UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

Mark one:

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For Quarter Ended June 30, 2015

 

OR

 

o 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 000-32695

 

Amaru, Inc.

(Exact name of registrant as specified in its charter.)

 

Nevada	88-0490089
(State of Incorporation)	(IRS Employer Identification No.)

 

35 Tai Seng l Street, #01-01 Tata Communications Exchange, Singapore 534103

(Address of principal executive offices) (Zip Code)

 

Registrant's telephone number, including area code (65) 6309 3055

 

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 o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated reporting filer o	Accelerated filer o
Non-accelerated filer o	Smaller company x
(Do not check if a smaller reporting)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. Yes o No x

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

 

Common Stock $0.001 par value	203,911,303 shares
(Class)	(Outstanding at June 30, 2015)

 

 

AMARU, INC. AND SUBSIDIARIES

Quarterly Report on Form 10-Q for the Period Ended June 30, 2015

Table of Contents

 

	PAGE
PART I:  FINANCIAL INFORMATION	F-1
ITEM 1:  CONSOLIDATED FINANCIAL STATEMENTS	F-1
Consolidated Balance Sheets	F-1
Consolidated Statements of Operations	F-2
Consolidated Statement of Stockholders’ Deficit	F-3
Consolidated Statements of Cash Flows	F-4
Notes to Consolidated Financial Statements	F-5 to F-11
ITEM 2:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	1
ITEM 3:  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	4
ITEM 4:  CONTROLS AND PROCEDURES	5
PART II:  OTHER INFORMATION	7
ITEM 1:  LEGAL PROCEEDINGS	7
ITEM 1A: RISK FACTORS	7
ITEM 2:  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	11
ITEM 3:  DEFAULTS UPON SENIOR SECURITIES	11
ITEM 4:  MINE SAFETY DISCLOSURES	11
ITEM 5:  OTHER INFORMATION	11
ITEM 6:  EXHIBITS	11
SIGNATURES	12

 

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

 

AMARU, INC. AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS (IN U.S. $)

JUNE 30, 2015 AND DECEMBER 31, 2014

 

		June 30, 2015				December 31, 2014
		(Unaudited)
ASSETS
Current assets
Cash		$	13,477			$	24,413
Accounts receivable, net of allowance of $243,818 and $244,863 at June 30, 2015 and December 31, 2014, respectively			65,129				3,682
Other current assets, net of allowance of $119,439 at June 30, 2015 and December 31, 2014, respectively			59,743				71,275
Total current assets			138,349				99,370
Non-current assets
Property, plant and equipment, net			23,270				28,605
TOTAL ASSETS		$	161,619			$	127,975
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities
Accounts payable and accrued expenses		$	1,832,646			$	1,764,488
Advances from related parties			300,403				300,403
Term loan – in default			1,499,750				1,499,750
Total current liabilities			3,632,799				3,564,641
Total liabilities			3,632,799				3,564,641
Stockholders’ deficit
Preferred stock Series B Convertible (par value $0.001) 50,000,000 shares authorized; 23,687,478 and 20,167,478 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively			23,687				20,167
Common stock (par value $0.001) 1,000,000,000 shares authorized; 203,911,303 and 202,911,303 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively			203,911				202,911
Additional paid-in capital			44,566,528				44,169,048
Accumulated deficit			(44,368,489	)			(43,986,761	)
Total Amaru Inc.’s stockholders’ equity			425,637				405,365
Non-controlling interests			(3,896,817	)			(3,842,031	)
Total stockholders’ deficit			(3,471,180	)			(3,436,666	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT		$	161,619			$	127,975

 

See accompanying notes to the consolidated financial statements.

 

 

amaru, Inc. and subsidiaries

 

CONSOLIDATED STATEMENTS OF OPERATIONS (IN U.S. $)

FOR THE THREE AND SIX MONTHS ENDED jUNE 30, 2015 and 2014 (Unaudited)

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2015				2014				2015				2014
Revenues		$	26,330			$	7,005			$	35,047			$	14,806
Cost of services			(29,137	)			(55,909	)			(52,534	)			(88,681	)
Gross (loss)			(2,807	)			(48,904	)			(17,487	)			(73,875	)
Operating expenses
Distribution costs			7,093				69,466				12,448				83,985
Administrative expenses			267,573				287,303				453,338				463,479
Total expenses			274,666				356,769				465,786				547,464
(Loss) from operations			(277,473	)			(405,673	)			(483,273	)			(621,339	)
Other income (expense)
Interest expenses			(25,568	)			(24,324	)			(50,819	)			(48,346	)
Other			22,248				51,989				97,578				77,849
Net (loss) before noncontrolling interests			(280,793	)			(378,008	)			(436,514	)			(591,836	)
Noncontrolling interests			(50,287	)			(62,625	)			(54,786	)			(99,011	)
Net (loss) attributable to common stockholders		$	(230,506	)		$	(315,383	)		$	(381,728	)		$	(492,825	)
Loss per share, basic and diluted		$	(0.00	)		$	(0.00	)		$	(0.00	)		$	(0.00	)
Weighted average shares outstanding, basic and diluted			203,911,303				194,656,710				203,734,507				194,656,710

 

See accompanying notes to the consolidated financial statements.

 

 

AMARU, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT (IN U.S. $)

FOR THE SIX MONTHS ENDED JUNE 30, 2015 (UNAUDITED)

 

		Preferred stock								Common stock								Additional								Non-				Total
		Number of shares				Par value ($0.001)				Number of shares				Par value ($0.001)				paid-in capital				Accumulated deficit				controlling Interest				stockholders’ deficit
Balance at December 31, 2014			20,167,478			$	20,167				202,911,303			$	202,911			$	44,169,048			$	(43,986,761	)		$	(3,842,031	)		$	(3,436,666	)
Issuance of preferred stock			3,520,000				3,520				–				–				348,480				–				–				352,000
Issuance of common stock			–				–				1,000,000				1,000				49,000				–				–				50,000
Net loss			–				–				–				–				–				(381,728	)			(54,786	)			(436,514	)
Balance at June 30, 2015 (unaudited)			23,687,478			$	23,687				203,911,303			$	203,911			$	44,566,528			$	(44,368,489	)		$	(3,896,817	)		$	(3,471,180	)

 

See accompanying notes to the consolidated financial statements.

