UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 10-K/A-1
Amendment No. 1 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, 2011
|_| 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 1, 2012, 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 1, 2012 at $0.02 per share
was $3,523,306.94.
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
199,990,043 as of March 1, 2012.
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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Amaru, Inc.
Annual Report on Form 10-K
For the Fiscal Year Ended December 31, 2011
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 [RESERVED] 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 19
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 20
Item 7A Quantitative and Qualitative Disclosures About Market Risk 29
Item 8 Financial Statements and Supplementary Data 30
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 31
Item 9A Controls and Procedures 31
Item 9B Other Information 32
PART III
Item 10 Directors and Executive Officers and Corporate Governance 33
Item 11 Executive Compensation 36
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters 39
Item 13 Certain Relationships and Related Transactions, and Director Independence 40
Item 14 Principal Accounting Fees and Services 40
PART IV
Item 15 Exhibits and Financial Statement Schedules 40
Signatures 41
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 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. 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 that 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. See Note
14.
The key business focus of the Company is to establish itself as the
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 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;
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 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 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, 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. Although the
Company is still a holder of the license, it cannot use it for the
gaming business until the suspension of the digit games is lifted. 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
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 Commerce Limited - focuses on digit games in Cambodia
5. M2B World Travel Singapore Pte. Ltd. - offers e-travel services
6. Amaru Holdings Limited - focuses on content syndication and distribution
in areas other than Asia Pacific region
7. M2B World Holdings Limited - focuses on content syndication and distribution
in Asia Pacific region
8. M2B World Pte. Ltd. - provides management services to fellow
subsidiaries of the Company
9. Tremax International Limited - operates as an investment holding company
10. 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 diversified media,
e-commerce and e-lifestyle company. We adopt the latest broadband,
e-commerce and communications technology and leverage on our
international 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.
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, 4G 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.
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 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), Auto TV Corporation Pte Ltd
(Singapore), I-Concerts Asia Pacific (Singapore), Panasonic Asia
Pacific Pte Ltd (Singapore), Starhub Mobile Pte Ltd (Singapore) 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.amaruinc.com or directly go to the entertainment sites at
www.wowtv.com.
NEW PRODUCTS
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 designed 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 add value to the WOWtv service and potentially lead to new
revenue sources and increase advertising revenue in the years ahead. No
such revenues were received yet in fiscal year ended December 31, 2011.
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 should 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 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
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 which is inactive at present - see Business
Description - Background
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),
including connected TV
o PCs (Digital Subscriber Line (DSL) Technology) and
mobile internet devices
o Personal Digital Assistants(PDA), 3G and 4G 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 generate 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, CONNECTED TV AND WOWTV EMBEDDED TV
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 we believe 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.
ONGOING DEVELOPMENTS
Moving on from 2011's initiatives, the Company's target markets are all
Telcos, TV Channels, and ISPs:
A. Selling Contents to local and regional Telcos. The Company has
contracts with Singtel and Starhub in Singapore. It is currently in
discussion with regional Telcos in Malaysia, Indonesia, India, Vietnam,
Middle East and China for Content cooperation.
B. Contents sales to TV Stations - Singapore Starhub TV Channel and
Malaysia, Cambodia and Myanmar. The Company is working on developing
content sales in the above countries, however, no sales have been made
so far.
C. Bulk Sales of Contents to ISPs in South East Asia. The Company is
working on the above referenced bulk sales in South East Asia, however,
no sales materialized so far.
D. Value-added Services and Mobile TV for the telecom operators. The
Company has partnered with Value-added Services operators to work
together in Asia Pacific region.
Specific Country Focus
A. China
The Company is currently the only foreign listed Content Company for
China Mobile (with 600 million subscribers). The Content censorship
and approval process will take to the middle of 2012 in order to start
providing contents to China.
B. Vietnam
The Company is working closely with Nokia to roll out WOWtv
applications on Nokia smartphones. The Company is working with other
Telecom operators and broadcasters for providing contents and
over-the-top content solutions for the local market.
C. Myanmar
The Company has worked on the ground to sell bulk contents to Myanmar
TV Channels, however, no sales has been made yet.
D. India/Sri Lanka/Maldives
As the Company sees the huge market in India, it is exploring
integrating the Company's online contents for the Indian market.
The Company is planning to enter into the Indian, Sri Lankan and
Maldives Media market in the 2nd Quarter of 2012.
The Company is working with local partners for bundling the local
contents with WOWtv's over-the-top content solutions
The Company is working towards partnering with Bigflix, one of the
largest online - offline movie rental services in India for mutual
cooperation in the local and international market.
E. Singapore
The Company is working closely with M1, a local Telecom operator for
providing contents including education for their Mobile TV and
Value-added Services.
The Company is partnering with an education contents company on
video-based learning program for children.
The Company is partnering with TATA Communications, an Indian based
communications service provider as a technology partner for cloud and
data center storage solutions.
8
Other Media Co-operation for our Online Platform
The Company has kept its Contents relevant and at zero-cost, by securing choice
Contents like i-Concerts (Geneva), Auto TV(Asia), and Mr. Paparazzi (UK) without
any minimum guarantee. During the fiscal year 2011, the Company has also
explored content collaboration with Singapore Mediacorp and China TV stations.
The online Content business.
The content business is evolving very fast, with vast contents flooding the
market. The Company has identified key market participants and plans to move
forward to secure the subscription base or the viewership. In that regard, the
Company has worked on the following:
1. A formal partnership arrangement to access to m1905's two million hits
per month movie channel.
2. Latch onto CCTV6's distribution channels for all the provinces in
China, both for regular TV as well as online.
3. The Company is looking for cooperation with e-commerce sites in China,
to take advantage of the four-fold increase in e-commerce sites as
targeted by the Chinese Central Government.
4. Partnership arrangements with Qtrax and its toolbar partners to offer
WOWtv.com as part of the toolbar offerings to users in Europe. For
every successive download of the toolbar, users will be provided with
Qtrax and WOWtv online music and video service.
Other business developments.
- Connected TV
The Company intends to introduce WOWtv education onto Connected TV for Panasonic
VIERA Cast TVs.
The Company intends to introduce WOWtv education onto Connected TV for Samsung
Smart TVs.
The Company is working with other Connected TV companies for WOWtv applications
on their TV sets.
- Satellite Teleport
Partnering with a Teleport facility in Japan which will provide uplink to 5
major Satellite and downlink services to 20 major Satellite. M2B will act as
partner to this operator from Japan and initiate the business of providing such
services to its current and future clients in the broadcast, cable and content
business
- Over-the-top content Services
The Company is exploring Over-the-top content Services for ethnic groups in the
local markets in Singapore, Indonesia, Malaysia, and Sri Lanka
The Company is edging into technology partnerships so as to make WOWtv
applicable across all media platforms. It is in discussion with Shanghai Media
Group to utilize and incorporate WOWtv platform with their technology.
- Advertisement Bulk Sales
The Company is pursuing bulk sales of Contents through Dentsu Beijing, and OMD
Shanghai.
There can be no assurance that the above plans will materialize as
planned and stated above.
9
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.
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.
10
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.
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 not incurred, and does not expect to incur, material
expenditures or obligations related to environmental compliance issues.
EMPLOYEES
The Company had 14 employees as of December 31, 2011, of which 13 are
full time and 1 is a part-time employee. All of the 14 employees are
based in Singapore.
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 $1,511,889 and $2,146,613 before taxes for the
year ended December 31, 2011 and 2010, 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 $1,511,889 for the year ended
December 31, 2011 compared to a consolidated net loss before taxes of
$2,146,613 during 2010. We realized a negative cash flow from operating
activities of $1,056,330 during 2011 compared to $1,389,494 in 2010. At December
31, 2011, we had an accumulated deficit of $40,757,707 and a working capital
deficiency of $2,445,659 compared to an accumulated deficit of $39,425,386 and a
working capital deficiency of $2,308,861 at December 31, 2010. At December 31,
2011, we had a stockholders' deficit of $578,709 compared to a stockholders'
equity of $141,597 at December 31, 2010. 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 $9,230 (S$12,000). The
headquarters is currently located at 62 Cecil Street, TPI Building,
#06-00.
The Company's office in West Hollywood, California, was closed and the
lease for the office space was not renewed on August 21, 2011 as a part
of the Company's cost reduction measures. From January 1, 2011 until
August 21, 2011, the office space in the U.S. was leased on a monthly
basis and the rent was $10,530 per month.
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.
The Plaintiffs (Auston) have (on 12 May 2010) been granted leave to amend their
Statement of Claim and M2B World Pte. Ltd has had its application for discovery
of the 2006 and 2007 audited accounts of Auston granted.
On August 23, 2011, the Plantiffs (Auston) had filed a Notice of Discontinuance
to finally dismiss and discontinue the legal proceedings and M2B World Pte. Ltd
has also filed a Notice of Discontinuance for final dismiss and discontinuance
of the counterclaim against the Plaintiffs.
ITEM 4: [RESERVED]
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 Financial Industry Regulatory Authority
("FINRA") over-the-counter Bulletin Board market ("OTCBB") under the
symbol "AMRU". As of March 1, 2012, there were 398 holders of our
common stock.
The price of the Company's stock as of March 1, 2012 was $0.02.
The Company's high and low closing bid and close information for the
fiscal years ended December 31, 2011 and 2010 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.
17
Open High Low Close/Last*
---------------------------------------------------------------------
Year Ended December 31, 2011
---------------------------------------------------- ---------------- ----------------- ---------------- -----------------
First Quarter $ 0.02 $ 0.02 $ 0.02 $ 0.02
---------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Second Quarter $ 0.015 $ 0.015 $ 0.015 $ 0.015
---------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Third Quarter $ 0.011 $ 0.011 $ 0.011 $ 0.011
---------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Fourth Quarter $ 0.015 $ 0.015 $ 0.015 $ 0.015
---------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Year Ended December 31, 2010
---------------------------------------------------- ---------------- ----------------- ---------------- -----------------
First Quarter $ 0.08 $ -- $ -- $ 0.08
---------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Second Quarter $ 0.09 $ 0.09 $ 0.09 $ 0.09
---------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Third Quarter $ 0.085 $ -- $ -- $ 0.085
---------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Fourth Quarter $ 0.032 $ -- $ -- $ 0.032
---------------------------------------------------- ---------------- ----------------- ---------------- -----------------
* 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
From July 26, 2011 to December 8, 2011, the Company issued a total of
4,565,155 shares of Series B Convertible Preferred Stock ("Preferred
Stock") through its private placement of shares of Preferred Stock at a
purchase price of $0.15 per share for a total amount of $684,773.25, to
"accredited investors", as that term is defined in Regulation D of the
Securities Act of 1933. Each share of Series B Convertible Preferred
Stock is convertible into ten (10) shares of common stock.
