Officers of the Company*
21 Company's Subsidiaries should be ex. 21.1
23.1 Consent of MendozaBerger & Company.
31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act
31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act
32.1 Certification of Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act
32.2 Certification of Chief Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act
* Previously filed with the Securities and Exchange Commission
On Form 10-SB.
** Previously filed with the Securities and Exchange Commission
On Form 8-K.
*** Previously filed with the Securities and Exchange Commission
on Schedule 14C.
49
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Amaru, Inc.
BY: /s/ Leong Hin Chua
-------------------
Leong Hin Chua, President and CEO
Date: December 15, 2010
Pursuant to the requirements of the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
/s/ Leong Hin Chua President, CEO, Interim CFO and Director Date: December 15, 2010
---------------------- (Principal Executive Officer and
Leong Hin Chua Principal Financial officer)
/s/ Sakae Torisawa Director and Chairman of the Date: December 15, 2010
---------------------- Board of Directors
Sakae Torisawa
/s/ Zee Moey Ngiam Director Date: December 15, 2010
----------------------
Zee Moey Ngiam
/s/ Leong Hin Chua Director Date: December 15, 2010
----------------------
Leong Hin Chua
/s/ Percy Chua Soo Lian Director Date: December 15, 2010
-----------------------
Percy Chua Soo Lian
50
AMARU, INC.
FINANCIAL STATEMENTS AND SCHEDULES
DECEMBER 31, 2009 AND 2008
AMARU, INC.
TABLE OF CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS PAGE
Report of Independent Registered Public Accounting Firm F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Stockholders' Equity and
Comprehensive Income F-4 - F-7
Consolidated Statements of Cash Flows F-8
Notes to Consolidated Financial Statements F-9 - F-32
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Amaru, Inc.
We have audited the accompanying consolidated balance sheets of Amaru, Inc. (the
"Company") as of December 31, 2009 and 2008, and the related consolidated
statements of operations, stockholders' deficit and cash flows for the years
then ended. These consolidated statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosure in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Amaru, Inc. as of
December 31, 2009 and 2008, and the results of its operations and its cash flows
for the years then ended, in conformity with accounting principles generally
accepted in the United States of America.
The accompanying consolidated financial statements are presented assuming the
Company will continue as a going concern. As more fully described in Note 2.2 to
the consolidated financial statements, the Company has sustained accumulated
losses from operations totaling approximately $30,000,000 at December 31, 2009.
This condition and the Company's lack of significant revenue, raise substantial
doubt about its ability to continue as going concern. Management's plans to
address these conditions are also set forth in Note 1 to the consolidated
financial statements. The accompanying consolidated financial statements do not
include any adjustments which might be necessary if the Company is unable to
continue as a going concern.
/s/ Mendoza Berger & Company, LLP
Irvine, California
March 31, 2010, except for
Notes 6 and 17 for which the
date is June 22, 2010
F-1
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2009 AND 2008
DECEMBER 31, DECEMBER 31,
2009 2008
------------ ------------
(RESTATED) (RESTATED)
ASSETS
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 356,477 $ 1,484,945
ACCOUNTS RECEIVABLE, NET OF ALLOWANCE OF
$10,697,363 AND $1,055,855 AT DECEMBER 31,
2009 AND 2008 RESPECTIVELY -- 9,634,710
EQUITY SECURITIES HELD FOR TRADING 326,980 179,620
INVENTORIES,NET -- 644,153
OTHER CURRENT ASSETS 187,131 230,293
INVESTMENTS - COST -- 2,402,613
------------ ------------
TOTAL CURRENT ASSETS 870,588 14,576,334
NON-CURRENT ASSETS
PROPERTY AND EQUIPMENT, NET 642,960 1,033,506
FILM LIBRARY, NET -- 18,667,290
INTANGIBLE ASSETS, NET -- 2,204,766
INVESTMENTS - COST 2,718,749 616,136
------------ ------------
TOTAL NON-CURRENT ASSETS 3,361,709 22,521,698
------------ ------------
TOTAL ASSETS $ 4,232,297 $ 37,098,032
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 916,150 $ 1,319,897
OTHER PAYABLES -- 5,458
ADVANCES FROM RELATED PARTIES -- 48,681
CAPITAL LEASE PAYABLE - SHORT TERM 11,079 10,809
INCOME TAXES PAYABLE -- 5,428
CONVERTIBLE TERM LOAN 2,432,796 --
------------ ------------
TOTAL CURRENT LIABILITIES 3,360,025 1,390,273
NON-CURRENT LIABILITIES
CONVERTIBLE TERM LOAN -- 2,307,796
CAPITAL LEASE PAYABLE - LONG TERM 36,924 46,831
------------ ------------
TOTAL NON-CURRENT LIABILITIES 36,924 2,354,627
------------ ------------
Total liabilities 3,396,949 3,744,900
Commitments -- --
Stockholders' equity
Preferred stock (par value $0.001) 5,000,000 shares
authorized; 0 shares issued and outstanding at
December 31, 2009 and 2008, respectively -- --
Common stock (par value $0.001) 200,000,000 shares
authorized; 165,856,168 and 154,098,528 shares
issued and outstanding at December 31, 2009 and
2008, respectively 165,856 154,098
Additional paid-in capital 40,354,672 39,190,666
Accumulated Deficit (37,436,006) (9,726,413)
Accumulated other comprehensive income 968,406 968,406
------------ ------------
Total Amaru Inc.'s Stockholders' deficit 4,052,928 30,586,757
Noncontrolling interest (3,217,580) 2,766,375
------------ ------------
Total stockholders' equity 835,348 33,353,132
------------ ------------
Total liabilities and stockholders' equity $ 4,232,297 $ 37,098,032
============ ============
See accompanying notes to consolidated financial statements
F-2
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2009 and 2008
DECEMBER 31, DECEMBER 31,
2009 2008
------------- -------------
(RESTATED)
Revenue:
Entertainment $ 22,016 $ 203,066
------------- -------------
Total revenue 22,016 203,066
Cost of services (226,319) (412,281)
------------- -------------
Gross profit (loss) (204,303) (209,215)
Distribution costs (299,881) (1,144,771)
Bad debts written off (9,641,508) (60,647)
Administrative expenses (1,701,341) (3,876,263)
Inventories written off (642,267) (457,500)
Impairment loss on intangible asset (2,084,764) (3,762,777)
Impairment loss on film library (19,164,782) --
Impairment loss on associate -- (4,928,506)
------------- -------------
Total expenses (33,534,543) (14,230,464)
------------- -------------
Income (loss) from operations (33,738,846) (14,439,679)
Other income (expense):
Interest expenses (127,157) (60,027)
Interest income 130 14,183
Gain (Loss) on disposal of equipment -- (193,814)
Gain (Loss) on sale of investment securities (16,607) (750,421)
Net change in fair value of equities held
for trading 147,360 (2,744,380)
Share of loss of associate -- (13,778)
Other 41,572 --
------------- -------------
Income (loss) before income taxes (33,693,548) (18,187,916)
(Provision) benefit for income taxes -- 958,050
------------- -------------
Net Income (loss)including
noncontrolling interest $ (33,693,548) $ (17,229,866)
============= =============
Attributable to:
Equity holders of Amaru, Inc. $ (27,709,593) $ (15,376,860)
Noncontrolling interests (5,983,955) (1,853,006)
------------- -------------
Net loss per share attributable to
Amaru, Inc. - - basic and diluted $ (0.21) $ (0.11)
============= =============
Weighted average number of common shares
outstanding - - basic and diluted 157,266,951 156,431,861
============= =============
See accompanying notes to consolidated financial statements
F-3
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008
PREFERRED STOCK COMMON STOCK
--------------------------- ------------------------------
NUMBER PAR NUMBER PAR
OF VALUE OF VALUE ADDITIONAL PAID- ACCUMULATED
SHARES ($0.001) SHARES ($0.001) IN CAPITAL DEFECIT
------------ ------------ ------------- ------------- ------------- -------------
Balance at December
31, 2007 -- -- 159,431,861 $ 159,431 $ 42,918,666 $ 5,650,447
Common stock received
received in
cancellation of
exchange for repayment
of investment -- -- (5,333,333) (5,333) (3,728,000) --
Net loss -- -- -- -- -- (15,376,860)
Change in fair value
of available
for-sale-equity
securities, net
of tax -- -- -- -- -- --
Comprehensive loss -- -- -- -- -- --
------------ ------------ ------------- ------------- ------------- ------------
Balance at December
31, 2008 -- -- 154,098,528 $ 154,098 $ 39,190,666 $ (9,726,413)
============ ============ ============= ============= ============= =============
F-4
ACCUMULATED OTHER
COMPREHENSIVE INCOME
---------------------------
CURRENCY TOTAL
TRANSLATION FAIR VALUE MINORITY SHAREHOLDERS'
RESERVE RESERVE INTEREST EQUITY
------------ ------------ ------------ ------------
Balance at December
31, 2007 $ 12,927 $ 2,210,714 $ 4,619,381 $ 55,571,566
Common stock received
received in
cancellation of
exchange for
repayment of
investment -- -- -- (3,733,333)
Net loss -- -- (1,853,006) (17,229,866)
Change in fair value
of available
for-sale-equity
securities, net
of tax -- (1,255,235) -- (1,255,235)
Comprehensive loss -- -- -- (18,485,101)
------------ ------------ ------------ ------------
Balance at December
31, 2008 $ 12,927 $ 955,479 $ 2,766,375 $ 33,353,132