 

 

Amaru, Inc. and subsidiaries

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (IN U.S. $)

FOR THE SIX months ENDED June 30, 2015 AND 2014 (unaudited)

 

		Six Months Ended June 30
		2015				2014
Cash flows from operating activities
Net loss		$	(436,514	)		$	(591,836	)
Adjustment to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation			6,484				2,925
Change in operating assets and liabilities
(Increase) decrease in accounts receivable			(61,447	)			13,249
Decrease (Increase) in other current assets			11,532				(130,795	)
Increase in accounts payable and accrued expenses			68,158				55,450
Net cash (used in) operating activities			(411,787	)			(651,007	)
Cash flows from investing activities
Acquisition of equipment			(1,149	)			(36,202	)
Net cash (used in) financing activities			(1,149	)			(36,202	)
Cash flows from financing activities
Proceeds from sale of preferred stock			352,000				800,000
Proceeds from sale of common stock			50,000				–
Net cash provided by financing activities			402,000				800,000
Net (decrease) increase in cash			(10,936	)			112,791
Cash and cash equivalents at beginning of period			24,413				33,338
Cash and cash equivalents at end of period		$	13,477			$	146,129
Supplemental disclosure of cash flow information
Cash paid for interest		$	–			$	–
Cash paid for income taxes		$	–			$	–

 

See accompanying notes to the consolidated financial statements.

 

 

AMARU, INC. AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014 (UNAUDITED)

 

 

1. ORGANIZATION

 

Amaru, Inc. and Subsidiaries (the "Company") is developing 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.

 

The key business focus of the Company is to establish itself as the provider and creator of a new generation of entertainment-on-demand and e-commerce channels on broadband, and 3G and 4G devices.

 

The Company delivers both wire and wireless solutions, streaming via computers, TV sets, PDAS and 3G and 4G devices.

 

The Company's business model in the area of broadband entertainment includes e-services, which the Company believes will provide it with multiple streams of revenue. Such revenues are derived from advertising and branding (channel and program sponsorship); on-line subscriptions; channel/portal development (digital programming services); content aggregation and syndication; broadband consulting services; broadband hosting and streaming services, and on-line dealerships and pay per view services.

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of accounting and presentation

 

The consolidated financial statements include the financial statements of Amaru, Inc. and its majority owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. 

 

The unaudited interim consolidated financial statements of the Company as of June 30, 2015 and for the three and six months periods ended June 30, 2015 and 2014, have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the SEC which apply to interim financial statements. Accordingly, they do not include all of the information and footnotes normally required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of management, such information contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the periods presented. The interim consolidated financial information should be read in conjunction with the consolidated financial statements and the notes thereto, included in the Company’s Form 10-K filed with the SEC. The results of operations for three and the six months ended June 30, 2015 are not necessarily indicative of the results to be expected for future quarters or for the year ending December 31, 2015. 

 

All consolidated financial statements and notes to the consolidated financial statements are presented in United States dollars (“US Dollar” or “US$” or “$”).

 

Presentation as a going concern

 

The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has generated recurring losses from operations of approximately $277,000 and $406,000 for the three months ended June 30, 2015 and 2014, respectively. And the Company has generated losses from operations of approximately $483,000 and $621,000 for the six months ended June 30, 2015 and 2014, respectively. These continued losses have created an accumulated deficit of approximately $44,368,000 as of June 30, 2015. The company is in default of its term loan and is subject to the continued forbearance of the lender. The Company also has a working capital deficit of approximately $3,494,000 at June 30, 2015. The Company has had and continues to have difficulty in raising adequate additional funding.

 

These factors raise substantial doubt about the Company's ability to continue as a going concern. The Company will require additional financing in order to execute its operating plan and continue as a going concern. The Company cannot predict whether this additional financing will be in the form of equity, debt or another form. The Company may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all. The Company plans to attempt to address its working capital deficiency by increasing its sales, maintaining strict expense controls and seeking strategic alliances.

 

 

In the event that these financing sources do not materialize, or the Company is unsuccessful in increasing its revenues and achieving adequate profitable operations, the Company will be forced to further reduce its costs, will be unable to repay its debt obligations currently in default or respond to competitive pressures, any of which circumstances would have a material adverse effect on its business, prospects, financial condition and results of operations.

 

The financial statements do not include any adjustments relating to the recoverability and reclassification of recorded asset amounts or amounts and reclassification of liabilities that might be necessary, should the Company be unable to continue as a going concern.

 

Use of estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

 

Cash

 

The Company considers all demand and time deposits and all highly liquid investments with an original maturity of three months or less to be cash equivalents.

 

Accounts receivable

 

Accounts receivable is stated at cost, net of an allowance for doubtful accounts, if required. Receivables outstanding longer than the payment terms are considered past due. The Company maintains an allowance for doubtful accounts for estimated losses when necessary resulting from the failure of customers to make required payments. The Company reviews the accounts receivable on a periodic basis and makes allowances where there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, the customer’s payment history, its current credit-worthiness and current economic trends.

 

Property and equipment

 

Property, plant and equipment are recorded at cost, less accumulated depreciation. Cost includes the price paid to acquire or construct the asset, including capitalized interest during the construction period, and any expenditures that substantially increase the assets value or extend the useful life of an existing asset. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Major repairs and betterments that significantly extend original useful lives or improve productivity are capitalized and depreciated over the periods benefited. Maintenance and repairs are generally expensed as incurred. The estimated useful lives of the assets range from 3 to 5 years.

 

Film library

 

The Company's film library includes movies, dramas, comedies and documentaries in which the Company has acquired distribution rights from a third party.

 

The Company completed an impairment evaluation in the fourth quarter 2009 and the film library was determined to be impaired. In conducting the analysis, the Company used a discounted cash flow approach in estimating fair value as market values could not be readily determined given the unique nature of the respective assets. Based upon the analysis the Company determined that carrying amount of the film library was fully impaired, as reflected Note 6.

 

Valuation of long-lived assets

 

The Company accounts for long-lived assets under the Financial Accounting Standard Board (“FASB”) Accounting Standards Codification (“ASC”), ASC 360, “Accounting for the Impairment or Disposal of Long-Lived Assets”. Management assesses the recoverability of its long-lived assets, which consist primarily of fixed assets and intangible assets with finite useful lives, whenever events or changes in circumstance indicate that the carrying value may not be recoverable. The following factors, if present, may trigger an impairment review: (i) significant underperformance relative to expected historical or projected future operating results; (ii) significant negative industry or economic trends; (iii) significant decline in the Company's stock price for a sustained period; and (iv) a change in the Company's market capitalization relative to net book value. If the recoverability of these assets is unlikely because of the existence of one or more of the above-mentioned factors, an impairment analysis is performed using a projected discounted cash flow method. Management must make assumptions regarding estimated future cash flows and other factors to determine the fair value of these respective assets. If these estimates or related assumptions change in the future, the Company may be required to record an impairment charge. Impairment charges would be included in the Company's consolidated statements of operations, and would result in reduced carrying amounts of the related assets on the Company's consolidated balance sheets.

