Attached files
---------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
(Mark one)
|X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2009
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 000-28867
AVEROX INC.
(Name of small business issuer in its charter)
Nevada 88-0407936
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
House No. 381
Street No. 13, Sector F-10/2,
Islamabad, Pakistan
---------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
+92(0)51 2110755
(Registrant's telephone number, including area code)
Securities registered Under Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
--------------------------- -----------------------------------------
None None
Securities registered Under Section 12(g) of the Act:
Title of each class Name of each exchange on which registered
--------------------------- -----------------------------------------
Common Stock, par value Over-the-Counter (OTC) Bulletin Board
$0.004 per share
-------------------
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 if the registrant is not required to file reports
pursuant to Section 13 or 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, and (2) has been subject to the filing requirements for
at least the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K 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, 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 (Check one):
Large accelerated filer |_| Accelerated filer |_|
Non-accelerated filer |_| Smaller reporting company |X|
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes |_| No |X|
The aggregate market value of the registrant's common stock held by
non-affiliates of the registrant on October 12, 2009, was $700,000 (based on the
closing sales price of the registrant's common stock on that date). Shares of
the registrant's common stock held by each officer and director and each person
who owns more than 5% of the outstanding common stock of the registrant have
been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
100,000,000 shares of Common Stock were outstanding at October 12, 2009.
DOCUMENTS INCOPORATED BY REFERENCE
----------------------------------
None.
AVEROX INC.
2008 FORM 10-KSB ANNUAL REPORT
TABLE OF CONTENTS
Page
----
PART I
Item 1. Business ......................................................... 1
Item 1A. Risk Factors .................................................... 8
Item 1B. Unresolved Staff Comments ....................................... 18
Item 2. Properties ....................................................... 18
Item 3. Legal Proceedings ................................................ 18
Item 4. Submission of Matters to a Vote of Security Holders .............. 19
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters and Issuer Purchases of Equity Securities. ....................... 20
Item 6. Selected Financial Data .......................................... 20
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................................ 21
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ...... 24
Item 8. Financial Statements ............................................. 24
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure ..................................................... 24
Item 9A. (T). Controls and Procedures. ................................... 24
Item 9B. Other Information ............................................... 26
PART III
Item 10. Directors, Executive Officers, Promoters and Corporate Governance 27
Item 11. Executive Compensation .......................................... 28
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters .......................................... 29
Item 13. Certain Relationships and Related Transactions, and
Director Independence .................................................... 29
Item 14. Principal Accountant Fees and Services .......................... 30
PART IV
Item 15. Exhibits, Financial Statement Schedules ......................... 31
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements and information relating
to us that is based on the beliefs of our management as well as assumptions made
by, and information currently available to, our management. When used in this
report, the words "anticipate," "believe," "estimate," "expect," "intend,"
"plan" and similar expressions, as they relate to us or our management, are
intended to identify forward-looking statements. These statements reflect
management's current view of us concerning future events and are subject to
certain risks, uncertainties and assumptions, including among many others:
o the availability and adequacy of our cash flow to meet our
requirements;
o economic, competitive, demographic, business and other conditions in
our local and regional markets;
o changes or developments in laws, regulations or taxes in the
telecommunications industry;
o actions taken or not taken by third-parties, including our
competitors, as well as legislative, regulatory, judicial and other
governmental authorities;
o competition in the renewable energy industry;
o the failure to obtain or loss of any license or permit;
o the ability to carry out our business plan and to manage our growth
effectively and efficiently;
o the failure to manage any foreign exchange risk adequately;
o a general economic downturn or a downturn in the securities markets;
and
o risks and uncertainties described in the Risk Factors section or
elsewhere in this Annual Report on Form 10-K.
Should any of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those described in this report as anticipated, estimated or expected. All
written and oral forward-looking statements attributable to us or persons acting
on our behalf subsequent to the date of this Annual Report are expressly
qualified in their entirety by the foregoing risks and those set forth in the
"Risk Factors" section below.
When used in this report, the terms "Averox," "Company," "we," "our" and
"us" refer to Averox Inc. and its consolidated subsidiaries.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Overview
Averox Inc. ("Averox") was incorporated under the name Flickering Star
Financial, Inc. ("Flickering Star") on November 25, 1996 under the laws of the
State of Nevada. From January 1, 1997 through March 31, 1997, Flickering Star
was in its development stage. It originally intended to act as a finder of
individuals who would serve as credit enhancers for motion picture completion
guaranty contracts. As at December 31, 1996, all funds raised by the sale of
shares of Flickering Star Financial in order to fulfill its initial objective
had been expended and, after March 31, 1997, Flickering Star became dormant. On
November 6, 2006, in anticipation of the acquisition of Averox Dubai (described
below), the corporate name of Flickering Star Financial, Inc. was changed to
Averox Inc.
On November 13, 2006, Averox consummated the transactions contemplated by
an Exchange Agreement, dated October 30, 2006, by and among Averox, certain
shareholders of Averox, Averox FZ-LLC (formerly Pearl Consulting FZ-LLC), a free
zone limited liability company organized under the laws of Dubai, UAE ("Averox
Dubai") and Salman Mahmood ("Mahmood")(the "Exchange Agreement"). Accordingly
Averox acquired all of the issued and outstanding shares of stock of Averox
Dubai, which included its subsidiary, Averox (Private) Limited (formerly Pearl
Consulting (Private Limited)), a private limited company organized under the
laws of Pakistan ("Averox Pakistan") which Averox Dubai acquired from Mahmood
and his spouse on August 31, 2006. Effective as of March 31, 2008, Averox ceased
its operations in Dubai and Averox Dubai became dormant in order to reduce
operating costs. On March 31, 2008, Averox Dubai transferred the shares of
Averox Pakistan owned by it to Averox Inc. Averox Pakistan is now a wholly-owned
subsidiary of Averox Inc.
Since the cessation of operations of Averox Dubai, we have continued to
operate in Dubai through Averox Telecommunication LLC ("Averox Telecom"). Averox
Telecom is owned 49% by Mahmood and 51% by a local partner in Dubai. The
ownership structure was necessitated by provisions of Dubai law which requires
some local ownership and makes ownership by a foreign entity difficult. Averox
Telecom is a pass through vehicle run for the benefit of Averox. Mahmood retains
operating control of Averox Telecom and has agreed to derive no pecuniary
benefit from its operations. Mahmood and Averox plan to transfer Mahmood's 49%
ownership of Averox Telecom to Averox.
We are an independent provider of software solutions, engineering and
telecommunications network deployment services, systems integration, alternative
energy solutions and related support services. Although our business has
primarily focused on standard solutions and end products for the
telecommunications industry, our software solutions and services are also being
marketed and employed in other industries and areas of our business. We believe
that we have established an excellent reputation for applying specialized and
innovative problem-solving skills to a diverse range of clients and industries.
Historically, the principal services we have provided include the design,
deployment, integration, and the overall management of telecommunications
networks for both large and small companies. Our work for telecommunication
companies has involved software development, radio frequency engineering,
project management and/or installation of telecommunications equipment. In some
instances, we have worked as a subcontractor for portions of these projects. In
other instances, we have contracted to act as general contractor for an entire
system engineering project covering all aspects of design and execution.
Acting as general contractor to provide turnkey telecom engineering
services produces high revenues, but also requires us to incur significant costs
for, among other things, software material costs, subcontractor fees and labor
costs. We also take on all of the financial risks associated with the completion
of the project. Because of these costs, potential risks and limited capital
resources, we have determined to de-emphasize telecom civil works projects such
as base transmitter, or BTS stations, site development, unless the customer is
willing to advance all costs required for the project.
In furtherance of this determination, we have, in one instance,
transferred our obligations as system engineer to a third party in exchange for
the right to receive commissions from project revenues until August 30, 2009.
This agreement will give us a stream of revenue over this period without any
associated costs.
The recent focus of our business has been on proprietary software
development and systems integration. We have also entered the solar and wind
powered generators market, offering a range of wind and solar powered generators
that can be used to produce clean and inexpensive power for domestic and
commercial use.
Our information technology professionals license, develop and promote
software which delivers industry standard-specific solutions. These solutions
cover areas such as telecom billing (retail and interconnect), service
activation, mediation, revenue assurance and fraud management. Our IT solutions
are also being used for customers outside the telecommunications industry. The
solutions developed by our IT professionals or licensed by us for our
telecommunications services business address needs in a wide spectrum of areas
such as e-commerce, enterprise resource planning, IT strategy and consulting and
project management, web-based applications such as content management systems,
and Internet and intranet applications. Additionally, we have built and operate
portals that address needs in the recruitment, real estate and trading
industries. From time to time, we also provide outsourced consulting services.
2
On August 5, 2008, we acquired Provisus(TM), a product that provides
service activation and provisioning technology to telecom operators, from
Provisus Ltd. Prior to our acquisition of Provisus(TM), we were licensed to sell
the product. Version 1.0 of Provisus(TM) has been developed and we are now in
the process of developing enhancements to Provisus(TM) in a new version that
will be at par with 3G and 4G compatible technologies. We expect to launch
version 2.0 of Provisus(TM) in 2009.
Provisus(TM) is expected to be tested by one of the world's leading mobile
(3G/GSM) operators. If the testing of the product is successful, we believe that
the operator will sublicense the product and that Provisus(TM) will be
attractive to other telecommunications providers. Provisus(TM) has worldwide
application for both fixed and mobile telecommunications. However, even if
Provisus(TM) is successfully tested, it will take at least six to nine months
before Averox derives any significant license fees from this product. Testing of
Provisus(TM) has not yet commenced although we believe that testing could begin
within the next six months.
By moving away from providing turnkey civil works engineering projects, we
are also focusing on systems integration. Rather than acting as turnkey solution
provider over an entire project as a systems integrator, we will act as a
subcontractor to the turnkey solution provider. Systems integration work does
not involve the same expenses as full telecom engineering. Our costs will
consist solely of travel and labor thereby significantly reducing the capital
outlays required for undertaking a project.
Telecommunication Services and Solutions
Network Design and Deployment Services
We provide a range of services for the full design and deployment of
telecommunications networks. Such services include:
o Network Engineering. Most calls are ultimately routed through a land line
network. As a result, the traffic from telecommunications networks must be
connected with switching centers within the networks. We establish the
most efficient method to connect sites, whether by microwave radio or by
landline connections. Our engineers are involved in specifying,
provisioning and implementing land line and wireless network facilities.
o Installation and Optimization Services. Our personnel install radio
frequency equipment, including base station electronics and antennas, and
recommend and implement location, software and capacity changes required
to meet the customer's performance specifications. We also provide
installation and initial optimization services for all major cellular and
mobile broadband wireless air interface standards and equipment
manufacturers.
Network Management and Maintenance Services
Under our network management and maintenance services, we assume
responsibility for the day-to-day optimization and maintenance of
telecommunications networks so that clients can acquire the competence needed to
run their telecommunication solutions in an efficient manner. The relationship
we develop with our customers for this type of outsourcing contract begins with
a team of engineers and other professional and support staff aligned to meet the
customer's specific needs. We take into account such variables as grade of
service, reliability requirements, and geographic layout of the system in
determining the allocation of site maintenance responsibilities between our
service team and the customer's own personnel. We provide staffing to perform
the necessary services for centralized network monitoring and maintenance and
repair of critical network elements, including base station equipment, mobile
switching centers and network operating centers.
Project Planning and Management
In our telecommunications services business, we offer full project
planning and management, including a broad range of telecommunication products
and services, analyzing existing and future telecommunication needs, assessing
3
alternatives and implementing telecommunication solutions. Our consultants
design, develop, deploy, integrate test, optimize and manage clients' telecom
projects, providing operational support, customer care, systems integration and
installation of value-added service platforms.
We manage projects as a primary vendor as well as a subcontractor for
large multinational vendors. As part of our strategy, we are technology and
vendor independent, working with Lucent, Siemens, Nortel Networks, Cisco
Systems, Samsung, Intec Telecom plc, Evolving Systems Inc, L3 Communication
Systems and Juniper. We believe that not aligning with any single technology or
vendor allows us to objectively evaluate and recommend specific products or
technologies. To date, most of our network engineering and deployment services
have been for telecommunications carriers in Pakistan, although we are actively
marketing our telecommunications services and solutions in Eastern Europe, the
Middle East and the rest of Asia. Our marketing advantage includes our ability
to provide engineering expertise across a wide range of telecommunication
technologies and equipment platforms at competitive prices.
The Averox Advantage
Vendor and Technology Independence. Our ability to use a wide range of different
vendors allows us to offer our customers the most technologically advanced,
objective and appropriate suite of solutions available based on the customer's
requirements.
Ability to provide a customized telecommunications system. In addition to
installing a telecommunication product, unlike many of our competitors, we
integrate that product with the customer's existing internal systems.
Extensive Technology Expertise. We have expertise in operations software
solutions, or OSS, and business software solutions, or BSS, for all major
telecommunications technologies, including: PSTN, CDMA, GSM, GPRS, EDGE, EV-DO,
UMTS, WiMax and WiFi. The critical components of our ability to meet customer
expectations include our broad scope of services and our technical expertise.
Highly Skilled Personnel. We have a staff of highly skilled personnel, a
majority of whom work directly on customer projects. Our technological expertise
and industry knowledge have enabled us to form strong customer relationships
with established carriers and equipment vendors. We believe our expertise in
each of the major telecommunications technologies enhances our ability to
customize services to meet the needs of our customer base.
Cost-Effective and Timely Delivery. Because of our physical presence in our
primary target markets and ability to efficiently manage and deliver projects,
we believe that we can provide the same quality solution as a competing vendor
on a more cost-effective basis. In fact, many large multinational companies have
used our services rather than establishing a physical presence in the region.
Proven Methodology. Our project management process enables us to meet our
customers' needs without compromising project quality. We have a dedicated staff
employed to facilitate efficient feedback of information among the various
specialized activities involved in the design and deployment of a network so
that our project teams work quickly and effectively. Through this coordinated
effort, we are able to continually optimize human resource deployment and
deliver the most efficient and effective solutions on time and within budget.
Information Technology
Our IT professions are highly skilled in a wide spectrum of information
technology areas including product development, project management, enterprise
client/server based solutions, e-commerce solutions, IT strategy and consulting,
systems development, systems integration, application management, enterprise
resource planning, customer relationship management, business process
re-engineering, quality management, and web-based applications, such as content
management systems and Internet and Intranet applications.
4
Information Technology Services
As an integral part of our telecommunications network services and
solutions, we provide OSS and BSS from multiple vendors, including solutions for
telecom billing (retail and interconnect), service activation, mediation,
revenue assurance and fraud management. Because each customer has different
requirements and systems, extensive customization services are provided to
integrate the operations and business software with the customer's network
solutions. We also provide ongoing support for these systems.
Our ability to provide OSS/BSS operations and business solutions
differentiates us from other telecommunications services providers, the services
of which are limited to network installation. Our solutions provide customized
integration of the customer's systems with the network being installed.