============ ============ ============ ============
See accompanying notes to consolidated financial statements
F-5
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
FOR THE YEAR ENDED DECEMBER 31, 2009 and 2008
PREFERRED STOCK COMMON STOCK
------------------------- ---------------------------
NUMBER PAR NUMBER PAR
OF VALUE OF VALUE ADDITIONAL PAID- ACCUMULATED
SHARES ($0.001) SHARES ($0.001) IN CAPITAL DEFICIT
------------ ------------ ------------ ------------ ------------ ------------
(RESTATED)
Balance at December
31, 2008 -- -- 154,098,528 $ 154,098 $ 39,190,666 $ (9,726,413)
Common stock issued
for cash -- -- 11,757,640 11,758 1,164,006 --
Net loss -- -- -- -- -- (27,709,593)
Comprehensive
income/loss -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Balance at December
31, 2009 -- -- 165,856,168 $ 165,856 $ 40,354,672 $(37,436,006)
============ ============ ============ ============ ============ ============
F-6
ACCUMULATED OTHER
COMPREHENSIVE INCOME
---------------------------
CURRENCY TOTAL
TRANSLATION FAIR VALUE NONCONTROLLING SHAREHOLDERS'
RESERVE RESERVE INTEREST EQUITY
------------ ------------ ------------ ------------
(RESTATED) (RESTATED)
Balance at December
31, 2008 $ 12,927 $ 955,479 $ 2,766,375 $ 33,353,132
Common stock issued
For cash -- -- -- 1,175,764
Net loss -- -- (5,983,955) (33,693,548)
Comprehensive
Income/loss -- -- -- (33,693,548)
------------ ------------ ------------ ------------
Balance at December
31, 2009 $ 12,927 $ 955,479 $ (3,217,580) $ 835,348
============ ============ ============ ============
See accompanying notes to consolidated financial statements
F-7
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008
DECEMBER 31, DECEMBER 31,
2009 2008
------------ ------------
(RESTATED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(33,693,548) $(17,229,866)
Adjustments for:
Amortization 267,017 1,132,810
Depreciation 447,626 635,119
Allowance for doubtful debts 9,641,508 --
Allowance for obsolete inventory 642,267 --
(Gain) loss on disposal of equipment 16,607 193,814
Impairment asset written off 19,164,782 --
Impairment loss on film library -- 4,928,506
Impairment loss on intangible asset 2,084,764 3,762,777
(Gain) loss on sale of investment available for sale -- 750,421
Net change in fair value of equities held for trading (147,360) 2,744,380
Deferred tax -- (947,099)
Share of loss of associate -- 13,778
Changes in operation assets and liabilities
Accounts receivable (6,798) 609,879
Inventories 1,886 513,095
Other current assets 43,162 283,321
Accounts payable and accrued expenses (403,747) (1,748,716)
Other payables (5,458) (94,547)
Income tax payable (5,428) --
------------ ------------
Net cash used in operating activities (1,952,720) (4,452,328)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposal of equipment -- 87,068
Proceeds from sale of investment available for sale -- 1,563,852
Acquisition of equipment (73,687) (152,364)
Acquisition of intangible assets (19,507) (74,576)
Acquisition of investments available for sale (200,000) --
------------ ------------
Net cash provided by (used in) investing activities (293,194) 1,423,980
CASH FLOWS FROM FINANCING ACTIVITIES
Payable to related parties (48,681) (106,632)
Repayment of obligation under capital lease (9,637) (10,412)
Receipts from convertible term loan -- 2,307,796
Issuance of common stock for cash 1,175,764 --
------------ ------------
Net cash provided by financing activities 1,117,446 2,190,752
Effect of exchange rate changes on cash and cash equivalents -- --
------------ ------------
CASH FLOWS FROM ALL ACTIVITIES (1,128,468) (837,596)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,484,945 2,322,541
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 356,477 $ 1,484,945
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid For Interest $ 2,157 $ --
============ ============
Cash Paid For Income Taxes $ 5,428 $ --
============ ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING
AND INVESTING ACTIVITIES:
Cancellation of stock issued for prepayment of investment $ -- ($ 3,733,333)
============ ============
Sale of investment available for sale in exchange for
Acquisition of film library $ 500,000 $ --
============ ============
See accompanying notes to consolidated financial statements
F-8
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
1. BASIS OF PRESENTATION AND REORGANIZATION
1.1 DESCRIPTION OF BUSINESS
AMARU, INC. (THE "COMPANY") IS IN THE BUSINESS OF BROADBAND
ENTERTAINMENT-ON-DEMAND, STREAMING VIA COMPUTERS, TELEVISION SETS, PDAS
(PERSONAL DIGITAL ASSISTANT) AND THE PROVISION OF BROADBAND SERVICES.
ITS BUSINESS INCLUDES CHANNEL AND PROGRAM SPONSORSHIP (ADVERTISING AND
BRANDING); ONLINE SUBSCRIPTIONS, CHANNEL/PORTAL DEVELOPMENT (DIGITAL
PROGRAMMING SERVICES); CONTENT AGGREGATION AND SYNDICATION, BROADBAND
CONSULTING SERVICES, BROADBAND HOSTING AND STREAMING SERVICES AND
E-COMMERCE.
THE COMPANY WAS ALSO IN THE BUSINESS OF DIGIT GAMING (LOTTERY). THE
COMPANY HAS AN 18 YEAR LICENSE TO CONDUCT NATION WIDE LOTTERY IN
CAMBODIA. THE COMPANY THROUGH ITS SUBSIDIARY, M2B COMMERCE LIMITED,
SIGNED AN AGREEMENT WITH ALLSPORTS INTERNATIONAL LTD, A BRITISH VIRGIN
ISLANDS COMPANY TO OPERATE AND CONDUCT DIGIT GAMES IN CAMBODIA AND TO
MANAGE THE DIGIT GAMES ACTIVITIES IN CAMBODIA. THE LICENSE HAS BEEN
SUSPENDED, SEE NOTE 17.
THE KEY BUSINESS FOCUS OF THE COMPANY IS TO ESTABLISH ITSELF AS THE
LEADING PROVIDER AND CREATOR OF A NEW GENERATION OF
ENTERTAINMENT-ON-DEMAND AND E-COMMERCE CHANNELS ON BROADBAND, AND 3G
(THIRD GENERATION) DEVICES.
THE COMPANY DELIVERS BOTH WIRE AND WIRELESS SOLUTIONS, STREAMING VIA
COMPUTERS, TV SETS, PDAS AND 3G HAND PHONES.
AT THE SAME TIME THE COMPANY LAUNCHES E-COMMERCE CHANNELS (PORTALS)
THAT PROVIDE ON-LINE SHOPPING AND PAY PER VIEW SERVICES BUT WITH A
DIFFERENCE, MERGING TWO LEISURE ACTIVITIES OF SHOPPING AND
ENTERTAINMENT. THE ENTERTAINMENT CHANNELS ARE DESIGNED TO DRIVE AND
PROMOTE THE SHOPPING PORTALS, AND VICE VERSA.
THE COMPANY'S BUSINESS MODEL IN THE AREA OF BROADBAND ENTERTAINMENT
INCLUDES E-SERVICES, WHICH WOULD PROVIDE THE COMPANY WITH MULTIPLE
STREAMS OF REVENUE. SUCH REVENUES WOULD BE DERIVED FROM ADVERTISING AND
BRANDING (CHANNEL AND PROGRAM SPONSORSHIP); ON-LINE SUBSCRIPTIONS;
ONLINE GAMES MICRO-PAYMENTS; CHANNEL/PORTAL DEVELOPMENT (DIGITAL
PROGRAMMING SERVICES); CONTENT AGGREGATION AND SYNDICATION; BROADBAND
CONSULTING SERVICES; ON-LINE SHOPPING TURNKEY SOLUTIONS; BROADBAND
HOSTING AND STREAMING SERVICES; E-COMMERCE COMMISSIONS AND ON-LINE
DEALERSHIPS; AND DIGIT GAMES OPERATIONS.
1.2 Recent Accounting Standards and Pronouncements
In February 2010, the FASB issued Accounting Standards Update 2010-10,
Consolidation (Topic 10): Amendments for Certain Funds. ASU 2010-10
defers the effective date of certain amendments to the consolidation
requirements of ASC Topic 810, Consolidation, resulting from the
issuance of FAS 167, Amendments to FASB Interpretation No. 46(R).
Specifically, the amendments to the consolidation requirements of Topic
810 resulting from the issuance of FAS 167 are deferred for a reporting
entity's interest in an entity (1) that has all the attributes of an
investment company; or (2) for which it is industry practice to apply
measurement principles for financial reporting purposes that are
consistent with those followed by investment companies. The ASU does
not defer the disclosure requirements in FAS 167 amendments to Topic
810. The amendments in this ASU are effective as of the beginning of a
reporting entity's first annual period that begins after November 15,
2009, and for interim for interim periods within that first annual
reporting period. Early application is not permitted. The provisions of
ASU 2010-10 is not expected to have an impact on the Company's
financial statements.
F-9
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
In February 2010, the FASB issued Accounting Standards Update 2010-09,
Subsequent Events (Topic 855): Amendments to Certain Recognition and
Disclosure Requirements. ASU 2010-09 removes the requirement for an SEC
filer to disclose a date through which subsequent events have been
evaluated in both issued and revised financial statements. Revised
financial statements include financial statements revised as a result
of either correction of an error or retrospective application of U.S.
GAAP. The FASB also clarified that if the financial statements have
been revised, then an entity that is not an SEC filer should disclose
both the date that the financial statements were issued or available to
be issued and the date the revised financial statements were issued or
available to be issued. The FASB believes these amendments remove
potential conflicts with the SEC's literature. In addition, the
amendments in the ASU requires an entity that is a conduit bond obligor
for conduit debt securities that are traded in a public market to
evaluate subsequent events through the date of issuance of its
financial statements and must disclose such date. All of the amendments
in the ASU were effective upon issuance (February 24, 2010) except for
the use of the issued date for conduit debt obligors. That amendment is
effective for interim or annual periods ending after June 15, 2010. The
provisions of ASU 2010-09 did not have a material impact on the
Company's financial statements.