 

 

Fair value of financial instruments

 

FASB ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are described below:

 

Level 1 Inputs – Unadjusted quoted market prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

 

Level 2 Inputs – Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability.

 

Level 3 Inputs – Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

 

FASB ASC 820 requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurements. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. As of June 30, 2015 and December 31, 2014, none of the Company’s assets and liabilities were required to be reported at fair value on a recurring basis. Carrying values of non-derivative financial instruments, including cash, receivables and various payables, approximate their fair values due to the short term nature of these financial instruments. There were no changes in methods or assumptions during the periods presented.

 

Advances from related party

 

Advances from a director and related party of $300,403 at June 30, 2015 and December 31, 2014, are unsecured, non-interest bearing and payable on demand.

 

Foreign currency translation

 

Transactions in foreign currencies are measured and recorded in the functional currency, U.S. dollars, using the Company's prevailing month exchange rate. The Company’s reporting currency is also in U.S. dollars. Accordingly, the Company does not have any foreign currency conversion adjustments.

 

Revenues

 

The Company's primary sources of revenue are from the sales of advertising space on interactive websites owned by the Company and subscription services.

 

The Company recognizes revenue in accordance with FASB ASC 605-10, Revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service or product is performed or delivered and collectability of the resulting receivable is reasonably assured.

   

Website advertising revenue is recognized on a cost per thousand impressions (CPM) or cost per click (CPC), and flat-fee basis. The Company earns CPM or CPC revenue from the display of graphical advertisements. An impression is delivered when an advertisement appears in pages viewed by users. Revenue from graphical advertisement impressions is recognized based on the actual impressions delivered in the period. Revenue from flat-fee services is based on a customer's period of contractual service and is recognized on a straight-line basis over the term of the contract. Proceeds from subscriptions are deferred and are included in revenue on a pro-rata basis over the term of the subscriptions.

 

 

Cost of services

 

The cost of services pertaining to advertising and subscription and related services are the cost of bandwidth charges, channel design and alteration, copyright licensing, and hardware hosting and maintenance costs. All these costs are accounted for in the period incurred.

 

Income taxes

 

Deferred income taxes are determined in accordance with FASB ASC 740, “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. In addition, deferred taxes are also recognized for operating losses that are available to offset future taxable income. The effect on deferred income taxes of a change in tax rates is recognized in the statement of operations in the period that includes the enactment date. 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.

 

The Company files income tax returns in the United States jurisdiction and certain states in the United States and certain other foreign jurisdictions. The Company is beyond the statute of limitations subjecting it to U.S. state income tax examinations by tax authorities for years before 2011. No income tax returns are currently under examination by any tax authorities.

 

(Loss) per share

 

The Company computes net income (loss) per common share in accordance with FASB ASC 260, "Earnings Per Share" ("ASC 260") and SEC SAB 98. Under the provisions of ASC 260 and SAB 98, basic net income (loss) per common share is computed by dividing the net income (loss) available to common shareholders by the weighted average number of shares of common stock outstanding during the period. Diluted income per share includes the effect of dilutive common stock equivalents from the assumed exercise of convertible preferred stock. The Company’s common stock equivalents were excluded in the computation of diluted net (loss) per share since their inclusion would be anti-dilutive. These common stock equivalents may dilute future earnings per share.

 

Advertising

 

The cost of advertising is expensed as incurred. Advertising expenses were $2,193 and $44,615, respectively, for the three months ended June 30, 2015 and 2014, respectively, and $2,193 and $47,798, for the six months ended June 30, 2015 and 2014, respectively.

  

3. RECENTLY ISSUED ACCOUNTING STANDARDS

 

In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs. The new standard will require debt issuance costs to be presented on the balance sheet as a direct reduction of the carrying value of the associated debt liability, consistent with the presentation of debt discounts. Currently, debt issuance costs are presented as a deferred asset. The recognition and measurement requirements will not change as a result of this guidance. The standard is effective for the annual reporting periods beginning after December 15, 2015 and will be applied on a retrospective basis. This amendment will not have a material impact on the Company’s financial statements.

 

In January 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") ASU 2015-01 – Income Statement – Extraordinary and Unusual Items (Subtopic 225-20). This ASU addressed the simplification of income statement presentation by eliminating the concept of extraordinary items. The objective of the Simplification Initiative is to identify, evaluate, and improve areas of generally accepted accounting principles (GAAP) for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to the users of financial statements. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The Company does not expect a material impact on its consolidated statements of condition, results of operations, or cash flows.

 

In August 2014, the FASB issued authoritative guidance that requires an entity’s management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern and requires additional disclosures if certain criteria are met. This guidance is effective for fiscal periods ending after December 15, 2016, with early adoption permitted. This accounting standard update is not expected to have any impact on the Company’s consolidated financial statements.

 

 

In June 2014, FASB issued ASU No. 2014-12, “Accounting for Share-Based Payments When the terms of an award provide that a performance target could be achieved after the requisite service period.” ASU 2014-12 requires a reporting entity to treat a performance target that affects vesting and that could be achieved after the requisite service period as a performance condition. It is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. Early adoption is permitted. This accounting standard update is not expected to have a material impact on the Company’s consolidated financial statements.

 

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers,” which supersedes the revenue recognition requirements in ASC 605, “Revenue Recognition.” The core principle of this updated guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new rule also requires additional disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. This guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The FASB has proposed deferred the effective date to annual reporting periods beginning after December 15, 2017. Companies are permitted to adopt this new rule utilizing either a full or modified retrospective approach. Early adoption is not permitted. The Company has not yet determined the potential impact of this updated authoritative guidance on its consolidated financial statements.

  

4. OTHER CURRENT ASSETS

 

Other current assets consist of the following:

 

		June 30, 2015				December 31, 2014
		(Unaudited)
Prepayments		$	29,204			$	28,964
Deposits			27,517				39,246
Other receivables, net of $119,439 allowance at June 30, 2015 and December 31, 2014			3,022				3,065
		$	59,743			$	71,275

 

A $100,000 non-interest bearing loan that was made to a third party has been included in other receivables as of June 30, 2015 and December 31, 2014. An allowance for the full amount has been recorded due to the uncertainty of collection as of June 30, 2015 and December 31, 2014. 

