10-Q 1 e605498_10q-averox.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark one) |X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2009 OR |_| REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from ______ to _______ COMMISSION FILE NUMBER 000-28867 AVEROX INC. (Exact name of small business issuer as specified in its charter) Nevada 88-0407936 ------------------------------- -------------------------------- (State or Other Jurisdiction of (IRS Employer Identification No. Incorporation or Organization) House No. 381, Street No. 13, Sector F-10/2, Islamabad, Pakistan ---------------------------------------------------------------- (Address of principal executive offices) +92 (0) 51 211 0755 ------------------- (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer |_| Accelerated filer |_| Non-accelerated filer |_| Smaller reporting company |X| Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X| As of May 20, 2009, there were 100,000,000 shares of Common Stock, $.004 par value, outstanding. AVEROX INC. AND SUBSIDIARIES TABLE OF CONTENTS PAGE PART I FINANCIAL INFORMATION................................................(i) Item 1. Financial Statements..............................................(i) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation........................1 Item 3. Quantitative Disclosures about Market Risk.........................15 Item 4. Controls and Procedures............................................15 Item 4T. Controls and Procedures...........................................16 PART II OTHER INFORMATION....................................................17 Item 1. Legal Proceedings..................................................17 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds........17 Item 3. Defaults Upon Senior Securities....................................17 Item 4. Submission of Matters to a Vote of Security Holders................17 Item 5. Other Information..................................................17 Item 6. Exhibits...........................................................17 SIGNATURES....................................................................18 Exhibits 10.1 Agreement, dated May 15, 2009, by and between Averox Inc. and Averox Telecommunication LLC 31.1 Chief Executive Officer's Certificate, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Chief Financial Officer's Certificate, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 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 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 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. AVEROX, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2009 (UNAUDITED) TABLE OF CONTENTS Unaudited Condensed Consolidated Balance Sheets F-1 Unaudited Condensed Consolidated Statements of Operations F-2 Unaudited Condensed Consolidated Statements of Cash Flow F-3 Notes to Unaudited Condensed Consolidated Financial Statements F-4 (i) AVEROX INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MARCH 31, 2009 AND JUNE 30, 2008 (UNAUDITED) ASSETS March 31, June 30, 2009 2008 ----------- ----------- Current Assets Cash and cash equivalents $ 317,376 $ 16,520 Accounts receivable, net 447,293 307,863 Advances & prepaid expenses 67,964 66,208 Other current assets 6,311 14,829 ----------- ----------- Total Current Assets 838,942 405,420 ----------- ----------- Property, Plant & Equipment, net 94,445 131,492 ----------- ----------- Other Assets Intangible assets, net 872,929 3,595 Deposits 4,130 4,888 ----------- ----------- Total Other Assets 877,060 8,483 ----------- ----------- Total Assets $ 1,810,447 $ 545,395 =========== =========== LIABILITIES AND STOCKHOLDERS' DEFICIT Current Liabilities Accounts payable and accrued expenses $ 306,893 $ 457,886 Payable to related party 1,000,000 -- Provision for income tax 95,287 92,327 Deferred tax liabilities 13,427 19,777 Deferred revenue 161,983 -- Current portion of lease obligations -- 7,076 ----------- ----------- Total Current Liabilities 1,577,590 577,066 Minority interest 81,044 79,999 ----------- ----------- Stockholder's Deficit Common stock, $.004 par value, 250,000,000 shares authorized, 100,000,000, issued and 400,000 400,000 outstanding Additional paid in capital 2,223,779 2,223,779 Subscription receivable -- (477,524) Other comprehensive income (loss) (89,422) 81,508 Accumulated deficit (2,382,544) (2,339,433) ----------- ----------- Total Stockholder's Deficit 151,813 (111,670) ----------- ----------- Total Liabilities and Stockholder's Deficit $ 1,810,447 $ 545,395 =========== =========== F-1 AVEROX INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