Information Technology Products
Our telecommunications service work led us into the area of proprietary
product development. Originally, we worked with other vendors' proprietary
technology, providing only customized software to integrate these vendors'
products with the client's existing systems. From this work, we recognized that
there were product needs that other vendors' product offerings did not address
and product functionality upon which we could improve. In response, we developed
proprietary products to meet these needs, including specific solutions that
enable companies in any industry to manage, synchronize and co-ordinate all
customer communication channels, including the Internet, call centers, field
organizations and partner networks. These products are in a wide range of
domains and provide competitive solutions with a view to assisting clients in
reshaping and managing their businesses more efficiently. Each product can be
offered as a stand-alone solution or packaged as part of an integrated product
offering of our products or combined with other vendors' products.
The following are some of the more significant products which we offer
both under our brand name or under a customer's private label:
o Provisus(TM). On August 5, 2008, we acquired from Provisus Ltd. a product
currently under development named Provisus(TM) which provides service
activation and provisioning technology to telecom operators. Prior to our
acquisition of the product, we were licensed to sell the product. The
Provisus(TM) product is expected to be tested by one of the world's
leading mobile (3G/GSM) operators. If the testing of the product is
successful, we believe that the operator will sublicense the product and
that Provisus(TM) will be attractive to other telecommunications
providers. The Provisus(TM) product has worldwide application for both
fixed and mobile telecommunications. However, even if the Provisus(TM)
product is successfully tested, it will take at least six to nine months
before Averox derives any significant license fees from this product.
Testing of Provisus(TM) has not yet commenced although we believe that
testing could begin within the next six months.
o BMS On-Demand. It has been our experience that many customer relationship
management products fail to meet customer needs and require extensive,
time-consuming customization. BMS On-Demand is a web-based product
offering a complete business solution for sales and marketing automation.
BMS On-Demand is a combination of best-practices in customer relationship
management and our twenty years of experience in dealing with customers
and their needs. This product is intended to replace ineffective customer
relationship management systems and can be installed within a reasonable
time.
o DocTrail. We offer a document management solution, DocTrail, that combines
document and records management capabilities into a single, complete
offering. We believe that DocTrail enables a customer to reduce the time,
cost and complexity involved in storing and accessing documents. Our
product is designed to enhance customer service and operational
efficiency, improve security and address regulatory compliance
requirements. DocTrail is offered in two versions, one as a web-based
application and the other a network-based application. The version sold is
based upon the customer's business needs.
5
o Ticket Management System. Our Ticket Management System was developed for
our own internal business requirements. It is a web-based, easy to
configure solution for optimizing every aspect of a company's support
service and help desk processes, including tracking the history of the
inquiry, creating an accessible database of problem resolution, customer
management and automatic email/text message notifications. Our next
version of the product will also include a feature to permit automated
telephonic problem notification to ensure response to critical problems if
email/text message notification fails.
Alternative Energy Solutions
We have recently entered the solar and wind powered generators market in
response to a growing demand for reliable electricity sources in remote or rural
locations and to counter shortages and increasing prices of oil and gas. We
offer a range of wind and solar powered generators that can be used to produce
clean and inexpensive power for domestic and commercial use. These small,
portable generators are designed for use as an alternative or emergency power
source for telecommunications and other commercial applications in locations
where grid-based power is expensive, unreliable or unavailable. These turbines
can be connected to the meter at a base transceiver station (BTS), house,
school, office, apartment building, farm, factory, hotel or other locations
where the electricity consumption falls within the production capacity of these
turbines. This market is growing exponentially due to the increasing global
demand for alternative energy sources. Recent estimates for wind-based
applications suggest that annual growth for this market will exceed 25% per year
over the next several years.
E-Commerce Portals
As part of our professional services, we have managed web portals for our
customers. From this experience we have developed and are operating our own
e-commerce portals including Tradebuying.com, IndentPoint.com and
DealBuying.com. These sites have accumulated an aggregate of approximately 1.8
million hits per month.
Outsourced Consulting Services
We also contract with customers that are looking to outsource the
co-ordination, delivery and monitoring aspects of their telecommunication and IT
programs. For these engagements, our approach includes the development of a
comprehensive and complete program; regular updates on project status; project
coordination; financial planning; flexible planning; and the promotion of a
coordinated set of standards, methods and procedures. We provide project
management staff geared towards keeping the implementation of projects running
smoothly. Our project management services offer a variety of packages to support
our programs. These support services cover human resource planning; logistics
and commercial operations; procurement; construction; installation,
commissioning (MSC, BSC and BTS); testing; materials management; and support
services. Support services include 24/7 uninterrupted support; 24 hour helpdesk
coverage; continuous online help and support for technical engineers; and an
inventory of spare parts.
We have recently established a SAP consultancy division to address the
large and growing demand for enterprise in resource planning software services.
SAP refers to the wide range of enterprise planning software. SAP software is
the leading business process improvement solution and is used by major companies
covering telecom, manufacturing, finance and government. The worldwide market
for SAP solutions and services is currently running at one billion US dollars
per year for licenses and professional services to over 75,000 customers for
business process improvement covering the telecommunication, manufacturing and
financial sectors.
ISO Qualification
In 2007, we received ISO 9001:2000 certification for our
telecommunications and IT businesses. This certification validates that we are
among an exclusive tier of companies that possess well-defined and integrated
quality measures and comprehensive programs that ensure our services are
provided according to uniform standards that are considered best practices
within the industry. We believe that the certification demonstrates our
dedication to providing high quality services and products to our customers.
6
Customers
Our telecommunications and IT customers range from large multinational
companies to local small and medium sized enterprises. Our clients have included
Milicom, Telenor, Orascom Telecom, Lucent Technologies, Siemens, Ericsson,
Nortel Networks, Nokia, Samsung, Ufone, Warid Telecom and Azure Solutions. For
these customers, we have acted as a primary vendor and as a subcontractor.
During the fiscal year ended June 30, 2009, 2 customers accounted for 81% of our
revenues.
Sales and Marketing
Our sales focus is to create opportunities to provide our
telecommunication services and product solutions. The majority of our sales
efforts are conducted by direct sales teams. The primary objective of our sales
and marketing efforts is to educate existing and potential customers in the
telecommunication and other industries about the depth and breadth of our
service capabilities, experience and proprietary product solutions. In addition,
we conduct many of our sales activities as a result of responding to requests
for proposals and competitive tenders. Our sales and marketing efforts include
constant interaction with existing and target customers and prospects,
participation in relevant industry bodies, a website presence, presentations at
industry conferences and forums, news releases to the industry and other
marketing initiatives. We educate customers about product offerings, business
needs and implementation contingencies to create solutions that reduce cost,
increase revenue opportunities and comply with governmental regulations.
Increasingly, we receive business opportunities through businesses such as
Proven Energies, Tekelec, eServe Global, Connectiva, CRX, Neural Technologies
and Intec Telecom Systems, who have been selected for larger solution
implementations where our products represent only a portion of the overall
solution or which subcontract our services for implementation. We plan to
continue the approach of working with partners and system integrators in 2008
and beyond.
Product Development and Support
Our product development efforts are focused on identifying specific
customer business needs, as well as market requirements, and then developing
possible solutions for those needs that leverage our existing product
capabilities. Our product development efforts comprise a combination of design
and development of new products or features to enhance our existing products,
and design and development of new product functionality as identified in our
product "roadmaps," funded as research and development. We usually do not
develop completely new products, major product enhancements or tools until we
have at least one customer who has agreed to license what we will develop.
We expend amounts on research and development, particularly for new
products and/or for enhancements of existing products. For the years ended June
30, 2009 and 2008, we did not allocate any costs specifically for research and
development.
Competition
The telecommunications network services and IT solutions markets in which
we compete are highly competitive. Neither market is dominated by a single
company nor a small number of companies. However, a substantial number of
companies offer products and services that overlap and are competitive with
those offered by us. Many of these competitors have greater financial, technical
and marketing resources.
Competition in the telecommunications network services business comes
primarily from specialized network engineering firms and the service arms of
large equipment vendors and telecommunications carriers. Our ability to obtain
business in the telecommunications network services industry is dependent upon
our ability to offer better strategic concepts and technical solutions, better
value, a faster response, more flexibility or a combination of these factors. We
believe that we are positioned to compete effectively in Eastern Europe, Asia
and the Middle East based on our systems expertise, project management skills
and IT expertise.
7
The market for our solutions is subject to rapid technological change and
changing industry standards. We face growing demand for improved product
performance, new product features and rapid integration capabilities, and
reduced prices, as well as pressure to accelerate the release of new products
and product enhancements. The market for software solutions is extremely large.
By concentrating our activities on those potential clients which can most
benefit from our solutions, we believe we can effectively market our solutions.
We differentiate ourselves from competitors through a combination of our
telecommunications knowledge, low-cost offshore development, products, services,
integration capabilities and strong customer relationships. Our
telecommunication network services activities give us an opportunity to directly
market our solutions to our network services customers. Furthermore, once a
customer has implemented one of our core software products, we are in a
preferable position, in contrast to our competitors, to develop additional
functionality or react to changes in their business needs by offering additional
products or services.
Intellectual Property Rights
To date, we have not applied for any patent, trademark, trade name or
copyright protection in any jurisdiction in which we operate. We therefore rely
on common law rights, trade secret laws and confidentiality provisions in our
agreements to prevent the unauthorized disclosure and use of our property.
Employees
As of October 26, 2009, we had 66 full-time employees, of which 1 is in
Management, 26 are in human resources and administration, 3 in finance and
accounts, 1 in marketing and sales, 16 and 17, are in IT and telecommunications,
respectively, and 2 are in networking. All of our employees are based in
Pakistan and the United Kingdom. From time to time, we also engage independent
contractors to assist in our activities. None of our employees are unionized. We
have never experienced a work stoppage as a result of labor issues, and we
believe that our employee relations are satisfactory.
ITEM 1A. RISK FACTORS.
Owning our shares contains a number of risks. If any of the following risks
actually occur, our business, financial condition or results of operations would
likely suffer. In that case, the trading price of our shares could decline, and
an investor may lose all or a part of the money paid to buy our shares.
Risks Associated with our Financial Needs
Our lack of cash reserves and liquid assets could result in an interruption of
our business and has led our auditors to express doubt about our ability to
continue as a going concern
We do not currently have significant cash reserves. Our ability to fund
our operations is dependent at the present time on collections of our accounts
receivable. We have experienced difficulties in the recent past with collecting
on our receivables. The failure of our customers to timely pay accounts
receivable could force us to curtail our operations. Accordingly, our auditors
have qualified their report on our financials statements by expressing
substantial doubt about our ability to continue as a going concern.
Our lack of readily available working capital has impacted our ability to
execute our business plan
Large, revenue generating engineering projects have been a core part of
our business and require significant upfront investment. We have been successful
in securing large engineering projects from multi-national companies such as
Nokia, Siemens, Ericsson, Huawei, Warid Telecom and China Mobile. However, our
working capital has not been sufficient to fulfill the requirements of these
large projects. As a result, we have had to curtail these activities. Although
we have been able to secure systems integration work from some of these
customers, our inability to provide the full range of services contemplated by
these engineering projects has had, and will continue to have, an adverse effect
on our revenues and profitability.
8
Political instability in Pakistan has had a material adverse effect on demand
for our services and products
There is significant instability in Pakistan. Certain recent events have
damaged the image of Pakistan internationally. As a result, Pakistan's credit
rating has been down graded by international ratings agencies. This has also
lead to shortage of capital in Pakistan. Each of these factors has had a direct
impact on new telecommunications infrastructure products being undertaken.
The fact that all of our business is currently conducted in Pakistan has
negatively impacted on our financing efforts.
The negative perception of Pakistan in the western world, particularly in
the United States and western Europe, has made it more difficult for us to
secure new financing. This negative perception may impair our ability to obtain
funding for our business.
The settlement of the purchase price for our acquisition of Provisus software
could result in significant additional dilution of our equity.
On August 5, 2008, we acquired Provisus software and certain related
intellectual property. We have the option to pay $1,000,000 of the purchase
price in cash or in shares of our stock valued at $5,000,000. In the event that
we do not have sufficient cash to pay the purchase price, we will be forced to
pay the balance in shares of our stock. The number of shares we may be required
to issue will not be known until August 5, 2010 pursuant to the terms of an
amended agreement.
At the current market price of $.02 per share, we would issue 250,000,000
shares, or approximately 71.43% of our stock on a fully diluted basis. If our
stock price were below $.02 per share, the dilution of our stock would be more
significant.
Specific Risks Associated with our Network Services Business
The success of our network services business is dependent on growth in the
deployment of telecommunications networks and new technology upgrades in the
Middle East, Eastern Europe and Asia and, to the extent that such growth slows,
our business may be harmed
Telecommunications carriers are constantly re-evaluating their network
deployment plans in response to trends in the telecommunications markets,
changing perceptions regarding industry growth, the adoption of new
technologies, increasing pricing competition for customers and general economic
conditions. If the rate of network deployment slows and carriers reduce their
capital investments in telecommunications infrastructure or fail to expand into
new geographic areas, our business may be significantly harmed.
The uncertainty associated with rapidly changing telecommunications
technologies may also negatively impact the rate of deployment of
telecommunications networks and the demand for our services. Telecommunications
service providers face significant challenges in assessing consumer demand and
in accepting rapidly changing enhanced telecommunications capabilities. If
telecommunications service providers perceive that the rate of acceptance of
next generation telecommunications products will grow more slowly than
previously expected, they may, as a result, slow their development of next
generation technologies. Moreover, increasing price competition for subscribers
could adversely affect the profitability of carriers and limit their resources
for network deployment. Any significant sustained slowdown will further reduce
the demand for our services and adversely affect our financial results.
9
Our network services business depends on telecommunications carriers, network
equipment vendors and other prospective customers outsourcing their
telecommunications services
The success of our network engineering business depends upon the continued
trend by telecommunications carriers and network equipment vendors to outsource
their network design, deployment and management needs. If this trend does not
continue and telecommunications carriers and network equipment vendors elect to
perform more network deployment services themselves, our operating results and
revenues may decline.
Failure to properly manage network services projects may result in costs or
claims
Our engagements often involve large scale, highly complex projects. The
quality of our performance on such projects depends in large part upon our
ability to manage the relationship with our customers, and to effectively manage
the project and deploy appropriate resources, including third-party contractors,
and our own personnel, in a timely manner. Any defects or errors or failure to
meet clients' expectations could result in claims for substantial damages
against us. In addition, in certain instances, we guarantee customers that we
will complete a project by a scheduled date or that the network will achieve
certain performance standards and our contracts contain liquidated damages
provisions if we fail to do so. Further, if the project experiences a
performance problem, we may not be able to recover the additional costs we
incur, which could exceed the revenues realized from that project. Finally, if
we underestimate the resources or time we need to complete a project with capped
or fixed fees, our operating results could be seriously harmed.
Changes in the price of raw materials, such as steel, can have a large impact on
our profitability
Our results of operations are impacted by the cost of raw materials. Price
increases in raw material may not be able to be passed along to customers or
customers may chose not to move forward with projects due to cost concerns.
Steel is a principal raw material used in our network services business.
Pakistan, for example, has recently experienced a steel shortage, which is
largely imported, and the price has also risen significantly. The combination of
steel shortages and price increases has caused delays in some projects and may
have impacted our customers determination to pursue projects. This resulted in
decreased revenues in the most recent fiscal period.
