-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OP9OMUeD0b7P2ZyX8UjkDOFMj95V0J4p9RO4ubl+ve78Z0yZSVezlh+rPQIX92yQ Aq4tgh6PkmJJjcUuKdDvsg== 0001019687-08-001471.txt : 20080402 0001019687-08-001471.hdr.sgml : 20080402 20080401175840 ACCESSION NUMBER: 0001019687-08-001471 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20071231 FILED AS OF DATE: 20080402 DATE AS OF CHANGE: 20080401 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMARU INC CENTRAL INDEX KEY: 0001139822 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 880490089 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-32695 FILM NUMBER: 08730669 BUSINESS ADDRESS: STREET 1: 120 NEWPORT CENTER DRIVE STREET 2: SUITE 200 CITY: NEWPORT BEACH STATE: CA ZIP: 92660 BUSINESS PHONE: 9497606832 MAIL ADDRESS: STREET 1: 120 NEWPORT CENTER DRIVE STREET 2: SUITE 200 CITY: NEWPORT BEACH STATE: CA ZIP: 92660 10-K 1 amaru_10k-123107.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 __________________________ 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, 2007 |_| 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: 0-28560 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.) 112 MIDDLE ROAD, #08-01 MIDLAND HOUSE, SINGAPORE 188970 (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE : (011) (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 |X| Non-accelerated filer |_| Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X| As of March 14, 2008, 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 14, 2008 at $0.09 per share was $12,188,534.85. The number of shares outstanding of registrant's common stock, $0.001 par value per share, was 159,431,861 as of March 14, 2008. TABLE OF CONTENTS Page -------------- PART I Item 1 Business 1 Item 1A Risk Factors 12 Item 1B Unresolved Staff Comments 15 Item 2 Properties 15 Item 3 Legal Proceedings 16 Item 4 Submission of Matters to a Vote of Security Holders 16 PART II Item 5 Market for registrant's Common Equity, Related Stockholder Mattes 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 Operation 20 Item 7A Quantitative and Qualitative Disclosures About Market Risk 31 Item 8 Financial Statements and Supplementary Data 34 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 34 Item 9A Controls and Procedures 34 Item 9B Other Information 36 PART III Item 10 Directors and Executive Officers and Corporate Governance 36 Item 11 Executive Compensation 39 Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 42 Item 13 Certain Relationships and Related Transactions, and Director Independence 43 Item 14 Principal Accounting Fees and Services 44 PART IV Item 15 Exhibits and Financial Statement Schedules 45 Signatures Certification of CFO and CFO Section 1350 Certification
PART I ITEM 1: DESCRIPTION OF BUSINESS BACKGROUND Amaru, Inc. (the "Company" or "Amaru") through its subsidiaries under the M2B and WOWtv brand names, is in the Broadband Media Entertainment business, providing interactive Entertainment-on-demand and e-commerce streaming over Broadband channels, Internet portals, and 3G devices globally. The Company's entertainment sites are available via its main website of www.amaruinc.com. The Company was incorporated under the laws of the state of Nevada in September, 1999. The Company's corporate offices are located at 112 Middle Road, #08-01 Midland House, Singapore 188970; telephone (65) 63329287. 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. 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. BUSINESS OVERVIEW The Company, through its subsidiaries under the M2B and new WOWtv brand names, is in the Broadband Media Entertainment business, and a provider of interactive Entertainment-on-demand and e-commerce streaming over Broadband channels, Internet portals, and 3G devices globally. The Company has launched multiple Broadband TV websites with entertainment and online shopping content, with over 50 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. 1 Globally, Amaru, Inc. is expanding through several of its subsidiaries, including: 1. M2B World, Inc. - focuses on the US market and is based in Hollywood, California 2. M2B World Asia Pacific Pte. Ltd. - oversees the Asia Pacific business and directs the Asian markets through this office and representative office in Chengdu, China 3. M2B Australia Pty. Ltd. - oversees Oceania markets 4. M2B Entertainment, Inc. - oversees Canadian market 5. M2B Commerce Limited - focuses on digit games in Cambodia 6. M2B World Travel Singapore Pte Ltd. - offers e-travel services 7. Amaru Holdings Limited - focuses on content syndication and distribution in areas other than Asia Pacific region 8. M2B World Holdings Limited - focuses on content syndication and distribution in Asia Pacific region 9. M2B World Pte. Ltd. - provides management services to fellow subsidiaries of the Company 10. Tremax International Limited - operates as an investment holding company 11. M2B World Travel Limited - oversees online travel and related business
The Company offers consumers personalized entertainment through its wide range of broadband streaming channels available via www.amaruinc.com. BUSINESS STRATEGY Our business strategy is to become a premier diversified media, e-commerce and e-lifestyle company. We adopt the latest broadband, e-commerce and communications technology and leverage on our international premium content and programming expertise. This is how we deliver online entertainment, lifestyle products and services to our customers. Our goal is to constantly identify fresh market opportunities and to stay ahead of changes in the broadband media and related e-commerce industry. We believe that we can accomplish this by continuing to satisfy customers' needs for a convenient, comprehensive and personalized source of broadband video content, services and information with pleasant user experiences. Through our business plan implementation, we aim to become a leading Broadband Media Entertainment business, providing interactive Entertainment-on-demand and e-commerce streaming over Broadband channels, Internet portals, and 3G devices globally. We intend to continue leveraging on our competitive strengths to attain a leadership position in the industry. COMPETITIVE STRENGTHS The Company's competitive strengths are: o RICH CONTENT LIBRARY The Company owns a rich library of content that covers a wide range of genres, of which the majority includes worldwide rights in perpetuity on the broadband. This enables the Company to deliver a rich and diverse variety of on-demand streaming video content that suit the lifestyle and taste of different consumer segments, across different countries - thereby massing a global base of viewers to attract advertisers to its delivery platforms on the PC, 3G devices and TV. The Company has built relationships with content distributors in the U.S. and Asia that enables it to continually source for content that meet the changing demands and taste of the customers and advertisers. o GLOBAL VIDEO STREAMING NETWORK The Company has also developed and implemented a global video streaming network that enables it to deliver high quality on-demand video streaming programs from its rich library of content rights to a worldwide audience of broadband users. This global video streaming network is completely integrated with firewalls, loading balancing protocols, bandwidth and consumer monitoring systems and payment gateways to enable worldwide billing. In addition, the Company has its own digital post-production and design capabilities to fully manage content rights protection, user experience and specialized programming for all its consumer-facing delivery platforms. This end-to-end broadband streaming infrastructure enables the Company to customize and diversify its products and services, incorporating video-on-demand and e-commerce services. 2 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 rich 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. 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 Amadeus (Global Travel GDS based in Spain), CCTV (China), KBS (Korea), Sony Pictures Television International (SPTI) and Zentek Technology (Japan). 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 rich library of content rights on the broadband to provide sustained high quality on-demand video-based entertainment and e-commerce that will maintain and grow its worldwide base of viewers. o Penetrating new markets to deliver M2B and WOWtv branded content to any screen including PC, 3G and TV, as well as wireless mobile devices like PDAs and to establish new delivery channels to meet the changing preferences of viewers and consumers, worldwide. o Capitalize on its growing worldwide viewer and consumer base by aggressively signing up subscribers, as well as advertisers onto its on-demand interactive broadband delivery channels for entertainment, online games and e-commerce. Consumers access the Company's entertainment sites through its main website, www.amarinc.com or directly go to the entertainment sites at www.wowtv.com and www.m2btv.com. NEW PRODUCT OFFERINGS In August 2007, M2B World Asia Pacific Pte Ltd, a subsidiary company of Amaru which oversees the Asia Pacific markets, launched a new broadband entertainment web TV service, called WOWtv. The Company intends that WOWtv will serve as its new brand for its broadband entertainment services, in addition to its IPTV service, M2Btv. WOWtv had therefore combined and incorporated all the Company's previous entertainment websites into one leading site. WOWtv streams more than 50 video-on-demand channels of Hollywood and Asian entertainment. The service is available through three tiers, namely: o Free Tier - Web TV channels are provided free to registered users and are advertising supported. o Basic Tier - Web TV channels are provided to registered subscribers for an annual fee. o Value Tier - Web TV premium content channels where viewers pay for specific channels and content on a pay-per-view basis. The WOWtv service had, as of March 2008, been launched in Singapore, Indonesia and China. The WOWtv service is available on www.wowtv.com. 3 CONSUMER MARKETING The Company's broadband entertainment websites, and online shopping sites attract viewers from all over the world. The Company's strategy of converting visitors into customers lies in a combination of incentives, including seasonal and purchase-related promotions that take advantage of the Company's customer database and broadband websites. The Company plans to negotiate special rates and benefits to obtain access to a superior online inventory for the customers. The increasing scale of the business will enable the Company to negotiate on more favorable terms. Through research with visitors and customers, the Company is developing new programs and features (including personalization and loyalty incentives) that would turn visitors into customers and maintain loyalty. The Company also employs a variety of online and traditional media programs and promotional activities such as: (a) Advertising The Company invests in both online and traditional advertising to drive traffic to our broadband websites. To generate traffic to M2B and WOWtv's broadband websites in a cost efficient manner, the Company purchased targeted keywords and textlinks in 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 our e-commerce services and of the M2B and WOWtv brand. (d) Direct Marketing The Company maintains a database which includes customers profiles and preferences and other key customer attributes. This data enables us to track the effectiveness of promotions and incentives and to understand seasonal and other trends in order to create and quickly implement marketing programs targeted to specific customer segments. In addition, we regularly communicate with our customers through targeted e-mail. The Company, while growing the business, also maintains profitability. While it executes its growth strategies, it also controls costs. It intends to continue to implement programs to control the cost of revenues and reduce operating costs through technology and productivity management, economies of scale and financial controls. This strategy should enable us to provide our products to customers on a cost competitive basis. BUSINESS SEGMENTS Our principal operations are carried out through the following three segments of our business: 1. Entertainment Services - Video on-Demand services for entertainment, providing the Company with advertising, subscriptions, online games and e-commerce revenues 2. Digit Games 3. E-Travel Services - Online Travel Portal 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 shopping 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. 4 SERVICES: Broadband technology allows us to deliver the following services:: o Video-on-demand (VOD) services that enable individuals to select videos from a Central Server, on-demand 24 hours a day, 7 days a week, for viewing on: o Television screens (Set top Box Technology) o PCs (Digital Subscriber Line (DSL) Technology) o Personal Digital Assistants(PDA), 3G hand phones (Wireless Technology) o E-Commerce or online shopping - 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. 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 product videos and make payments online. With this strategy, the Company generates diversified sources of revenue from: 1. Advertising i.e. program and channel sponsorship 2. Online subscriptions 3. Channel/portal development i.e. digital programming services 4. Content aggregation and syndication 5. Broadband consulting services and online shopping turnkey solutions 6. E-commerce services 7. Online games micro-payments Currently, the Company is in the process of redesigning its Broadband websites. The current Broadband websites and products, which may change from time to time are highlighted below. WOWTV - WEB TV SERVICE WOWtv, a broadband entertainment web TV service, has embarked on launching its site across the Asia Pacific, streaming more than 50 channels of Hollywood and Asian entertainment via video on-demand, providing E-commerce services and an original online games platform. 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 and Indonesia, WOWtv is set to launch across the Asia Pacific, expanding its growing presence to an additional 5 territories, namely Australia, China, Japan, Taiwan and Malaysia within the next 12 months. No assurance can be given that such plans will materialize as planned. LEVERAGING ON THE STRENGTHS OF WOWTV WOWtv is a cutting-edge, innovative platform that will establish a first mover advantage to become the first Pan-Asian broadband entertainment services provider. Its strengths and competitive advantages include: Content Aggregation, Distribution and Syndication - with the technology and expertise to stream with high clarity and also manage operations and costs well. 5 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 major broadband distribution deals with major media companies. Experience in Online Games - with exclusive licenses to several Korean game titles for several Asian markets. MARKETING STRATEGY OF WOWTV WOWtv's marketing strategy is to offer viewers a plethora of video on-demand entertainment over three segments on its website, where consumers will get a chance to sample its products and services in different tiers - FREE, BASIC and VALUE. Since its soft launch in August 2007, WOWtv had 192,690 registered users as of December 31, 2007.The number of registered users is extracted from the WOWtv user registration database under the WOWtv service. M2BTV - GLOBAL BROADBAND TV (IPTV) SERVICE The Company offers multiple TV channels, delivered live over the Internet, to television sets in homes that have a high-speed internet connection and IP set top boxes. Details of the service can be viewed on www.m2btv.com. The service has been in operation in Singapore Since the second half of 2006 and more than 50 channels are made available to customers. Anyone subscribing for a broadband access with local Internet service provider is able to tune in to the service on a subscription basis. Subscribers are provided with a set-top box that connects to their broadband modems instead of the cable TV point at home. They are able to watch the programs on their television sets. The Company intends to incorporate this into its WOWtv service in the near future. BROADBAND SERVICES The Company has an automated Content Management System ("CMS") to enhance its advertising service offered to clients and to provide a new revenue source for the Company. The system allows for the programming of video, animation, streaming and flash content to multiple destinations. Linked by broadband networks and wireless set-top boxes to push content and scheduled advertising at physical premises, the CMS allows businesses the option of presenting targeted content on selected video displays in multiple locations, such as on different levels of a shopping mall, in various spots within a restaurant or club or on separate elevators in the same building. In store video panels can also carry individualized messages together with customized content to reach consumers and target audiences within the premises. This is another method by which the Company is continuing to meet the consumer shift toward on-demand and personalized media experiences whether at home or work and now additionally on video screens in stores, restaurants, clubs and other business or leisure outlets. 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. E-TRAVEL SERVICES The Company's subsidiary, M2B World Travel Limited., signed a global agreement with Amadeus Global Travel Distribution, SA, a Spanish corporation. Through the agreement, M2B continues to offer direct access to the extensive range of travel options available through the Amadeus network to their viewers around the world. The agreement extends M2B's reach through its broadband streaming entertainment into the worldwide travel arena. The M2B World Travel Website aims to provide competitive rates through its direct connection to the Amadeus System using the Elleipsis TravelTalk(TM) integration platform, which allows M2B to access not only the major travel providers, but an expanded roster of additional suppliers such as low-cost carriers, cruise lines, and widened hotel distribution channels all through one single, easy-to-use platform. The video e-travel portal brings an extensive range of travel options to our viewers and gives the Company an entry into the travel and tourism market; it directly aggregates travel solutions from airlines, hotel properties, some car rental companies as well as air, ferry, rail, cruise, and tour operators, allowing customers to the site to view their travel destination through video content, thus influencing their purchasing decision. 