UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 30, 2005
( ) Transition report pursuant of Section 13 or 15(d) of the Securities
Exchange Act of 1939 for the transition period ____ to______
COMMISSION FILE NUMBER 000-32695
AMARU, INC.
(Exact name of registrant as specified in its charter)
Nevada 88-0490089
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
112 Middle Road, #08-01 Midland House, Singapore 188970 (011)(65) 6332 9287
--------------------------------------------------------------------------------
(Address of Principal Executive Offices, including Registrant's zip code
and telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports,), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of shares of the registrant's common stock as of November 16, 2005:
31,228,000 shares.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
1
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements F-1
(a) Consolidated Balance Sheets F-2
(b) Consolidated Statements of Operations F-3
(c) Consolidated Statement of Shareholders' Equity (deficit) F-4
(d) Consolidated Statements of Cash Flows F-5
(e) Notes to Consolidated Financial Statements F-6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 3-10
Item 3. Controls and Procedures 11
PART II. OTHER INFORMATION 11
Item 1. Legal Proceedings 11
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 11
Item 3. Defaults On Senior Securities 11
Item 4. Submission of Items to a Vote 11
Item 5. Other Information 11
Item 6. 11
(a) Exhibits (b) Reports on Form 8K
SIGNATURES AND CERTIFICATES 12
2
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
TABLE OF CONTENTS
Consolidated Balance Sheets..................................................F-2
Consolidated Statements of Operations........................................F-3
Consolidated Statement of Changes in Stockholders' Equity (Deficit)..........F-4
Consolidated Statements of Cash Flows........................................F-5
Notes to Consolidated Financial Statements...................................F-6
F-1
AMARU, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
2005 2004
----------- -----------
ASSETS
Current assets
Cash and cash equivalents $ 2,183,127 $ 644,319
Accounts receivable 840,626 239
Other receivable -- 680,737
Other current assets 196,375 5,576
----------- -----------
Total current assets 3,220,128 1,330,871
Non current assets
Property and equipment, net 3,748,842 520,360
Product development, net 94,251 181,948
Investments 175,070 --
License, net 7,609,643 2,420,227
----------- -----------
Total non current assets 11,627,806 3,122,535
----------- -----------
Total assets $14,847,934 $ 4,453,406
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 232,637 $ 126,345
Accounts payable- related parties -- 473,792
Deferred tax liability -- 36,760
Advances from related parties 88,694 179,736
----------- -----------
Total current liabilities 321,331 816,633
Commitments and Contingency -- --
Shareholders' equity
Series A convertible preferred stock (par value $0.001) 5,000,000
shares authorized: 0 shares issued and outstanding at September 30,
2005 and December 31, 2004, respectively -- --
Common stock (par value $0.001) 200,000,000 shares authorized;
30,478,000 shares issued and outstanding at September 30, 2005
and 27,200,000 at December 31, 2004 respectively 30,478 27,200
Paid in capital 12,213,973 2,932,751
Subscribed common stock, 500,000 and 0 shares at September 30,
2005 and December 31, 2004 respectively 1,500,000 --
Retained earnings 769,225 667,634
Comprehensive gain on currency translation 12,927 9,188
----------- -----------
Total shareholders' equity 14,526,603 3,636,773
----------- -----------
Total liabilities and shareholders' equity $14,847,934 $ 4,453,406
=========== ===========
The accompanying notes to financial statements
are an integral part of this statement
F-2
AMARU, INC. & SUBSIDIARIES
STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE NINE MONTHS ENDED FOR THE THREE MONTHS ENDED
---------------------------- ----------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2005 2004 2005 2004
------------ ------------ ------------ ------------
Revenue:
Entertainment Services:
Licensing, advertising and subscription
(including $0 and $900,000 to a related party in the
quarter ended September 30, 2005 and 2004
respectively; and $0 and $1,800,000 to a related
party in the nine months period ended September 30,
2005 and 2004) $ 2,721,868 $ 3,013,845 $ 450,575 $ 901,485
Gaming Services:
Digit and on-line games 8,475,652 -- 6,511,161 --
Broadband e-Services:
Consulting, Hosting and Solutions 500,000 -- -- --
Other income 1,976 29,829 1,061 17,978
------------ ------------ ------------ ------------
Total revenue 11,699,496 3,043,674 6,962,797 919,463
Cost of services
(including $0 and $998,026 of services purchased
from related party in the quarter ended September 30,
2005 and 2004 respectively and $0 and $2,060,430 for
the nine months ended September 30, 2005 and 2004
respectively) 10,132,267 2,134,188 6,414,354 1,013,327
------------ ------------ ------------ ------------
Gross profit (loss) 1,567,229 909,486 548,443 (93,864)
Distribution costs 367,958 229,125 167,488 15,709
Administrative expenses 1,135,291 345,886 515,884 118,889
------------ ------------ ------------ ------------
Total expenses 1,503,249 575,011 683,372 134,598
Income (Loss) from operations 63,980 334,475 (134,929) (228,462)
Other (income) expense:
Expenses related to public listing -- 89,494 -- 25,000
Gain on disposal of fixed assets (151) -- (151) --
Interest expenses -- 1,713 -- 768
Interest income (1,081) -- -- --
Provision (Benefit) for Income taxes (36,379) 70,553 (37,623) (41,845)
------------ ------------ ------------ ------------
Net income (loss) $ 101,591 $ 172,715 (97,155) (212,385)
============ ============ ============ ============
Earnings (loss) per share-basic and diluted $ 0.00 $ 0.01 $ (0.00) (0.01)
============ ============ ============ ============
Weighted average number of common shares
outstanding-basic and diluted 28,817,703 19,953,313 30,381,152 20,761,538
============ ============ ============ ============
The accompanying notes to financial statements
are an integral part of this statement
F-3
AMARU, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
Series A Convertible
Preferred Stock Common Stock
--------------------- -----------------------------------
Additional Total
Number Par Value Number of Par value Paid-in Subscribed Retained Translation Shareholders'
of Shares ($0.001) shares ($0.001) capital stock Earnings gain equity
---------------------------------------------------------------------------------------------------------------
Balance
December 31, 2003 -- $ -- 18,136,364 $ 18,136 $ 867,292 $ 128,255 $ 160,696 $ 32,917 $ 1,207,296
Shares issued for
cash Feb. 10, 2004 -- -- 1,363,636 1,364 414,636 (128,255) -- -- 287,745
Reverse acquisition 143,000 143 500,000 500 (27,347) -- -- -- (26,704)
