10-K 1 e605917_10k-averox.txt --------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark one) |X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 2009 |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 000-28867 AVEROX INC. (Name of small business issuer in its charter) Nevada 88-0407936 ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) House No. 381 Street No. 13, Sector F-10/2, Islamabad, Pakistan ---------------------------------------- ------------------------------------ (Address of principal executive offices) (Zip Code) +92(0)51 2110755 (Registrant's telephone number, including area code) Securities registered Under Section 12(b) of the Act: Title of each class Name of each exchange on which registered --------------------------- ----------------------------------------- None None Securities registered Under Section 12(g) of the Act: Title of each class Name of each exchange on which registered --------------------------- ----------------------------------------- Common Stock, par value Over-the-Counter (OTC) Bulletin Board $0.004 per share ------------------- Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes |_| No |X| Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes |_| No |X| Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to the filing requirements for at least the past 90 days. Yes |X| No |_| Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |_| Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act (Check one): Large accelerated filer |_| Accelerated filer |_| Non-accelerated filer |_| Smaller reporting company |X| (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X| The aggregate market value of the registrant's common stock held by non-affiliates of the registrant on October 12, 2009, was $700,000 (based on the closing sales price of the registrant's common stock on that date). Shares of the registrant's common stock held by each officer and director and each person who owns more than 5% of the outstanding common stock of the registrant have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. 100,000,000 shares of Common Stock were outstanding at October 12, 2009. AVEROX INC. 2008 FORM 10-KSB ANNUAL REPORT TABLE OF CONTENTS Page ---- PART I Item 1. Business ......................................................... 1 Item 1A. Risk Factors .................................................... 8 Item 1B. Unresolved Staff Comments ....................................... 18 Item 2. Properties ....................................................... 18 Item 3. Legal Proceedings ................................................ 18 Item 4. Submission of Matters to a Vote of Security Holders .............. 19 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities. ....................... 20 Item 6. Selected Financial Data .......................................... 20 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ................................................ 21 Item 7A. Quantitative and Qualitative Disclosures About Market Risk ...... 24 Item 8. Financial Statements ............................................. 24 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure ..................................................... 24 Item 9A. (T). Controls and Procedures. ................................... 24 Item 9B. Other Information ............................................... 26 PART III Item 10. Directors, Executive Officers, Promoters and Corporate Governance 27 Item 11. Executive Compensation .......................................... 28 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters .......................................... 29 Item 13. Certain Relationships and Related Transactions, and Director Independence .................................................... 29 Item 14. Principal Accountant Fees and Services .......................... 30 PART IV Item 15. Exhibits, Financial Statement Schedules ......................... 31 SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS This report contains forward-looking statements and information relating to us that is based on the beliefs of our management as well as assumptions made by, and information currently available to, our management. When used in this report, the words "anticipate," "believe," "estimate," "expect," "intend," "plan" and similar expressions, as they relate to us or our management, are intended to identify forward-looking statements. These statements reflect management's current view of us concerning future events and are subject to certain risks, uncertainties and assumptions, including among many others: o the availability and adequacy of our cash flow to meet our requirements; o economic, competitive, demographic, business and other conditions in our local and regional markets; o changes or developments in laws, regulations or taxes in the telecommunications industry; o actions taken or not taken by third-parties, including our competitors, as well as legislative, regulatory, judicial and other governmental authorities; o competition in the renewable energy industry; o the failure to obtain or loss of any license or permit; o the ability to carry out our business plan and to manage our growth effectively and efficiently; o the failure to manage any foreign exchange risk adequately; o a general economic downturn or a downturn in the securities markets; and o risks and uncertainties described in the Risk Factors section or elsewhere in this Annual Report on Form 10-K. Should any of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this report as anticipated, estimated or expected. All written and oral forward-looking statements attributable to us or persons acting on our behalf subsequent to the date of this Annual Report are expressly qualified in their entirety by the foregoing risks and those set forth in the "Risk Factors" section below. When used in this report, the terms "Averox," "Company," "we," "our" and "us" refer to Averox Inc. and its consolidated subsidiaries. PART I ITEM 1. DESCRIPTION OF BUSINESS. Overview Averox Inc. ("Averox") was incorporated under the name Flickering Star Financial, Inc. ("Flickering Star") on November 25, 1996 under the laws of the State of Nevada. From January 1, 1997 through March 31, 1997, Flickering Star was in its development stage. It originally intended to act as a finder of individuals who would serve as credit enhancers for motion picture completion guaranty contracts. As at December 31, 1996, all funds raised by the sale of shares of Flickering Star Financial in order to fulfill its initial objective had been expended and, after March 31, 1997, Flickering Star became dormant. On November 6, 2006, in anticipation of the acquisition of Averox Dubai (described below), the corporate name of Flickering Star Financial, Inc. was changed to Averox Inc. On November 13, 2006, Averox consummated the transactions contemplated by an Exchange Agreement, dated October 30, 2006, by and among Averox, certain shareholders of Averox, Averox FZ-LLC (formerly Pearl Consulting FZ-LLC), a free zone limited liability company organized under the laws of Dubai, UAE ("Averox Dubai") and Salman Mahmood ("Mahmood")(the "Exchange Agreement"). Accordingly Averox acquired all of the issued and outstanding shares of stock of Averox Dubai, which included its subsidiary, Averox (Private) Limited (formerly Pearl Consulting (Private Limited)), a private limited company organized under the laws of Pakistan ("Averox Pakistan") which Averox Dubai acquired from Mahmood and his spouse on August 31, 2006. Effective as of March 31, 2008, Averox ceased its operations in Dubai and Averox Dubai became dormant in order to reduce operating costs. On March 31, 2008, Averox Dubai transferred the shares of Averox Pakistan owned by it to Averox Inc. Averox Pakistan is now a wholly-owned subsidiary of Averox Inc. Since the cessation of operations of Averox Dubai, we have continued to operate in Dubai through Averox Telecommunication LLC ("Averox Telecom"). Averox Telecom is owned 49% by Mahmood and 51% by a local partner in Dubai. The ownership structure was necessitated by provisions of Dubai law which requires some local ownership and makes ownership by a foreign entity difficult. Averox Telecom is a pass through vehicle run for the benefit of Averox. Mahmood retains operating control of Averox Telecom and has agreed to derive no pecuniary benefit from its operations. Mahmood and Averox plan to transfer Mahmood's 49% ownership of Averox Telecom to Averox. We are an independent provider of software solutions, engineering and telecommunications network deployment services, systems integration, alternative energy solutions and related support services. Although our business has primarily focused on standard solutions and end products for the telecommunications industry, our software solutions and services are also being marketed and employed in other industries and areas of our business. We believe that we have established an excellent reputation for applying specialized and innovative problem-solving skills to a diverse range of clients and industries. Historically, the principal services we have provided include the design, deployment, integration, and the overall management of telecommunications networks for both large and small companies. Our work for telecommunication companies has involved software development, radio frequency engineering, project management and/or installation of telecommunications equipment. In some instances, we have worked as a subcontractor for portions of these projects. In other instances, we have contracted to act as general contractor for an entire system engineering project covering all aspects of design and execution. Acting as general contractor to provide turnkey telecom engineering services produces high revenues, but also requires us to incur significant costs for, among other things, software material costs, subcontractor fees and labor costs. We also take on all of the financial risks associated with the completion of the project. Because of these costs, potential risks and limited capital resources, we have determined to de-emphasize telecom civil works projects such as base transmitter, or BTS stations, site development, unless the customer is willing to advance all costs required for the project. In furtherance of this determination, we have, in one instance, transferred our obligations as system engineer to a third party in exchange for the right to receive commissions from project revenues until August 30, 2009. This agreement will give us a stream of revenue over this period without any associated costs. The recent focus of our business has been on proprietary software development and systems integration. We have also entered the solar and wind powered generators market, offering a range of wind and solar powered generators that can be used to produce clean and inexpensive power for domestic and commercial use. Our information technology professionals license, develop and promote software which delivers industry standard-specific solutions. These solutions cover areas such as telecom billing (retail and interconnect), service activation, mediation, revenue assurance and fraud management. Our IT solutions are also being used for customers outside the telecommunications industry. The solutions developed by our IT professionals or licensed by us for our telecommunications services business address needs in a wide spectrum of areas such as e-commerce, enterprise resource planning, IT strategy and consulting and project management, web-based applications such as content management systems, and Internet and intranet applications. Additionally, we have built and operate portals that address needs in the recruitment, real estate and trading industries. From time to time, we also provide outsourced consulting services. 2 On August 5, 2008, we acquired Provisus(TM), a product that provides service activation and provisioning technology to telecom operators, from Provisus Ltd. Prior to our acquisition of Provisus(TM), we were licensed to sell the product. Version 1.0 of Provisus(TM) has been developed and we are now in the process of developing enhancements to Provisus(TM) in a new version that will be at par with 3G and 4G compatible technologies. We expect to launch version 2.0 of Provisus(TM) in 2009. Provisus(TM) is expected to be tested by one of the world's leading mobile (3G/GSM) operators. If the testing of the product is successful, we believe that the operator will sublicense the product and that Provisus(TM) will be attractive to other telecommunications providers. Provisus(TM) has worldwide application for both fixed and mobile telecommunications. However, even if Provisus(TM) is successfully tested, it will take at least six to nine months before Averox derives any significant license fees from this product. Testing of Provisus(TM) has not yet commenced although we believe that testing could begin within the next six months. By moving away from providing turnkey civil works engineering projects, we are also focusing on systems integration. Rather than acting as turnkey solution provider over an entire project as a systems integrator, we will act as a subcontractor to the turnkey solution provider. Systems integration work does not involve the same expenses as full telecom engineering. Our costs will consist solely of travel and labor thereby significantly reducing the capital outlays required for undertaking a project. Telecommunication Services and Solutions Network Design and Deployment Services We provide a range of services for the full design and deployment of telecommunications networks. Such services include: o Network Engineering. Most calls are ultimately routed through a land line network. As a result, the traffic from telecommunications networks must be connected with switching centers within the networks. We establish the most efficient method to connect sites, whether by microwave radio or by landline connections. Our engineers are involved in specifying, provisioning and implementing land line and wireless network facilities. o Installation and Optimization Services. Our personnel install radio frequency equipment, including base station electronics and antennas, and recommend and implement location, software and capacity changes required to meet the customer's performance specifications. We also provide installation and initial optimization services for all major cellular and mobile broadband wireless air interface standards and equipment manufacturers. Network Management and Maintenance Services Under our network management and maintenance services, we assume responsibility for the day-to-day optimization and maintenance of telecommunications networks so that clients can acquire the competence needed to run their telecommunication solutions in an efficient manner. The relationship we develop with our customers for this type of outsourcing contract begins with a team of engineers and other professional and support staff aligned to meet the customer's specific needs. We take into account such variables as grade of service, reliability requirements, and geographic layout of the system in determining the allocation of site maintenance responsibilities between our service team and the customer's own personnel. We provide staffing to perform the necessary services for centralized network monitoring and maintenance and repair of critical network elements, including base station equipment, mobile switching centers and network operating centers. Project Planning and Management In our telecommunications services business, we offer full project planning and management, including a broad range of telecommunication products and services, analyzing existing and future telecommunication needs, assessing 3 alternatives and implementing telecommunication solutions. Our consultants design, develop, deploy, integrate test, optimize and manage clients' telecom projects, providing operational support, customer care, systems integration and installation of value-added service platforms. We manage projects as a primary vendor as well as a subcontractor for large multinational vendors. As part of our strategy, we are technology and vendor independent, working with Lucent, Siemens, Nortel Networks, Cisco Systems, Samsung, Intec Telecom plc, Evolving Systems Inc, L3 Communication Systems and Juniper. We believe that not aligning with any single technology or vendor allows us to objectively evaluate and recommend specific products or technologies. To date, most of our network engineering and deployment services have been for telecommunications carriers in Pakistan, although we are actively marketing our telecommunications services and solutions in Eastern Europe, the Middle East and the rest of Asia. Our marketing advantage includes our ability to provide engineering expertise across a wide range of telecommunication technologies and equipment platforms at competitive prices. The Averox Advantage Vendor and Technology Independence. Our ability to use a wide range of different vendors allows us to offer our customers the most technologically advanced, objective and appropriate suite of solutions available based on the customer's requirements. Ability to provide a customized telecommunications system. In addition to installing a telecommunication product, unlike many of our competitors, we integrate that product with the customer's existing internal systems. Extensive Technology Expertise. We have expertise in operations software solutions, or OSS, and business software solutions, or BSS, for all major telecommunications technologies, including: PSTN, CDMA, GSM, GPRS, EDGE, EV-DO, UMTS, WiMax and WiFi. The critical components of our ability to meet customer expectations include our broad scope of services and our technical expertise. Highly Skilled Personnel. We have a staff of highly skilled personnel, a majority of whom work directly on customer projects. Our technological expertise and industry knowledge have enabled us to form strong customer relationships with established carriers and equipment vendors. We believe our expertise in each of the major telecommunications technologies enhances our ability to customize services to meet the needs of our customer base. Cost-Effective and Timely Delivery. Because of our physical presence in our primary target markets and ability to efficiently manage and deliver projects, we believe that we can provide the same quality solution as a competing vendor on a more cost-effective basis. In fact, many large multinational companies have used our services rather than establishing a physical presence in the region. Proven Methodology. Our project management process enables us to meet our customers' needs without compromising project quality. We have a dedicated staff employed to facilitate efficient feedback of information among the various specialized activities involved in the design and deployment of a network so that our project teams work quickly and effectively. Through this coordinated effort, we are able to continually optimize human resource deployment and deliver the most efficient and effective solutions on time and within budget. Information Technology Our IT professions are highly skilled in a wide spectrum of information technology areas including product development, project management, enterprise client/server based solutions, e-commerce solutions, IT strategy and consulting, systems development, systems integration, application management, enterprise resource planning, customer relationship management, business process re-engineering, quality management, and web-based applications, such as content management systems and Internet and Intranet applications. 