 

5. PROPERTY, PLANT AND EQUIPMENT

 

Property, plant and equipment consist of the following:

 

		June 30, 2015				December 31, 2014
		(Unaudited)
Office equipment		$	968,057			$	966,911
Motor vehicle			11,000				11,000
Furniture, fixture and fittings			87,082				87,078
Pony set-top boxes			843,946				843,946
			1,910,085				1,908,935
Less: accumulated depreciation			(1,886,815	)			(1,880,330	)
		$	23,270			$	28,605

 

Depreciation expense was $3,239 and $2,046, for the three months ended June 30, 2015 and 2014, respectively, $6,484 and $2,925 for the six months ended June 30, 2015 and 2014, respectively.

 

  

6. FILM LIBRARY

 

The valuation of the film library is as follows:

 

		June 30, 2015				December 31, 2014
			(Unaudited)
Acquired film library		$	23,686,731			$	23,686,731
Accumulated amortization			(4,520,325	)			(4,520,325	)
			19,166,406				19,166,406
Impairment of film library			(19,166,406	)			(19,166,406	)
Film library		$	–			$	–

 

There was no amortization expense was incurred for the three and six months ended June 30, 2015 or 2014.

 

7. COMMITMENTS

 

Operating Lease

 

The Company leases office space on a month to month basis at a monthly rental of approximately $9,000 under operating leases. Total rental expense was $26,696 and $26,731, for the three months ended June 30, 2015 and 2014, respectively, $53,504 and $55,082 for the six months ended June 30, 2015 and 2014, respectively.

 

8. INCOME TAXES

 

The Company files separate tax returns for Singapore and the United States of America.

 

The Company had available approximately $9,900,000 of unused U.S. net operating loss carry-forwards at June 30, 2015, that may be applied against future taxable income. These net operating loss carry-forwards expire for U.S. income tax purposes beginning in 2033. There is no assurance the Company will realize the benefit of the net operating loss carry-forwards.

 

The Company had approximately $5,274,000 in deferred tax assets as of June 30, 2015 and the Company provided a full valuation allowance as of June 30, 2015.

 

The Company had available approximately $12,536,000 of unused Singapore tax losses and capital allowance carry-forwards at June 30, 2015 and December 31, 2014, respectively, that may be applied against future Singapore taxable income indefinitely, provided the Company satisfies the shareholdings test for the carry-forward of tax losses and capital allowances.

 

 The Company requires a valuation allowance to be recorded when it is more likely than not that some or all of the deferred tax assets will not be realized. As of June 30, 2015, the Company maintained a full valuation allowance for the U.S. and Singapore deferred tax asset due to uncertainties as to the amount that will be realized.

 

9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

Accounts payable and accrued expenses consist of the following:

 

		June 30, 2015				December 31, 2014
		(Unaudited)
Accounts payable		$	557,904			$	569,298
Accrued expenses			79,878				79,878
Interest payable on term loan			542,807				511,953
Payroll payable			139,832				139,832
Deposits and advance from customers			6,647				6,761
Professional fees			335,797				456,766
Other payable			169,781				–
		$	1,832,646			$	1,764,488

 

 

10. TERM LOAN

 

		June 30, 2015				December 31, 2014
		(Unaudited)
Term loan		$	1,499,750			$	1,499,750

The convertible loan represented a two year convertible loan drawn down by a subsidiary Company, M2B World Asia Pacific Pte. Ltd. It bears interest at a fixed rate of 5.0% per annum. The due date of this loan was July 7, 2010 and was convertible into shares of the subsidiary at $0.942 per share through June 29, 2012. This loan is currently in default. M2B World Asia Pacific Pte. Ltd. is negotiating to obtain a further extension on the loan. Interest expense was $25,568 and $24,324 for the three months ended Jun 30, 2015 and 2014, respectively, $50,819 and $48,346 for the six months ended June 30, 2015 and 2014, respectively.

 

11. PREFERRED STOCK- SERIES B CONVERTIBLE

 

Each share of the company’s series B preferred stock is convertible into 10 shares of common stock and entitles the holder to 10 votes. As of June 30, 2015 and December 31, 2014, there are outstanding 23,687,478 and 20,167,478 shares, respectively.

 

 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

ALL FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE DEEMED BY THE COMPANY TO BE COVERED BY AND TO QUALIFY FOR THE SAFE HARBOR PROTECTION PROVIDED BY THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. PROSPECTIVE SHAREHOLDERS SHOULD UNDERSTAND THAT SEVERAL FACTORS GOVERN WHETHER ANY FORWARD - LOOKING STATEMENT CONTAINED HEREIN WILL BE OR CAN BE ACHIEVED. ANY ONE OF THOSE FACTORS COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED HEREIN. THESE FORWARD - LOOKING STATEMENTS INCLUDE PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS, INCLUDING PLANS AND OBJECTIVES RELATING TO THE PRODUCTS AND THE FUTURE ECONOMIC PERFORMANCE OF THE COMPANY. ASSUMPTIONS RELATING TO THE FOREGOING INVOLVE JUDGMENTS WITH RESPECT TO, AMONG OTHER THINGS, FUTURE ECONOMIC, COMPETITIVE AND MARKET CONDITIONS, FUTURE BUSINESS DECISIONS, AND THE TIME AND MONEY REQUIRED TO SUCCESSFULLY COMPLETE DEVELOPMENT PROJECTS, ALL OF WHICH ARE DIFFICULT OR IMPOSSIBLE TO PREDICT ACCURATELY AND MANY OF WHICH ARE BEYOND THE CONTROL OF THE COMPANY. ALTHOUGH THE COMPANY BELIEVES THAT THE ASSUMPTIONS UNDERLYING THE FORWARD - LOOKING STATEMENTS CONTAINED HEREIN ARE REASONABLE, ANY OF THOSE ASSUMPTIONS COULD PROVE INACCURATE AND, THEREFORE, THERE CAN BE NO ASSURANCE THAT THE RESULTS CONTEMPLATED IN ANY OF THE FORWARD - LOOKING STATEMENTS CONTAINED HEREIN WILL BE REALIZED. BASED ON ACTUAL EXPERIENCE AND BUSINESS DEVELOPMENT, THE COMPANY MAY ALTER ITS MARKETING, CAPITAL EXPENDITURE PLANS OR OTHER BUDGETS, WHICH MAY IN TURN AFFECT THE COMPANY'S RESULTS OF OPERATIONS. IN LIGHT OF THE SIGNIFICANT UNCERTAINTIES INHERENT IN THE FORWARD - LOOKING STATEMENTS INCLUDED THEREIN, THE INCLUSION OF ANY SUCH STATEMENT SHOULD NOT BE REGARDED AS A REPRESENTATION BY THE COMPANY OR ANY OTHER PERSON THAT THE OBJECTIVES OR PLANS OF THE COMPANY WILL BE ACHIEVED.

