UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) November 13, 2006
Averox Inc.
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(Exact name of registrant as specified in its charter)
Nevada 000-28867 88-0407936
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(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
Suite No. 7, Ground Floor, Evacuee Trust Complex, Agha Khan Rd.,
F 5/1 Islamabad, Pakistan
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code +92-51-2875737
Flickering Star Financial Inc.
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(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
|_| Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13a-4(c))
ITEM 1.01. ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
On November 13, 2006, Averox Inc., formerly Flickering Star Financial Inc.
("Averox"), consummated the transactions contemplated by the Exchange Agreement,
dated October 30, 2006, by and among Averox, certain shareholders of Averox,
Pearl Consulting FZ-LLC, a free zone limited liability company organized under
the laws of Dubai, UAE ("Pearl Dubai") and Salman Mahmood ("Mahmood")(the
"Exchange Agreement"). Accordingly Averox acquired all of the issued and
outstanding shares of stock of Pearl Dubai, in exchange for the issuance in the
aggregate of 6,500,000 shares of common stock of Averox, which shares represent
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, Pearl Dubai became a wholly-owned subsidiary of
Averox.
In connection with the Exchange Agreement, Averox entered into a Stock
Purchase Agreement dated November 13, 2006 by and between the Company and HALO
Investments Ltd. (the "Stock Purchase Agreement") A summary of the transactions
contemplated by the Stock Purchase Agreement is more particularly described in
Item 3.02 herein and is incorporated by reference into this Item 1.01.
The description of the transactions contemplated by the Exchange Agreement
and the Stock Purchase Agreement set forth herein does not purport to be
complete and is qualified in its entirety by reference to the full text of each
of the exhibits filed herewith and incorporated by this reference.
ITEM 2.01. COMPLETION OF AN ACQUISITION OR DISPOSITION OF ASSETS.
On November 13, 2006, Averox acquired all of the outstanding shares of
capital stock of Pearl Dubai from Mahmood, the sole shareholder of Pearl Dubai,
in accordance with the terms of the Exchange Agreement. Pursuant to the Exchange
Agreement, in exchange for all 250 issued and outstanding shares of the capital
stock of Pearl Dubai, Averox issued to Mahmood 6,500,000 shares of Averox's
common stock, which shares represent 65% of the issued and outstanding capital
stock of Averox.
See Item 5.01 for additional information required to be reported by Averox
as a shell company (as defined in Rule 12b-2 under the Securities Exchange Act
of 1934, as amended).
ITEM 3.02. UNREGISTERED SALES OF EQUITY SECURITIES.
On November 13, 2006, pursuant to the terms of the Exchange Agreement
described in Items 1.01, 2.01 and 5.01, Averox issued 6,500,000 shares of its
common stock to Mahmood in exchange for all of the issued and outstanding
capital stock of Pearl Dubai. In addition, 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 paid on
November 13, 2006 and the balance is to be paid in installments which are
evidenced by an interest bearing note (the "Interest Note") and a non-interest
bearing note (the "No-Interest Note" and together with the Interest Note, the
"Notes"). The Interest Note in the aggregate principal amount of $1,850,000,
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bears interest at the rate of prime plus 2.5%, has a maturity of November 13,
2007 days and principal installments are payable as follows: $250,000 together
with interest is payable on January 13, 2007; $250,000 together with interest is
payable on March 13, 2007; $350,000 together with interest is payable on May 13,
2007; $500,000 together with interest is payable on July 13, 2007; and the
$500,000 balance together with interest is payable on November 12, 2007. The
No-Interest Note in the aggregate principal amount of $650,000 is payable over
24 months at Averox's request provided certain conditions are met. Pursuant to
the Stock Purchase Agreement, Averox has granted the Investor a right of first
refusal on financings Averox may do in the future.
The shares of common stock issued under the Exchange Agreement and the
Stock Purchase Agreement were not registered under the Securities Act of 1933
(the "Securities Act"), and bear restrictive legends that reflect this status.
The securities were issued in a private placement in reliance on the exemption
from registration provided by Section 4(2) of the Securities Act, and/or
Regulation S promulgated under the Securities Act. Averox did not engage in any
general solicitation or advertisement for the issuance of these securities. In
connection with this issuance, each person represented that (i) such person is
an accredited investor as this term is defined in Regulation D under the
Securities Act, (ii) such person is not a US Person within the meaning of
Regulation S, (iii) the securities such person is acquiring cannot be resold
except pursuant to a effective registration under the Securities Act or in
reliance on an exemption from the registration requirements of the Securities
Act, and that the certificates representing such securities bear a restrictive
legend to that effect and/or (iv) such person intends to acquire the securities
for investment only and not with a view to the resale thereof.