The total amount of funds raised through the private placement of
shares of Preferred Stock for the year ended December 31, 2011 was
$684,773.25. The proceeds of the private placement were used for
working capital.
The shares of the Company's preferred 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 from the
investors.
On January 21,2011, the Company issued a total of 1,012,731 shares of
common stock through its private placement of shares of common stock at
a purchase price of $0.027 per share for a total amount of $27,343.74,
to an "accredited investor", as that term is defined in Regulation D of
the Securities Act of 1933.
On January 31, 2011, the Company issued a total of 2,840,909 shares of
common stock through its private placement of shares of common stock at
a purchase price of $0.022 per share for a total amount of $62,500.00,
to an "accredited investor", as that term is defined in Regulation D of
the Securities Act of 1933.
From February 17, 2011 to April 25, 2011, the Company issued a total of
11,137,008 shares of its common stock through its private placement of
shares of common stock at a purchase price of $0.02 per share for a
total amount of $222,740.16, to "accredited investors", as that term is
defined in Regulation D of the Securities Act of 1933.
The total amount of funds raised through the private placements of
shares of common stock for the year ended December 31, 2011 was
$312,583.90. The total proceeds were used for working capital.
18
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.
EQUITY COMPENSATION PLAN
The Company's 2004 Equity Compensation Plan has 2,921,260 million
shares remaining as of December 31, 2011. 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 2004 Equity Compensation Plan. There are no
outstanding options under the 2004 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,
------------------------------
2011 2010
------------------------------
STATEMENT OF OPERATIONS DATA:
Revenues (1) $ 4,462 $ 48,382
Cost of Services 121,555 248,573
Gross Profit (Loss) (117,093) (200,191)
Operating income (loss) (1,283,298) (1,504,063)
Net Income (loss) (2,103,157) (2,146,613)
Basic and diluted income (loss) per share (0.011) (0.013)
Shares used in computing basic and
diluted income/loss per common share 194,151,682 171,361,807
BALANCE SHEET DATA:
Working Capital (Deficit) (2,744,354) (2,308,861)
Total Assets 2,671,307 3,332,345
Long-term obligations 15,959 24,765
Stock holders' (Deficit) Equity (1,169,977) (141,597)
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.
19
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.
20
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.
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; 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.
21
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 not renewed its office lease in West Hollywood in August, 2011, and
currently does not maintain an office space in the U.S.
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., which provided to M2B World, Inc. 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.
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 directors is the Joint Company
Secretary of the lender. The conversion period of the convertible loan was
extended for an additional twelve months commencing July 8, 2010 and was further
extended to November 30, 2011. Subsequent to December 31, 2011, M2B World Asia
Pacific Pte. Ltd. is negotiating to obtain further extension to June 29, 2012 on
the convertible loan.
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.
22
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.
On April 19, 2010, M2B Entertainment, Inc. was dissolved because the Company did
not want to continue operations in Canada.
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 December 31, 2010 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 to develop a global online travel platform which offers global
e-travel services. On October 14, 2011, M2B World Travel Singapore was dissolved
because the Company did not want to continue its travel operations.
23
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 Company's common stock. The Company further approved the
cancellation of the common stock issued by the Company under the Agreement.
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.
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.
24
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, 2011, that are applicable to the Company.
RESULTS OF OPERATIONS
For the fiscal year ended December 31, 2011 compared with the fiscal
year ended December 31, 2010.
FINANCIAL STATEMENT
- Revenue for the year ended December 31, 2011 was $4,462 compared
with $48,382 in 2010.
- Loss from operations was $1,283,298 in 2011 compared with loss of
$1,504,063 in 2010.
- Net loss was $2,103,157 in 2011 compared with loss of $2,146,613 in
2010.
- The Company's cash balance was $219,348 at December 31, 2011 compared
with $221,183 at December 31 2010.
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
2011 VS. 2010
2011 2010 $ %
---- ---- ----------- ------
ENTERTAINMENT $ 4,462 $ 48,382 $ (43,920) (91%)
DIGIT GAMES $ -- $ -- $ -- --%
OTHER $ -- $ -- $ -- --%
TOTAL REVENUES $ 4,462 $ 48,382 $ (43,920) (91%)
Entertainment revenue for the year ended December 31, 2011 at $4,462 was lower
than entertainment revenue of $48,382 for year ended December 31, 2010 by
$43,920 (91%). It was mainly due to the decrease in advertising revenue from
new customers during 2011.
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
2011 VS. 2010
2011 2010 $ %
---- ---- --------- -----
COST OF SERVICES $121,555 $248,573 $(127,018) (51%)
Cost of services for the years ended December 31, 2011 was $121,555 which
decreased by $127,018 (51%) from $248,573 for the year ended December 31, 2010.
It was mainly due to decrease in cost spending on bandwidth costs by $57,663
(93%) from $62,107 for the year ended December 31, 2010 to $4,444 for the year
ended December 31, 2011.
25
DISTRIBUTION EXPENSES
The following table sets forth a year-over-year comparison of the
Company's distribution expenses :
YEAR ENDED DECEMBER 31 VARIANCE
2011 VS. 2010
2011 2010 $ %
---- ---- --------- --------
TOTAL $78,592 $40,450 $38,142 94%
DISTRIBUTION
EXPENSES
Distribution expenses for the year ended December 31, 2011 at $78,592
were higher by $38,142 (94%) as compared to the amount of $40,450
Incurred for the year ended December 31, 2010.
The higher distribution expenses were attributed to increase spending
on advertising, entertainment and traveling expenses for potential
business contract from oversea customers during year ended December 31,
2011.
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
2011 VS. 2010
2011 2010 $ %
---- ---- ------------ --------
BAD DEBTS
WRITTEN OFF $4,471 $-- $ 4,471 100%
The bad debts written off in 2011 were primarily attributed to the
write off of the long outstanding balance of $4,471 from previous
accounts receivable and other debtors.
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
2011 VS. 2010
2011 2010 $ %
---- ---- --------- -------
TOTAL GENERAL AND $1,083,142 $1,263,422 $(180,280) (14%)
ADMINISTRATIVE
EXPENSES
ADMINISTRATION EXPENSES FOR THE YEAR ENDED DECEMBER 31, 2011 AT
$1,083,142 WERE LOWER BY $(180,280) (14%) AS COMPARED TO THE AMOUNT OF
$1,263,143 INCURRED FOR THE YEAR ENDED DECEMBER 31, 2010.
THE DECREASE IN ADMINISTRATIVE EXPENSES FOR THE YEAR ENDED DECEMBER 31,
2011 WAS ATTRIBUTED MAINLY TO THE DECREASE IN:
o DEPRECIATION AND AMORTIZATION. EQUIPMENT DEPRECIATION AND
LICENSE AMORTIZATION HAD DECREASED BY $106,946 (35%), FROM
$307,664 FOR THE YEAR ENDED DECEMBER 31,2010 TO $200,718 FOR
THE YEAR ENDED DECEMBER 31,2011. THE DECREASE WAS MAINLY DUE
TO MOST OF THE INTANGIBLE ASSETS AND EQUIPMENT BEING FULLY
AMORTIZED AND IMPAIRED DURING END OF DECEMBER 31, 2010.
o INSURANCE. COSTS HAD DECREASED BY $39,537 (92%),
FROM $43,119 FOR THE YEAR ENDED DECEMBER 31, 2010 TO
$3,582 FOR THE YEAR ENDED DECEMBER 31, 2011. THE DECREASE
WAS MAINLY DUE AS A RESULT OF COSTS REDUCTION MEASURES TO
REDUCE OPERATING COSTS
26
(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
2011 2010
---- ----
(LOSS) INCOME FROM OPERATIONS $(1,283,298) $(1,504,063)
THE COMPANY INCURRED A LOSS FROM OPERATIONS OF $1,283,298 OR THE YEAR
ENDED DECEMBER 31, 2011 AS COMPARED TO THE LOSS FROM OPERATIONS OF
$1,504,063 FOR THE YEAR ENDED DECEMBER 31, 2010. THE DECREASE
WAS MAINLY DUE AS A RESULT OF COSTS REDUCTION MEASURES TO REDUCE
OPERATING COSTS
NET INCOME (LOSS)
The following table sets forth a year-over-year comparison of the
Company's net income (loss):
Year Ended December 31
2011 2010
---- ----
Net income (Loss) $(2,103,157) $(2,146,613)
NET LOSS FOR THE YEAR ENDED DECEMBER 31, 2011, WAS $2,103,157 WHICH
DECREASED BY $43,456 (2%) FROM NET LOSS OF $2,146,613 FOR THE
YEAR ENDED DECEMBER 31, 2010.
The significant decrease in net loss for the year ended December 31
2011 was mainly attributed to there was a impairment loss of $875,673
provided on investment available for the year ended December 31, 2010.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash of $219,348 at December 31, 2011 as compared to
cash of $221,183 at December 31, 2010.
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, 2011, 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
$1,074,777 through equity financings in fiscal year 2011. The cash
generated from financing activities totaling $1,256,984 was used to
cover the Company's operations for fiscal year 2011.
There was net cash used in operating activities of $1,256,330 and
$1,389,494, for each of the two years in 2011 and 2010, respectively.
The decrease of $133,164 for net cash used in operating activities in
2011 as compared to 2010 was mainly due to reduction of payments to the
Company's suppliers.
There was net cash used in investing activities of $2,489 and $13,567
for each of the two years in 2011 and 2010, respectively. The decrease
of $11,131 for net cash used in investing activities in 2011 as
compared to 2010 was mainly due to no acquisition of equipment and
intangible assets.
There was net cash provided by financing activities of $1,256,984 and
$1,267,857 for each of the two years in 2011 and 2010, respectively.