6 Due to fund constraints, the Company was unable to launch the M2B travel site in 2007. The service is subject to the Company completing the set up of its server farm to host the travel platform. No assurance can be made that such plans will materialize as planned. MAJOR EVENTS IN FISCAL YEAR 2007 FOR ENTERTAINMENT SERVICES Following the launch of its latest broadband entertainment service called WOWtv in Singapore in August 2007, the Company extended the WOWtv service to Indonesia in December 2007 and to China in March 2008. On April 23, 2007, M2B World Holdings Limited, a subsidiary of M2B World Asia Pacific Pte Ltd, entered into an agreement with PT Agis TBK, a company in Indonesia, to transfer and licence an IPTV platform. The IPTV platform concerned includes the hardware, software and middleware, and the supply of content. The WOWtv service was incorporated into this IPTV platform. The agreement with PT Agis TBK resulted in generating entertainment revenue of $14.5 million in 2007. On July 3, 2007, M2B World Asia Pacific Pte Ltd, through its subsidiary company, Visual Fashion Holdings Limited, entered into four agreements with Fashion News World. Inc, a New York Corporation. Fashion News World. Inc is the holder of the Video Fashion brand and the licensor for Video Fashion content worldwide. The four agreements were as follows : o Video Fashion License Agreement whereby M2B World Asia Pacific Pte Ltd would have the rights to use the entire library of Video Fashion content for the Asia Pacific region, including Australia and New Zealand, for a period of five years, from July 1, 2007 to June 30, 2012. o Three other agreements for a period of five years, from July 1, 2007 to June 30, 2012, on co-productions, branded merchandising and appointed representative to market and sell the Video Fashion content. On July 10, 2007, the Company together with one of its subsidiaries, Tremax International Limited entered into an agreement with Domaine Group Limited for the acquisition of 80% of Cosmactive Broadband Networks Co Ltd, which is a broadband service provider incorporated in Taiwan. The Company intends to extend its broadband entertainment services in Taiwan through this investment. The investment is however subject to the approval of the regulatory authorities in Taiwan, which is still outstanding as of this report. ONGOING DEVELOPMENTS OF 2007 INITIATIVES In May 2006, the Company announced its official launch of its much anticipated Global Broadband TV Service, M2Btv, and its innovative PONY set-top box, making the duo available to consumers in 2006. The Company continued to roll out the M2Btv service in 2007. Essentially, the M2Btv service brings the time-efficient benefits of IPTV into the living room, where the content and the internet will be directly accessible via existing hardware such as a television set and broadband internet connection. The Company is currently looking into the possibility on consolidating the M2Btv service with its WOWtv service. 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. 7 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 ONLINE TRAVEL The travel business has already been impacted by the Internet. Travel companies have already used the Internet as a distribution channel and for ticketing and transaction processes. With the introduction of online booking and online travel agencies, the travel industry has only begun to realize the cost reduction potentials of e-business. The growth in online travel has caused a radical change in the travel retail market since the late 1990s, and is one area that continues to record growth after the slump in tourism that began in 2001. Travel as a commodity has proved ideally suited to e-commerce, as average spending is high, and the cost of delivering the goods is minimal. The online global travel retail opportunity represented an $85 billion market worth in 2004, according to Euromonitor in 2005. o THE GROWTH OF THE VIDEO ON DEMAND MARKET According to Jupiter Research, in 2007 the Video-on-Demand (VOD) market is expected to be worth $1.4 billion while the Subscription VOD market is worth $800 million. According to ZDNet Research, there were approximately 7.5 million worldwide cable-based VOD users at the end of 2004. VOD user growth is projected to remain strong for the next several years. Total number of worldwide users is 13 million at the end of 2005 and is forecasted to ultimately reach 34 million in 2009. A study released by Adams Media Research in 2007 forecasts that sales of video downloads will total $427 million in 2007. $1.2 billion in 2008, $2 billion in 2009, $3.1 billion in 2010, then hit $4.1 billion in 2011. The same study also predicts that advertiser spending on internet video streams to PCs and TVs will approach $1.7 billion in 2011. COMPETITION The Company faces intense competition in every aspect of our business, and particularly in the acquisition of content. In the entertainment services business, we compete with free-to-air channels, cable operators as well as other broadband entertainment providers for distribution rights of programs in terms of price, quality and variety. Traditional TV networks and cable TV operators today provide alternate sources of entertainment in a broadcast mode. In future, it is expected that these networks may also extend their reach to the video-on-demand broadband service. This may put them in direct competition with us, although their entry costs will likely be higher and both the technical and manpower capabilities existing in these traditional companies will make it somewhat difficult for them to transit into new broadband media. In our multi player online gaming business, we face competition from the various gaming offerings on the market as well as the various gaming portals and platforms. In the subscription based multi player online gaming business, the Company faces vigorous competition from the numerous games that are distributed free over the Internet. More generically, it also competes with console based games made for products like Playstation and X-box. In the e-travel services business, the Company competes with the established traditional offline travel agencies and airlines as well as online travel players like Travelocity, Zuji, Expedia, Priceline.com. With the trend in the travel industry moving towards a constellation of cooperative alliances, the Company believes that there will be many opportunities for vertical as well as horizontal growth and integration of the various travel companies. 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. 8 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 incurred no, and does not expect to incur, material expenditures or obligations related to environmental compliance issues. EMPLOYEES The Company had 48 employees as of December 31, 2007, of which 42 are full time and 6 are part-time employees. Of the 48 employees, 41 are based in Singapore, one is based in Cambodia and another one is based in the U.S. 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 IS AVAILABLE-FOR-SALE OR 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. 9 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. 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. 10 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. THE COMPANY DID NOT COMPLETE THE ASSESSMENT OF THE EFFECTIVENESS OF THE COMPANY'S INTERNAL CONTROL OVER FINANCIAL REPORTING, SET FORTH BY THE COMMITTEE OF SPONSORING ORGANIZATIONS (COSO) OF THE TREADWAY COMMISSION IN "INTERNAL CONTROL-INTEGRATED FRAMEWORK". Section 404 of the Sarbanes-Oxley Act of 2002 requires that management document and test the Company's internal control over financial reporting and include in the Annual Report on Form 10-K a report on management's assessment of the effectiveness of our internal control over financial reporting. In connection with the preparation of this Annual Report on Form 10K, to evaluate the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2007, the Company's management did not complete the assessment of the effectiveness of the Company's internal control over financial reporting, implementing the criteria set forth by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission in "Internal Control-Integrated Framework". While the Company is taking immediate steps and dedicating substantial resources to implement the internal controls based on the criteria established in Internal Control - Integrated Framework issued by the COSO, they will not be considered fully implemented until the new and improved internal controls operate for a period of time, are tested and are found to be operating effectively. 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. 11 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. ITEM 1B: UNRESOLVED STAFF COMMENTS None. ITEM 2: PROPERTIES The headquarters for operations and management is located in Singapore in an office space of about 3,927 square feet. We entered into a three year operating lease paying a monthly rent of $4,545 (S$7,000). The lease will be due for renewal in 2008 and the rent will be based on the open market rates. In addition to the office which housed the management staff of the Company, there are three other offices: located in the US, Singapore and China. The office in the US is situated on Sunset Boulevard, West Hollywood and it consists of 2,965 square feet. The office in Singapore consists of about 6,727 square feet and is situated in 112 Middle Road, Singapore. The office in China consists of about 1,399 square feet and is situated in No.5, JingLi Dong Road, #2-17-4, Chengdu, Sichuan. These three offices are on monthly lease and the rental is $10,530 for the US office, $10,790 (S$16,620) for the Singapore office and $779 (S$1,200) for the Chengdu office. The office in the US was subleased on November 1, 2007 as part of the Company's cost reduction measures. We believe that our existing facilities are adequate to meet our current needs and that suitable additional or alternative space will be available in the future on commercially reasonable terms, although we have no assurance that future terms would be as favorable as our current terms. The Company has not invested in any real property at this time nor does the Company intend to do so. The Company has no formal policy with respect to investments in real estate or investments with persons primarily engaged in real estate activities. ITEM 3: LEGAL PROCEEDINGS On April 23, 2007, a company which provided public relations services filed a lawsuit against M2B World, Inc. for breach of contract for an amount of $72,649, which has been further amended to include Amaru, Inc. as a co-defendant. In the opinion of management, the outcome of this legal proceeding will not have a material effect on the Company's consolidated financial statements. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the year ended December 31, 2007. 12 PART II ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES PUBLIC MARKET Our common stock trades on the National Association of Securities Dealers' over-the counter Bulletin Board market ("OTCBB") under the symbol "AMRU". As of March 14, 2008, there were 392 holders of our common stock. The price of the Company's stock as of March 14, 2008 was $0.09. On January 19, 2007, the Company announced that its common stock is trading on the OTCBB, effective January 19, 2007 under the symbol "AMRU". The Company's common stock was previously trading on the Pink Sheets Electronic Quotation System. The Company's high and low closing bid and close information for the fiscal year ended December 31, 2007 is listed as provided by the Nasdaq website. Quotations reflect inter-dealer prices, without retail mark-up, markdown, or commission and may not represent actual transactions. Open High Low Close/Last* ------------------------------------------------------------- Year Ended December 31,2007 First Quarter $ 0.6700 $ 0.7000 $ 0.6700 $ 0.7000 Second Quarter $ 0.6500 $ 0.6500 $ 0.6500 $ 0.6500 Third Quarter $ 0.5800 $ 0.6500 $ 0.5800 $ 0.6500 Fourth Quarter $ 0.3850 $ 0.5100 $ 0.3700 $ 0.5100 Year Ended December 31,2006 First Quarter $ 0.5250 $ 1.3130 $ 1.1250 $ 1.2250 Second Quarter $ 1.1250 $ 1.3750 $ 1.2500 $ 2.2000 Third Quarter $ 0.7200 $ 0.8200 $ 0.7000 $ 0.8200 Fourth Quarter $ 0.6500 $ 0.9200 $ 0.5000 $ 0.5500 Year Ended December 31,2005 March 2005 $1.2500 $1.2500 $1,2000 $1.200 Second Quarter $1.5000 $3.5000 $1.5000 $3.500 Third Quarter $3.5000 $4.5000 $1.4500 $4.000 Fourth Quarter $4.5000 $5.0500 $1.4500 $5.050
* 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 On July 11, 2007, the Company issued 5,333,333 million shares of common stock at a market value of $0.70 per share for a total amount of $3,733,333. The shares were issued to Domaine Group Limited, a company incorporated in the British Virgin Islands and is the legal and beneficial owner of the 100% of the entire issued and paid up capital of CBBN Holdings Limited, which the Company intends to acquire. On March 19, 2007, the Company issued 40,000 shares of common stock through its private placement of shares of common stock at a purchase price of $1.50 per share for a total amount of $60,000 to "accredited investors", as that term is defined in Regulation D of the Securities Act of 1933. The shares of the Company's common stock 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. In January and February 2006, the Company issued a total of 5,520,000 shares of common stock through private placement at a price of $0.75 per share for a value of $4,140,000. These shares were subscribed and paid for before December 31, 2005 pursuant to the Company's private placement. From January 23, 2006 to April 23, 2006, the Company issued 14,411,400 shares of common stock through a private placement at a price of $0.75 per share for a total amount of $10,808,550. 13 From April 24, 2006 to April 26, 2006, the Company issued 808,000 shares of common stock through its new private placement at a price of $1.25 per share for a total amount of $1,010,000. From July 3, 2006 to July 24, 2006, the Company issued 120,168 shares of common stock through private placement at a price of $1.50 per share for a total amount of $180,249. The total amount of funds raised through the private placement of shares of common stock for the year ended December 31, 2006 was $11,998,799. The shares issued in the private placements set forth above were issued in reliance upon the exemption from registration set forth in Section 4(2) of the Securities Act and Regulation D (Rules 505 and/or 506) and/or Regulation S promulgated under the Securities Act. The shares were offered and sold to investors who were "accredited investors" as defined in the Securities Act. Appropriate investment representations were obtained and the securities were issued with restrictive legends. On April 27, 2006, the Company issued 6,992,000 shares of common stock through a private placement at a price of $1.25 per share for a total amount of $8,740,000 for the acquisition of film library. On August 15, 2006, the Company issued 40,000 shares of common stock in a private placement at a price of $1.50 per share for a total amount of $60,000 for services to be rendered to the Company. Such services have been rendered as of September 30, 2006. On June 8, 2005, the Company issued 580,000 shares of common stock through a private placement at a price of $0.75 a share for a total amount of $435,000 for repayment of accounts payable. On December 30, 2005, the Company approved the issue of 20,000 "restricted" shares of common stock at a price of $0.75 per share to a consultant for services to be rendered to the Company. The shares were issued in January 2006. The services of the consultant pertaining to these shares issued were not rendered as of December 31, 2005. In the fiscal year ended December 31, 2005, the Company issued a total of 16,132,000 shares of common stock through private placement at a price of $0.75 per share for a total amount of $12,099,000. A further 5,520,000 shares were subscribed before December 31, 2005 through private placement at a price of $0.75 per share for a total purchase price of $4,140,000. The shares were issued in January 2006. The shares issued in the private placements set forth above were issued in reliance upon the exemption from registration set forth in Section 4(2) of the Securities Act and Regulation D (Rules 505 and/or 506) and/or Regulation S promulgated under the Securities Act. The shares were offered and sold to investors who were "accredited investors" as defined in the Securities Act. Appropriate investment representations were obtained and the securities were issued with restrictive legends. On February 10, 2004, M2B World issued 1,363,636 shares of $0.31 par value Series D common stock for a total cash capital contribution of $287,745 prior to the acquisition by the Company. On October 1, 2004, Amaru Inc. issued 400,000 "restricted" shares of common stock for services valued at $5,000. The shares were issued without registration in reliance upon the exemption provided by Section 4(2) of the Securities Act. On October 25, 2004, a total of 143,000 shares of Series A Preferred Stock was converted to 5,500,000 shares of common stock of Amaru Inc. On October 28, 2004, Amaru Inc. issued 1,200,000 shares of common stock through private placement at a price of $0.70 per share. On November 20, 2004, Amaru Inc. issued 400,000 shares of common stock through private placement at a price of $0.70 per share. On December 10, 2004, Amaru Inc. issued 800,000 shares of common stock through private placement at a price of $0.75 per share. On December 11, 2004, Amaru Inc. issued 400,000 shares of common stock through private placement at a price of $0.75 per share. EQUITY COMPENSATION PLAN The Company's 2004 Equity Compensation Plan has 9,745,000 million shares remaining as of December 31, 2007. In 2007, no shares were issued under the Company's 2004 Equity Compensation Plan. In 2006 and 2005, the Company issued 420,000 shares and 58,740 shares respectively under the Equity Compensation Plan. There are no outstanding options under the Equity Compensation Plan. 14 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, ------------------------------------------------------------------------- 2007 2006 2005 2004 2003 ------------ ------------ ------------ ------------ ------------ STATEMENT OF OPERATIONS DATA: Revenues (1) $ 37,053,269 $ 32,573,275 $ 18,095,922 $ 3,984,981 $ 1,005,038 Cost of Services (2) 23,349,404 24,302,425 16,352,048 3,053,715 475,525 Gross Profit 13,703,865 8,270,850 1,743,874 931,266 530,218 Operating income (loss) 5,659,871 1,544,082 (1,357,268) 510,457 60,082 Net gain on discontinued operations (3) -- -- 1,643,016 -- -- Net Income 5,088,792 1,250,259 166,745 512,295 39,530 Basic and diluted income (loss) per share 0.03 0.01 (0.05) 0.02 -- Shares used in computing basic and diluted income/loss per common share 156,548,902 153,605,863 29,418,828 21,297,410 17,772,228 BALANCE SHEET DATA: Working Capital 19,957,833 4,470,426 4,994,124 514,238 (515,173) Total Assets 60,641,778 48,891,847 20,744,959 4,453,406 1,851,185 Long-term obligations 1,730,107 1,684,158 -- -- -- Stock holders' Equity 55,571,566 45,047,246 19,872,327 3,636,773 1,207,296