The foregoing descriptions of the Stock Purchase Agreement and Notes are
merely summaries, and are not intended to be complete. The Stock Purchase
Agreement is filed as Exhibit 2.1 and the Notes are filed as Exhibits 2.1 and
2.2 to this Form 8-K, and the full text of each such exhibit is incorporated
herein by reference.
ITEM 4.01 - CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT.
(a) On November 13, 2006, Averox ended the engagement of Kyle L. Tingle,
CPA, LLC ("Tingle") as its independent certified public accountants effective as
of November 10, 2006. The decision was approved by the Board of Directors of
Averox.
The report of Tingle on Averox's financial statements for the fiscal years
ended December 31, 2005 and 2004 did not contain an adverse opinion or
disclaimer of opinion. During Averox fiscal years ended December 31, 2005 and
2004 and the subsequent interim period preceding the termination, there were no
disagreements with Tingle on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Tingle, would have caused
Tingle to make reference to the subject matter of the disagreements in
connection with its report on the financial statements for such years or
subsequent interim periods.
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Averox requested that Tingle furnish it with a letter addressed to Averox
confirming its dismissal and whether or not it agrees with Averox's financial
statements. A copy of the letter furnished by Tingle in response to that
request will be filed by amendment to this form 8-K.
(b) On November 13, 2006, Kabani & Company, Inc. ("Kabani") was engaged as
Averox's new independent certified accountants. During the two most recent
fiscal years and the interim period preceding the engagement of Kabani, Averox
has not consulted with Kabani regarding either: (i) the application of
accounting principles to a specified transaction, either completed or proposed,
or the type of audit opinion that might be rendered on Averox's financial
statements; or (ii) any matter that was either the subject of a disagreement or
event identified in paragraph (a)(1)(iv) of Item 304 of Regulation S-B.
Item 5.01 - Changes In Control of the Registrant
On November 13, 2006 (the "Closing Date"), Averox consummated the
transactions contemplated by the Exchange Agreement, pursuant to which Averox
acquired all of the issued and outstanding shares of stock of Pearl Dubai in
exchange for the issuance in the aggregate of 6,500,000 shares of Averox's
Common Stock. Following the Closing Date, Pearl Dubai became a wholly-owned
subsidiary of Averox and, upon the issuance of the shares pursuant to the
Exchange Agreement, Mahmood became the owner of 65% of Averox's issued and
outstanding stock. After giving effect to the transactions contemplated by the
Stock Purchase Agreement, Averox currently has a total of 10,000,000 issued and
outstanding shares of Common Stock.
Other than the transactions and agreements disclosed in this Form 8-K,
Averox knows of no arrangements which may result in a change in control of
Averox.
No officer, director, promoter, or affiliate of Averox has, or proposes to
have, any direct or indirect material interest in any asset proposed to be
acquired by Averox through security holdings, contracts, options, or otherwise.
The following is a description of Averox's business.
Overview
Averox was incorporated under the name Flickering Star Financial Inc. on
November 25, 1996 under the laws of the State of Nevada. From January 1, 1997
through March 31, 1997, Flickering Star Financial Inc. was in its development
stage. It originally intended to act as a finder of individuals who would serve
as an additional guarantor of motion picture completion guaranty contracts. As
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 Financial become dormant. On November 6, 2006,
in anticipation of the acquisition of Pearl Dubai, the name Flickering Star
Financial Inc. was changed to Averox Inc.
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As a result of the consummation of the transactions contemplated by the
Exchange Agreement, on November 13, 2006, Averox acquired all of the outstanding
shares of capital stock of Pearl Dubai which, together with its subsidiary,
Pearl Consulting (Private) Limited, a private limited company organized under
the laws of Pakistan ("Pearl Pakistan") which Pearl Dubai acquired from Mahmood
and his spouse on August 31, 2006, provides telecommunication, information
technology, or IT, and other professional services in South East Asia, the
Middle East and Eastern Europe. In this discussion of Averox's current business,
unless the context otherwise requires, references to Averox, "we", "us" or "our"
include Pearl Dubai and its direct and indirect subsidiaries, and references to
Pearl Dubai's business or the business of Pearl Dubai mean the combined
businesses of Pearl Dubai and Pearl Pakistan. Each of Pearl Dubai and Pearl
Pakistan are in the process of changing their corporate name to Averox.
We are an independent provider of software solutions, engineering and
telecommunications network deployment services, systems integration 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.
The principal 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
installation of telecommunications equipment.
Our information technology professionals 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 for our telecommunications services business
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. Additionally, we have built and operate proprietary portals that
address needs in the recruitment, real estate and trading industries. From time
to time, we also provide outsourced consulting services.
Telecommunication Services and Solutions
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
alternatives and implementing telecommunication solutions. Our consultants
design, develop, deploy, integrate test, optimize and manage client's telecom
projects, providing operational support, customer care, systems integration and
installation of value-added service platforms.
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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, L 3 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.