In February 2010, the FASB issued Accounting Standards Update (ASU) No.
2010-08, Technical Corrections to Various Topics, thereby amending the
FASB Accounting Standards Codification (Codification). This ASU
resulted from a review by the FASB of its standards to determine if any
provisions are outdated, contain inconsistencies, or need
clarifications to reflect the FASB's original intent. The FASB believes
the amendments do not fundamentally change U.S. GAAP. However, certain
clarifications on embedded derivatives and hedging reflected in Topic
815, Derivatives and Hedging, may cause a change in the application of
the guidance in Subtopic 815-15. Accordingly, the FASB provided special
transition provisions for those amendments. The ASU contains various
effective dates. The clarifications of the guidance on embedded
derivatives and hedging (Subtopic 815-15) are effective for fiscal
years beginning after December 15, 2009. The amendments to the guidance
on accounting for income taxes in a reorganization (Subtopic 852-740)
applies to reorganizations for which the date of the reorganization is
on or after the beginning of the first annual reporting period
beginning on or after December 15, 2008. All other amendments are
effective as of the first reporting period (including interim periods)
beginning after the date this ASU was issued (February 2, 2010). The
provisions of ASU 2010-08 is not expected to have an impact on the
Company's financial statements.
In January 2010, the FASB issued Accounting Standards Update ("ASU")
No. 2010-06, Fair Value Measurements and Disclosures (Topic 820):
Improving Disclosures about Fair Value Measurements. ASU 2010-06 amends
Codification Subtopic 820-10 to add two new disclosures: (1) transfers
in and out of Level 1 and 2 measurements and the reasons for the
transfers, and (2) a gross presentation of activity within the Level 3
roll forward. The proposal also includes clarifications to existing
disclosure requirements on the level of disaggregation and disclosures
regarding inputs and valuation techniques. The proposed guidance would
apply to all entities required to make disclosures about recurring and
nonrecurring fair value measurements. The effective date of the ASU is
the first interim or annual reporting period beginning after December
15, 2009, except for the gross presentation of the Level 3 roll forward
information, which is required for annual reporting periods beginning
after December 15, 2010 and for interim reporting periods within those
years. Early application is permitted. The Company is currently
assessing the impact that the adoption will have on its financial
statements.
F-10
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
In January 2010, the FASB issued two ASU's that (1) codify SEC Observer
comments made at the June 2009 EITF meeting and (2) make technical
corrections to several SEC sections of the FASB Codification. In
general, the two ASU's, do not change existing practice. ASU 2010-05,
Compensation--Stock Compensation (Topic 718)--Escrowed Share
Arrangements and the Presumption of Compensation, codifies EITF Topic
D-110, Escrowed Share Arrangements and the Presumption of Compensation,
which provides the SEC staff's view on when an escrowed share
arrangement involving shareholders is presumed to be compensatory and
the factors to consider when analyzing whether that presumption has
been overcome. The SEC Observer announced the views captured in EITF
Topic D-110 at the June 2009 EITF meeting. ASU 2010-04, Accounting for
Various Topics--Technical Corrections to SEC Paragraphs, primarily
includes technical corrections to various topics containing SEC
guidance as a result of recently-issued authoritative guidance and
updates for Codification references. These two ASU's do not have an
impact on the Company's financial statements.
In January 2010, the FASB issued ASU No. 2010-02, Consolidation (Topic
810) - Accounting and Reporting for Decreases in Ownership of a
Subsidiary - A Scope Clarification. This ASU clarifies that the scope
of the decrease in ownership provisions of Subtopic 810-10 and related
guidance applies to (1) a subsidiary or group of assets that is a
business or nonprofit activity; (2) a subsidiary that is a business or
nonprofit activity that is transferred to an equity method investee or
joint venture; and (3) an exchange of a group of assets that
constitutes a business or nonprofit activity for a noncontrolling
interest in an entity (including an equity method investee or joint
venture). ASU 2010-02 also clarifies that the decrease in ownership
guidance in Subtopic 810-10 does not apply to: (a) sales of in
substance real estate; and (b) conveyances of oil and gas mineral
rights, even if these transfers involve businesses. The amendments in
this ASU expand the disclosure requirements about deconsolidation of a
subsidiary or derecognition of a group of assets. ASU 2010-02 is
effective beginning in the period that an entity adopts FASB Statement
No. 160, Noncontrolling Interests in Consolidated Financial Statements
- an amendment of ARB 51 (now included in Subtopic 810-10). If an
entity has previously adopted Statement 160, the amendments are
effective beginning in the first interim or annual reporting period
ending on or after December 15, 2009. The amendments in ASU 2010-02
should be applied retrospectively to the first period that an entity
adopts Statement 160. The provisions of ASU 2010-02 did not have an
impact on the Partnership's financial statements.
In January 2010, the FASB issued ASU No. 2010-01, Equity (Topic 505):
Accounting for Distributions to Shareholders with Components of Stock
and Cash. The amendments to the Codification in this ASU clarify that
the stock portion of a distribution to shareholders that allows them to
elect to receive cash or stock with a potential limitation on the total
amount of cash that all shareholders can elect to receive in the
aggregate is considered a share issuance that is reflected in earnings
per share prospectively and is not a stock dividend. This ASU codifies
the consensus reached in EITF Issue No. 09-E, Accounting for Stock
Dividends, Including Distributions to Shareholders with Components of
Stock and Cash. ASU 2010-01 is effective for interim and annual periods
ending on or after December 15, 2009, and should be applied on a
retrospective basis. This ASU did not have an impact on the
Company's financial statements.
In December 2009, the FASB issued ASU 2009-17, Consolidations (Topic
810) - Improvements to Financial Reporting by Enterprises Involved with
Variable Interest Entities, which codifies FASB Statement No. 167,
Amendments to FASB Interpretation No. 46(R). ASU 2009-17 represents a
revision to former FASB Interpretation No. 46 (Revised December 2003),
Consolidation of Variable Interest Entities, and changes how a
reporting entity determines when an entity that is insufficiently
capitalized or is not controlled through voting (or similar rights)
should be consolidated. The determination of whether a reporting entity
is required to consolidate another entity is based on, among other
F-11
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
things, the other entity's purpose and design and the reporting
entity's ability to direct the activities of the other entity that most
significantly impact the other entity's economic performance. ASU
2009-17 also requires a reporting entity to provide additional
disclosures about its involvement with variable interest entities and
any significant changes in risk exposure due to that involvement. A
reporting entity will be required to disclose how its involvement with
a variable interest entity affects the reporting entity's financial
statements. ASU 2009-17 is effective at the start of a reporting
entity's first fiscal year beginning after November 15, 2009. Early
application is not permitted. The provisions of ASU 2009-17 are
currently not expected to have an impact on the Company's financial
statements.
In December 2009, the FASB issued ASU 2009-16, Transfers and Servicing
(Topic 860) - Accounting for Transfers of Financial Assets, which
formally codifies FASB Statement No. 166, Accounting for Transfers of
Financial Assets into the ASC. ASU 2009- 16 represents a revision to
the provisions of former FASB Statement No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities and will require more information about transfers of
financial assets, including securitization transactions, and where
entities have continuing exposure to the risks related to transferred
financial assets. Among other things, ASU 2009-16 (1) eliminates the
concept of a "qualifying special-purpose entity", (2) changes the
requirements for derecognizing financial assets, and (3) enhances
information reported to users of financial statements by providing
greater transparency about transfers of financial assets and an
entity's continuing involvement in transferred financial assets. ASU
2009-16 is effective at the start of a reporting entity's first fiscal
year beginning after November 15, 2009. Early application is not
permitted. The provisions of ASU 2009-16 are not expected to have a
material impact on the Company's financial statements.
In October 2009, the FASB published FASB Accounting Standards Update
2009-15, Accounting for Own-Share Lending Arrangements in Contemplation
of Convertible Debt Issuance or Other Financing. It includes amendments
to Topic 470, Debt, (Subtopic 470- 20), and Topic 260, Earnings per
Share (Subtopic 260-10), to provide guidance on share-lending
arrangements entered into on an entity's own shares in contemplation of
a convertible debt offering or other financing. The provisions of ASU
2009-15 is effective for fiscal years beginning on or after December
15, 2009, and interim periods within those fiscal years for
arrangements outstanding as of the beginning of those years.
Retrospective application is required for such arrangements. The
provisions of ASU 2009-15 is effective for arrangements entered into on
(not outstanding) or after the beginning of the first reporting period
that begins on or after June 15, 2009. Certain transition disclosures
are also required. Early application is not permitted. The provisions
of ASU 2009-15 is not expected to have an impact on the Company's
financial statements.
In October 2009, the FASB published FASB Accounting Standards Update
2009-14, Software (Topic 985) - Certain Revenue Arrangements that
Include Software Elements. It changes the accounting model for revenue
arrangements that include both tangible products and software elements.
Under this guidance, tangible products containing software components
and non- software components that function together to deliver the
tangible product's essential functionality are excluded from the
software revenue guidance in Subtopic 985-605, Software-Revenue
Recognition. In addition, hardware components of a tangible product
containing software components are always excluded from the software
revenue guidance. The provisions of ASU 2009-14 is effective
prospectively for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010. Early
adoption is permitted. The provisions of ASU 2009-14 is not expected to
have an impact on the Company's financial statements.