4 Information Technology Services As an integral part of our telecommunications network services and solutions, we provide OSS and BSS from multiple vendors, including solutions for telecom billing (retail and interconnect), service activation, mediation, revenue assurance and fraud management. Because each customer has different requirements and systems, extensive customization services are provided to integrate the operations and business software with the customer's network solutions. We also provide ongoing support for these systems. Our ability to provide OSS/BSS operations and business solutions differentiates us from other telecommunications services providers, the services of which are limited to network installation. Our solutions provide customized integration of the customer's systems with the network being installed. Information Technology Products Our telecommunications service work led us into the area of proprietary product development. Originally, we worked with other vendors' proprietary technology, providing only customized software to integrate these vendors' products with the client's existing systems. From this work, we recognized that there were product needs that other vendors' product offerings did not address and product functionality upon which we could improve. In response, we developed proprietary products to meet these needs, including specific solutions that enable companies in any industry to manage, synchronize and co-ordinate all customer communication channels, including the Internet, call centers, field organizations and partner networks. These products are in a wide range of domains and provide competitive solutions with a view to assisting clients in reshaping and managing their businesses more efficiently. Each product can be offered as a stand-alone solution or packaged as part of an integrated product offering of our products or combined with other vendors' products. The following are some of the more significant products which we offer both under our brand name or under a customer's private label: o Provisus(TM). On August 5, 2008, we acquired from Provisus Ltd. a product currently under development named Provisus(TM) which provides service activation and provisioning technology to telecom operators. Prior to our acquisition of the product, we were licensed to sell the product. The Provisus(TM) product is expected to be tested by one of the world's leading mobile (3G/GSM) operators. If the testing of the product is successful, we believe that the operator will sublicense the product and that Provisus(TM) will be attractive to other telecommunications providers. The Provisus(TM) product has worldwide application for both fixed and mobile telecommunications. However, even if the Provisus(TM) product is successfully tested, it will take at least six to nine months before Averox derives any significant license fees from this product. Testing of Provisus(TM) has not yet commenced although we believe that testing could begin within the next six months. o BMS On-Demand. It has been our experience that many customer relationship management products fail to meet customer needs and require extensive, time-consuming customization. BMS On-Demand is a web-based product offering a complete business solution for sales and marketing automation. BMS On-Demand is a combination of best-practices in customer relationship management and our twenty years of experience in dealing with customers and their needs. This product is intended to replace ineffective customer relationship management systems and can be installed within a reasonable time. o DocTrail. We offer a document management solution, DocTrail, that combines document and records management capabilities into a single, complete offering. We believe that DocTrail enables a customer to reduce the time, cost and complexity involved in storing and accessing documents. Our product is designed to enhance customer service and operational efficiency, improve security and address regulatory compliance requirements. DocTrail is offered in two versions, one as a web-based application and the other a network-based application. The version sold is based upon the customer's business needs. 5 o Ticket Management System. Our Ticket Management System was developed for our own internal business requirements. It is a web-based, easy to configure solution for optimizing every aspect of a company's support service and help desk processes, including tracking the history of the inquiry, creating an accessible database of problem resolution, customer management and automatic email/text message notifications. Our next version of the product will also include a feature to permit automated telephonic problem notification to ensure response to critical problems if email/text message notification fails. Alternative Energy Solutions We have recently entered the solar and wind powered generators market in response to a growing demand for reliable electricity sources in remote or rural locations and to counter shortages and increasing prices of oil and gas. We offer a range of wind and solar powered generators that can be used to produce clean and inexpensive power for domestic and commercial use. These small, portable generators are designed for use as an alternative or emergency power source for telecommunications and other commercial applications in locations where grid-based power is expensive, unreliable or unavailable. These turbines can be connected to the meter at a base transceiver station (BTS), house, school, office, apartment building, farm, factory, hotel or other locations where the electricity consumption falls within the production capacity of these turbines. This market is growing exponentially due to the increasing global demand for alternative energy sources. Recent estimates for wind-based applications suggest that annual growth for this market will exceed 25% per year over the next several years. E-Commerce Portals As part of our professional services, we have managed web portals for our customers. From this experience we have developed and are operating our own e-commerce portals including Tradebuying.com, IndentPoint.com and DealBuying.com. These sites have accumulated an aggregate of approximately 1.8 million hits per month. Outsourced Consulting Services We also contract with customers that are looking to outsource the co-ordination, delivery and monitoring aspects of their telecommunication and IT programs. For these engagements, our approach includes the development of a comprehensive and complete program; regular updates on project status; project coordination; financial planning; flexible planning; and the promotion of a coordinated set of standards, methods and procedures. We provide project management staff geared towards keeping the implementation of projects running smoothly. Our project management services offer a variety of packages to support our programs. These support services cover human resource planning; logistics and commercial operations; procurement; construction; installation, commissioning (MSC, BSC and BTS); testing; materials management; and support services. Support services include 24/7 uninterrupted support; 24 hour helpdesk coverage; continuous online help and support for technical engineers; and an inventory of spare parts. We have recently established a SAP consultancy division to address the large and growing demand for enterprise in resource planning software services. SAP refers to the wide range of enterprise planning software. SAP software is the leading business process improvement solution and is used by major companies covering telecom, manufacturing, finance and government. The worldwide market for SAP solutions and services is currently running at one billion US dollars per year for licenses and professional services to over 75,000 customers for business process improvement covering the telecommunication, manufacturing and financial sectors. ISO Qualification In 2007, we received ISO 9001:2000 certification for our telecommunications and IT businesses. This certification validates that we are among an exclusive tier of companies that possess well-defined and integrated quality measures and comprehensive programs that ensure our services are provided according to uniform standards that are considered best practices within the industry. We believe that the certification demonstrates our dedication to providing high quality services and products to our customers. 6 Customers Our telecommunications and IT customers range from large multinational companies to local small and medium sized enterprises. Our clients have included Milicom, Telenor, Orascom Telecom, Lucent Technologies, Siemens, Ericsson, Nortel Networks, Nokia, Samsung, Ufone, Warid Telecom and Azure Solutions. For these customers, we have acted as a primary vendor and as a subcontractor. During the fiscal year ended June 30, 2009, 2 customers accounted for 81% of our revenues. Sales and Marketing Our sales focus is to create opportunities to provide our telecommunication services and product solutions. The majority of our sales efforts are conducted by direct sales teams. The primary objective of our sales and marketing efforts is to educate existing and potential customers in the telecommunication and other industries about the depth and breadth of our service capabilities, experience and proprietary product solutions. In addition, we conduct many of our sales activities as a result of responding to requests for proposals and competitive tenders. Our sales and marketing efforts include constant interaction with existing and target customers and prospects, participation in relevant industry bodies, a website presence, presentations at industry conferences and forums, news releases to the industry and other marketing initiatives. We educate customers about product offerings, business needs and implementation contingencies to create solutions that reduce cost, increase revenue opportunities and comply with governmental regulations. Increasingly, we receive business opportunities through businesses such as Proven Energies, Tekelec, eServe Global, Connectiva, CRX, Neural Technologies and Intec Telecom Systems, who have been selected for larger solution implementations where our products represent only a portion of the overall solution or which subcontract our services for implementation. We plan to continue the approach of working with partners and system integrators in 2008 and beyond. Product Development and Support Our product development efforts are focused on identifying specific customer business needs, as well as market requirements, and then developing possible solutions for those needs that leverage our existing product capabilities. Our product development efforts comprise a combination of design and development of new products or features to enhance our existing products, and design and development of new product functionality as identified in our product "roadmaps," funded as research and development. We usually do not develop completely new products, major product enhancements or tools until we have at least one customer who has agreed to license what we will develop. We expend amounts on research and development, particularly for new products and/or for enhancements of existing products. For the years ended June 30, 2009 and 2008, we did not allocate any costs specifically for research and development. Competition The telecommunications network services and IT solutions markets in which we compete are highly competitive. Neither market is dominated by a single company nor a small number of companies. However, a substantial number of companies offer products and services that overlap and are competitive with those offered by us. Many of these competitors have greater financial, technical and marketing resources. Competition in the telecommunications network services business comes primarily from specialized network engineering firms and the service arms of large equipment vendors and telecommunications carriers. Our ability to obtain business in the telecommunications network services industry is dependent upon our ability to offer better strategic concepts and technical solutions, better value, a faster response, more flexibility or a combination of these factors. We believe that we are positioned to compete effectively in Eastern Europe, Asia and the Middle East based on our systems expertise, project management skills and IT expertise. 7 The market for our solutions is subject to rapid technological change and changing industry standards. We face growing demand for improved product performance, new product features and rapid integration capabilities, and reduced prices, as well as pressure to accelerate the release of new products and product enhancements. The market for software solutions is extremely large. By concentrating our activities on those potential clients which can most benefit from our solutions, we believe we can effectively market our solutions. We differentiate ourselves from competitors through a combination of our telecommunications knowledge, low-cost offshore development, products, services, integration capabilities and strong customer relationships. Our telecommunication network services activities give us an opportunity to directly market our solutions to our network services customers. Furthermore, once a customer has implemented one of our core software products, we are in a preferable position, in contrast to our competitors, to develop additional functionality or react to changes in their business needs by offering additional products or services. Intellectual Property Rights To date, we have not applied for any patent, trademark, trade name or copyright protection in any jurisdiction in which we operate. We therefore rely on common law rights, trade secret laws and confidentiality provisions in our agreements to prevent the unauthorized disclosure and use of our property. Employees As of October 26, 2009, we had 66 full-time employees, of which 1 is in Management, 26 are in human resources and administration, 3 in finance and accounts, 1 in marketing and sales, 16 and 17, are in IT and telecommunications, respectively, and 2 are in networking. All of our employees are based in Pakistan and the United Kingdom. From time to time, we also engage independent contractors to assist in our activities. None of our employees are unionized. We have never experienced a work stoppage as a result of labor issues, and we believe that our employee relations are satisfactory. ITEM 1A. RISK FACTORS. Owning our shares contains a number of risks. If any of the following risks actually occur, our business, financial condition or results of operations would likely suffer. In that case, the trading price of our shares could decline, and an investor may lose all or a part of the money paid to buy our shares. Risks Associated with our Financial Needs Our lack of cash reserves and liquid assets could result in an interruption of our business and has led our auditors to express doubt about our ability to continue as a going concern We do not currently have significant cash reserves. Our ability to fund our operations is dependent at the present time on collections of our accounts receivable. We have experienced difficulties in the recent past with collecting on our receivables. The failure of our customers to timely pay accounts receivable could force us to curtail our operations. Accordingly, our auditors have qualified their report on our financials statements by expressing substantial doubt about our ability to continue as a going concern. Our lack of readily available working capital has impacted our ability to execute our business plan Large, revenue generating engineering projects have been a core part of our business and require significant upfront investment. We have been successful in securing large engineering projects from multi-national companies such as Nokia, Siemens, Ericsson, Huawei, Warid Telecom and China Mobile. However, our working capital has not been sufficient to fulfill the requirements of these large projects. As a result, we have had to curtail these activities. Although we have been able to secure systems integration work from some of these customers, our inability to provide the full range of services contemplated by these engineering projects has had, and will continue to have, an adverse effect on our revenues and profitability. 