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.
The Pearl Advantage
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.
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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 solely 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 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.
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.
Information Technology Services
As an integral part of our telecommunications network services and
solutions, we provide operations and business software solutions 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. Ongoing support is also provided for these
systems.
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Our ability to provide operations and business solutions differentiate 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 vendor's
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
or product functionality upon which we could improve. In response, we developed
proprietary products to meet this need, including specific solutions which
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 that 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:
CRM On-Demand. It has been our experience that many customer relationship
management products fail to meet customer needs and require extensive,
time-consuming customization. CRM On-Demand is a web-based product offering a
complete business solution for sales and marketing automation. CRM 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.
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.
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.
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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. These sites have accumulated an aggregate of approximately
1.8 million hits per month and consist of the following:
Human Resources. FinalJob.com, which has been operating in Pakistan for
the past 3 years, is an online recruitment agency, matching talent with
opportunity. FinalJob is not just an online job posting site, but also a human
resource center. Pearl Dubai's counsellors and human resource professionals
match employers and prospective employees using proprietary filtering
technology. The objective of this site is to help candidates find jobs free of
charge and to help employers and recruiters in hiring qualified people at a low
cost. FinalJob's industries filter sequence seeks to pinpoint the right
candidate for the job, satisfying the needs of both the applicant and employer.
We are currently expanding FinalJob into other countries and may license the
concept to third parties.
Product Marketing. Tradebuying.com is a web portal for the sale and
purchase of goods and services by a diversified community of individuals,
entrepreneurs and businesses from all over the world. This international
marketplace is designed to help small and mid-sized companies do business on a
universal platform. Tradebuying.com is designed to allow the small and mid-sized
business to expand the market for its products without having to have a physical
presence outside of its domestic market.
Product procurement and sale. IndentPoint.com is an online trading web
portal. At IndentPoint.com buyers and sellers are provided with an environment
for conducting their business activities. For buyers, Indentpoint.com provides a
facility to search for, compare, evaluate and finally buy products remotely. For
sellers, Indentpoint.com provides a platform for promoting products to a large
consumer base over the Web.
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.
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ISO Qualification
In 2005, 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.
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 and Azure Solutions. For these customers,
we have acted as a primary vendor and as a subcontractor.
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 business partners
such as Lucent Technologies, Intec Telecom Systems, Argent Networks,
Oscilloquartz and Argela Technologies, 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 2006
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.
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We expend amounts on research and development, particularly for new
products and/or for enhancements of existing products. For the years ended June
30, 2004 and 2005, 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 quicker 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.
The market for our proprietary solutions is subject to rapid technological
change and changing industry standards. We face continuous 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 our customers' 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 trade secret laws and confidentiality provisions in our agreements to prevent
the unauthorized disclosure and use of our intellectual property.
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Employees
As of August 1, 2006, we had 75 full-time employees, of which 12 were
management, 45 were in IT and telecom, 10 were in sales and marketing and 8 were
in administration and finance. All of our employees are based in Pakistan. From
time to time we also engage independent contractors except one to assist in our
activities. None of our employees are unionized. We have never experienced a
work stoppage as a result of labour issues, and we believe that our employee
relations are satisfactory.
Description of Property
Pearl Pakistan maintains its executive offices at a government subsidized
technology park at Suite 7, Ground Floor, Evacuee Trust Complex, F-5/1, Agha
Khan Road, Islamabad, Pakistan where we occupy 4,600 square feet and pay
approximately $3,000 per month.
Pearl Dubai has established an office in Dubai, UAE at Suite 1101, 11th
Floor, Thuraya 2, Dubai Internet City where it occupies 1,800 square feet for
$6,250 per month.
We consider our current office space adequate for our current operations.
Legal Proceedings
We are not involved in any legal proceedings which may have a significant
effect 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 effect on its business, financial position, results of
operations or liquidity.
Market for Common Equity and Related Stockholder Matters
Market Information
Our common stock is listed on the OTCBB under the symbol FLSF.
However, during the last two fiscal years, there has been no established trading
market for our common stock.
Holders
As of November 8, 2006, there were 26 holders of record of our common
stock.
Dividends
Averox has not paid any dividends on its common stock to date, although
prior to the consummation of the transactions contemplated by the Exchange
Agreement Pearl Dubai and Pearl Pakistan paid dividends to its shareholders.
Averox does not intend to pay dividends on its 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.
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Plan of Operation
The following presentation of the plan of operation for Pearl Dubai and
Pearl Pakistan has been prepared by their internal management and should be read
in conjunction with the June 30, 2006 and 2005 financial statements and notes
included in this report. Some of the statements below discuss "forward-looking"
information. Those statements include statements regarding the intent, belief or
current expectations of Averox and its management team. Investors are cautioned
that any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties. These risks and uncertainties
include but are not limited to, those risks and uncertainties discussed under
the heading "Risk Factors" in this Item 5.01. 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.