~~ASSETS~~Three ~~December~~Month Periods Ended Nine Month Periods Ended March 31, ~~June~~2009 30March 31, 2008 March 31, 2009 March 31, 2008 -------------- -------------- ~~Current~~-------------- ~~Assets~~-------------- ~~(Unaudited)~~Net ~~Cash~~Revenue ~~and~~$ ~~cash~~216,138 ~~equivalents~~ $ 16120,~~941~~855 $ 16636,~~520~~396 ~~Accounts~~$ ~~receivable~~460,662 ~~net~~Cost ~~292~~of revenue 59,~~991~~450 ~~307~~210,~~863~~986 ~~Investment~~273,777 ~~112~~685,~~158~~601 -------------- ~~Receivable~~-------------- ~~from~~-------------- ~~related party 366,889~~ -------------- ~~Other~~Gross ~~receivables~~profit 5(loss) 156,~~191~~688 10(90,~~995~~130) ~~Advances 41~~362,~~829~~619 37(224,~~766~~938) ~~Other~~Operating ~~current~~expenses ~~assets~~General 3and administrative expenses 218,~~297~~554 3239,~~834~~047 ~~Prepaid~~525,528 ~~expenses~~1,370,566 14Amortization of intangible 50,~~158~~000 28-- 130,~~442~~108 -- -------------- -------------- ~~Total Current Assets 853,453 405,420~~ -------------- -------------- ~~Property,~~Loss ~~Plant~~from &operations ~~Equipment~~(111,865) ~~net~~(329,178) ~~105~~(293,~~453~~016) ~~131~~(1,~~492~~595,505) -------------- -------------- ~~Total Fixed Assets 105,453 131,492~~ -------------- -------------- Other ~~Assets~~(Income) ~~Intangible~~Expense ~~assets~~Interest income (43,736) ~~net~~(344) ~~922~~(43,~~983~~745) (4,017) Other (income) expense 11,620 -- (219,587) -- Interest expense 3,~~595~~645 ~~Deposits~~852 4,~~203~~383 3,675 Currency exchange (gains) losses (2,183) (21) (11,261) 90 Gain on disposal of asset (40) 1 4,~~888~~730 (101) -------------- -------------- ~~Total Other Assets 927,186 8,483~~ -------------- -------------- Total ~~Assets~~Other $(Income) 1Expense (30,~~886,093~~693) $487 ~~545~~(265,~~395~~479) ~~============~~(354) ~~============~~-------------- ~~LIABILITIES~~-------------- ~~AND~~-------------- ~~STOCKHOLDERS'~~-------------- ~~EQUITY~~Loss ~~Current~~before ~~Liabilities~~income ~~Accounts~~taxes ~~payable~~ and ~~accrued~~minority ~~expenses~~interest $(81,173) ~~316~~(329,~~841~~665) ~~$ 457~~(27,~~277~~538) ~~Payable to related party~~ (1,~~000~~595,~~000~~151) -- Provision for income ~~tax~~taxes ~~137~~(123,~~361~~207) 92(1,~~327~~810) ~~Dividends~~14,529 ~~payable 609 609 Deferred tax liabilities -- 19~~(106,~~777~~812) ~~Current portion of lease obligations~~ -- ~~7,076~~ ------------ -------------- ~~Total Current Liabilities 1,454,811 577,066 Minority interest 81,956 79,999~~ -------------- -------------- ~~Stockholders'~~Net ~~Equity~~income ~~Common~~(loss) ~~stock,~~before ~~$.004~~minority ~~par~~interest ~~value~~42,034 ~~250~~(327,~~000,000~~855) ~~shares authorized~~(42,067) ~~100~~(1,~~000~~488,~~000,~~340) ~~issued~~Net ~~and~~income ~~outstanding~~(loss) ~~400,000~~attributable ~~400,000~~to ~~Additional~~minority ~~paid~~interest in(912) ~~capital~~(3,504) 21,~~223,777~~045 2(14,~~223,779~~610) ~~Subscription~~-------------- ~~receivable~~-------------- -------------- -------------- Net income (54loss) 42,~~331~~946 (324,351) (~~477~~43,~~524~~112) (1,473,729) Other ~~comprehensive~~Comprehensive ~~income~~item ~~205,371~~Foreign ~~81,508~~Currency ~~Retained~~Translation ~~deficit~~(214,358) (295,~~425~~419) (170,~~490~~930) (2172,~~339,433~~620) -------------- -------------- ~~Total Stockholders' Equity 349,327 (111,670)~~ -------------- -------------- ~~Total~~Comprehensive ~~Liabilities~~Loss ~~and~~$ ~~Stockholders'~~(171,412) ~~Equity~~$ (419,771) $ (214,042) $ (1,~~886~~646,~~093~~350) ============== ============== ============== ============== Basic & diluted net income per share $ ~~545~~0.000 (0.032) $ 0.000 $ (0.147) Weighted average shares of share capital outstanding - basic & diluted 100,~~395~~000,000 10,000,000 100,000,000 10,000,000 ============== ============== ============== ==============

Weighted average for the dilutive shares has not been calculated since the dilutive shares are anti-dilutive F-2 AVEROX INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTH PERIODS ENDED MARCH 31, 2009 AND 2008 (UNAUDITED)

~~Three~~2009 ~~Months Ended Six Months Ended December 31,~~ 2008 ~~December 31, 2007 December 31, 2008 December 31, 2007~~ -----------~~------~~ -----------~~------~~ ~~-----------------~~CASH ~~-----------------~~FLOWS ~~(Unaudited)~~FROM ~~(Unaudited)~~OPERATING ~~(Unaudited)~~ACTIVITIES ~~(Unaudited)~~ Net ~~Revenue~~loss $ ~~259~~(43,~~207~~112) $ ~~205~~(1,~~655 $ 420~~473,~~258~~729) $Adjustments ~~339,807~~to ~~Cost~~reconcile ofnet ~~revenue~~loss ~~136,790~~to ~~257,188~~net ~~214,327~~cash ~~474,615~~used ~~-----------------~~in ~~-----------------~~operating ~~-----------------~~activities: ~~-----------------~~Bad ~~Gross~~debts ~~profit~~ (~~loss~~220,000) ~~122~~289,~~417~~638 ~~(51,532)~~Loss ~~205,931~~on ~~(134,807)~~sales ~~Operating~~of ~~expenses~~fixed ~~General~~assets ~~and~~-- ~~administrative~~(101) ~~expenses~~Depreciation ~~169,136~~and ~~696,845~~amortization ~~306~~162,~~974~~812 136,~~131,519~~122 ~~Amortization~~Valuation ofallowance ~~intangible 50~~179,~~000~~172 -- ~~80,108~~Minority --interest ~~----------------- ----------------- ----------------- ----------------- Loss from operations (96~~1,~~719)~~045 (~~748~~14,~~378~~610) (~~181,151~~Increase) ~~(1,266,327)~~/ ~~-----------------~~decrease ~~-----------------~~in ~~-----------------~~assets: ~~-----------------~~Accounts ~~Other~~receivable ~~(Income)~~34,141 ~~Expense~~72,765 ~~Interest~~Other ~~income~~receivables, --deposits ~~(902)~~and ~~(9)~~prepaid expenses (3154,~~673~~064) ~~Other~~ (~~income~~358,252) ~~expense~~Loans ~~(244,441)~~and --advances (~~231~~59,~~207~~679) -- ~~Interest~~Increase ~~expense~~/ ~~585~~(decrease) ~~1,227~~in ~~738~~liabilities: ~~2,823~~Accounts ~~Currency~~payable ~~exchange~~and ~~(gains)~~accrued ~~losses~~expenses (792,~~530~~715) ~~(40) (9~~4,~~078)~~071 ~~111~~Deferred ~~Gain~~revenue on168,214 ~~disposal~~-- ofProvision ~~asset~~for ~~120~~income ~~(102)~~tax 414,~~770~~529 ~~(102)~~ --~~---------------~~ -----------~~------~~ -----------~~------~~ ~~-----------------~~Net ~~Total~~cash ~~Other~~used ~~(Income)~~in ~~Expense~~operations (~~251~~9,~~266~~656) ~~182~~ (~~234~~1,~~786~~444,097) ~~(842)~~ -----------~~------~~ -----------~~------~~ ~~-----------------~~CASH ~~-----------------~~FLOWS ~~Income~~FROM ~~(Loss)~~INVESTING ~~before~~ACTIVITIES ~~income~~Proceed ~~taxes~~from sale of property and ~~minority~~equipment ~~interest~~-- ~~154~~17,~~547~~049 ~~(748,560)~~Acquisition ~~53,635~~of intangible assets -- (~~1,265,485~~545) ~~Provision~~Acquisition ~~for~~of ~~income~~property ~~taxes~~and ~~122,478~~equipment (~~103~~14,~~186~~239) ~~137,736~~ (~~105~~80,~~002~~665) -----------~~------~~ -----------~~------~~ Net cash used in investing activities (14,239) (64,160) -----------~~------~~ -----------~~------~~ ~~Net~~CASH ~~income~~FLOWS ~~(loss)~~FROM ~~before~~FINANCING ~~minority~~ACTIVITIES ~~interest~~Proceeds ~~32,069~~from ~~(645,374)~~subscription ~~(84~~receivable 477,~~101)~~523 (1802,~~160,483)~~693 ~~Net~~Payment ~~income~~on ~~(loss)~~capital ~~attributable~~lease ~~to minority interest 2,178~~ (6,~~683~~208) ~~1,957~~ (1128,~~106~~121) ----------- ------ ----- Net cash provided by financing activities 471,315 774,573 ------------ ----------- Effect of exchange rate changes on cash and cash equivalents (146,564) 61,334 ------ ----- ------------ ~~Net~~NET ~~income~~INCREASE (~~loss~~DECREASE) ~~29,891~~IN ~~(638,692)~~CASH ~~(86~~AND CASH EQUIVALENTS 300,~~058)~~856 (1672,~~149,378~~350) ~~Other~~CASH ~~Comprehensive~~AND ~~income~~CASH ~~Foreign~~EQUIVALENTS, ~~Currency~~BEGINNING ~~Translation~~BALANCE 8016,~~435~~520 (3775,~~198)~~712 ~~123,863 (77,201)~~ -----------~~------~~ -----------~~------~~ ~~-----------------~~CASH ~~-----------------~~AND ~~Comprehensive~~CASH ~~income (loss) $ 110~~EQUIVALENTS,~~326~~ $ENDING ~~(641,890)~~BALANCE $ 37317,~~805~~376 $ (1103,~~226,579)~~361 ===========~~======~~ ===========~~======~~ ~~=================~~SUPPLEMENTAL ~~=================~~DISCLOSURES: ~~Basic~~Cash &paid ~~diluted~~during ~~net~~the ~~income~~nine ~~(loss)~~month ~~per~~periods ~~share~~for: $Interest ~~0.000~~paid $ ~~(0.006)~~4,383 $ ~~(0.001)~~3,675 ~~$ (0.011)~~ ===========~~======~~ ===========~~======~~ Income tax paid $ -- $ -- ===========~~======~~ ===========~~======~~ ~~Weighted~~Non ~~average~~Cash ~~shares~~transactions: ofIntangible ~~share~~asset ~~capital~~purchased ~~outstanding~~$ ~~- basic & diluted 100~~1,000,000 ~~100,000,000~~$ ~~100,000,000~~-- ~~100,000,000~~ ===========~~======~~ ===========~~====== ================= =================~~

F-3 AVEROX, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 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 organized 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 North America Inc. ("Averox N.A."), a Nevada corporation, was incorporated on November 6, 2007. Averox Telecommunication, LLC was organized under the laws of United Arab Emirates on August 28, 2008. When used in these notes, the terms "Company," "we," "our," or "us" mean Averox, its majority owned subsidiary Averox Pakistan, its subsidiary Averox N.A. and related company Averox Telecommunication. 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., Upon such transfer, Averox Pakistan became a wholly-owned subsidiary of Averox, Inc. Pursuant to the Exchange Agreement, Averox issued 65,000,000 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. Basis of Consolidation The consolidated financial statements include the accounts of Averox, Inc., its majority owned subsidiary Averox Pakistan, its subsidiary Averox N.A. and a variable interest entity ("VIE") for which the Company is the primary beneficiary, Averox Telecommunication. All material intercompany accounts, transactions and profits have been eliminated in consolidation. F-4 Revenue Recognition Under SOP 97-2 as amended, SOP 81-1 and SAB 104 the Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is reasonably assured. In instances where final acceptance of the product, system, or solution is specified by the customer, revenue is deferred until all acceptance criteria have been met. The Company also follows the provisions of the SEC Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements," as revised by SAB 104. 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. 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 March 31, 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 $290,348 and $583,593 as of March 31, 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 F-5 As of March 31, 2009 and June 30, 2008 property, plant and equipment consisted of the following: March 31, 2009 June 30, 2008 -------------- -------------- Furnitures and fixtures $ 21,370 $ 35,727 Office equipment 120,333 117,835 Motor Vehicle 85,950 97,954 -------------- -------------- 227,653 251,516 Accumulated depreciation (133,208) (120,024) -------------- -------------- $ 94,445 $ 131,492 ============== ============== Depreciation expense was $12,242 and $32,704 for the three month and nine month periods ended March 31, 2009. Depreciation expense was $24,318 and $36,122 for the three and nine month periods ended March 31, 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-6 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 March 31, 2009 there were no significant impairments of its long-lived assets. As of March 31, 2009 and June 30, 2008, Intangible Assets consist of the following: March 31, 2009 June 30, 2008 -------------- -------------- Software and intellecutal rights $ 1,003,037 $ 3,595 Accumulated amortization (130,108) -- -------------- -------------- $ 872,929 $ 