The decrease of $10,873 for net cash provided by financing
activities in 2011 as compared to 2010 was mainly due to a lower sum
of financing raised through related parties.
The Company's intention in fiscal year 2012 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 $234,165.44 for 2012, and is expected to raise more new funding
during the year. This new funding coupled with its cash as at December
31, 2011 should be able to cover operating expenses for the fiscal year
2012, and the Company believes that it should be able to raise
additional funding for the next fiscal year.
27
The Company has relinquished its old trade obligations and reduced the
overall fixed overhead cost. On the operational side, where possible,
IT work has been out-sourced to other countries with lower labor cost.
In addition to the Company's content of I-Concerts, Mr. Paparazzi, Auto
TV gained in 2010,the Company is seeking to acquire new Contents from
Holland, Mid-East,Australia, Korea, Japan and China. Currently, the
Company is finalizing a cooperation agreement with m1905, a fully owned
subsidiary of CCTV6. The Company's goal is to keep contents current at
'zero-cost' acquisition, with revenue share model where possible.
During the industry downturn, the Company has continued to push its key
selling points of legal contents across various countries, It is
rewarded by the newly enforced Intellectual Property Rights in China
and globally. This puts the Company's content library in a favourable
position in negotiating for new business ventures. The Company believes
that being based in Singapore, at the crossroads of communication and
commerce, it is ideally placed to develop the media industry. The
Company's fully legal contents and various country rights, enables it
to take advantage of the Internet and Mobile 3G/4G roll out regionally
and globally. The Company has a self sufficient, complete and compact
operation, cross-platforms abilities, and new product developments, and
is nimble enough to adapt to the new media to realize revenue for the
highly connected mobile marketplace. We expect that the broadband
business segment would be able to generate sufficient cash to cover its
operations in fiscal year 2012, however, no assurances can be made that
such expectations will materialize. 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
On October 14, 2011, the Company , through its subsidiary, M2B World
Asia Pacific Pte. Ltd. ("M2B"), signed an agreement with Apalya
Technologies Pvt. Ltd. ("Apalya"), is one of India's leading content
aggregation, provisioning and distribution platform in the Mobile Video
Delivery space. Pursuant to the terms of the Agreement, Apalya shall
launch M2B's content and services on mobile platforms of
telecommunication companies and mobile service providers in the
territories of Indonesia, India and Sri Lanka. M2B and Apalya shall
share net of total revenue collected in the ratio of 60%("M2B"):40%("
Apalya ")for B2B deployments and 40%("M2B"):60%("Apalya") for B2C
deployments respectively on the basis of the viewership of such
contents.
On October 25, 2011, the Company , through its subsidiary, M2B World
Asia Pacific Pte. Ltd. ("M2B"), signed an agreement with VASC Software
and Media ("VASC"), is one of Vietnam's leading content aggregation,
provisioning and distribution platform in the Mobile Video Delivery
space. Pursuant to the terms of the Agreement, VASC shall launch M2B's
content and services on mobile platforms of telecommunication companies
and mobile service providers in the territory of Vietnam. M2B and VASC
shall share 50% of the net revenue collected with VASC.
On November 5, 2011, the Company, through its subsidiary, M2B World
Asia Pacific Pte. Ltd. ("M2B"), signed an agreement with Key Asylum
Corporation, ("Egg Up"). Egg Up has a unique technology that protects
uploaded films from piracy enabling them to provide a safe platform for
film distributors to use in order to market, sell, and rent their
films. Both parties agreed to look into areas to tap onto Egg Up
existing infrastructure and technology and M2B's vast content library
across all genres with distribution rights across all platforms
including online, mobile and Over-the-top content services. M2B and Egg
Up shall share 50% of the gross revenue collected with such
partnership.
On December 7, 2011, the Company through its subsidiary, M2B World Asia
Pacific Pte. Ltd. ("M2B"), signed a strategic cooperation agreement
with LTDnetwork Incorporated 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
contents.
On February 2, 2012, the Company through its subsidiary, M2B World Asia
Pacific Pte. Ltd. ("M2B") signed an agreement with Samsung Asia Pte.
Ltd. ("Samsung"), one of the world's leading electronics producers.
Pursuant to the terms of the Agreement, Samsung shall launch M2B's
content and services on SmartTV devices and Android Mobile Devices,
including Tablets. The Samsung devices shall be launched in the
following manner, namely Singapore,Indonesia, Malaysia, Thailand,
Vietnam, Philippines, Taiwan ROC, Pacific Islands, Australia, New
Zealand, Rest of Indochina and Rest of the World. M2B and Samsung shall
share net of total revenue collected in the ratio of
85%("M2B"):15%("Samsung").
28
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
$2,427,482 and $2,460,291 in marketable securities as of December 31,
2011 and 2010 respectively.
The Company does not believe that it faces material market risk with
respect to its cash and cash equivalents which totaled $219,348 and
$221,183 at December 31, 2011 and 2010, 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.
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.
29
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.
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' Deficit and
Comprehensive Income........................................................... F-4 - F-7
Consolidated Statements of Cash Flows ................................................. F-8
30
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On February 3, 2011, Amaru, Inc., a Nevada corporation (the "Registrant" or the
"Company"), received a notice from its independent registered public accounting
firm, Mendoza Berger & Company, LLP ("Mendoza Berger") , that they had resigned
due to a change in the firm's organization structure, effective as of that date.
a) Resignation of Current Independent Registered Public Accounting Firm.
i. On February 3, 2012, Mendoza Berger resigned as the Company's
current independent registered public accounting firm.
ii. The Company's Board of Directors accepted such resignation on
February 6, 2012.
iii. Mendoza Berger's audit reports on the financial statements of
the Company for the years ended December 31, 2010 and 2009 did
not contain an adverse opinion or a disclaimer of opinion, nor
were they qualified or modified as to uncertainty, audit
scope, or accounting principles, other than an explanatory
paragraph regarding the Company's ability to continue as a
going concern.
iv. Since July 21, 2008, the date the Company engaged Mendoza
Berger as the Company's independent registered public
accounting firm in connection with Mendoza Berger's audits of
the Company's annual financial statements as of and for the
fiscal years ended December 31, 2010, 2009 and 2008,
respectively, and Mendoza Berger's reviews of the Company's
quarterly interim unaudited financial information from
September 30, 2008 through September 30, 2011 (last quarterly
period under review by Mendoza Berger on Form 10-Q filed by
the Company on November 14, 2011 prior to Mendoza Berger's
resignation) through the date of resignation on February 3,
2012, there were no disagreements on any matter of accounting
principles or practices, financial statement disclosures, or
auditing scope or procedures, which disagreements if not
resolved to their satisfaction would have caused Mendoza
Berger to make reference in connection with Mendoza Berger's
opinion to the subject matter of the disagreement.
v. In connection with the audited financial statements of the
Company for the years ended December 31, 2010 and 2009 and
quarterly interim unaudited financial information from March
31, 2010 through September 30, 2011 and through the date of
Mendoza Berger's resignation on February 3, 2012, there have
been no reportable events with the Company as set forth in
Item 304(a)(1)(v) of Regulation S-K.
vi. The Company provided Mendoza Berger with a copy of this
Current Report on Form 8-K and requested that Mendoza Berger
furnished it with a letter addressed to the SEC stating
whether or not they agree with the above statements. The
Company has received the requested letter from Mendoza Berger,
and a copy of such letter is filed as Exhibit 16.1 to this
Current Report on Form 8-K
(b) Engagement of New Independent Registered Public Accounting Firm. On February
8, 2012, the Company retained Wilson Morgan LLP as the Company's new independent
registered public accounting firm. This engagement was approved by the Board of
Directors. During the years ended December 31, 2010 and 2009 and any subsequent
interim period through the date hereof, the Registrant has not consulted with
Wilson Morgan LLP regarding the application of accounting principles related 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 as to
any disagreement or reportable event as described in Item 304(a)(1)(iv) and Item
304(a)(1)(v) of Regulation S-K under the Securities Act of 1933, as amended.
ITEM 9A: 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, 2011, which was filed on March 29, 2012, our Chief Executive officer and
Chief Financial Officer concluded that our disclosure controls and procedures
were effective as of December 31, 2011. 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 United States
Generally Accepted Accounting Principles ("GAAP"). Thus, the Company recognizes
that it has a material weakness in financial reporting due to a lack of staff
with adequate knowledge of US GAAP. The Company will correct this weakness by
hiring a consultant who is knowledgeable in US GAAP and by providing continuing
professional education for the existing staff. It is the Company's intent to
have a professional US GAAP consultant available on as needed basis in
connection with the preparation of the Company's financial reports. The Company
intends to have its senior accounting staff attend classes in US GAAP for a
minimum of forty hours per calendar year. The Company believes that such
corrective actions should eliminate this material weakness.
31
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.
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, 2011, 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, 2011, 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.
32
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 21,
2012 were as follows:
Name Age Position
-------- ------- -----------
Sakae Torisawa 65 Chairman of the Board of Directors
Chua Leong Hin 53 Chief Executive Officer, President,
Interim Acting Chief Financial
Officer and Director
Percy Chua Soo Lian 52 Director
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.
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. Mr Chua is the Company's President, CEO
and acting CFO following the resignation of Mr. Binny from those
position.
33
PERCY CHUA SOO LIAN
Mr. Percy Chua Soo Lian, is appointed as the Company's director to fill
the vacancy on the Board of Directors created by the resignation of Mr.
Binny from that position.
Mr. Percy Chua Soo Lian graduated from the National University of
Singapore in 1986, with a Bachelor of Arts, Architectural Studies
(B.A.(AS), and a Bachelor of Environmental Design Studies degree
(B.E.D.S.) in 1989, and a Masters of Architecture, (M.ARCH) in 1991
from Technical University of Nova Scotia (Daltech), Halifax, Nova
Scotia, Canada.
He has more than twenty years experience in the fields of art and
architecture. In the past decade he has been involved in restructuring
assets such as hotels, buildings, and master planning of New Towns in
various Asia Pacific countries. He is a founding partner of CSL
Architects and managing director of CSLA Management PTE Ltd., as well
as a president and director of PT Bintan Pacific Development.
Mr. Percy Chua Soo Lian has no beneficial ownership of the Company's or
any of its subsidiaries' shareholdings.