Pearl Dubai
Plan of Operation
Pearl Dubai is a recently formed Dubai, UAE limited liability company which to
date has had no operating history. Pearl Dubai is dependent upon its sole
shareholder to meet any de minimis costs that it may incur without interest.
Since Pearl Dubai has no operating history nor any revenues or earnings from
operations, with no significant assets or financial resources, Pearl Dubai will
in all likelihood continue to sustain operating expenses without corresponding
revenues, at least until the consummation of a business combination. This may
result in Pearl Dubai incurring a net operating loss which will increase
continuously until Pearl Dubai can consummate a business combination with a
profitable business opportunity and consummate such a business combination.
Financial Condition
Pearl Dubai's going concern opinion and the notation in the financial statements
indicates that it did not have significant cash and that it is relying on loans
from related party to meet limited operating expenses. Pearl Dubai does not have
sufficient cash or other material assets nor does it have sufficient operations
or an established source of revenue to cover operational costs that would allow
it continue as a going concern.
Pearl Dubai is unable to predict its future income; accordingly, it does not
know when its operating expenses and operating losses will cease.
Results of Operations
As discussed above, Pearl Dubai had no revenues or significant operations. Pearl
Dubai's expenses to date equate to its total retained deficit of $2,284.
Expenses were for general office expenses and bank fees.
- 13 -
Liquidity
Operations and liquidity needs are funded primarily through loans from related
party and sales of Pearl Dubai's stock. Cash and cash equivalents were $80 and
$290,905 at June 30, 2006 and 2005, respectively, and current assets totaled
$1,770,459 and $1,273,351 at June 30, 2006 and 2005, respectively. Pearl Dubai's
total current liabilities were $1,704,753 and $1,205,561 at June 30, 2006 and
2005, respectively. Working capital at June 30, 2006 and 2005 was $65,786 and
$67,790, respectively. During the year ended June 30, 2006 and 2005, net cash
(used in) operating activities was $(1,997) and $(285), respectively.
Pearl Dubai had no revenues from inception through June 30, 2006. Pearl Dubai
has a loss from inception through June 30, 2006 of $2,284.
Pearl Dubai has loans from a related party of $1,704,753 from inception to June
30, 2006.
Pearl Pakistan
Pearl Consulting (Private) Limited ("Pearl Pakistan") is a private limited
company organized under the laws of Pakistan on March 19, 2003. The principal
services Pearl Pakistan provides include the design, deployment, integration,
and the overall management of telecommunications networks for both large and
small companies.
Results of Operations
The following table presents the statement of operations for the year ended June
30, 2006 as compared to the comparable period of the year ended June 30, 2005.
The discussion following the table is based on these results.
- 14 -
2006 2005
----------- -----------
Net Revenue 1,626,865 5,627,345
Cost of revenue 576,954 1,047,618
----------- -----------
Gross profit 1,049,911 4,579,727
General and administrative expenses 888,539 841,998
----------- -----------
Loss from operations 161,372 3,737,729
----------- -----------
Other (Income) Expense
Interest expense 9,051 5,672
Other expense 5,329 3,416
Other income (2,579) (3,629)
----------- -----------
Total Other (Income) Expense 11,801 5,459
----------- -----------
Income before income taxes 149,571 3,732,270
Provision for income taxes 66,157 (410,065)
----------- -----------
Net income (loss) $ (83,416) $ 4,142,335
=========== ===========
Net revenue
Net revenue for the year ended June 30, 2006 totaled $1,626,865 compared to
$5,627,345 for the year ended June 30, 2005, a decrease of $4,000,480, or 71%.
During the fiscal year ended June 30, 2005 Pearl Pakistan had special projects
from one of its clients that amounted to approximately $4,500,000.
Cost of Sales
Cost of sales for the year ended June 30, 2006 totaled $576,954, or
approximately 35.5% of net revenue, compared to $1,047,618, or approximately
18.62% of net revenue, for the year ended June 30, 2005. The decrease in cost of
revenue in dollars was due to the same factors as Pearl Pakistan's decrease in
revenue. The increase in cost of revenue as a percentage of revenue is related
to the special project that Pearl Pakistan completed in 2005 which had lower
then usual costs associated with it.
- 15 -
Operating Expense
General and administrative expenses for the year ended June 30, 2006 totaled
$888,539, or approximately 54.62% of net revenue, compared $841,998, or 14.96%
of net revenue, for the year ended June 30, 2005. The increase in operating
expense of $46,541, or approximately 5.53%, was due to normal increase in costs
of doing business. The increase in the percentage of operating expenses as
compared to net revenue is related to the projects in 2005 as described in net
revenue above.