 

General

 

The Company is in the business of broadband entertainment-on-demand, streaming content via computers, Smart television sets, Smart Phones (3G and 4G), wireless mobile devices like iPads/tablets and Over-The-Top (OTT) devices. Its business includes channel and program sponsorship (advertising); online subscriptions, channel/portal development (digital programming services); mobile applications development, Smart TV/Connected TV applications development, content aggregation and syndication, broadband/IPTV consulting services, broadband and streaming services.

 

The following discussion should be read in conjunction with the financial statements and notes to the consolidated financial statements.

 

OVERVIEW

 

The business focus of the Company is Entertainment-on-Demand and E-Commerce Channels on Broadband, and 3G and 4G devices.

 

For the broadband, the Company delivers both wire and wireless solutions, streaming via computers, TV sets, PDAs and 3G and 4G devices.

 

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; channel/portal development (digital programming services); content aggregation and syndication; broadband consulting services; broadband hosting and streaming services; and on-line dealerships; and pay per view services.

 

In fiscal 2008, the business was reorganized under the following entities to spearhead the expansion of the Company's business and focus on specific growth areas and territories.

 

M2B WORLD PTE. LTD.

 

M2B World Pte. Ltd. was incorporated on April 3, 2003. This subsidiary used to oversee the management and operation of the Company as a whole and oversees the Asian business. With effect from September 1, 2006, the Company's Asian business was overseen by another subsidiary, M2B World Asia Pacific Pte. Ltd. As of June 30, 2015, this subsidiary is dormant.

 

 

M2B WORLD, INC.

 

M2B World, Inc., a California corporation, was incorporated on January 24, 2005. This subsidiary handled and oversaw the Company's business in the U.S in the past. The Company currently does not maintain an office space in the US. and currently has no operations.

 

On May 27, 2005, M2B World, Inc. entered into an agreement with Indie Vision Films, Inc., a California corporation, to purchase 20% of the beneficial ownership of Indie Vision Films, Inc. which provided to M2B World, Inc. access the library of programs of Indie Vision Films, Inc. The Company entered into an agreement on December 22, 2009 with Indie Vision Films, Inc to convert its investment into content rights, thereby giving up its 20% share of beneficial ownership in lieu of library rights that the Company could exploit commercially for international use.

 

M2B WORLD ASIA PACIFIC PTE. LTD.

 

M2B World Asia Pacific Pte Ltd was incorporated in the Republic of Singapore on 1 August 2006 for the purposes of handling all the business operations of the Company in the Asia Pacific region. This Company had taken over the Asian business operations as well as the assets and liabilities of M2B World Pte. Ltd. from September 1, 2006.

 

On January 3, 2007, M2B World Asia Pacific Pte Ltd, issued 7,778,014 shares of common stock through a private placement at a price of $0.77 a share for a total amount of $6,000,000. This had effectively reduced the Company's effective equity interest in M2B World Asia Pacific Pte. Ltd from 100% to 81.6%.

 

On July 8, 2008, M2B World Asia Pacific Pte Ltd signed a two year convertible loan agreement with a third party for $2,500,000 in funding. Prior to 2014, the Company made repayments bringing the balance to $1,499,750. The convertible loan represented a two year convertible loan drawn by this subsidiary. It bears interest at a fixed rate of 5.0% per annum. The loan allowed the borrower to convert the loan into shares of the Company at the issue price of $0.942 per share at the end of the two year period. The loan bears an interest rate of 5.0% per annum, and will mature in July 7, 2010. The note was obtained from a company in which a board member is the Joint Company Secretary of the lender. The conversion period of the convertible loan was extended for an additional twelve months commencing July 8, 2010 and was further extended to November 30, 2011.  The loan was further granted extension to June 29, 2012 and an extension of the due date is being negotiated.

 

M2B COMMERCE LIMITED

 

M2B Commerce Limited, a company incorporated in the British Virgin Islands on July 25, 2002, focused on e-commerce and digit gaming and had a branch in Cambodia that oversaw the digit gaming operation in Cambodia.

 

On March 25, 2009, the Company was notified that the digit games were suspended by the Cambodia Government as part of the suspension of all lotteries in Cambodia. At this time, the Company believes that the suspension of the digit game is permanent as the Government of Cambodia has closed the gaming business by the order of its Ministry of Economy and Finance.

 

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 operates an integrated resort in the Kingdom of Cambodia. The resort features a hotel, guest house, shopping arcade, entertainment and amusement center and some gaming tables. The resort was completed and commenced operations in 2006. As of December 31, 2011, the company had invested $2,802,613 in relation to this investment. This investment had been fully impaired as of March 31, 2014. This investment had been written off as of December 31, 2014.

 

M2B AUSTRALIA PTY LTD

 

M2B Australia Pty Ltd was incorporated on June 15, 2005 to handle and oversee the Company's business in Australia. As of June 30, 2015, this subsidiary is dormant.

 

AMARU HOLDINGS LIMITED AND M2B WORLD HOLDINGS LIMITED

 

Amaru Holdings Limited and M2B World Holdings Limited were 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 the 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. As of June 30, 2015, both companies are dormant .

 

RESULTS OF OPERATIONS

 

REVENUE

 

Financial Statement

 

·

Revenue for the three months ended June 30, 2015 was $26,330 compared with $7,005 for the same period in 2014. Revenue for the six months ended June 30, 2015 was $35,047 compared with $14,806 for the same period in 2014.

 

·

The Company's cash balance was $13,477 at June 30, 2015 compared with $24,413 at December 31, 2014.

 

Revenue

 

Revenue for the three and six months ended June 30, 2015 at $26,330 and $35,047 were higher than revenue of $7,005 and $14,806 for the three and six months ended June 30, 2014, respectively. It was mainly due to an increase in advertising revenue from new customers for the three and six months ended June 30, 2015.

 

Cost of Services

 

Cost of services for the three and six months ended June 30, 2015 were $29,137 and $52,534 which decreased from $55,909 and $88,681 for the three and six months ended June 30, 2014, respectively. The decrease was mainly due to cost spending on web video movies and other related production costs during the three and six months ended June 30, 2015.

 

DISTRIBUTION EXPENSES

 

Distribution expenses for the three and six months ended June 30, 2015 were $7,093 and $12,448 compared to $69,466 and $83,985 incurred for the three and six months ended June 30, 2014, respectively.

 

The lower distribution expenses were due to decreased spending on advertising and marketing costs during the three and six months ended June 30, 2015.