We are in highly competitive markets, face competition from large,
well-established competitors with significant resources, and may not be able to
compete effectively
The telecommunications services market is highly competitive. It is not
dominated by a single company or a small number of companies. However, a
substantial number of companies offer services that overlap and are competitive
with those offered by us. Many of these competitors have greater financial,
technical and marketing resources. This may place us at a disadvantage in
responding to our competitors' pricing strategies, technological advances,
strategic partnerships and other initiatives. Competition in the
telecommunications network services business comes primarily from specialized
network engineering firms and the service arms of large equipment vendors and
telecommunications carriers. In addition, many of our competitors have
well-established relationships with our potential clients and have extensive
knowledge of our industry. As a result, our competitors may be able to respond
more quickly to new or emerging technologies and changes in customer
requirements, and they may be able to devote more resources to the development,
promotion and sale of their services than we can.
Our business will suffer if we fail to anticipate and develop new services and
enhance existing services in order to keep pace with rapid changes in technology
and the industry on which we focus
The market for our services is characterized by rapid change and
technological improvements, evolving industry standards, changing client
preferences and new product and service introductions. Failure to anticipate
these advances or respond in a timely and cost-effective way to these
technological developments will result in serious harm to our business and
operating results. We have derived, and we expect to continue to derive, a
substantial portion of our revenues from serving telecommunications providers
10
with systems that utilize today's leading technologies and that are capable of
adapting to future technologies. Further, products, services or technologies
that are developed by our competitors may render our services non-competitive or
obsolete. As a result, our success will depend, in part, on our ability to
develop and market service offerings that respond in a timely manner to the
technological advances of our customers, evolving industry standards and
changing client preferences.
Risks related to our IT business
Because we have decided to focus on developing our software products, including
the Provisus(TM) product, rather than licensing products from established
developers, we cannot be assured that these products will receive market
acceptance.
In the past, we relied on established software products that we licensed
from third parties. We paid significant licensing fees to the developers of
these products for their use. In order to reduce these costs and maximize
revenues and profits, we decided to develop our own products in addition to the
Provisus(TM) product which we acquired from Provisus. However, the process of
developing products is time consuming and costly. Moreover, even if these
products can be successfully developed, there can be no assurance that these
products will gain market acceptance.
Our products are complex and have a lengthy implementation process;
unanticipated difficulties or delays in the customer acceptance process could
result in higher costs and delayed payments
Implementing our IT solutions can be a relatively complex and lengthy
process since we typically customize these solutions for each customer's unique
environment. Often our customers may also require rapid deployment of our
software solutions, resulting in pressure on us to meet demanding delivery and
implementation schedules. Delays in implementation may result in customer
dissatisfaction and/or damage our reputation which could materially harm our
business.
The majority of our existing contracts provide for acceptance testing by
the customer, which can be a lengthy process. Unanticipated difficulties or
delays in the customer acceptance process could result in higher costs, delayed
payments, and deferral of revenue recognition. In addition, if our software
contains defects or we otherwise fail to satisfy acceptance criteria within
prescribed times, the customer may be entitled to cancel its contract and
receive a refund of all or a portion of amounts paid or other amounts as
damages, which could exceed related contract revenue and which could result in a
future charge to earnings. Any failure or delay in achieving final acceptance of
our software and services could harm our business, financial condition, results
of operations and cash flows.
The IT industry in which we compete is subject to rapid technological change, if
we fail to develop or introduce new, reliable and competitive products in a
timely fashion, our business may suffer
The market for our IT products and services is subject to rapid
technological changes, evolving industry standards, changes in customer
requirements and preferences and frequent new product introductions and
enhancements. The introduction of products that incorporate new technologies and
the emergence of new industry standards can make existing products obsolete and
unmarketable. In addition, "internationalizing" products that we have developed
for customers abroad is a complex process. To compete successfully, we must
continue to design, develop and sell enhancements to existing products and new
products that provide higher levels of performance and reliability in a timely
manner, take advantage of technological advancements and changes in industry
standards and respond to new customer requirements. As a result of the
complexities inherent in software development, major new product enhancements
and new products can require long development and testing periods before they
are commercially released and delays in planned delivery dates may occur. We may
not be able to successfully identify new product opportunities or achieve market
acceptance of new products brought to market. In addition, products developed by
others may cause our products to become obsolete or noncompetitive. If we fail
to anticipate or respond adequately to changes in technology and customer
preferences, or if our products do not perform satisfactorily, or if we have
delays in product development, we may lose customers and our sales may
deteriorate.
11
The IT industry is highly competitive and if our products do not satisfy
customer demand for performance or price, our customers could purchase products
and services from our competitors
The IT markets in which we operate are intensely competitive and we face
continuous demand for improved product performance, new product features and
reduced prices, as well as intense pressure to accelerate the release of new
products and product enhancements. The market for software solutions is
extremely large. Our existing and potential competitors include many domestic
and international companies, including some competitors that have substantially
greater financial, manufacturing, technological, marketing, distribution and
other resources, larger installed customer bases and longer-standing
relationships with customers than we do.
Customers also may offer competitive products or services in the future
since customers who have purchased solutions from us are not precluded from
competing with us. Many telecommunications companies have large internal
development organizations, which develop software solutions and provide services
similar to the products and services we provide. We also expect competition may
increase in the future from application service providers, existing competitors
and from other companies that may enter our existing or future markets with
solutions which may be less costly, provide higher performance or additional
features or be introduced earlier than our solutions.
We believe that our ability to compete successfully depends on numerous
factors. For example, the following factors affect our ability to compete
successfully:
o how well we respond to our customers' needs;
o the quality and reliability of our products and services and our
competitors' products and services;
o the price for our products and services, as well as the price for
our competitors' products and services;
o how well we manage our projects;
o our technical expertise;
o the quality of our customer service and support;
o the emergence of new industry standards;
o the development of technical innovations;
o our ability to attract and retain qualified personnel;
o regulatory changes; and
o general market and economic conditions.
Some of these factors are within our control, and others are not. A
variety of potential actions by our competitors, including a reduction of
product prices or increased promotion, announcement or accelerated introduction
of new or enhanced products, or cooperative relationships among competitors and
their strategic partners, could negatively impact the sales of our products and
we may have to reduce the prices we charge for our products. Revenue and
operating margins may consequently decline. We may not be able to compete
successfully with existing or new competitors or to properly identify and
address the demands of new markets. This is particularly true in new markets
where standards are not yet established. Our failure to adapt to emerging market
demands, respond to regulatory and technological changes or compete successfully
with existing and new competitors would materially harm our business, financial
condition, results of operations and cash flows.
Our products are complex and may have errors that are not detected until
deployment, and litigation related to warranty and product liability claims
could be expensive and could negatively affect our reputation and profitability
Our agreements with our customers typically contain provisions designed to
limit our exposure to potential liability for damages arising out of the use of
or defects in our products. These limitations, however, tend to vary from
customer to customer and it is possible that these limitations of liability
provisions may not be effective. We currently do not maintain errors and
omissions insurance, which, subject to customary exclusions, would cover claims
resulting from the failure of our software products or services to perform the
function or to serve the purpose intended. As a result, we would be required to
12
pay the full amount of any claim. Further, defending such a suit, regardless of
its merits, could be expensive and require the time and attention of key
management personnel, either of which could materially harm our business,
financial condition and results of operations. In addition, our business
reputation could be harmed by product liability claims, regardless of their
merit or the eventual outcome of these claims.
General Risks Associated with our Business
We are controlled by Salman Mahmood and this control could be detrimental to our
shareholders
Mr. Mahmood beneficially owns 65% of our common stock. Accordingly, Mr.
Mahmood has the ability to control us and our affairs, including the outcome of
all matters requiring shareholder approval such as the election and removal of
our entire board of directors, and any merger, consolidation or sale of all or
substantially all of our assets. This concentrated control gives Mr. Mahmood the
right to decide whether we should proceed with any action, even if those actions
might be beneficial to all shareholders and could discourage others from
initiating any potential merger, takeover or other change of control
transaction. As a result, the market price our shares could be adversely
affected.
Our failure to attract and retain key managerial and technical personnel could
adversely affect our business
Our success depends upon our attracting and retaining key members of our
management team. The loss of any of our key members might delay or prevent the
achievement of our strategic objectives. Our future performance will be
substantially dependent on our ability to attract, retain and motivate key
members of our management team.
We must also continue to hire and retain highly skilled engineering and
managerial personnel. In an effort to manage our costs, we typically hire many
of our employees on a project-by-project basis. Upon completion of an assigned
project, the employees are no longer employed by us until we hire them for the
next project. Competition for such highly skilled personnel in our industry is
intense, especially for engineers and project managers. We cannot be certain
that we will be able to hire or rehire the requisite number of experienced and
skilled personnel when necessary in order to service a major contract,
particularly if the market for related personnel becomes more competitive. Also,
once a new technical and sales employee has been hired, a significant time lag
exists between the hiring date and the time when they become fully productive.
We also believe that our success depends to a significant extent on the ability
of our key personnel to operate effectively, both individually and as a group.
If we are unable to identify, hire and integrate new employees in a timely and
cost-efficient manner, our operating results will suffer.
We may need additional capital in the future to fund the growth of our business,
and this new capital may not be available
We currently anticipate that our available capital resources and operating
income will be sufficient to meet our expected working capital and capital
expenditure requirements for at least the next 12 months. However, we cannot
assure you that such resources will be sufficient to fund the long-term growth
of our business. We may raise additional funds through public or private debt or
equity financings. New equity offerings would likely dilute our stockholders'
equity ownership. In addition, we cannot assure you that any additional
financing we may need will be available on terms favorable to us, or at all. If
adequate funds are not available or are not available on acceptable terms, we
may not be able to take advantage of unanticipated opportunities, develop new
products or otherwise respond to competitive pressures, or we might be forced to
curtail our business. In any such case, our business, operating results or
financial condition would be materially adversely affected.
Potential future business acquisitions could be difficult to integrate, disrupt
our business, dilute stockholder value and adversely affect our operating
results
We regularly evaluate opportunities to acquire new businesses as part of
our ongoing strategy. If we successfully complete an acquisition, we will have
to integrate it into our operations. Integration may require significant
management time and financial resources. Our failure to properly integrate the
13
businesses we acquire and to manage future acquisitions successfully could
seriously harm our operating results. In addition, acquired companies may not
perform as well as we expect, and we may fail to realize anticipated benefits.
In connection with an acquisition, we may issue shares of stock that would
dilute our current stockholders' ownership and incur debt and other costs in
connection with future acquisitions which may cause our quarterly operating
results to vary significantly.
Litigation may harm our business or otherwise distract our management
Substantial, complex or extended litigation could cause us to incur large
expenditures and distract our management. Disputes from time to time with
customers or other third parties are not uncommon, and we cannot assure you that
that we will always be able to resolve such disputes on terms favorable to us.
Disclosure of trade secrets could aid our competitors
We do not currently attempt to protect our trade secrets by registering
for trademark, trade name, copyright or patent protection in any jurisdiction.
Rather, we attempt to protect our trade secrets by entering into confidentiality
and intellectual property assignment agreements with third parties, our
employees and consultants. However, these agreements can be breached and, if
they are, there may not be an adequate remedy available to us. In addition,
others may independently discover our trade secrets and information, and in such
cases we might not be able to assert any trade secret rights against such party.
The misappropriation or duplication of our intellectual property could disrupt
our ongoing business, distract our management and employees, reduce our revenues
and increase our expenses. We may need to litigate to enforce our intellectual
property rights or to determine the validity and scope of the rights of others.
Enforcing a claim that a party illegally obtained and is using our trade secrets
is difficult, expensive and time consuming, and the outcome is unpredictable. If
our trade secrets become known it may affect adversely our competitive position.
The laws of Pakistan do not protect intellectual property rights to the same
extent as those of the United States, and we may be unsuccessful in protecting
our intellectual property rights. We may also be subject to third party claims
of intellectual property infringement
The laws of Pakistan where most of our operations are conducted do not
protect rights to the same extent as laws in the United States. Therefore, our
efforts to protect our intellectual property may not be adequate. Our
competitors may independently develop similar technology or duplicate our
products or services. Unauthorized parties may infringe upon or misappropriate
our products, services or information.
In the event that we are infringing upon the rights of others or violating
licenses, we may become subject to infringement claims that may prevent us from
selling certain products and we may incur significant expenses in resolving
these claims
It is possible that our business activities may infringe upon the rights
of others, or that other parties may assert infringement claims against us. If
we become liable to any third party for infringing its intellectual property
rights, we could be required to pay substantial damage awards and develop
non-infringing technology, obtain licenses, or cease selling the applications
that contain the infringing intellectual property. Litigation is subject to
inherent uncertainties, and any outcome unfavorable to us could materially harm
our business. Furthermore, we could incur substantial costs in defending against
any intellectual property litigation, and these costs could increase
significantly if any dispute were to go to trial. Our defense of any litigation,
regardless of the merits of the complaint, likely would be time-consuming,
costly, and a distraction to our management personnel. Adverse publicity related
to any intellectual property litigation also could harm the sale of our products
and services, and damage our competitive position.
14
We have never paid cash dividends and do not anticipate paying cash dividends on
our common stock in the foreseeable future
We have never paid cash dividends on our common stock. We currently intend
to retain all future earnings, if any, for use in the operation of our business.
Accordingly, we do not anticipate paying cash dividends on our common stock in
the foreseeable future.
The economic environment and pricing pressure could negatively impact our
revenues and operating results
Spending on technology products and services in most parts of the world
has been rising for the past few years. If economic growth slows, our
utilization and billing rates for our technology professionals could be
adversely affected, which may result in lower gross and operating profits. Our
ability to maintain or increase pricing is restricted as clients often expect
that as we do more business with them, they will receive volume discounts or
special pricing incentives. Existing and new customers are also increasingly
using third-party consultants with broad market knowledge to assist them in
negotiating contractual terms. Any of these factors could put pressure on our
revenues and profitability.
We may face difficulties in providing end-to-end business solutions for our
clients, which could lead to clients discontinuing their work with us, which in
turn could harm our business
Over the past several years, we have been expanding the nature and scope
of our engagements by extending the breadth of services we offer. The success of
some of our newer service offerings, such as operations and business process
consulting, IT consulting, business process management, systems integration and
infrastructure management, depends, in part, upon continued demand for such
services by our existing and new clients and our ability to meet this demand in
a cost-competitive and effective manner. In addition, our ability to effectively
offer a wider breadth of end-to-end business solutions depends on our ability to
attract existing or new clients to these service offerings. To obtain
engagements for our end-to-end solutions, we also are more likely to compete
with large, well-established international consulting firms as well as other
Pakistan-based technology services companies, resulting in increased competition
and marketing costs. Accordingly, our new service offerings may not effectively
meet client needs and we may be unable to attract existing and new clients to
these service offerings.
The increased breadth of our service offerings may result in larger and
more complex client projects. This will require us to establish closer
relationships with our clients and potentially with other technology service
providers and vendors, and require a more thorough understanding of our clients'
operations. Our ability to establish these relationships will depend on a number
of factors including the proficiency of our technology professionals and our
management personnel.
Larger projects often involve multiple components, engagements or stages,
and a client may choose not to retain us for additional stages or may cancel or
delay additional planned engagements. These terminations, cancellations or
delays may result from the business or financial condition of our clients or the
economy generally, as opposed to factors related to the quality of our services.