F-12
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
In October 2009, the FASB published FASB Accounting Standards Update
2009-13, Revenue Recognition (Topic 605) - Multiple- Deliverable
Revenue Arrangements. It addresses the accounting for
multiple-deliverable arrangements to enable vendors to account for
products or services (deliverables) separately rather than as a
combined unit. Specifically, this guidance amends the criteria in
Subtopic 605-25, Revenue Recognition-Multiple-Element Arrangements, for
separating consideration in multiple- deliverable arrangements. This
guidance establishes a selling price hierarchy for determining the
selling price of a deliverable, which is based on: (a) vendor-specific
objective evidence; (b) third-party evidence; or (c) estimates. This
guidance also eliminates the residual method of allocation and requires
that arrangement consideration be allocated at the inception of the
arrangement to all deliverables using the relative selling price
method. In addition, this guidance significantly expands required
disclosures related to a vendor's multiple-deliverable revenue
arrangements. The provisions of ASU 2009-13 is effective prospectively
for revenue arrangements entered into or materially modified in fiscal
years beginning on or after June 15, 2010. Early adoption is permitted.
The provisions of ASU 2009-13 is not expected to have an impact on the
Company's financial statements.
In September 2009, the FASB published FASB Accounting Standards Update
No. 2009-12, Fair Value Measurements and Disclosures (Topic 820) -
Investments in Certain Entities That Calculate Net Asset Value per
Share (or Its Equivalent). It amends Subtopic 820-10, Fair Value
Measurements and Disclosures--Overall, to permit a reporting entity to
measure the fair value of certain investments on the basis of the net
asset value per share of the investment (or its equivalent). It also
requires new disclosures, by major category of investments, about the
attributes includes of investments within the scope of this amendment
to the Codification. The provisions of ASU 2009-12 is effective for
interim and annual periods ending after December 15, 2009. Early
application is permitted. The provisions of ASU 2009-12 is not expected
to have an impact on the Company's financial statements.
F-13
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
2.1 PRINCIPLES OF CONSOLIDATION
THE CONSOLIDATED FINANCIAL STATEMENTS INCLUDE THE FINANCIAL STATEMENTS
OF AMARU, INC. AND ITS MAJORITY OWNED SUBSIDIARIES. ALL SIGNIFICANT
INTERCOMPANY BALANCES AND TRANSACTIONS HAVE BEEN ELIMINATED IN
CONSOLIDATION. IN ADDITION, THE COMPANY EVALUATES ITS RELATIONSHIPS
WITH OTHER ENTITIES TO IDENTIFY WHETHER THEY ARE VARIABLE INTEREST
ENTITIES AS DEFINED BY ASC 810 CONSOLIDATION OF VARIABLE INTEREST
ENTITIES AND TO ASSESS WHETHER IT IS THE PRIMARY BENEFICIARY OF SUCH
ENTITIES. IF THE DETERMINATION IS MADE THAT THE COMPANY IS THE PRIMARY
BENEFICIARY, THEN THAT ENTITY IS INCLUDED IN THE CONSOLIDATED FINANCIAL
STATEMENTS IN ACCORDANCE WITH ASC 860.
2.2 Presentation as a Going Concern
The accompanying condensed consolidated financial statements have been
prepared in conformity with accounting principles generally accepted in
the United States of America, which contemplate continuation of the
Company as a going concern. The Company has sustained net losses of
$33,693,548 and $17,229,866 for the years ended December 31, 2009 and
December 31, 2008, respectively. The Company also has an accumulated
deficit of $37,436,006 and a working capital deficit of $2,489,437 at
December 31, 2009.
The items discussed above raise substantial doubts about the Company's
ability to continue as a going concern. If the Company's financial
resources are insufficient, the Company may require additional
financing in order to execute its operating plan and continue as a
going concern. The Company cannot predict whether this additional
financing will be in the form of equity, debt or another form. The
Company may not be able to obtain the necessary additional capital on a
timely basis, on acceptable terms, or at all. Should financing sources
fail to materialize, management would seek alternate funding sources
such as the sale of common and/or preferred stock, the issuance of debt
or other means. The Company plans to attempt to address its working
capital deficiency by increasing its sales, maintaining strict expense
controls and seeking strategic alliances.
In the event that these financing sources do not materialize, or the
Company is unsuccessful in increasing its revenues and profits, the
Company will be forced to further reduce its costs, may be unable to
repay its debt obligations as they become due or respond to competitive
pressures, any of which circumstances would have a material adverse
effect on its business, prospects, financial condition and results of
operations.
The financial statements do not include any adjustments relating to the
recoverability and reclassification of recorded asset amounts or
amounts and reclassification of liabilities that might be necessary,
should the Company be unable to continue as a going concern.
2.3 Use of Estimates
The preparation of the consolidated financial statements in accordance
with generally accepted accounting principles requires management to
make estimates and assumptions relating to the reported amounts of
assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and
the reported amounts of revenues and expenses during the period.
Significant items subject to such estimates and assumptions include
carrying amount of property and equipment, film library, intangibles,
valuation allowances of receivables and inventories. Actual results
could differ from those estimates.
Management has not made any subjective or complex judgments the
application of which would result in any material differences in
reported results.
F-14
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
2.4 CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS ARE DEFINED AS CASH ON HAND, DEMAND DEPOSITS
AND SHORT-TERM, HIGHLY LIQUID INVESTMENTS READILY CONVERTIBLE TO CASH
AND SUBJECT TO INSIGNIFICANT RISK OF CHANGES IN VALUE.
CASH IN BANKS AND SHORT-TERM DEPOSITS ARE HELD TO MATURITY AND ARE
CARRIED AT COST. FOR THE PURPOSES OF THE CONSOLIDATED STATEMENTS OF
CASH FLOWS, CASH AND CASH EQUIVALENTS CONSIST OF CASH ON HAND AND
DEPOSITS IN BANKS, NET OF OUTSTANDING BANK OVERDRAFTS.
THE COMPANY MONITORS ITS LIQUIDITY RISK AND MAINTAINS A LEVEL OF CASH
AND CASH EQUIVALENTS DEEMED ADEQUATE BY MANAGEMENT TO FINANCE THE
COMPANY'S OPERATIONS AND TO MITIGATE THE EFFECTS OF FLUCTUATIONS IN
CASH FLOWS.
2.5 Accounts Receivable
Accounts receivable, which generally have 30 to 90 day terms, are
recorded at the invoiced amount less an allowance for any uncollectible
amounts (if any) and do not bear interest. Amounts collected on
accounts receivable are included in net cash provided by operating
activities in the consolidated statements of cash flows. The allowance
for doubtful accounts is the Company's best estimate of the amount of
probable credit losses in the Company's existing accounts receivable.
Account balances are charged off against the allowance after all means
of collection have been exhausted and the potential for recovery is
considered remote. Bad debts are written off as incurred. The Company
does not have any off-balance sheet credit exposure related to its
customers.
The Company's primary exposure to credit risk arises through its
accounts receivable. The credit risk on liquid funds is limited because
the counterparties are banks with high credit ratings assigned by
international credit-rating agencies.
The Company's operations are conducted over the world wide web and some
purchases are made from locations outside of Singapore.
FOR THE YEAR ENDED
--------------------------
DECEMBER 31, DECEMBER 31,
2009 2008
----------- -----------
SALES OUTSIDE OF THE U.S. $ 22,016 $ 203,066
SERVICES PURCHASED OUTSIDE OF THE U.S. $ 226,319 $ 379,244
2.6 Inventories
Inventories are carried at the lower of cost or and net realizable
value. Cost is calculated using first-in, first-out ("FIFO") method and
comprises all costs of purchase, costs of conversion and other costs
incurred in bringing the inventories to their present location and
condition. Inventories comprised primarily of finished products used in
the Company's IPTV service.
F-15
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
2.7 Property and Equipment
Property and equipment are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the
assets for financial reporting purposes. Expenditures for major
renewals and betterments that extend the useful lives are capitalized.
Expenditures for normal maintenance and repairs are expensed as
incurred. The cost of assets sold or abandoned and the related
accumulated depreciation are eliminated from the accounts and any gains
or losses are reflected in the accompanying consolidated statement of
income of the respective period. The estimated useful lives of the
assets range from 3 to 5 years.
2.8 FILM LIBRARY
Investment in the Company's film library includes movies, dramas,
comedies and documentaries in which the Company has acquired
distribution rights from a third party. For acquired films, these
capitalized costs consist of minimum guarantee payments to acquire the
distribution rights. Costs of acquiring the Company's film libraries
are amortized using the individual-film-forecast method in accordance
with ASC 926, "Accounting for Producers and Distributors of Films,"
whereby these costs are amortized and participations and residuals
costs are accrued in the proportion that current year's revenue bears
to management's estimate of ultimate revenue at the beginning of the
current year expected to be recognized from the exploitation,
exhibition or sale of the films. Ultimate revenue for acquired films
includes estimates over a period not to exceed twenty years following
the date of acquisition. Investments in films are stated at the lower
of amortized cost or estimated fair value.
The valuation of investment in films is reviewed on a overall basis,
when an event or change in circumstances indicates that the fair value
of the film library is less than its unamortized cost. The fair value
of the film is determined using management's future revenue and cost
estimates and a discounted cash flow approach. Additional amortization
is recorded in the amount by which the unamortized costs exceed the
estimated fair value of the film. Estimates of future revenue involve
measurement uncertainty and it is therefore possible that reductions in
the carrying value of investment in films may be required as a
consequence of changes in management's future revenue estimates.
The Company most recently completed an impairment evaluation in the
fourth quarter of fiscal year 2009. The film library was determined to
be impaired during the year ended December 31, 2009. In conducting the
analysis, the Company used a discounted cash flow approach in
estimating fair value as market values could not be readily determined
given the unique nature of the respective assets. Based upon the
analysis the Company determined that carrying amount of the film
library exceeded its fair value by $19,164,782, as reflected Note 6.
2.9 INTANGIBLE ASSETS
Intangible assets consist of gaming, software license and product
development costs. Intangible assets which were purchased for a
specific period are stated at cost less accumulated amortization and
impairment losses. Such intangible assets are reviewed for impairment
in accordance with ASC 350, Accounting for Goodwill and Other
Intangible Assets. Such intangible assets are amortized over the period
of the contract, which is 2 to 18 years.