NOTES ON SELECTED FINANCIAL DATA (1) Revenues significantly increased in 2005 due to the operations and management of digit games (lottery) in Cambodia which was a new source of revenue for the Company that was not available in 2004. Total digit games revenues generated in 2005 was $14.8 million and it continuously increased to $24.5 million and $ 22.4 million in 2006 and 2007, respectively, as a result of the full year effect of the digit gaming operation in Cambodia, which only commenced in May 2005. On the other hand, entertainment services posted an increase of $ 6.5 million and $ 4.7 million in 2007 and 2006, respectively, which further boosted up revenue growth. The reasons for the increase in entertainment revenues were the completion and delivery of IPTV platform in Indonesia for 2007, and increased licensing revenue in 2006. (2) Cost of services in 2007, 2006 and 2005 includes direct operational cost and gaming royalties paid for the digit games operations in Cambodia which represents 96% of the digit games revenue. (3) On December 20, 2005, the Company sold 81% equity interests in one of its subsidiaries,, M2B Game World Pte. Ltd., a public listed company in Singapore for 71,428,571 shares of common stock of Auston and the investment was valued at $2,147,580. The gain from this sale was $1,643,016 which is under gain from discontinued operations. 15 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. GENERAL The Company is in the business of broadband entertainment-on-demand, streaming via computers, television sets, PDAs (Personal Digital Assistant) and the provision of broadband services. Its business includes channel and program sponsorship (advertising and branding); online subscriptions, channel/portal development (digital programming services); content aggregation and syndication, broadband consulting services, broadband hosting and streaming services and E-commerce. The Company is also in the business of digit gaming (lottery). The Company has an 18 year license to conduct nation wide lottery in Cambodia. The Company through its subsidiary, M2B Commerce Limited, signed an agreement with Allsports Limited, a British Virgin Islands company to operate and conduct digit games in Cambodia and to manage the digit games activities in Cambodia. The following discussion should be read in conjunction with selected financial data and the financial statements and notes to financial statements. OVERVIEW The key business focus of the Company is to establish itself as the leading provider and creator of a new generation of Entertainment-on-Demand 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 focuses on e-services, which would provide the Company with multiple streams of revenue. Such revenues would be derived from advertising and branding (channel and program sponsorship); on-line subscriptions; online games micro-payments; channel/portal development (digital programming services); content aggregation and syndication; broadband consulting services; on-line shopping turnkey solutions; broadband hosting and streaming services; E-commerce commissions and on-line dealerships; and digit games operations. In fiscal 2007, the business was reorganized under the following entities to spearhead the expansion of the Company's business and focus on specific growth areas and territories. M2B WORLD PTE. LTD. M2B World Pte. Ltd. was incorporated on April 3, 2003. This subsidiary used to oversee the management and operation of the Company as a whole and oversees the Asian business. With effect from September 1, 2006, the Company's Asian business was overseen by another subsidiary, M2B World Asia Pacific Pte. Ltd. 16 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. During 2006, M2B World Pte. Ltd. divested part of its interest in Auston. As of December 31, 2007, the Company's equity interest in Auston stands at 10.40%. M2B WORLD, INC. M2B World, Inc., a California corporation, was incorporated on January 24, 2005. This subsidiary handles and oversees the Company's business in the U.S. The Company has leased a new office on Sunset Boulevard, West Hollywood that came into effect in August 2006. In October 2007, M2B World Inc reduced its staffing and in November 2007 sub-leased its premise as part of the Company's cost reduction measures. This subsidiary oversees the new global Broadband TV (IPTV) service. A new server farm was set up in the U.S. in San Jose California in December 2005 to expand the broadband streaming infrastructure; in order to handle the business in North America and also the global IPTV service. On May 27, 2005, M2B World, Inc. entered into an agreement with Indie Vision Films, Inc., a California corporation, to purchase 20% of the beneficial ownership of Indie Vision Films, Inc. The investment will allow M2B World, Inc. to access the library of programs of Indie Vision Films, Inc. The Company is currently into negotiations 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. On November 1, 2007, the Company sub-leased the office premises of M2B World Inc, a wholly owned subsidiary of the Company in Los Angeles, California as part of its efforts to streamline its operations and reduce operating costs. The staffing of M2B World Inc was also reduced from 9 staff to 1 staff as of October 31, 2007. The company is in the process of consolidating the server farm with the Singapore server farm to, optimize bandwidth and support cost. M2B WORLD ASIA PACIFIC PTE. LTD. M2B World Asia Pacific Pte Ltd was incorporated in the Republic of Singapore on 1 August 2006 for the purposes of handling all the business operations of the Company in the Asia Pacific region. This company had taken over the Asian business operations as well as the assets and liabilities of M2B World Pte. Ltd. with effect from September 1, 2006. On January 3, 2007, M2B World Asia Pacific Pte Ltd, issued 7,778,014 shares of common stock through a private placement at a price of $0.77 a share for a total amount of $6,000,000. This had effectively reduced the Company's effective equity interest in M2B World Asia Pacific Pte. Ltd. from 100% to 81.6%. 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 games activities in Cambodia, as an extension of the Company's entertainment operations. 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 subsequent to the balance sheet date. The Company however intends to divest its stake in the resort, and has already put up its investment for sale in the market, as the investment is not related to the Company's core business. M2B ENTERTAINMENT, INC. M2B Entertainment, Inc. was incorporated on October 27, 2005. This subsidiary will oversee the Company's Canadian market. As of December 31, 2007, this subsidiary is dormant. 17 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, 2007, this subsidiary is dormant. M2B WORLD TRAVEL SINGAPORE PTE. LTD. M2B World Travel Singapore Pte Ltd was incorporated in the Republic of Singapore on March 7, 2006. This subsidiary of M2B World Travel Limited launches a global online travel platform which offers global e-travel services. The Company has completed the development of an online travel engine and travel web applications for integration with suppliers of travel information and travel services; and incorporating travel features with current media operations under the M2B brand name. M2B World Travel Limited signed a global agreement with Amadeus Global Travel Distribution, SA, a Spanish corporation. Through the agreement, the company will be able to offer direct access to the extensive range of travel options available through the Amadeus network to viewers around the world. The launch and operations of the travel service is subject to funding considerations and the set up of the server farm to host the system. 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. The investment is pending the approval of the regulatory authorities in Taiwan, which is a requirement for foreign investments in Taiwan. CBN is a company registered in Taiwan, the Republic of China. CBN is an internet cum broadband access provider to major residential buildings in Taiwan. The Company believes that acquisition of CBN will be beneficial to the Company, because CBN has a subscriber base of about 20,000 homes and should be able to provide the Company with a ready subscriber base to roll out its services. In 2006, CBN had a revenue of $2.5 millions and fixed assets of $1.8 millions in network and systems to enable services to the homes. CRITICAL ACCOUNTING POLICIES AND ESTIMATES In the preparation of the financial statements, the Company adopted the following critical accounting policies. INTANGIBLE ASSETS Intangible assets consist of film library, gaming and software license 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 two to 18 years. REVENUE Subscription and related services revenues are recognized over the period that services are provided. Advertising and sponsorship revenues are recognized as the services are performed or when the goods are delivered. Licensing and content syndication revenue is recognized when the license period begins, and the contents are available for exploitation by customer, pursuant to the terms of the license agreement. Gaming revenue is recognized as earned net of winnings. E-commerce commissions are recognized as received. Broadband consulting services and on-line turnkey solutions revenue are recognized as earned. 18 The Company has adopted accounting pronouncements issued before December 31, 2007, that are applicable to the Company. RECENT ACCOUNTING PRONOUNCEMENTS In June 2006, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109, Accounting for Income Taxes ("FIN 48"), to create a single model to address accounting for uncertainty in tax positions. FIN 48 clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company adopted FIN 48 on January 1, 2007. The adoption of FIN 48 did not have an impact on the Company's opening retained earnings. In March 2006, the Emerging Issues Task Force ("EITF") reached a tentative consensus on Issue No. 06-3, How Sales Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross Versus Net Presentation) ("EITF 06-3"). EITF 06-3 addresses income statement classification and disclosure requirements of externally-imposed taxes on revenue-producing transactions. EITF 06-3 is effective for periods beginning after December 15, 2006. We do not expect the implementation of EITF 06-3 to have a material impact on our consolidated financial position, results of operations or cash flows. In September 2006, the FASB issued Statement of Financial Accounting Standard ("SFAS") No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 defines fair value, establishes a market-based framework or hierarchy for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is applicable whenever another accounting pronouncement requires or permits assets and liabilities to be measured at fair value. SFAS 157 does not expand or require any new fair value measures; however the application of this statement may change current practice. The requirements of SFAS 157 are first effective for the Company fiscal year beginning January 1, 2008. However, in February 2008 the FASB decided that an entity need not apply this standard to nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis until the subsequent year. Accordingly, the Company's adoption of this standard on January 1, 2008, is limited to financial assets and liabilities. The Company does not believe the initial adoption of SFAS 157 will have a material effect on its financial condition or results of operations. However, the Company is still in the process of evaluating this standard with respect to its effect on nonfinancial assets and liabilities and therefore has not yet determined the impact that it will have on the Company's financial statements upon full adoption. In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. SFAS No. 159 permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in net income. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Company is currently evaluating the impact that SFAS No. 159 will have on its financial position and results of operations. In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), Business Combinations ("SFAS 141R"). SFAS 141R established principles and requirements for how an acquiring company recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest if the acquired company and the goodwill acquired. SFAS 141R also established disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS 141R is effective for fiscal periods beginning after December 15, 2008. The Company is currently evaluating the impact that SFAS 141R will have on its financial position and results of operations. In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements-an amendment of Accounting Research Bulletin No. 51 ("SFAS . 160"). SFAS 160 establishes accounting and reporting standards of ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent's ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS 160 is effective for fiscal periods beginning after December 15, 2008. The Company is currently evaluating the impact that SFAS 160 will have on its financial position and results of operations. 19 RESULTS OF OPERATIONS For the fiscal year ended December 31, 2007 compared with the fiscal year ended December 31, 2006 and December 2005. FINANCIAL STATEMENT - - Revenue for the year ended December 31, 2007 was $37,053,269 compared with $32,573,275 in 2006 and $18,095,922 in 2005 for the same period. - - Income from operations was $5,659,871 in 2007 compared with $1,544,082 in 2006 and loss of $1,354,894 in 2005. - - Net income was $5,088,792 in 2007 compared with $1,250,259 in 2006 and $166,745 in 2005. - - The Company's cash balance was $2,322,541 at December 31, 2007 compared with $2,294,984 at December 31 2006 and $4,776,819 at December 31, 2005. REVENUE The following table sets forth a year-over-year comparison of the key components of the Company's revenues: Variance Variance Year Ended December 31 2007 vs. 2006 2006 vs. 2005 --------------------------------------- ------------------------- -------------------------- 2007 2006 2005 $ % $ % ----------- ----------- ----------- ----------- ----------- ----------- ----------- Entertainment $14,568,379 $ 8,053,146 3,278,833 $ 6,515,233 81% 4,774,313 146% Digit games $22,451,970 $24,505,465 14,813,629 $(2,053,495) (8%) 9,691,836 65% Other $ 32,920 $ 14,664 3,460 $ 18,256 124% 11,204 324% Total revenues $37,053,269 $32,573,275 18,095,922 $ 4,479,994 14% 14,477,353 80%
Revenue for the year ended December 31, 2007 increased by $4,479,994 (13.75%), from $32,573,275 for the year ended December 31, 2006 to $37,053,269 for the year ended December 31, 2007. This increase in revenue for the year ended December 31, 2007 was mainly contributed by the entertainment segment which included the completion and delivery of the IPTV platform in Indonesia. This resulted in a revenue of $14.5 million in the twelve months ended December 31, 2007. The completion and delivery of the IPTV platform in Indonesia comprised of the hardware, software and middleware, and supply and programming of content. The digit games in Cambodia incurred a decrease in revenue of $2,053,495 (a drop of 8.38%) for the year ended December 31, 2007 from $24,505,465 in December 31, 2006 to $22,451,970 in December 31, 2007, mainly due to more holidays and increased competition from new digit games players in the market in the year 2007 as compared in the year 2006. Our revenue for the year ended December 31, 2006 (FY2006) increased by $14,477,353 or 80.0% to $32,573,275 from $18,095,922 for the year ended December 31, 2005 (FY2005) mainly due to the full year effect of the operation of the digit gaming activities in Cambodia and the increase in content syndication and licensing revenue. The main bulk of the revenue for FY2006 was from the entertainment services and digit gaming operations. Entertainment services revenue registered an increase of $4,774,313 or 145.6% from $3,278,833 in FY2005 to $8,053,146 in FY2006 while the digit gaming revenue registered an increase of $9,691,836 or 65.4% from $14,813,629 in FY2005 to $24,505,465 in FY2006. The increase was contributed by an increase in licensing revenue as well as the full year effect of the operations of the digit gaming (lottery) operations in Cambodia, which only commenced in May 2005. COST OF SERVICES The following table sets forth a year-over-year comparison of the Company's cost of services: Variance Variance Year Ended December 31 2007 vs. 2006 2006 vs. 2005 --------------------------------------- ------------------------- -------------------------- 2007 2006 2005 $ % $ % ----------- ----------- ----------- ----------- ----------- ----------- ----------- Cost of services $23,349,404 $24,302,425 $16,352,048 $ (953,021) (4%) $ 7,950,377 49%