Cancellations or delays make it difficult to plan for project resource
requirements, and resource planning inaccuracies may have a negative impact on
our profitability.
Our revenues are highly dependent on clients primarily located in Pakistan as
well as clients concentrated in the telecommunications industry, and economic
slowdowns or factors that affect the economic health of Pakistan and the
telecommunications industry may affect our business
If Pakistan's economy weakens, our clients may reduce or postpone their
technology spending significantly, which may, in turn, lower the demand for our
services and negatively affect our revenues and profitability. Further, any
significant decrease in the growth of the telecommunications services industry
or significant consolidation in the telecommunications industry or decrease in
growth or consolidation in other industry segments on which we focus, may reduce
the demand for our services and negatively affect our revenues and
profitability.
15
Some of our engagements with customers are singular in nature and do not
necessarily provide for subsequent engagements
Some of our customers retain us on a short-term, engagement-by-engagement
basis in connection with specific projects, rather than on a recurring basis
under long-term contracts. Although a substantial majority of our revenues are
generated from repeat business, which we define as revenue from a client who
also contributed to our revenue during the prior fiscal year, our engagements
with our clients are typically for projects that are singular in nature.
Therefore, our revenues may fluctuate significantly from year to year. As a
result, we must seek out new engagements when our current engagements are
successfully completed or are terminated, and we are constantly seeking to
expand our business with existing clients and secure new clients for our
services. In addition, in order to continue expanding our business, we may need
to significantly expand our sales and marketing group, which would increase our
expenses and may not necessarily result in a substantial increase in business.
If we are unable to generate a substantial number of new engagements for
projects on a continual basis, our business and results of operations would
likely be adversely affected.
Our client contracts are often conditioned upon our performance, which, if
unsatisfactory, could result in less revenue than previously anticipated
A number of our contracts have incentive-based or other pricing terms that
condition some or all of our fees on our ability to meet defined performance
goals or service levels. Our failure to meet these goals or a client's
expectations in such performance-based contracts may result in a less profitable
or an unprofitable engagement.
Regional conflicts in South Asia could adversely affect the Pakistan economy,
disrupt our operations and cause our business to suffer
South Asia has, from time to time, experienced instances of civil unrest
and hostilities among neighboring countries, including between Pakistan and
India. In recent years there have been military confrontations between Pakistan
and India that have occurred in the region of Kashmir and along the
Pakistan-India border. Military activity or terrorist attacks in the future
could influence the Pakistan economy by disrupting communications and making
travel more difficult and such political tensions could create a greater
perception that investments in Pakistan companies involve higher degrees of
risk. This, in turn, could have a material adverse effect on the market for our
shares.
Changes in the policies of the Government of Pakistan or political instability
could delay the further liberalization of the Pakistan economy and adversely
affect economic conditions in Pakistan generally, which could impact our
business and prospects
Since 1988, successive Pakistan governments have pursued policies of
economic liberalization, including significantly relaxing restrictions on the
private sector. Nevertheless, the role of the Pakistan central and state
governments in the Pakistan economy as producers, consumers and regulators has
remained significant. The current Government of Pakistan, formed in October
1999, has announced policies and taken initiatives that support the continued
economic liberalization policies pursued by previous governments. However, these
liberalization policies may not continue in the future. The rate of economic
liberalization could change, and specific laws and policies affecting technology
companies, foreign investment, currency exchange and other matters affecting
investment in our securities could change as well. A significant change in
Pakistan's economic liberalization and deregulation policies could adversely
affect business and economic conditions in Pakistan generally, and our business
in particular.
Political instability could also delay the reform of the Pakistan economy
and could have a material adverse effect on demand for the services or products
of, or the market for securities of, companies with significant operations in
Pakistan such as ours.
16
International uncertainties could harm our profitability
Although we do not currently have operations outside of Pakistan, we
expect international operations to grow in other parts of Asia, the Middle East
and Eastern Europe. Our international business operations are subject to a
number of material risks, including, but not limited to:
o difficulties in building and managing foreign operations including,
without limitation, management and contracts administration
processes;
o regulatory uncertainties in foreign countries, including changing
regulations and delays in telecommunications carriers to build out
their networks in various locations;
o difficulties in enforcing agreements and collecting receivables
through foreign legal systems and addressing other legal issues;
o unexpected restrictions on transferring cash from foreign operations
to the UAE, Pakistan or the United States;
o longer payment cycles;
o foreign and U.S. tax issues;
o potential instability or changes in regulatory requirements or the
potential overthrowing of the current government in certain foreign
countries;
o fluctuations in the value of foreign currencies;
o general economic and political conditions in the markets in which we
operate;
o unexpected domestic and international regulatory, economic or
political changes;
o recessions in foreign countries; and
o difficulties and costs of staffing and managing foreign operations.
Currency fluctuations may affect the value of our Shares
Our functional currency is the Pakistani rupee, although we transact a
major portion of our business in U.S. dollars or Euros. Accordingly, we face
foreign currency exposure through our sales and purchases. Historically, we have
held a substantial majority of our cash funds in rupees. Downward fluctuations
in the value of the Pakistani Rupee, compared to other foreign currencies, may
increase the cost of supplies for our business. Accordingly, changes in exchange
rates may have a material adverse affect on our revenues, other income, cost of
services sold, gross margin and net income, which may in turn have a negative
impact on our business, operating results and financial condition. The exchange
rate between the rupee and foreign currencies, including the dollar and the
Euro, has changed substantially in recent years and may fluctuate substantially
in the future. We expect that a majority of our revenues will continue to be
generated in foreign currencies, including the dollar and the Euro, for the
foreseeable future and that a significant portion of our expenses, including
personnel costs, as well as capital and operating expenditures, will continue to
be denominated in Pakistani rupees. Consequently, the results of our operations
are adversely affected if the rupee appreciates or depreciates against the
dollar, the Euro or other applicable foreign currencies.
Risks of owning our shares
There has been a limited market for our Common Stock and, therefore, it may be
difficult for our shares to be sold at attractive prices, if at all
Our shares have only recently begun to trade on a limited basis and there
is no coverage of our company by analysts or market makers. This may or may not
affect the future performance of our shares. There can be no assurance that an
active trading market for our shares will develop or that, if developed, will be
sustained. In addition, the stock market in general has experienced extreme
volatility that often has been unrelated to the operating performance of any
company. These broad market and industry fluctuations may result in the decline
of the price of our shares, regardless of our operating performance.
The market price of our shares is expected to be volatile
If a market for our shares does develop, securities of OTC Bulletin Board
companies, and of technology companies in particular, are often volatile. Other
broad market and industry factors may decrease the trading price of our shares,
17
regardless of our operating performance. Market fluctuations, as well as general
political and economic conditions such as a recession or interest rate or
currency rate fluctuations, also may decrease the trading price of our shares.
In addition, our stock price could be subject to wide fluctuations in response
to many other factors, including:
o fluctuations in our financial results;
o our actions, and the actions of our customers and competitors,
including announcements of new products, product enhancements,
technological innovations or new services;
o other factors affecting the telecommunications and information
technology industries in general;
o the operating and stock price performance of other companies that
investors may deem comparable;
o news reports relating to trends in our markets;
o volume of trading of our shares on the OTC Bulletin Board or other
exchanges on which our shares may, in the future, be traded;
o conditions or trends in the telecommunications and information
technology industries;
o changes in the market valuations of other technology companies;
o announcements by us of significant acquisitions, strategic
partnerships, joint ventures or capital commitments;
o additions or departures of key personnel;
o the timing and size of network deployments and technology upgrades
by our carrier customers;
o fluctuations in demand for outsourced network services;
o the timing of expansion into new markets, both domestically and
internationally;
o the length of sales cycles; and
o our success in bidding on and winning new business.
Future sales of our shares in the public market could negatively affect our
stock price
If our stockholders sell substantial amounts of our common stock, the
market price of our common stock could fall. As of October 23, 2009, we had
100,000,000 shares of common stock outstanding. Although 68,800,000 of our
shares constitute restricted securities under the Securities Act, the shares may
be sold into the marketplace under Rule 144. The possible sale of a significant
number of these shares may cause the market price of our shares to fall.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. DESCRIPTION OF PROPERTY.
Averox Pakistan maintains its executive offices at House No. 381, Street
13, F-10/2, Islamabad Pakistan, where it occupies 666 square yards (1,998 square
feet) and pay approximately $1,666 per month. We consider our current office
space adequate for our current operations.
ITEM 3. LEGAL PROCEEDINGS.
Averox Pakistan is a plaintiff in a suit, in the Court of Civil Judge,
First Class, Islamabad captioned Averox (Private) Limited v. Aircom MEA FZ-LL.
The proceeding arises out of a Partner Agreement dated April 2, 2004, between
the Company and Aircom MEA to provide products/software and related support
services to Ufone and new mobile/cellular companies entering Pakistan markets.
In its complaint, Averox Pakistan is seeking a grant of permanent injunction,
rendition of accounts, damages and the recovery of $1,008,900 for premature
termination/breach of contract and $5,000,000 for additional damages. The case
was settled and Averox received $220,000 in December 2008.
18
Averox Pakistan is a plaintiff in a suit in the Court of Civil Judge,
First Class, Islamabad captioned Averox (Private) Limited v. ATIS Systems GmbH.
The proceeding arises out of and connected with an Agreement dated August 28,
2003, between the Company and Nortel Networks (Asia) Limited, to provide system
maintenance and support services to ATIS Systems GmbH. Averox Pakistan is
seeking declaration, temporary and permanent prohibitory and mandatory
injunction, rendition of accounts, and recovery of money/damages worth
$11,300,000, 644,179 Euros and 300,750,000 Rupees for breach of contract and
other damages. The case has not yet gone to trial. This case has been assigned
to Provisus Ltd. in partial consideration for our purchase of the Provisus
software product, subject to the filing of paperwork for court approval.
With the exception of the above, we are not involved in any legal
proceedings which may have a significant affect on our business, financial
position, results of operations or liquidity, nor are we aware of any
proceedings that are pending or threatened which may have a significant affect
on its business, financial position, results of operations or liquidity.
Available Information
We file annual, quarterly and current reports, information statements and
other information with the SEC. The public may read and copy any materials we
file with the SEC at the SEC's Public Reference Room at Station Place, 100 F
Street, N.E., Washington, D.C. 20549. The public may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
SEC also maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC. The address of that site is http://www.sec.gov.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of our fiscal year ended June 30, 2009.
19
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.
As of September 28, 2009, there were 210 record holders of our common
stock and there were 100,000,000 shares of our common stock outstanding.
The following table shows the high and low bid prices of our common stock
as quoted on the OTC Bulletin Board by quarter during each of our last two
fiscal years ended June 30, 2009 and 2008 and for each quarter after June 30,
2009. These quotes reflect inter-dealer prices, without retail markup, markdown
or commissions and may not represent actual transactions. On October 25, 2008,
the Company effected a 10-1 stock split. Prices prior to this date have been
adjusted as if the stock split were effective as of each applicable date. The
information below was obtained from those organizations, for the respective
periods.
Quarter High Low
---------------------------------------------------- ----- -----
2008 First Quarter............................ $7.50 $6.90
Second Quarter........................... 7.50 7.45
Third Quarter............................ 7.45 6.90
Fourth Quarter........................... 7.49 6.90
2009 First Quarter............................ 7.49 6.90
Second Quarter........................... 1.30 0.15
Third Quarter............................ 1.00 0.06
Fourth Quarter........................... 0.07 0.02
2010 First Quarter 0.15 0.05
The high and low bid prices for shares of our common stock on October 28,
2008 was $.04 and $.02 per share, respectively, based upon bids that represent
prices quoted by broker-dealers on the OTC Bulletin Board. These quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commissions,
and may not represent actual transactions.
Dividend Policy
We have not paid any dividends on our common stock to date, although prior
to the consummation of the transactions contemplated by the Exchange Agreement
Averox Dubai and Averox Pakistan paid dividends to their respective
shareholders. We do not intend to pay dividends on our common stock in the near
future. The payment of dividends in the future will be contingent upon our
revenues, earnings, capital requirements and general financial condition. The
payment of dividends is within the discretion of our board of directors. It is
the present intention of our board of directors to retain all earnings for
future investment and use in our business operations. Accordingly, our board of
directors does not anticipate declaring any dividends in the foreseeable future
on our common stock.
Securities Authorized for Issuance under Equity Compensation Plans
We do not maintain any equity compensation plans.
ITEM 6. SELECTED FINANCIAL DATA
We are a smaller reporting company as defined by Rule 12b-2 of the
Securities Exchange Act of 1934 and are not required to provide the information
under this item.
20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following presentation of management's discussion and analysis has
been prepared by our internal management and should be read in conjunction with
our audited financial statements for the years ended June 30, 2009 and 2008,
including the notes thereto. Some of the statements below discuss
"forward-looking" information. Those statements include statements regarding the
intent, belief or current expectations of Averox and our management team.
Investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties. These
risks and uncertainties include but are not limited to, those risks and
uncertainties discussed under the heading "Risk Factors" in this report. In
light of the significant risks and uncertainties inherent in the forward-looking
statements included in this report, the inclusion of such statements should not
be regarded as a representation by us or any other person that our objectives
and plans will be achieved.
We were incorporated under the name Flickering Star Financial, Inc.
("Flickering Star") on November 25, 1996 under the laws of the State of Nevada.
From January 1, 1997 through March 31, 1997, Flickering Star was in its
development stage. It originally intended to act as a finder of individuals who
would serve as credit enhancers for motion picture completion guaranty
contracts. As at December 31, 1996, all funds raised by the sale of shares of
Flickering Star in order to fulfill its initial objective had been expended and,
after March 31, 1997, Flickering Star became dormant.
On November 6, 2006, in anticipation of the acquisition of Averox Dubai
(including its subsidiary, Averox Pakistan), the corporate name of Flickering
Star Financial, Inc. was changed to Averox Inc.
On November 13, 2006, Averox consummated the transactions contemplated by
that certain Exchange Agreement, dated October 30, 2006, by and among Averox,
certain shareholders of Averox, Averox Dubai and Salman Mahmood by acquiring all
of the outstanding shares of capital stock of Averox Dubai. Averox Dubai had
previously acquired Averox Pakistan from Mahmood and his spouse on August 31,
2006.
Effective as of March 31, 2008, Averox ceased its operations in Dubai and
Averox Dubai became dormant in order to reduce operating costs. On March 31,
2008, Averox Dubai transferred the shares of Averox Pakistan owned by it to
Averox Inc. Averox Pakistan is now a wholly-owned subsidiary of Averox Inc.
Since the cessation of operations of Averox Dubai, we have continued to
operate in Dubai through Averox Telecommunication LLC ("Averox Telecom"). Averox
Telecom is owned 49% by Mahmood and 51% by a local partner in Dubai. The
ownership structure was necessitated by provisions of Dubai law which requires
some local ownership and makes ownership by a foreign entity difficult. Averox
Telecom is a pass through vehicle run for the benefit of Averox. Mahmood retains
operating control of Averox Telecom and has agreed to derive no pecuniary
benefit from its operations. Mahmood and Averox plan to transfer Mahmood's 49%
ownership of Averox Telecom to Averox.