Included in the gaming license are the rights to a digit games license
in Cambodia. The license is for a minimum period of 18 years commencing
from June 1, 2005, with an option to extend for a further 5 years or
such other period as may be mutually agreed. The digit gaming license
was suspended, and the asset was impaired during the year ended
December 31, 2008. See Note 14.
F-16
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
The Company most recently completed an impairment evaluation in the
fourth quarter of fiscal year 2009 of its remaining gaming licenses
relating to it online video game downloads. The gaming license was
determined to be impaired during the year ended December 31, 2009. In
conducting the analysis, the Company used a discounted cash flow
approach in estimating fair value as market values could not be readily
determined given the unique nature of the gaming licenses. For the
gaming licenses identified as being impaired, the cash flows associated
with underlying assets did not support a value greater than zero due to
a lack of revenue associated with the gaming license. The licenses were
fully impaired as disclosed in Note 7.
The Company capitalized the development and building cost related to
the broad-band sites and infrastructure for the streaming system, most
of which was developed in 2002 as product development costs. The
Company projects that these development costs will be useful for up to
5 years before additional significant development needs to be done.
2.10 Equity Method Investment
An Equity Method Investment is an entity over which the group has
significant influence and that is neither a subsidiary nor an interest
in a joint venture. Significant influence is the power to participate
in the financial and operating policy decisions of the investee but is
not control or joint control over those policies. The results and
assets and liabilities of Equity Method Investment are incorporated in
these financial statements using the equity method of accounting. Under
the equity method, investments are carried in the consolidated balance
sheet at cost as adjusted for post-acquisition changes in the group's
share of the net assets of the Equity Method Investment, less any
impairment in the value of individual investments. Losses of an Equity
Method Investment in excess of the group's interest in that Equity
Method Investment (which includes any long-term interests that, in
substance, form part of the Company's net investment in the Equity
Method Investment) are not recognised, unless the group has incurred
legal or constructive obligations or made payments on behalf of the
Equity Method Investment.
Any excess of the cost of acquisition over the Company's share of the
net fair value of the identifiable assets, liabilities and contingent
liabilities of the Equity Method Investment recognized at the date of
acquisition is recognised as goodwill. The goodwill is included within
the carrying amount of the investment and is assessed for impairment as
part of the investment. Any excess of the Company's share of the net
fair value of the identifiable assets, liabilities and contingent
liabilities over the cost of acquisition, after reassessment, is
recognised immediately in the consolidated profit and loss statement.
Where a group entity transacts with an Equity Method Investment of the
group, profits and losses are eliminated to the extent of the group's
interest in the relevant associate.
2.11 Investments
The Company classifies its investments in marketable equity and debt
securities as "available-for-sale", "held to maturity" or "trading" at
the time of purchase in accordance with the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" ("ASC 320"). Equity
securities held for trading as of December 31, 2009 totaled $326,980,
December 31, 2008 totaled $179,620. The changes relates to an
unrealized gain of $147,360 and a loss of 2,744,380, for December 31,
2009 and 2008, respectively.
F-17
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
Available-for-sale securities are carried at fair value with unrealized
gains and losses, net of related tax, if any, reported as a component
of other comprehensive income (loss) until realized. Realized gains and
losses from the sale of available-for-sale securities are determined on
a specific-identification basis. A decline in the market value of any
available-for-sale security below cost that is deemed to be other than
temporary will result in an impairment, which is charged to earnings.
Investments 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. An impairment is booked when there is an
other-than-temporary difference between the carrying amount and fair
value of the investment that would result in a loss.
2.12 Valuation of Long-Lived Assets
The Company accounts for long-lived assets under ASC 360,"Accounting
for the Impairment or Disposal of Long-lived Assets". Management
assesses the recoverability of its long-lived assets, which consist
primarily of fixed assets and intangible assets with finite useful
lives, whenever events or changes in circumstance indicate that the
carrying value may not be recoverable. The following factors, if
present, may trigger an impairment review: (i) significant
underperformance relative to expected historical or projected future
operating results; (ii) significant negative industry or economic
trends; (iii) significant decline in the Company's stock price for a
sustained period; and (iv) a change in the Company's market
capitalization relative to net book value. If the recoverability of
these assets is unlikely because of the existence of one or more of the
above-mentioned factors, an impairment analysis is performed using a
projected discounted cash flow method. Management must make assumptions
regarding estimated future cash flows and other factors to determine
the fair value of these respective assets. If these estimates or
related assumptions change in the future, the Company may be required
to record an impairment charge. Impairment charges would be included
with costs and expenses in the Company's consolidated statements of
operations, and would result in reduced carrying amounts of the related
assets on the Company's consolidated balance sheets. See notes 2.8 and
2.9 for impairment.
2.13 Fair Value of Financial Instruments
ASC 820 establishes a fair value hierarchy that prioritizes the inputs
to valuation techniques used to measure fair value. The hierarchy gives
the highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities (Level 1 measurements) and the lowest
priority to unobservable inputs (Level 3 measurements). The three
levels of the fair value hierarchy under ASC 820 are described below:
Level 1: Unadjusted quoted prices in active markets that are
accessible at the measurement date for identical,
unrestricted assets or liabilities.
Level 2: Quoted prices in markets that are not active, or
inputs that are observable, either directly or
indirectly, for substantially the
full term of the asset or liability.
Level 3: Prices or valuation techniques that require inputs
that are both significant to the fair value
measurement and unobservable (supported by little or
no market activity).
F-18
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
The following table sets forth the Company's financial assets and
liabilities measured at fair value by level within the fair value
hierarchy. As required by ASC 820, assets and liabilities are
classified in their entirety based on the lowest level of input that is
significant to the fair value measurement.
The table below sets forth a summary of the fair values of the
Company's financial assets and liabilities as of December 31, 2009:
Total Level 1 Level 2 Level 3
-------- -------- -------- -------
Assets:
Equity securities held for trading $326,980 $326,980 $ -- $ --
-------- -------- -------- -------
$326,980 $326,980 $ -- $ --
======== ======== ======== =======
The Company's equity securities held for trading are classified within
the Level 1 of the fair value hierarchy and are valued using quoted
market prices reported on the active market on which the securities are
traded.
In February 2007, the FASB issued Statement of Financial Accounting
Standards No. 159 (ASC 825), The Fair Value Option for Financial Assets
and Financial Liabilities. SFAS No. 159 permits entities to choose to
measure many financial assets and financial liabilities at fair value.
Unrealized gains and losses on items for which the fair value option
has been elected are reported in net income. SFAS No. 159 (ASC 825) is
effective for fiscal years beginning after November 15, 2007 and
interim periods within those fiscal years. Upon adoption of this
Statement, the Company did not elect SFAS No. 159 (ASC 825) option for
existing financial assets and liabilities and therefore adoption of
SFAS No. 159 (ASC 825) did not have any impact on its Consolidated
Financial Statements.
2009 Note 2008
------------------------ -------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- -----------
Cash and Cash Equivalents $356,477 $356,477 2.4 $1,484,945 $1,484,945
Equity Securities Held for Trading 326,980 326,980 3 179,620 179,620
Other Current Assets 187,131 187,131 2.21 230,293 230,293
Investments Cost 2,718,749 2,718,749 8 3,018,749 616,136
Other Payables -- -- 2.21 5,458 5,458
Advances from related parties -- -- 2.21 48,681 48,681
Capital Lease Payable 48,003 48,003 9 57,640 57,640
Convertible Term Loan 2,432,796 2,432,796 15 2,307,796 2,307,796
It was not practicable to estimate the fair value of two of the Company's
investments held at cost. The investment held at cost located in Cambodia
represents 10 percent of the issued common stock of an untraded company; that
investment is carried at its original cost of $2,602,613 (2008, $2,402,613)in
the consolidated balance sheet. At year-end the total assets reported by the
untraded company were $24,232,528 (2008,$24,592,585), common stockholders'
equity was $20,070,792 (2008, $23,047,695),revenues were $6,489,617 (2008,
$12,468,674)and net income (loss)was ($2,715,893)(2008,$5,837,675). The
investment held at cost located in Singapore represents 8 percent of the issued
common stock of an untraded company; the investment is carried at its original
cost of $116,136 (2008, $116,636)in the consolidated balance sheet. At year-end
the total assets reported by the untraded company were $995,917,
(2008,$1,541,561), common stockholders' equity was $399,202 (2008,$1,016,574)),
revenues were $42,670 (2008,$887,834) and net income (loss) was ($617,372)
(2008,$59,510).
2.14 Advances from Related Party
Advances from director and related party of $48,681 at December 31,
2008 are unsecured, non-interest bearing and payable on demand. As at
December 31, 2009, the amount is $0.00.
2.15 Leases
The Company is the lessee of equipment under a capital lease expiring
in 2014. The assets and liabilities under capital leases are recorded
at the lower of the present value of the minimum lease payments or the
fair value of the asset. The assets are amortized over the lower of
their related lease terms or their estimated productive lives.
Amortization of assets under capital leases is included in depreciation
expense for the year ended December 31, 2009 and 2008.
On November 1, 2007, the Company sub-leased the office premises of M2B
World Inc, a wholly owned subsidiary of the Company in Los Angeles,
California as part of its efforts to streamline its operations and
reduce operating costs.
2.16 Foreign Currency Translation
Transactions in foreign currencies are measured and recorded in the
functional currency, U.S. dollars, using the Company's prevailing month
exchange rate. The Company's reporting currency is also in U.S.
dollars. At the balance sheet date, recorded monetary balances that are
denominated in a foreign currency are adjusted to reflect the rate at
F-19
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
the balance sheet date and the income statement accounts using the
average exchange rates throughout the period. Translation gains and
losses are recorded in stockholders' equity as other Comprehensive
income and realized gains and losses from foreign currency transactions
are reflected in operations.