Stock issued for
services -- -- 1,000,000 1,000 49,000 -- -- -- 50,000
Common stock
issued for cash -- -- 700,000 700 1,629,170 -- -- -- 1,629,870
Stock converted 143,000) (143) 5,500,000 5,500 -- -- (5,357) -- --
Net income -- -- -- -- -- -- 512,295 -- 512,295
Comprehensive loss
on currency
translation -- -- -- -- -- -- -- (23,729) (23,729)
-------------
Comprehensive income 488,566
---------------------------------------------------------------------------------------------------------------
Balance
December 31, 2004 -- -- 27,200,000 27,200 2,932,751 -- 667,634 9,188 3,636,773
Common stock issued
for cash -- -- 3,133,000 3,133 8,846,367 -- -- -- 8,849,500
Common stock issued
for repayment
of account payable -- -- 145,000 145 434,855 -- -- -- 435,000
Common stock
subscribed
(500,000 shares) -- -- -- -- -- 1,500,000 -- -- 1,500,000
Net income -- -- -- -- -- -- 101,591 -- 101,591
Comprehensive loss
on currency
translation -- -- -- -- -- -- -- 3,739 3,739
-------------
Comprehensive income 105,330
---------------------------------------------------------------------------------------------------------------
Balance
September 30, 2005 -- $ -- 30,478,000 $ 30,478 $ 12,213,973 $ 1,500,000 $ 769,225 $ 12,927 $ 14,526,603
===============================================================================================================
The accompanying notes to financial statements are an integral part of this statement
F-4
AMARU, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE FOR THE
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
2005 2004
------------ ------------
CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 101,591 $ 172,715
Adjustments to reconcile net income to cash and
cash equivalents used or provided by operations:
Amortization 210,741 85,277
Depreciation 74,291 8,778
Gain on disposal of fixed assets (151) --
Acquisition of license in exchange for account receivable -- (1,016,734)
Common stock issued for services -- 45,000
Changes in operation assets and liabilities
Accounts receivable (840,387) 54
Other receivables 680,737 18,894
Other current assets (190,799) 28,495
Accounts payable and accrued expenses 30,740 100,071
Income tax payable -- 22,751
------------ ------------
Net cash from operating activities 66,763 (534,699)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment 151 --
Software development reduction (17,460) (5,454)
Acquisition of equipment (3,302,773) --
Acquisition of license (5,295,000) --
Acquisition of investments (175,070) --
------------ ------------
Net cash (used in) investing activities (8,790,152) (5,454)
CASH PROVIDED FROM FINANCING ACTIVITIES
Payable to related party (91,042) 277,793
Payments on line of credit -- (10,604)
Re-capitalization of M2B World Pte.Ltd -- (26,704)
Issuance of common stock for cash 8,849,500 287,745
Proceeds from stock subscriptions 1,500,000 --
------------ ------------
Net cash provided by financing activities 10,258,458 528,230
Effect of exchange rate changes on cash and cash equivalents 3,739 12,876
------------ ------------
Cash flow from all activities 1,538,808 953
Cash and cash equivalents at beginning of period 644,319 60,307
------------ ------------
Cash and cash equivalents at end of period $ 2,183,127 61,260
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ -- $ 1,714
============ ============
Income taxes $ -- $ 48,479
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW ACTIVITIES:
Common stock in exchange for repayment of accounts payable $ 435,000 $ --
The accompanying notes to the financial statements are an integral part of this statement
F-5
AMARU INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2005 AND 2004
(UNAUDITED)
1. BASIS OF PRESENTATION AND REORGANISATION
-------------------------------------------
DESCRIPTION OF BUSINESS
-----------------------
The Amaru, Inc., a Nevada corporation (the "Company") through its subsidiaries
under the M2B brand, is a leader in the Broadband Media Entertainment business,
and a major provider of interactive Entertainment-on-demand, Education-on-demand
and e-commerce streaming over Broadband channels, Internet portals, and 3G
(Third Generation) devices.
The Company controls substantial content libraries for aggregation, distribution
and syndication on Broadband and other media, sourced from Hollywood and major
content providers around the world.
The Company's business strategy is to be a diversified media company
specializing in the interactive media industry, using the latest broadband,
E-Commerce and communications technologies, and access to international content
and programming.
To date, the Company has launched multiple Broadband TV websites for Hollywood
and Asian entertainment, education and online shopping, with over 100 channels
catering to various consumer segments and lifestyles. Its content covers diverse
genres such as movies, dramas, comedies, documentaries, music, fashion,
lifestyle and more. The M2B brand has its competitive edge by offering access to
an expansive range of content libraries for aggregation, distribution and
syndication on Broadband and other media; including rights for merchandising,
product branding, promotion and publicity.
In June 2005, the Company through its subsidiary, M2B Commerce Limited, a
company incorporated in the British Virgin Islands acquired the rights to a
gaming license to manage, operate and conduct digit games ( lottery ) in
Cambodia. The rights to the license are for a period of eighteen years.
REORGANIZATION
--------------
As of February 25, 2004 , Amaru, Inc. (the "Company") acquired M2B World Pte
Ltd., a Singapore corporation ("M2B World") in exchange for 19,500,000 newly
issued "restricted" shares of common voting stock of the Company and 143,000
"restricted" Series A Convertible Preferred Stock to the M2B World shareholders
for the purpose of effecting a tax-free reorganization pursuant to the Agreement
and Plan of Reorganization (the "Agreement"), with M2B World, becoming a
wholly-owned subsidiary of the Company.
The exchange was accounted for as a reverse acquisition. Accordingly, for
financial statement purposes, M2B World Pte. Ltd. was considered the accounting
acquiror and the related business combination was considered a recapitalization
of M2B World Pte. Ltd. rather than an acquisition by the Company. The historical
financial statements prior to the agreement are those of M2B World Pte. Ltd.
and the name of the consolidated Company going forward is Amaru, Inc. and
Subsidiaries.
On this basis, the historical financial statements prior to February 28, 2004
have been restated to be those of the accounting acquirer M2B World Pte. Ltd.
The historical stockholders' equity prior to the reverse acquisition has been
retroactively restated (a recapitalization) for the equivalent number of shares
received in the acquisition after giving effect to any difference in par value
of the issuer's and acquirer's stock.