Averox, through its subsidiaries, is an independent provider of software
solutions, engineering and telecommunications network deployment services,
systems integration and related support services. Although Averox's business has
primarily focused on standard solutions and end products for the
telecommunications industry, Averox's software solutions and services are also
being marketed and employed in other industries and areas of Averox's business.
Averox believes that it has established an excellent reputation for applying
specialized and innovative problem-solving skills to a diverse range of clients
and industries.
21
Results of Operations for the Twelve Months Ended June 30, 2009 and 2008
The following table presents the statement of operations for the twelve
months ended June 30, 2009 as compared to the comparable period of the twelve
months ended June 30, 2008. The discussion following the table is based on these
results.
2009 2008
----------- -----------
Net Revenue $ 875,377 $ 826,300
Cost of sales 536,896 927,101
----------- -----------
Gross profit 338,481 (100,801)
General and administrative expenses 515,178 1,441,571
Bad debts provision/ (recovery), net (12,312) 284,700
----------- -----------
Income from operations (164,385) (1,827,072)
----------- -----------
Other (Income) Expense
Interest income (121,745) (4,052)
Other income 509 14,198
Interest expense 4,339 4,141
Currency exchange (gains) losses (11,219) 60
(Gain) loss on disposal of asset 4,828 (99)
----------- -----------
Total Other Income (123,287) 14,248
----------- -----------
Income before income taxes (41,097) (1,841,320)
Provision for income taxes -- 102,630
----------- -----------
Net income $ (41,097) $(1,943,950)
=========== ===========
Net sales
Net revenue for the twelve months ended June 30, 2009 totaled $875,377
compared to $826,300 for the twelve months ended June 30, 2008, an increase of
$49,077 or approximately 6%. The increase in revenue was due to increase in
commission income from one client amounting to $65,000 as compared to
corresponding period in 2008.
Cost of Sales
Cost of sales for the twelve months ended June 30, 2009 totaled $536,896, or
approximately 61% of net revenue, compared to $927,101, or approximately 112% of
net revenue for the twelve months ended June 30, 2008, a decrease of $390,205 or
approximately 73%. The decrease in dollar amount for the twelve months ended
June 30, 2009 was mainly attributed to decrease in direct cost of services &
telecom equipment by almost $535,000. During the 12 months ended June 30, 2008
our cost of revenue included costs associated with phase completion on civil
works and technical implementation which has a low profit margin as compared to
our revenue during the 12 months ended June 30, 2009 which was more concentrated
towards IT services and commission with a lower cost of revenue and higher
profit margin. This also accounts for decrease of our cost of revenue as
compared to revenue from 112% to 61%.
Operating Expense
General and administrative expenses for the twelve months ended June 30,
2009 totaled $515,178, or approximately 59% of net revenue, compared to
$1,441,571, or approximately 174% of net revenue, for the twelve months ended
June 30, 2008, a decrease of $926,393, or approximately 64%. The decrease in
general and administrative costs during the twelve month ended June 30, 2009 was
22
primarily due to reduction in our general & administrative expenses in our
Pakistan staff and the elimination of our Dubai staff. In addition, we also
closed our offices in Dubai and moved our office in Pakistan to reduce our rent
expense. By closing our office in Dubai, we also managed to reduce some
additional administrative and marketing costs. In aggregate, we have reduced our
overheads in Pakistan by $130,000 and in Dubai by approximately $500,000.
Loss from Operations
Loss from operations for the twelve months ended June 30, 2009 totaled
$164,385, or approximately 19% of net revenue, compared to a loss from
operations of $1,827,072, or approximately 221%, for the twelve months ended
June 30, 2008, a decrease of $1,662,687, or approximately 91%. The decrease was
primarily due to decrease in our office and administrative heads by closing our
office in Dubai and reducing our workforce by a significant margin as compared
to the twelve months ended June 30, 2008. In addition, our bad debts were also
reduced significantly by focusing and emphasizing on timely recoveries.
Other income
Other income for the twelve month period ended June 30, 2009 totaled
$123,287 compared to other loss of $14,248 for the twelve month ended June 30,
2008, an increase in other income of $137,535, or approximately 965%. The
increase in other income has to do primarily with the collection of interest
income of $121,745 on the subscription receivable.
Net Loss
Net loss for the twelve months ended June 30, 2009 totaled $41,097
compared to net loss of $1,943,950 for the twelve months ended June 30, 2008, a
decrease of $1,902,853, or approximately 98%. The decrease in net loss was
primarily due to reasons described above.
LIQUIDITY AND CAPITAL RESOURCES
Our primary source of liquidity as of June 30, 2009 is our cash on hand and
accounts receivable. Net cash provided by operations for the twelve month period
ended June 30, 2009 was $6,851 as compared to net cash used in operations of
$1,511,025 during the same period in 2008. Our cash and cash equivalents were
$391,923 and $16,520 as of June 30, 2009 and June 30, 2008, respectively. Our
current assets totaled $841,175 and $405,420 as of June 30, 2009 and June 30,
2008, respectively. Our current liabilities were $1,409,164 and $577,066 as of
June 30, 2009 and June 30, 2008, respectively. Working capital was ($567,989)
and ($171,646) as of June 30, 2009 and June 30, 2008, respectively.
Net cash used in investing activities totaled ($41,615) for the twelve month
period ended June 30, 2009, compared to net cash used in investing activities of
($68,739) for the same period ended June 30, 2008.
Net cash provided by financing activities totaled $471,377 for the twelve month
period ended June 30, 2009, compared to $881,928 for the same period ended June
30, 2008. The net cash change was $375,403 and ($759,192) for the twelve month
ended June 30, 2009 and 2008, respectively.
We will continue to evaluate alternative sources of capital to meet our growth
requirements, including other asset or debt financing, issuing equity securities
and entering into other financing arrangements. There can be no assurance,
however, that any of the contemplated financing arrangements described herein
will be available and, if available, can be obtained on terms favorable to us.
Working Capital Requirements
Historically operations and short term financing have been sufficient to meet
our cash needs. We believe that we will be able to generate revenues from sales
and raise capital through private placement offerings of its equity securities
to provide the necessary cash flow to meet anticipated working capital
requirements. However, our actual working capital needs for the long and short
term will depend upon numerous factors, including operating results,
23
competition, and the availability of credit facilities, none of which can be
predicted with certainty. Future expansion will be limited by the availability
of financing products and raising capital.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the
Securities Exchange Act of 1934 and are not required to provide the information
under this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to this item is submitted as a separate section of this
Report beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of our Disclosure Controls and Procedures
We have adopted and maintain disclosure controls and procedures (as such
term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) that are designed to ensure that
information required to be disclosed in our reports under the Exchange Act, is
recorded, processed, summarized and reported within the time periods required
under the SEC's rules and forms and that the information is gathered and
communicated to our management, including our Chief Executive Officer (Principal
Executive Officer) and Chief Financial Officer (Principal Financial Officer), as
appropriate, to allow for timely decisions regarding required disclosure.
As required by SEC Rule 15d-15(b), our Chief Executive Officer and Chief
Financial Officer carried out an evaluation of the effectiveness of the design
and operation of our disclosure controls and procedures pursuant to Exchange Act
Rule 15d-14 as of the end of the period covered by this report. Based on the
foregoing evaluation, they have concluded that as of June 30, 2009, our
disclosure controls and procedures are effective.
Management's Annual Report on Internal Control Over Financial Reporting.
Our management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over
financial reporting is designed 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. Our 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 our
assets;
(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 our receipts and
expenditures are being made only in accordance with authorizations of our
management and Directors;
(iii) provide reasonable assurance that receipts and expenditures are
being made only in accordance with appropriate authorization of management
and the Board of Directors; and
24
(iv) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of our assets that could
have a material effect on our financial statements.
In connection with the preparation of this Form 10-KSB, our Chief
Executive Officer and Chief Financial Officer (our "Certifying Officers")
conducted an evaluation of the effectiveness of our internal control over
financial reporting as of June 30, 2009 based on the framework established in
Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission ("COSO") and on the criteria set forth
in Release No. 33-8238 entitled "Management's Reports on Internal Control over
Financial Reporting and Certification of Disclosure in Exchange Act Periodic
Reports". As a result of that evaluation, management identified the following
material weakness in our internal controls over financial reporting as of June
30, 2009:
Insufficient Administrative Personnel: The Company has been operated by a
small staff. The utilization of such a small staff may sometimes preclude
segregation of duties and levels of review and approval that are the
cornerstones of sound internal control systems. In addition, the members
of the Company's staff who are responsible for financial reporting are not
sufficiently familiar with the requirements imposed by the Exchange Act.
A material weakness is 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.
Based on our evaluation and the criteria set forth in the Committee of
Sponsoring Organizations of the Treadway Commission ("COSO") and Release No.
33-8238, we have concluded that, as of June 30, 2009, our internal control over
financial reporting is not effective. This annual Report on Form 10-KSB does not
include an attestation report of our registered public accounting firm regarding
internal control over financial accounting. Management's report was not subject
to attestation by our registered public accounting firm pursuant to temporary
rules of the Securities and Exchange Commission that permits us to provide only
management's report in this annual report.
Our management has taken actions necessary to begin remediating the
material weakness that was identified. We are actively seeking to hire
additional administrative personnel, intend to consult with outside legal
counsel more frequently regarding SEC reporting requirements and are training
our current staff more extensively with respect to such requirements. We believe
this measure will remediate the material weakness we identified and strengthen
our internal control over financial reporting. We are committed to improving our
internal control processes and will continue to review our financial reporting
controls and procedures.
Inherent Limitations of Internal Controls
Our system of controls is designed to provide reasonable, not absolute,
assurance regarding the reliability and integrity of accounting and financial
reporting. Management does not expect that our disclosure controls and
procedures or our internal control over financial reporting will prevent or
detect all errors and all fraud. A control system, no matter how well designed
or operated, can only provide reasonable, not absolute, assurance that the
objectives of the control system will be met. These inherent limitations include
the following:
o Judgments in decision making can be faulty, and control and process
breakdowns can occur because of simple errors or mistakes.
o Controls can be circumvented by individuals, acting alone or in
collusion with each other, or by management override.
25
o The design of any system of controls is based in part or 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 future conditions.
o Over time, controls may become inadequate because of changes in
circumstances, or conditions. Controls can also deteriorate in the
degree of compliance associated with policies and procedures.
o The design of a control system must reflect the fact that resources
are constrained, and the benefits of controls must be considered
relative to their costs.
Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, have been detected.
Our management, including our Certifying Officers, confirm that there were
no changes in our internal control over financial reporting during our fiscal
year ending June 30, 2009, that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
None.
26
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The following table shows the positions held by our board of directors and
executive officers and their ages as of October 26, 2008.
Name Age Position
Salman Mahmood 38 President and Director of Averox; Managing
Director of Averox Pakistan
Graham Hill 63 Director and Senior Vice President of Sales and
Marketing of Averox
Yasser Ahmad 32 Chief Financial Officer
Salman Mahmood is a Director and President of Averox. Mr. Mahmood has been
Managing Director of Averox Pakistan since March 2003. From August 2002 to the
present, Mr. Mahmood has served as Director of Averox Consulting plc, a United
Kingdom based consulting firm. From August 2003 until January 2004, Mr. Mahmood
served as Chief Executive of Maisha plc, a UK-based software company listed on
the Alternative Investment Market of the London Stock Exchange. From June 2001
to August 2002, Mr. Mahmood served as Chief Executive of Pearl Micro Solutions
ltd., a UK-based software company.
Graham Hill has been a Director of Averox Inc. since April 26, 2007 and is also
our Senior Vice President of Sales and Marketing. From March 2004 through
October 2006, Mr. Hill was a sales director for Syndesis Ltd. From April 2003
through February 2004, Mr. Hill was regional sales director of Axiom Ltd. From
March 2002 through April 2003, Mr. Hill was sales director for Portmark
Associates. He is an Honors Graduate in Physics from universities in the UK and
Sweden.
Yasser Ahmad is Chief Financial Officer of Averox. Since August 2006, Mr. Ahmad
has served as Manager Finance of Averox Pakistan. From September 2005 to August
2006 Mr. Ahmad served as the Finance & Commercial Officer at Averox Pakistan.
From March 2004 to June 2005 Mr. Ahmad worked as Team Lead for a Mortgage
Project for Touchstone, an Islamabad based US company. From September 2002 to
December 2002 Mr. Ahmad served as Citiphone Banker for US based Citibank at
their Islamabad Office.
Committees of the Board
The Board of Directors is the acting Audit Committee. Our Board of
Directors has determined that there is no person on our Board of Directors who
qualifies as an audit committee financial expert as that term is defined by
applicable Securities and Exchange Commission rules. The Board of Directors
believes that obtaining the services of an audit committee financial expert is
not economically rational at this time in light of the costs associated with
identifying and retaining an individual who would qualify as an audit committee
financial expert.
Director Compensation
There are no special fees, contracts entered into, or payments made in
consideration of any director's service as a director.
Indebtedness of Executive Officers and Directors
No executive officer, director or any member of these individuals'
immediate families or any corporation or organization with whom any of these
individuals is an affiliate is or has been indebted to us since the beginning of
our last fiscal year.
27
Family Relationships
There are no family relationships among our executive officers and
directors.
Legal Proceedings
During the past five years, none of our executive officers, directors,
promoters or control persons have been involved in a legal proceeding material
to an evaluation of the ability or integrity of such person.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act"),
as amended, requires our directors and executive officers, and persons who own
more than 10% our outstanding common stock, to file with the SEC, initial
reports of ownership and reports of changes in ownership of our equity
securities. These persons are required by SEC regulations to furnish us with
copies of all the reports they file. To our knowledge, based solely on a review
of the copies of the reports furnished to us and written or oral representations
that no other reports were required for those persons during the fiscal year
ended June 30, 2008, all of our officers, directors and greater than 10%
beneficial owners complied with the reporting requirements of Section 16(a) of
the Exchange Act.
Code of Ethics
The Company has adopted a Code of Ethics for our Principal Executive
Officer and our Senior Financial Officers. A copy of the Code of Ethics is filed
as Exhibit 14.1 to our Annual Report for the year ended June 30, 2008 and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The following Summary Compensation Table sets forth, for the years
indicated, all cash compensation paid, distributed or accrued for services,
including salary and bonus amounts, rendered in all capacities by our Chief
Executive Officer who is the only executive officer who received or is entitled
to receive remuneration in excess of $100,000 during the stated periods.
Name and Principal Year Salary (1) Option Grants All Other Total
Position ($) ($) Compensation ($) ($)
------------------ ---- ---------- ------------- --------- -----
(a) (b) (c) (e) (f) (g)
------------------ ---- ---------- ------------- --------- -----
Salman Mahmood, 2009 $180,000 Nil NA $180,000
Director of Averox; 2008 $150,000 Nil NA $150,000
President, Managing
Director of Averox
Pakistan
-------------
(1) Salary represents base salary earned in 2009 and 2008.
Employment Agreements
Mr. Hill is a party to a certain Statement of Particulars of Employment
contract dated January 3, 2008 with the Company. This contract supersedes the
previous contract with the Company and all human resources related Company
letters under the previous contract are void as of the March 1, 2008, the
effective date of the new contract. Under the terms of the commission
based-contract, Mr. Hill receives salary based solely on commission and bonuses
of up to a maximum of 20% of the net profit from the sales of the Company,
generated by him.