3,595 ============== ============== Amortization expense for the twelve month periods ending March 31, 2010 $ 200,000 March 31, 2011 200,000 March 31, 2012 200,000 March 31, 2013 200,000 March 31, 2014 72,929 -------------- $ 872,929 ============== 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 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. F-7 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 October 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 September 30, 2009. On December 30, 2008 FASB issued FIN 48-3, "Effective Date of FASB Interpretation No. 48 for Certain Nonpublic Enterprises". This FSP defers the effective date of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, for certain non-public enterprises as defined in paragraph 289, as amended, of FASB Statement No. 109, Accounting for Income Taxes, including non-public not-for-profit organizations. However, non-public consolidated entities of public enterprises that apply U. S. GAAP are not eligible for the deferral. Nonpublic enterprises that have applied the recognition, measurement, and disclosure provisions of Interpretation 48 in a full set of annual financial statements issued prior to the issuance of this FSP also are not eligible for the deferral. This FSP shall be effective upon issuance. Management is currently evaluating the effect of this pronouncement on financial statements. 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 ATIS Systems GmbH for declaration, temporary and permanent prohibitory and mandatory injunction, rendition of accounts, and recovery of money/damages worth USD $11,300,000, Euros $644,179 and Pakistan Rupees $300,750,000. According to the legal representation letter dated September 25, 2007 from Company counsel, the case was fixed for further proceedings in the matter in Pakistan Courts. In regards to the progress of the case, according to the legal representation letter dated September 9, 2008 from Company counsel, the suit is fixed for hearing for arguments on application U/O 12, R 06 of CPC in the Civil Court of Islamabad. The Civil Court passed an order against the application moved by Atis System for stay of proceedings and referral of the matter for arbitration. The mentioned application was dismissed by the learned Civil Court by the order dated April 19, 2007; and Atis System filed a CR-464/2007 in the Lahore High Court (Rawalpindi Bench). The mentioned CR is pending in the Lahore High Court (Rawalpindi Bench); and it is difficult to make any fair assessment of the outcome of the case, as it is still at an early stage. F-8 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 $2,382,544 since its inception, has negative working capital and the Company's operations do not generate sufficient cash to cover its operating costs. 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 steps to provide the necessary capital to continue its operations. These steps included: 1) acquire profitable operations through issuance of equity instruments; and 2) to continue actively seeking additional funding and restructure the acquired subsidiaries to increase profits and minimize the liabilities. Note E - OTHER COMPREHENSIVE INCOME Balances of related after-tax components comprising accumulated other comprehensive income (loss), included in stockholders' equity, at March 31, 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 March 31, 2009 (170,930) ------------------ Balance at March 31, 2009 $ (89,422) ================== Note F - COMMITMENTS The Company leases various office facilities in Pakistan under operating leases that terminate on various dates. Rental expense for these leases consisted of $20,090 for the nine month period ended March 31, 2009. The Company has future minimum lease obligations as follows: March 31, 2010 $ 21,183 2011 23,301 2012 $ 4,967 --------- Total $ 49,451 ========= F-9 Note G - MAJOR CUSTOMERS AND VENDORS For the nine month period ended March 31, 2009 we had four customers which account for 13%, 10%, 26% and 51% of our sales. There is approximately $403,127 receivable from these customers as of March 31, 2009. For the nine months ended March 31, 2008 we had four customers which accounted for approximately 91% of our sales. There is approximately $170,246 of receivable from these customers as of March 31, 2008. For the nine month period ended March 31, 2009 we have three major vendors which account for approximately 11%, 12% and 70% of our purchases. As of March 31, 2009, we have $1,790 payable to these vendors. For the nine months ended March 31, 2008 we had three vendors which accounted for approximately 51% of our purchases. As of March 31, 2008, we had approximately $32,132 in payable to these vendors. Note H - 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 I - 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 are payable as follows: $250,000 together with interest is payable on January 13, 2007; $250,000 together with interest is payable on March 13, 2007; $350,000 together with interest is payable on May 13, 2007; $500,000 together with interest is payable on July 13, 2007; and the $500,000 balance together with interest is payable on November 12, 2007. The non-interest bearing note in the aggregate principal amount of $650,000 is 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 requires 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 the note with interest shall be paid on or before September 1, 2008. As of March 31, 2009, all amounts due under the notes have been paid and the subscription receivable has been paid in full. Note J - ACQUISITION On August 5, 2008, Averox Pakistan, entered into a 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 purchase agreement was subsequently amended on November 18, 2008 (as amended, the "Purchase Agreement"). 