F-6
BASIS OF PRESENTATION
---------------------
The financial statements included herein is unaudited. However, such information
reflects all adjustments ( consisting solely of normal occurring adjustments )
which are, in the opinion of management, necessary for a fair statement of
results for the interim periods. The results of operations for the nine months
ended September 30, 2005, are not necessarily indicative of the results to be
expected for the full year.
The accompanying financial statements do not include footnote and certain
financial presentation normally required under generally accepted accounting
principles, and, therefore, should be read in conjunction with the company's
Annual report on Form 10-KSB for the year ended December 31, 2004.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------
PRINCIPLES OF CONSOLIDATION
---------------------------
The consolidated financial statements include the accounts of Amaru Inc and its
wholly owned subsidiaries. All significant transactions among the consolidated
entities have been eliminated upon consolidation.
USE OF ESTIMATES
----------------
The preparation of financial statements in accordance with generally accepted
accounting principles, requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Management has not made any subjective or complex judgments the application of
which would result in any material differences in reported results.
CONCENTRATION OF CREDIT RISK
----------------------------
The credit risk is primarily attributable to the Company's trade receivables.
The credit risk on liquid funds is limited because the counterparties are banks
with high credit ratings assigned by international credit-rating agencies.
Licensing and advertising revenues were concentrated with five customers
totaling 100% of these related revenues for the nine months ended September 30,
2005 and two customers totaling 100% of these related revenues for the nine
months ended September 30, 2004.
The Company's operations are conducted over the world wide web and some
purchases are made from locations outside of Singapore. The Company had been
transacting primarily through its Singapore operating entity.
For the nine months For the three months
ended September 30, ended September 30,
2005 2004 2005 2004
----------- ----------- ----------- -----------
Sales outside Singapore $ 9,382,502 $ 0 $ 6,954,161 $ 0
Services purchased outside
of Singapore $10,134,178 $ 2,260,430 $ 6,408,758 $ 998,026
F-7
CASH AND CASH EQUIVALENTS
-------------------------
Cash and cash equivalents are defined as cash on hand, demand deposits and
short-term, highly liquid investments readily convertible to cash and subject to
insignificant risk of changes in value.
Cash in banks and short-term deposits are held to maturity and are carried at
cost. For the purposes of the cash flow statement, cash and cash equivalents
consist of cash on hand and deposits in banks, net of outstanding bank
overdrafts.
REVENUES
--------
Subscription and related services revenues are recognized over the period that
services are provided. Advertising and sponsorship revenues are recognized as
the services are performed or when the goods are delivered. Licensing and
content syndication revenue is recognized when the license period begins, and
the contents are available for exploitation by customer, pursuant to the terms
of the license agreement. Gaming revenue is recognized as earned net of
winnings. E-commerce commissions are recognized as received. Broadband
consulting services and on-line turnkey solutions are recognized as earned.
COSTS OF SERVICES
-----------------
The cost of services pertaining to 1) advertising and sponsorship revenue and 2)
subscription and related services are cost of bandwidth charges, channel design
and alteration, copyright licensing, and hardware hosting and maintenance costs.
The cost of services pertaining to E-commerce revenue are channel design and
alteration, and hardware hosting and maintenance costs. 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 incurred.
LICENSING RIGHTS
----------------
Licensing rights refers to the rights to use the content. These rights are
purchased for a specific period as determined in the contract. The costs of
these rights are recognized in the accounts over the life of the contract on a
straight line basis. These contents are then streamed into the broadband sites
and the revenue earned from advertising, sponsorship and subscription are then
recognized according to our policy on revenue.
TRADE AND OTHER RECEIVABLES
---------------------------
Trade receivables, which generally have 30 to 90 day terms, are recognized and
carried at the original invoice amount less an allowance for any uncollectible
amounts (if any). An estimate for doubtful debts is made when collection of the
full amount is no longer probable. Bad debts are written off as incurred.
The Company has reviewed trade and other receivables and determined that no
allowance for doubtful accounts is required.
F-8
PROPERTY AND EQUIPMENT
----------------------
Property and equipment is stated at cost. Expenditures for major improvements
are capitalized, while replacements, maintenance and repairs, which do not
significantly improve or extend the useful life of the asset, are expensed when
incurred.
Depreciation of property and equipment is computed using the straight-line
method over the estimated useful lives of the assets, which is three to five
years.
PRODUCT DEVELOPMENT
-------------------
The Company capitalized the development and building cost related to the
broad-band sites and infrastructure for the streaming system, most of which was
developed in 2002. The Company projects that these development costs will be
useful for up to five years before additional significant development needs to
be done.
IMPAIRMENT OF LONG-LIVED ASSETS
-------------------------------
The Company reviews the carrying values of its long-lived and intangible assets
for possible impairment whenever events or changes in circumstances indicate
that the carrying amount of the assets may not be recoverable. No impairment
losses were recorded in the nine months ended September 30, 2005 and the year
ended December 31, 2004.
ADVANCES FROM RELATED PARTY
----------------------------
Advances from related party are unsecured, non-interest bearing and payable on
demand.
FOREIGN CURRENCY TRANSLATION
----------------------------
Transactions in foreign currencies are measured and recorded in the functional
currency U.S. dollars, using the Company's prevailing month exchange rate. The
Company's reporting currency is also in U.S. dollars. At balance sheet date,
recorded monetary balances that are denominated in a foreign currency are
adjusted to reflect the rate at the balance sheet date and the income statement
accounts using the average exchange rates throughout the period. Translation
gains and losses are recorded in stockholders' equity as other Comprehensive
income and realized gains and losses from foreign currency transactions are
reflected in operations.
ADVERTISING
-----------
The cost of advertising is expensed as incurred. For the quarter and nine months
ended September 30, 2005, the company incurred advertising expenses of $95,290
and $194,634 respectively. For the quarter and nine months ended September 30,
2004, the Company incurred advertising expenses of $2,777 and $203,482
respectively.
INCOME TAXES
------------
Deferred income taxes are reported using the liability method. Deferred tax
assets are recognized for deductible temporary differences and deferred tax
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effects of changes in tax laws
and rates on the date of enactment.
F-9
EARNINGS (LOSS) PER SHARE
-------------------------
In February 1997, the Financial Accounting Standards Board (FASB) issued FAS No.
128 "Earnings Per Share" which requires the Company to present basic and diluted
earnings per share, for all periods presented. The computation of earnings per
common share (basic and diluted) is based on the weighted average number of
shares actually outstanding during the period. The Company has no common stock
equivalents, which would dilute earnings per share.