2.17 Revenues
The Company's primary sources of revenue are from the sales of
advertising space on interactive websites owned by the Company;
distribution and licensing of content to our partners, broadband
consulting services, and gaming revenue from our digit games.
The Company recognizes revenue in accordance with Accounting Standard
Codification (ASC) 605-10 Revenue is recognized only when the price is
fixed or determinable, persuasive evidence of an arrangement exists,
the service or product is performed or delivered and collectability of
the resulting receivable is reasonably assured.
Website advertising revenue is recognized on a cost per thousand
impressions (CPM) or cost per click (CPC), and flat-fee basis. The
Company earns CPM or CPC revenue from the display of graphical
advertisements. An impression is delivered when an advertisement
appears in pages viewed by users. Revenue from graphical advertisement
impressions is recognized based on the actual impressions delivered in
the period. Revenue from flat-fee services is based on a customer's
period of contractual service and is recognized on a straight-line
basis over the term of the contract. Proceeds from subscriptions are
deferred and are included in revenue on a pro-rata basis over the term
of the subscriptions.
The Company enters into contractual arrangements with customers to
license and distribute content; revenue is earned from content
licenses, and content syndication, Agreements with these customers are
typically for multi-year periods. For each arrangement, revenue is
recognized when both parties have signed an agreement, the fees to be
paid by the customer are fixed or determinable, collection of the fees
is probable, the delivery of the service has occurred, and no other
significant obligations on the part of the Company remain. 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
The Company enters into contractual arrangements with customers on
broadband consulting services and on-line turnkey solutions. Revenue is
earned over the period in which the services are rendered. For each
arrangement, revenue is recognized when a written agreement between
both parties exist, the fees to be paid by the customer are fixed or
determinable, collection of the fees is probable, and fulfillment of
the obligations under the agreement has occurred, Revenue from
broadband consulting services and on-line turnkey solutions is
recognized over the period in which the services are rendered, by
reference to completion of the specific transaction assessed on the
basis of the actual services provided as a proportion of the total
services to be performed. It is generally recognized from the date of
acceptance and fulfillment of obligations under the sale and purchase
agreement.
F-20
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
2.18 Costs of Services
The cost of services pertaining to advertising and sponsorship revenue
and subscription and related services are cost of bandwidth charges,
channel design and alteration, copyright licensing, and hardware
hosting and maintenance costs. The cost of services pertaining to
E-commerce revenue is channel design and alteration, and hardware
hosting and maintenance costs. The cost of services pertaining to
gaming is for managing and operating the operations and gaming centers.
All these costs are accounted for in the period its was incurred.
2.19 Income Taxes
Deferred income taxes are determined using the liability method in
accordance with ASC 740, Accounting for Income Taxes. Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred income taxes are measured using enacted tax rates
expected to apply to taxable income in years in which such temporary
differences are expected to be recovered or settled. The effect on
deferred income taxes of a change in tax rates is recognized in the
statement of income of the period that includes the enactment date. In
addition, a valuation allowance is established to reduce any deferred
tax asset for which it is determined that it is more likely than not
that some portion of the deferred tax asset will not be realized.
During the year ended December 31, 2007, the Company adopted Financial
Accounting Standards Board (FASB) Interpretation No. 48 (ASC 740),
"Accounting for Uncertainty in Income Taxes" (FIN 48), which
supplements SFAS No. 109, "Accounting for Income Taxes," by defining
the confidence level that a tax position must meet in order to be
recognized in the financial statements. The Interpretation requires
that the tax effects of a position be recognized only if it is
"more-likely-than-not" to be sustained based solely on its technical
merits as of the reporting date. The more-likely-than-not threshold
represents a positive assertion by management that a company is
entitled to the economic benefits of a tax position, If a tax position
is not considered more-likely-than-not to be sustained based solely on
its technical merits. No benefits of the tax position are to be
recognized. Moreover, the more-likely-than-not threshold must continue
to be met in each reporting period to support continued recognition of
a benefit. With the adoption of FIN 48, companies are required to
adjust their financial statements to reflect only those tax positions
that are more-likely-than-not to be sustained. Any necessary adjustment
would be recorded directly to retained earnings and reported as a
change in accounting principle.
Upon adoption of FIN 48 as of January 1, 2007, the Company had no gross
unrecognized tax benefits that, if recognized, would favorably affect
the effective income tax rate in future periods. At December 31, 2007
the amount of gross unrecognized tax benefits before valuation
allowances and the amount that would favorably affect the effective
income tax rate in future periods after valuation allowances were $0.
These amounts consider the guidance in FIN 48-1, "Definition of
Settlement in FASB Interpretation No. 48".The Company has not accrued
any additional interest or penalties as a result of the adoption of FIN
48.
F-21
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
The Company files income tax returns in the United States federal
jurisdiction and certain states in the United States and certain other
foreign jurisdictions. With a few exceptions, the Company is no longer
subject to U. S. federal, state or foreign income tax examination by
tax authorities on income tax returns filed before December 31, 2004.
U. S. federal. State and foreign income returns filed for years after
December 31, 2004 are considered open tax years as of the date of these
consolidated financial statements. No income tax returns are currently
under examination by any tax authorities.
2.20 Earnings (Loss) Per Share
In February 1997, the Financial Accounting Standards Board ASC 260
"Earnings Per Share" which requires the Company to present basic and
diluted earnings per share, for all periods presented. The computation
of earnings per common share (basic and diluted) is based on the
weighted average number of shares actually outstanding during the
period. The Company has no common stock equivalents, which would dilute
earnings per share.
2.21 Fair Value of Financial Instruments
The carrying amounts for the Company's cash, other current assets,
accounts payable, advances from related parties
accrued expenses and other liabilities approximate
their fair value. Investments that are not publicly traded or have
resale restrictions greater than one year are accounted for at cost.
Trading securities are held at fair value based upon prices quoted
on an exchange.
2.22 Advertising
The cost of advertising is expensed as incurred. For the year ended
December 31, 2009 and 2008, the Company incurred advertising expenses
of $217,483 and $80,160 respectively.
2.23 Reclassifications
Certain amounts in the previous periods presented have been
reclassified to conform to the current year financial statement
presentation.
3. EQUITY SECURITIES HELD FOR TRADING INVESTMENT
DECEMBER 31, DECEMBER 31,
2009 2008
---------- -----------
Quoted equity security, at fair value $ 326,980 $ 179,620
========== ===========
The fair value of quoted security is based on the quoted closing market
price on the date of Sale and Purchase agreement. The investment in
quoted equity security at fair value includes a gain of $147,360 for
the year ended December 31, 2009 and loss $2,744,380 for the year ended
December 31, 2008.
The Company's equity securities held for trading investment is
denominated in Indonesian Ruppiah.
F-22
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
4. OTHER CURRENT ASSETS
Other current assets consist of the following:
DECEMBER 31, DECEMBER 31,
2009 2008
----------- -----------
Prepayments $ 53,159 $ 70,108
Deposits 55,159 69,995
Other receivables 78,813 90,190
----------- -----------
$ 187,131 $ 230,293
=========== ===========
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
DECEMBER 31, DECEMBER 31,
2009 2008
----------- -----------
Office equipment $ 1,023,788 $ 1,004,504
Motor vehicle 91,190 91,190
Furniture, fixture and fittings 87,082 313,208
Pony set-top boxes 843,946 843,946
----------- -----------
2,046,006 2,252,848
Accumulated depreciation (1,403,046) (1,219,342)
----------- -----------
$ 642,960 $ 1,033,506
=========== ===========
Depreciation expense was $447,626 for the year ended December 31, 2009
and $635,119 for the year ended December 31, 2008.
6. FILM LIBRARY
Film library consist of the following:
DECEMBER 31, DECEMBER 31,
2009 2008
------------ ------------
Acquired Film Library $ 23,683,634 $ 23,164,126
------------ ------------
Accumulated Amortization (4,518,852) (4,496,836)
------------ ------------
$ 19,164,782 $ 18,667,290
Impairment of Film Library (19,164,782) --
------------ ------------
Film Library $ -- $ 18,667,290
============ ============
Amortization expense was $22,016 for the year ended December 31, 2009
and $752,254 for the year ended December 31, 2008. See Note 2.8 for
impairment analysis.
F-23
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
7. INTANGIBLE ASSETS
Intangible assets consist of the following:
DECEMBER 31, DECEMBER 31,
2009 2008
----------- -----------
FINITE-LIVED INTANGIBLE ASSETS
Gaming license 7,090,000 7,090,000
Product development expenditures 719,220 719,220
Software license 12,649 12,649
----------- -----------
7,821,869 7,821,869
Accumulated amortization (1,974,328) (1,854,326)
----------- -----------
5,847,541 5,967,543
----------- -----------
Impairment loss (5,847,541) (3,762,777)
----------- -----------
$ -- $ 2,204,766
=========== ===========
Amortization expense was $120,001 for the year ended December 31,2009
and $380,556 for the year ended December 31, 2008. See Note 2.9 for
impairment analysis.
8. INVESTMENTS - COST
Investments held at cost consist of the following:
DECEMBER 31, DECEMBER 31,
2009 2008
----------- -----------
Current:
Unquoted securities -- 2,402,613
----------- -----------
-- 2,402,613
Non Current :
Unquoted securities 116,136 616,136
Unquoted securities 2,602,613 --
----------- -----------
$ 2,718,749 $ 3,018,749
=========== ===========
The Company's $116,13 investment held at cost relates to
its investment in M2B Game World Pte Ltd. Management reviews this
investment on a quarterly basis and has noted no impairment for the
years ended December 31, 2009 and 2008, respectively.
The Company's $2,602,613 investment at cost operates in Cambodia.