Income from Operations
Income from operations for the year ended June 30, 2006 was $161,372, or 9.91%
of revenue, as compared to income from operations of $3,737,729, or 63.55% of
revenue, for the year ended June 30, 2005, a decrease of $3,576,357. The
decrease of $3,576,357 and of 53.64% are both directly related to the project
that Pearl Pakistan had in 2005 as described in net revenue above.
Net Income (loss)
Pearl Pakistan's net income was $83,416 for the year ended June 30, 2006
compared to $4,142,335 for the same period in 2005, a decrease of $4,058,919.
The decrease in income was due to the reasons set forth above for operating
expenses and loss from operations.
Liquidity and Capital Resources
Pearl Pakistan's operations and liquidity needs are funded primarily through
cash flows from operations. Cash and cash equivalents were $50,750 and $27,356
at June 30, 2006 and 2005, respectively, and current assets totaled $3,637,078
and $3,280,955 at June 30, 2006 and 2005, respectively. Pearl Pakistan's total
current liabilities were $381,778 and $69,919 at June 30, 2006 and 2005,
respectively. Working capital at June 30, 2006 and 2005 was $3,255,300 and
$3,211,036, respectively. During the year ended June 30, 2006 and 2005, net cash
provided by operating activities was $(275,200) and $3,600,647, respectively.
Capital expenditures
Total capital expenditures during the year ended June 30, 2006 and 2005 were
$4,040 and $62,363, respectively.
Working Capital Requirements
Historically operations and short term financing have been sufficient to meet
Pearl Pakistan's cash needs. Pearl Pakistan believes that it will be able to
generate revenues from sales. However, Pearl Pakistan's actual working capital
needs for the long and short term will depend upon numerous factors, including
operating results, competition, and the availability of credit facilities, none
of which can be predicted with certainty. Future expansion will be limited by
the availability of financing products and raising capital.
- 16 -
Off-Balance Sheet Arrangements
None of Averox, Pearl Dubai nor Pearl Pakistan have entered into any off-balance
sheet financing arrangements and have never established any special purpose
entities, nor have they guaranteed any debt or commitments of other entities or
entered into any options on non-financial assets.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
None.
- 17 -
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.
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 acceptance of rapidly changing enhanced telecommunications capabilities. If
telecommunications service providers perceive that the rate of acceptance of
next generation telecommunications products will grow more slowly than
previously expected, they may, as a result, slow their development of next
generation technologies. Moreover, increasing price competition for subscribers
could adversely affect the profitability of carriers and limit their resources
for network deployment. Any significant sustained slowdown will further reduce
the demand for our services and adversely affect our financial results.
Our network services business depends on telecommunications carriers, network
equipment vendors and other prospective customers outsourcing their
telecommunications services
The success of our network engineering business depends upon the continued
trend by telecommunications carriers and network equipment vendors to outsource
their network design, deployment and management needs. If this trend does not
continue and telecommunications carriers and network equipment vendors elect to
perform more network deployment services themselves, our operating results and
revenues may decline.
Failure to properly manage network services projects may result in costs or
claims
Our engagements often involve large scale, highly complex projects. The
quality of our performance on such projects depends in large part upon our
ability to manage the relationship with our customers, and to effectively manage
the project and deploy appropriate resources, including third-party contractors,
and our own personnel, in a timely manner. Any defects or errors or failure to
- 18 -
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 will
incur, which could exceed revenues realized from a 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.
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
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
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
- 19 -
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.
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
- 20 -
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; and
o regulatory changes; and 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
- 21 -
Our agreements with our customers typically contain provisions designed to
limit our exposure to potential liability for damages arising out of the use of
or defects in our products. These limitations, however, tend to vary from
customer to customer and it is possible that these limitations of liability
provisions may not be effective. We currently do not maintain errors and
omissions insurance, which, subject to customary exclusions, would cover claims
resulting from the failure of our software products or services to perform the
function or to serve the purpose intended. As a result, we would be required to
pay the full amount of any claim. Further, defending such a suit, regardless of
its merits, could be expensive and require the time and attention of key
management personnel, either of which could materially harm our business,
financial condition and results of operations. In addition, our business
reputation could be harmed by product liability claims, regardless of their
merit or the eventual outcome of these claims.
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.
- 22 -
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 continually 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
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 proprietary 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,
- 23 -
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 proprietary 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 do not protect proprietary rights to the same extent
as laws in the United States. Therefore, our efforts to protect our intellectual
property may not be adequate. Our competitors may independently develop similar
technology or duplicate our products or services. Unauthorized parties may
infringe upon or misappropriate our products, services or proprietary
information.