20 Cost of services for the year ended December 31, 2007 was $23,349,404 which decreased by $953,021 (3.92%) from $24,302,425 for the year ended December 31, 2006. Decrease in cost of services of $953,021 for the year ended December 31, 2007 was mainly attributed to the delivery of the IPTV platform in Indonesia, which included the hardware, software and middleware, and supply and programming of content, and the launch of the new web TV service (called WOWtv) in Singapore. As a proportion of revenue, the cost of services for the year ended December 31, 2007 was 63.01% as compared to 74.61% for the year ended December 31, 2006. This was due to an increase in the entertainment segment revenue resulting from the delivery of the IPTV platform in Indonesia. Cost of services for FY2006 was $24,302,425 which increased by $7,950,377 or 48.6% from $16,352,048 in FY2005. As a proportion of revenue, the cost of services for FY2006 was 74.6% (cost of services at $24,302,425 and revenue of $32,573,275) as compared to 90.4% (cost of services at $16,352,048 and revenue at $18,095,922) in FY2005. This improvement was mainly due to the licensing revenue generated during the year which have a higher margin. The significant increase in cost of services was mainly attributed to the cost of managing and operating the operations and game centers in Cambodia for the digit games and the payment of royalties for the lottery license. This accounted for $23,673,958 of the total cost of $24,302,425 (97.4%). DISTRIBUTION EXPENSES The following table sets forth a year-over-year comparison of the Company's distribution expenses : Variance Variance Year Ended December 31 2007 vs. 2006 2006 vs. 2005 --------------------------------------- ------------------------- -------------------------- 2007 2006 2005 $ % $ % ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total $ 891,484 $ 1,446,990 $ 1,102,339 $ (555,506) (38%) $ 344,651 31% distribution expenses
Distribution expenses for the year ended December 31, 2007 at $891,484 were lower by $555,506 (38.39%) as compared to the amount of $1,446,990 incurred for the year ended December 31, 2006. The lower distribution expenses were attributed to decreased spending for marketing and promotions which decreased by $528,258 (49.28%), from $1,072,010 for the year ended December 31, 2006 to $543,752 for the year ended December 31, 2007. Distribution expenses increased by $344,651 or 31.3% in FY2006 from $1,102,339 in FY2005 to $1,446,990 in FY2006. The increase in distribution expenses were mainly due to increased spending on the branding of the M2B brand, marketing and promoting the Global Broadband TV Service, which increased by $190,439 or 21.6% from $881,572 in FY2005 to $1,072,011 in FY2006 as well as the increased traveling expenses to promote the Global Broadband TV Service. GENERAL AND ADMINISTRATIVE EXPENSES The following table sets forth a year-over-year comparison of the Company's general and administrative expenses : Variance Variance Year Ended December 31 2007 vs. 2006 2006 vs. 2005 --------------------------------------- ------------------------- -------------------------- 2007 2006 2005 $ % $ % ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total general and $ 7,152,510 $ 5,279,778 $ 1,998,803 $ 1,872,732 35% $ 3,280,975 164% administrative expenses
Administration expenses for the year ended December 31, 2007 at $7,152,510 were higher by $1,872,732 (35.47%) as compared to the amount of $5,279,778 incurred for the year ended December 31, 2006. The increase in administrative expenses for the year ended December 31, 2007 was attributed mainly to increase in license amortization. 21 License amortization had increased by $2,171,816 (191.66%), from $1,133,184 for the year ended December 31, 2006 to $3,305,000 for the year ended December 31, 2007. The increase was mainly attributed to the increase in license amortization of the movies content which have a definite life and which were acquired for the newly launched M2Btv and WOWtv services. Administration expenses for FY2006 increased by $3,280,975 or 164.1% from $1,998,803 in FY2005 to $5,279,778 in FY2006. The increase in administration expenses in FY2006 were attributed mainly to increases in: (a) Staff costs Staff costs had increased by $1,066,344 or 129.1% from $825,956 in FY2005 to $1,892,300 in FY2006 as a result of the increase in the number of professional employees hired to cater to the expanding and growing business. (b) Depreciation and amortization. The increase in depreciation was attributed to the leasehold improvements for the expansion of the offices, new editing suites and laptops provided to staff to cater to the demands of the growing business as well as the Pony set-top boxes installed in the homes and offices of the customers. Depreciation expense increased by $173,100 or 275.2% from $62,893 in FY2005 to $235,993 in FY2006. The increase in license amortization came from the film library, on-line games license and gaming license in Cambodia. Amortization charged in FY2006 increased by $772,835 or 214.5% from $360,349 in FY2005 to $1,133,184 in FY2006. (c) Legal and professional fees. The increase were mainly due to the higher costs of the quarterly review and accrual of audit fees as a result of the expansion of the business, legal fees incurred in review of contracts and filing and professional fees incurred in the valuation of the film library of the Company. Legal and professional fees increase by $665,480 or 196.0% from $339,491 in FY2005 to $1,004,971 in FY2006. INCOME FROM OPERATIONS The following table sets forth a year-over-year comparison of the Company's income from operations: Year Ended December 31 ------------------------------------------- 2007 2006 2005 ----------- ----------- ----------- Income from operations $ 5,659,871 $ 1,544,082 $(1,357,268) The Company reported an income from operations of $5,659,871 for the year ended December 31, 2007 as compared to the income from operations of $1,544,082 for the year ended December 31, 2006. The significant increase in the income from operations for the year ended December 31, 2007 was due to the significant increase in the entertainment segment revenue for the year. The profit from operations was $1,544,082 in FY2006 as compared to a loss of $1,357,268 in FY2005. The profit from operations in FY2006 was mainly attributed to the revenue generated from the licensing income and lower cost of services as compared to FY2005 as well as from the gain on sale of available for sale investment. NET INCOME The following table sets forth a year-over-year comparison of the Company's net income: Year Ended December 31 ------------------------------------------- 2007 2006 2005 ----------- ----------- ----------- Net income $ 5,088,792 $ 1,250,529 $ 166,745 For the year ended December 31, 2007, net income was $5,088,792 which increased by $3,838,263 (307%) from $1,250,529 for the year ended December 31, 2006. The significant increase in net income for the year ended December 31, 2007 was mainly attributed to the increase in the entertainment segment revenue. The increase was partly attributed to the gain on dilution of the Company's interest in a subsidiary, M2B World Asia Pacific Pte. Ltd. by issuing shares to the private investors at a premium. The increase in net income was partly offset by the write off of an intangible asset, and by the loss of the fair value of an investment (equity securities) held for trading, due to a drop in the market value of the shares. 22 Net income increased by $1,083,784 or 650.0% from $166,745 in FY2005 to $1,250,529 in FY2006 mainly due to the increase in licensing income and lower cost of services offset by higher distribution and administrative expenses. LIQUIDITY AND CAPITAL RESOURCES The Company had cash of $2,322,541 at December 31, 2007 as compared to cash of $2,294,984 at December 31, 2006. 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, 2007, the Company had not entered into any transactions using derivative financial instruments or derivative commodity instruments. Accordingly the Company believes its exposure to market interest rate risk is not material. Cash generated from operations will not be able to cover the Company's intended growth and expansion. The Company has plans in 2007 to expand its broadband coverage by launching new broadband sites in Asia Pacific region and Australia. No assurances can be made that such plans will be carried out in a timely manner. The Company intends to raise additional funds, to fund its business expansion; however no assurances can be made that the Company will raise sufficient funds as planned. NEW CONTRACTS o 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%. o On January 15, 2007, the Company through its subsidiary, Amaru Holdings Limited (Amaru Holdings), a British Virgin Islands corporation, entered into a sale and purchase agreement together with other sellers (the "Agreement") with Auston International Group Ltd., a Singapore company (Auston) to sell to Auston its majority owned subsidiary, M2B World Asia Pacific Pte Ltd., together with its subsidiary, M2B World Holdings Limited (collectively, M2B Asia). The Agreement provided for the sale of 42,459,978 shares of M2B World Asia Pacific Pte. Ltd., its total issued and outstanding capital. As the consideration for M2B World Asia Pacific Pte. Ltd. shares, Auston agreed to issue a total of 660 million new ordinary shares of Auston to M2B World Asia Pacific Pte. Ltd. shareholders. The Auston shares were valued at S$0.25 per share. The Agreement was subject to certain conditions precedent, including, but not limited to the shareholder approval of the transaction by Auston shareholders, the approval of the Singapore Stock Exchange and other related regulatory approvals of both parties. Amaru Holdings was required to deliver a valuation report by an independent auditor to Auston confirming that the value of the assets of M2B World Asia Pacific Pte. Ltd. was no less than that of the amount of consideration to be paid by Auston. This agreement expired as of December 31, 2007. On February 19, 2008, the Company decided that it was in the best interest of the Company not to extend the Agreement The Company intends to list the securities of M2B World Asia Pacific Pte Ltd on the Singapore Stock Exchange. o On April 23, 2007, M2B World Holdings Limited ("M2B World"), a British Virgin Islands corporation entered into a sale and purchase agreement (the "Agreement") with P T Agis TBK, a company incorporated in Indonesia ("Agis") to sell to Agis certain assets, including the domain name under which the IPTV business will operate in Indonesia and the transfer and license of IPTV platform (collectively, the "Assets"). M2B World is a wholly-owned subsidiary of M2B World Asia Pacific Pte Ltd. which is an 81.7% owned by Amaru Holdings Limited. Amaru Holdings Limited is a wholly-owned subsidiary of Amaru Inc., a Nevada corporation (the "Company"). Agis is trading on the Indonesia Stock Exchange. The Agreement provides for the consideration of US$15 million for the sale of the Assets based on the mutually agreed valuation of such Assets. Such consideration is to be provided through the issuance of 75 million of Agis shares at an agreed price of IDR 1300 per share, and such number of shares of a to be formed investment holding wholly-owned subsidiary of Agis that shall equal to 50% of beneficial holdings of such subsidiary. The sale had been completed by September 30, 2007. 23 o On July 10, 2007, the Company together with one of the subsidiaries of the Company, 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 shall be satisfied in full by the issuance of 5,333,333 of common stock of the Company. The investment is awaiting the approval of the Investment Committee of Taiwan and any other regulatory or government approvals that may be needed for a foreign investment in Taiwan. 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 $10,237,958 and $12,158,351 in marketable securities as of December 31, 2007 and December 31, 2006 respectively. The Company does not believe that it faces material market risk with respect to its cash and cash equivalents which totaled $2,322,541 and $2,294,984 at December 31, 2007 and 2006, respectively. The Company has no 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. 24 COMPETITION FROM BROADBAND CABLE AND TV NETWORKS OPERATORS The competition of services provided by broadband cable network operators and TV networks. As traditional TV networks and cable TV operators provide alternate supply of entertainment and on-demand broadband services, they are in competition with the Company, for market share. The Company, nevertheless, will continue to leverage on its advantage of ownership rights to its own portfolio of media content and its ability to provide broadband services over both the cable and wireless networks, at competitive rates. The Company's business is reliant on complex information technology systems and networks. Any significant system or network disruption could have a material adverse impact on our operations and operating results. The Company's nature of business is highly dependent on the efficient and uninterrupted operation of complex information technology systems networks, may they, either be that of ours, or our Telco/ ISP partners. All information technology systems are potentially vulnerable to damage or interruption from a variety of sources, including but not limited to computer viruses, security breach, energy blackouts, natural disasters and terrorism, war and telecommunication failures. System or network disruptions may arise if new systems or upgrades are defective or are not installed properly. The Company has implemented various measures to manage our risks related to system and network disruptions, but a system failure or security breach could negatively impact our operations and financial results. LAW AND REGULATIONS GOVERNING INTERNET Increased regulation of the Internet or differing application of existing laws might slow the growth of the use of the Internet and online services, which could decrease demand for our services. The added complexity of the law may lead to higher compliance costs resulting in higher costs of doing business. UNAUTHORIZED USE OF PROPRIETARY RIGHTS Our copyrights, patents, trademarks, including our rights to certain domain names are very important to M2B and WOWtv's brand and success. While we make every effort to protect and stop unauthorized use of our proprietary rights, it may still be possible for third parties to obtain and use the intellectual property without authorization. The validity, enforceability and scope of protection of intellectual property in Internet-related industries remain uncertain and still evolving. Litigation may be necessary in future to enforce these intellectual property rights. This will result in substantial costs and diversion of the Company's resources and could disrupt its business, as well as have a material adverse effect on its business. LAW AND REGULATIONS GOVERNING BUSINESS As the Company continues to expand its business internationally across different geographical locations there are risks inherent including: 1) Trade barriers and changes in trade regulations 2) Local labor laws and regulations 3) Currency exchange rate fluctuations 4) Political, social or economic unrest 5) Potential adverse tax regulation 6) Changes in governmental regulations OUTBREAK OF BIRD FLU PANDEMIC OR SIMILAR ADVERSE PUBLIC HEALTH DEVELOPMENTS Any future outbreak of the bird flu pandemic or similar adverse public health developments may have a material adverse effect on the Company's business operations, financial condition and results of operations. ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See the Financial Statements and Notes thereto commencing on Page F-1. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE ----------- Report of Independent Registered Public Accounting Firm F-1 Consolidated Balance Sheets F-2 Consolidated Statements of Income F-3 Consolidated Statements of Stockholders' Equity and Comprehensive Income F-4 - F-5 Consolidated Statements of Cash Flows F-6 - F-7 Notes to Consolidated Financial Statements F-8 - F-25 25 ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A: CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES A system of disclosure controls and procedures (as defined in Rule 13a-15(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 part 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. Notwithstanding the issues described below, the current management has concluded that the consolidated financial statements for the periods covered by and included in this Annual Report on Form 10-K are fairly stated in all material respects in accordance with generally accepted accounting principles in the United States for each of the periods presented herein. MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Section 404 of the Sarbanes-Oxley Act of 2002 requires that management document and test the Company's internal control over financial reporting and include in this Annual Report on Form 10-K a report on management's assessment of the effectiveness of our 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, to evaluate the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2007, the Company's management did not complete the assessment of the effectiveness of the Company's internal control over financial reporting, implementing the criteria set forth by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission in "Internal Control-Integrated Framework". Management has concluded as a result that its disclosure controls and procedures may not be effective at the reasonable assurance level as of December 31, 2007. Specifically, its control environment possibly may not sufficiently promote effective internal control over financial reporting through the management structure to prevent a material misstatement. The Company needs to complete implementing the internal controls based on the criteria established in Internal Control -- Integrated Framework issued by the COSO. The management is fully committed to implement the internal controls based on these criteria in 2008 and the management believes that it is taking the steps that will properly address any issue. 26 Subsequent to December 31, 2007, the Company plans to hire a Chief Financial Officer and is utilizing several full time accounting contractors serving in senior and staff level accounting positions. The Company is actively recruiting high-level competent accounting personnel. While we are taking immediate steps and dedicating substantial resources to implement the internal controls based on the criteria established in Internal Control - Integrated Framework issued by the COSO, they will not be considered fully implemented until the new and improved internal controls operate for a period of time, are tested and are found to be operating effectively. The Company's registered public accountant has not conducted an audit of the Company's controls and procedures regarding internal control over financial reporting. Consequently, the registered public accounting firm expresses no opinion with regards to the effectiveness or implementation of the Company's controls and procedures with regards to internal control over financial reporting. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING There have been no changes in the Company's internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. ITEM 9B: OTHER INFORMATION None. PART III ITEM 10: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT Our directors, executive officers and key employees as of March 14, 2008 were as follows: Name Age Position - -------- ------- ----------- Sakae Torisawa 62 Chairman of the Board of Directors Zee Moey Ngiam 52 Director Colin St.Gerard Binny 54 Chief Executive Officer, President, Interim Acting Chief Financial Officer and 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. ZEE MOEY NGIAM Mr. Ngiam has served as a director of the Company since March 5, 2007. He is a Fellow Member of the Institute of Certified Public Accountants of Singapore; he is a Member of Marketing Institute of Singapore, and a Fellow of Association of Chartered Certified Accountants UK. From 1987 - March, 2005 he has been Group Financial Controller for Lauw & Sons Group of Companies. He was responsible for all financial matters of the Group's Singapore operation, development and implementation of marketing programs of the Group's Properties and identification and development of investment opportunities. He also reviewed quarterly financial and Management reports of overseas Companies in USA, Taiwan and Australia. From 2004 until present, he has been Joint Company Secretary for AEI Corporation Ltd. COLIN BINNY Mr. Binny has served as the Chairman of the Board, Chief Executive Officer and Director since 2000. He held various senior management positions with local and global companies over the last 25 years. He is also the Chairman of B Media Pte Ltd (formerly known as M2B Media Pte Ltd). From 1996 through 1999, Mr. Binny was the President and CEO of UTV International (Singapore). Mr. Binny obtained his marine engineering diploma from the Singapore Polytechnic in 1975. 27 As of March 14, 2008, the following directors and executive officers have resigned from the Company: Name Age Position Resignation Date - --------------------------- ------ ------------------------------------------- ----------------------- Bee Leng Ho 35 Director and former Chief Financial Officer December 21, 2007 Lewis Marks 57 Director December 24, 2007 Francis Keong Kwong Foong 48 Director and former Chief Financial Officer February 10, 2008