FINANCIAL INSTRUMENTS
---------------------
The carrying amounts for the Company's cash, other current assets, accounts
payable, accrued expenses, notes payable, and other liabilities approximate
their fair value.
RECLASSIFICATIONS
-----------------
Certain amounts in the previous periods presented have been reclassified to
conform to the current periods financial statement presentation.
3. PROPERTY AND EQUIPMENT
-------------------------
Property and equipment consist of the following:
September 30, December 31,
2005 2004
----------- -----------
Office equipment $ 267,512 $ 65,078
Film Library 3,491,695 500,000
Motor vehicle 11,000 --
Furniture, fixture and fittings 94,260 4,578
----------- -----------
3,864,467 569,656
Accumulated depreciation (115,625) (49,296)
----------- -----------
$ 3,748,842 $ 520,360
=========== ===========
Depreciation expense was $74,291 for the nine months ended September
30, 2005 and $8,778 for the nine months ended September 30, 2004.
4. PRODUCT DEVELOPMENT
----------------------
Product development consists of the following:
September 30, December 31,
2005 2004
-------------- --------------
Development expenditures $ 618,561 $ 601,101
Accumulated amortization (524,310) (419,153)
-------------- --------------
$ 94,251 $ 181,948
============== ==============
Amortization expense was $105,157 for the nine months ended September
30, 2005 and $85,277 for the nine months ended September 30, 2004.
F-10
5. LICENSE
----------
License consists of the following:
September 30, December 31,
2005 2004
----------- -----------
Software license $ 2,420,227 $ 2,420,227
On-line game license 605,000 --
Gaming license 4,690,000 --
----------- -----------
7,715,227 2,420,227
Accumulated amortization (105,584) --
----------- -----------
$ 7,609,643 $ 2,420,227
=========== ===========
Amortization expense was $105,584 for the nine months ended September
30, 2005 and $0 for the nine months ended September 30, 2004.
6. LINE OF CREDIT
-----------------
The Company has a line of credit, $59,130 for the nine months ended
September 30, 2005 and $61,267 for year ended December 31, 2004,
repayable on demand, used to fund the Company and its subsidiaries'
short-term working capital requirements. The outstanding balance was
zero at both September 30, 2005, and December 31, 2004.
The line of credit was cancelled by management on October 5, 2005. The
Company and its subsidiaries do not need the line of credit to fund its
short term working capital requirements since the funds generated from
its operations are sufficient for this purpose.
7. COMMITMENTS AND CONTINGENCY
------------------------------
LEASES
------
The Company renewed its lease with a larger office space of about 4,000
square feet, at a monthly rental of $4,155. The new lease period is for
three years, expiring on March 16, 2008.
Rent expense totaled $55,141 for the nine months ended September 30,
2005 and $13,029 for the nine months ended September 30, 2004.
Minimum lease payments for the noncancellable operating lease for the
years ending December 31,
2005 2006 2007 2008 Total
-------------- -------------- --------------- --------------- ---------------
$ 12,450 $ 49,800 $ 49,800 $ 10,375 $ 122,425
============== ============== =============== =============== ===============
LEGAL PROCEEDINGS
-----------------
On October 20, 2005 a shareholder of the Company filed a lawsuit in Los
Angeles Superior Court against the Company and its President, for
breach of contract, specific performance, fraud in inducement,
conspiracy and injunction relating to the purchase of shares in M2B
World Pte Ltd. by such shareholder. The plaintiff seeks damages in the
amount of $4,314,246. The Company considers the suit frivolous and the
basis of the lawsuit without merit. The Company intends to vigorously
defend itself and its President, and the Company is very confident of
winning the suit.
F-11
8. GAMING SERVICES
------------------
The Company's wholly owned subsidiary, M2B Commerce Limited purchased the rights
to a digit games license in Cambodia. The license is for a minimum period of 18
years commencing from June 1, 2005, with an option to extend for a further 5
years or such other period as may be mutually agreed.
9. CAPITAL STOCK
----------------
COMMON STOCK ISSUED FOR CASH
----------------------------
For the nine months ended September 30, 2005, Amaru Inc issued 3,133,000 shares
of common stock through a private placement at a price of $3.00 per share for a
total amount of $9,399,000.
On September 30, 2005, 500,000 shares of common stock were subscribed for
through a private placement at a price of $3.00 a share for a total $1,500,000.
This brings the total amount of cash raised through the private placement of
shares of common stock at a price of $3.00 a share in the nine months ended
September, 2005 to $10,899,000.
Consulting fees of $549,500 associated with the issuance of common stock were
deducted from additional paid-in capital during the nine months ended September
30, 2005.
COMMON STOCK ISSUED FOR REPAYMENT OF ACCOUNTS PAYABLE
----------------------------------------------------
On June 8, 2005, Amaru Inc issued 145,000 shares of common stock through a
private placement at a price of $3.00 per share for a total amount of $435,000
for repayment of accounts payable.
10. INCOME TAXES
----------------
The Company files separate tax returns for Singapore and the United States of
America. The Company operated primarily in Singapore and incurred no United
States incomes taxes as of September 30, 2005.
The decrease in deferred tax liabilities resulted from changes in depreciation,
amortization and tax allowances associated with its Singapore operations.
The Company had available approximately $457,000 of unused net operating loss
carry-forwards at September 30, 2005, that may be applied against future United
States taxable income. These net operating loss carry-forwards expire in 2025.
SFAS No. 19 requires valuation allowance to be recorded when it is more likely
than not that some or all of the deferred tax assets will not be realized. At
September 30, 2005, the Company continued to maintain a full valuation allowance
for the net deferred tax assets resulting from these net operating loss
carry-forwards because of uncertainties as to the future United States taxable
income necessary to utilize the net operating losses.
11. SUBSEQUENT EVENT
--------------------
On October 27, 2005, the Company received $750,000 for the purchase of 250,000
shares of common stock at $3.00 per share through its private placement.