The following directors and executive officers have resigned from the
Company as of the effective date set forth below:
Name Age Position Resignation Date
------------------ -------- ---------- ------------------------
Zee Moey Ngiam 56 Director December 30, 2011
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 to be 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.
34
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 were Ngiam Zee Moey and Colin Binny
who resigned on April 02, 2010. Mr. Ngiam Zee Moey resigned on
December 31, 2011, and has not been replaced yet.
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 in
fiscal year 2011 were Sakae Torisawa and Ngiam Zee Moey, who resigned
in December of 2011, and has not been replaced yet.
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 in fiscal year 2011 were
Sakae Torisawa and Ngiam Zee Moey, who resigned in December, 2011 and
has not been replaced yet.
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.
35
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, 2011 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 2011, all Section 16(a) filing requirements applicable to
our reporting persons were met.
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 $100,000 (collectively, the "named
executive officers") during fiscal year ended 2010 shown below.
Name and Principal Year Salary Bonus Stock Options Non-Equity Change in All Other Total
Position ($) ($) ($) Awards Awards Incentive Pension Compensation ($)
($) ($) Plan Value and ($)
Compensation Non-qualitative
($) Deferred
Compensation
Earnings
($)
--------------------------------------------------------------------------------------------------------------------------------
Chua Leong Hin, CEO and CFO 2011 -- -- -- -- -- -- -- --
Colin Binny, former 2010 -- -- -- -- -- -- -- --
CEO and CFO 2009 -- -- -- -- -- -- -- --
2008 -- -- -- -- -- -- -- --
(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,
2008, December 31, 2009 and December 2010.
As of December 31 2011, 2,921,260 million shares of common stock remain
unused in the Company's 2004 Equity Compensation Plan.
36
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 2011.
---------------------------------------------------------------------- ------------------------------------
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: ($) or Shares Awards: Awards:
Unexercised Unexercised Number Units or Number Market
Options Options of of Units of or
(#) (#) Securities Stock of Unearned Payout
Exercisable Unexercisable Underlying That Stock Shares, Value
Unexercised Have That Units of
Unearned Not Have or Unearned
Options Vested Not Other Shares,
(#) (#) Vested Rights Units
($) That or
Have Other
Not Rights
Vested That
(#) Have
Not
Vested
($)
Chus Leong Hin, NIL NIL NIL NIL NIL NIL NIL NIL NIL
CEO and CFO
Colin Binny NIL NIL NIL NIL NIL NIL NIL NIL NIL
former CEO
and CFO
------------- ------------- ---------- -------- --------- ------------ ------ ------- --------- ---------
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth equity compensation plan information as
of December 31, 2011:
NUMBER OF SHARES WEIGHTED AVERAGE NUMBER OF
TO BE ISSUED EXERCISE PRICE SHARES REMAINING
UPON EXERCISE OF OF OUTSTANDING AVAILABLE FOR
PLAN CATEGORY OUTSTANDING OPTIONS OPTIONS FUTURE ISSUANCE
-------------- ------------------- ------------------ -----------------
2004 Equity Compensation Plan approved by NIL NIL 2,921,260
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 2,921,260 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 2011
other than those disclosed in the Director Compensation table.
TRAVEL EXPENSES
All directors shall be reimbursed for their reasonable out of pocket expenses
associated with attending the meeting.
37
DIRECTOR COMPENSATION
The following table shows the overall compensation earned for the 2011 fiscal
year with respect to each non-employee and non-executive director as of December
31, 2011.
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 ($)
--------------------------- ------- ---------- ---------- ------------- ------------- ---------------- ---------
Sakae Torisawa Director -- -- -- -- -- --
Zee Moe Ngiam Director -- -- -- -- -- --
Chua Leong Hin Director -- -- -- -- -- --
Percy Chua Soo Lian Director -- -- -- -- 28,738.28 --
-----------------------
(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.
38
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 1, 2011, a total of 199,990,043 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
former CEO, CFO and Director 22,111,888 (1) & (2) 12.96%
62 Cecil Street #06-00 (Indirect)
TPI Building
Singapore 049710
Sakae Torisawa, Chairman 1,712,808 1.00%
62 Cecil Street #06-00 (Direct)
TPI Building
Singapore 049710
Zee Moey Ngiam, Former Director 0 0%
62 Cecil Street #06-00 (Direct)
TPI Building
Singapore 049710
Chua Leong Hin, CEO, CFO and Director 0
62 Cecil Street #06-00 (Direct) (3) 0%
TPI Building
Singapore 049710
Percy Chua Soo Lian, Director 0
62 Cecil Street #06-00 (Direct) 0%
TPI Building
Singapore 049710
All Directors and Officers 23,824,696 13.96%
As a Group (5 persons)
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.
39
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
See Note 2.15 and Note 11 to the Financial Statements of the Company.
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, 2011 and December 31, 2010.
2011 2010
------------- --------------
Audit fees (1) $ 149,314 $ 162,777
-- --
------------- --------------
Total $ 149,314 $ 162,777
============= ==============
(1) Audit Fees: These are fees paid and payable for
professional services performed for the financial
year ended December 31, 2011 and 2010 by Nexia Court
& Co.,Nexia Tan & Sitoh, Horwath First Trust, Kelvin
Wong & Co and Mendoza, Berger & Co. LLP.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
For the fiscal years ended December 31, 2011 and 2010, there
were no 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, 2011 and 2010, 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.
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*
21.1 Company's Subsidiaries****
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.
**** Previously filed with the Securities and Exchange Commission
on Form 10-K for the fiscal year ended December 31, 2011.
40
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: May 15, 2013
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: May 15, 2013
---------------------- (Principal Executive Officer and
Leong Hin Chua Principal Financial officer)
/s/ Sakae Torisawa Director and Chairman of the Date: May 15, 2013
---------------------- Board of Directors
Sakae Torisawa
/s/ Percy Chua Soo Lian Director Date: May 15, 2013
-----------------------
Percy Chua Soo Lian
41
Amaru,
Inc. and subsidiaries
CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS
ended DECEMBER 31, 2011 and 2010
|
TABLE OF CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS
|
PAGE
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
F-2
|
|
|
|
|
Consolidated Balance Sheets
|
F-
3
|
|
|
|
|
Consolidated Statements of Operations
|
F-
5
|
|
|
|
|
Consolidated Statements of Stockholders' Deficit and Comprehensive Income
|
F-6
|
|
|
|
|
Consolidated Statements of Cash Flows
|
F-8
|
|
|
|
|
Notes to Consolidated Financial Statements
|
F-10
|
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Amaru, Inc.
We have audited the accompanying consolidated balance sheet of Amaru, Inc. and subsidiaries . (the "Company") as of December
31, 2011 and the related consolidated statements of operations, stockholders' deficit and comprehensive income and cash flows
for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our audit. The consolidated financial statements of Amaru,
Inc. and subsidiaries as of December 31, 2010 were audited by other auditors who have ceased operations. Those auditors expressed
a going concern opinion on those financial statements in their report dated April 15, 2011.
We conducted our audit 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
audit 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 audit 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. and Subsidiaries as
of December 31, 2011, and the results of their operations and their 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
as of and for the year ended December 31, 2011 have been prepared assuming the Company will continue as a going concern. As more
fully described in Note 2 to the consolidated financial statements, the Company has sustained accumulated losses from operations
totaling $42,332,752 at December 31, 2011, the Company’s continued losses from operations and the difficulty it has had in
raising adequate additional financing. These conditions and the Company's lack of significant revenue, raise substantial doubt
about the Company’s ability to continue as going concern. Management's plans to address these conditions are also set forth
in Note 2 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.
As discussed in Note 14 to the consolidated financial statements,
the accompanying 2011 consolidated financial statements have been restated.
Wei, Wei & Co., LLP.
/s/ Wei, Wei & Co., LLP
Flushing, New York
May 15, 2013
Amaru,
Inc. and subsidiaries
CONSOLIDATED
BALANCE SHEETS (IN U.S. $)
As
of DECEMBER 31, 2011 and 2010
|
ASSETS
|
|
December 31,
2011
|
|
|
December 31,
2010
|
|
|
|
|
(Restated)
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
219,348
|
|
|
$
|
221,183
|
|
|
Accounts receivable, net of allowance of $261,532 and $262,214 at December 31, 2011 and 2010, respectively
|
|
|
12,885
|
|
|
|
12,295
|
|
|
Equity securities held for trading
|
|
|
584,406
|
|
|
|
617,215
|
|
|
Other current assets
|
|
|
264,332
|
|
|
|
289,623
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,080,971
|
|
|
|
1,140,316
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
39,796
|
|
|
|
348,916
|
|
|
Associate
|
|
|
37
|
|
|
|
37
|
|
|
Investments - net
|
|
|
1,550,503
|
|
|
|
1,843,076
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
1,590,336
|
|
|
|
2,192,029
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
2,671,307
|
|
|
$
|
3,332,345
|
|
See accompanying notes to the consolidated
financial statements.