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. F-10 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 K - STOCK SPLIT On October 25, 2008, Averox effected a 10-for-1 stock split of its 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 L - RELATED PARTY On August 5, 2008, Averox Pakistan entered into the Purchase Agreement with 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-11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION. The following presentation of management's discussion and plan of operation for Averox Inc. has been prepared by its internal management and should be read in conjunction with the audited financial statements of Averox Inc., for the years ended June 30, 2008 and 2007, including the notes thereto and the unaudited financial statements for the three and nine months ended March 31, 2009 and 2008, including the notes thereto included elsewhere in this report. Some of the statements below discuss "forward-looking" information. Those statements include statements regarding the intent, belief or current expectations of Averox and its 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. In this report, unless the context otherwise requires, references to Averox, "we", "us" or "our" include Averox Inc., Averox F2-LLC ("Averox Dubai") Averox (Private) Limited ("Averox Pakistan") and Averox North America Inc. ("Averox N.A."), and references to our business mean the combined businesses of Averox, Averox Dubai, Averox Pakistan and Averox N.A. Averox was incorporated under the name Flickering Star Financial Inc. on November 25, 1996 under the laws of the State of Nevada. From January 1, 1997 through March 31, 1997, Flickering Star Financial Inc. was in its development stage. It originally intended to act as a finder of individuals who would serve as an additional guarantor of motion picture completion guaranty contracts. As of 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 Financial become dormant. On November 6, 2006, in anticipation of the acquisition of Averox Dubai and Averox Pakistan, the name 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 ("Mahmood") by acquiring all of the outstanding shares of capital stock of Averox Dubai. Averox Dubai had previously acquired ninety-eight percent (98%) of the capital stock of 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. Historically, the principal services Averox has provided include the design, deployment, integration, and the overall management of telecommunications networks for both large and small companies. Averox's work for telecommunication companies has involved software development, radio frequency engineering, project management and/or installation of telecommunications equipment. In some instances, Averox has worked as a subcontractor for portions of these projects. In other instances, Averox has contracted to act as general contractor for an entire system engineering project covering all aspects of design and execution. 1 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. 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. By moving away from providing turnkey telecom engineering projects, Averox is also focusing on systems integration. Rather than acting as turnkey solution provider over an entire project, as a systems integrator, Averox will act as a subcontractor to the turnkey solution provider. Systems integration work does not involve the same expenses as full telecom engineering. Averox's costs will consist solely of travel and labor thereby significantly reducing the capital outlays required for undertaking a project. RESULTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2009 AND 2008. The following table presents the statement of operations for the three month period ended March 31, 2009 as compared to the comparable period ended March 31, 2008. The discussion following the table is based on these results. 2 2009 2008 --------- --------- Net Revenue $ 216,138 $ 120,855 Cost of revenue 59,450 210,986 --------- --------- Gross profit 156,688 (90,130) General and administrative expenses 218,554 239,047 Amortization on intangible 50,000 -- --------- --------- Income from operations (111,866) (329,178) --------- --------- Other (Income) Expense Interest income (43,736) (344) Other income (expense) 11,620 -- Interest expense 3,646 852 Currency exchange (gains) losses (2,183) (21) (Gain) loss on disposal of asset (40) 1 --------- --------- Total Other Income (30,693) 487 --------- --------- Income before income taxes (81,173) (329,665) Provision for income taxes (123,207) (1,810) --------- --------- Net income $ 42,034 $(327,855) --------- --------- Net revenue Net revenue for the three month period ended March 31, 2009 totaled $216,138 compared to $120,855 for the three month period ended March 31, 2008, an increase of $95,283 or approximately 79%. The increase is primarily due to an increase in income from information services to one telecommunications client amounting to $157,728. Cost of revenue Cost of revenue for the three month period ended March 31, 2009 totaled $59,450 or approximately 28% of net revenue