10.1 COMMITTEES The Board of Directors of the Company has established the following committees on April 30, 2007: o Audit Committee The Audit Committee's responsibilities include: o appointing, retaining, approving the compensation of and assessing the independence of our independent registered public accounting firm, including pre-approval of all services performed by our independent registered public accounting firm; o overseeing the work of our independent registered public accounting firm, including the receipt and consideration of certain reports from the firm; o reviewing and discussing with management and the independent registered public accounting firm our annual and quarterly consolidated financial statements and related disclosures; o monitoring our internal control over financial reporting, disclosure controls and procedures and code of business conduct and ethics; o establishing procedures for the receipt and retention of accounting related complaints and concerns; o meeting independently with our independent registered public accounting firm and management; and o preparing the audit committee report required by SEC rules. The members of the Audit Committee are Ngaim Zee Moey, Colin Binny and Francis Foong (resigned on February 10, 2008) o Nominating and Governance Committee The Nominating and Corporate Governance Committee's responsibilities include: o identifying individuals qualified to become directors; o reviewing with the board the standards to be applied in making determinations regarding independence of board members; o reviewing and making recommendations to the board with respect to size, composition and structure; o developing and recommending to the board our code of business conduct and ethics; o developing and recommending to the board Corporate Governance Guidelines; o overseeing an annual evaluation of the board; and o providing general advice to the board on corporate governance matters. The members of the Nominating and Corporate Governance Committee are Sakae Torisawa, Lewis Marks (resigned on December 24, 2007) and Ho Bee Leng (resigned on December 21, 2007) 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; 28 o overseeing and administering our equity incentive plans; and o preparing the annual executive compensation report The members of the Compensation Committee are Sakae Torisawa, Ngiam Zee Moey and Lewis Marks (resigned on December 24, 2007) 10.2 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 under Item 10 of Form 8-K relating to amendments to or waivers from provisions of the code that relate to one or more of the items set forth in Item 406(b) of Regulation S-B, 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. 10.3 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, 2007 and thereafter, or any written representations received by us from reporting persons that no other reports were required, we believe that, during our fiscal 2007, not all Section 16(a) filing requirements applicable to our reporting persons were met. We will use our best efforts to ensure that any outstanding filings are filed as soon as possible. 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 $100,000 (collectively, the "named executive officers") during fiscal year ended 2007 shown below. Change in Pension Non-Equity Value and Incentive Non-qualitative Stock Option Plan Deferred All Other Name and Principal Awards Awards Compensation Compensation Compensation Total Position Year Salary($) Bonus($) ($) ($) ($) Earnings($) ($) ($) - ------------------------ ---- --------- ------- ------- ------ ------------ ------------ ------------ ---------- Colin Binny, CEO 2007 44,949 -- -- -- -- -- 810 45,759 2006 110,065 83,725 -- -- -- -- 142,828 336,618 2005 92,537 31,847 21,900 -- -- -- 110,598 256,882 Francis Foong, 2007 -- -- -- -- - -- - -- former CFO (Resigned 2006 50,799 52,054 54,000 -- - -- 16,718 173,571 on August 31, 2006) 2005 52,878 18,628 70,500 -- - -- 74,776 216,782 Bee Leng Ho, 2007 26,093 -- -- -- - -- 81,482 107,575 former CFO (Resigned 2006 45,908 24,411 40,500 -- - -- 5,713 116,532 on April 2, 2007)
(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, 2006 and December 31, 2007. (3) Subsequent to December 31, 2006, Francis Foong had voluntarily returned to the Company an amount of $161,999 paid to him as director's fees in relation to FY2005 and FY2006. 29 In December 2006, a total of 120,000 shares of common stock were approved by the Board of Directors to be issued to Francis Foong, the Company's former CFO for services rendered valued at $54,000 pursuant to the Company's 2004 Equity Compensation Plan. In December 2006, a total of 90,000 shares of common stock were approved by the Board of Directors to be issued to Bee Leng Ho, the Company's then CFO for services rendered valued at $40,500 pursuant to the Company's 2004 Equity Compensation Plan. In December 2005, a total of 7,300 shares of common stock were issued to Colin Binny, the Company's CEO for services rendered valued at $21,900 pursuant to the Company's 2004 Equity Compensation Plan. In December, 2005, a total of 4,700 shares of common stock were issued and 18,800 shares of common stock were approved by the Board of Directors to be issued to Francis Foong, the Company's then CFO for services rendered to the Company valued at $70,500 pursuant to the Company's 2004 Equity Compensation Plan. As of December 31 2007, 9,745,040 million shares of common stock are left unused in the Company's 2004 Equity Compensation Plan. Outstanding Equity Awards at Fiscal Year-End Table ---------------------------------------------------------------------- ---------------------------------- Option Awards Stock Awards ------------- ------------- ---------- -------- --------- ------------ ------ ------- --------- --------- Name Number Number Equity Option Option Number Market Equity Equity of of IncentiveExercise Expiration of Value Incentive Incentive Securities Securities Plan Price Date Shares of Plan Plan Underlying Underlying Awards: ($) or Shares Awards: Awards: Unexercised Unexercised Number Units or Number Market Options Options of of Units of or (#) (#) Securities Stock of Unearned Payout Exercisable Unexercisab Underlying That Stock Shares, Value Unexercised Have That Units of Unearned Not Have or Unearned Options Vested Not Other Shares, (#) (#) Vested Rights Units ($) That or Have Other Not Rights Vested That (#) Have Not Vested ($) NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL ------------- ------------- ---------- -------- --------- ------------ ------ ------- --------- --------- EQUITY COMPENSATION PLAN INFORMATION The following table sets forth equity compensation plan information as of December 31, 2007: 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 plans approved by NIL NIL 9,745,040 stockholders
REIMBURSEMENT OF EXPENSES The Company reimburses each Director for reasonable expenses (such as travel and out-of-pocket expenses) in attending meetings of the Board of Directors. Directors are not separately compensated for their services as Directors. EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS There are no employment agreements with the Company's key employees at this time. 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. 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. 30 ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS GENERAL As of March 14, 2008, a total of 159,431,861 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 22,111,888 (1) 13.87% 112 Middle Road #08-01 (Indirect) Midland House Singapore 188970 Bee Leng Ho 90,000 0.06% Former officer and director (Direct) 112 Middle Road #08-01 Midland House Singapore 188970 Sakae Torisawa 1,712,808 1.07% 112 Middle Road #08-01 (Direct) Midland House Singapore 188970 Lewis Marks 89,000 0.06% Former officer and director (Direct) 112 Middle Road #08-01 Midland House Singapore 188970 Zee Moey Ngiam 0 0.00% 112 Middle Road #08-01 (Direct) Midland House Singapore 188970 Francis Foong 0 0.00% Former officer and director (Direct) 112 Middle Road #08-01 Midland House Singapore 188970 All Directors and Officers 24,003,696 15.21% As A Group (6 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) Information on former officers and directors who have resigned are available in Item 10. ITEM 13: CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS o On January 15, 2007, Amaru Holdings Limited ("Amaru Holdings"), a British Virgin Islands corporation and a wholly-owned subsidiary of Amaru, Inc., a Nevada corporation (the "Company") entered into a sale and purchase agreement together with other sellers (the "Agreement") with Auston International Group, Ltd., a Singapore company ("Auston") to sell to Auston its majority owned subsidiary, M2B World Asia Pacific Pte Ltd., together with its subsidiary, M2B World Holdings Limited (collectively, "M2B Asia"). Auston is a company trading on the Singapore Stock Exchange. The Agreement provides for the sale of 42,459,978 shares of M2B Word Asia Pacific Pte Ltd, its total issued and outstanding capital. As the consideration for M2B World Asia Pacific Pte Ltd shares, Auston agreed to issue a total of 660 million new ordinary shares of Auston to M2B World Asia Pacific Pte Ltd shareholders. The Auston shares are valued at S$0.25 per share. 31 The Agreement is subject to certain conditions precedent, including, but not limited to the shareholder approval of the transaction by Auston shareholders, the approval of the Singapore Stock Exchange and other related regulatory approvals of both parties. Amaru Holdings is required to deliver a valuation report by an independent auditor to Auston confirming that the value of the assets of M2B Asia is no less than that of the amount of consideration to be paid by Auston. Following the completion of the transaction, the Company would hold more than 50% of the shares of Auston. The Company believes that prior to entering into the Agreement, there were no material relationships between or among M2B Asia, the Company or any of its affiliates, officers or directors, or associates of any such officers or directors, on the one hand, and the shareholders or their respective affiliates, on the other. The Company, through one of its subsidiaries owns 11.1% of Auston, and Auston has no ownership in the Company. One of the Company's directors is also a director of Auston, however, said director did not vote on the approval of the transaction. The Agreement expired by its terms as of December 31, 2007. On February 19, 2008, the Company decided that it is in the best interest of the Company not to extend the Agreement and intends to list the securities of M2B World Asia Pacific Pte Ltd on the Singapore Stock Exchange. o On September 1, 2006, M2B World Asia Pacific Pte. Ltd entered into a licensing agreement with its investee, 121 View Corporation (Sea) Ltd (121 View). The company licensed $3 million worth of film library to 121 View. On December 20, 2006, the company licensed additional $1.7 million worth of film library to 121 View. See also Note 13 to the Financial Statements. ITEM 14: PRINCIPAL ACCOUNTING FEES AND SERVICES The following table presents fees for professional audit services rendered by our auditors for the year ended December 31, 2007 and December 31, 2006. 2007 2006 ---------- ---------- Audit fees (1) $ 281,431 $ 187,557 -- -- ---------- ---------- Total $ 281,431 $ 187,557 ========== ========== (1) Audit Fees: These are fees paid and payable for professional services performed for the financial year ended December 31, 2007 by Nexia Court & Co. and Nexia Tan & Sitoh. In 2006, these fees were paid and payable for professional services performed by Nexia Tan & Sitoh and Mendoza, Berger & Co. LLP. These are fees paid or payable for the audit of the annual financial statements and review of financial statements included in our 10-QSB filings, and services that are normally provided in connection with statutory and regulatory filings. ITEM 15: EXHIBITS The following exhibits are included herein or incorporated by reference: Exhibit Number Description - -------------- -------------------------------------------------------------- 2.1 Agreement and Plan of Reorganization with M2B World Pte. Ltd..** 3.1 Articles of Incorporation* 3.2 Amendment to the Articles of Incorporation*** 3.3 Bylaws* 4.1 Form of Subscription Agreement executed by investors in the Private Placement* 10.1 Sale and Purchase Agreement dated January 15, 2007.** 14.1 Code of Ethics of the Company* 14.2 Code of Ethics of Senior Officers of the Company* 21 Company's Subsidiaries 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 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. 33 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/ Colin Binny ------------------------------- Colin Binny, President and CEO Date: March 31, 2008 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/ Colin Binny President, CEO, Interim CFO and Director Date: March 31, 2008 - -------------------- (Principal Executive Officer and Principal Colin Binny Financial officer) /s/ Sakae Torisawa Director and Chairman of the Board of Date: March 31, 2008 - -------------------- Directors Sakae Torisawa /s/ Zee Moey Ngiam Director Date: March 31, 2008 - -------------------- Zee Moey Ngiam