Amaru,
Inc. and subsidiaries
CONSOLIDATED
BALANCE SHEETS (iN U.S. $)
DECEMBER
31, 2011 and 2010
|
LIABILITIES AND stockholders’ EQUITY
|
|
December 31,
2011
|
|
|
December 31,
2010
|
|
|
|
|
(Restated)
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
1,012,886
|
|
|
$
|
827,750
|
|
|
Advances from related parties
|
|
|
300,465
|
|
|
|
102,682
|
|
|
Capital lease payable – short term
|
|
|
11,974
|
|
|
|
18,745
|
|
|
Convertible term loan
|
|
|
2,500,000
|
|
|
|
2,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
3,825,325
|
|
|
|
3,449,177
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
|
Capital lease payable – long term
|
|
|
15,959
|
|
|
|
24,765
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
3,841,284
|
|
|
|
3,473,942
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
|
|
|
|
|
|
|
Preferred stock (par value $0.001) 25,000,000 shares authorized; 5,081,951 & 0 shares issued and outstanding at December 31, 2011 and 2010, respectively
|
|
|
5,082
|
|
|
|
–
|
|
|
Common stock (par value $0.001) 400,000,000 shares authorized; 194,656,710 and 179,666,062 shares issued and outstanding at December 31, 2011 and 2010, respectively
|
|
|
194,657
|
|
|
|
179,666
|
|
|
Additional paid-in capital
|
|
|
42,565,234
|
|
|
|
41,510,530
|
|
|
Accumulated deficit
|
|
|
(41,322,752
|
)
|
|
|
(39,425,386
|
)
|
|
Accumulated other comprehensive income
|
|
|
968,406
|
|
|
|
968,406
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Amaru Inc.’s stockholders’ equity
|
|
|
2,410,627
|
|
|
|
3,233,216
|
|
|
Noncontrolling interests
|
|
|
(3,580,604
|
)
|
|
|
(3,374,813
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’ (deficit)
|
|
|
(1,169,977
|
)
|
|
|
(141,597
|
)
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT)
|
|
$
|
2,671,307
|
|
|
$
|
3,332,345
|
|
See accompanying notes to the consolidated
financial statements.
amaru,
Inc. and subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
AND OTHER COMPREHENSIVE INCOME (LOSS)
(IN U.S. $)
FOR
THE YEARS ENDED
DECEMBER 31, 2011 and 2010
|
|
|
2011
|
|
|
2010
|
|
|
|
|
(Restated)
|
|
|
|
|
|
|
Revenues
|
|
$
|
4,462
|
|
|
$
|
48,382
|
|
|
Cost of services
|
|
|
(121,555
|
)
|
|
|
(248,573
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Gross (loss)
|
|
|
(117,093
|
)
|
|
|
(200,191
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
Distribution costs
|
|
|
78,592
|
|
|
|
40,450
|
|
|
Bad debts written off
|
|
|
4,471
|
|
|
|
–
|
|
|
Administrative expenses
|
|
|
1,083,142
|
|
|
|
1,263,422
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,166,205
|
|
|
|
1,303,872
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) from operations
|
|
|
(1,283,298
|
)
|
|
|
(1,504,063
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
Interest expenses
|
|
|
(187,396
|
)
|
|
|
(69,534
|
)
|
|
Interest income
|
|
|
104
|
|
|
|
46
|
|
|
Impairment loss on investment
|
|
|
(492,437
|
)
|
|
|
(875,673
|
)
|
|
Equipment written off
|
|
|
(113,635
|
)
|
|
|
–
|
|
|
Net change in fair value of equities held for trading
|
|
|
(32,809
|
)
|
|
|
290,235
|
|
|
Other
|
|
|
6,314
|
|
|
|
12,376
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) before income taxes
|
|
|
(2,103,157
|
)
|
|
|
(2,146,613
|
)
|
|
(Provision) benefit for income taxes
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (Loss)
|
|
|
(2,103,157
|
)
|
|
|
(2,146,613
|
)
|
|
Less: noncontrolling interest
|
|
|
(205,791
|
)
|
|
|
(157,233
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) attributable to common stockholders
|
|
|
(1,897,366
|
)
|
|
|
(1,989,380
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share, basic
|
|
|
(0.011
|
)
|
|
|
(0.013
|
)
|
|
Earnings per share, diluted
|
|
|
(0.011
|
)
|
|
|
(0.013
|
)
|
|
Weighted average shares outstanding , basic
|
|
|
194,151,682
|
|
|
|
171,361,807
|
|
|
Weighted average shares outstanding , diluted
|
|
|
194,151,682
|
|
|
|
171,361,807
|
|
See accompanying notes to the consolidated financial statements.
Amaru, Inc. and subsidiaries
CONSOLIDATED STATEMENT OF
Stockholders’
DEFICIT AND COMPREHENSIVE INCOME (IN U.S. $)
FOR
THE
YEARS
ENDED
DECEMBER
31, 2011 AND 2010
|
|
|
Preferred stock
|
|
|
Common stock
|
|
|
|
|
|
|
|
|
|
|
Number
of shares
|
|
|
Par value ($0.001)
|
|
|
Number of shares
|
|
|
Par value ($0.001)
|
|
|
Additional paid-in capital
|
|
|
Accumulated
deficit
|
|
|
Balance at December 31, 2009
|
|
|
–
|
|
|
$
|
–
|
|
|
|
165,856,168
|
|
|
$
|
165,856
|
|
|
$
|
40,354,672
|
|
|
$
|
(37,436,006
|
)
|
|
Subscribed common stock issued
|
|
|
–
|
|
|
|
–
|
|
|
|
13,809,894
|
|
|
|
13,810
|
|
|
|
1,155,858
|
|
|
|
–
|
|
|
Subscribed preferred stock issued
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Net loss
|
|
|
–
|
|
|
|
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
(1,989,380
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
|
–
|
|
|
$
|
–
|
|
|
|
179,666,062
|
|
|
$
|
179,666
|
|
|
$
|
41,510,530
|
|
|
$
|
(39,425,386
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscribed common Stock issued
|
|
|
–
|
|
|
|
–
|
|
|
|
14,990,648
|
|
|
|
14,991
|
|
|
|
297,593
|
|
|
|
–
|
|
|
Subscribed preferred Stock issued
|
|
|
5,081,951
|
|
|
|
5,082
|
|
|
|
–
|
|
|
|
–
|
|
|
|
757,111
|
|
|
|
–
|
|
|
Net income
|
|
|
–
|
|
|
|
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
(1,897,366
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2011 (Restated)
|
|
|
5,081,951
|
|
|
$
|
5,082
|
|
|
|
194,656,710
|
|
|
$
|
194,657
|
|
|
$
|
42,565,234
|
|
|
$
|
(41,322,752
|
)
|
See accompanying notes to the consolidated financial statements.
Amaru, Inc. and subsidiaries
CONSOLIDATED STATEMENT OF
Stockholders’
DEFICIT AND COMPREHENSIVE INCOME
FOR
THE
YEARS
ENDED
DECEMBER
31, 2011 AND 2010
|
|
|
Accumulated other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation reserve
|
|
|
Fair value reserve
|
|
|
Minority interest
|
|
|
Total shareholders’ equity
|
|
|
Balance at December 31, 2009
|
|
$
|
12,927
|
|
|
$
|
955,479
|
|
|
$
|
(3,217,580
|
)
|
|
$
|
835,348
|
|
|
Subscribed common stock issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscribed preferred stock Issued
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,169,668
|
|
|
Net loss
|
|
|
–
|
|
|
|
|
|
|
|
(157,233
|
)
|
|
|
(2,146,613
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
$
|
12,927
|
|
|
$
|
955,479
|
|
|
$
|
(3,374,813
|
)
|
|
$
|
(141,597
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscribed common Stock issued
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
312,584
|
|
|
Subscribed preferred Stock issued
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
762,193
|
|
|
Net income
|
|
|
–
|
|
|
|
|
|
|
|
(205,791
|
)
|
|
|
(2,103,157
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2011 (Restated)
|
|
$
|
12,927
|
|
|
$
|
955,479
|
|
|
$
|
(3,580,604
|
)
|
|
$
|
(1,169,977
|
)
|
See accompanying notes to the consolidated financial statements.
Amaru,
Inc. and subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN U.S. $)
FOR
THE
YEARS
ENDED
DECEMBER
31, 2011 and 2010
|
|
|
2011
|
|
|
2010
|
|
|
|
|
(Restated)
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
Net (loss)
|
|
$
|
(2,103,157
|
)
|
|
$
|
(2,146,613
|
)
|
|
Adjustment to reconcile net income to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
–
|
|
|
|
70,301
|
|
|
Depreciation
|
|
|
200,718
|
|
|
|
304,567
|
|
|
Bad debts expense
|
|
|
4,471
|
|
|
|
–
|
|
|
Equipment written off
|
|
|
110,890
|
|
|
|
–
|
|
|
Impairment loss on investment
|
|
|
292,573
|
|
|
|
875,673
|
|
|
Net change in fair value of equities held for trading
|
|
|
32,809
|
|
|
|
(290,235
|
)
|
|
Change in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
(Increase) in accounts receivable
|
|
|
(590
|
)
|
|
|
(12,295
|
)
|
|
Decrease (increase) in other current assets
|
|
|
20,820
|
|
|
|
(102,492
|
)
|
|
Increase (decrease) in accounts payable
|
|
|
185,136
|
|
|
|
(88,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) operating activities
|
|
|
(1,256,330
|
)
|
|
|
(1,389,494
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
Acquisition of equipment
|
|
|
(2,489
|
)
|
|
|
(10,523
|
)
|
|
Acquisition of intangible assets
|
|
|
–
|
|
|
|
(3,097
|
)
|
|
Acquisition of associate
|
|
|
–
|
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) investing activities
|
|
|
(2,489
|
)
|
|
|
(13,657
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
Receipts from disposal of investment
|
|
|
197,783
|
|
|
|
102,682
|
|
|
Repayment of obligation under capital lease
|
|
|
(15,576
|
)
|
|
|
(4,493
|
)
|
|
Issuance of common stock for cash
|
|
|
312,584
|
|
|
|
1,169,668
|
|
|
Issuance of preferred stock for cash
|
|
|
762,193
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
1,256,984
|
|
|
|
1,267,857
|
|
See accompanying notes to the consolidated
financial statements.
Amaru,
Inc. and subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR
THE
YEARS
ENDED
DECEMBER
31, 2011 and 2010
|
|
|
DECEMBER 31, 2011
|
|
|
DECEMBER 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used
|
|
|
(1,835
|
)
|
|
|
(135,294
|
)
|
|
Cash and cash equivalents at beginning of period
|
|
|
221,183
|
|
|
|
356,477
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
219,348
|
|
|
$
|
221,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
–
|
|
|
$
|
2,330
|
|
See accompanying notes to the consolidated
financial statements.
AMARU, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2011 AND 2010
1. ORGANIZATION
Amaru, Inc. and Subsidiaries (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 license has been suspended.
The key business focus of the company is
to establish itself as the 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.
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; channel/portal development
(digital programming services); content aggregation and syndication; broadband consulting services; broadband hosting and streaming
services; on-line dealerships and pay per view services.
AMARU, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2011 AND 2010
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of accounting and presentation
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 Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) Section 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.
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 contemplates continuation of the Company as a going concern. The Company has sustained. The Company has an accumulated deficit
of $41,322,752 and $39,425,386 at December 31 2011 and 2010, respectively. The Company also has a working capital deficit of $2,744,354
and $2,308,861 at December 31, 2011 and 2010, respectively. The Company has had difficulty in rising adequate additional funding.