During the year ended 2009, the Company has decided to hold this
investment for a period greater than one year and as such have
reclassified it to long term. This investment is subject to numerous
risks, including:
F-24
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
- difficulty enforcing agreements through the Cambodia's legal
system;
- general economic and political conditions in Cambodia; and
- the Cambodian government may adopt regulations or take other
actions that could directly or indirectly harm the equity method
investment's business and growth strategy.
The occurrence of any one of the above risks could harm equity method
investment's business and results of operations. Management reviews
this investment on a quarterly basis and has noted no impairment for
the years ended December 31, 2009 and 2008,respectively.
9. COMMITMENTS
Capital Leases
The Company is the lessee of equipment under capital leases expiring in
various years through 2013. The assets and liabilities under capital
leases are recorded at the lower of the present value of the minimum
lease payments or the fair value of the asset. The assets are amortized
over the lower of their related lease terms or their estimated
productive lives. Depreciation of assets under capital leases is
included in depreciation expense for 2009 and 2008. Interest rates on
capitalized leases is fixed at 2.85%.
The following summarizes the Company's capital lease obligations at
December 31, 2009:
2009 2008
-------- --------
Future minimum lease payments $ 57,580 $ 69,140
Less: amounts representing interest (9,577) (11,500)
-------- --------
Present value of net minimum lease payments 48,003 57,640
Less: current portion (11,079) (10,809)
-------- --------
$ 36,924 $ 46,831
======== ========
At December 31, 2009, total future minimum lease commitments under such
lease are as follows:
For the Year Ended
December 31, Capital
--------------------- --------
2010 11,079
2011 11,079
2012 11,079
2013 15,566
--------
$ 48,803
========
F-25
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
Operating Leases
The Company leases facilities and equipment under operating leases
expiring through 2012. Total rental expense on operating leases for the
year ended December 31, 2009 and 2008 was $277,656 and $366,896,
respectively. As of December 31, 2009, the future minimum lease
payments are as follows:
For the Year Ended
December 31, Operating
--------------------- ---------
2010 103,427
2011 99,648
2012 58,023
2013 --
--------
$261,098
========
10. INCOME TAXES
The Company files separate tax returns for Singapore and the United
States of America.
The Company had approximately $4,100,000 in deferred tax assets as of
December 31, 2009. The provided an allowance of $4,100,000 as of
December 31, 2009.
The Company had available approximately $7,500,000 of unused U.S. net
operating loss carry-forwards at December 31, 2009, that may be applied
against future taxable income. These net operating loss carry-forwards
expire for U.S. income tax purposes beginning in 2026. There is no
assurance the Company will realize the benefit of the net operating
loss carry-forwards.
The Company requires a valuation allowance to be recorded when it is
more likely than not that some or all of the deferred tax assets will
not be realized. As of December 31, 2009 the Company maintained a
valuation allowance for the U.S. deferred tax asset due to
uncertainties as to the amount of the taxable income from U.S.
operations that will be realized.
The Company had available approximately $5,000,000 of unused Singapore
tax losses and capital allowance carry-forwards at December 31,
2009,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.
The Company files income tax returns in U.S. federal and various state
jurisdictions. The Company is beyond the statute of limitations
subjecting it to U.S. federal and state income tax examinations by tax
authorities for years before 2007 and 2006, respectively. The Company
is not currently subject to any income tax examinations by any tax
authority. Should a tax examination be opened, management does not
anticipate any tax adjustments, if accepted, that would result in a
material change to its financial position.
F-26
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
11. RELATED PARTY TRANSACTIONS
Related parties are entities with common direct or indirect
shareholders and/or directors. Parties are considered to be related if
one party has the ability to control the other party or exercise
significant influence over the other party in making financial and
operating decisions.
Some of the Company's transactions and arrangements are with the
related party and the effect of these on the basis determined between
the parties is reflected in these financial statements. The balances
are unsecured, interest-free and repayable on demand unless otherwise
stated.
During the period, the Company entered into the following transactions
with the related parties:
FOR THE YEAR ENDED
--------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2009 2008 2007
------------ ------------ ------------
Associate :
Marketing $ 16,460 $ 2,467 $ 110,537
============ ============ ============
Other Related Party :
Consultancy fee $ 7,656 $ 2,467 $ 80,339
============ ============ ============
12. SALE OF IPTV PLATFORM
In April 2007 the Company through its subsidiary M2B World Holdings
Limited entered into an agreement to sell its IPTV platform to a
company in Indonesia (buyer) for $14,500,000. The total amount of the
consideration was to be received in shares of the buyer and a 50% share
of a newly incorporated entity. The Company has received $1,000,000 in
cash and $4,000,000 in publicly-traded securities. The balance
outstanding receivable of $9,500,000 is included as "Receivable from
sale of IPTV platform" at December 31, 2008. During the third quarter
of 2009 management allowed for the $9,500,000 as uncollectable.
Management is currently still in negotiations with PT Agis on trying
to collect the receivable.
13. PURCHASE OF CBBN HOLDINGS LIMITED
The Company through its wholly owned subsidiary, Tremax International
Limited, entered into a sale and purchase agreement dated July 10, 2007
with Domaine Group Limited which has not yet been consummated. Per the
agreement the Company through its wholly owned subsidiary, Tremax
International Limited would transfer 5,333,333 shares of the Company
valued at $3,733,333 in exchange for Domaine Group Limited transferring
its 100% shares in CBBN Holdings Limited, a company incorporated in the
British Virgin Islands. The transaction has not been consummated and
the agreement had expired and was not extended. The Management of the
Company had decided not to proceed with this agreement.
F-27
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
On January 22, 2009, the Company approved the termination and recission
of the Agreement where the seller failed to comply with the terms of
the Agreement and did not deliver to the Company or Purchaser the
consideration for the issuance of the Amaru Shares. The Company further
approved the cancallation of the Amaru Shares.
14. IMPAIRMENT OF DIGIT GAMES LICENSE
The digit game license has been impaired due to the digit game
operations being suspended and all operations stopped by the Cambodia
Government. The company, Allsports managing the digit games in the
Kingdom of Cambodia had also not released the profit to M2B Commerce,
Ltd. from 2007 to present. Management has been recording revenues based
on information provided by Allsports's staff throughout the years and
have verified and adjusted them to actual as of year end. Due to lack
of access as stated above, all revenues for the year ended 2008 will be
reversed since the Company's recognition criteria related to the
associated revenues were not met.
15. LOAN AND BORROWINGS
DECEMBER 31, DECEMBER 31,
2009 2008
----------- -----------
Non-current
Convertible loan $ 2,500,000 2,500,000
Less: Future interest charges (67,204) (192,204)
----------- -----------
$ 2,432,796 2,307,796
Term loans held by the Company at balance sheet date are as follows:
(a) $2,500,000 represents a two year convertible loan drawn down by a
subsidiary company. It bears interest at a fixed rate of 5.0% per
annum. The loan allows the borrower the option to convert the loan
into shares of the subsidiary company at the issue price of $0.942
per share at the end of the two years period. The loan commenced
in July 2008 and the due date of the loan is July 7, 2010.
16. SUBSEQUENT EVENTS
The following subsequent events have occurred through the filing date
of this report, March 31, 2010.
As of February 17, 2010, the Company issued a total of 355,872 shares
of common stock through its private placement of shares of common stock
at a purchase price of $0.10 per share for a total amount of
$35,587.20, to an "accredited investor", as that term is defined in
Regulation D of the Securities Act of 1933.
As of February 22, 2010, the Company issued a total of 354,610 shares
of common stock through its private placement of shares of common stock
at a purchase price of $0.10 per share for a total amount of $35,461,
to an "accredited investor", as that term is defined in Regulation D of
the Securities Act of 1933.
F-28
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
As of March, 2010, the Company issued a total of 1,167,742 shares of
common stock through its private placement of shares of common stock at
a purchase price of $0.10 per share for a total amount of $116,774.20,
to an "accredited investor", as that term is defined in Regulation D of
the Securities Act of 1933.
17. Restatement of Prior Financial Statements
On May 28, 2010, the board of directors (the "Board") of Amaru, Inc. (the
"Company")concluded that the Company's previously filed consolidated financial
statements for the fiscal year ended December 31, 2009 on Form 10-K should no
longer be relied upon. The Board with the recommendation of management came to
this conclusion based on comments received from the Accounting Staff of the
Division of Corporate Finance of the Securities and Exchange Commission (the
"SEC") in its review of the Company's financial statements for the year ended
December 31, 2009. After discussion, review and analysis of our accounting and
disclosures, the Company identified the following issues:
A. The Company had previously impaired the film library in accordance with
ASC 926. It was concluded by management that the remaining $8,547,662
carrying amount of the film library could not be substantiated based upon
the Company being unable to calculate a fair value using ultimate revenue.
Ultimate revenue could not be calculated as management was unable to
demonstrate a history of earning revenue in their target markets or
territories for contracts entered into during the past two fiscal years.
Accordingly, the Company is restating the financial statements referred to
above. In summary, the Company's film library was written down an
additional $8,547,662 and recorded on the income statement as an impairment
loss on film library. This resulted in an increase in net loss and
accumulated deficit for the period ended December 31, 2009 in the amount of
$8,547,662.
B. In the Company's December 31, 2009 Form 10-K, the convertible term loan was
erroneously reported as a non-current liability when the due date of the
loan is July 7, 2010. The Company has accordingly reclassified the
$2,432,796 convertible term loan as a current liability in its December 31,
2009 Form 10-K/A.
C. The Company had previously reclassified Investments-Cost from current
assets to non-current assets as of December 31, 2008 in its December 31,
2009 Form 10-K. Management had previously recorded the 2008
Investments-Cost in its 2009 financial statement as a long-term asset as
management is still holding that asset at 2009. In the December 31, 2008
Form 10-K, Investment-Cost was classified as a current asset. Based upon
comments received from the Accounting Staff of the Division of Corporate
Finance of the Securities and Exchange Commission, management has
reclassified Investment-Cost as a current asset for 2008 in the December
31, 2009 Form 10-K/A.