In the event that we are infringing upon the proprietary rights of others or
violating licenses, we may become subject to infringement claims that may
prevent us from selling certain products and we may incur significant expenses
in resolving these claims
It is also possible that our business activities may infringe upon the
proprietary rights of others, or that other parties may assert infringement
claims against us. If we become liable to any third party for infringing its
intellectual property rights, we could be required to pay substantial damage
awards and develop non-infringing technology, obtain licenses, or cease selling
the applications that contain the infringing intellectual property. Litigation
is subject to inherent uncertainties, and any outcome unfavorable to us could
materially harm our business. Furthermore, we could incur substantial costs in
defending against any intellectual property litigation, and these costs could
increase significantly if any dispute were to go to trial. Our defense of any
litigation, regardless of the merits of the complaint, likely would be
time-consuming, costly, and a distraction to our management personnel. Adverse
publicity related to any intellectual property litigation also could harm the
sale of our products and services, and damage our competitive position.
We have never paid cash dividends and do not anticipate paying cash dividends on
our common stock in the foreseeable future
Averox has 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
- 24 -
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.
- 25 -
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, 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
- 26 -
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.
International uncertainties could harm our profitability
We currently have international operations and we expect these operations
to grow in other parts of Asia, the Middle East and Eastern Europe. For the year
ended June 30, 2006, international operations, accounted for approximately 10%
of our total revenues. 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
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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 no 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 not traded over at least the past two years and there is
no coverage of our company by analysts or market makers. This may or may not
affect the future performance of our shares. There can be no assurance that an
active trading market for our shares will develop or that, if developed, will be
sustained. In addition, the stock market in general has experienced extreme
volatility that often has been unrelated to the operating performance of any
company. These broad market and industry fluctuations may result in the decline
of the price of our shares, regardless of our operating performance.
The market price of our shares is expected to be volatile
If a market for our shares does develop, securities of OTC Bulletin Board
companies, and of technology companies in particular, are often volatile. Other
broad market and industry factors may decrease the trading price of our shares,
regardless of our operating performance. Market fluctuations, as well as general
political and economic conditions such as a recession or interest rate or
currency rate fluctuations, also may decrease the trading price of our shares.
In addition, our stock price could be subject to wide fluctuations in response
to many other factors, including:
o fluctuations in our financial results;
o our actions, and the actions of our customers and competitors, including
announcements of new products, product enhancements, technological
innovations or new services;
o other factors affecting the telecommunications and information technology
industries in general;
o the operating and stock price performance of other companies that
investors may deem comparable;
o news reports relating to trends in our markets;
o volume of trading of our shares on the OTC Bulletin Board or other
exchanges on which our shares may, in the future, be traded;
o conditions or trends in the telecommunications and information technology
industries;
o changes in the market valuations of other technology companies;
o announcements by us of significant acquisitions, strategic partnerships,
joint ventures or capital commitments;
o additions or departures of key personnel;
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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 November 13, 2006, we had 10
million shares of common stock outstanding. Although 6,880,000 of our shares
constitute restricted securities under the Securities Act, after a year, 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.
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Directors, Executive Officers, Promoters and Control Persons
Directors and Executive Officers
Our current directors and executive officers are as follows:
Name Age Position
---- --- --------
Salmon Mahmood 35 Director of Averox; President, Managing Director
of Pearl Dubai and Pearl Pakistan
Christopher Baker 59 Director of Averox; Regional Director, Pearl Dubai
Faisal Khalid Bashir 29 Director, Business Support of Pearl Dubai
Yasser Ahmad 29 Acting Chief Financial Officer
Faisal Mir 49 Project Director, Pearl Pakistan
Salman Mahmood is a director and President of Averox. Mr. Mahmood has been
Managing Director of Pearl Dubai since November 2004 and Pearl Pakistan since
March 2003. From August 2002 to the present, Mr. Mahmood has served as Director
of Pearl 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.
Christopher Baker is a director of Averox. Since August 2006, Mr. Baker
has served as Regional Director of Pearl Dubai. From March 2006 to May 2006, Mr.
Baker served as Services Manager at Nokia Networks in Jakarta, Indonesia. From
April 2005 to March 2006, Mr. Baker served as Vice President, Business
Development at Hayat Communications International, a Dubai, UAE based company
which offers services to existing and new license telecommunication markets.
From 2003 to April 2005, Mr. Baker served as Telecommunications Director of Alan
Dick Middle East, a Dubai, UAE based company, where he was responsible for the
development and implementation of the regional telecommunication business
strategy for the Middle East. From May 2003 to June 2003, Mr. Baker served as
General Manager of EXi Middle East, a Dubai based UAE company taken over by Alan
Dick Middle East. From August 2002 to May 2003, Mr. Baker served as Operations
Consultant to EXi Parsons LLC, a Dallas based U.S. based company. From 2001 to
2002, Mr. Baker served as General Manager, Western Europe for EXi GmbH, a
Dusseldorf based German company. From 1999 to 2001, Mr. Baker served as General
Manager, Central and Eastern Europe of EXi d.o.o., a Croatian based company.