The items discussed above raise substantial
doubt about the Company's to continue as a going concern. The Company will 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 returning to profitable operations, 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.
AMARU, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2011 AND 2010
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
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.
Use of estimates
The preparation of financial
statements in conformity with accounting principles generally accepted in the United States of America requires management to
make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Cash and cash equivalents
The Company considers all demand and time
deposits and all highly liquid investments with an original maturity of three months or less as of the date of purchase to be cash
equivalents.
Accounts receivable
Accounts receivable is stated at cost,
net of an allowance for doubtful accounts, if required. Receivables outstanding longer than the payment terms are considered past
due. The Company maintains an allowance for doubtful accounts for estimated losses when necessary resulting from the failure of
customers to make required payments. The Company reviews the accounts receivable on a periodic basis and makes allowances where
there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances,
the Company considers many factors, including the age of the balance, the customer’s payment history, its current credit-worthiness
and current economic trends.
AMARU, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2011 AND 2010
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
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.
Inventory
Inventories are carried at the lower of cost or and net realizable
value. Cost is calculated using the 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.
Property and equipment
Property, plant and equipment are
recorded at cost, less accumulated depreciation. Cost includes the price paid to acquire or construct the asset, including
capitalized interest during the construction period, and any expenditures that substantially increase the assets value or
extend the useful life of an existing asset. Depreciation is computed using the straight-line method over the estimated
useful lives of the assets. Major repairs and betterments that significantly extend original useful lives or improve
productivity are capitalized and depreciated over the periods benefited. Maintenance and repairs are generally expensed as
incurred. The estimated useful lives of the assets range from 3 to 5 years.
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.
AMARU, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2011 AND 2010
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
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 $19,166,406, as reflected Note 7.
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.
Associate
An associate is an entity over which the
Company 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 associates are incorporated in these financial statements using the equity method of accounting. Under the equity method, investments
in associates are carried in the consolidated balance sheets at cost as adjusted for post-acquisition changes in the Company's
share of the net assets of the associate, less any impairment in the value of individual investments. Losses of an associate in
excess of the group's interest in that associate (which includes any long-term interests that, in substance, form part of the Company's
net investment in the associate) are not recognized, unless the group has incurred legal or constructive obligations or made payments
on behalf of the associate.
AMARU, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2011 AND 2010
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
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 associate recognized
at the date of acquisition is recognized 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 recognized immediately in the
consolidated profit and loss statement of operations, the Company currently has no goodwill related to associates.
Where a consolidated entity transacts with an associate, profits
and losses are eliminated to the extent of the group's interest in the relevant associate.
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. In accordance with ASC Section 323, results and assets and liabilities of Equity Method Investments
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 recognized, 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 recognized 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 recognized
immediately in the consolidated profit and loss statement.
Where a consolidated entity transacts with an Equity Method
Investee of the group, profits and losses are eliminated to the extent of the consolidated interest in the relevant Equity Method
Investments.
AMARU, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2011 AND 2010
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
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 "Accounting for Certain Investments in Debt and Equity Securities". Equity
securities held for trading as of December 31, 2011 and 2010 were $584,406, and $617,215, respectively. The changes relates to
an unrealized loss of $32,809 and gain of $290,235, for December 31, 2011 and 2010, respectively.
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 operations.
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 investments for impairments at least annually. An impairment is booked when there is an other-than-temporary difference
between the carrying amount and the fair value of the investment that would result in a loss.
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 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.
AMARU, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2011 AND 2010
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
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 Inputs – Unadjusted quoted
market prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2 Inputs – Quoted prices in
markets that not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset
or liability.
Level 3 Inputs – 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).
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, 2011:
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Level 4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities held for trading
|
|
$
|
584,406
|
|
|
$
|
584,406
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
|
|
$
|
584,406
|
|
|
$
|
584,406
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
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.
AMARU, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2011 AND 2010
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
|
|
|
2011
|
|
|
2012
|
|
|
|
|
Cost
|
|
|
Fair value
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Cash and cash equivalents
|
|
$
|
219,348
|
|
|
$
|
219,348
|
|
|
$
|
221,183
|
|
|
$
|
221,183
|
|
|
Equity securities held for trading
|
|
|
584,406
|
|
|
|
584,406
|
|
|
|
617,215
|
|
|
|
617,215
|
|
|
Other current assets
|
|
|
264,332
|
|
|
|
264,332
|
|
|
|
289,623
|
|
|
|
289,623
|
|
|
Investments
|
|
|
2,718,749
|
|
|
|
1,550,503
|
|
|
|
2,718,749
|
|
|
|
1,843,076
|
|
|
Advances from related parties
|
|
|
300,465
|
|
|
|
300,465
|
|
|
|
102,682
|
|
|
|
102,682
|
|
|
Capital lease payable
|
|
|
27,933
|
|
|
|
27,933
|
|
|
|
43,510
|
|
|
|
43,510
|
|
|
Convertible term loan
|
|
|
2,500,000
|
|
|
|
2,500,000
|
|
|
|
2,500,000
|
|
|
|
2,500,000
|
|
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 fair value as of December 31 2011 and 2010 were $1,550,503 and $1,726,940,
respectively, in the consolidated balance sheets. 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 as of December 31 2011 and 2010 were
$0 and $116,136, respectively. In 2011, all investments were classified as long term with $1,550,503 as its fair value.
Advances from related party
Advances from a director and related party
of $300,465 at December 31, 2011 are unsecured, non-interest bearing and payable on demand.
AMARU, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2011 AND 2010
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Leases
The Company is the lessee of equipment
under a capital lease expiring in 2014. The assets and liabilities under capital leases are recorded the lower of the present value
of the minimum lease
payments or the fair value of the asset.
The assets are amortized over the lesser of their related lease terms or their estimated productive lives. Amortization of assets
under capital leases is included in depreciation expense for the years ended December 31, 2011 and 2010.
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 the balance sheet date and the statements of operations 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.
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 a 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.
AMARU, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2011 AND 2010
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
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.
Costs of services
The cost of services pertaining to advertising
and sponsorship revenue and subscription and related services is the 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 they were incurred.
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.
AMARU, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2011 AND 2010
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
The Company files income tax returns in
the United States Federal jurisdiction and certain states in the United States and certain other foreign 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 2008 and 2007, respectively. The Company is not currently subject to any income tax examinations by any tax authority.
Earnings (loss) per share
The Company computes net income (loss)
per common share in accordance with FASB ASC 260, “Earnings Per Share” (“ASC 260”) and SEC SAB 98. Under
the provisions of ASC 260 and SAB 98, basic net income (loss) per common share is computed by dividing the amount available to
common shareholders by the weighted average number of shares of common stock outstanding during the period. Diluted income per
common share is computed by dividing the amount available to common shareholders by the weighted average number of shares of common
stock outstanding plus the effect of any dilutive shares outstanding during the period. No dilutive shares are included if there
is a loss because their inclusion would be antidilutive. The Company has no common stock equivalents, which would dilute earnings
per share.
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 due to their short term nature. 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.
Advertising
The cost of advertising is expensed as
incurred. For the year ended December 31, 2011 and 2010, the Company incurred advertising expenses of $9,341 and $7,011 respectively.
AMARU, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2011 AND 2010
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Reclassifications
Certain amounts in the previous periods
presented have been reclassified to conform to the current year financial statement presentation.
3. RECENTLY ISSUED ACCOUNTING STANDARDS
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 Topic810.
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 did not permitted. The
provisions of ASU 2010-10 is not expected to have an impact on the Company's financial statements.
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 nboth 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.
AMARU, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2011 AND 2010
3. RECENTLY ISSUED ACCOUNTING STANDARDS
(continued)
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.
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 did not have an impact on the Company's financial statements.
AMARU, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2011 AND 2010
3. RECENTLY ISSUED ACCOUNTING STANDARDS
(continued)
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 Company’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 2011, the FASB issued ASU No.
2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications
of Items Out of Accumulated Other Comprehensive
Income in Accounting Standards Update No. 2011-05. The amendments of this ASU are effective at the same time as the amendments
in ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income, so that entities will not be required
to comply with the presentation requirements in ASU No. 2011-05 that ASU No. 2011-12 is deferring. All other requirements in ASU
No. 2011-05 are not affected by ASU No. 2011-12, including the requirement to report comprehensive income either in a single continuous
financial statement or in two separate but consecutive financial statements. Public entities should apply these requirements for
fiscal years, and interim periods within those years, beginning after December 15, 2011. Nonpublic entities should begin applying
these requirements for fiscal years ending after December 15, 2012, and interim and annual periods thereafter. The Company is currently
assessing the impact that the adoption will have on its financial statements.
AMARU, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2011 AND 2010
3. RECENTLY ISSUED ACCOUNTING STANDARDS
(continued)
In December 2011, the FASB issued ASU No.
2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. Offsetting, otherwise known as netting,
is the presentation of assets and liabilities as a single net amount in the statement of financial position (balance sheet). Unlike
IFRS, U.S. GAAP allows companies the option to present net in their balance sheets derivatives that are subject to a legally enforceable
netting arrangement with the same party where rights of set-off are only available in the event of default or bankruptcy. To address
these differences between IFRS and U.S. GAAP, in January 2011 the FASB and the IASB (the Boards) issued an exposure draft that
proposed new criteria for netting that were narrower than the current conditions currently in U.S. GAAP. Nevertheless, in response
to feedback from their respective stakeholders, the Boards decided to retain their existing offsetting models. Instead, the Boards
have issued common disclosure requirements related to offsetting arrangements to allow investors to better compare financial statements
prepared in accordance with IFRS or U.S. GAAP. ASU related arrangements to enable users of its financial statements to understand
the effect of those arrangements on its financial position. An entity is required to apply the amendments for annual reporting
periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures
required by those amendments retrospectively for all comparative periods presented. The Company is currently assessing the impact
that the adoption will have on its financial statements.