8 Political instability in Pakistan has had a material adverse effect on demand for our services and products There is significant instability in Pakistan. Certain recent events have damaged the image of Pakistan internationally. As a result, Pakistan's credit rating has been down graded by international ratings agencies. This has also lead to shortage of capital in Pakistan. Each of these factors has had a direct impact on new telecommunications infrastructure products being undertaken. The fact that all of our business is currently conducted in Pakistan has negatively impacted on our financing efforts. The negative perception of Pakistan in the western world, particularly in the United States and western Europe, has made it more difficult for us to secure new financing. This negative perception may impair our ability to obtain funding for our business. The settlement of the purchase price for our acquisition of Provisus software could result in significant additional dilution of our equity. On August 5, 2008, we acquired Provisus software and certain related intellectual property. We have the option to pay $1,000,000 of the purchase price in cash or in shares of our stock valued at $5,000,000. In the event that we do not have sufficient cash to pay the purchase price, we will be forced to pay the balance in shares of our stock. The number of shares we may be required to issue will not be known until August 5, 2010 pursuant to the terms of an amended agreement. At the current market price of $.02 per share, we would issue 250,000,000 shares, or approximately 71.43% of our stock on a fully diluted basis. If our stock price were below $.02 per share, the dilution of our stock would be more significant. Specific Risks Associated with our Network Services Business The success of our network services business is dependent on growth in the deployment of telecommunications networks and new technology upgrades in the Middle East, Eastern Europe and Asia and, to the extent that such growth slows, our business may be harmed Telecommunications carriers are constantly re-evaluating their network deployment plans in response to trends in the telecommunications markets, changing perceptions regarding industry growth, the adoption of new technologies, increasing pricing competition for customers and general economic conditions. If the rate of network deployment slows and carriers reduce their capital investments in telecommunications infrastructure or fail to expand into new geographic areas, our business may be significantly harmed. The uncertainty associated with rapidly changing telecommunications technologies may also negatively impact the rate of deployment of telecommunications networks and the demand for our services. Telecommunications service providers face significant challenges in assessing consumer demand and in accepting rapidly changing enhanced telecommunications capabilities. If telecommunications service providers perceive that the rate of acceptance of next generation telecommunications products will grow more slowly than previously expected, they may, as a result, slow their development of next generation technologies. Moreover, increasing price competition for subscribers could adversely affect the profitability of carriers and limit their resources for network deployment. Any significant sustained slowdown will further reduce the demand for our services and adversely affect our financial results. 9 Our network services business depends on telecommunications carriers, network equipment vendors and other prospective customers outsourcing their telecommunications services The success of our network engineering business depends upon the continued trend by telecommunications carriers and network equipment vendors to outsource their network design, deployment and management needs. If this trend does not continue and telecommunications carriers and network equipment vendors elect to perform more network deployment services themselves, our operating results and revenues may decline. Failure to properly manage network services projects may result in costs or claims Our engagements often involve large scale, highly complex projects. The quality of our performance on such projects depends in large part upon our ability to manage the relationship with our customers, and to effectively manage the project and deploy appropriate resources, including third-party contractors, and our own personnel, in a timely manner. Any defects or errors or failure to meet clients' expectations could result in claims for substantial damages against us. In addition, in certain instances, we guarantee customers that we will complete a project by a scheduled date or that the network will achieve certain performance standards and our contracts contain liquidated damages provisions if we fail to do so. Further, if the project experiences a performance problem, we may not be able to recover the additional costs we incur, which could exceed the revenues realized from that project. Finally, if we underestimate the resources or time we need to complete a project with capped or fixed fees, our operating results could be seriously harmed. Changes in the price of raw materials, such as steel, can have a large impact on our profitability Our results of operations are impacted by the cost of raw materials. Price increases in raw material may not be able to be passed along to customers or customers may chose not to move forward with projects due to cost concerns. Steel is a principal raw material used in our network services business. Pakistan, for example, has recently experienced a steel shortage, which is largely imported, and the price has also risen significantly. The combination of steel shortages and price increases has caused delays in some projects and may have impacted our customers determination to pursue projects. This resulted in decreased revenues in the most recent fiscal period. We are in highly competitive markets, face competition from large, well-established competitors with significant resources, and may not be able to compete effectively The telecommunications services market is highly competitive. It is not dominated by a single company or a small number of companies. However, a substantial number of companies offer services that overlap and are competitive with those offered by us. Many of these competitors have greater financial, technical and marketing resources. This may place us at a disadvantage in responding to our competitors' pricing strategies, technological advances, strategic partnerships and other initiatives. Competition in the telecommunications network services business comes primarily from specialized network engineering firms and the service arms of large equipment vendors and telecommunications carriers. In addition, many of our competitors have well-established relationships with our potential clients and have extensive knowledge of our industry. As a result, our competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements, and they may be able to devote more resources to the development, promotion and sale of their services than we can. Our business will suffer if we fail to anticipate and develop new services and enhance existing services in order to keep pace with rapid changes in technology and the industry on which we focus The market for our services is characterized by rapid change and technological improvements, evolving industry standards, changing client preferences and new product and service introductions. Failure to anticipate these advances or respond in a timely and cost-effective way to these technological developments will result in serious harm to our business and operating results. We have derived, and we expect to continue to derive, a substantial portion of our revenues from serving telecommunications providers 10 with systems that utilize today's leading technologies and that are capable of adapting to future technologies. Further, products, services or technologies that are developed by our competitors may render our services non-competitive or obsolete. As a result, our success will depend, in part, on our ability to develop and market service offerings that respond in a timely manner to the technological advances of our customers, evolving industry standards and changing client preferences. Risks related to our IT business Because we have decided to focus on developing our software products, including the Provisus(TM) product, rather than licensing products from established developers, we cannot be assured that these products will receive market acceptance. In the past, we relied on established software products that we licensed from third parties. We paid significant licensing fees to the developers of these products for their use. In order to reduce these costs and maximize revenues and profits, we decided to develop our own products in addition to the Provisus(TM) product which we acquired from Provisus. However, the process of developing products is time consuming and costly. Moreover, even if these products can be successfully developed, there can be no assurance that these products will gain market acceptance. Our products are complex and have a lengthy implementation process; unanticipated difficulties or delays in the customer acceptance process could result in higher costs and delayed payments Implementing our IT solutions can be a relatively complex and lengthy process since we typically customize these solutions for each customer's unique environment. Often our customers may also require rapid deployment of our software solutions, resulting in pressure on us to meet demanding delivery and implementation schedules. Delays in implementation may result in customer dissatisfaction and/or damage our reputation which could materially harm our business. The majority of our existing contracts provide for acceptance testing by the customer, which can be a lengthy process. Unanticipated difficulties or delays in the customer acceptance process could result in higher costs, delayed payments, and deferral of revenue recognition. In addition, if our software contains defects or we otherwise fail to satisfy acceptance criteria within prescribed times, the customer may be entitled to cancel its contract and receive a refund of all or a portion of amounts paid or other amounts as damages, which could exceed related contract revenue and which could result in a future charge to earnings. Any failure or delay in achieving final acceptance of our software and services could harm our business, financial condition, results of operations and cash flows. The IT industry in which we compete is subject to rapid technological change, if we fail to develop or introduce new, reliable and competitive products in a timely fashion, our business may suffer The market for our IT products and services is subject to rapid technological changes, evolving industry standards, changes in customer requirements and preferences and frequent new product introductions and enhancements. The introduction of products that incorporate new technologies and the emergence of new industry standards can make existing products obsolete and unmarketable. In addition, "internationalizing" products that we have developed for customers abroad is a complex process. To compete successfully, we must continue to design, develop and sell enhancements to existing products and new products that provide higher levels of performance and reliability in a timely manner, take advantage of technological advancements and changes in industry standards and respond to new customer requirements. As a result of the complexities inherent in software development, major new product enhancements and new products can require long development and testing periods before they are commercially released and delays in planned delivery dates may occur. We may not be able to successfully identify new product opportunities or achieve market acceptance of new products brought to market. In addition, products developed by others may cause our products to become obsolete or noncompetitive. If we fail to anticipate or respond adequately to changes in technology and customer preferences, or if our products do not perform satisfactorily, or if we have delays in product development, we may lose customers and our sales may deteriorate. 11 The IT industry is highly competitive and if our products do not satisfy customer demand for performance or price, our customers could purchase products and services from our competitors The IT markets in which we operate are intensely competitive and we face continuous demand for improved product performance, new product features and reduced prices, as well as intense pressure to accelerate the release of new products and product enhancements. The market for software solutions is extremely large. Our existing and potential competitors include many domestic and international companies, including some competitors that have substantially greater financial, manufacturing, technological, marketing, distribution and other resources, larger installed customer bases and longer-standing relationships with customers than we do. Customers also may offer competitive products or services in the future since customers who have purchased solutions from us are not precluded from competing with us. Many telecommunications companies have large internal development organizations, which develop software solutions and provide services similar to the products and services we provide. We also expect competition may increase in the future from application service providers, existing competitors and from other companies that may enter our existing or future markets with solutions which may be less costly, provide higher performance or additional features or be introduced earlier than our solutions. We believe that our ability to compete successfully depends on numerous factors. For example, the following factors affect our ability to compete successfully: o how well we respond to our customers' needs; o the quality and reliability of our products and services and our competitors' products and services; o the price for our products and services, as well as the price for our competitors' products and services; o how well we manage our projects; o our technical expertise; o the quality of our customer service and support; o the emergence of new industry standards; o the development of technical innovations; o our ability to attract and retain qualified personnel; o regulatory changes; and o general market and economic conditions. Some of these factors are within our control, and others are not. A variety of potential actions by our competitors, including a reduction of product prices or increased promotion, announcement or accelerated introduction of new or enhanced products, or cooperative relationships among competitors and their strategic partners, could negatively impact the sales of our products and we may have to reduce the prices we charge for our products. Revenue and operating margins may consequently decline. We may not be able to compete successfully with existing or new competitors or to properly identify and address the demands of new markets. This is particularly true in new markets where standards are not yet established. Our failure to adapt to emerging market demands, respond to regulatory and technological changes or compete successfully with existing and new competitors would materially harm our business, financial condition, results of operations and cash flows. Our products are complex and may have errors that are not detected until deployment, and litigation related to warranty and product liability claims could be expensive and could negatively affect our reputation and profitability Our agreements with our customers typically contain provisions designed to limit our exposure to potential liability for damages arising out of the use of or defects in our products. These limitations, however, tend to vary from customer to customer and it is possible that these limitations of liability provisions may not be effective. We currently do not maintain errors and omissions insurance, which, subject to customary exclusions, would cover claims resulting from the failure of our software products or services to perform the function or to serve the purpose intended. As a result, we would be required to 12 pay the full amount of any claim. Further, defending such a suit, regardless of its merits, could be expensive and require the time and attention of key management personnel, either of which could materially harm our business, financial condition and results of operations. In addition, our business reputation could be harmed by product liability claims, regardless of their merit or the eventual outcome of these claims. General Risks Associated with our Business We are controlled by Salman Mahmood and this control could be detrimental to our shareholders Mr. Mahmood beneficially owns 65% of our common stock. Accordingly, Mr. Mahmood has the ability to control us and our affairs, including the outcome of all matters requiring shareholder approval such as the election and removal of our entire board of directors, and any merger, consolidation or sale of all or substantially all of our assets. This concentrated control gives Mr. Mahmood the right to decide whether we should proceed with any action, even if those actions might be beneficial to all shareholders and could discourage others from initiating any potential merger, takeover or other change of control transaction. As a result, the market price our shares could be adversely affected. Our failure to attract and retain key managerial and technical personnel could adversely affect our business Our success depends upon our attracting and retaining key members of our management team. The loss of any of our key members might delay or prevent the