F-12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
ALL FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE DEEMED BY THE COMPANY TO BE
COVERED BY AND TO QUALIFY FOR THE SAFE HARBOR PROTECTION PROVIDED BY THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. PROSPECTIVE SHAREHOLDERS SHOULD
UNDERSTAND THAT SEVERAL FACTORS GOVERN WHETHER ANY FORWARD - LOOKING STATEMENT
CONTAINED HEREIN WILL BE OR CAN BE ACHIEVED. ANY ONE OF THOSE FACTORS COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED HEREIN. THESE
FORWARD - LOOKING STATEMENTS INCLUDE PLANS AND OBJECTIVES OF MANAGEMENT FOR
FUTURE OPERATIONS, INCLUDING PLANS AND OBJECTIVES RELATING TO THE PRODUCTS AND
THE FUTURE ECONOMIC PERFORMANCE OF THE COMPANY. ASSUMPTIONS RELATING TO THE
FOREGOING INVOLVE JUDGMENTS WITH RESPECT TO, AMONG OTHER THINGS, FUTURE
ECONOMIC, COMPETITIVE AND MARKET CONDITIONS, FUTURE BUSINESS DECISIONS, AND THE
TIME AND MONEY REQUIRED TO SUCCESSFULLY COMPLETE DEVELOPMENT PROJECTS, ALL OF
WHICH ARE DIFFICULT OR IMPOSSIBLE TO PREDICT ACCURATELY AND MANY OF WHICH ARE
BEYOND THE CONTROL OF THE COMPANY. ALTHOUGH THE COMPANY BELIEVES THAT THE
ASSUMPTIONS UNDERLYING THE FORWARD - LOOKING STATEMENTS CONTAINED HEREIN ARE
REASONABLE, ANY OF THOSE ASSUMPTIONS COULD PROVE INACCURATE AND, THEREFORE,
THERE CAN BE NO ASSURANCE THAT THE RESULTS CONTEMPLATED IN ANY OF THE FORWARD -
LOOKING STATEMENTS CONTAINED HEREIN WILL BE REALIZED. BASED ON ACTUAL EXPERIENCE
AND BUSINESS DEVELOPMENT, THE COMPANY MAY ALTER ITS MARKETING, CAPITAL
EXPENDITURE PLANS OR OTHER BUDGETS, WHICH MAY IN TURN AFFECT THE COMPANY'S
RESULTS OF OPERATIONS. IN LIGHT OF THE SIGNIFICANT UNCERTAINTIES INHERENT IN THE
FORWARD - LOOKING STATEMENTS INCLUDED THEREIN, THE INCLUSION OF ANY SUCH
STATEMENT SHOULD NOT BE REGARDED AS A REPRESENTATION BY THE COMPANY OR ANY OTHER
PERSON THAT THE OBJECTIVES OR PLANS OF THE COMPANY WILL BE ACHIEVED.
General
Amaru, Inc., a Nevada corporation, through its subsidiaries under the M2B brand,
is a leader in the Broadband Media Entertainment business, providing interactive
Entertainment-on-demand, Education-on-demand and e-commerce; streaming via
computers, television sets, PDAs (Personal Digital Assistant) and 3G devices.
Its business includes advertising and sponsorships, online subscriptions, online
games, content syndication, broadband services (like digitial programming,
consulting, hosting, online shopping and turnkey solutions), e-commerce and
digit games.
To date, the Company has launched multiple Broadband TV websites for Hollywood
and Asian entertainment, education and online shopping, with over 100 channels
catering to various consumer segments and lifestyles, covering diverse genres
such as movies, dramas, comedies, documentaries, music, fashion, lifestyle and
more. The management believes that the M2B brand has its competitive edge by
offering access to an expansive range of content libraries for aggregation,
distribution and syndication on Broadband and other media; including rights for
merchandising, product branding, promotion and publicity.
The following discussion should be read in conjunction with selected financial
data and the financial statements and notes to financial statements
3
RESULTS OF OPERATIONS
---------------------
For the nine months and three months ended September 30, 2005 compared with nine
months and three months ended September 30, 2004.
OVERVIEW
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,
Education-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 handphones.
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
both education on-demand and 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.
The Company's Broadband Sites
The following Broadband sites have been set up both in the United States and
abroad to cater to different market segments.
1. ENTERTAINMENT
International and US Sites:
o Star78.com - an advertising-based Family Entertainment site
for international viewers
o Shine8.com - an advertising-based Lifestyle site for
international viewers
o Jump29.com - an advertising-based Young Adults site for
international viewers
o Dreamstage7.com - an advertising & subscription-based Glamour
& Fashion site for international viewers
o Highfashion7.com - an advertising and subscription based
designer Fashion site for international viewers
o Dragon78.tv - an advertising & subscription-based Mandarin
Entertainment site for viewers in US only
o Chinois78.com - an advertising and subscription based Mandarin
Lifestyle site for viewers in US only
Asian Sites:
o Dimension88.com - an advertising & subscription-based Movie
site in Singapore only
o Dragon78.com - an advertising & subscription-based Mandarin
Entertainment site in Singapore only
o Joy Channel - a subscription based family entertainment site
dedicated for United Power viewers in Japan only
o Ideas Broadband - four subscription based entertainment sites
(Movie Mania, Executive Online, Glamour Galore, Dragon City)
dedicated for Singapore Telecommunications Ltd Ideas Broadband
viewers in Singapore only
o Trilogy - a subscription based 3G mobile phone entertainment
site dedicated for Singapore Telecommunications Trilogy
viewers in Singapore only
o Colours78.com - an advertising and subscription based Mandarin
Lifestyle site in Singapore only
4
2. EDUCATION SITES
Asian Sites:
o Wiz5.com - an advertising & subscription-based Business &
Corporate Training site for viewers in Singapore only
US Sites:
o Wiz5.us - an advertising & subscription-based Business &
Corporate Training site for viewers in US only
3. E-COMMERCE SITES
International Sites:
o Starzmall.com - A One-Stop Shopping Paradise
o Trotteuse.com - A Second-Hand Branded Goods Mall
o Royalhive.com - A One-Stop Health and Beauty Mall
4. ONLINE GAMES SITE
o MagicOverLoad.com - Online games available in Singapore
In fiscal 2005, the Company plans to restructure its operations to meet fully
its global expansion initiatives. Part of this plan has already been put in
place in the first quarter of 2005 when 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 (SINGAPORE)
-----------------------------
This subsidiary will continue to oversee the management and operation of the
Company as a whole and oversee the Asian business.
A CHINA REPRESENTATIVE OFFICE has been set up in Shanghai. This representative
office will be under M2B World Pte Limited and handle the Company's China
business. The representative office has leased office space in the Shui On Plaza
on Huai Hai Zhong Road in Central Shanghai with effect from March 15 2005.