34 AMARU, INC. TABLE OF CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS PAGE Report of Independent Registered Public Accounting Firm F-1 Consolidated Balance Sheets F-2 Consolidated Statements of Income F-3 Consolidated Statements of Stockholders' Equity and Comprehensive Income F-4 - F-6 Consolidated Statements of Cash Flows F-7 - F-8 Notes to Consolidated Financial Statements F-9 - F-25 35 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Amaru, Inc. Report of Independent Registered Public Accounting Firm We were engaged to audit the effectiveness of Amaru Inc's internal control over financial reporting as at 31 December 2007 based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Amaru Inc's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying of Annual Report of Amaru Inc for the year ended 31 December 2007. A company's internal controls over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting process and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys 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. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deterioriate. Since management has not completed their assessment of internal controls over financial reporting and we were unable to apply other procedures to satisfy ourselves as to the effectiveness of the company's internal control over financial reporting, the scope of our work was not sufficient to enable us to express, and we do not express, an opinion on the effectiveness of the company's internal control over financial reporting. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) the accompanying consolidated balance sheet of Amaru Inc. as at 31 December 2007, and the related statements of operations, changes in stockholders' equity, and cash flows for the year then ended in our audit report dated 31 March 2008. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the 2007 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Amaru Inc at 31 December 2007, and the consolidated results of its operations and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles. /s/ Nexia Court & Co Nexia Court & Co Chartered Accountants Sydney, Australia 31 March 2008 F-1 AMARU, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2007 AND 2006 DECEMBER 31, DECEMBER 31, 2007 2006 ----------- ----------- ASSETS Current assets Cash and cash equivalents $ 2,322,541 $ 2,294,984 Accounts receivable, net of allowance of $54,154 and nil in 2007 and 2006 10,244,589 2,106,647 Equity securities held for trading 2,924,000 -- Other current assets 4,246,947 539,604 Inventories 1,157,248 1,689,634 Investments available for sale 2,402,613 -- ----------- ----------- Total current assets 23,297,938 6,630,869 Non-current assets Property and equipment, net 1,797,146 1,215,744 Intangible assets, net 25,693,066 28,886,883 Associate 4,942,283 -- Investments available for sale 4,911,345 12,158,351 ----------- ----------- Total non-current assets 37,343,840 42,260,978 ----------- ----------- Total assets $60,641,778 $48,891,847 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable and accrued expenses $ 3,068,613 $ 2,101,970 Other payables 100,005 -- Advances from related party 155,313 -- Finance lease liabilities 10,746 -- Income taxes payable 5,428 58,473 ----------- ----------- Total current liabilities 3,340,105 2,160,443 Non-current liabilities Deferred tax liabilities 1,672,801 1,684,158 Hire purchase creditor 57,306 -- ----------- ----------- Total non-current liabilities 1,730,107 1,684,158 ----------- ----------- Total liabilities 5,070,212 3,844,601 Minority Interests 4,619,381 -- Commitments -- -- Stockholders' equity Preferred stock (par value $0.001) 5,000,000 shares authorized; 0 shares issued and outstanding at December 31, 2007 and 2006, respectively -- -- Common stock (par value $0.001) 200,000,000 shares authorized; 159,431,861 and 153,638,528 shares issued and outstanding at December 31, 2007 and 2006, respectively 159,431 153,638 Additional paid-in capital 42,918,666 38,942,126 Subscribed common stock, 0 and 420,000 shares at December 31, 2007 and 2006 respectively -- 189,000 Retained earnings 5,650,447 2,084,908 Accumulated other comprehensive income 2,223,641 3,677,574 ----------- ----------- Total stockholders' equity 55,571,566 45,047,246 ----------- ----------- Total liabilities and stockholders' equity $60,641,778 $48,891,847 =========== =========== See accompanying notes to consolidated financial statements F-2 AMARU, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEAR ENDED DECEMBER 31, 2007, 2006 AND 2005 FOR THE YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 2007 2006 2005 ------------- ------------- ------------- Revenue: Entertainment $ 14,568,379 $ 8,053,146 $ 3,278,833 Digit gaming 22,451,970 24,505,465 14,813,629 Other 32,920 14,664 3,460 ------------- ------------- ------------- Total revenue 37,053,269 32,573,275 18,095,922 Cost of services 23,349,404 24,302,425 16,352,048 ------------- ------------- ------------- Gross profit 13,703,865 8,270,850 1,743,874 Distribution costs 891,484 1,446,990 1,102,339 Administrative expenses 7,152,510 5,279,778 1,998,803 ------------- ------------- ------------- Total expenses 8,043,994 6,726,768 3,101,142 ------------- ------------- ------------- Income (loss) from operations 5,659,871 1,544,082 (1,357,268) Other (income) expense: Interest 1,378 -- -- expenses Interest income (45,819) (129,227) (2,223) Gain/Loss on disposal of equipment 10,230 -- (151) Gain on sale of investment available for sale -- (185,686) -- Management fee income -- (60,247) -- Intangible asset written off 2,420,227 -- -- Gain on dilution of interest in subsidiary (2,483,872) -- -- Net change in fair value of financial assets at fair value through Profit or Loss-held for trading 466,000 -- -- Share of loss of associate 23,832 -- -- ------------- ------------- ------------- Income (loss) before income taxes 5,267,895 1,919,242 (1,354,894) Provision for income taxes 179,103 668,713 121,377 Discontined operations: Income from operations of discontinued component, -- -- 1,643,016 including income from disposal of discontinued operations ------------- ------------- ------------- Net Income $ 5,088,792 $ 1,250,529 $ 166,745 ============= ============= ============= Attributable to: Equity holders of the Company $ 3,565,539 $ 1,250,529 $ 166,745 Minority interests 1,523,253 -- -- ------------- ------------- ------------- Net income $ 5,088,792 $ 1,250,529 $ 166,745 ============= ============= ============= Net income per share $ 0.03 $ 0.01 $ 0.00 - - - basic and diluted ============= ============= ============= Weighted average number of common shares outstanding - - - basic and diluted 156,548,902 153,605,863 117,675,312 ============= ============= ============= See accompanying notes to consolidated financial statements F-3 AMARU, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 2007, 2006 AND 2005 PREFERRED STOCK COMMON STOCK ------------------------- ------------------------- NUMBER PAR NUMBER PAR ADDITIONAL SUBSCRIBED OF VALUE OF VALUE PAID-IN COMMON RETAINED SHARES ($0.001) SHARES ($0.001) CAPITAL STOCK EARNINGS ----------- ----------- ----------- ----------- ----------- ----------- ----------- Balance at December 31, 2004 -- -- 108,800,000 $ 108,800 $ 2,851,151 -- $ 667,634 Common stock issued for cash -- -- 16,132,000 16,132 11,297,719 -- -- Repayment of trade account payable -- -- 580,000 580 434,420 -- -- Subscribed common stock issued -- -- -- -- -- -- -- Common stock issued for services -- -- 79,120 79 59,260 -- -- Common stock subscribed for cash(5,520,000 shares) -- -- -- -- -- 4,140,000 -- Common stock subscribed for services(155,840 -- -- -- -- -- 116,880 -- shares) Net income -- -- -- -- -- -- 166,745 Comprehensive loss on currency translation ----------- ----------- ----------- ----------- ----------- ----------- ----------- Comprehensive income -- -- -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Balance at December 31, 2005 -- -- 125,591,120 $ 125,591 $14,642,550 $ 4,256,880 $ 834,379 =========== =========== =========== =========== =========== =========== =========== (CONTINUED) ACCUMULATED OTHER COMPREHENSIVE INCOME ------------------------- CURRENCY TOTAL TRANSLATION FAIR VALUE MINORITY SHAREHOLDERS' RESERVE RESERVE INTEREST EQUITY ----------- ------------ ------------ ----------- Balance at December 31, 2004 $ 9,188 $ -- $ -- $ 3,636,773 Common stock issued for cash -- -- -- 11,313,851 Repayment of trade account payable -- -- -- 435,000 Subscribed common stock issued -- -- -- -- Common stock issued for services -- -- -- 59,339 Common stock subscribed for cash(5,520,000 shares) -- -- -- 4,140,000 Common stock subscribed for services(155,840 shares) -- -- -- 116,880 Net income -- -- -- 166,745 Comprehensive loss on currency translation 3,739 -- -- 3,739 Comprehensive income -- -- -- 170,484 ----------- ------------ ------------ ----------- Balance at December 31, 2005 $ 12,927 $ -- $ -- $19,872,327 =========== ============ ============ =========== See accompanying notes to consolidated financial statements F-4 AMARU, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 2007, 2006 AND 2005 PREFERRED STOCK COMMON STOCK ------------------------- ------------------------- NUMBER PAR NUMBER PAR SUBSCRIBED OF VALUE OF VALUE ADDITIONAL PAID- COMMON RETAINED SHARES ($0.001) SHARES ($0.001) IN CAPITAL STOCK EARNINGS ----------- ----------- ----------- ----------- ----------- ----------- ----------- Balance at December 31, 2005 -- -- 125,591,120 $ 125,591 $14,642,550 $ 4,256,880 $ 834,379 Common stock issued for cash -- -- 15,339,568 15,339 11,255,404 -- -- Common stock issued for services -- -- 40,000 40 59,960 -- -- Subscribed common stock issued -- -- 5,675,840 5,676 4,251,204 (4,256,880) -- Common stock issued in exchange for acquisition of film library -- -- 6,992,000 6,992 8,733,008 -- -- Common stock subscribed for services (420,000 shares) -- -- -- -- -- 189,000 -- Net income -- -- -- -- -- -- 1,250,529 Change in fair value of available for-sale-equity securities, net of tax -- -- -- -- -- -- -- Comprehensive income -- -- -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Balance at December 31, 2006 -- -- 153,638,528 $ 153,638 $38,942,126 $ 189,000 $ 2,084,908 =========== =========== =========== =========== =========== =========== =========== (CONTINUED) ACCUMULATED OTHER COMPREHENSIVE INCOME ------------------------- CURRENCY TOTAL TRANSLATION FAIR VALUE MINORITY SHAREHOLDERS' RESERVE RESERVE INTEREST EQUITY ----------- ----------- ----------- ----------- Balance at December 31, 2005 $ 12,927 $ -- $ -- $19,872,327 Common stock issued for cash -- -- -- 11,270,743 Common stock issued for services -- -- -- 60,000 Subscribed common stock issued -- -- -- -- Common stock issued in exchange for acquisition of film library -- -- -- 8,740,000 Common stock subscribed for services (420,000 shares) -- -- -- 189,000 Net income -- -- -- 1,250,529 Change in fair value of available for-sale-equity securities, net of tax -- 3,664,647 -- 3,664,647 Comprehensive income -- -- -- 4,915,176 ----------- ----------- ----------- ----------- Balance at December 31, 2006 $ 12,927 $ 3,664,647 $ -- $45,047,246 =========== =========== =========== =========== See accompanying notes to consolidated financial statements F-5 AMARU, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 2007, 2006 AND 2005 PREFERRED STOCK COMMON STOCK --------------------------- --------------------------- NUMBER PAR NUMBER PAR SUBSCRIBED OF VALUE OF VALUE ADDITIONAL PAID- COMMON RETAINED SHARES ($0.001) SHARES ($0.001) IN CAPITAL STOCK EARNINGS ----------- ----------- ----------- ----------- ----------- ----------- ----------- Balance at December 31, 2006 -- -- 153,638,528 $ 153,638 $38,942,126 $ 189,000 $ 2,084,908 Subscribed common stock issued -- -- 420,000 420 188,580 (189,000) -- Common stock issued for services -- -- 40,000 40 59,960 -- -- Common stock issued in exchange for prepayment of investment -- -- 5,333,333 5,333 3,728,000 -- -- Contribution from minority interest -- -- -- -- -- -- -- Gain on dilution of interest in subsidiary -- -- -- -- -- -- -- Net income -- -- -- -- -- -- 3,565,539 Change in fair value of available for-sale-equity securities, net of tax -- -- -- -- -- -- -- Comprehensive income -- -- -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Balance at December 31, 2007 -- -- 159,431,861 $ 159,431 $42,918,666 $ -- $ 5,650,447 =========== =========== =========== =========== =========== =========== =========== (CONTINUED) ACCUMULATED OTHER COMPREHENSIVE INCOME --------------------------- CURRENCY TOTAL TRANSLATION FAIR VALUE MINORITY SHAREHOLDERS' RESERVE RESERVE INTEREST EQUITY ------------ ------------ ------------ ------------ Balance at December 31, 2006 $ 12,927 $ 3,664,647 $ -- $ 45,047,246 Subscribed common stock issued -- -- -- -- Common stock issued for services -- -- -- 60,000 Common stock issued in exchange for prepayment of investment -- -- -- 3,733,333 Contribution from minority interest -- -- 5,580,000 5,580,000 Gain on dilution of interest in subsidiary -- -- (2,483,872) (2,483,872) Net income -- -- 1,523,253 5,088,792 Change in fair value of available for-sale-equity securities, net of tax -- (1,453,933) -- (1,453,933) Comprehensive income -- -- -- 3,634,859 ------------ ------------ ------------ ------------ Balance at December 31, 2007 $ 12,927 $ 2,210,714 $ 4,619,381 $ 55,571,566 ============ ============ ============ ============ See accompanying notes to consolidated financial statements F-6 AMARU, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2007, 2006 AND 2005 FOR THE YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31 2007 2006 2005 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 5,088,792 $ 1,250,529 $ 166,745 Adjustments for: Amortization 3,305,000 1,133,184 360,349 Depreciation 575,015 235,993 62,893 Allowance for doubtful debts 54,154 Loss on disposal of equipment 10,230 -- Intangible asset written off 2,420,227 -- Gain on disposal of property and equipment -- -- (151) Gain on sale of investment available for sale -- (185,686) Gain on dilution of interest in subsidiary (2,483,872) -- Gain on sale of discontinued operations (1,643,016) Net change in fair value of financial assets at fair value through Profit or Loss-held for trading 466,000 -- Acquisition of investment in exchange for account receivable (5,090,000) (3,000,000) Common stock issued and subscribed for services 60,000 249,000 176,219 Common stock issued in exchange for prepayment of investment 3,733,333 -- Deferred tax 179,103 -- Share of loss of associate 23,832 -- Changes in operation assets and liabilities Accounts receivable (8,192,096) (1,264,276) (842,132) Inventories 532,386 (1,677,354) (12,280) Other current assets (3,707,343) (304,318) 451,027 Accounts payable and accrued expenses 966,643 1,445,486 612,343 Other payables 100,005 Income tax payable (53,045) 668,713 -- ------------ ------------ ------------ Net cash used in operating activities (2,011,636) (1,448,729) (668,003) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from disposal of equipment 885 -- Proceeds from sale of property and equipment 151 Proceeds from sale of investment available for sale -- 1,238,001 Product development expenditures (17,460) Acquisition of equipment (1,167,532) (1,014,543) 482,176 Acquisition of intangible assets (2,531,410) (9,427,844) Acquisition of associate (66,115) -- Acquisition of software and gaming licenses and film library (9,090,488) Acquisition of investments available for sale -- (3,041,071) (945,770) ------------ ------------ ------------ Net cash used in by investing activities (3,764,172) (12,245,457) (10,535,743) CASH FLOWS FROM FINANCING ACTIVITIES Payable to related parties -- (58,392) (121,344) Advance from related party 155,313 -- Proceeds from hire purchase creditor 68,052 -- Proceeds from stock subscriptions 4,140,000 Issuance of common stock for cash -- 11,270,743 11,313,851 Capital contributed by minority shareholders 5,580,000 -- ------------ ------------ ------------ Net cash provided by financing activities 5,803,365 11,212,351 15,332,507 Effect of exchange rate changes on cash and cash equivalents -- -- 3,739 ------------ ------------ ------------ CASH FLOWS FROM ALL ACTIVITIES 27,557 (2,481,835) 4,132,500 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,294,984 4,776,819 644,319 ------------ ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,322,541 $ 2,294,984 4,776,819 ============ ============ ============ F-7 SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES: Acquisition of investments (1) $ 5,090,000 $ -- $ -- ============ ============ ============ Common stock in exchange for acquisition of film library $ -- $ 8,740,000 $ -- ============ ============ ============ Common stock in exchange for prepayment of investment (2) $ 3,733,333 $ -- $ -- ============ ============ ============ Subscribed common stock issued $ -- $ 4,256,880 $ -- ============ ============ ============
(1) On February 15, 2007, the Company through its subsidiary, M2B World Asia Pacific Pte. Ltd. subscribed for additional 4% interest in an investment for $1.7 million in exchange for the settlement of accounts receivables from the investee company. On June 27, 2007, M2B World Holdings Limited, a wholly owned subsidiary of M2B World Asia Pacific Pte. Ltd., received $2.7 million in quoted equity securities in exchange for accounts receivable from a company, as part of the sales and purchase agreement with the company. Subsequent to June 27, 2007, the remaining shares were received. (2) On July 11, 2007, Tremax International Limited, a wholly owned subsidiary of Amaru Inc., issued 5,333,333 shares of common stock in exchange for an investment in a company, as part of the sales and purchase agreement with the company. See accompanying notes to consolidated financial statements F-8 AMARU, INC. AND SUBSIDIARIES CONSOLIDATED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2007, 2006 AND 2005 1. BASIS OF PRESENTATION AND REORGANIZATION Description of Business Amaru, Inc. (the Company) through its subsidiaries under the M2B and new WOWtv brand 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 Third-Generation (3G) devices globally. It has launched multiple Broadband TV and integrated shopping websites with over 100 channels of content designed and programmed to target specific viewer profiles and lifestyles of local and international audiences. The Company controls substantial content libraries for aggregation, distribution and syndication on Broadband and other media, sourced from Hollywood and major content providers around the world. The Company's business strategy is to be a diversified media company specializing in the interactive media industry, using the latest broadband, E-Commerce and communications technologies and access to international content and programming. The Company's goal is to provide on-line entertainment-on-demand on Broadband channels, Internet portals and 3G devices across the globe; for specific and identified viewer lifestyles, demographics and interests; and to tie the viewing experience to an on-line shopping experience. This is to enable two leisure activities to be rolled into one for the ultimate convenience and reaching out to a global viewing audience. 1.2 Recent Accounting Standards and Pronouncements The Company has adopted accounting pronouncements issued before December 31, 2007, that are applicable to the company. In 2006, the FASB issued Interpretation No. 48 (FIN 48), "Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109 Accounting for Income Taxes." FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with SFAS 109. FIN 48 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company adopted FIN 48 as of January 1, 2007, as required. The current Company policy classifies any interest recognized on an underpayment of income taxes as interest expense and classifies any statutory penalties recognized on a tax position taken as selling, general and administrative expense. There were no interest or selling, general and administrative expenses accrued or recognized related to income taxes for the year ended December 31, 2007. The Company has not taken a tax position that would have a material effect on December 31, 2007 or during the prior three years applicable under FIN 48. It is determined not to be reasonably possible for the amounts of unrecognized tax benefits to significantly increase or decrease within 12 months of the adoption of FIN 48. The Company is currently subject to a three year statute of limitations by major tax jurisdictions. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 2.1 Principles of Consolidation The consolidated financial statements include the financial statements of Amaru, Inc. and its majority owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. In addition, the Company evaluates its relationships with other entities to identify whether they are variable interest entities as defined by FASB Interpretation No. 46 (R) Consolidation of Variable Interest Entities ("FIN 46R") 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 FIN 46(R). F-9 AMARU, INC. AND SUBSIDIARIES CONSOLIDATED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2007, 2006 AND 2005 2.2 Use of Estimates The preparation of the consolidated financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Significant items subject to such estimates and assumptions include carrying amount of property and equipment, intangibles, valuation allowances of receivables and inventories. Actual results could differ from those estimates. Management has not made any subjective or complex judgments the application of which would result in any material differences in reported results. 