From 1968 to 2001, Mr. Baker served in various capacities with STC (now Nortel
Networks) and Nortel Networks in the United Kingdom, South Africa and the
Philippines.
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Faisal Khalid Bashir has served as Director, Business Support of Pearl
Pakistan since January 2006. From April 2004 to January 2006, he served as
Manager of Business Support of Pearl Pakistan. From February 2004 until March
2004, Mr. Khalid served as a Key Account Executive of Pearl Pakistan. From April
2002 until February 2004, Mr. Khalid served as a business development executive
for Logitech, a satellite communications firm. From July 2000 to October 2001,
Mr. Khalid served as a sales executive for ABM Data Systems, a distributor of
computers and peripherals.
Yasser Ahmad is acting Chief Financial Officer of Averox. Since August
2006, Mr. Ahmad has served as Manager Finance of Pearl Pakistan. From September
2005 to August 2006 Mr. Ahmad served as the Finance & Commercial Officer at
Pearl 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.
Faisal Mir has served as a project manager of Pearl Pakistan since
September 2006. From September 2005 to September 2006 he served as project
manager for Palmet Metal Industries, a Istanbul based Turkish telecommunications
company. From April 2005 to September 2005, Mr. Mir served as rollout manager
for Palmet Metal Industries. From April 2002 to April 2005, he served as a
telecommunications engineer - GSM for Saudi Arabian Dames and Moore (USR), a
Riyadh based Saudi company. From April 1995 to May 2002, Mr. Mir was a senior
engineer BSS-GSM for Lucent Technologies International Inc., KSA.
Family Relationships
No family relationships exist among our directors and executive officers.
Our board of directors is elected annually.
Executive Compensation
The following table sets forth the cash compensation of Averox's executive
officers and directors during each of the last three fiscal years. The
remuneration described in the table does not include the cost to Averox of
benefits which may be furnished to the named executive officers, including
premiums for health insurance and other benefits provided to such individual
that are extended in connection with the conduct of Averox's business. The value
of such benefits cannot be precisely determined, but the executive officers
named below did not receive such other compensation in the years set forth
below.
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Summary Compensation Table
ANNUAL COMPENSATION LONG TERM COMPENSATION
Awards
Name and Other Annual Restricted SARs(#) Payouts All
Principal Position Year Salary Bonus Compensation Stock (4) Payouts ($) Options/LTIP Other
Salman Mahmood 2006 $ -- $ -- $ -- -- -- -- --
2005 $ -- $ -- $ -- -- -- -- --
2005 $ -- $ -- $ -- -- -- -- --
Christopher Baker 2006 --* -- -- -- -- -- --
2005 -- -- -- -- -- -- --
2004 -- -- -- -- -- -- --
Faisal Khalid Bashir 2006 $10,000 $ 0 $ 0 0 0 0 0
2005 $ 7,083 $ 833 $ 0 0 0 0 0
2004 $ 1,917 $ 0 $ 0 0 0 0 0
Yasser Ahmad 2006 $ 1,417 $ 0 -- -- -- -- --
2005 -- -- -- -- -- -- --
2004 -- -- -- -- -- -- --
* Mr. Baker commenced employment with Pearl Dubai in August 2006
Since our formation, we have not granted any stock options or stock
appreciation rights or any awards under long-term incentive plans.
Employment Agreement
Mr. Baker is a party to a Statement of Particulars of Employment with
Pearl Dubai and each of Messrs. Baker, Khalid, Ahmad and Mir. are parties to a
Statement of Particulars of Employment with Pearl Pakistan. Under the terms of
Mr. Baker's employment particulars, dated September 26, 2006, Mr. Baker is
employed at a salary of $5,000 per month, or $60,000 per annum. Mr. Baker is
entitled to paid holidays, sick days and 20 vacation days per year. Although Mr.
Baker's particulars of employment are not for a fixed term, he is required to
give Pearl Dubai 4 weeks notice of his intent to terminate his employment until
he has been employed for 2 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 Pearl Dubai
12 weeks' notice. Conversely, Pearl Dubai must give Mr. Baker 4 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 Mr. Baker has completed 10 years of continuous employment, after which
time he will be entitled to 12 weeks' notice. Under the terms of the particulars
of employment, Mr. Baker is required to maintain the confidentiality of
information he has received.
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The terms of the particulars of employment of Messrs. Khalid, Ahmad and
Mir dated February 24, 2004, December 6, 2005 and October 3, 2006, respectively,
they are employed at a salary of $334, $167 and $2,500 per month, respectively.
Each is entitled to paid holidays, sick days and 20 vacation days per year.