achievement of our strategic objectives. Our future performance will be substantially dependent on our ability to attract, retain and motivate key members of our management team. We must also continue to hire and retain highly skilled engineering and managerial personnel. In an effort to manage our costs, we typically hire many of our employees on a project-by-project basis. Upon completion of an assigned project, the employees are no longer employed by us until we hire them for the next project. Competition for such highly skilled personnel in our industry is intense, especially for engineers and project managers. We cannot be certain that we will be able to hire or rehire the requisite number of experienced and skilled personnel when necessary in order to service a major contract, particularly if the market for related personnel becomes more competitive. Also, once a new technical and sales employee has been hired, a significant time lag exists between the hiring date and the time when they become fully productive. We also believe that our success depends to a significant extent on the ability of our key personnel to operate effectively, both individually and as a group. If we are unable to identify, hire and integrate new employees in a timely and cost-efficient manner, our operating results will suffer. We may need additional capital in the future to fund the growth of our business, and this new capital may not be available We currently anticipate that our available capital resources and operating income will be sufficient to meet our expected working capital and capital expenditure requirements for at least the next 12 months. However, we cannot assure you that such resources will be sufficient to fund the long-term growth of our business. We may raise additional funds through public or private debt or equity financings. New equity offerings would likely dilute our stockholders' equity ownership. In addition, we cannot assure you that any additional financing we may need will be available on terms favorable to us, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of unanticipated opportunities, develop new products or otherwise respond to competitive pressures, or we might be forced to curtail our business. In any such case, our business, operating results or financial condition would be materially adversely affected. Potential future business acquisitions could be difficult to integrate, disrupt our business, dilute stockholder value and adversely affect our operating results We regularly evaluate opportunities to acquire new businesses as part of our ongoing strategy. If we successfully complete an acquisition, we will have to integrate it into our operations. Integration may require significant management time and financial resources. Our failure to properly integrate the 13 businesses we acquire and to manage future acquisitions successfully could seriously harm our operating results. In addition, acquired companies may not perform as well as we expect, and we may fail to realize anticipated benefits. In connection with an acquisition, we may issue shares of stock that would dilute our current stockholders' ownership and incur debt and other costs in connection with future acquisitions which may cause our quarterly operating results to vary significantly. Litigation may harm our business or otherwise distract our management Substantial, complex or extended litigation could cause us to incur large expenditures and distract our management. Disputes from time to time with customers or other third parties are not uncommon, and we cannot assure you that that we will always be able to resolve such disputes on terms favorable to us. Disclosure of trade secrets could aid our competitors We do not currently attempt to protect our trade secrets by registering for trademark, trade name, copyright or patent protection in any jurisdiction. Rather, we attempt to protect our trade secrets by entering into confidentiality and intellectual property assignment agreements with third parties, our employees and consultants. However, these agreements can be breached and, if they are, there may not be an adequate remedy available to us. In addition, others may independently discover our trade secrets and information, and in such cases we might not be able to assert any trade secret rights against such party. The misappropriation or duplication of our intellectual property could disrupt our ongoing business, distract our management and employees, reduce our revenues and increase our expenses. We may need to litigate to enforce our intellectual property rights or to determine the validity and scope of the rights of others. Enforcing a claim that a party illegally obtained and is using our trade secrets is difficult, expensive and time consuming, and the outcome is unpredictable. If our trade secrets become known it may affect adversely our competitive position. The laws of Pakistan do not protect intellectual property rights to the same extent as those of the United States, and we may be unsuccessful in protecting our intellectual property rights. We may also be subject to third party claims of intellectual property infringement The laws of Pakistan where most of our operations are conducted do not protect rights to the same extent as laws in the United States. Therefore, our efforts to protect our intellectual property may not be adequate. Our competitors may independently develop similar technology or duplicate our products or services. Unauthorized parties may infringe upon or misappropriate our products, services or information. In the event that we are infringing upon the rights of others or violating licenses, we may become subject to infringement claims that may prevent us from selling certain products and we may incur significant expenses in resolving these claims It is possible that our business activities may infringe upon the rights of others, or that other parties may assert infringement claims against us. If we become liable to any third party for infringing its intellectual property rights, we could be required to pay substantial damage awards and develop non-infringing technology, obtain licenses, or cease selling the applications that contain the infringing intellectual property. Litigation is subject to inherent uncertainties, and any outcome unfavorable to us could materially harm our business. Furthermore, we could incur substantial costs in defending against any intellectual property litigation, and these costs could increase significantly if any dispute were to go to trial. Our defense of any litigation, regardless of the merits of the complaint, likely would be time-consuming, costly, and a distraction to our management personnel. Adverse publicity related to any intellectual property litigation also could harm the sale of our products and services, and damage our competitive position. 14 We have never paid cash dividends and do not anticipate paying cash dividends on our common stock in the foreseeable future We have never paid cash dividends on our common stock. We currently intend to retain all future earnings, if any, for use in the operation of our business. Accordingly, we do not anticipate paying cash dividends on our common stock in the foreseeable future. The economic environment and pricing pressure could negatively impact our revenues and operating results Spending on technology products and services in most parts of the world has been rising for the past few years. If economic growth slows, our utilization and billing rates for our technology professionals could be adversely affected, which may result in lower gross and operating profits. Our ability to maintain or increase pricing is restricted as clients often expect that as we do more business with them, they will receive volume discounts or special pricing incentives. Existing and new customers are also increasingly using third-party consultants with broad market knowledge to assist them in negotiating contractual terms. Any of these factors could put pressure on our revenues and profitability. We may face difficulties in providing end-to-end business solutions for our clients, which could lead to clients discontinuing their work with us, which in turn could harm our business Over the past several years, we have been expanding the nature and scope of our engagements by extending the breadth of services we offer. The success of some of our newer service offerings, such as operations and business process consulting, IT consulting, business process management, systems integration and infrastructure management, depends, in part, upon continued demand for such services by our existing and new clients and our ability to meet this demand in a cost-competitive and effective manner. In addition, our ability to effectively offer a wider breadth of end-to-end business solutions depends on our ability to attract existing or new clients to these service offerings. To obtain engagements for our end-to-end solutions, we also are more likely to compete with large, well-established international consulting firms as well as other Pakistan-based technology services companies, resulting in increased competition and marketing costs. Accordingly, our new service offerings may not effectively meet client needs and we may be unable to attract existing and new clients to these service offerings. The increased breadth of our service offerings may result in larger and more complex client projects. This will require us to establish closer relationships with our clients and potentially with other technology service providers and vendors, and require a more thorough understanding of our clients' operations. Our ability to establish these relationships will depend on a number of factors including the proficiency of our technology professionals and our management personnel. Larger projects often involve multiple components, engagements or stages, and a client may choose not to retain us for additional stages or may cancel or delay additional planned engagements. These terminations, cancellations or delays may result from the business or financial condition of our clients or the economy generally, as opposed to factors related to the quality of our services. Cancellations or delays make it difficult to plan for project resource requirements, and resource planning inaccuracies may have a negative impact on our profitability. Our revenues are highly dependent on clients primarily located in Pakistan as well as clients concentrated in the telecommunications industry, and economic slowdowns or factors that affect the economic health of Pakistan and the telecommunications industry may affect our business If Pakistan's economy weakens, our clients may reduce or postpone their technology spending significantly, which may, in turn, lower the demand for our services and negatively affect our revenues and profitability. Further, any significant decrease in the growth of the telecommunications services industry or significant consolidation in the telecommunications industry or decrease in growth or consolidation in other industry segments on which we focus, may reduce the demand for our services and negatively affect our revenues and profitability. 15 Some of our engagements with customers are singular in nature and do not necessarily provide for subsequent engagements Some of our customers retain us on a short-term, engagement-by-engagement basis in connection with specific projects, rather than on a recurring basis under long-term contracts. Although a substantial majority of our revenues are generated from repeat business, which we define as revenue from a client who also contributed to our revenue during the prior fiscal year, our engagements with our clients are typically for projects that are singular in nature. Therefore, our revenues may fluctuate significantly from year to year. As a result, we must seek out new engagements when our current engagements are successfully completed or are terminated, and we are constantly seeking to expand our business with existing clients and secure new clients for our services. In addition, in order to continue expanding our business, we may need to significantly expand our sales and marketing group, which would increase our expenses and may not necessarily result in a substantial increase in business. If we are unable to generate a substantial number of new engagements for projects on a continual basis, our business and results of operations would likely be adversely affected. Our client contracts are often conditioned upon our performance, which, if unsatisfactory, could result in less revenue than previously anticipated A number of our contracts have incentive-based or other pricing terms that condition some or all of our fees on our ability to meet defined performance goals or service levels. Our failure to meet these goals or a client's expectations in such performance-based contracts may result in a less profitable or an unprofitable engagement. Regional conflicts in South Asia could adversely affect the Pakistan economy, disrupt our operations and cause our business to suffer South Asia has, from time to time, experienced instances of civil unrest and hostilities among neighboring countries, including between Pakistan and India. In recent years there have been military confrontations between Pakistan and India that have occurred in the region of Kashmir and along the Pakistan-India border. Military activity or terrorist attacks in the future could influence the Pakistan economy by disrupting communications and making travel more difficult and such political tensions could create a greater perception that investments in Pakistan companies involve higher degrees of risk. This, in turn, could have a material adverse effect on the market for our shares. Changes in the policies of the Government of Pakistan or political instability could delay the further liberalization of the Pakistan economy and adversely affect economic conditions in Pakistan generally, which could impact our business and prospects Since 1988, successive Pakistan governments have pursued policies of economic liberalization, including significantly relaxing restrictions on the private sector. Nevertheless, the role of the Pakistan central and state governments in the Pakistan economy as producers, consumers and regulators has remained significant. The current Government of Pakistan, formed in October 1999, has announced policies and taken initiatives that support the continued economic liberalization policies pursued by previous governments. However, these liberalization policies may not continue in the future. The rate of economic liberalization could change, and specific laws and policies affecting technology companies, foreign investment, currency exchange and other matters affecting investment in our securities could change as well. A significant change in Pakistan's economic liberalization and deregulation policies could adversely affect business and economic conditions in Pakistan generally, and our business in particular. Political instability could also delay the reform of the Pakistan economy and could have a material adverse effect on demand for the services or products of, or the market for securities of, companies with significant operations in Pakistan such as ours. 16 International uncertainties could harm our profitability Although we do not currently have operations outside of Pakistan, we expect international operations to grow in other parts of Asia, the Middle East and Eastern Europe. Our international business operations are subject to a number of material risks, including, but not limited to: o difficulties in building and managing foreign operations including, without limitation, management and contracts administration processes; o regulatory uncertainties in foreign countries, including changing regulations and delays in telecommunications carriers to build out their networks in various locations; o difficulties in enforcing agreements and collecting receivables through foreign legal systems and addressing other legal issues; o unexpected restrictions on transferring cash from foreign operations to the UAE, Pakistan or the United States; o longer payment cycles; o foreign and U.S. tax issues; o potential instability or changes in regulatory requirements or the potential overthrowing of the current government in certain foreign countries; o fluctuations in the value of foreign currencies; o general economic and political conditions in the markets in which we operate; o unexpected domestic and international regulatory, economic or political changes; o recessions in foreign countries; and o difficulties and costs of staffing and managing foreign operations. Currency fluctuations may affect the value of our Shares Our functional currency is the Pakistani rupee, although we transact a major portion of our business in U.S. dollars or Euros. Accordingly, we face foreign currency exposure through our sales and purchases. Historically, we have held a substantial majority of our cash funds in rupees. Downward fluctuations in the value of the Pakistani Rupee, compared to other foreign currencies, may increase the cost of supplies for our business. Accordingly, changes in exchange rates may have a material adverse affect on our revenues, other income, cost of services sold, gross margin and net income, which may in turn have a negative impact on our business, operating results and financial condition. The exchange rate between the rupee and foreign currencies, including the dollar and the Euro, has changed substantially in recent years and may fluctuate substantially in the future. We expect that a majority of our revenues will continue to be generated in foreign currencies, including the dollar and the Euro, for the foreseeable future and that a significant portion of our expenses, including personnel costs, as well as capital and operating expenditures, will continue to be denominated in Pakistani rupees. Consequently, the results of our