In addition to having its own entertainment and education sites, the Company had
signed two contracts previously with service providers in Asia, namely Singapore
Telecommunications Ltd of Singapore and United Power of Japan. On March 18,
2005, the Company signed a contract with United Power of Japan to launch 8
broadband channels on television sets in Japan via streaming through the set top
boxes.
The Company on May 23, 2005 extended its contract of July 26, 2004 with
Singapore Telecommunications Ltd to provide four broadband entertainment sites
with 26 channels for an exclusive high megabit broadband service; the service
was extended to cover 3G wireless mobile phones. The new 3G wireless mobile
phone entertainment service provided by the Company was launched in Singapore on
September 1, 2005.
The Company extended its reach to China when it entered into an agreement on May
10, 2005 with Chengdu Happy Digital Network Information Technology of China for
the development of an entertainment platform on broadband. The new site in China
is targeted for launch in December 2005.
The Company took an investment on May 16, 2005 for a 8.4% 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%.
5
M2B WORLD INC.(USA)
-------------------
M2B WORLD INC., a California corporation, was incorporated on January 24, 2005.
This subsidiary handles and oversees the Company's business in the USA. The
company has leased a new office on Sunset Boulevard, West Hollywood that comes
into effect from April 1, 2005. M2B World Pte Ltd (Singapore) had completed the
transfer of its US broadband sites and some international sites to M2B World Inc
by the end of the second quarter of 2005.
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. As of the date of this report, the
Company's investment in Indie Vision Films, Inc stands at 11.1%. The investment
will allow M2B World, Inc. to access the library of programs of Indie Vision
Films, Inc.
M2B GAME WORLD PTE LTD (SINGAPORE)
----------------------------------
M2B GAME WORLD PTE LTD (SINGAPORE) was incorporated in Singapore on January 24,
2005. This company will function as a wholly owned subsidiary company of M2B
World Pte Ltd and will handle the venture into online games.
The Company has already secured an online games franchise for six countries
(Australia, New Zealand, Thailand, Indonesia, China and Singapore). The online
games platform and micro-payment gateway was operational in Singapore in
September 2005. The Company has planned the promotional launch of its new online
games site over a three months period from October 2005 to December 2005.
AMARU HOLDINGS LIMITED (BVI)
----------------------------
AMARU HOLDINGS LIMITED (BVI) was incorporated in the British Virgin Islands on
February 21, 2005. All rights and licenses for the entertainment and education
content (like movies, dramas, lifestyles, corporate training, and others) will
be held under this company.
M2B COMMERCE LIMITED (BVI)
--------------------------
M2B World has a wholly owned subsidiary, M2B Commerce Limited, registered in the
British Virgin Islands. M2B World intends to consolidate all its e-commerce
operations and possibly launch new "e-bay" type initiatives under M2B Commerce
Limited. With effect from January 11, 2005 ownership of this company has been
transferred from M2B World Pte Ltd to Amaru Inc. and is wholly owned directly
under Amaru Inc.
On May 31, 2005, M2B Commerce Limited entered into an agreement with another
company to operate and conduct digit games in Cambodia, as an extension of the
Company's entertainment operations. The service was operational from June 2005.
A new online e-commerce mall for health and beauty products was designed and
built; the new mall called "Royalhive.com" will be launched and promoted in the
last quarter of 2005.
M2B WORLD TRAVEL LIMITED (BVI)
------------------------------
M2B WORLD TRAVEL LIMITED (BVI) was recently incorporated in the British Virgin
Islands on May 3, 2005. This subsidiary of the Company will be used to launch a
global online travel platform, which is expected to be ready for operation by
end of 2005.
The Company is currently developing in the USA 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.
6
M2B AUSTRALIA PTY LTD
---------------------
M2B AUSTALIA PTY LTD was recently incorporated on June 15, 2005. This subsidiary
will handle and oversee the Company's business in Australia.
RESULTS OF OPERATIONS - Nine months ended September 30, 2005 compared to nine
months ended September 30, 2004.
SUMMARY
The Company turned in significantly higher revenue for the nine months ended
September 30, 2005 at $11,699,496 as compared to $3,043,674 for the nine months
ended September 30, 2004. This represents an increase of $8,655,822 ( 284% ). In
spite of the higher revenue, net income after tax for the nine months ended
September 30,2005 at $101,591 was lower than the net income after tax of
$172,715 for the nine months ended September 30, 2004. The decrease was $71,124
( 41%).
This was attributed mainly to the higher cost of sales for the nine months ended
September 30,2005 as compared to the nine months ended September 30, 2004. The
higher cost of sales was incurred to service new contracts signed with United
Power of Japan, Chengdu Happy Digital Network Information Technology of China
and Singapore Telecommunications Ltd. The management and operations of the digit
games (lottery) in Cambodia which commenced in June 2005 also resulted in the
higher cost of sales.Another contributing factor was the higher administration
expenses incurred to cater to the expanding and growing business.
REVENUE
The revenue for the nine months ended September 30, 2005 was $11,699,496, up
$8,655,822 (284%) from $3,043,674 in the nine months ended September 30, 2004.
The revenue for the three months ended September 30, 2005 was $6,962,797, up
$6,043,334 (657%) from $919,463 in the three months ended September 30, 2004.
The main bulk of the revenue for the nine months and three months ended
September 30,2005 was from entertainment services, gaming services and broadband
e-services. Entertainment services revenue for the nine months and three months
ended September 30,2005 was $2,721,868 and $450,575 respectively.
The gaming services revenue for the nine months and three months ended September
30,2005 was $8,475,652 and $6,511,161 respectively. Broadband e-services revenue
for the nine months ended September 30,2005 was $500,000.
Entertainment services revenue registered a slight decrease of $291,977 (10%)
from $3,013,845 for the nine months ended September 30,2004 to $2,721,868 for
the nine months ended September 30, 2005.
Entertainment services revenue registered a decrease of $450,910 (50%) from
$901,485 for the three months ended September 30, 2005 to $450,575 for the three
months ended September 30, 2004. The decrease was due to the reorganization and
revamp of the broadband sites as part of the restructuring of the Company. This
entailed re-organising the broadband sites under different territories so as to
diversify customer base and advertising revenues.
The gaming services revenue was from the operation and management of digit games
(lottery) in Cambodia, and this is a new source of revenue for the Company that
was not available in 2004.
COST OF SALES
Cost of sales for the nine months ended September 30, 2005 was $10,132,267 which
increased by $7,998,079 (375%) from $2,134,188 for the nine months ended
September 30, 2004.