28
Mr. Ahmad is a party to a Statement of Particulars of Employment with
Averox Pakistan, dated December 6, 2005. Mr. Ahmad receives a salary of $667 per
month and is entitled to paid holidays, sick days and 20 vacation days per year.
Although the Statement of Particulars of employment is not for a fixed term, Mr.
Ahmad is required to give Averox Pakistan four weeks notice of his intent to
terminate his employment until he has been employed for two years. Thereafter,
the notice period increases by one week for each year of continuous employment
until he completes 10 years of continuous employment, after which time he will
be obliged to give Averox Pakistan 12 weeks' notice. Conversely, Averox Pakistan
must give each four weeks notice of termination until he has been continuously
employed for 2 years. Thereafter, the notice entitlement increases by one week
for each year of continuous employment until such person has completed 10 years
of continuous employment, after which time such person will be entitled to 12
weeks' notice. Under the terms of the Employment Agreement, Mr. Ahmad is
required to maintain the confidentiality of Company information he has received.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The following table sets forth information regarding the beneficial
ownership of our common stock as of September 28, 2009 by:
o each person known by us to be the beneficial owner of more than 5%
of our outstanding shares of common stock;
o each of our officers and directors; and
o all of our officers and directors as a group.
Unless otherwise indicated, we believe that all persons named in the table
have sole voting and investment power with respect to all shares of common stock
beneficially owned by them.
Amount and
Nature of
Name and Address Beneficial Percent of
of Beneficial Owner(1) Ownership (2) Class
--------------------------------------------------------------- ------------- ----------
Salman Mahmood 65,000,000 65.00%
All directors and executive officers as a group (3 individuals) 65,000,000 65.00%
----------
(1) Unless otherwise indicated, the business address of Salman Mahmood is
House No. 381 Street No. 13, Sector F-10/2, Islamabad, Pakistan.
(2) Unless otherwise indicated in these footnotes, each stockholder has sole
voting and investment power with respect to the shares beneficially owned.
All share amounts reflect beneficial ownership determined pursuant to Rule
13d-3 under the Exchange Act. All information with respect to beneficial
ownership has been furnished by the respective director, executive officer
or stockholder, as the case may be.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On September 15, 2006, Averox Dubai and Averox Pakistan declared dividends
payable to Mr. Mahmood in the aggregate amount of $3,022,833. As of June 30,
2009, dividends remaining to be paid amount is $608.
Mr. Mahmood has received loans from Averox Pakistan from time to time. The
loans were repaid from the dividends declared on September 15, 2007.
29
On August 5, 2008, our subsidiary Averox Pakistan acquired from Provisus
Ltd, all tangible and intangible assets of Provisus, including, but not limited
to: (i) Provisus(TM) software, service activation and provisioning, (ii)
Provisus's trademark, website and marketing materials, and (iii) intellectual
property rights, source code of core module and all developed modules as of
August 5, 2008. Provisus is owned by Mr. Salman Mahmood, Averox's controlling
shareholder.
In exchange for the Provisus assets, Provisus acquired our contingent
claims for commissions due from five companies including those describe in Item
3. The aggregate amount of the contingent claims cannot be determined at this
time as no information regarding commissions has been received. If Provisus
collects more than $500,000 from the disputed accounts, Provisus will pay
seventy-five percent (75%) of such excess to us after deducting its legal costs.
In addition to the transfer of the claims, under the terms of the Purchase
Agreement, we will pay Provisus (i) in perpetuity a royalty equal to twenty
percent (20%) of all revenue generated from the sale of Provisus(TM) software
and services in excess of $5 million dollars in revenues in the aggregate, and
(ii) either (x) $1 million dollars in cash on the second anniversary of the date
of the Purchase Agreement or (y) shares of the our common stock if no cash is
available after one year valued at $5 million based upon the then current market
price of our shares.
Director Independence
Our current directors are Salman Mahmood and Graham Hill. We are not
currently subject to corporate governance standards defining the independence of
our directors. We have not yet adopted an independence standard or policy.
Accordingly, our Board currently determines the independence of each Director
and nominee for election as a Director. The Board has determined that none of
our directors currently qualifies as an independent director.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
The aggregate fees billed by the Company's auditors for professional services
rendered in connection with the audit of the Company's annual financial
statements and reviews of the financial statements included in the Company's
Form 10-Qs or services that are normally provided by the accountant in
connection with statutory and regulatory filings or engagements for fiscal years
2009 and 2008 were $40,500 and $62,000, respectively.
Audit Related Fees
None.
Tax Fees
None.
All Other Fees
None.
Pre-Approval Policies and Procedures
Our Board of Directors has adopted resolutions in accordance with the
Sarbanes-Oxley Act of 2002 requiring pre-approval of all auditing services and
all audit related, tax or other services not prohibited under Section 10A(g) of
the Securities Exchange Act of 1934, as amended to be performed for us by our
independent auditor, subject to the de minimus exception described in Section
10A(i)(1)(B) of the Exchange Act. These resolutions authorized our independent
auditor to perform audit services required in connection with the annual audit
relating to our fiscal year ended June 30, 2009 and the quarterly reviews for
the subsequent fiscal quarters of 2009 through the quarter ended March 31, 2009,
at which time additional pre-approvals for any additional services to be
performed by our auditors would be sought from the Board. Our Board of Directors
also appointed and authorized Yasser Ahmad to grant pre-approvals of other
audit, audit-related, tax and other services requiring board approval to be
performed for us by our independent auditor, provided that the designee,
following any such pre-approvals, thereafter reports the pre-approvals of such
services at the next following regular meeting of the Board.
The percentage of audit-related, and other services that were approved by the
Board of Directors is 100%.
30
PART IV
ITEM 15. EXHIBITS.
Exhibit
Number Description of Document
3.1 Articles of Incorporation of Averox Inc. (1)
3.2 Articles of Merger with Agreement and Plan of Merger (2)
3.3 By-Laws of Averox Inc. (1)
10.1 Share Exchange Agreement dated October 30, 2006, by and among
Averox, Inc., certain shareholders of Averox, Pearl Consulting
FZ-LLC, a free zone limited liability company organized under the
laws of Dubai, UAE, and Salman Mahmood (5)
10.2 Form of $1,850,000 Promissory Note (6)
10.3 Form of $650,000 Promissory Note (6)
10.4 Particulars of Employment dated December 6, 2005 between Averox
Pakistan and Yasser Ahmad (6)
10.5 Employment Contract dated January 3, 2008 between Averox FZ-LLC and
Graham Hill (5)
10.7 Purchase Agreement dated August 5, 2008 between Averox Pvt. Ltd. and
Provisus Ltd. (3)
10.8 Lease Agreement dated June 15, 2008 by and among the Company, Mr.
Waqar Ahmed and certain other individuals. (4)
14.1 Code of Ethics (7)
21.1 Subsidiaries of Small Business Issuer (5)
23.1 Consent of Morgenstern, Svoboda & Baer CPA's P.C.
31.1 Chief Executive Officer's Certificate, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002. (5)
31.2 Chief Financial Officer's Certificate, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002. (5)
32.1 Chief Executive Officer's Certificate, pursuant to 18 U.S.C.,
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. (5)
32.2 Chief Financial Officer's Certificate, pursuant to 18 U.S.C.,
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. (5)
----------
(1) Filed as an exhibit to the Registrant's Form 10-SB filed on January 12,
2000 and incorporated herein by reference.
(2) Filed as an exhibit to the Registrant's Form 8-K filed on November 7, 2006
and incorporated herein by reference.
(3) Filed as an exhibit to the Registrant's Form 8-K filed on August 5, 2008
and incorporated herein by reference.
31
(4) Filed as an exhibit to the Registrant's Form 8-K filed on August 25, 2008
and incorporated herein by reference.
(5) Filed herewith.
(6) Filed as an exhibit to the Registrant's Form 8-K filed on November 14,
2006 and incorporated herein by reference.
(7) Filed as an exhibit to the Registrant's Form 10-K for the year ended June
30, 2008 and incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized.
AVEROX INC.
Dated: October 13, 2009 By: /s/ Salman Mahmood
------------------------------------------
Salman Mahmood
Chief Executive Officer
By: /s/Yasser Ahmad
------------------------------------------
Yasser Ahmad
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Dated: October 13, 2009 By: /s/ Salman Mahmood
------------------------------------------
Salman Mahmood
Chairman, Chief Executive Officer and
President (principal executive officer)
Dated: October 13, 2009 By: /s/ Yasser Ahmad
------------------------------------------
Yasser Ahmad
Chief Financial Officer (principal
financial and accounting officer)
Dated: October 13, 2009 By: /s/ Graham Hill
------------------------------------------
Graham Hill
Director
32
AVEROX, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009
TABLE OF CONTENTS
Reports of Independent Registered Public Accounting Firm F-1 - F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Cash Flow F-5
Consolidated Statements Stockholders' Equity/(Deficit) F-6
Notes to Consolidated Financial Statements F-7
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Averox Inc. and Subsidiaries
We have audited the Averox Inc. and Subsidiaries (the "Company") as of June 30,
2009, and the related consolidated statement of operations, stockholders'
deficit, and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit of these statements in accordance with the standards of
the Public Company Accounting Oversight Board (United States). 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Averox
Inc. and Subsidiaries as of June 30, 2009, and the results of its consolidated
statement of operations, stockholders' deficit, and its cash flows for the year
then ended, in conformity with accounting principles generally accepted in the
United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. During the year ended June
30, 2009, the Company incurred net losses of $42,138. The Company's accumulated
deficit was $2,381,571 as of June 30, 2009. These factors, among others, as
discussed in Note D to the consolidated financial statements, raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note D. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Kabani & Company, Inc.
Certified Public Accountants
Los Angeles, California
September 28, 2009
F-1
MORGENSTERN,SVOBODA & BAER, CPA's, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
40 Exchange Place, Suite 1820
New York, NY 10005
TEL: (212) 925-9490
FAX: (212) 226-9134
E-Mail: msbcpas@gmail.com
Board of Directors and Stockholders of
Averox Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Averox Inc. and
Subsidiaries as of June 30, 2008 and 2007, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
years in the two-year period ended June 30, 2008. Averox Inc.'s management is
responsible for these financial statements. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinions.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Averox Inc. and Subsidiaries as
of June 30, 2008 and 2007 and the results of its operations and its cash flows
for each of the years in the two-year period ended June 30, 2008 in conformity
with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note I to the financial
statements, the Company has suffered recurring losses from operations which
raises substantial doubt about its ability to continue as a going concern.
Management's plans regarding those matters are also described in Note I. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Morgenstern, Svoboda & Baer, CPA's PC
Certified Public Accountants
New York, NY
October 3, 2008
F-2
AVEROX INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2009 AND JUNE 30, 2008
ASSETS
June 30, June 30,
2009 2008
----------- -----------
Current Assets
Cash and cash equivalents $ 391,923 $ 16,520
Accounts receivable, net 393,080 307,863
Advances & prepaid expenses 27,330 66,208
Other current assets 28,844 14,829
----------- -----------
Total Current Assets 841,175 405,420
----------- -----------
Property, Plant & Equipment, net 111,559 131,492
----------- -----------
Other Assets
Intangible assets, net 820,253 3,595
Deposits 3,516 4,888
----------- -----------
Total Other Assets 823,769 8,483
----------- -----------
Total Assets $ 1,776,503 $ 545,395
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT)
Current Liabilities
Accounts payable and accrued expenses $ 226,900 $ 457,886
Payable to related party 1,000,000 --
Provision for income tax -- 92,327
Shares to be issued 3,407 --
Deferred tax liabilities 17,262 19,777
Deferred revenue 161,595 --
Current portion of lease obligations -- 7,076
----------- -----------
Total Current Liabilities 1,409,164 577,066
Minority interest 81,041 79,999
----------- -----------
Stockholder's Equity/(Deficit)
Common stock, $.004 par value, 250,000,000
shares authorized, 100,000,000, issued and outstanding 400,000 400,000
Additional paid in capital 2,223,779 2,223,779
Subscription receivable -- (477,524)
Other comprehensive income 44,090 81,508
Accumulated deficit (2,381,571) (2,339,433)
----------- -----------
Total Stockholder's Equity/(Deficit) 286,298 (111,670)
----------- -----------
Total Liabilities and Stockholder's Equity/(Deficit) $ 1,776,503 $ 545,395
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-3
AVEROX INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2009 AND 2008
2009 2008
----------------- -----------------
Net Revenue $ 875,377 $ 826,300
Cost of revenue 536,896 927,101
----------------- -----------------
Gross profit (loss) 338,481 (100,801)
Operating expenses
General and administrative expenses 515,178 1,441,571
Bad debts provision/ (recovery), net (12,312) 284,700
----------------- -----------------
Total operating expenses 502,866 1,726,271
----------------- -----------------
Loss from operations (164,385) (1,827,072)
----------------- -----------------
Other (Income) Expense
Interest income (121,745) (4,052)
Other expense 509 14,198
Interest expense 4,339 4,141
Currency exchange (gains) losses (11,219) 60
(Gain) loss on disposal of asset 4,828 (99)
----------------- -----------------
Total Other (Income) Expense (123,287) 14,248
----------------- -----------------
Loss before income taxes and minority interest (41,097) (1,841,320)
Provision for income taxes -- 102,630
----------------- -----------------
Net loss before minority interest (41,097) (1,943,950)
Net income (loss) attributable to minority interest 1,042 (13,242)
----------------- -----------------
Net loss (42,138) (1,930,708)
Other Comprehensive item
Foreign Currency Translation (37,418) (86,364)
----------------- -----------------
Comprehensive Loss $ (79,556) $ (2,017,072)
================= =================
Basic & diluted net loss per share $ (0.000) $ (0.019)
================= =================
Weighted average shares of share capital outstanding
- basic & diluted 100,000,000 100,000,000
================= =================
The accompanying notes are an integral part of these financial statements.