In June 2011, the FASB issued Accounting
Standards Update No. 2011-05, "Presentation of Comprehensive Income" ("ASU No. 2011-05"), which improves the
comparability, consistency, and transparency of financial reporting and increases the prominence of items reported in other comprehensive
income ("OCI") by eliminating the option to present components of OCI as part of the statement of changes in stockholders'
equity. The amendments in this standard require that all nonowner changes in stockholders' equity be presented either in a single
continuous statement of comprehensive income or in two separate but consecutive statements. Subsequently in
December 2011, the FASB issued Accounting
Standards Update No. 2011-12, "Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of
Items Out of Accumulated Other Comprehensive Income" ("ASU No. 2011-12"), which indefinitely defers the requirement
in ASU No. 2011-05 to present on the face of the financial statements reclassification adjustments for items that are reclassified
from OCI to net income in the statement(s) where the components of net income and the components of OCI are presented. The amendments
in these standards do not change the items that must be reported in OCI, when an item of OCI must be reclassified to net income,
or change the option for an entity to present components of OCI gross or net of the effect of income taxes. The amendments in
ASU No. 2011-05 and ASU No. 2011-12 are effective for interim and annual periods beginning after December 15, 2011 and are to
be applied retrospectively. The adoption of the provisions of ASU No. 2011-05 and ASU No. 2011-12 did not have a material impact
on the Company's financial statements.
AMARU, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2011 AND 2010
3. RECENTLY ISSUED ACCOUNTING STANDARDS
(continued)
In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement
(Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This ASU represents
the converged guidance of the FASB and the IASB (the Boards) on fair value measurement. The collective efforts of the Boards and
their staffs, reflected in ASU 2011-04, have resulted in common requirements for measuring fair value and for disclosing information
about fair value measurements, including a consistent meaning of the term "fair value." The Boards have concluded the
common requirements will result in greater comparability of fair value measurements presented and disclosed in financial statements
prepared in accordance with U.S. GAAP and IFRSs. The amendments to the FASB Accounting Standards Codification (Codification) in
this ASU are to be applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning
after December 15, 2011. Early application by public entities is not permitted. The Company is currently assessing the impact that
the adoption will have on its financial statements.
4. EQUITY SECURITIES HELD FOR TRADING
INVESTMENT
|
|
|
DECEMBER 31, 2011
|
|
|
DECEMBER 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted equity security, at fair value.
|
|
$
|
584,406
|
|
|
$
|
617,215
|
|
The fair value of the quoted security is
based on the quoted closing market price as of December 31, 2011 and 2010. The investment in the quoted equity security at fair
value includes a loss of $32,809 for the year ended December 31, 2011 and a gain of $290,235 for the year ended December 31, 2010.
The Company's equity securities held for
trading investment is denominated in Indonesian Ruppiah.
5. OTHER CURRENT ASSETS
Other current assets consist of the following:
|
|
|
DECEMBER 31, 2011
|
|
|
DECEMBER 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepayments
|
|
$
|
47,026
|
|
|
$
|
59,454
|
|
|
Deposits
|
|
|
29,808
|
|
|
|
54,303
|
|
|
Other receivables
|
|
|
187,498
|
|
|
|
175,866
|
|
|
|
|
$
|
264,332
|
|
|
$
|
289,623
|
|
AMARU, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2011 AND 2010
6. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
|
|
|
DECEMBER 31, 2011
|
|
|
DECEMBER 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Office equipment
|
|
$
|
925,910
|
|
|
$
|
1,034,311
|
|
|
Motor vehicles
|
|
|
91,190
|
|
|
|
91,190
|
|
|
Furniture, fixture and fittings
|
|
|
87,082
|
|
|
|
87,082
|
|
|
Pony set-top boxes
|
|
|
843,946
|
|
|
|
843,946
|
|
|
|
|
|
1,948,128
|
|
|
|
2,056,529
|
|
|
Accumulated depreciation
|
|
|
(1,908,332
|
)
|
|
|
(1,707,613
|
)
|
|
|
|
$
|
39,796
|
|
|
$
|
348,916
|
|
Depreciation expense was $200,718 for the
year ended December 31, 2011 and $304,567 for the year ended December 31 2010.
7. FILM LIBRARY
Film library consist of the following:
|
|
|
DECEMBER 31, 2011
|
|
|
DECEMBER 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired film library
|
|
$
|
23,686,731
|
|
|
$
|
23,686,731
|
|
|
Accumulated amortization
|
|
|
(4,520,325
|
)
|
|
|
(4,521,949
|
)
|
|
|
|
|
19,166,406
|
|
|
|
19,164,782
|
|
|
Impairment of film library
|
|
|
(19,166,406
|
)
|
|
|
(19,164,782
|
)
|
|
Film library
|
|
$
|
–
|
|
|
$
|
–
|
|
Amortization expense was $0 for the year ended December
31, 2011 and $3,097 for the year ended December 31, 2010 respectively.
AMARU, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2011 AND 2010
8. INTANGIBLE ASSETS
Intangible assets consist of the following:
|
|
|
DECEMBER 31, 2011
|
|
|
DECEMBER 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
|
|
(1,974,328
|
)
|
|
|
|
|
5,847,541
|
|
|
|
5,847,541
|
|
|
Impairment loss
|
|
|
(5,847,541
|
)
|
|
|
(5,847,541
|
)
|
|
|
|
$
|
–
|
|
|
$
|
–
|
|
Amortization expense was $0 for the year
ended December 31, 2011 and 2010, Respectively.
9. INVESTMENTS - NET
Investments held at cost consist of the following:
|
|
|
DECEMBER 31, 2011
|
|
|
DECEMBER 31, 2010
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
Unquoted securities
|
|
$
|
–
|
|
|
$
|
–
|
|
|
|
|
|
–
|
|
|
|
–
|
|
|
Non-current:
|
|
|
|
|
|
|
|
|
|
Unquoted securities
|
|
|
–
|
|
|
|
116,136
|
|
|
Unquoted securities
|
|
|
1,550,503
|
|
|
|
1,726,940
|
|
|
|
|
$
|
1,550,503
|
|
|
$
|
1,843,076
|
|
The Company's $116,136 investment held
at cost relates to its investment in M2B Game World Pte Ltd. Management review this investment and has totally impaired its investment
for the years ended December 31, 2011.
AMARU, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2011 AND 2010
9. INVESTMENTS – NET (continued)
The Company's $2,602,613 investment at
cost operates in Cambodia. During the year ended 2010, the Company decided to hold this investment for a period greater than one
year and as such has reclassified it to long term. This investment is subject to numerous risks, including:
-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 reported an impairment loss of $492,437 and $875,673 for the years ended December 31, 2011 and 2010,respectively.
10. COMMITMENTS
Capital Leases
The Company leases equipment under capital
leases expiring in various years through 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. Depreciation of assets under capital leases is included in depreciation expense
for 2011 and 2010. Interest rates on capitalized leases is fixed at 2.85%.
The following summarizes the Company's
capital lease obligations at December 31, 2011:
|
|
|
DECEMBER 31, 2011
|
|
|
DECEMBER 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Future minimum lease payments
|
|
$
|
33,508
|
|
|
$
|
51,682
|
|
|
Less: amount representing interest
|
|
|
(5,575
|
)
|
|
|
(8,172
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Present value of net minimum lease payments
|
|
|
27,933
|
|
|
|
43,510
|
|
|
Less: current potion
|
|
|
(11,974
|
)
|
|
|
(18,745
|
)
|
|
|
|
$
|
15,959
|
|
|
$
|
24,765
|
|
AMARU, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2011 AND 2010
10. COMMITMENTS (continued)
At December 31, 2011, total future minimum
lease commitments under such leases are as follows:
|
Year Ending December 31,
|
|
Amount
|
|
|
|
|
|
|
2012
|
|
$
|
11,974
|
|
2013
|
|
|
11,974
|
|
2014
|
|
|
3,986
|
|
|
|
$
|
27,934
|
Operating Leases
The Company leases facilities and equipment
under operating leases expiring through 2013. Total rental expense on operating leases for the year ended December 31, 2011 and
2010 was $106,554 and $185,391, respectively. The Company leases one of its offices at a monthly rental of approximately $9,200
under an operating lease which expired on August 14. As of December 31, 2011, the future minimum lease payments are as follows:
|
For the year ended
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2012
|
|
$
|
110,837
|
|
2013
|
|
$
|
110,837
|
|
2014
|
|
$
|
69,273
|
|
|
|
$
|
290,947
|
11. INCOME TAXES
The Company files separate tax returns
for Singapore and the United States of America.
The Company had approximately $4,575,000
in deferred tax assets as of December 31, 2011 and provided a valuation allowance of $4,575,000 as of December 31, 2011.
The Company had available approximately
$8,200,000 of unused U.S. net operating loss carry-forwards at December 31, 2011, 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.
AMARU, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2011 AND 2010
11. INCOME TAXES (continued)
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, 2011 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
$9,530,000 of unused Singapore tax losses and capital allowance carry-forwards at December 31, 2011, 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 2008 and 2007, 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.
12. LOAN AND BORROWINGS
|
|
|
DECEMBER 31, 2011
|
|
|
DECEMBER 31, 2010
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
Convertible loan
|
|
$
|
2,500,000
|
|
|
$
|
2,500,000
|
|
|
|
|
$
|
2,500,000
|
|
|
$
|
2,500,000
|
|
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 was July 7, 2010. The conversion period of the convertible
loan was extended for an additional twelve months commencing July 8, 2010 and was further extended to November 30, 2011. Subsequent
to December 31, 2011, M2B World Asia Pacific Pte. Ltd. is negotiating to obtain further extension to June 29, 2012 on the convertible
loan.
AMARU, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2011 AND 2010
13. SUBSEQUENT EVENTS
The following subsequent events have occurred
through the filing date of this report, May 15, 2013.
As of March 16, 2012, the Company issued
a total of 424,968 shares of preferred stock through its private placement of shares of Series B Convertible Preferred Stock at
a purchase price of $0.15 per share for a total amount of $63,745, to an "accredited investor", as that term is defined
in Regulation D of the Securities Act of 1933. Each share of Series B Convertible Preferred Stock is convertible into ten (10)
shares of common stock
Management evaluated all activity of the
Company and concluded that there were no other subsequent events to disclose.
14.
Restatement of Consolidated Financial Statements
In May 2013, management become aware that
prior auditor pull off their opinion of financial position of Amaru Inc. and subsidiaries as of December 31 2011.