As a proportion of revenue, the cost of sales for the nine months ended
September 30, 2005 was 87% (cost of sales at $10,132,267 and revenue at
$11,699,496) as compared to 70% for the nine months ended September 30, 2004
(cost of sales at $2,134,188 and revenue at $3,043,674).
7
The significant increase in cost of sales of $7,998,079 (375%) for the nine
months ended September 30, 2005 was mainly attributed to the cost of managing
and operating the operations and game centers in Cambodia for the digit games
(lottery) and the payment of royalties for the lottery license. This accounted
for $8,123,890 of the total cost of $10,132,267 (80%).
This was partly offset by the lower cost of acquisition of contents license
rights for the Company's broadband sites. The costs decreased by $196,447 from
$2,087,235 for the nine months ended September 30, 2004 to $1,890,788 for the
nine months ended September 30, 2005.
The cost of managing and operating the operations and game centers in Cambodia,
and acquisition of contents license rights in the nine months ended September
30, 2005 accounted for the 87% proportion of cost of sales to revenue.
The proportion of 87% for the nine months ended September 30, 2005 compared to
the 70% for the nine months ended September 30, 2004, was higher as the Company
did not incur the cost of managing and operating the operations and game centers
in Cambodia in the nine months ended September 30, 2004 as this activity only
commenced in June 2005.
Cost of sales for the three months ended September 30, 2005 was $6,414,354 which
increased by $5,401,027 (533%) from $1,013,327 for the three months ended
September 30, 2004. The significant increase was due to the cost of managing and
operating the operations and game centers in Cambodia. This amounted to
$6,277,310. As this activity only commenced in June 2005, similar cost was not
incurred for the three months ended September 30, 2004.
This increase was partly offset by the decrease in the cost of acquisition of
contents license rights for the Company's broadband sites. The costs decreased
by $919,078 from $998,026 for the nine months ended September 30, 2004 to
$78,948 for the nine months ended September 30, 2005.
As a proportion of revenue, the cost of sales for the three months ended
September 30, 2005 at 92% (cost of sales at $6,414,354 and revenue at
$6,962,797) registered a slight decrease of 18 percentage points as compared to
110% for the three months ended September 30, 2004 (cost of sales at $1,013,327
and revenue at $919,463).
DISTRIBUTION EXPENSES
Distribution expenses for the nine months ended September 30, 2005 at $367,958
was higher by $138,833 (61%) as compared to the amount of $229,125 incurred for
the nine months ended September 30, 2004.
Distribution expenses for the three months ended September 30, 2005 at $167,488
was higher by $151,779 (966%) as compared to the amount of $15,709 incurred for
the three months ended September 30, 2004.
The higher expenses in the nine months and three months ended September 30, 2005
were due to the higher spendings on travel. The amount spent on traveling in the
nine months and three months ended September 2005 were $141,624 and $65,437
respectively. These expenses were incurred to explore overseas business
opportunities , open new markets and service new contracts secured.
Another contributing factor to the higher expenses in the three months ended
September 30, 2005 was the higher spendings on the branding of the M2B name and
advertising of the broadband sites ( $95,290 ).
GENERAL AND ADMINISTRATIVE EXPENSES
Administration expenses for the nine months ended September 30, 2005 at
$1,135,291 was higher by $789,405 (228%) as compared to the amount of $345,886
incurred for the nine months ended September 30, 2004.
Administration expenses for the three months ended September 30, 2005 at
$515,884 was higher by $396,995 (334%) as compared to the amount of $118,889
incurred for the three months ended September 30, 2004.
8
The increase in administration expenses for the nine months and three months
ended September 30, 2005 were attributed mainly to increases in:
o staff costs from the increasing number of professional
employees to cater to the expanding and growing business. The
increase in staff went from an average of four for the nine
months ended September 30, 2004 to thirteen for the nine
months ended September 30, 2005. Similarly, for the three
months ended September 30,2004 the average headcount went from
five to nineteen for the three months ended September 30,2005.
The increase in headcount resulted in staff costs for the nine
months and three months increasing by $320,462 and $173,112
respectively.
o depreciation and license amortization. The increase in
depreciation was attributed to the leasehold improvements for
the expansion of the office, new editing suites and laptops
provided to staff to cater to the demands of the growing
business. The increase in license amortization came from the
on-line games license and gaming license in Cambodia. The
increase for the nine months and three months ended September
30, 2005 as compared to the nine months and three months ended
September 30, 2004 were $189,604 and $122,004 respectively.
o rentals from the office expansion. The increase for the nine
months and three months ended September 30, 2005 as compared
to the nine months and three months ended September 30, 2004
were $42,030 and $15,562 respectively.
Net Income
For the nine months ended September 30, 2005, net income was $101,591 which
decreased by $71,124 (41%) from $172,715 for the nine months ended September
30,2004. The decrease in net income was due to significantly higher cost of
services for the nine months ended September 30, 2005.
For the three months ended September 30, 2005, net loss was $97,155 which
decreased by $115,230 (54%) from a loss of $212,385 for the three months ended
September 30,2004. The significant decrease in net loss was due to the lower
proportion of cost of sales to revenue for the nine months ended September 30,
2005.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash at $2,183,127 at September 30 2005 as compared to cash of
$644,319 at December 31, 2004.
The Company does not finance its operations through short-term bank credit,
long-term bank loans nor leasing arrangements with financial institutions as it
believes that cash generated from its operations will be able to cover its daily
running cost and overheads.
During the nine months ended September 30, 2005, the Company had not entered
into any transactions using derivative financial instruments or derivative
commodity instruments nor held any marketable equity securities of publicly
traded companies. Accordingly the Company believes its exposure to market
interest rate risk and price risk is not material.
Cash generated from operations will not be able to cover the Company's intended
growth and expansion. The Company has plans in 2005 to expand its broadband
coverage by launching new broadband sites in North America, Europe and
Australia. The Company also plans to open new subsidiaries in the last quarter
of 2005 or early 2006 in Canada and Europe.
In 2005, the Company intends to launch more broadband entertainment and
education content sites. In the area of E-commerce, the Company plans to launch
a new online shopping mall for DVDs, in the last quarter of 2005.
The Company had secured an on-line games franchise for six countries (Australia,
New Zealand, Thailand, Indonesia, China and Singapore)in 2004. The online games
platform and micro-payment gateway was operational in Singapore in September
2005. The Company has planned the promotional launch of its new online games
site over a three months period from October 2005 to December 2005.