compared to $210,986, or 175% of net revenue for the three month period ended March 31, 2008, a decrease of $151,536, or approximately 72%. The decrease in the dollar amount was due to a decrease in direct cost of services of approximately $144,000. During the quarter ended March 31, 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 quarter ended March 31, 2009 which was more service and commission oriented with a lower cost of revenue and higher profit margin. This also accounts for the decrease of our cost of revenue as compared to revenue from 175% to 28%. Operating expense General and administrative expenses for the three month period ended March 31, 2009 totaled $218,554, or approximately 101% of net revenue compared to $239,047, or approximately 198% of net revenue for the three month period ended March 31, 2008, a decrease of $20,493 or approximately 9%. The decrease in general and administrative costs during the three month period ended March 31, 2009 was primarily due to reduction in our general & administrative expenses in our Dubai and Pakistan 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. Loss from operations Loss from operations for the three month period ended March 31, 2009 totaled $111,865, or approximately 52% of net revenue, compared to loss from operations of $329,178, or approximately 272% of net revenue for the three month period ended March 31, 2008, a decrease in loss from operations of $217,313 or approximately 66%. The decrease in loss from operations was primarily due to the reasons stated above. 3 Other expenses (income) Other income for the three month period ended March 31, 2009 totaled ($30,693) compared to other expenses of $487 for the three month period ended March 31, 2008, an increase in other income of $31,180, or approximately 6,402%. The increase in other income has to do primarily with the increase in interest income from $344 to $43,736. Net Income (loss) Net income for the three month period ended March 31, 2009 totaled $42,034 compared to a net loss of ($327,855) for the three month period ended March 31, 2008, an increase in net income of $369,889 or approximately 123%. The increase in net income was primarily due to reasons described above. RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 2009 AND 2008 The following table presents the statement of operations for the nine months ended March 31, 2009 as compared to the comparable period of the nine months ended March 31, 2008. The discussion following the table is based on these results. 2009 2008 ----------- ----------- Net Revenue $ 636,396 $ 460,662 Cost of sales 273,777 685,601 ----------- ----------- Gross profit 362,619 (224,938) General and administrative expenses 525,528 1,370,566 Amortization of intangible 130,108 -- ----------- ----------- Income from operations (293,017) (1,595,505) ----------- ----------- Other (Income) Expense Interest income (43,745) (4,017) Other income (219,587) -- Interest expense 4,383 3,675 Currency exchange (gains) losses (11,260) 90 (Gain) loss on disposal of asset 4,730 (101) ----------- ----------- Total Other Income (265,479) (354) ----------- ----------- Income before income taxes (27,538) (1,595,151) Provision for income taxes 14,529 (106,812) ----------- ----------- Net income $ (42,067) $(1,488,339) ----------- ----------- Net sales Net revenue for the nine months ended March 31, 2009 totaled $636,396 compared to $460,662 for the nine months ended March 31, 2008, an increase of $175,734 or approximately 38%. The increase in revenue was due to increase in income from information technology services to a client in the telecommunications sector which was not part of our clientele portfolio in the corresponding period of nine months ended March 31, 2008. 4 Cost of Sales Cost of sales for the nine months ended March 31, 2009 totaled $273,777, or approximately 43% of net revenue compared to $685,601, or approximately 149% of net revenue for the nine months ended March 31, 2008, a decrease of $411,824, or approximately 60%. The decrease in percentage cost of sales for the nine months ended March 31, 2009 was attributed mainly to a decrease in the direct cost of telecom equipment and services. During the nine months ended March 31, 2008 our cost of revenue included costs associated with phase completion on civil works, tower erections and technical implementation which has a low profit margin as compared to our revenue during the nine months ended March 31, 2008 which was more service and commission oriented with a lower cost of revenue and higher profit margin. This impacted in significant decrease on our cost of sales. Operating Expense General and administrative expenses for the nine months ended March 31, 2009 totaled $525,528, or approximately 83% of net revenue compared to $1,370,566, or approximately 298% of net revenue, for the nine months ended March 31, 2008, a decrease of $845,083 or approximately 62%. The decrease in general and administrative costs during the nine months ended March 31, 2009 was primarily due to reduction in our general & administrative expenses in our Dubai and Pakistan 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. Loss from Operations Loss from operations for the nine months ended March 31, 2009 totaled $293,016, or approximately 46% of net revenue, compared to a loss from operations of $1,595,505, or approximately 346% for the nine months ended March 31, 2008, a decrease of $1,302,489 or