2.3 Cash and Cash Equivalents Cash and cash equivalents are defined as cash on hand, demand deposits and short-term, highly liquid investments readily convertible to cash and subject to insignificant risk of changes in value. Cash in banks and short-term deposits are held to maturity and are carried at cost. For the purposes of the consolidated statements of cash flows, cash and cash equivalents consist of cash on hand and deposits in banks, net of outstanding bank overdrafts. The Company monitors its liquidity risk and maintains a level of cash and cash equivalents deemed adequate by management to finance the Company's operations and to mitigate the effects of fluctuations in cash flows. 2.4 Trade Accounts Receivable Trade accounts receivable, which generally have 30 to 90 day terms, are recorded at the invoiced amount less an allowance for any uncollectible amounts (if any) and do not bear interest. Amounts collected on trade accounts receivable are included in net cash provided by operating activities in the consolidated statements of cash flows. The allowance for doubtful accounts is the Company's best estimate of the amount of probable credit losses in the Company's existing accounts receivable. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Bad debts are written off as incurred. The Company does not have any off-balance sheet credit exposure related to its customers. The Company's primary exposure to credit risk arises through its trade 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. Entertainment revenues were concentrated with one customer totaling 99.53% of these related revenues for the year ended December 31, 2007 and four customers totaling 97.18% of these related revenues for the year ended December 31, 2006. F-10 AMARU, INC. AND SUBSIDIARIES CONSOLIDATED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2007, 2006 AND 2005 The Company's operations are conducted over the world wide web and some purchases are made from locations outside of Singapore. FOR THE YEAR ENDED -------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31 2007 2006 2005 ----------- ----------- ----------- Sales outside of the U.S. $37,052,863 $32,573,155 $18,095,922 Services purchased outside of the U.S. $23,231,423 $24,153,201 $16,284,120
2.5 Inventories Inventories are carried at the lower of cost or and net realizable value. Cost is calculated using first-in, first-out ("FIFO") method and comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Inventories comprised primarily of finished products used in the Company's IPTV service. 2.6 Property and Equipment Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets for financial reporting purposes. Expenditures for major renewals and betterments that extend the useful lives are capitalized. Expenditures for normal maintenance and repairs are expensed as incurred. The cost of assets sold or abandoned and the related accumulated depreciation are eliminated from the accounts and any gains or losses are reflected in the accompanying consolidated statement of income of the respective period. The estimated useful lives of the assets range from 3 to 5 years. 2.7 Intangible Assets Intangible assets consist of film library, gaming and software licence and product development costs. Intangible assets which were purchased and have indefinite lives are stated at cost less impairment losses and are tested for impairment at least annually in accordance with the provisions of FASB Statement No. 142, Goodwill and Other Intangible Assets. 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 FASB Statement No. 144, Accounting for Impairment or Disposal of Long-Lived Assets. Such intangible assets are amortized over the period of the contract, which is 2 to 18 years. Included in the gaming license are the rights to a digit games license in Cambodia. The license is for a minimum period of 18 years commencing from June 1, 2005, with an option to extend for a further 5 years or such other period as may be mutually agreed. The Company capitalized the development and building cost related to the broad-band sites and infrastructure for the streaming system, most of which was developed in 2002 as product development costs. The Company projects that these development costs will be useful for up to 5 years before additional significant development needs to be done. 2.8 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 F-11 AMARU, INC. AND SUBSIDIARIES CONSOLIDATED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2007, 2006 AND 2005 statements using the equity method of accounting. Under the equity method, investments in associates are carried in the consolidated balance sheet 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. 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. Where a group entity transacts with an associate of the group, profits and losses are eliminated to the extent of the group's interest in the relevant associate. 2.9 Investments The Company classifies its investments in marketable equity and debt securities as "available-for-sale", "held to maturity" or "trading" at the time of purchase in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No. 115"). Equity securities held for trading as of December 31, 2007 totaled $2,924,000. Available-for-sale securities are carried at fair value with unrealized gains and losses, net of related tax, if any, reported as a component of other comprehensive income (loss) until realized. Realized gains and losses from the sale of available-for-sale securities are determined on a specific-identification basis. A decline in the market value of any available-for-sale security below cost that is deemed to be other than temporary will result in an impairment, which is charged to earnings. Available-for-sale securities that are not publicly traded or have resale restrictions greater than one year are accounted for at cost. The Company's cost method investments include companies involved in the broadband and entertainment industry. The Company uses available qualitative and quantitative information to evaluate all cost method investment impairments at least annually. 2.10 Valuation of Long-Lived Assets The Company evaluates the carrying value of long-lived assets to be held and used, other than intangible assets with indefinite lives, when events or circumstances warrant such a review. No impairment losses were recorded for the years ended December 31, 2007 and 2006. 2.11 Investments at fair value through profit or loss An instrument is classified as at fair value through profit or loss if it is held for trading or is designated as such upon initial recognition. Financial instruments are designated as fair value through profit or loss if the Company manages such investments and makes purchase and sales decisions based on their fair value. Upon initial recognition, attributable transaction costs are recognized in the income statement when incurred. Financial instruments at fair value through profit or loss are measured at fair value, and changes therein are recognized in the income statement. 2.12 Advances from Related Party Advances from related party are unsecured, non-interest bearing and payable on demand. F-12 AMARU, INC. AND SUBSIDIARIES CONSOLIDATED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2007, 2006 AND 2005 2.13 Leases Leased assets in which the Company assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition, property, plant and equipment acquired through finance leases are capitalized at the lower of its fair value and the present value of the minimum lease payments. Subsequent to recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. Leased assets are depreciated over the shorter of the lease term and their useful lives. Lease payments are apportioned between finance expense and reduction of the lease liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed. On November 1, 2007, the Company sub-leased the office premises of M2B World Inc, a wholly owned subsidiary of the Company in Los Angeles, California as part of its efforts to streamline its operations and reduce operating costs. 2.14 Foreign Currency Translation Transactions in foreign currencies are translated at foreign exchange rates ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into US dollars at foreign exchange rate ruling at that date. Non-monetary assets and liabilities measured at cost in a foreign currency are translated using exchange rates at the date of the transaction. Foreign currency transaction gains and losses are included in determining net income and were not significant. 2.15 Revenues Subscription and related services revenues are recognized over the period that services are provided. Advertising and sponsorship revenues are recognized as the services are performed or when the goods are delivered. Licensing and content syndication revenue is recognized when the license period begins, and the contents are available for exploitation by customer, pursuant to the terms of the license agreement. Gaming revenue is recognized as earned net of winnings. E-commerce commissions are recognized as received. Broadband consulting services and on-line turnkey solutions revenue are recognized as earned. 2.16 Costs of Services The cost of services pertaining to advertising and sponsorship revenue and subscription and related services are cost of bandwidth charges, channel design and alteration, copyright licensing, and hardware hosting and maintenance costs. The cost of services pertaining to E-commerce revenue is channel design and alteration, and hardware hosting and maintenance costs. The cost of services pertaining to gaming is for managing and operating the operations and gaming centers. All these costs are accounted for in the period it was incurred. 2.17 Income Taxes Deferred income taxes are determined using the liability method in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, 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. F-13 AMARU, INC. AND SUBSIDIARIES CONSOLIDATED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2007, 2006 AND 2005 2.18 Earnings (Loss) Per Share In February 1997, the Financial Accounting Standards Board (FASB) issued FAS No. 128 "Earnings Per Share" which requires the Company to present basic and diluted earnings per share, for all periods presented. The computation of earnings per common share (basic and diluted) is based on the weighted average number of shares actually outstanding during the period. The Company has no common stock equivalents, which would dilute earnings per share. 2.19 Financial Instruments The carrying amounts for the Company's cash, other current assets, accounts payable, accrued expenses and other liabilities approximate their fair value. 2.20 Advertising The cost of advertising is expensed as incurred. For the year ended December 31, 2007 and 2006, the Company incurred advertising expenses of $543,752 and $1,072,011 respectively. 2.21 Reclassifications Certain amounts in the previous periods presented have been reclassified to conform to the current year financial statement presentation. 3. EQUITY SECURITIES HELD FOR TRADING INVESTMENT DECEMBER 31, DECEMBER 31, 2007 2006 ---------- ----------- Quoted equity security, at fair value $2,924,000 $ -- ========== =========== The fair value of quoted security is based on the quoted closing market price on the date of Sale and Purchase agreement. The investment in quoted equity security at fair value includes an impairment loss of US$3.24 million. The investments in quoted equity securities comprised of 34,000,000 common shares of PT Agis at the market value of $0.086 per share. The Company's equity securities held for trading investment is denominated in Indonesian Ruppiah. 4. OTHER CURRENT ASSETS Other current assets consist of the following: DECEMBER 31, DECEMBER 31, 2007 2006 ----------- ----------- Prepayments $ 169,641 $ 177,278 Prepayments for investments 3,733,333 -- Deposits 171,095 172,882 Other receivables 172,878 189,444 ----------- ----------- $ 4,246,947 $ 539,604 =========== =========== F-14 AMARU, INC. AND SUBSIDIARIES CONSOLIDATED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2007, 2006 AND 2005 5. PROPERTY AND EQUIPMENT Property and equipment consist of the following: DECEMBER 31, DECEMBER 31, 2007 2006 ----------- ----------- Office equipment $ 1,148,013 $ 721,085 Motor vehicle 112,563 11,000 Furniture, fixture and fittings 596,790 556,069 Pony set-top boxes 842,494 265,681 ----------- ----------- 2,699,860 1,553,835 Accumulated depreciation (902,714) (338,091) ----------- ----------- $ 1,797,146 $ 1,215,744 =========== =========== Depreciation expense was $575,015 for the year ended December 31, 2007 and $235,993 for the year ended December 31, 2006. 6. INTANGIBLE ASSETS Intangible assets consist of the following: DECEMBER 31, DECEMBER 31, 2007 2006 ------------ ------------ INDEFINITE LIVES Film library $ 17,759,080 $ 17,674,378 Software license -- 2,420,227 ------------ ------------ 17,771,729 20,094,605 DEFINITE USEFUL LIVES Film library 5,331,930 2,947,564 Gaming license 7,090,000 7,090,000 Product development expenditures 719,220 669,529 Software license 12,649 -- ------------ ------------ 13,153,799 10,707,093 Accumulated amortization (5,219,813) (1,914,815) ------------ ------------ 7,933,986 8,792,278 ------------ ------------ $ 25,693,066 $ 28,886,883 ============ ============ Intangible assets purchased and have indefinite lives are stated at cost less impairment losses are tested for impairment at least annually in accordance with the provisions of FASB Statement No. 142, Goodwill and Other Intangible Assets. The software license with an indefinite life of $2,420,227, acquired in January 2004, was written off on December 31, 2007. The license refers to the license to operate a B2B trading platform in Singapore as well as the first right of refusal in some of the Asian countries, whereby the Company would be able to use the platform consisting of the Trading Programs, the System and the Intellectual Property in the designated territory should it exercise the license. The Company wrote off the license because it had decided not to venture into this kind of business. F-15 AMARU, INC. AND SUBSIDIARIES CONSOLIDATED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2007, 2006 AND 2005 FILM LIBRARY WITH INDEFINITE LIVES Intangible assets of the Company which have been classified as having indefinite useful lives relate to film library rights acquired for perpetuity by the Company. Film costs are stated at the lower of estimated net realizable value determined on an individual film basis, or cost. Film costs represent the acquisition of film rights for cash. The Company maintains distribution rights to these films for which it has no financial obligations to third parties. The Company is currently directing all its time and efforts towards building its broadband business. The Company evaluates the recoverability of its long lived assets in accordance with the provisions of Statement of Financial Accounting Standards No. 142 "Goodwill and the Intangible Assets," in which intangible assets purchased and which have indefinite lives are stated at cost less impairment losses and are tested for impairment at least annually. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. The use of a discounted cash flow model often involves the use of significant estimates and assumptions. Estimates are based upon assumptions about future demand and market conditions and can vary significantly. When necessary, the Company uses internal cash flow estimates, quoted market prices or appraisals, as appropriate, to determine fair value. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognized immediately in the profit and loss statement, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. The estimation of fair value is in accordance with AICPA Statement of Position 00-2, Accounting by Producers and Distributors of Film. Actual results may differ from estimates and as a result the estimation of fair values may be adjusted in the future. Valuations were performed on January 4, 2007 for the assessments of impairment of the Company's 100% ownership of the film library, which reflected a higher value from its cost. The methods of valuation used by the Company consisted of a discounted cash flow model, as well as sales transactions comparison method and market earnings/multiples method. Based on careful analysis of information available, the estimation for the investment value of the film library currently ranges from $400 million to $663 million. ASSETS WITH DEFINITE USEFUL LIVES 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 FASB Statement No. 144, Accounting for Impairment or Disposal of Long-Lived Assets. Such intangible assets are amortized over the period of the contract, which is 2 to 18 years. Included in the gaming license are the rights to a digit games license in Cambodia. The license is for a minimum period of 18 years commencing from June 1, 2005, with an option to extend for a further 5 years or such other period as may be mutually agreed. The Company capitalized the development and building cost related to the broad-band sites and infrastructure for the streaming system, most of which was developed in 2002 as product development costs. The Company projects that these developments costs will be useful for up to five years before additional significant development needs to be done. Amortization expense was $3,305,000 for the year ended December 31, 2007 and $1,133,184 for the year ended December 31, 2006. Estimated amortization expense related to intangible assets subject to amortization at December 31, 2007 for each of the years in the five year period ending December 31, 2012 and thereafter is: 2008 - $1,095,361; 2009 - $889,623; 2010 - $662,719, 2011 - $629,159, 2012 - $524,642 and thereafter $4,385,432. F-16 AMARU, INC. AND SUBSIDIARIES CONSOLIDATED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2007, 2006 AND 2005 7. ASSOCIATE DECEMBER 31, DECEMBER 31, 2007 2006 ----------- ---------- Fair value of investment in associate $ 3,693,650 $ -- Goodwill 1,272,465 -- Share of post-acquisition loss (23,832) -- ----------- ---------- $ 4,942,283 $ -- =========== ========== Details of the Company's associate as at December 31, 2007 are as follows: Name of Business: 121 View Corporation (SEA) Ltd Place of Incorporation: British Virgin Islands Principle of Activity: Digital signage solutions Proportion of : DECEMBER 31, 2007 DECEMBER 31, 2006 Ownership Interest ----------------- ----------------- 30.1% 25.0% One of the directors of the Company has interests in the associated company and one of the directors of the Company is also a director in the associated company. On April 20, 2007, M2B World Asia Pacific Pte. Ltd. subscribed for additional 0.2% interest in the investee company, for an investment of $66,115. Summarized financial information in respect of the Company's associate is set out below: DECEMBER 31, DECEMBER 31, 2007 2006 ----------- ----------- Total assets $ 9,353,100 $ -- Total liabilities (23,562) -- ----------- ----------- Net assets 9,329,538 -- =========== =========== Company's share of associate's net assets $ 2,808,191 $ -- =========== =========== Revenue $ 163,574 $ -- =========== =========== Loss for the period $ (77,735) $ -- =========== =========== Company's share of associate's loss for the period $ (23,832) $ -- =========== =========== F-17 AMARU, INC. AND SUBSIDIARIES CONSOLIDATED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2007, 2006 AND 2005 8. AVAILABLE-FOR-SALE EQUITY SECURITIES Available-for-sale equity securities consist of the following: DECEMBER 31, DECEMBER 31, 2007 2006 ----------- ----------- Non Current : Quoted equity securities $ 4,031,681 $ 5,676,074 Unquoted equity securities 879,664 6,482,277 ----------- ----------- 4,911,345 12,158,351 Current : Unquoted equity securities 2,402,613 -- ----------- ----------- $ 7,313,958 $12,158,351 =========== =========== The investments in quoted equity securities comprised of 36,428,571 common shares of Auston International Group Ltd (Auston). As of December 31, 2007, the market value of the Auston shares was S$0.16 (2006 :S$0.16) per share. The unquoted equity securities classified as available-for-sale, with a carrying value of $3,282,277 and $6,482,277 as of December 31, 2007 and December 31, 2006, respectively, are measured at cost less impairment losses as there is no quoted market price in an active market and other methods of determining fair value do not result in a reasonable estimate. The Company explores other alternatives and considers using other valuation techniques to establish the fair value. Valuation techniques include using recent arm's length market transactions between knowledgeable and willing parties. However, as the key investments held by the Company operate in Singapore, there are no established markets in Singapore for similar investments for the Company to obtain comparables and observable data to carry out a reliable fair valuation. 9. COMMITMENTS As of the balance sheet date, the Group has the following capital commitments: DECEMBER 31, DECEMBER 31, 2007 2006 ---------- ---------- CAPITAL COMMITMENTS: Contracted but not provided for Film library $ 118,073 $4,254,372 Set-top boxes 2,074,825 2,562,000 ---------- ---------- $2,192,898 $6,816,372 ========== ========== The Company has several noncancelable operating leases, primarily for office spaces, that expire over the next five years. F-18 AMARU, INC. AND SUBSIDIARIES CONSOLIDATED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2007, 2006 AND 2005 As of December 31, 2007, the Company has commitments for future minimum lease payments under non-cancellable operating leases (with initial or remaining lease terms in excess of one year) as follows: OPERATING LEASES -------- Year ending December 31, 2008 $262,426 2009 126,025 2010 3,976 -------- Total minimum lease payments $690,817 ======== Rent expense totaled $341,211 for the year ended December 31, 2007 and $238,744 for the year ended December 31, 2006. 10. CAPITAL STOCK (a) Common stock issued for services On March 19, 2007, the Company issued 40,000 shares of common stock in a private placement at a price of $1.50 per share for a total amount of $60,000 for services rendered to the Company. (b) Common stock issued to employees On December 20, 2006, 420,000 shares of common stock were approved for issuance at a price of $0.45 a share to its employees. These shares were issued on March 2, 2007 to the employees for their services to the Company pursuant to the Company's 2004 Equity Compensation Plan (the "Plan"). The shares of common stock issued to the employees pursuant to the Plan have been registered on the registration statement on Form S-8. (c) Common stock issued for acquisition of investment On July 11, 2007, 5,333,333 shares of common stock of the Company were approved for issuance for the acquisition of an equity investment in a company. The market value of the Company's shares at July 11, 2007 was $0.70 per share. F-19 AMARU, INC. AND SUBSIDIARIES CONSOLIDATED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2007, 2006 AND 2005 11. INCOME TAXES The Company files separate tax returns for Singapore and the United States of America. Current and deferred income taxes (tax benefits) provided is as follows: 2007 2006 2005 ----------- ----------- -------- Federal: Current $ -- $ -- $ -- Deferred (432,121) (1,064,579) 372,150 State: Current -- -- -- Deferred -- -- -- Foreign: Current -- 58,473 -- Deferred 179,103 610,240 121,377 Change in valuation allowance 432,121 1,064,579 (372,150) ----------- ----------- ----------- Total $ 179,103 $ 668,713 $ 121,377) =========== =========== ============ The Company recorded no income tax expense on discontinued operations in 2005, as the gain from disposition was not taxable. The gain from disposition is also not subject to foreign tax on the basis that it is a non-taxable capital. As of December 31, 2007 and 2006, the Company does not have US income tax from foreign operations. Reconciliation of the differences between the statutory tax and the effective income tax is as follows: 2007 2006 2005 ----------- ----------- ----------- Tax computed at U.S. federal statutory rate $ 1,791,084 $ 95,233 $ 778,681 State and local taxes -- -- -- Non-deductible items (1,318,726) 25,221 -- Effect of foreign income taxes (775,825) (462,529) (285,124) Others 50,449 (53,791) -- Valuation allowance 432,121 1,064,579 (372,180) ----------- ----------- ----------- Total $ 179,103 $ 668,713 $ 121,377 =========== =========== ===========
F-20 AMARU, INC. AND SUBSIDIARIES CONSOLIDATED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2007, 2006 AND 2005 Significant components of the Company's net deferred tax liabilities are as follows: 2007 2006 2005 ----------- ----------- ----------- Investments available for sale $ 725,702 $ 916,162 $ -- Depreciation and amortization 725,157 862,770 679,681 Others 12,008 -- -- ----------- ----------- ----------- Deferred tax liability 1,462,867 1,778,932 679,681 ----------- ----------- ----------- Loss carry forwards (1,757,916) (1,617,653) (993,075) Others -- (12,850) -- Valuation allowance 1,967,850 1,535,729 471,150 ----------- ----------- ----------- Deferred tax asset $ 209,934 $ (94,774) $ (521,925) ----------- ----------- ----------- Net deferred tax liability $ 1,672,801 $ 1,684,158 $ 157,756 =========== =========== ===========
The Company had available approximately $5,832,966 of unused U.S. net operating loss carry-forwards at December 31, 2007, 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. SFAS No. 109 requires a valuation allowance to be recorded when it is more likely than not that some or all of the deferred tax assets will not be realized. As of December 31, 2007 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 $3,922,621 of unused Singapore capital allowance carry-forwards at December 31, 2007, 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. 12. SEGMENT REPORTING The Company classifies its business into reportable segments. The segments consists principally of entertainment and digit gaming. Information as to the operations of the Company in each of its business segments is set forth below based on the nature of the products and services offered. The Company has provided a summary of operating income by segment. The accounting policies of the business segments are the same as those described in the summary of significant accounting policies in Note 2. Year 2007 ENTERTAINMENT DIGIT GAMING OTHER TOTAL ------------ ------------ ------------ ------------ Revenues from external customers $ 14,601,299 $ 22,451,970 $ -- $ 37,053,269 Interest revenue $ 45,819 $ -- $ -- $ 45,819 Interest expenses $ 1,378 $ -- $ -- $ 1,378 Depreciation and amortization $ 3,581,459 $ 298,556 $ -- $ 3,880,015 Segment profit (loss) $ 5,570,096 $ 471,763 $ -- $ 6,041,859 Segment assets $ 53,215,524 $ 7,349,053 $ 77,201 $ 60,641,778 Expenditures for segment assets $ 3,698,942 $ -- $ -- $ 3,698,942
F-21 AMARU, INC. AND SUBSIDIARIES CONSOLIDATED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2007, 2006 AND 2005 Reconciliation:- REVENUES Total revenues for reportable segments $ 37,053,269 Other revenue -- ------------ Total consolidated revenues $ 37,053,269 ============ INTEREST REVENUE Total interest revenues for reportable segments $ 45,784 Corporate interest revenue 35 ------------ Total consolidated interest revenue $ 45,819 ============ INTEREST EXPENSES Total interest expenses for reportable segments $ 1,378 Corporate interest expenses -- ------------ Total consolidated interest expenses $ 1,378 ============ PROFIT OR LOSS Total profit for reportable segments $ 6,041,859 Corporate loss $ (347,777) Intangible asset written off $ (2,420,227) Gain on dilution of interest in subsidiary $ 2,483,872 Loss on valuation for held for trade investment $ (466,000) Share of loss of associate $ (23,832) ------------ Income before income tax $ 5,267,895 ------------ ASSETS Total assets for reportable segments $ 60,564,577 Other assets $ 77,201 ------------ Total consolidated assets $ 60,641,778 ============ EXPENDITURES FOR SEGMENT ASSETS Total expenditures for assets for reportable segments $ 3,698,942 ============ Year 2006 ENTERTAINMENT DIGIT GAMING OTHER TOTAL ------------- ----------- ----------- ----------- Revenues from external customers $ 8,053,146 $24,505,465 $ 14,664 $32,573,275 Interest revenue $ 55,038 $ -- $ 74,189 $ 129,227 Depreciation and amortization $ 1,070,621 $ 298,556 $ -- $ 1,369,177 Segment profit $ 2,325,859 $ 317,476 $ 14,664 $ 2,657,999 Segment assets $ 38,984,965 $ 7,390,339 $ 2,516,543 $48,891,847 Expenditures for segment assets $ 19,182,387 $ -- $ -- $19,182,387 F-22 AMARU, INC. AND SUBSIDIARIES CONSOLIDATED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2007, 2006 AND 2005 Reconciliation:- REVENUES Total revenues for reportable segments $ 32,558,611 Other revenue $ 14,664 ------------ Total consolidated revenues $ 32,573,275 ============ INTEREST REVENUE Total interest revenues for reportable segments $ 55,038 Corporate interest revenue $ 74,189 ------------ Total consolidated interest revenue $ 129,227 ============ PROFIT OR LOSS Total profit for reportable segments $ 2,657,999 Corporate loss $ (738,757) ------------ Income before income tax and discontinued operations $ 1,919,242 ------------ ASSETS Total assets for reportable segments $ 46,375,304 Other assets $ 2,516,543 ------------ Total consolidated assets $ 48,891,847 ============ EXPENDITURES FOR SEGMENT ASSETS Total expenditures for assets for reportable segments $ 19,182,387 ============ Year 2005 ENTERTAINMENT DIGIT GAMING OTHER TOTAL ------------- ----------- ----------- ----------- Revenues from external customers $ 3,278,833 $14,813,629 $ 3,460 $18,095,922 Interest revenue $ 2,223 $ -- $ -- $ 2,223 Depreciation and amortization $ 254,826 $ 168,416 $ -- $ 423,242 Segment (loss) profit $ (634,798) $ (309,158) $ 3,460 $ (940,496) Segment assets $ 9,568,104 $ 5,057,195 $ 6,119,660 $20,744,959 Expenditures for segment assets $ 4,781,124 $ 4,809,000 $ -- $ 9,590,124 Reconciliation:- REVENUES Total revenues for reportable segments $ 18,092,462 Other revenue $ 3,460 ------------ Total consolidated revenues $ 18,095,922 ============ INTEREST REVENUE Total interest revenues for reportable segments $ 1,551 Corporate interest revenue $ 672 ------------ Total consolidated interest revenue $ 2,223 ============ Following table presents revenues earned from customers located in different geographic areas. Property and equipment is grouped by its location. YEAR 2007 ASIA PACIFIC UNITED STATES OTHER TOTAL ----------- ----------- ----------- ----------- Revenues from external customers $37,052,863 $ 406 $ -- $37,053,269 Property and equipment, net $ 1,495,417 $ 206,329 $ 95,400 $ 1,797,146 YEAR 2006 ASIA PACIFIC UNITED STATES OTHER TOTAL ----------- ----------- ----------- ----------- Revenues from external customers $27,872,976 $ 299 $ 4,700,000 $32,573,275 Property and equipment, net $ 825,322 $ 295,021 $ 95,400 $ 1,215,743
F-23 AMARU, INC. AND SUBSIDIARIES CONSOLIDATED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2007, 2006 AND 2005 YEAR 2005 ASIA PACIFIC UNITED STATES OTHER TOTAL ----------- ----------- ----------- ----------- Revenues from external customers $18,056,522 $ 33,000 $ 6,400 $18,095,275 Property and equipment, net $ 825,322 $ 295,021 $ 95,400 $ 1,215,743
13. RELATED PARTY TRANSACTIONS Related parties are entities with common direct or indirect shareholders and/or directors. Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial and operating decisions. Some of the Company's transactions and arrangements are with the related party and the effect of these on the basis determined between the parties is reflected in these financial statements. The balances are unsecured, interest-free and repayable on demand unless otherwise stated. F-24 AMARU, INC. AND SUBSIDIARIES CONSOLIDATED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2007, 2006 AND 2005 During the period, the Company entered into the following transactions with the related parties: FOR THE YEAR ENDED ------------------------------ DECEMBER 31, DECEMBER 31, DECEMBER 31, 2007 2006 2005 ----------- ---------- ------------ Associate : Marketing $ 110,537 $ -- $ -- =========== ========== ============ Other Related Party : Consultancy fee $ 80,339 $ -- $ -- =========== ========== ============
14. SUBSEQUENT EVENTS As of February 19, 2008, the Board of Directors of Amaru, Inc., a Nevada corporation (the "Company") ratified the decision of the Company's executive officers that a Sale and Purchase Agreement (the "Agreement") with Auston International Group Limited ("Auston"), a Singapore company listed on the Singapore Stock Exchange was terminated by its terms as of December 31, 2007 and the Company did not decide to extend it. The Agreement provided for the sale to Auston of the Company's majority owned subsidiary, M2B World Asia Pacific Pte Ltd., together with its subsidiary, M2B World Holdings Limited and for the sale of 42,459,978 shares of M2B Word Asia Pacific Pte Ltd, its total issued and outstanding capital. As the consideration for M2B World Asia Pacific Pte Ltd shares, Auston agreed to issue a total of 660 million new ordinary shares of Auston (valued at S$0.25 per share) to M2B World Asia Pacific Pte Ltd shareholders. The Agreement was subject to certain conditions precedent, including, but not limited to the shareholder approval of the transaction by Auston shareholders, the approval of the Singapore Stock Exchange and other related regulatory approvals of both parties. According to the terms of the Agreement, if the conditions set forth in Clause 3.1 (Conditions Precedent) were not satisfied or waived by the parties to the Agreement by the completion date of December 31, 2007, the Agreement shall cease (Clause 3.4 of the Agreement). Accordingly, since the conditions precedent were not met by the parties, the Agreement was terminated. Although the Agreement is terminated, the Company's Board of Directors decided to list the securities of M2B World Asia Pacific Pte Ltd on the Singapore Stock Exchange. F-25 EX-21 2 amaru_ex21.txt SUBSIDIARIES Exhibit 21 SUBSIDIARIES OF THE COMPANY M2B World, Inc. M2B World Asia Pacific Pte. Ltd. M2B Australia Pty. Ltd. M2B Entertainment, Inc. M2B Commerce Limited M2B World Travel Singapore Pte Ltd Amaru Holdings Limited M2B World Holdings Limited M2B World Pte. Ltd. Tremax International Limited M2B World Travel Limited EX-31.1 3 amaru_ex3101.txt CERTIFICATION Exhibit 31.1 CERTIFICATION I, Colin Binny, certify that: 1. I have reviewed this report on Form 10-K of Amaru, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 1a-15(f) and 15d-15(f)) for the registrant, and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to affect ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 31, 2008 /s/ Colin Binny - ----------------------- President and CEO EX-31.2 4 amaru_ex3102.txt CERTIFICATION Exhibit 31.2 CERTIFICATION I, Colin Binny, certify that: 1. I have reviewed this report on Form 10-K of Amaru, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 1a-15(f) and 15d-15(f)) for the registrant, and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to affect ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 31, 2008 /s/ Colin Binny - ------------------------- Chief Financial Officer EX-32.1 5 amaru_ex3201.txt CERTIFICATION Exhibit 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SS. 1350 ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K (the "Report") of Amaru, Inc. (the "Company"), for the fiscal year ended December 31, 2007 as filed with the Securities and Exchange Commission on the date hereof, I, Colin Binny, President and Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. Date: March 31, 2008 /s/ Colin Binny - --------------------- President and CEO EX-32.2 6 amaru_ex3202.txt CERTIFICATION Exhibit 32.2 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SS. 1350 ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K (the "Report") of Amaru, Inc. (the "Company"), for the for the fiscal year ended December 31, 2007 as filed with the Securities and Exchange Commission on the date hereof, I, Colin Binny, President and Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. Date: March 31, 2008 /s/ Colin Binny - -------------------------- Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----