F-4
AVEROX INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2009 AND 2008
2009 2008
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (42,138) $(1,930,708)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Bad debts (8,981) 284,700
Shares to be issued to employees 3,407 --
(Gain) / loss on sales of fixed assets 4,828 (99)
Depreciation and amortization 218,922 50,363
Deferred income tax -- 96,523
Minority interest 1,042 (13,242)
(Increase) / decrease in assets:
Accounts receivable (132,569) (28,844)
Other receivables, deposits and prepaid expenses (140,498) 20,859
Loans and advances 7,266 (51,066)
Increase in liabilities:
Accounts payable and accrued expenses (170,533) 60,489
Deferred revenue 168,147 --
Provision for income tax 97,959 --
----------- -----------
Net cash provided by (used in) operations 6,851 (1,511,025)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceed from sale of property and equipment 3,182 16,882
Acquisition of intangible assets -- (545)
Acquisition of property and equipment (44,797) (85,076)
----------- -----------
Net cash used in investing activities (41,615) (68,739)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from subscription receivable 477,523 918,998
Payment on capital lease (6,146) (37,070)
----------- -----------
Net cash provided by financing activities 471,377 881,928
----------- -----------
Effect of exchange rate changes on cash and cash equivalents (61,210) (61,356)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 375,403 (759,192)
CASH AND CASH EQUIVALENTS, BEGINNING BALANCE 16,520 775,712
----------- -----------
CASH AND CASH EQUIVALENTS, ENDING BALANCE $ 391,923 $ 16,520
=========== ===========
SUPPLEMENTAL DISCLOSURES:
Cash paid during the years for:
Interest $ 4,339 $ 4,141
=========== ===========
Income tax $ -- $ --
=========== ===========
Non Cash transactions:
Intangible asset purchased $ 1,000,000 $ --
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-5
AVEROX INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY / (DEFICIT)
FOR THE YEARS ENDED JUNE 30, 2009 AND 2008
(Accumulated
Additional deficit) Total
Capital Stock Paid in Comprehensive Subscription Retained Stockholders'
Shares Amount Capital Income Receivable Earnings Equity/(Deficit)
----------- ---------- ---------- --------- ----------- ----------- ----------------
Balance June 30, 2007 10,000,000 $ 40,000 $2,583,779 $ 167,872 $(1,396,521) $ (408,725) $ 986,405
----------- ---------- ---------- --------- ----------- ----------- -----------
Shares issued for subscription
receivable --
10-1 stock split 90,000,000 360,000 (360,000)
Foreign currency translation loss (86,364) (86,364)
Subscription receivable 918,997 918,997
Net loss for the fiscal year
ended June 30, 2008 (1,930,708) (1,930,708)
----------- ---------- ---------- --------- ----------- ----------- -----------
Balance June 30, 2008 100,000,000 $ 400,000 $2,223,779 $ 81,508 $ (477,524) $(2,339,433) $ (111,670)
----------- ---------- ---------- --------- ----------- ----------- -----------
Foreign currency translation
loss (37,418) (37,418)
Payments on subscription
receivable 477,524 477,524
Net loss for the fiscal year
ended June 30, 2009 (42,138) (42,138)
----------- ---------- ---------- --------- ----------- ----------- -----------
Balance June 30, 2009 100,000,000 $ 400,000 $2,223,779 $ 44,090 $ (0) $(2,381,571) $ 286,298
----------- ---------- ---------- --------- ----------- ----------- -----------
The accompanying notes are an integral part of these financial statements.
F-6
AVEROX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009
Note A - ORGANIZATION
Averox, Inc., formerly Flickering Star Financial, Inc. ("Averox"), was
incorporated on November 25, 1996 under the laws of the State of Nevada.
On November 13, 2006, Averox Inc., consummated the transactions
contemplated by a certain Share Exchange Agreement dated October 30, 2006,
by and among Averox, certain shareholders of Averox, Averox FZ-LLC
(formerly Pearl Consulting FZ-LLC), Averox (Private) Limited (formerly
Pearl Consulting (Private) Limited) and Salman Mahmood (the "Exchange
Agreement"). Averox FZ-LLC ("Averox Dubai"), a free zone limited liability
company organized under the Laws of Dubai, was incorporated on November 9,
2004. Averox (Private) Limited ("Averox Pakistan"), a private limited
company organized under the laws of Pakistan, was organized on March 19,
2003. Averox Telecomunication, LLC was organized under the laws of United
Arabs Emirates on August 28, 2008. When used in these notes, the terms
"Company," "we," "our," or "us" mean Averox and its consolidated
subsidiaries Averox Dubai, Averox Telecommunication and Averox Pakistan.
On August 31, 2006, Averox Pakistan's shareholder transferred 98 ordinary
shares of Averox Pakistan to Averox Dubai. These shares represented ninety
eight percent (98%) of the issued and outstanding shares on that date.
Averox Pakistan became a majority owned subsidiary of Averox Dubai.
On March 31, 2008, Averox Dubai transferred the shares of Averox Pakistan
owned by it to Averox, Inc., subject only to minor regulatory approvals.
Upon such transfer, Averox Pakistan become a wholly-owned subsidiary of
Averox, Inc.
Pursuant to the Exchange Agreement, Averox issued 6,500,000 shares of its
common stock, or 65% of the issued and outstanding capital stock of Averox
after the consummation of the Exchange Agreement and the transactions
contemplated thereby. As a result of the Exchange Agreement, Averox Dubai
became a wholly-owned subsidiary of Averox.
The Company, through its acquisition of Averox Dubai and Averox Pakistan,
is no longer considered a development stage company.
The principle services we provide include the design, deployment,
integration, and the overall management of telecommunications networks for
both large and small companies. Our work for telecommunication companies
involves software development, radio frequency engineering, project
management and the installation of telecommunications equipment. We also
provide network management services, which involve day-to-day optimization
and maintenance of telecommunications networks. To date, most of our
network engineering and deployment services have been for
telecommunications carriers primarily in Pakistan, although we are
actively marketing our services and solutions in Eastern Europe, the
Middle East and the rest of Asia.
Our information technology, or IT, professionals develop and promote
software which delivers industry standard-specific solutions. The
solutions developed by our IT professionals address needs in a wide
spectrum of areas such as e-commerce, enterprise resource planning, IT
strategy and consulting, project management and web-based applications
such as content management systems, and Internet and intranet
applications.
F-7
Basis of Consolidation
The consolidated financial statements include the accounts of Averox, Inc.
and its wholly owned subsidiary Averox Dubai and majority owned Averox
Pakistan and Averox Telecommunication. All material intercompany accounts,
transactions and profits have been eliminated in consolidation.
Revenue Recognition
The Company recognizes its revenue in accordance with the Securities and
Exchange Commissions ("SEC") Staff Accounting Bulletin No. 104, "Revenue
Recognition" ("SAB 104") and The American Institute of Certified Public
Accountants ("AICPA") Statement of Position ("SOP") 97-2, "Software
Revenue Recognition," as amended by SOP 98-4 and SOP 98-9, SOP 81-1,
"Accounting for Performance of Construction-Type and Certain
Production-Type Contracts," and Accounting Research Bulletin 45 (ARB 45)
"Long-Term Construction Type Contracts." The Company's revenue recognition
policy is as follows:
License Revenue: The Company recognizes revenue from license contracts
without major customization when a non-cancelable, non-contingent license
agreement has been signed, delivery of the software has occurred, the fee
is fixed or determinable, and collectibilty is probable. Revenue from the
sale of licenses with major customization, modification, and development
is recognized on a percentage of completion method, in conformity with ARB
45 and SOP 81-1. Revenue from the implementation of software is recognized
on a percentage of completion method, in conformity with Accounting
Research Bulletin ("ARB") No. 45 and SOP 81-1. Any revenues from software
arrangements with multiple elements are allocated to each element of the
arrangement based on the relative fair values using specific objective
evidence as defined in the SOPs. An input measure of "Unit of Work
Completed" is used to determine the percentage of completion which
measures the results achieved at a specific date. Units completed are
certified by the Project Manager and EVP IT/ Operations.
Services Revenue: Revenue from consulting services is recognized as the
services are performed for time-and-materials contracts. Revenue from
training and development services is recognized as the services are
performed. Revenue from maintenance agreements is recognized ratably over
the term of the maintenance agreement, which in most instances is one
year.
Unearned Revenue: Unearned Revenue is broken down into three main
categories; a) annual maintenance contracts whereby the annual fee is
collected at the beginning of the service period and recognized on a
pro-rata basis over the life of the contract, b) service revenue connected
to those contracts which the implementation and development segments are
recognized on the percentage of completed method; and c) customized
development projects for existing customers to modify their version of the
product to better meet their individual needs which are recognized on the
percentage of completion method. Unearned revenue was $161,595 and $ 0 as
of June 30, 2009 and June 30, 2008 respectively.
Risks and Uncertainties
The Company is subject to substantial risks from, among other things,
intense competition associated with the industry in general, other risks
associated with financing, liquidity requirements, rapidly changing
customer requirements, limited operating history, foreign currency
exchange rates and the volatility of public markets. Currently, there are
tensions involving Afghanistan, a neighbor of Pakistan. These hostilities
and tensions could lead to political or economic instability in Pakistan
and a possible adverse effect on operations and future financial
performance.
F-8
Use of Estimates
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Translation Adjustment
As of June 30, 2009 and 2008, the accounts of Averox Pakistan were
maintained, and its financial statements were expressed, in PKR. Such
financial statements were translated into U.S. Dollars (USD) in accordance
with Statement of Financial Accounts Standards No. 52, "Foreign Currency
Translation," with the PKR as the functional currency. According to the
Statement, all assets and liabilities were translated at the current
exchange rate, stockholders' equity (deficit) is translated at the
historical rates and income statement items are translated at the average
exchange rate for the period. The resulting translation adjustments are
reported under other comprehensive income in accordance with SFAS No. 130,
"Reporting Comprehensive Income," as a component of shareholders' equity
(deficit).
Allowance for Doubtful Accounts
The Company maintains reserves for potential credit losses on accounts
receivable. Management reviews the composition of accounts receivable and
analyzes historical bad debts, customer concentrations, customer credit
worthiness, current economic trends and changes in customer payment
patterns to evaluate the adequacy of these reserves. Allowance for
doubtful debts amounted to $473,707 and $583,593 as of June 30, 2009 and
June 30, 2008, respectively.
Property, Plant & Equipment
Property and equipment are stated at cost. Expenditures for maintenance
and repairs are charged to earnings as incurred; additions, renewals and
betterments are capitalized. When property and equipment are retired or
otherwise disposed of, the related cost and accumulated depreciation are
removed from the respective accounts, and any gain or loss is included in
operations. Depreciation of property and equipment is provided using the
straight-line method for substantially all assets with estimated lives of:
Equipment 3 -5 years
Furniture & Fixtures 5 -10 years
Motor Vehicles 5 years
As of June 30, 2009 and June 30, 2008 property, plant and equipment
consisted of the following:
F-9
June 30, 2009 June 30, 2008
----------- -----------
Furnitures and fixtures $ 25,015 $ 35,727
Office equipment 136,523 117,835
Motor Vehicle 86,529 97,954
----------- -----------
248,067 251,516
Accumulated depreciation (136,508) (120,024)
----------- -----------
$ 111,559 $ 131,492
=========== ===========
Depreciation expense was $38,814 and $50,363 for the years ended June 30,
2009 and 2008.
Basic and Diluted Earnings Per Share
Earnings per share is calculated in accordance with the Statement of
Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings Per
Share." SFAS No. 128 superseded Accounting Principles Board Opinion No. 15
("APB 15"). Net loss per share for all periods presented has been restated
to reflect the adoption of SFAS No. 128. Basic net loss per share is based
upon the weighted average number of common shares outstanding. Diluted net
loss per share is based on the assumption that all dilutive convertible
shares and stock options were converted or exercised. Dilution is computed
by applying the treasury stock method. Under this method, options and
warrants are assumed to be exercised at the beginning of the period (or at
the time of issuance, if later), and as if funds obtained thereby were
used to purchase common stock at the average market price during the
period.
Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price over the fair value
of the identifiable assets and liabilities acquired as a result of the
Company's acquisitions of interests in its subsidiaries. Under Statement
of Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets" ("SFAS 142"), goodwill is no longer amortized, but tested for
impairment upon first adoption and annually, thereafter, or more
frequently if events or changes in circumstances indicate that it might be
impaired. The Company assesses goodwill for impairment periodically in
accordance with SFAS 142.
The Company applies the criteria specified in SFAS No. 141, "Business
Combinations" to determine whether an intangible asset should be
recognized separately from goodwill. Intangible assets acquired through
business acquisitions are recognized as assets separate from goodwill if
they satisfy either the "contractual-legal" or "separability" criterion.
Per SFAS 142, intangible assets with definite lives are amortized over
their estimated useful life and reviewed for impairment in accordance with
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived
Assets." Intangible assets, such as purchased technology, trademark,
customer list, user base and non-compete agreements, arising from the
acquisitions of subsidiaries and variable interest entities are recognized
and measured at fair value upon acquisition. Intangible assets are
amortized over their estimated useful lives from one to ten years. The
Company reviews the amortization methods and estimated useful lives of
intangible assets at least annually or when events or changes in
circumstances indicate that it might be impaired. The recoverability of an
intangible asset to be held and used is evaluated by comparing the
carrying amount of the intangible asset to its future net undiscounted
cash flows. If the intangible asset is considered to be impaired, the
impairment loss is measured as the amount by which the carrying amount of
the intangible asset exceeds the fair value of the intangible asset,
calculated using a discounted future cash flow analysis. The Company uses
estimates and judgments in its impairment tests, and if different
estimates or judgments had been utilized, the timing or the amount of the
impairment charges could be different.
F-10
Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets" ("SFAS 144"), which addresses financial accounting
and reporting for the impairment or disposal of long-lived assets and
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," and the accounting
and reporting provisions of APB Opinion No. 30, "Reporting the Results of
Operations for a Disposal of a Segment of a Business." The Company
periodically evaluates the carrying value of long-lived assets to be held
and used in accordance with SFAS 144. SFAS 144 requires impairment losses
to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amounts. In
that event, a loss is recognized based on the amount by which the carrying
amount exceeds the fair market value of the long-lived assets. Loss on
long-lived assets to be disposed of is determined in a similar manner,
except that fair market values are reduced for the cost of disposal. Based
on its review, the Company believes that, as of June 30, 2009 there were
no significant impairments of its long-lived assets.
As of June 30, 2009 and June 30, 2008, Intangible Assets consist of the
following:
June 30, 2009 June 30, 2008
------------- -------------
Software and intellecutal rights $ 1,003,001 $ 3,595
Accumulated amortization (182,748) --
------------- -------------
$ 820,253 $ 3,595
============= =============
Amortization expense for the twelve month periods ending
June 30, 2010 $ 200,361
June 30, 2011 200,000
June 30, 2012 200,000
June 30, 2013 200,000
June 30, 2014 19,892
---------
$ 820,253
=========
Recent Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests
in Consolidated Financial Statements", which is an amendment of Accounting
Research Bulletin ("ARB") No. 51. This statement clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements. This statement changes the way the consolidated
income statement is presented, thus requiring consolidated net income to
be reported at amounts that include the amounts attributable to both
parent and the noncontrolling interest. This statement is effective for
the fiscal years, and interim periods within those fiscal years, beginning
on or after December 15, 2008. Management is currently evaluating the
effect of this pronouncement on financial statements.
In March 2008, the FASB issued FASB Statement No. 161, Disclosures about
Derivative Instruments and Hedging Activities. The new standard is
intended to improve financial reporting about derivative instruments and
hedging activities by requiring enhanced disclosures to enable investors
F-11
to better understand their effects on an entity's financial position,
financial performance, and cash flows. It is effective for financial
statements issued for fiscal years and interim periods beginning after
November 15, 2008, with early application encouraged. The new standard
also improves transparency about the location and amounts of derivative
instruments in an entity's financial statements; how derivative
instruments and related hedged items are accounted for under Statement
133; and how derivative instruments and related hedged items affect its
financial position, financial performance, and cash flows. Management is
currently evaluating the effect of this pronouncement on financial
statements.
In May of 2008, FASB issued SFASB No.162, "The Hierarchy of Generally
Accepted Accounting Principles". The pronouncement mandates the GAAP
hierarchy reside in the accounting literature as opposed to the audit
literature. This has the practical impact of elevating FASB Statements of
Financial Accounting Concepts in the GAAP hierarchy. This pronouncement
will become effective 60 days following SEC approval. Management is
currently evaluating the effect of this pronouncement on financial
statements.