approximately 82%. The decrease was primarily due to decrease in our office and administrative headcount by closing our office in Dubai and reducing our workforce by a significant margin as compared to nine months ended March 31, 2008. In addition, our bad debts were also reduced significantly by focusing and emphasizing on timely collection of past due receivables. Other income Other income for the nine months ended March 31, 2009 totaled $265,479 compared to other income of $354 for the nine months March 31, 2008, an increase in other income of $265,125, or approximately 74,894%. The increase in other income has to do primarily with the collection of bad debt for approximately $220,000 but also due to the increase in interest income from $4,017 to $43,745. Net Loss Net loss for the nine months ended March 31, 2009 totaled $42,067 compared to net loss of $1,488,340 for the nine months ended March 31, 2008, a decrease of $1,446,273, or approximately 97%. The decrease in net loss was primarily due to reasons described above. LIQUIDITY AND CAPITAL RESOURCES Our primary source of liquidity as of March 31, 2009 is our cash on hand and accounts receivable. Net cash used in operations for the nine months ended March 31, 2009 was $9,656 as compared to net cash used in operations of $1,444,097 during the same period in 2008. Our cash and cash equivalents were $317,376 and $16,520 as of March 31, 2009 and June 30, 2008, respectively. Our current assets totaled $838,942 and $405,420 as of March 31, 2009 and June 30, 2008, respectively. Our current liabilities were $1,577,590 and $577,066 as of March 31, 2009 and June 30, 2008, respectively. Working capital was ($738,648) and ($171,646) as of March 31, 2009 and June 30, 2008, respectively. Net cash used in investing activities totaled ($14,239) for the nine months ended March 31, 2009, compared to net cash used in investing activities of ($64,160) for the same period ended March 31, 2008. Net cash provided by financing activities totaled $471,315 for the nine months ended March 31, 2009, compared to $774,573 for the same period ended March 31, 2008. The net cash change was $300,856 and ($672,350) for the nine months ended March 31, 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. 5 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 for the year ended June 30, 2008 by expressing substantial doubt about our ability to continue as a going concern. 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, 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. 6 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 for the year ended June 30, 2008 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. 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 a substantial portion of our business is centered 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(TM) software could result in significant additional dilution of our equity On August 5, 2008, we acquired Provisus(TM) 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, 2009. At the current market price of $0.03 per share, we would issue approximately 166,666,667 shares, or 62.4% of our stock on a fully diluted basis. If our stock price were below $0.03 per share, the dilution of our stock would be more significant. 7 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. 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. 8 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 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 proprietary software products and sublicensing 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. 9 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 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. 10 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 of 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 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. 11 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 proprietary 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 proprietary information. In the event that we are infringing upon the proprietary 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 proprietary 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. 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. 12 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. 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. 13 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 Government of Pakistan announced policies and 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. International uncertainties could harm our profitability We currently have operations outside of Pakistan and we expect these operations to grow in other parts of Asia, the Middle East and Eastern Europe. For the year ended June 30, 2008 and for the nine months ended March 31, 2009, international operations outside of Pakistan, accounted for approximately 24% and 79% of our total revenues, respectively. 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 United Arab Emirates, 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 14 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, 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 May 12, 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 3. QUANTITATIVE 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 information under this item. ITEM 4. CONTROLS AND PROCEDURES. Not applicable. 