 

GENERAL AND ADMINISTRATIVE EXPENSES

 

General and administrative expenses for the three and six months ended June 30, 2015 were $267,573 and $453,338 as compared to $287,303 and $463,479 for the three and six months ended June 30, 2014, respectively.

 

The decrease in general and administrative expenses for the period ended June 30, 2015 was attributed mainly to the decrease in legal and professional costs for the period ended June 30, 2015.

 

(LOSS) FROM OPERATIONS

 

The Company incurred a loss from operations of $277, 473 and $483,273 for the three and six months ended June 30, 2015 as compared to the loss from operations of $405,673 and $621,339 for the three and six months ended June 30, 2014, respectively, mainly due to decrease in cost of services and distribution costs.

 

NET LOSS BEFORE NON-CONTROLLING INTERESTS

 

Net loss before non-controlling interests for the three months ended June 30, 2015, was $280,793 which decreased by $97,215 (26%) from net loss of $378,008 for the three months ended June 30, 2014, it was mainly due to the decrease in cost of services and distribution costs for the three months ended June 30, 2015, income had increased by $19,325 (276%) from $7,005 for the three months ended June 30, 2014 to $26,330 for the three months ended June 30, 2015.

 

Net loss before non-controlling interests for the six months ended June 30, 2015, was $436,514 which decreased by $155,322 (26%) from net loss of $591,836 for the six months ended June 30, 2014, it was mainly due to the decrease in cost of services and distribution costs for the six months ended June 30, 2015, income had increased by $20,241 (137%) from $14,806 for the six months ended June 30, 2014 to $35,047 for the six months ended June 30, 2015.

 

 

LIQUIDITY AND CAPITAL RESOURCES

 

The Company had cash at $13,477 at June 30, 2015 as compared to cash of $24,413 at December 31, 2014.

 

Our operations have been financed by the proceeds from its private placements of shares.

 

During the three and six months ended June 30, 2015, 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 2015 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 current operations and planned business expansion; however no assurances can be made that the Company will raise sufficient funds as planned.

 

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The Company does not believe that it faces material market risk with respect to its cash and cash equivalents which totaled $13,477 and $24,413 at June 30, 2015 and December 31, 2014, respectively.

 

The Company has no other material long-term obligations or hedging activities other than the term loan with an outstanding balance of $1,499,750 as of June 30, 2015. The term loan represents a two year convertible loan drawn down by a subsidiary company, M2B World Asia Pacific Pte. Ltd.. It bears interest at a fixed rate of 5.0% per annum. The loan allowed the lender the option to convert the loan into shares of the subsidiary company at the issue price of $0.942 per share at the end of the two year period. The due date of the loan was July 7, 2010. The conversion period of the convertible loan was extended for an additional twelve months commencing July 8, 2010 and was further extended to June 29, 2012. M2B World Asia Pacific Pte. Ltd. is negotiating to obtain a further extension on the loan. .

 

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, principally focusing on Asia. The degree of success of this depends on:

 

·

our efforts to establish independent broadband sites in countries where conditions are suitable and attract paying users.

 

·

our ability to expand our offerings of content in entertainment and education, to include more niche channels and offerings.

 

·

our ability to provide content not only to personal computers but to encompass television, wireless application devices and 3G and 4G mobile devices.

 

ABILITY TO ACQUIRE NEW MEDIA CONTENT

 

The continued ability of the Company to acquire rights to new media content, at competitive rates, is crucial to grow and maintain 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, political and social status. The Company's prospects for business growth in Asia especially would be impacted by overall economic conditions in the territories that we seek to expand into.

 

 

COMPETITION FROM BROADBAND CABLE AND TV NETWORKS OPERATORS

 

The competition of our services is provided by broadband cable network operators and TV networks. As traditional TV networks and cable TV operators provide an 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 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 breaches, 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 proprietary rights to certain domain names are very important to M2B'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 the 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 expands 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 N1H1 VIRUS FLU PANDEMIC OR SIMILAR PUBLIC HEALTH DEVELOPMENTS

 

Any future outbreak of the N1H1 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 4: CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

A system of disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-l5(e)) under the Securities Exchange Act of 1934,as amended [the "Exchange Act"]) are controls and other procedures that are designed to provide reasonable assurance that the information that the Company is required to disclose in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives, and management necessarily is required to use its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls is based in 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.

 

 

The Company's Chief Executive Officer and Chief Financial Officer are responsible for establishing and maintaining disclosure controls and procedures for the Company, and have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not effective as of the end of the period covered by this report, based on their evaluation of these controls and procedures required by paragraph (b) of Rules 13a-15(f) and 15d-15(f), due to certain material weaknesses in our internal control over financial reporting as discussed below.

Internal Control Over Financial Reporting

 

The Company’s management is responsible for establishing and maintaining adequate internal controls over financial reporting for the Company.  Due to limited resources, Management conducted an evaluation of internal controls based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). The results of this evaluation determined that our internal control over financial reporting was ineffective as of June 30, 2015, due to material weaknesses.  A material weakness in internal control over financial reporting is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.  A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of our financial reporting.

 

Management’s assessment identified the following material weaknesses in internal control over financial reporting:

 

	·	The small size of our Company limits our ability to achieve the desired level of separation of internal controls and financial reporting.  We do not have a separate CEO and CFO, to review and oversee the financial policies and procedures of the Company, which does achieve a degree of separation.  Until such time as the Company is able to hire a separate CFO, we do not believe we meet the full requirement for separation.
	·	We do not have a functional audit committee since our Board of Directors acts as the audit committee.
	·	We have not achieved the desired level of documentation of our internal controls and procedures.  When the Company obtains sufficient funding, this documentation will be strengthened through utilizing a third party consulting firm to assist management with its internal control documentation and further help to limit the possibility of any lapse in controls occurring.

 

As a result of the material weaknesses in internal control over financial reporting described above, the Company’s management has concluded that, as of June 30, 2015, the Company's internal control over financial reporting was not effective based on the criteria in Internal Control - Integrated Framework issued by the COSO.

 

To date, the Company has not been able to create an Audit Committee due its limited financial resources and lack of independent directors. When the Company obtains sufficient funding, Management intends to create and appoint members to the Audit Committee and charge them with assisting the Company in addressing the material weaknesses noted above. The Company’s lack of current financial resources makes it impossible for the Company to hire the appropriate personnel needed to overcome these weaknesses and ensure that appropriate controls and separation of responsibilities of a larger organization exist. We also will continue to follow the standards for the Public Company Accounting Oversight Board (United States) for internal control over financial reporting to include procedures that:

 

·

Pertain to the maintenance of records in reasonable detail accurately that fairly reflect the transactions and dispositions of the Company's assets;

·

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the Board of Directors; and

·

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statements.