D. The Company had erroneously included the receipt and cancellation of
shares originally issued in exchange for the repayment of an investment in
the amount of $3,733,333 as a component of comprehensive loss for 2008 in
its Consolidated Statements of Stockholders' Equity and Comprehensive
Income. In addition, the Company erroneously included common stock issued
for cash in the amount of $1,175,764 as a component of comprehensive loss
in 2009 in its Consolidated Statements of Stockholders' Equity and
Comprehensive Income. Both these amounts have been excluded from
comprehensive loss in the Company's 2009 Form 10-K/A. These
reclassifications had no effect on the Company's 2008 and 2009 Consolidated
Balance Sheet and Statement of Operations.
F-29
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2009
DECEMBER 31, DECEMBER 31,
2009 Adjustments 2009
------------ --------------- ------------
(AS ORIGINALLY (RESTATED)
REPORTED)
ASSETS
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 356,477 $ -- $ 356,477
ACCOUNTS RECEIVABLE, NET OF ALLOWANCE OF
$10,697,363 AT DECEMBER 31, 2009 -- -- --
EQUITY SECURITIES HELD FOR TRADING 326,980 -- 326,980
INVENTORIES, NET -- -- --
OTHER CURRENT ASSETS 187,131 -- 187,131
INVESTMENTS - COST -- -- --
------------ ------------ ------------
TOTAL CURRENT ASSETS 870,588 -- 870,588
NON-CURRENT ASSETS
PROPERTY AND EQUIPMENT, NET 642,960 -- 642,960
FILM LIBRARY, NET 8,547,662 (8,547,662) A --
INTANGIBLE ASSETS, NET -- -- --
INVESTMENTS COST 116,136 -- --
INVESTMENTS - COST 2,602,613 -- 2,718,749
------------ ------------ ------------
TOTAL NON-CURRENT ASSETS 11,909,371 (8,547,662) 3,361,709
------------ ------------ ------------
TOTAL ASSETS $ 12,779,959 (8,547,662) $ 4,232,297
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 916,150 -- $ 916,150
OTHER PAYABLES -- -- --
ADVANCES FROM RELATED PARTIES -- -- --
CAPITAL LEASE PAYABLE - SHORT TERM 11,079 -- 11,079
INCOME TAXES PAYABLE -- -- --
CONVERTIBLE TERM LOAN -- (2,432,796) B 2,432,796
------------ ------------ ------------
TOTAL CURRENT LIABILITIES 927,229 (2,432,796) 3,360,025
NON-CURRENT LIABILITIES
CONVERTIBLE TERM LOAN 2,432,796 2,432,706 B --
CAPITAL LEASE PAYABLE - LONG TERM 36,924 -- 36,924
------------ ------------ ------------
TOTAL NON-CURRENT LIABILITIES 2,469,720 2,432,706 36,924
------------ ------------ ------------
Total liabilities 3,396,949 2,432,706 3,396,949
Commitments -- -- --
Stockholders' equity
Preferred stock (par value $0.001) 5,000,000 shares
authorized; 0 shares issued and outstanding at
December 31, 2009 -- -- --
Common stock (par value $0.001) 200,000,000 shares
authorized; 165,856,168 shares
issued and outstanding at December 31, 2009 165,856 -- 165,856
Additional paid-in capital 40,354,672 40,354,672
Accumulated Deficit (30,358,463) 7,077,543 (37,436,006)
Accumulated other comprehensive income 968,406 -- 968,406
------------ ------------ ------------
Total Amaru Inc.'s Stockholders' deficit 11,130,471 7,077,543 4,052,928
Noncontrolling interest (1,747,461) 1,470,119 (3,217,580)
------------ ------------ ------------
Total stockholders' equity 9,383,010 8,547,662 835,348
------------ ------------ ------------
Total liabilities and stockholders' equity $ 12,779,959 8,547,662 A $ 4,232,297
============ ============ ============
F-30
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2009
DECEMBER 31, DECEMBER 31,
2009 ADJUSTMENTS 2009
------------- ------------- -------------
(AS ORIGINALLY (RESTATED)
REPORTED)
Revenue:
Entertainment $ 22,016 -- $ 22,016
------------- ------------- -------------
Total revenue 22,016 -- 22,016
Cost of services (226,319) -- (226,319)
------------- ------------- -------------
Gross profit (loss) (204,303) -- (204,303)
Distribution costs (299,881) -- (299,881)
Bad debts written off (9,641,508) -- (9,641,508)
Administrative expenses (1,701,341) -- (1,701,341)
Inventories written off (642,267) -- (642,267)
Impairment loss on intangible asset (2,084,764) -- (2,084,764)
Impairment loss on film library (10,617,120) 8,547,662 A (19,164,782)
Impairment loss on associate -- -- --
------------- ------------- -------------
Total expenses (24,986,881) 8,547,662 (33,543,543)
------------- ------------- -------------
Income (loss) from operations (25,191,184) 8,547,662 (33,738,846)
Other income (expense):
Interest expenses (127,157) -- (127,157)
Interest income 130 -- 130
Gain (Loss) on disposal of equipment -- -- --
Gain (Loss) on sale of investment securities (16,607) -- (16,607)
Net change in fair value of equities held
for trading 147,360 -- 147,360
Share of loss of associate -- --
Other 41,572 -- 41,572
------------- ------------- -------------
Income (loss) before income taxes (25,145,886) 8,547,662 (33,693,548)
(Provision) benefit for income taxes -- -- --
------------- ------------- -------------
Net Income (loss)including
noncontrolling interest $ (25,145,886) 8,547,662 $ (33,693,548)
============= ============= =============
Attributable to:
Equity holders of Amaru, Inc. $ (20,632,050) 7,077,543 $ (27,709,593)
Noncontrolling interests (4,513,836) 1,470,119 (5,983,955)
------------- ------------- -------------
Net loss per share attributable to
Amaru, Inc. - - basic and diluted $ (0.16) $ (0.05) $ (0.21)
============= ============= =============
Weighted average number of common shares
outstanding - - basic and diluted 157,266,951 -- 157,266,951
============= ============= =============
F-31
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2008
DECEMBER 31, DECEMBER 31,
2008 ADJUSTMENTS 2008
------------ ------------ ------------
(AS ORIGINALLY (RESTATED)
REPORTED)
ASSETS
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 1,484,945 -- $ 1,484,945
ACCOUNTS RECEIVABLE, NET OF ALLOWANCE OF
$10,697,363 AND $1,055,855 AT DECEMBER 31,
2009 AND 2008 RESPECTIVELY 9,634,710 -- 9,634,710
EQUITY SECURITIES HELD FOR TRADING 179,620 -- 179,620
INVENTORIES, NET 644,153 -- 644,153
OTHER CURRENT ASSETS 230,293 -- 230,293
INVESTMENTS - COST -- 2,402,613 C 2,402,613
------------ ------------ ------------
TOTAL CURRENT ASSETS 12,173,721 2,402,613 14,576,334
NON-CURRENT ASSETS
PROPERTY AND EQUIPMENT, NET 1,033,506 -- 1,033,506
FILM LIBRARY, NET 18,667,290 -- 18,667,290
INTANGIBLE ASSETS, NET 2,204,766 -- 2,204,766
INVESTMENT AVAILABLE FOR SALE 616,136 -- --
INVESTMENTS - COST -- -- 616,136
INVESTMENTS COST 2,402,613 (2,402,613) C --
------------ ------------ ------------
TOTAL NON-CURRENT ASSETS 24,924,311 (2,402,613) 22,521,698
------------ ------------ ------------
TOTAL ASSETS $ 37,098,032 -- $ 37,098,032
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 1,319,897 -- $ 1,319,897
OTHER PAYABLES 5,458 -- 5,458
ADVANCES FROM RELATED PARTIES 48,681 -- 48,681
CAPITAL LEASE PAYABLE - SHORT TERM 10,809 -- 10,809
INCOME TAXES PAYABLE 5,428 -- 5,428
CONVERTIBLE TERM LOAN -- -- --
------------ ------------ ------------
TOTAL CURRENT LIABILITIES 1,390,273 -- 1,390,273
NON-CURRENT LIABILITIES
CONVERTIBLE TERM LOAN 2,307,796 -- 2,307,796
CAPITAL LEASE PAYABLE - LONG TERM 46,831 -- 46,831
------------ ------------ ------------
TOTAL NON-CURRENT LIABILITIES 2,354,627 -- 2,354,627
------------ ------------ ------------
Total liabilities 3,744,900 -- 3,744,900
Commitments -- -- --
Stockholders' equity
Preferred stock (par value $0.001) 5,000,000 shares
authorized; 0 shares issued and outstanding at
December 31, 2009 and 2008, respectively -- -- --
Common stock (par value $0.001) 200,000,000 shares
authorized; 165,856,168 and 154,098,528 shares
issued and outstanding at December 31, 2009 and
2008, respectively 154,098 -- 154,098
Additional paid-in capital 39,190,666 -- 39,190,666
Accumulated Deficit (9,726,413) -- (9,726,413)
Accumulated other comprehensive income 968,406 -- 968,406
------------ ------------ ------------
Total Amaru Inc.'s Stockholders' deficit 30,586,757 30,586,757
Noncontrolling interest 2,766,375 -- 2,766,375
------------ ------------ ------------
Total stockholders' equity 33,353,132 -- 33,353,132
------------ ------------ ------------
Total liabilities and stockholders' equity $ 37,098,032 -- $ 37,098,032
============ ============ ============
See accompanying notes to consolidated financial statements
F-32