15 ITEM 4T. CONTROLS AND PROCEDURES. Averox's management, with the participation of Averox's Chief Executive Officer and acting Chief Financial Officer, has evaluated the effectiveness of Averox's 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) as of the end of the period covered by this report. As previously reported in our Annual Report on Form 10-KSB for the year ended June 30, 2008, control deficiencies were identified that constitute a material weakness in internal control over financial reporting. Such control deficiencies relate to insufficient personnel, inadequate segregation of duties, and lack of familiarity with the requirements imposed by the Exchange Act. Based upon their evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures, as of June 30, 2008 were ineffective. Management has implemented changes in the processing of transactions to remediate the inadequate personnel related weakness previously identified. Additionally, management identified steps at both management and the board of directors' level to increase the effectiveness of review as it relates to the financial reporting process. Such changes have been partially implemented during the first three fiscal quarters of the Company's 2008-2009 fiscal year. While management believes that the changes implemented have strengthened the overall control over financial reporting, such changes were not sufficient to conclude that the Company's disclosure and control procedures, as of March 31, 2009, were effective. Accordingly, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures, as of March 31, 2009, were ineffective. Other changes will be considered as additional financial resources become available. (b) Changes in Internal Control Over Financial Reporting. Our management, including our Certifying Officers, confirm that there were no changes in our internal control over financial reporting during our quarter ending March 31, 2009, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 16 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. With the exception of Averox Pakistan's litigations against Aircom MEA FZ-LL and ATIS Systems GmbH, each of which has not yet gone to trial, 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 our business, financial position, results of operations or liquidity. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 5. OTHER INFORMATION. On May 15, 2009, Averox and Averox Telecom entered into an agreement whereby Mahmood agreed to derive no pecuniary benefit from the operations of Averox Telecom. The full text of the agreement is filed herewith as Exhibit 10.1 and incorporated by reference herein. ITEM 6. EXHIBITS Exhibits: 10.1+ Agreement, dated May 15, 2009, by and between Averox Inc. and Averox Telecommunication LLC 31.1+ Chief Executive Officer's Certificate, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2+ Chief Financial Officer's Certificate, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 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. 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. ------------------- + Filed herewith 17 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AVEROX INC. (Registrant) Date: May 22, 2009 /s/ Salman Mahmood ----------------------- Salman Mahmood Chief Executive Officer Date: May 22, 2009 /s/ Mirza Yasser Ahmad ----------------------- Mirza Yasser Ahmad Chief Financial Officer 18 EXHIBIT INDEX Exhibit No. Description ----------- ----------- 10.1 Agreement, dated May 15, 2009, by and between Averox Inc. and Averox Telecommunication LLC 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 19

2008 2007 ------------ ------------ (Unaudited) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (86,058) $ (1,149,378) Adjustments to reconcile net loss to net cash used in operating activities: Bad debts 5,268 292,469 Loss on sales of fixed assets 4,770 (102) Depreciation and amortization 180,678 24,092 Allowance for deferred tax asset 95,380 -- Minority interest 1,957 (11,106) (Increase) / decrease in assets: Accounts receivable (34,463) 54,261 Other receivables, deposits and prepaid expenses (330,437) (228,104) Loans and advances (9,339) -- Increase / (decrease) in liabilities: Accounts payable and accrued expenses 62,603 (125,310) Provision for income tax 42,357 -- ------------ ------------ Net cash used in operations (67,283) (1,143,178) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Proceed from sale of property and equipment 2,732 17,216 Purchase of investment (112,158) -- Acquisition of intangible assets -- (545) Acquisition of property and equipment (19,048) (80,315) ------------ ------------ Net cash provided by (used in) investing activities (128,474) (63,644) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from subscription receivable 423,192 626,653 Payment on capital lease (9,992) (19,032) ------------ ------------ Net cash provided by financing activities 413,200 607,620 ------------ ------------ Effect of exchange rate changes on cash and cash equivalents (217,023) 32,690 ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 421 (566,510) CASH AND CASH EQUIVALENTS, BEGINNING BALANCE 16,520 775,712 ------------ ------------ CASH AND CASH EQUIVALENTS, ENDING BALANCE $ 16,941 $ 209,201 ============ ============ SUPPLEMENTAL DISCLOSURES: Cash paid during the twelve months for: Interest paid $ 738 $ 2,823 ============ ============ Income tax paid $ -- $ -- ============ ============ Non Cash transactions: Intangible asset purchased $ 1,000,000 $ -- ============ ============

Filing Compare · AVEROX INC.