 

Changes In InternalControl Over Financial Reporting

 

Our management determined that there were no changes made in our internal controls over financial reporting during the quarter ended June 30, 2015 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

 

This report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this report.

 

 

PART II: OTHER INFORMATION

 

ITEM 1: LEGAL PROCEEDINGS

 

None

 

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's liquidity and capital resources remain limited. There can be no assurance that the Company's liquidity or capital resource position would allow us to continue to pursue its current business strategy. The Company's quoted equity securities held as assets are dependent on the market value. Any fluctuations or downturn in the securities market could adversely affect the value of these equity securities held. As a result, without achieving growth in its business along the lines it has projected, it would have to alter its business plan or further augment its cash flow position through cost reduction measures, sales of assets, additional financings or a combination of these actions. One or more of these actions would likely substantially diminish the value of its common stock.

 

THE MARKET MAY NOT BROADLY ACCEPT THE COMPANY'S BROADBAND WEBSITES AND SERVICES, WHICH WOULD PREVENT THE COMPANY FROM OPERATING PROFITABLY.

 

The Company must be able to achieve broad market acceptance for its Broadband websites and services, at a price that provides an acceptable rate of return relative to the Company-wide costs in order to operate profitably. There is no assurance that the market will develop sufficiently to enable the Company to operate its Broadband business profitably. Furthermore, there is no assurance that any of the Company's services will become generally accepted, nor is there any assurance that enough paying users and advertisers will ultimately be obtained to enable us to operate these business profitably.

 

BROADBAND USERS MAY FAIL TO ADOPT THE COMPANY'S BROADBAND SERVICES.

 

The Company's Broadband services are targeted to the growing market of Broadband users worldwide to deliver content and E-commerce in an efficient, economical manner over the Broadband networks. The challenge is to make the Company's business attractive to consumers, and ultimately, profitable. To do so has required, and will require, the Company to invest significant amounts of cash and other resources. There is no assurance that enough paying users and advertisers will ultimately be obtained to enable the Company to operate the business profitably.

 

FAILURE TO SIGNIFICANTLY INCREASE THE COMPANY'S USERS AND ADVERTISERS MAY RESULT IN FAILURE TO ACHIEVE CRITICAL MASS AND REVENUE TO BUILD A SUCCESSFUL BUSINESS.

 

The Company incurs significant up-front costs in connection with the acquisition of content, and bandwidth and network charges. The plan is to obtain recurring revenues in the form of subscription and advertising fees to use the Broadband services, either paid by the users or advertisers.

 

There is no assurance as to whether the Company will be able to maintain, or whether and how quickly the Company will be able to increase its user base, or whether the Company will be able to generate recurring subscription and advertising fees to such a level that would enable this line of business to achieve 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.

 

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 into 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 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 available to the Company or at a considerably higher price than it currently pays for them, and suitable alternatives could not be found, the business could be harmed.

 

THE COMPANY COULD BE AFFECTED BY GOVERNMENT REGULATION.

 

The list of countries to which our solutions and services could not be exported could be revised in the future. Furthermore, some countries may in the future impose restrictions on streaming of broadband contents and related services. Failure to obtain the required governmental approvals would preclude the sale or use of services in international markets and therefore, harm the Company's ability to grow sales through expansion into international markets. While regulations in almost all countries in which our business currently operates generally permit the broadband services, such regulations in future may not be as favorable and may impede our ability to develop business.

 

THE COMPANY COULD BE AFFECTED BY PIRACY IN ASIA.

 

The Company is in the process of expanding its services globally, and in particular is entering specific countries in Asia with customized country sites. These country sites are designated to suit viewership patterns and styles in the countries they are launched in, and make use of the Company's content and intellectual property rights to the content. The piracy of content is a significant problem in many Asian countries, and it is not uncommon to see movies and television dramas appearing on illegal internet sites, and sold as pirated DVDs and VCDs. The extent of this piracy of content in the specific countries that the Company is launching its sites will adversely affect to a certain degree the amount of advertising and subscription revenues that the Company could earn.

 

THE COMPANY COULD BE AFFECTED BY ECONOMIC DOWNTURNS

 

The global economy underwent a massive downturn in 2009, which commenced in the second half of 2008. Many countries were faced with negative growth rates.. Where the media industry was concerned, major corporations reduced their advertising expenditures or even cut back substantially all advertising and promotional expenditures towards the latter half of 2008. The Company is heavily reliant on advertising and syndication revenues. Any future downturns in any one country that the Company operates its WOWtv service would significantly affect the Company's revenues.

 

OUR COMMON STOCK IS CONSIDERED A "PENNY STOCK". THE APPLICATION OF THE "PENNY STOCK" RULES TO OUR COMMON STOCK COULD LIMIT THE TRADING AND LIQUIDITY OF THE COMMON STOCK, ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK AND INCREASE THE TRANSACTION COSTS TO SELL THOSE SHARES.

 

Our common stock is a "low-priced" security or "penny stock" under rules promulgated under the Securities Exchange Act of 1934, as amended. In accordance with these rules, broker-dealers participating in transactions in low-priced securities must first deliver a risk disclosure document which describes the risks associated with such stocks, the broker-dealer's duties in selling the stock, the customer's rights and remedies and certain market and other information. Furthermore, the broker-dealer must make a suitability determination approving the customer for low-priced stock transactions based on the customer's financial situation, investment experience and objectives. Broker-dealers must also disclose these restrictions in writing to the customer, obtain specific written consent from the customer, and provide monthly account statements to the customer. The effect of these restrictions will likely decrease the willingness of broker-dealers to make a market in our common stock, will decrease liquidity of our common stock and will increase transaction costs for sales and purchases of our common stock as compared to other securities.

 

THE STOCK MARKET IN GENERAL HAS EXPERIENCED VOLATILITY THAT OFTEN HAS BEEN UNRELATED TO THE OPERATING PERFORMANCE OF LISTED COMPANIES. THESE BROAD FLUCTUATIONS MAY BE THE RESULT OF UNSCRUPULOUS PRACTICES THAT MAY ADVERSELY AFFECT THE PRICE OF OUR STOCK, REGARDLESS OF OUR OPERATING PERFORMANCE.

 

Shareholders should be aware that, according to SEC Release No. 34-29093 dated April 17, 1991, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include (1) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (2) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (3) boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (4) excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and (5) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses. The occurrence of these patterns or practices could increase the volatility of our share price.

 

 

WE DO NOT EXPECT TO PAY DIVIDENDS FOR THE FORESEEABLE FUTURE, AND WE MAY NEVER PAY DIVIDENDS. INVESTORS SEEKING CASH DIVIDENDS SHOULD NOT PURCHASE OUR COMMON STOCK.