operations are adversely affected if the rupee appreciates or depreciates against the dollar, the Euro or other applicable foreign currencies. Risks of owning our shares There has been a limited market for our Common Stock and, therefore, it may be difficult for our shares to be sold at attractive prices, if at all Our shares have only recently begun to trade on a limited basis and there is no coverage of our company by analysts or market makers. This may or may not affect the future performance of our shares. There can be no assurance that an active trading market for our shares will develop or that, if developed, will be sustained. In addition, the stock market in general has experienced extreme volatility that often has been unrelated to the operating performance of any company. These broad market and industry fluctuations may result in the decline of the price of our shares, regardless of our operating performance. The market price of our shares is expected to be volatile If a market for our shares does develop, securities of OTC Bulletin Board companies, and of technology companies in particular, are often volatile. Other broad market and industry factors may decrease the trading price of our shares, 17 regardless of our operating performance. Market fluctuations, as well as general political and economic conditions such as a recession or interest rate or currency rate fluctuations, also may decrease the trading price of our shares. In addition, our stock price could be subject to wide fluctuations in response to many other factors, including: o fluctuations in our financial results; o our actions, and the actions of our customers and competitors, including announcements of new products, product enhancements, technological innovations or new services; o other factors affecting the telecommunications and information technology industries in general; o the operating and stock price performance of other companies that investors may deem comparable; o news reports relating to trends in our markets; o volume of trading of our shares on the OTC Bulletin Board or other exchanges on which our shares may, in the future, be traded; o conditions or trends in the telecommunications and information technology industries; o changes in the market valuations of other technology companies; o announcements by us of significant acquisitions, strategic partnerships, joint ventures or capital commitments; o additions or departures of key personnel; o the timing and size of network deployments and technology upgrades by our carrier customers; o fluctuations in demand for outsourced network services; o the timing of expansion into new markets, both domestically and internationally; o the length of sales cycles; and o our success in bidding on and winning new business. Future sales of our shares in the public market could negatively affect our stock price If our stockholders sell substantial amounts of our common stock, the market price of our common stock could fall. As of October 23, 2009, we had 100,000,000 shares of common stock outstanding. Although 68,800,000 of our shares constitute restricted securities under the Securities Act, the shares may be sold into the marketplace under Rule 144. The possible sale of a significant number of these shares may cause the market price of our shares to fall. ITEM 1B. UNRESOLVED STAFF COMMENTS. None. ITEM 2. DESCRIPTION OF PROPERTY. Averox Pakistan maintains its executive offices at House No. 381, Street 13, F-10/2, Islamabad Pakistan, where it occupies 666 square yards (1,998 square feet) and pay approximately $1,666 per month. We consider our current office space adequate for our current operations. ITEM 3. LEGAL PROCEEDINGS. Averox Pakistan is a plaintiff in a suit, in the Court of Civil Judge, First Class, Islamabad captioned Averox (Private) Limited v. Aircom MEA FZ-LL. The proceeding arises out of a Partner Agreement dated April 2, 2004, between the Company and Aircom MEA to provide products/software and related support services to Ufone and new mobile/cellular companies entering Pakistan markets. In its complaint, Averox Pakistan is seeking a grant of permanent injunction, rendition of accounts, damages and the recovery of $1,008,900 for premature termination/breach of contract and $5,000,000 for additional damages. The case was settled and Averox received $220,000 in December 2008. 18 Averox Pakistan is a plaintiff in a suit in the Court of Civil Judge, First Class, Islamabad captioned Averox (Private) Limited v. ATIS Systems GmbH. The proceeding arises out of and connected with an Agreement dated August 28, 2003, between the Company and Nortel Networks (Asia) Limited, to provide system maintenance and support services to ATIS Systems GmbH. Averox Pakistan is seeking declaration, temporary and permanent prohibitory and mandatory injunction, rendition of accounts, and recovery of money/damages worth $11,300,000, 644,179 Euros and 300,750,000 Rupees for breach of contract and other damages. The case has not yet gone to trial. This case has been assigned to Provisus Ltd. in partial consideration for our purchase of the Provisus software product, subject to the filing of paperwork for court approval. With the exception of the above, we are not involved in any legal proceedings which may have a significant affect on our business, financial position, results of operations or liquidity, nor are we aware of any proceedings that are pending or threatened which may have a significant affect on its business, financial position, results of operations or liquidity. Available Information We file annual, quarterly and current reports, information statements and other information with the SEC. The public may read and copy any materials we file with the SEC at the SEC's Public Reference Room at Station Place, 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is http://www.sec.gov. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of security holders during the fourth quarter of our fiscal year ended June 30, 2009. 19 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. As of September 28, 2009, there were 210 record holders of our common stock and there were 100,000,000 shares of our common stock outstanding. The following table shows the high and low bid prices of our common stock as quoted on the OTC Bulletin Board by quarter during each of our last two fiscal years ended June 30, 2009 and 2008 and for each quarter after June 30, 2009. These quotes reflect inter-dealer prices, without retail markup, markdown or commissions and may not represent actual transactions. On October 25, 2008, the Company effected a 10-1 stock split. Prices prior to this date have been adjusted as if the stock split were effective as of each applicable date. The information below was obtained from those organizations, for the respective periods. Quarter High Low ---------------------------------------------------- ----- ----- 2008 First Quarter............................ $7.50 $6.90 Second Quarter........................... 7.50 7.45 Third Quarter............................ 7.45 6.90 Fourth Quarter........................... 7.49 6.90 2009 First Quarter............................ 7.49 6.90 Second Quarter........................... 1.30 0.15 Third Quarter............................ 1.00 0.06 Fourth Quarter........................... 0.07 0.02 2010 First Quarter 0.15 0.05 The high and low bid prices for shares of our common stock on October 28, 2008 was $.04 and $.02 per share, respectively, based upon bids that represent prices quoted by broker-dealers on the OTC Bulletin Board. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions, and may not represent actual transactions. Dividend Policy We have not paid any dividends on our common stock to date, although prior to the consummation of the transactions contemplated by the Exchange Agreement Averox Dubai and Averox Pakistan paid dividends to their respective shareholders. We do not intend to pay dividends on our common stock in the near future. The payment of dividends in the future will be contingent upon our revenues, earnings, capital requirements and general financial condition. The payment of dividends is within the discretion of our board of directors. It is the present intention of our board of directors to retain all earnings for future investment and use in our business operations. Accordingly, our board of directors does not anticipate declaring any dividends in the foreseeable future on our common stock. Securities Authorized for Issuance under Equity Compensation Plans We do not maintain any equity compensation plans. ITEM 6. SELECTED FINANCIAL DATA We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item. 20 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following presentation of management's discussion and analysis has been prepared by our internal management and should be read in conjunction with our audited financial statements for the years ended June 30, 2009 and 2008, including the notes thereto. Some of the statements below discuss "forward-looking" information. Those statements include statements regarding the intent, belief or current expectations of Averox and our management team. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties. These risks and uncertainties include but are not limited to, those risks and uncertainties discussed under the heading "Risk Factors" in this report. In light of the significant risks and uncertainties inherent in the forward-looking statements included in this report, the inclusion of such statements should not be regarded as a representation by us or any other person that our objectives and plans will be achieved. We were incorporated under the name Flickering Star Financial, Inc. ("Flickering Star") on November 25, 1996 under the laws of the State of Nevada. From January 1, 1997 through March 31, 1997, Flickering Star was in its development stage. It originally intended to act as a finder of individuals who would serve as credit enhancers for motion picture completion guaranty contracts. As at December 31, 1996, all funds raised by the sale of shares of Flickering Star in order to fulfill its initial objective had been expended and, after March 31, 1997, Flickering Star became dormant. On November 6, 2006, in anticipation of the acquisition of Averox Dubai (including its subsidiary, Averox Pakistan), the corporate name of Flickering Star Financial, Inc. was changed to Averox Inc. On November 13, 2006, Averox consummated the transactions contemplated by that certain Exchange Agreement, dated October 30, 2006, by and among Averox, certain shareholders of Averox, Averox Dubai and Salman Mahmood by acquiring all of the outstanding shares of capital stock of Averox Dubai. Averox Dubai had previously acquired Averox Pakistan from Mahmood and his spouse on August 31, 2006. Effective as of March 31, 2008, Averox ceased its operations in Dubai and Averox Dubai became dormant in order to reduce operating costs. On March 31, 2008, Averox Dubai transferred the shares of Averox Pakistan owned by it to Averox Inc. Averox Pakistan is now a wholly-owned subsidiary of Averox Inc. Since the cessation of operations of Averox Dubai, we have continued to operate in Dubai through Averox Telecommunication LLC ("Averox Telecom"). Averox Telecom is owned 49% by Mahmood and 51% by a local partner in Dubai. The ownership structure was necessitated by provisions of Dubai law which requires some local ownership and makes ownership by a foreign entity difficult. Averox Telecom is a pass through vehicle run for the benefit of Averox. Mahmood retains operating control of Averox Telecom and has agreed to derive no pecuniary benefit from its operations. Mahmood and Averox plan to transfer Mahmood's 49% ownership of Averox Telecom to Averox. Averox, through its subsidiaries, is an independent provider of software solutions, engineering and telecommunications network deployment services, systems integration and related support services. Although Averox's business has primarily focused on standard solutions and end products for the telecommunications industry, Averox's software solutions and services are also being marketed and employed in other industries and areas of Averox's business. Averox believes that it has established an excellent reputation for applying specialized and innovative problem-solving skills to a diverse range of clients and industries. 21 Results of Operations for the Twelve Months Ended June 30, 2009 and 2008 The following table presents the statement of operations for the twelve months ended June 30, 2009 as compared to the comparable period of the twelve months ended June 30, 2008. The discussion following the table is based on these results. 2009 2008 ----------- ----------- Net Revenue $ 875,377 $ 826,300 Cost of sales 536,896 927,101 ----------- ----------- Gross profit 338,481 (100,801) General and administrative expenses 515,178 1,441,571 Bad debts provision/ (recovery), net (12,312) 284,700 ----------- ----------- Income from operations (164,385) (1,827,072) ----------- ----------- Other (Income) Expense Interest income (121,745) (4,052) Other income 509 14,198 Interest expense 4,339 4,141 Currency exchange (gains) losses (11,219) 60 (Gain) loss on disposal of asset 4,828 (99) ----------- ----------- Total Other Income (123,287) 14,248 ----------- ----------- Income before income taxes (41,097) (1,841,320) Provision for income taxes -- 102,630 ----------- ----------- Net income $ (41,097) $(1,943,950) =========== =========== Net sales Net revenue for the twelve months ended June 30, 2009 totaled $875,377 compared to $826,300 for the twelve months ended June 30, 2008, an increase of $49,077 or approximately 6%. The increase in revenue was due to increase in commission income from one client amounting to $65,000 as compared to corresponding period in 2008. Cost of Sales Cost of sales for the twelve months ended June 30, 2009 totaled $536,896, or approximately 61% of net revenue, compared to $927,101, or approximately 112% of net revenue for the twelve months ended June 30, 2008, a decrease of $390,205 or approximately 73%. The decrease in dollar amount for the twelve months ended June 30, 2009 was mainly attributed to decrease in direct cost of services & telecom equipment by almost $535,000. During the 12 months ended June 30, 2008 our cost of revenue included costs associated with phase completion on civil works and technical implementation which has a low profit margin as compared to our revenue during the 12 months ended June 30, 2009 which was more concentrated towards IT services and commission with a lower cost of revenue and higher profit margin. This also accounts for decrease of our cost of revenue as compared to revenue from 112% to 61%. Operating Expense General and administrative expenses for the twelve months ended June 30, 2009 totaled $515,178, or approximately 59% of net revenue, compared to $1,441,571, or approximately 174% of net revenue, for the twelve months ended June 30, 2008, a decrease of $926,393, or approximately 64%. The decrease in general and administrative costs during the twelve month ended June 30, 2009 was 22 primarily due to reduction in our general & administrative expenses in our Pakistan staff and the elimination of our Dubai staff. In addition, we also closed our offices in Dubai and moved our office in Pakistan to reduce our rent expense. By closing our office in Dubai, we also managed to reduce some additional administrative and marketing costs. In aggregate, we have reduced our overheads in Pakistan by $130,000 and in Dubai by approximately $500,000. Loss from Operations Loss from operations for the twelve months ended June 30, 2009 totaled $164,385, or approximately 19% of net revenue, compared to a loss from operations of $1,827,072, or approximately 221%, for the twelve months ended June 30, 2008, a decrease of $1,662,687, or approximately 91%. The decrease was primarily due to decrease in our office and administrative heads by closing our office in Dubai and reducing our workforce by a significant margin as compared to the twelve months ended June 30, 2008. In addition, our bad debts were also reduced significantly by focusing and emphasizing on timely recoveries. Other income Other income for the twelve month period ended June 30, 2009 totaled $123,287 compared to other loss of $14,248 for the twelve month ended June 30, 2008, an increase in other income of $137,535, or approximately 965%. The increase in other income has to do primarily with the collection of interest income of $121,745 on the subscription receivable. Net Loss Net loss for the twelve months ended June 30, 2009 totaled $41,097 compared to net loss of $1,943,950 for the twelve months ended June 30, 2008, a decrease of $1,902,853, or approximately 98%. The decrease in net loss was primarily due to reasons described above. LIQUIDITY AND CAPITAL RESOURCES Our primary source of liquidity as of June 30, 2009 is our cash on hand and accounts receivable. Net cash provided by operations for the twelve month period ended June 30, 2009 was $6,851 as compared to net cash used in operations of $1,511,025 during the same period in 2008. Our cash and cash equivalents were $391,923 and $16,520 as of June 30, 2009 and June 30, 2008, respectively. Our current assets totaled $841,175 and $405,420 as of June 30, 2009 and June 30, 2008, respectively. Our current liabilities were $1,409,164 and $577,066 as of June 30, 2009 and June 30, 2008, respectively. Working capital was ($567,989) and ($171,646) as of June 30, 2009 and June 30, 2008, respectively. Net cash used in investing activities totaled ($41,615) for the twelve month period ended June 30, 2009, compared to net cash used in investing activities of ($68,739) for the same period ended June 30, 2008. Net cash provided by financing activities totaled $471,377 for the twelve month period ended June 30, 2009, compared to $881,928 for the same period ended June 30, 2008. The net cash change was $375,403 and ($759,192) for the twelve month ended June 30, 2009 and 2008, respectively. We will continue to evaluate alternative sources of capital to meet our growth requirements, including other asset or debt financing, issuing equity securities and entering into other financing arrangements. There can be no assurance, however, that any of the contemplated financing arrangements described herein will be available and, if available, can be obtained on terms favorable to us. Working Capital Requirements Historically operations and short term financing have been sufficient to meet our cash needs. We believe that we will be able to generate revenues from sales and raise capital through private placement offerings of its equity securities to provide the necessary cash flow to meet anticipated working capital requirements. However, our actual working capital needs for the long and short term will depend upon numerous factors, including operating results, 23 competition, and the availability of credit facilities, none of which can be predicted with certainty. Future expansion will be limited by the availability of financing products and raising capital. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The response to this item is submitted as a separate section of this Report beginning on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. ITEM 9A. CONTROLS AND PROCEDURES. Evaluation of our Disclosure Controls and Procedures We have adopted and maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods required under the SEC's rules and forms and that the information is gathered and communicated to our management, including our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), as appropriate, to allow for timely decisions regarding required disclosure. As required by SEC Rule 15d-15(b), our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 15d-14 as of the end of the period covered by this report. Based on the foregoing evaluation, they have concluded that as of June 30, 2009, our disclosure controls and procedures are effective. Management's Annual Report on Internal Control Over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and Directors; (iii) provide reasonable assurance that receipts and expenditures are being made only in accordance with appropriate authorization of management and the Board of Directors; and 24 (iv) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. In connection with the preparation of this Form 10-KSB, our Chief Executive Officer and Chief Financial Officer (our "Certifying Officers") conducted an evaluation of the effectiveness of our internal control over financial reporting as of June 30, 2009 based on the framework established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") and on the criteria set forth in Release No. 33-8238 entitled "Management's Reports on Internal Control over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports". As a result of that evaluation, management identified the following material weakness in our internal controls over financial reporting as of June 30, 2009: Insufficient Administrative Personnel: The Company has been operated by a small staff. The utilization of such a small staff may sometimes preclude segregation of duties and levels of review and approval that are the cornerstones of sound internal control systems. In addition, the members of the Company's staff who are responsible for financial reporting are not sufficiently familiar with the requirements imposed by the Exchange Act. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis. Based on our evaluation and the criteria set forth in the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") and Release No. 33-8238, we have concluded that, as of June 30, 2009, our internal control over financial reporting is not effective. This annual Report on Form 10-KSB does not include an attestation report of our registered public accounting firm regarding internal control over financial accounting. Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permits us to provide only management's report in this annual report. Our management has taken actions necessary to begin remediating the material weakness that was identified. We are actively seeking to hire additional administrative personnel, intend to consult with outside legal counsel more frequently regarding SEC reporting requirements and are training our current staff more extensively with respect to such requirements. We believe this measure will remediate the material weakness we identified and strengthen our internal control over financial reporting. We are committed to improving our internal control processes and will continue to review our financial reporting controls and procedures. Inherent Limitations of Internal Controls Our system of controls is designed to provide reasonable, not absolute, assurance regarding the reliability and integrity of accounting and financial reporting. Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed or operated, can only provide reasonable, not absolute, assurance that the objectives of the control system will be met. These inherent limitations include the following: o Judgments in decision making can be faulty, and control and process breakdowns can occur because of simple errors or mistakes. o Controls can be circumvented by individuals, acting alone or in collusion with each other, or by management override. 25 o The design of any system of controls is based in part or certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all future conditions. o Over time, controls may become inadequate because of changes in circumstances, or conditions. Controls can also deteriorate in the degree of compliance associated with policies and procedures. o The design of a control system must reflect the fact that resources are constrained, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Our management, including our Certifying Officers, confirm that there were no changes in our internal control over financial reporting during our fiscal year ending June 30, 2009, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION. None. 26 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT. The following table shows the positions held by our board of directors and executive officers and their ages as of October 26, 2008. Name Age Position Salman Mahmood 38 President and Director of Averox; Managing Director of Averox Pakistan Graham Hill 63 Director and Senior Vice President of Sales and Marketing of Averox Yasser Ahmad 32 Chief Financial Officer Salman Mahmood is a Director and President of Averox. Mr. Mahmood has been Managing Director of Averox Pakistan since March 2003. From August 2002 to the present, Mr. Mahmood has served as Director of Averox Consulting plc, a United Kingdom based consulting firm. From August 2003 until January 2004, Mr. Mahmood served as Chief Executive of Maisha plc, a UK-based software company listed on the Alternative Investment Market of the London Stock Exchange. From June 2001 to August 2002, Mr. Mahmood served as Chief Executive of Pearl Micro Solutions ltd., a UK-based software company. Graham Hill has been a Director of Averox Inc. since April 26, 2007 and is also our Senior Vice President of Sales and Marketing. From March 2004 through October 2006, Mr. Hill was a sales director for Syndesis Ltd. From April 2003 through February 2004, Mr. Hill was regional sales director of Axiom Ltd. From March 2002 through April 2003, Mr. Hill was sales director for Portmark Associates. He is an Honors Graduate in Physics from universities in the UK and Sweden. Yasser Ahmad is Chief Financial Officer of Averox. Since August 2006, Mr. Ahmad has served as Manager Finance of Averox Pakistan. From September 2005 to August 2006 Mr. Ahmad served as the Finance & Commercial Officer at Averox Pakistan. From March 2004 to June 2005 Mr. Ahmad worked as Team Lead for a Mortgage Project for Touchstone, an Islamabad based US company. From September 2002 to December 2002 Mr. Ahmad served as Citiphone Banker for US based Citibank at their Islamabad Office. Committees of the Board The Board of Directors is the acting Audit Committee. Our Board of Directors has determined that there is no person on our Board of Directors who qualifies as an audit committee financial expert as that term is defined by applicable Securities and Exchange Commission rules. The Board of Directors believes that obtaining the services of an audit committee financial expert is not economically rational at this time in light of the costs associated with identifying and retaining an individual who would qualify as an audit committee financial expert. Director Compensation There are no special fees, contracts entered into, or payments made in consideration of any director's service as a director. Indebtedness of Executive Officers and Directors No executive officer, director or any member of these individuals' immediate families or any corporation or organization with whom any of these individuals is an affiliate is or has been indebted to us since the beginning of our last fiscal year. 27 Family Relationships There are no family relationships among our executive officers and directors. Legal Proceedings During the past five years, none of our executive officers, directors, promoters or control persons have been involved in a legal proceeding material to an evaluation of the ability or integrity of such person. Compliance with Section 16(a) of the Securities Exchange Act of 1934 Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act"), as amended, requires our directors and executive officers, and persons who own more than 10% our outstanding common stock, to file with the SEC, initial reports of ownership and reports of changes in ownership of our equity securities. These persons are required by SEC regulations to furnish us with copies of all the reports they file. To our knowledge, based solely on a review of the copies of the reports furnished to us and written or oral representations that no other reports were required for those persons during the fiscal year ended June 30, 2008, all of our officers, directors and greater than 10% beneficial owners complied with the reporting requirements of Section 16(a) of the Exchange Act. Code of Ethics The Company has adopted a Code of Ethics for our Principal Executive Officer and our Senior Financial Officers. A copy of the Code of Ethics is filed as Exhibit 14.1 to our Annual Report for the year ended June 30, 2008 and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. The following Summary Compensation Table sets forth, for the years indicated, all cash compensation paid, distributed or accrued for services, including salary and bonus amounts, rendered in all capacities by our Chief Executive Officer who is the only executive officer who received or is entitled to receive remuneration in excess of $100,000 during the stated periods.

------------- (1) Salary represents base salary earned in 2009 and 2008. Employment Agreements Mr. Hill is a party to a certain Statement of Particulars of Employment contract dated January 3, 2008 with the Company. This contract supersedes the previous contract with the Company and all human resources related Company letters under the previous contract are void as of the March 1, 2008, the effective date of the new contract. Under the terms of the commission based-contract, Mr. Hill receives salary based solely on commission and bonuses of up to a maximum of 20% of the net profit from the sales of the Company, generated by him. 28 Mr. Ahmad is a party to a Statement of Particulars of Employment with Averox Pakistan, dated December 6, 2005. Mr. Ahmad receives a salary of $667 per month and is entitled to paid holidays, sick days and 20 vacation days per year. Although the Statement of Particulars of employment is not for a fixed term, Mr. Ahmad is required to give Averox Pakistan four weeks notice of his intent to terminate his employment until he has been employed for two years. Thereafter, the notice period increases by one week for each year of continuous employment until he completes 10 years of continuous employment, after which time he will be obliged to give Averox Pakistan 12 weeks' notice. Conversely, Averox Pakistan must give each four weeks notice of termination until he has been continuously employed for 2 years. Thereafter, the notice entitlement increases by one week for each year of continuous employment until such person has completed 10 years of continuous employment, after which time such person will be entitled to 12 weeks' notice. Under the terms of the Employment Agreement, Mr. Ahmad is required to maintain the confidentiality of Company information he has received. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. The following table sets forth information regarding the beneficial ownership of our common stock as of September 28, 2009 by: o each person known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock; o each of our officers and directors; and o all of our officers and directors as a group. Unless otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them.

---------- (1) Unless otherwise indicated, the business address of Salman Mahmood is House No. 381 Street No. 13, Sector F-10/2, Islamabad, Pakistan. (2) Unless otherwise indicated in these footnotes, each stockholder has sole voting and investment power with respect to the shares beneficially owned. All share amounts reflect beneficial ownership determined pursuant to Rule 13d-3 under the Exchange Act. All information with respect to beneficial ownership has been furnished by the respective director, executive officer or stockholder, as the case may be. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. On September 15, 2006, Averox Dubai and Averox Pakistan declared dividends payable to Mr. Mahmood in the aggregate amount of $3,022,833. As of June 30, 2009, dividends remaining to be paid amount is $608. Mr. Mahmood has received loans from Averox Pakistan from time to time. The loans were repaid from the dividends declared on September 15, 2007. 29 On August 5, 2008, our subsidiary Averox Pakistan acquired from Provisus Ltd, all tangible and intangible assets of Provisus, including, but not limited to: (i) Provisus(TM) software, service activation and provisioning, (ii) Provisus's trademark, website and marketing materials, and (iii) intellectual property rights, source code of core module and all developed modules as of August 5, 2008. Provisus is owned by Mr. Salman Mahmood, Averox's controlling shareholder. In exchange for the Provisus assets, Provisus acquired our contingent claims for commissions due from five companies including those describe in Item 3. The aggregate amount of the contingent claims cannot be determined at this time as no information regarding commissions has been received. If Provisus collects more than $500,000 from the disputed accounts, Provisus will pay seventy-five percent (75%) of such excess to us after deducting its legal costs. In addition to the transfer of the claims, under the terms of the Purchase Agreement, we will pay Provisus (i) in perpetuity a royalty equal to twenty percent (20%) of all revenue generated from the sale of Provisus(TM) software and services in excess of $5 million dollars in revenues in the aggregate, and (ii) either (x) $1 million dollars in cash on the second anniversary of the date of the Purchase Agreement or (y) shares of the our common stock if no cash is available after one year valued at $5 million based upon the then current market price of our shares. Director Independence Our current directors are Salman Mahmood and Graham Hill. We are not currently subject to corporate governance standards defining the independence of our directors. We have not yet adopted an independence standard or policy. Accordingly, our Board currently determines the independence of each Director and nominee for election as a Director. The Board has determined that none of our directors currently qualifies as an independent director. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Audit Fees The aggregate fees billed by the Company's auditors for professional services rendered in connection with the audit of the Company's annual financial statements and reviews of the financial statements included in the Company's Form 10-Qs or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for fiscal years 2009 and 2008 were $40,500 and $62,000, respectively. Audit Related Fees None. Tax Fees None. All Other Fees None. Pre-Approval Policies and Procedures Our Board of Directors has adopted resolutions in accordance with the Sarbanes-Oxley Act of 2002 requiring pre-approval of all auditing services and all audit related, tax or other services not prohibited under Section 10A(g) of the Securities Exchange Act of 1934, as amended to be performed for us by our independent auditor, subject to the de minimus exception described in Section 10A(i)(1)(B) of the Exchange Act. These resolutions authorized our independent auditor to perform audit services required in connection with the annual audit relating to our fiscal year ended June 30, 2009 and the quarterly reviews for the subsequent fiscal quarters of 2009 through the quarter ended March 31, 2009, at which time additional pre-approvals for any additional services to be performed by our auditors would be sought from the Board. Our Board of Directors also appointed and authorized Yasser Ahmad to grant pre-approvals of other audit, audit-related, tax and other services requiring board approval to be performed for us by our independent auditor, provided that the designee, following any such pre-approvals, thereafter reports the pre-approvals of such services at the next following regular meeting of the Board. The percentage of audit-related, and other services that were approved by the Board of Directors is 100%. 