In May 2008, FASB issued SFASB No. 163, Accounting for Financial Guarantee
Insurance Contracts-an interpretation of FASB Statement No. 60. The scope
of the statement is limited to financial guarantee insurance (and
reinsurance) contracts. The pronouncement is effective for fiscal years
beginning after December 31, 2008. Management is currently evaluating the
effect of this pronouncement on financial statements.
In December 2007, the FASB issued SFAS No. 141(R), "Business
Combinations". This Statement replaces SFAS No. 141, Business
Combinations. This Statement retains the fundamental requirements in
Statement 141 that the acquisition method of accounting (which Statement
141 called the purchase method) be used for all business combinations and
for an acquirer to be identified for each business combination. This
Statement also establishes principles and requirements for how the
acquirer: a) recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree; b) recognizes and measures the
goodwill acquired in the business combination or a gain from a bargain
purchase and c) determines what information to disclose to enable users of
the financial statements to evaluate the nature and financial effects of
the business combination. SFAS No. 141(R) will apply prospectively to
business combinations for which the acquisition date is on or after
Company's fiscal year beginning July 1, 2009. While the Company has not
yet evaluated this statement for the impact, if any, that SFAS No. 141(R)
will have on its consolidated financial statements, the Company will be
required to expense costs related to any acquisitions after June 30, 2009.
EITF Issue No. 07-5, "Determining Whether an Instrument (or embedded
Feature) is Indexed to an Entity's Own Stock" (EITF 07-5) was issued in
June 2008 to clarify how to determine whether certain instruments or
features were indexed to an entity's own stock under EITF Issue No. 01-6,
"The Meaning of "Indexed to a Company's Own Stock" (EITF 01-6). EITF 07-5
applies to any freestanding financial instrument (or embedded feature)
that has all of the characteristics of a derivative as defined in FAS 133,
for purposes of determining whether that instrument (or embedded feature)
qualifies for the first part of the paragraph 11(a) scope exception. It is
also applicable to any freestanding financial instrument (e.g., gross
physically settled warrants) that is potentially settled in an entity's
own stock, regardless of whether it has all of the characteristics of a
derivative as defined in FAS 133, for purposes of determining whether to
apply EITF 00-19. EITF 07-5 does not apply to share-based payment awards
within the scope of FAS 123(R), Share-Based Payment (FAS 123(R)). However,
an equity-linked financial instrument issued to investors to establish a
market-based measure of the fair value of employee stock options is not
within the scope of FAS 123(R) and therefore is subject to EITF 07-5.
The guidance is applicable to existing instruments and is effective for
financial statements issued for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years. Management is
currently considering the effect of this EITF on financial statements for
the year beginning July 1, 2009.
F-12
On January 12, 2009 FASB issued FSP EITF 99-20-01, "Amendment to the
Impairment Guidance of EITF Issue No. 99-20". This FSP amends the
impairment guidance in EITF Issue No. 99-20, "Recognition of Interest
Income and Impairment on Purchased Beneficial Interests and Beneficial
Interests That Continue to be Held by a Transferor in Securitized
Financial Assets," to achieve more consistent determination of whether an
other-than-temporary impairment has occurred. The FSP also retains and
emphasizes the objective of an other-than-temporary impairment assessment
and the related disclosure requirements in FASB Statement No. 115,
Accounting for Certain Investments in Debt and Equity Securities, and
other related guidance. The FSP is shall be effective for interim and
annual reporting periods ending after December 15, 2008, and shall be
applied prospectively. Retrospective application to a prior interim or
annual reporting period is not permitted. Management is currently
evaluating the effect of this pronouncement on financial statements.
Note C - CONTINGENCIES
The Company has filed a suit in the Court of Civil Judge, First Class,
Islamabad against M/s ATIS Systems GmbH for declaration, temporary and
permanent prohibitory and mandatory injunction, rendition of accounts, and
recovery of money/damages worth USD $11,300,00, Euros $644,179 and
Pakistan Rupees $300,750,000. The case is still pending and no estimation
of damages could be made as of June 30, 2009.
Note D - GOING CONCERN
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The Company
has sustained net losses of $2,381,571 since its inception and has
negative working capital of $567,989 as of June 30, 2009. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern. These consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
The Company has taken certain restructuring and cost cutting measures to
provide the necessary capital to continue its operations and improve its
cash flows. The Company improved cash flows from $1,511,025 used in
operations during the year ended June 30, 2008 to cash provided by
operations of $6,851 during the year ended June 30, 2009.
In addition Company management is looking to: (1) acquire profitable
operations through issuance of equity instruments; (2) to continue
actively seeking additional funding and restructure the acquired
subsidiaries to increase profits and minimize the liabilities and (3)
expand its product line to diversify sales and create a larger base.
Note E -INCOME TAXES
The Company is registered in the State of Navada and has operations in
primarily three tax jurisdictions - Dubai, Pakistan and the United States.
For certain operations in the US, the Company has incurred net accumulated
operating losses for income tax purposes The Company believes that it is
more likely than not that these net accumulated operating losses will not
be utilized in the future. Therefore, the Company has provided full
valuation allowance for the deferred tax assets arising from the losses at
the location as of June 30, 2009. Accordingly, the Company has no net
deferred tax assets.
The provision for income taxes from continuing operations on income
consists of the following for the years ended June 30, 2009 and 2008:
F-13
June 30, 2009 June 30, 2008
----------- -----------
US current income tax expense (benefit)
Federal $ -- $ --
State -- --
----------- -----------
Pakistan current income tax expense -- 102,630
----------- -----------
Total provision for income tax $ -- $ 102,630
=========== ===========
The following is a reconciliation of the provision for income taxes at the
U.S. federal income tax rate to the income taxes reflected in the
Statement of Operations:
June 30, 2009 June 30, 2008
------------- -------------
Tax expense (credit) at statutory rate- federal 34% 34%
State tax expense net of federal tax 6% 6%
--------- ---------
Changes in valuation allowance (40%) (40%)
--------- ---------
Foreign income tax- Pakistan 35% 35%
Exempt from income tax due to loss (35%) (35%)
--------- ---------
Tax expense at actual rate -- --
--------- ---------
United States of America
As of June 30, 2009, the Company in the United States had approximately
$698,862 in net operating loss carry forwards available to offset future
taxable income. Federal net operating losses can generally be carried
forward 20 years. The deferred tax assets for the United States entities
at June 30, 2009 consists mainly of net operating loss carry forwards and
were fully reserved as the management believes it is more likely than not
that these assets will not be realized in the future. The following table
sets forth the significant components of the net deferred tax assets for
operation in the US as of June 30, 2009 and June 30, 2008.
June 30, 2009 June 30, 2008
------------- -------------
Net operating loss carry forward $ 698,462 $ 650,401
Total deferred tax assets 279,385 221,136
Less: Valuation allowance (279,385) (221,136)
--------- ---------
Net deferred tax assets $ -- $ --
========= =========
Pakistan
Averox Pakistan is governed by the Income Tax Laws of Pakistan. Pursuant to the
Central Board of Revenue Government of Pakistan, Averox Pakistan is subject to a
tax rate of 35%. Income taxes are recognized for the amount of taxes payable for
the current year and for the impact of deferred tax liabilities and assets,
which represent future tax consequences of events that have been recognized
differently in the financial statements than for tax purposes. The following
table sets forth the significant components of the net deferred tax assets for
operation in Pakistan as of June 30, 2009 and June 30, 2008.
F-14
June 30, 2009 June 30, 2008
----------- -----------
Leasehold improvement $ 475,351 $ 583,414
Total deferred tax assets 166,373 204,195
Less: valuation allowance (166,373) (204,195)
----------- -----------
Net deferred tax assets $ -- $ --
=========== ===========
Aggregate net deferred tax assets
The following table sets forth the significant components of the aggregate net
deferred tax assets of the Company as of June 30, 2009 and June 30, 2008:
June 30, 2009 June 30, 2008
----------- -----------
Aggregate
Deferred tax asset- US $ 279,385 $ 221,136
Deferred tax asset- Pakistan 166,373 204,195
----------- -----------
Total deferred tax assets 445,758 425,331
Less: valuation allowance (445,758) (425,331)
----------- -----------
Net deferred tax asset $ -- $ --
=========== ===========
Note F- OTHER COMPREHENSIVE INCOME
Balances of related after-tax components comprising accumulated other
comprehensive income (loss), included in stockholders' equity, at June 30,
2009 are as follows:
Accumulated Other
Comprehensive loss
------------------
Balance at June 30, 2007 $ 167,872
Change for the year 2008 (86,364)
------------
Balance at June 30, 2008 81,508
Change July 1, 2008 to June 30, 2009 (37,418)
------------
Balance at June 30, 2009 $ 44,090
============
Note G - COMMITTMENTS
The Company leases various office facilities in Pakistan under operating
leases that terminate on various dates. Rental expense for these leases
consisted of $26,201 for the twelve month period ended June 30, 2009. The
Company has future minimum lease obligations as follows:
F-15
June 30,
2010 $ 21,415
2011 22,575
2012 $ --
------------
Total $ 43,991
============
Note H - MAJOR CUSTOMERS AND VENDORS
For the year ended June 30, 2009 we had three customers which accounted
for 10%, 24% and 56% of our sales. There is approximately $552,099
receivable from these customers as of June 30, 2009. For the year ended
June 30, 2008 we have three customers which account for approximately 79%
of our sales. There is approximately $234,806 receivable from these
customers as of June 30, 2008.
For the year ended June 30, 2009 we had four major vendors which accounted
for approximately 12%, 12%, 18% and 54% of our purchases. As of June 30,
2009, we have $4,907 payable to these vendors. For the year ended June 30,
2008 we have 5 major vendors which account for approximately 32% of our
purchases. None of these vendor, however, account for more than 10% of our
purchases of the year. As of June 30, 2008, we have approximately $39,666
in payable to these vendors.
Note I - CURRENT VULNERABILITY DUE TO RISK FACTORS
Our operations are carried out in Pakistan. Accordingly, our business,
financial condition and results of operations may be influenced by the
political, economic and legal environments, by the general state of the
economy. Our business may be influenced by changes in governmental
policies with respect to laws and regulations, anti-inflationary measures,
currency conversion and remittance abroad, and rates and methods of
taxation, among other things.
Note J - SUBSCRIPTION RECEIVABLE
On November 13, 2006, Averox entered into the Stock Purchase Agreement
pursuant to which HALO Investments Ltd. (the "Investor") purchased an
aggregate of 380,000 shares of common stock (the "Share Sale") for
aggregate gross proceeds of $2,650,000, of which $150,000 was to be paid
on November 13, 2006 and the balance was to be paid in installments and
was evidenced by two notes, one interest bearing and one non-interest
bearing note. The interest bearing note in the aggregate principal amount
of $1,850,000, bears interest at the rate of prime plus 2.5%, has a
maturity of November 13, 2007 and principal installments were payable as
follows: $250,000 together with interest payable on January 13, 2007;
$250,000 together with interest payable on March 13, 2007; $350,000
together with interest payable on May 13, 2007; $500,000 together with
interest payable on July 13, 2007; and the $500,000 balance together with
interest payable on November 12, 2007. The non-interest bearing note in
the aggregate principal amount of $650,000 was payable over 24 months at
Averox's request provided certain conditions are met. Pursuant to the
Stock Purchase Agreement, Averox has granted the Investor a right of first
refusal on financings Averox may do in the future.
On October 25, 2007, the Company and HALO Investments Ltd. (the"Investor")
amended and restated the promissory note for $1,850,000. The new payment
plan required that the sum of $65,000 together with interest shall be paid
on or before the first date of each month beginning with the month of
November, 2007 up to and including the month of August, 2008 and the
remaining principal balance of this note with interest shall be paid on or
before September 1, 2008. As of June 30, 2009, all subscription
receivables have been received.
F-16
Note K - ACQUISITION
On August 5, 2008, Averox Pvt. Ltd ("Averox"), a subsidiary of Averox
Inc., (the "Company"), entered into a purchase agreement (the "Purchase
Agreement") with Provisus Ltd, a limited liability company organized and
existing under the laws of the United Kingdom ("Provisus"). Provisus is
owned by Salman Mahmood, Averox's controlling shareholder.
Pursuant to the terms of the Purchase Agreement, Averox acquired all
tangible and intangible assets of Provisus, including, but not limited to:
(i) Provisus software, service activation and provisioning, (ii)
Provisus's trademark, website and marketing materials, and (iii)
intellectual proprietary rights, source code of core module and all
developed modules as of August 5, 2008. In exchange for the Provisus
Assets, Provisus acquired Averox's contingent claims for commissions due
from four companies. The aggregate amount of the contingent claims cannot
be determined at this time as no information regarding commissions has
been received. If Provisus collects more than $500,000 from the disputed
accounts, Provisus will pay seventy-five percent (75%) of such excess to
Averox after deducting its legal costs.
In addition to the transfer of the claims, under the terms of the Purchase
Agreement, Averox will pay Provisus (i) in perpetuity a royalty equal to
twenty percent (20%) of all revenue generated from the sale of Provisus
software and services in excess of $5 million dollars in revenues in the
aggregate, and (ii) either (x) $1 million dollars in cash on the first
anniversary of the date of the Purchase Agreement or (y) shares of the
Company's common stock if no cash is available after one year valued at $5
million based upon the then current market price of Averox's shares.
A summary of the assets acquired in the acquisition is as follows:
Value of the net assets acquired from Provisus $ 1,000,000
Consideration 1,000,000
--------------------------------------------------------------------------------
Excess of consideration over the net assets $ Nil
The operations of Provisus were insignificant during the period and hence,
no proforma has been presented.
Note L - STOCK SPLIT
On October 25, 2008, Averox Inc. (the "Company") effected a 10-for-1 stock
split of the Company's common stock for shareholders of record as of
October 27, 2008. The split was effected through an amendment to Averox's
articles of incorporation in which each outstanding share of common stock
would be converted into ten outstanding shares of Averox Common Stock.
All financials presented have been retroactively restated to reflect the
10-for 1 stock split.
Note M - RELATED PARTY
On August 5, 2008, Averox Pvt. Ltd ("Averox"), a subsidiary of Averox
Inc., (the "Company"), entered into a purchase agreement (the "Purchase
Agreement") with Provisus Ltd, a limited liability company organized and
existing under the laws of the United Kingdom ("Provisus"). Provisus is
owned by Salman Mahmood, Averox's controlling shareholder. The Company
recorded an intangible asset of $1,000,000 and a payable to related party
of equal amount.
F-17
Note N - SUBSEQUENT EVENTS
On July 1, 2009 the Company issued stock awards to thirty one (31)
employees amounting to 48,675 shares of the company stock in recognition
of services rendered during the last 2 years. In order to receive the
stock award the employees must remain employed until July 1, 2010 at which
time the shares will be issued to them. If an employee leaves prior to
this date they will forfeit 100% of the stock award.
In accordance with SFAS No. 123(R) the Company accrued a liability as of
June 30, 2009 in its financial statements to account for this additional
compensation. The Company recorded the fair value of the stock as of July
1, 2009, $3,407, as "stock to be issued".
F-1