 

We currently intend to retain any future earnings to support the development of our business and do not anticipate paying cash dividends in the foreseeable future. Our payment of any future dividends will be at the discretion of our Board of Directors after taking into account various factors, including but not limited to our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may be a party to at the time. In addition, our ability to pay dividends on our common stock may be limited by Nevada state law. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize a return on their investment. Investors seeking cash dividends should not purchase our common stock.

 

FUTURE SALES OF OUR COMMON STOCK COULD PUT DOWNWARD SELLING PRESSURE ON OUR COMMON STOCK, AND ADVERSELY AFFECT THE PER SHARE PRICE. THERE IS A RISK THAT THIS DOWNWARD PRESSURE MAY MAKE IT IMPOSSIBLE FOR AN INVESTOR TO SELL SHARES OF COMMON STOCK AT ANY REASONABLE PRICE, IF AT ALL.

 

Future sales of substantial amounts of our common stock in the public market or the perception that such sales could occur, could put downward selling pressure on our common stock and adversely affect its market price.

 

THE OVER THE COUNTER BULLETIN BOARD IS A QUOTATION SYSTEM, NOT AN ISSUER LISTING SERVICE, MARKET OR EXCHANGE. THEREFORE, BUYING AND SELLING STOCK ON THE OTC BULLETIN BOARD IS NOT AS EFFICIENT AS BUYING AND SELLING STOCK THROUGH AN EXCHANGE. AS A RESULT, IT MAY BE DIFFICULT FOR YOU TO SELL YOUR COMMON STOCK OR YOU MAY NOT BE ABLE TO SELL YOUR COMMON STOCK FOR AN OPTIMUM TRADING PRICE.

 

The Over the Counter Bulletin Board (the "OTC BB") is a regulated quotation service that displays real-time quotes, last sale prices and volume limitations in over-the-counter securities. Because trades and quotations on the OTC Bulletin Board involve a manual process, the market information for such securities cannot be guaranteed. In addition, quote information, or even firm quotes, may not be available. The manual execution process may delay order processing and intervening price fluctuations may result in the failure of a limit order to execute or the execution of a market order at a significantly different price. Execution of trades, execution reporting and the delivery of legal trade confirmations may be delayed significantly. Consequently, one may not be able to sell shares of our common stock at the optimum trading prices.

 

When fewer shares of a security are being traded on the OTC Bulletin Board, volatility of prices may increase and price movement may outpace the ability to deliver accurate quote information. Lower trading volumes in a security may result in a lower likelihood of an individual's orders being executed, and current prices may differ significantly from the price one was quoted by the OTC Bulletin Board at the time of the order entry. Orders for OTC Bulletin Board securities may be canceled or edited like orders for other securities. All requests to change or cancel an order must be submitted to, received and processed by the OTC Bulletin Board. Due to the manual order processing involved in handling OTC Bulletin Board trades, order processing and reporting may be delayed, and an individual may not be able to cancel or edit his order. Consequently, one may not be able to sell shares of common stock at the optimum trading prices.

 

The dealer's spread (the difference between the bid and ask prices) may be large and may result in substantial losses to the seller of securities on the OTC Bulletin Board if the common stock or other security must be sold immediately. Further, purchasers of securities may incur an immediate "paper" loss due to the price spread. Moreover, dealers trading on the OTC Bulletin Board may not have a bid price for securities bought and sold through the OTC Bulletin Board. Due to the foregoing, demand for securities that are traded through the OTC Bulletin Board may be decreased or eliminated.

 

WE GENERATED A NET LOSS OF $280,793 AND $378,008 BEFORE TAXES FOR THE THREE MONTHS ENDED JUNE 30, 2015 AND JUNE 30, 2014, RESPECTIVELY, $436,514 AND $591,836 BEFORE TAXES FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND JUNE 30, 2014, RESPECTIVELY. WE MAY BE UNABLE TO CONTINUE AS A GOING CONCERN.

 

Our consolidated financial statements have been prepared on a going concern basis which assumes that we will be able to realize our assets and discharge our liabilities in the normal course of business for the foreseeable future. We generated a consolidated net loss before taxes of $280,793 and $436,514 for the three and six months ended June 30, 2015 compared to a consolidated net loss before taxes of $378,008 and $591,836 during 2014, respectively. We realized a deficit cash flow from operating activities of $411,787 and $651,007 for the six months ended June 30, 2015 and 2014 respectively. For the three and six months ended June 30, 2015, we had an accumulated deficit of $44,368,489 and a working capital deficiency of $3,494,450 compared to an accumulated deficit of $43,986,761 and a working capital deficiency of $3,465,271 for the year ended December 31, 2014. On June 30, 2015, we had a stockholders' deficit of $3,471,180 compared to a stockholders' deficit of $3,436,666 as at December 31, 2014. Our ability to continue as a going-concern is in substantial doubt as it is dependent on a number of factors including, but not limited to, the receipt of continued financial support from our investors, our ability to raise equity or debt financing as we need it, and whether we will be able to use our securities to meet certain of our liabilities as they become payable. The outcome of these matters is dependent on factors outside of our control and cannot be predicted at this time.

 

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

As of April 23, 2015 to June 3, 2015, the Company issued a total of 3,120,000 shares of Series B Convertible Preferred Stock ("Preferred Stock") through its private placement of shares of Preferred Stock at a purchase price of $0.10 per share for a total amount of $312,000, to "accredited investors", as that term is defined in Regulation D of the Securities Act of 1933. Each share of Series B Convertible Preferred Stock is convertible into ten (10) shares of common stock. The proceeds of the private placements were used for working capital.

 

The shares of the Company's preferred stocks in above private placements were issued and sold in reliance upon the exemption provided by Section 4(a)(2) and/or Regulation D/Regulation S of the Securities Act of 1933. Appropriate investment representations were obtained and the securities were issued with restrictive legends

 

ITEM 3: DEFAULTS UPON SENIOR SECURITIES

 

None

 

ITEM 4: MINE SAFETY DISCLOSURES

 

None

 

ITEM 5: OTHER INFORMATION

 

None

 

ITEM 6: EXHIBITS:

 

Exhibit 31.1	CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT
Exhibit 31.2	CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT
Exhibit 32.1	CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT
Exhibit 32.2	CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	XBRL Taxonomy Extension Labels Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document

 

* To be filed by amendment.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

  

 

	Amaru, Inc. (Registrant)
August 19, 2015	By:	/s/ Chua Leong Hin
		President, Chief Executive Officer and Chief Financial Officer