9
In May 2005, the Company had contracted to acquire a 20% equity position in
Indie Vision Films, Inc, a California corporation which owns rights to a library
of films. As at the date of this report, the Company has paid $250,000 which
represents 11.1% of equity position. The balance will be paid pursuant to the
terms of the agreement. Upon completion of the transaction, the investment shall
stand at $500,000. Through this investment the Company and Indie Vision Films,
Inc can collaborate in broadband media broadcasting ventures.
In June 2005, the Company acquired the rights to a digit games license in
Cambodia to conduct digit games (lottery) in Cambodia. The cost of the license
is $3,300,000. In July 14, 2005, the Company paid an additional $1,390,000 to
increase the license fee from $3,300,000 to $4,690,000 and to reduce the royalty
fees payable by the Company under the terms of the agreement.
The Company is continuing to raise additional equity through sales of its common
stock to fund all business expansions.
For the nine months period ended September 30, 2005, the Company raised an
amount of $10,349,500, net of issuance costs, through private placements of the
Company's common stock to accredited investors only.
The Company believes that it can continue to raise more capital funds, through
private placements to fund its expansion growth. At the date of this report, the
Company raised a further $750,000 through the private placement of shares of
common stock at $3 a share to accredited investors.
INVESTMENTS
On May 16, 2005 the Company through its wholly owned subsidiary, M2B World Pte
Ltd paid S$75,000 (equivalent to US$45,431) for an 8.4% equity position in
Activ Lifestyle Pte Ltd , a company incorporated in Singapore. On September
27,2005 the Company paid a further S$50,000 (equivalent to $29,565) to raise
the equity position to 12.6%. The business of Activ Lifestyle Pte Ltd is in the
distribution and trading of health and lifestyle products.
On May 27, 2005 the Company through its wholly owned subsidiary, M2B World Inc
paid $100,000 for a 4.76% equity position in Indie Vision Films, Inc. At the
date of this report, the Company paid a further $150,000 to increase the equity
position to 11.1%. The business of Indie Vision Films, Inc is in the
distribution of films.
NEW CONTRACTS
o Contract with United Power of Japan signed on March 18, 2005.
M2B will launch 8 broadband channels in Japan that will be
available on television sets in Japanese households. The
contract has an option for United Power to exercise within 6
months that will give M2B a minimum guarantee of 50,000
subscribers for $1.2 million a year. Thereafter for every
subscriber, M2B will be paid $2.50 per subscriber per month.
o Contract with Sapphire Management, a company of Echelon
Entertainment, a California company, signed on March 6, 2005
for distribution of DVDs worldwide. This is on a revenue
sharing basis.
o Letter of agreement signed with Singapore Telecommunications
Ltd on May 23, 2005 to extend the original contract dated July
26, 2004 pursuant to which M2B agreed to provide certain
content services via Internet platforms, including the
provision of four broadband entertainment sites with 26
channels for an exclusive high megabit broadband service with
Singapore Telecommunications Ltd. This service has now been
extended to cover 3G ( Third Generation) wireless mobile
phones.
o Cooperation Agreement signed on May 10, 2005 on the
Development of Movies Entertainment Platform with Chengdu
Happy Digital Network & Information Technology Co Ltd, a
subsidiary of China Telecom, of the People's Republic of China
for the cooperation between parties on the development of the
Happydigi Movies Entertainment Platform Website.
o Contract with Allsports Limited, a British Virgin Islands
company signed on May 31, 2005 to operate and conduct digit
games in Cambodia and to manage the digit games activities in
Cambodia. In exchange for the license to M2B to enable M2B to
manage, operate and conduct digit games activities in Cambodia
for a minimum period of eighteen ( 18 ) years, M2B agreed to
pay a total of $4.69 million. Under the terms of the
agreement, Allsports Limited is entitled to 1.5% royalty fees.
10
ITEM 3. Controls and Procedures
Our President and Treasurer/Chief Financial Officer (the "Certifying Officers")
are responsible for establishing and maintaining disclosure controls and
procedures and internal controls and procedures for financial reporting for the
Company. The Certifying Officers have designed such disclosure controls and
procedures and internal controls and procedures for financial reporting to
ensure that material information are made known to them, particularly during the
period in which this report was prepared. The Certifying Officers have evaluated
the effectiveness of the Company's disclosure controls and procedures and
internal controls and procedures for financial reporting as of September 30,
2005 and believes that the Company's disclosure controls and procedures and
internal controls and procedures for financial reporting are effective based on
the required evaluation. There have been no significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of their evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
PART II. OTHER INFORMATION
Item 1. Legal proceedings
On October 20, 2005 a shareholder of the Company filed a lawsuit in Los Angeles
Superior Court against the Company and its President, for breach of contract,
specific performance, fraud in inducement, conspiracy and injunction relating to
the purchase of shares in M2B World Pte Ltd. by such shareholder. The plaintiff
seeks damages in the amount of $4,314,246. The Company considers the suit
frivolous and the basis of the lawsuit without merit. The Company intends to
vigorously defend itself and its President, and the Company is very confident of
prevailing in this action.
Item 2. Unregistered sales of equity securities and use of proceeds
During the nine months and three months ended September 30, 2005, the Company
sold 3,778,000 and 1,310,000 respectively of restricted" shares of common stock
of the Company in a private placement at $3.00 per share to "accredited
investors", as that term is defined in Regulation D of the Securities Act of
1933. For the nine months and three months ended September 30, 2005 the Company
paid $549,500 and $330,000 respectively of consulting fees in connection with
such sales. The proceeds of the sales were used for growth and expansion of the
business.
The shares of the Company's common stock were issued and sold in reliance upon
the exemption provided by Section 4(2) and Section 505 and/or 506 of Regulation
D of the Securities Act of 1933.
Item 3. Defaults on senior securities NONE
Item 4. Submission of items to a vote NONE
Item 5. Other information NONE
Item 6.
(a) Exhibits
--------
Exhibit No. Description
----------- -----------
Exhibit 31 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF
FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT
Exhibit 32 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF
FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT
b) Reports on 8K during the quarter:
---------------------------------
The Company filed Forms 8-K on July 20, 2005 ,June, 14, 2005, June 8, 2005, June
2, 2005, and April 28, 2005.
11
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AMARU, INC.
Date: November 16, 2005
By /s/ Colin Binny
--------------------------------
President
By /s/ Francis Foong
--------------------------------
Chief Financial Officer
12