30 PART IV ITEM 15. EXHIBITS. Exhibit Number Description of Document 3.1 Articles of Incorporation of Averox Inc. (1) 3.2 Articles of Merger with Agreement and Plan of Merger (2) 3.3 By-Laws of Averox Inc. (1) 10.1 Share Exchange Agreement dated October 30, 2006, by and among Averox, Inc., certain shareholders of Averox, Pearl Consulting FZ-LLC, a free zone limited liability company organized under the laws of Dubai, UAE, and Salman Mahmood (5) 10.2 Form of $1,850,000 Promissory Note (6) 10.3 Form of $650,000 Promissory Note (6) 10.4 Particulars of Employment dated December 6, 2005 between Averox Pakistan and Yasser Ahmad (6) 10.5 Employment Contract dated January 3, 2008 between Averox FZ-LLC and Graham Hill (5) 10.7 Purchase Agreement dated August 5, 2008 between Averox Pvt. Ltd. and Provisus Ltd. (3) 10.8 Lease Agreement dated June 15, 2008 by and among the Company, Mr. Waqar Ahmed and certain other individuals. (4) 14.1 Code of Ethics (7) 21.1 Subsidiaries of Small Business Issuer (5) 23.1 Consent of Morgenstern, Svoboda & Baer CPA's P.C. 31.1 Chief Executive Officer's Certificate, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (5) 31.2 Chief Financial Officer's Certificate, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (5) 32.1 Chief Executive Officer's and Chief Financial Officer's Certificate, pursuant to 18 U.S.C., Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. (5) ---------- (1) Filed as an exhibit to the Registrant's Form 10-SB filed on January 12, 2000 and incorporated herein by reference. (2) Filed as an exhibit to the Registrant's Form 8-K filed on November 7, 2006 and incorporated herein by reference. (3) Filed as an exhibit to the Registrant's Form 8-K filed on August 5, 2008 and incorporated herein by reference. 31 (4) Filed as an exhibit to the Registrant's Form 8-K filed on August 25, 2008 and incorporated herein by reference. (5) Filed herewith. (6) Filed as an exhibit to the Registrant's Form 8-K filed on November 14, 2006 and incorporated herein by reference. (7) Filed as an exhibit to the Registrant's Form 10-K for the year ended June 30, 2008 and incorporated herein by reference. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. AVEROX INC. Dated: October 13, 2009 By: /s/ Salman Mahmood ------------------------------------------ Salman Mahmood Chief Executive Officer By: /s/Yasser Ahmad ------------------------------------------ Yasser Ahmad Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Dated: October 13, 2009 By: /s/ Salman Mahmood ------------------------------------------ Salman Mahmood Chairman, Chief Executive Officer and President (principal executive officer) Dated: October 13, 2009 By: /s/ Yasser Ahmad ------------------------------------------ Yasser Ahmad Chief Financial Officer (principal financial and accounting officer) Dated: October 13, 2009 By: /s/ Graham Hill ------------------------------------------ Graham Hill Director 32 Exhibit 21.1 Subsidiaries of Averox Inc. Corporation State of Incorporation ---------------------------------- Averox (Private) Limited, Pakistan Averox North America Inc., Nevada 33 AVEROX, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2009 AVEROX, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2009 TABLE OF CONTENTS Report of Independent Registered Public Accounting Firm F-1 Consolidated Balance Sheets F-2 Consolidated Statements of Operations F-3 Consolidated Statements of Cash Flow F-4 Consolidated Statements Stockholders' Equity/(Deficit) F-5 Notes to Consolidated Financial Statements F-6 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders Averox Inc. and Subsidiaries We have audited the Averox Inc. and Subsidiaries (the "Company") as of June 30, 2009, and the related consolidated statement of operations, stockholders' deficit, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Averox Inc. and Subsidiaries as of June 30, 2009, and the results of its consolidated statement of operations, stockholders' deficit, and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. During the year ended June 30, 2009, the Company incurred net losses of $42,138. The Company's accumulated deficit was $2,381,571 as of June 30, 2009. These factors, among others, as discussed in Note D to the consolidated financial statements, raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note D. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Kabani & Company, Inc. Certified Public Accountants Los Angeles, California September 28, 2009 F-1 AVEROX INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JUNE 30, 2009 AND JUNE 30, 2008 ASSETS

The accompanying notes are an integral part of these financial statements. F-2 AVEROX INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 2009 AND 2008

The accompanying notes are an integral part of these financial statements. F-3 AVEROX INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 2009 AND 2008

The accompanying notes are an integral part of these financial statements. F-4 AVEROX INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY / (DEFICIT) FOR THE YEARS ENDED JUNE 30, 2009 AND 2008

The accompanying notes are an integral part of these financial statements. F-5 AVEROX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2009 Note A - ORGANIZATION Averox, Inc., formerly Flickering Star Financial, Inc. ("Averox"), was incorporated on November 25, 1996 under the laws of the State of Nevada. On November 13, 2006, Averox Inc., consummated the transactions contemplated by a certain Share Exchange Agreement dated October 30, 2006, by and among Averox, certain shareholders of Averox, Averox FZ-LLC (formerly Pearl Consulting FZ-LLC), Averox (Private) Limited (formerly Pearl Consulting (Private) Limited) and Salman Mahmood (the "Exchange Agreement"). Averox FZ-LLC ("Averox Dubai"), a free zone limited liability company organized under the Laws of Dubai, was incorporated on November 9, 2004. Averox (Private) Limited ("Averox Pakistan"), a private limited company organized under the laws of Pakistan, was organized on March 19, 2003. Averox Telecomunication, LLC was organized under the laws of United Arabs Emirates on August 28, 2008. When used in these notes, the terms "Company," "we," "our," or "us" mean Averox and its consolidated subsidiaries Averox Dubai, Averox Telecommunication and Averox Pakistan. On August 31, 2006, Averox Pakistan's shareholder transferred 98 ordinary shares of Averox Pakistan to Averox Dubai. These shares represented ninety eight percent (98%) of the issued and outstanding shares on that date. Averox Pakistan became a majority owned subsidiary of Averox Dubai. On March 31, 2008, Averox Dubai transferred the shares of Averox Pakistan owned by it to Averox, Inc., subject only to minor regulatory approvals. Upon such transfer, Averox Pakistan become a wholly-owned subsidiary of Averox, Inc. Pursuant to the Exchange Agreement, Averox issued 6,500,000 shares of its common stock, or 65% of the issued and outstanding capital stock of Averox after the consummation of the Exchange Agreement and the transactions contemplated thereby. As a result of the Exchange Agreement, Averox Dubai became a wholly-owned subsidiary of Averox. The Company, through its acquisition of Averox Dubai and Averox Pakistan, is no longer considered a development stage company. The principle services we provide include the design, deployment, integration, and the overall management of telecommunications networks for both large and small companies. Our work for telecommunication companies involves software development, radio frequency engineering, project management and the installation of telecommunications equipment. We also provide network management services, which involve day-to-day optimization and maintenance of telecommunications networks. To date, most of our network engineering and deployment services have been for telecommunications carriers primarily in Pakistan, although we are actively marketing our services and solutions in Eastern Europe, the Middle East and the rest of Asia. Our information technology, or IT, professionals develop and promote software which delivers industry standard-specific solutions. The solutions developed by our IT professionals address needs in a wide spectrum of areas such as e-commerce, enterprise resource planning, IT strategy and consulting, project management and web-based applications such as content management systems, and Internet and intranet applications. F-6 Basis of Consolidation The consolidated financial statements include the accounts of Averox, Inc. and its wholly owned subsidiary Averox Dubai and majority owned Averox Pakistan and Averox Telecommunication. All material intercompany accounts, transactions and profits have been eliminated in consolidation. Revenue Recognition The Company recognizes its revenue in accordance with the Securities and Exchange Commissions ("SEC") Staff Accounting Bulletin No. 104, "Revenue Recognition" ("SAB 104") and The American Institute of Certified Public Accountants ("AICPA") Statement of Position ("SOP") 97-2, "Software Revenue Recognition," as amended by SOP 98-4 and SOP 98-9, SOP 81-1, "Accounting for Performance of Construction-Type and Certain Production-Type Contracts," and Accounting Research Bulletin 45 (ARB 45) "Long-Term Construction Type Contracts." The Company's revenue recognition policy is as follows: License Revenue: The Company recognizes revenue from license contracts without major customization when a non-cancelable, non-contingent license agreement has been signed, delivery of the software has occurred, the fee is fixed or determinable, and collectibilty is probable. Revenue from the sale of licenses with major customization, modification, and development is recognized on a percentage of completion method, in conformity with ARB 45 and SOP 81-1. Revenue from the implementation of software is recognized on a percentage of completion method, in conformity with Accounting Research Bulletin ("ARB") No. 45 and SOP 81-1. Any revenues from software arrangements with multiple elements are allocated to each element of the arrangement based on the relative fair values using specific objective evidence as defined in the SOPs. An input measure of "Unit of Work Completed" is used to determine the percentage of completion which measures the results achieved at a specific date. Units completed are certified by the Project Manager and EVP IT/ Operations. Services Revenue: Revenue from consulting services is recognized as the services are performed for time-and-materials contracts. Revenue from training and development services is recognized as the services are performed. Revenue from maintenance agreements is recognized ratably over the term of the maintenance agreement, which in most instances is one year. Unearned Revenue: Unearned Revenue is broken down into three main categories; a) annual maintenance contracts whereby the annual fee is collected at the beginning of the service period and recognized on a pro-rata basis over the life of the contract, b) service revenue connected to those contracts which the implementation and development segments are recognized on the percentage of completed method; and c) customized development projects for existing customers to modify their version of the product to better meet their individual needs which are recognized on the percentage of completion method. Unearned revenue was $161,595 and $ 0 as of June 30, 2009 and June 30, 2008 respectively. Risks and Uncertainties The Company is subject to substantial risks from, among other things, intense competition associated with the industry in general, other risks associated with financing, liquidity requirements, rapidly changing customer requirements, limited operating history, foreign currency exchange rates and the volatility of public markets. Currently, there are tensions involving Afghanistan, a neighbor of Pakistan. These hostilities and tensions could lead to political or economic instability in Pakistan and a possible adverse effect on operations and future financial performance. F-7 Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Translation Adjustment As of June 30, 2009 and 2008, the accounts of Averox Pakistan were maintained, and its financial statements were expressed, in PKR. Such financial statements were translated into U.S. Dollars (USD) in accordance with Statement of Financial Accounts Standards No. 52, "Foreign Currency Translation," with the PKR as the functional currency. According to the Statement, all assets and liabilities were translated at the current exchange rate, stockholders' equity (deficit) is translated at the historical rates and income statement items are translated at the average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with SFAS No. 130, "Reporting Comprehensive Income," as a component of shareholders' equity (deficit). Allowance for Doubtful Accounts The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Allowance for doubtful debts amounted to $473,707 and $583,593 as of June 30, 2009 and June 30, 2008, respectively. Property, Plant & Equipment Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method for substantially all assets with estimated lives of: Equipment 3 -5 years Furniture & Fixtures 5 -10 years Motor Vehicles 5 years As of June 30, 2009 and June 30, 2008 property, plant and equipment consisted of the following: F-8 June 30, 2009 June 30, 2008 ----------- ----------- Furnitures and fixtures $ 25,015 $ 35,727 Office equipment 136,523 117,835 Motor Vehicle 86,529 97,954 ----------- ----------- 248,067 251,516 Accumulated depreciation (136,508) (120,024) ----------- ----------- $ 111,559 $ 131,492 =========== =========== Depreciation expense was $38,814 and $50,363 for the years ended June 30, 2009 and 2008. Basic and Diluted Earnings Per Share Earnings per share is calculated in accordance with the Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings Per Share." SFAS No. 128 superseded Accounting Principles Board Opinion No. 15 ("APB 15"). Net loss per share for all periods presented has been restated to reflect the adoption of SFAS No. 128. Basic net loss per share is based upon the weighted average number of common shares outstanding. Diluted net loss per share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Goodwill and Intangible Assets Goodwill represents the excess of the purchase price over the fair value of the identifiable assets and liabilities acquired as a result of the Company's acquisitions of interests in its subsidiaries. Under Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), goodwill is no longer amortized, but tested for impairment upon first adoption and annually, thereafter, or more frequently if events or changes in circumstances indicate that it might be impaired. The Company assesses goodwill for impairment periodically in accordance with SFAS 142. The Company applies the criteria specified in SFAS No. 141, "Business Combinations" to determine whether an intangible asset should be recognized separately from goodwill. Intangible assets acquired through business acquisitions are recognized as assets separate from goodwill if they satisfy either the "contractual-legal" or "separability" criterion. Per SFAS 142, intangible assets with definite lives are amortized over their estimated useful life and reviewed for impairment in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets." Intangible assets, such as purchased technology, trademark, customer list, user base and non-compete agreements, arising from the acquisitions of subsidiaries and variable interest entities are recognized and measured at fair value upon acquisition. Intangible assets are amortized over their estimated useful lives from one to ten years. The Company reviews the amortization methods and estimated useful lives of intangible assets at least annually or when events or changes in circumstances indicate that it might be impaired. The recoverability of an intangible asset to be held and used is evaluated by comparing the carrying amount of the intangible asset to its future net undiscounted cash flows. If the intangible asset is considered to be impaired, the impairment loss is measured as the amount by which the carrying amount of the intangible asset exceeds the fair value of the intangible asset, calculated using a discounted future cash flow analysis. The Company uses estimates and judgments in its impairment tests, and if different estimates or judgments had been utilized, the timing or the amount of the impairment charges could be different. F-9 Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations for a Disposal of a Segment of a Business." The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with SFAS 144. SFAS 144 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal. Based on its review, the Company believes that, as of June 30, 2009 there were no significant impairments of its long-lived assets. As of June 30, 2009 and June 30, 2008, Intangible Assets consist of the following: June 30, 2009 June 30, 2008 ------------- ------------- Software and intellecutal rights $ 1,003,001 $ 3,595 Accumulated amortization (182,748) -- ------------- ------------- $ 820,253 $ 3,595 ============= ============= Amortization expense for the twelve month periods ending June 30, 2010 $ 200,361 June 30, 2011 200,000 June 30, 2012 200,000 June 30, 2013 200,000 June 30, 2014 19,892 --------- $ 820,253 ========= Recent Accounting Pronouncements In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements", which is an amendment of Accounting Research Bulletin ("ARB") No. 51. This statement clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. This statement changes the way the consolidated income statement is presented, thus requiring consolidated net income to be reported at amounts that include the amounts attributable to both parent and the noncontrolling interest. This statement is effective for the fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Management is currently evaluating the effect of this pronouncement on financial statements. In March 2008, the FASB issued FASB Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities. The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors F-10 to better understand their effects on an entity's financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The new standard also improves transparency about the location and amounts of derivative instruments in an entity's financial statements; how derivative instruments and related hedged items are accounted for under Statement 133; and how derivative instruments and related hedged items affect its financial position, financial performance, and cash flows. Management is currently evaluating the effect of this pronouncement on financial statements. In May of 2008, FASB issued SFASB No.162, "The Hierarchy of Generally Accepted Accounting Principles". The pronouncement mandates the GAAP hierarchy reside in the accounting literature as opposed to the audit literature. This has the practical impact of elevating FASB Statements of Financial Accounting Concepts in the GAAP hierarchy. This pronouncement will become effective 60 days following SEC approval. Management is currently evaluating the effect of this pronouncement on financial statements. In May 2008, FASB issued SFASB No. 163, Accounting for Financial Guarantee Insurance Contracts-an interpretation of FASB Statement No. 60. The scope of the statement is limited to financial guarantee insurance (and reinsurance) contracts. The pronouncement is effective for fiscal years beginning after December 31, 2008. Management is currently evaluating the effect of this pronouncement on financial statements. In December 2007, the FASB issued SFAS No. 141(R), "Business Combinations". This Statement replaces SFAS No. 141, Business Combinations. This Statement retains the fundamental requirements in Statement 141 that the acquisition method of accounting (which Statement 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. This Statement also establishes principles and requirements for how the acquirer: a) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; b) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase and c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) will apply prospectively to business combinations for which the acquisition date is on or after Company's fiscal year beginning July 1, 2009. While the Company has not yet evaluated this statement for the impact, if any, that SFAS No. 141(R) will have on its consolidated financial statements, the Company will be required to expense costs related to any acquisitions after June 30, 2009. EITF Issue No. 07-5, "Determining Whether an Instrument (or embedded Feature) is Indexed to an Entity's Own Stock" (EITF 07-5) was issued in June 2008 to clarify how to determine whether certain instruments or features were indexed to an entity's own stock under EITF Issue No. 01-6, "The Meaning of "Indexed to a Company's Own Stock" (EITF 01-6). EITF 07-5 applies to any freestanding financial instrument (or embedded feature) that has all of the characteristics of a derivative as defined in FAS 133, for purposes of determining whether that instrument (or embedded feature) qualifies for the first part of the paragraph 11(a) scope exception. It is also applicable to any freestanding financial instrument (e.g., gross physically settled warrants) that is potentially settled in an entity's own stock, regardless of whether it has all of the characteristics of a derivative as defined in FAS 133, for purposes of determining whether to apply EITF 00-19. EITF 07-5 does not apply to share-based payment awards within the scope of FAS 123(R), Share-Based Payment (FAS 123(R)). However, an equity-linked financial instrument issued to investors to establish a market-based measure of the fair value of employee stock options is not within the scope of FAS 123(R) and therefore is subject to EITF 07-5. The guidance is applicable to existing instruments and is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Management is currently considering the effect of this EITF on financial statements for the year beginning July 1, 2009. F-11 On January 12, 2009 FASB issued FSP EITF 99-20-01, "Amendment to the Impairment Guidance of EITF Issue No. 99-20". This FSP amends the impairment guidance in EITF Issue No. 99-20, "Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to be Held by a Transferor in Securitized Financial Assets," to achieve more consistent determination of whether an other-than-temporary impairment has occurred. The FSP also retains and emphasizes the objective of an other-than-temporary impairment assessment and the related disclosure requirements in FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities, and other related guidance. The FSP is shall be effective for interim and annual reporting periods ending after December 15, 2008, and shall be applied prospectively. Retrospective application to a prior interim or annual reporting period is not permitted. Management is currently evaluating the effect of this pronouncement on financial statements. Note C - CONTINGENCIES The Company has filed a suit in the Court of Civil Judge, First Class, Islamabad against M/s ATIS Systems GmbH for declaration, temporary and permanent prohibitory and mandatory injunction, rendition of accounts, and recovery of money/damages worth USD $11,300,00, Euros $644,179 and Pakistan Rupees $300,750,000. The case is still pending and no estimation of damages could be made as of June 30, 2009. Note D - GOING CONCERN The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has sustained net losses of $2,381,571 since its inception and has negative working capital of $567,989 as of June 30, 2009. These conditions raise substantial doubt about the Company's ability to continue as a going concern. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company has taken certain restructuring and cost cutting measures to provide the necessary capital to continue its operations and improve its cash flows. The Company improved cash flows from $1,511,025 used in operations during the year ended June 30, 2008 to cash provided by operations of $6,851 during the year ended June 30, 2009. In addition Company management is looking to: (1) acquire profitable operations through issuance of equity instruments; (2) to continue actively seeking additional funding and restructure the acquired subsidiaries to increase profits and minimize the liabilities and (3) expand its product line to diversify sales and create a larger base. Note E -INCOME TAXES The Company is registered in the State of Navada and has operations in primarily three tax jurisdictions - Dubai, Pakistan and the United States. For certain operations in the US, the Company has incurred net accumulated operating losses for income tax purposes The Company believes that it is more likely than not that these net accumulated operating losses will not be utilized in the future. Therefore, the Company has provided full valuation allowance for the deferred tax assets arising from the losses at the location as of June 30, 2009. Accordingly, the Company has no net deferred tax assets. The provision for income taxes from continuing operations on income consists of the following for the years ended June 30, 2009 and 2008: F-12 June 30, 2009 June 30, 2008 ----------- ----------- US current income tax expense (benefit) Federal $ -- $ -- State -- -- ----------- ----------- Pakistan current income tax expense -- 102,630 ----------- ----------- Total provision for income tax $ -- $ 102,630 =========== =========== The following is a reconciliation of the provision for income taxes at the U.S. federal income tax rate to the income taxes reflected in the Statement of Operations: June 30, 2009 June 30, 2008 ------------- ------------- Tax expense (credit) at statutory rate- federal 34% 34% State tax expense net of federal tax 6% 6% --------- --------- Changes in valuation allowance (40%) (40%) --------- --------- Foreign income tax- Pakistan 35% 35% Exempt from income tax due to loss (35%) (35%) --------- --------- Tax expense at actual rate -- -- --------- --------- United States of America As of June 30, 2009, the Company in the United States had approximately $698,862 in net operating loss carry forwards available to offset future taxable income. Federal net operating losses can generally be carried forward 20 years. The deferred tax assets for the United States entities at June 30, 2009 consists mainly of net operating loss carry forwards and were fully reserved as the management believes it is more likely than not that these assets will not be realized in the future. The following table sets forth the significant components of the net deferred tax assets for operation in the US as of June 30, 2009 and June 30, 2008. June 30, 2009 June 30, 2008 ------------- ------------- Net operating loss carry forward $ 698,462 $ 650,401 Total deferred tax assets 279,385 221,136 Less: Valuation allowance (279,385) (221,136) --------- --------- Net deferred tax assets $ -- $ -- ========= ========= Pakistan Averox Pakistan is governed by the Income Tax Laws of Pakistan. Pursuant to the Central Board of Revenue Government of Pakistan, Averox Pakistan is subject to a tax rate of 35%. Income taxes are recognized for the amount of taxes payable for the current year and for the impact of deferred tax liabilities and assets, which represent future tax consequences of events that have been recognized differently in the financial statements than for tax purposes. The following table sets forth the significant components of the net deferred tax assets for operation in Pakistan as of June 30, 2009 and June 30, 2008. F-13 June 30, 2009 June 30, 2008 ----------- ----------- Leasehold improvement $ 475,351 $ 583,414 Total deferred tax assets 166,373 204,195 Less: valuation allowance (166,373) (204,195) ----------- ----------- Net deferred tax assets $ -- $ -- =========== =========== Aggregate net deferred tax assets The following table sets forth the significant components of the aggregate net deferred tax assets of the Company as of June 30, 2009 and June 30, 2008: June 30, 2009 June 30, 2008 ----------- ----------- Aggregate Deferred tax asset- US $ 279,385 $ 221,136 Deferred tax asset- Pakistan 166,373 204,195 ----------- ----------- Total deferred tax assets 445,758 425,331 Less: valuation allowance (445,758) (425,331) ----------- ----------- Net deferred tax asset $ -- $ -- =========== =========== Note F- OTHER COMPREHENSIVE INCOME Balances of related after-tax components comprising accumulated other comprehensive income (loss), included in stockholders' equity, at June 30, 2009 are as follows: Accumulated Other Comprehensive loss ------------------ Balance at June 30, 2007 $ 167,872 Change for the year 2008 (86,364) ------------ Balance at June 30, 2008 81,508 Change July 1, 2008 to June 30, 2009 (37,418) ------------ Balance at June 30, 2009 $ 44,090 ============ Note G - COMMITTMENTS The Company leases various office facilities in Pakistan under operating leases that terminate on various dates. Rental expense for these leases consisted of $26,201 for the twelve month period ended June 30, 2009. The Company has future minimum lease obligations as follows: F-14 June 30, 2010 $ 21,415 2011 22,575 2012 $ -- ------------ Total $ 43,991 ============ Note H - MAJOR CUSTOMERS AND VENDORS For the year ended June 30, 2009 we had three customers which accounted for 10%, 24% and 56% of our sales. There is approximately $552,099 receivable from these customers as of June 30, 2009. For the year ended June 30, 2008 we have three customers which account for approximately 79% of our sales. There is approximately $234,806 receivable from these customers as of June 30, 2008. For the year ended June 30, 2009 we had four major vendors which accounted for approximately 12%, 12%, 18% and 54% of our purchases. As of June 30, 2009, we have $4,907 payable to these vendors. For the year ended June 30, 2008 we have 5 major vendors which account for approximately 32% of our purchases. None of these vendor, however, account for more than 10% of our purchases of the year. As of June 30, 2008, we have approximately $39,666 in payable to these vendors. Note I - CURRENT VULNERABILITY DUE TO RISK FACTORS Our operations are carried out in Pakistan. Accordingly, our business, financial condition and results of operations may be influenced by the political, economic and legal environments, by the general state of the economy. Our business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things. Note J - SUBSCRIPTION RECEIVABLE On November 13, 2006, Averox entered into the Stock Purchase Agreement pursuant to which HALO Investments Ltd. (the "Investor") purchased an aggregate of 380,000 shares of common stock (the "Share Sale") for aggregate gross proceeds of $2,650,000, of which $150,000 was to be paid on November 13, 2006 and the balance was to be paid in installments and was evidenced by two notes, one interest bearing and one non-interest bearing note. The interest bearing note in the aggregate principal amount of $1,850,000, bears interest at the rate of prime plus 2.5%, has a maturity of November 13, 2007 and principal installments were payable as follows: $250,000 together with interest payable on January 13, 2007; $250,000 together with interest payable on March 13, 2007; $350,000 together with interest payable on May 13, 2007; $500,000 together with interest payable on July 13, 2007; and the $500,000 balance together with interest payable on November 12, 2007. The non-interest bearing note in the aggregate principal amount of $650,000 was payable over 24 months at Averox's request provided certain conditions are met. Pursuant to the Stock Purchase Agreement, Averox has granted the Investor a right of first refusal on financings Averox may do in the future. On October 25, 2007, the Company and HALO Investments Ltd. (the"Investor") amended and restated the promissory note for $1,850,000. The new payment plan required that the sum of $65,000 together with interest shall be paid on or before the first date of each month beginning with the month of November, 2007 up to and including the month of August, 2008 and the remaining principal balance of this note with interest shall be paid on or before September 1, 2008. As of June 30, 2009, all subscription receivables have been received. F-15 Note K - ACQUISITION On August 5, 2008, Averox Pvt. Ltd ("Averox"), a subsidiary of Averox Inc., (the "Company"), entered into a purchase agreement (the "Purchase Agreement") with Provisus Ltd, a limited liability company organized and existing under the laws of the United Kingdom ("Provisus"). Provisus is owned by Salman Mahmood, Averox's controlling shareholder. Pursuant to the terms of the Purchase Agreement, Averox acquired all tangible and intangible assets of Provisus, including, but not limited to: (i) Provisus software, service activation and provisioning, (ii) Provisus's trademark, website and marketing materials, and (iii) intellectual proprietary rights, source code of core module and all developed modules as of August 5, 2008. In exchange for the Provisus Assets, Provisus acquired Averox's contingent claims for commissions due from four companies. The aggregate amount of the contingent claims cannot be determined at this time as no information regarding commissions has been received. If Provisus collects more than $500,000 from the disputed accounts, Provisus will pay seventy-five percent (75%) of such excess to Averox after deducting its legal costs. In addition to the transfer of the claims, under the terms of the Purchase Agreement, Averox will pay Provisus (i) in perpetuity a royalty equal to twenty percent (20%) of all revenue generated from the sale of Provisus software and services in excess of $5 million dollars in revenues in the aggregate, and (ii) either (x) $1 million dollars in cash on the first anniversary of the date of the Purchase Agreement or (y) shares of the Company's common stock if no cash is available after one year valued at $5 million based upon the then current market price of Averox's shares. A summary of the assets acquired in the acquisition is as follows: Value of the net assets acquired from Provisus $ 1,000,000 Consideration 1,000,000 -------------------------------------------------------------------------------- Excess of consideration over the net assets $ Nil The operations of Provisus were insignificant during the period and hence, no proforma has been presented. Note L - STOCK SPLIT On October 25, 2008, Averox Inc. (the "Company") effected a 10-for-1 stock split of the Company's common stock for shareholders of record as of October 27, 2008. The split was effected through an amendment to Averox's articles of incorporation in which each outstanding share of common stock would be converted into ten outstanding shares of Averox Common Stock. All financials presented have been retroactively restated to reflect the 10-for 1 stock split. Note M - RELATED PARTY On August 5, 2008, Averox Pvt. Ltd ("Averox"), a subsidiary of Averox Inc., (the "Company"), entered into a purchase agreement (the "Purchase Agreement") with Provisus Ltd, a limited liability company organized and existing under the laws of the United Kingdom ("Provisus"). Provisus is owned by Salman Mahmood, Averox's controlling shareholder. The Company recorded an intangible asset of $1,000,000 and a payable to related party of equal amount. F-16 Note N - SUBSEQUENT EVENTS On July 1, 2009 the Company issued stock awards to thirty one (31) employees amounting to 48,675 shares of the company stock in recognition of services rendered during the last 2 years. In order to receive the stock award the employees must remain employed until July 1, 2010 at which time the shares will be issued to them. If an employee leaves prior to this date they will forfeit 100% of the stock award. In accordance with SFAS No. 123(R) the Company accrued a liability as of June 30, 2009 in its financial statements to account for this additional compensation. The Company recorded the fair value of the stock as of July 1, 2009, $3,407, as "stock to be issued". F-17

AVEROX INC. 10-K