Although the particulars of employment are not for fixed terms, each is required
to give Pearl Pakistan 4 weeks notice of his intent to terminate his employment
until he has been employed for 2 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 Pearl
Pakistan 12 weeks' notice. Conversely, Pearl 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, each of Messrs. Khalid, Ahmad and
Mir is required to maintain the confidentiality of information he has received.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information regarding the beneficial
ownership of Averox's common stock as of November 13, 2006 by:
o each person known by Averox to be the beneficial owner of more than
5% of Averox's outstanding shares of common stock;
o each of Averox's officers and directors; and
o all of Averox's officers and directors as a group.
Unless otherwise indicated, Averox believes that all persons named in the
table have sole voting and investment power with respect to all shares of common
stock beneficially owned by them.
Amount and
Nature of
Beneficial Percent of
Name and Address of Beneficial Owner(1) Ownership Class
- --------------------------------------------------------------- ---------- ----------
Salman Mahmood 6,500,000 65.0%
All directors and executive officers as a group (4 individuals) 6,500,000 65.0%
(1) Unless otherwise indicated, the business address of each of the following is
Suite No. 7, Ground Floor, Evacuee Trust Complex, Agha Khan Rd., F 5/1
Islamabad, Pakistan.
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Certain Relationships and Related Transactions
On September 15, 2006, Pearl Dubai and Pearl Pakistan declared dividends
payable to Mr. Mahmood in the aggregate amount of $3,022,833.
Mahmood has received loans from Pearl Pakistan from time to time. As of
June 30, 2006 and June 30, 2005 the loan balances were $1,218,779 and
$1,585,155, respectively. Mahmood has also received loans from Pearl Dubai from
time to time. As of June 30, 2006, the loan balances were $1,770,459 and
$982,447, respectively. The loans are being repaid from the dividends declared
on September 15, 2006.
Mahmood has made loans to Pearl Dubai from time to time. The loans are
non-interest being and payable on demand. As of June 30, 2006, the loan amounts
were $1,770,459 and $982,447, respectively.
ITEM 5.02. DEPARTURE OF DIRECTORS OR PRINCIPAL OFFICERS; ELECTION OF DIRECTORS;
APPOINTMENT OF PRINCIPAL OFFICERS.
On November 13, 2006, Salman Mahmood and Christopher Baker were elected to
Averox's Board of Directors by the existing members of Averox's Board of
Directors, and Ginger B. Quealy, Gerald W. Quealy and Gerald Edward Russo
resigned from Averox's Board of Directors. Additional information with respect
to Salman Mahmood and Mr. Baker has been previously reported in Averox's
Schedule 14A which was filed with the SEC on October 31, 2006, and is also set
forth in Item 5.01 above.
ITEM 5.06. CHANGE IN SHELL COMPANY STATUS.
As described in Item 2.01, on November 13, 2006, Averox completed the
acquisition of Pearl Dubai. As a result of this transaction, Averox is no longer
a shell company as defined in Rule 12b-2 of the Securities Exchange Act of 1934,
as amended.
ITEM 8.01. OTHER EVENTS.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
(a) The financial statements required to be filed pursuant to Instruction
C.3 of Form 8-K and Item 310(c) of Regulation S-B, which are attached hereto as
Exhibit 99.1 and 99.2.
(b) The unaudited pro forma condensed consolidated balance sheet dated
June 30, 2006 and the unaudited pro forma condensed consolidated statement of
operations for the twelve months ended June 30, 2006 are attached hereto as
Exhibit 99.3.
(d) Exhibits
2.1 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
10.1 Form of $1,850,000 Promissory Note
10.2 Form of $650,000 Promissory Note
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10.3 Form of Particulars of Employment dated September 26, 2006 between
Pearl Dubai and Christopher Baker.
10.4 Form of Particulars of Employment dated February 24, 2006 between
Pearl Pakistan and Faisal Khalid Bashir.
10.5 Form of Particulars of Employment dated December 6, 2005 between
Pearl Pakistan and Yasser Ahmad.
10.6 Form of Particulars of Employment dated October 3, 2006 between
Pearl Pakistan and Faisal Mir.
10.7 Warrent to Purchase Common Stock of Averox Inc. dated as of
November 13, 2006 by and between Averox Inc. and Salman Mahmood.
99.1 Pearl Dubai audited balance sheet dated June 30, 2006 and 2005 and
audited statements of operations, stockholders' equity and cash
flows for the twelve months then ended.
99.2 Pearl Pakistan audited balance sheet dated June 30, 2006 and 2005
and audited statements of operations, stockholders' equity and cash
flows for the twelve months then ended.
99.3 Unaudited pro forma condensed consolidated balance sheet dated June
30, 2006 and the unaudited pro forma condensed consolidated
statement of operations for the twelve months ended June 30, 2006.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
AVEROX INC.
Date: November 13, 2006 By: /s/ Salman Mahmood
--------------------------------------
Name: Salman Mahmood
Title: Chairman of the Board and Chief
Executive Officer,
(Principal Executive Officer)
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