The Company has restated the accompanying
consolidated balance sheet and the related consolidated statements of income and other comprehensive income (loss), stockholders’
equity as of and for the December 31, 2011. The following discloses each line item on the Company’s consolidated financial
statements, as previously reported, as of and for the period noted, the increase (decrease)in each line item on the Company’s
consolidated financial statements as a result of the restatement, and each line item on the Company’s consolidated financial
statements as restated.
AMARU, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2011 AND 2010
Consolidated Balance Sheet
|
|
|
December 31, 2011
|
|
|
|
|
(Unaudited)
|
|
|
|
|
U.S.$
|
|
|
|
|
As Previously
Reported
|
|
|
Effect of
Restatement
|
|
|
Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
219,348
|
|
|
|
–
|
|
|
|
219,348
|
|
|
Accounts receivable, net of allowance of $261,532 and $262,214 at December 31, 2011 and 2010, respectively
|
|
|
12,885
|
|
|
|
–
|
|
|
|
12,885
|
|
|
Equity securities held for trading
|
|
|
584,406
|
|
|
|
|
|
|
|
584,406
|
|
|
Other current assets
|
|
|
166,782
|
|
|
|
97,550
|
|
|
|
264,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
983,421
|
|
|
|
97,550
|
|
|
|
1,080,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
39,797
|
|
|
|
(1
|
)
|
|
|
39,796
|
|
|
Associate
|
|
|
37
|
|
|
|
–
|
|
|
|
37
|
|
|
Investments - net
|
|
|
1,843,076
|
|
|
|
(292,573
|
)
|
|
|
1,550,503
|
|
|
Total non-current assets
|
|
|
1,882,910
|
|
|
|
(292,574
|
)
|
|
|
1,590,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
|
2,866,331
|
|
|
|
(195,024
|
)
|
|
|
2,671,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
816,641
|
|
|
$
|
196,245
|
|
|
$
|
1,012,886
|
|
|
Advances from related parties
|
|
|
100,465
|
|
|
|
200,000
|
|
|
|
300,465
|
|
|
Capital lease payable – short term
|
|
|
11,974
|
|
|
|
–
|
|
|
|
11,974
|
|
|
Convertible term loan
|
|
|
2,500,000
|
|
|
|
–
|
|
|
|
2,500,000
|
|
|
|
|
|
|
|
|
|
–
|
|
|
|
|
|
|
Total current liabilities
|
|
|
3,429,080
|
|
|
|
396,245
|
|
|
|
3,825,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities
|
|
|
|
|
|
|
–
|
|
|
|
|
|
|
Capital lease payable – long term
|
|
|
15,960
|
|
|
|
(1
|
)
|
|
|
15,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
3,445,040
|
|
|
|
396,244
|
|
|
|
3,841,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
|
|
|
|
–
|
|
|
|
|
|
|
Preferred stock (par value $0.001) 25,000,000 shares authorized; 5,081,951 & 0 shares issued and outstanding at December 31, 2011 and 2010, respectively
|
|
|
5,082
|
|
|
|
–
|
|
|
|
5,082
|
|
|
Common stock (par value $0.001) 400,000,000 Shares authorized; 194,656,710
and 179,666,062 shares issued and outstanding at December 31, 2011 and 2010, respectively
|
|
|
194,657
|
|
|
|
–
|
|
|
|
194,657
|
|
|
Additional paid-in capital
|
|
|
42,565,234
|
|
|
|
–
|
|
|
|
42,565,234
|
|
|
Accumulated deficit
|
|
|
(40,757,707
|
)
|
|
|
(565,045
|
)
|
|
|
(41,322,752
|
)
|
|
Accumulated other comprehensive income
|
|
|
968,406
|
|
|
|
–
|
|
|
|
968,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Amaru Inc.’s stockholders’ equity
|
|
|
2,975,672
|
|
|
|
(565,045
|
)
|
|
|
2,410,627
|
|
|
Noncontrolling interests
|
|
|
(3,554,381
|
)
|
|
|
(26,223
|
)
|
|
|
(3,580,604
|
)
|
|
|
|
|
|
|
|
|
–
|
|
|
|
|
|
|
Total stockholders’ (deficit)
|
|
|
(578,709
|
)
|
|
|
(591,268
|
)
|
|
|
(1,169,977
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT)
|
|
$
|
2,866,331
|
|
|
$
|
(195,024
|
)
|
|
$
|
2,671,307
|
|
AMARU, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2011 AND 2010
Consolidated Statement of Income and
Other Comprehensive Income (Loss)
|
|
|
For the year ended December 31, 2011
(Unaudited)
|
|
|
|
|
U.S.$
|
|
|
|
|
As Previously
Reported
|
|
|
Effect of
Restatement
|
|
|
Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
4,462
|
|
|
$
|
–
|
|
|
$
|
4,462
|
|
|
Cost of services
|
|
|
(121,555
|
)
|
|
|
–
|
|
|
|
(121,555
|
)
|
|
Gross (loss)
|
|
|
(117,093
|
)
|
|
|
–
|
|
|
|
(117,093
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution costs
|
|
|
78,592
|
|
|
|
|
|
|
|
78,592
|
|
|
Bad debts written off
|
|
|
80,337
|
|
|
|
(75,866
|
)
|
|
|
4,471
|
|
|
Administrative expenses
|
|
|
1,095,977
|
|
|
|
(12,835
|
)
|
|
|
1,083,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,254,906
|
|
|
|
(88,701
|
)
|
|
|
1,166,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) from operations
|
|
|
(1,371,999
|
)
|
|
|
88,701
|
|
|
|
(1,283,298
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expenses
|
|
|
(2,609
|
)
|
|
|
(184,787
|
)
|
|
|
(187,396
|
)
|
|
Interest income
|
|
|
104
|
|
|
|
–
|
|
|
|
104
|
|
|
Impairment loss on investment
|
|
|
–
|
|
|
|
(492,437
|
)
|
|
|
(492,437
|
)
|
|
Equipment written off
|
|
|
(110,890
|
)
|
|
|
(2,745
|
)
|
|
|
(113,635
|
)
|
|
Net change in fair value of equities held for trading
|
|
|
(32,809
|
)
|
|
|
–
|
|
|
|
(32,809
|
)
|
|
Other
|
|
|
6,314
|
|
|
|
–
|
|
|
|
6,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) before income taxes
|
|
|
(1,511,889
|
)
|
|
|
(591,268
|
)
|
|
|
(2,103,157
|
)
|
|
(Provision) benefit for income taxes
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (Loss)
|
|
$
|
(1,511,889
|
)
|
|
$
|
(591,268
|
)
|
|
$
|
(2,103,157
|
)
|
|
Less: noncontrolling interest
|
|
|
(179,568
|
)
|
|
|
(26,223
|
)
|
|
|
(205,791
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) attributable to common stockholders
|
|
$
|
(1,332,321
|
)
|
|
$
|
(565,045
|
)
|
|
$
|
(1,897,366
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share, basic
|
|
|
(0.008
|
)
|
|
|
(0.003
|
)
|
|
|
(0.011
|
)
|
|
Earnings per share, diluted
|
|
|
(0.008
|
)
|
|
|
(0.003
|
)
|
|
|
(0.011
|
)
|
|
Weighted average shares outstanding , basic
|
|
|
194,151,682
|
|
|
|
–
|
|
|
|
194,151,682
|
|
|
Weighted average shares outstanding , diluted
|
|
|
194,151,682
|
|
|
|
–
|
|
|
|
194,151,682
|
|
AMARU, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2011 AND 2010
Consolidated Statement of Cash Flows
|
|
|
For the year ended 31, 2011
(Unaudited)
|
|
|
|
|
U.S.$
|
|
|
|
|
As Previously
Reported
|
|
|
Effect of
Restatement
|
|
|
Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)
|
|
$
|
(1,511,889
|
)
|
|
$
|
(591,268
|
)
|
|
$
|
(2,103,157
|
)
|
|
Adjustment to reconcile net income to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Depreciation
|
|
|
200,718
|
|
|
|
–
|
|
|
|
200,718
|
|
|
Bad debts expense
|
|
|
80,337
|
|
|
|
(75,866
|
)
|
|
|
4,471
|
|
|
Equipment written off
|
|
|
110,890
|
|
|
|
–
|
|
|
|
110,890
|
|
|
Impairment loss on investment
|
|
|
–
|
|
|
|
292,573
|
|
|
|
292,573
|
|
|
Net change in fair value of equities held for trading
|
|
|
32,809
|
|
|
|
–
|
|
|
|
32,809
|
|
|
Change in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) in accounts receivable
|
|
|
(590
|
)
|
|
|
–
|
|
|
|
(590
|
)
|
|
Decrease (increase) in other current assets
|
|
|
42,504
|
|
|
|
(21,684
|
)
|
|
|
20,820
|
|
|
Increase (decrease) in accounts payable
|
|
|
(11,109
|
)
|
|
|
196,245
|
|
|
|
185,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) operating activities
|
|
|
(1,056,330
|
)
|
|
|
(200,000
|
)
|
|
|
(1,256,330
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of equipment
|
|
|
(2,489
|
)
|
|
|
–
|
|
|
|
(2,489
|
)
|
|
Acquisition of intangible assets
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Acquisition of associate
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) investing activities
|
|
|
(2,489
|
)
|
|
|
–
|
|
|
|
(2,489
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payable to related parties
|
|
|
(2,217
|
)
|
|
|
2,217
|
|
|
|
–
|
|
|
Receipts from disposal of investment
|
|
|
–
|
|
|
|
197,783
|
|
|
|
197,783
|
|
|
Repayment of obligation under capital lease
|
|
|
(15,576
|
)
|
|
|
–
|
|
|
|
(15,576
|
)
|
|
Issuance of common stock for cash
|
|
|
312,584
|
|
|
|
–
|
|
|
|
312,584
|
|
|
Issuance of preferred stock for cash
|
|
|
762,193
|
|
|
|
–
|
|
|
|
762,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
1,056,984
|
|
|
|
200,000
|
|
|
|
1,256,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used
|
|
|
(1,835
|
)
|
|
|
–
|
|
|
|
(1,835
|
)
|
|
Cash and cash equivalents at beginning of period
|
|
|
221,183
|
|
|
|
–
|
|
|
|
221,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
219,348
|
|
|
$
|
–
|
|
|
$
|
219,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
Amaru (CE) (USOTC:AMRU)
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