PEARL CONSULTING (PRIVATE) LTD.
FINANCIAL STATEMENTS
JUNE 30, 2006 and 2005
TABLE OF CONTENTS
Report of Independent Registered Public Accounting Firm 1
Balance Sheets 2
Statements of Operations 3
Statements of Cash Flow 4
Statements of Changes in Stockholder's Equity 5
Notes to Financial Statements 6
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders of
Pearl Consulting (Private) Limited.
We have audited the accompanying balance sheets of Pearl Consulting (Private)
Limited as of June 30, 2006 and 2005, and the related statements of operations,
stockholder's equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pearl Consulting (Private)
Limited as of June 30, 2006 and 2005, and the related statements of operations,
stockholder's equity, and cash flows for the years ended June 30, 2006 and 2005,
in conformity with U.S. generally accepted accounting principles.
/s/ Kabani & Company, Inc.
Certified Public Accountants
Los Angeles, California
September 30, 2006
1
PEARL CONSULTING (PRIVATE) LTD.
BALANCE SHEETS
JUNE 30, 2006 AND 2005
ASSETS
2006 2005
----------- -----------
Current Assets
Cash and cash equivalents $ 50,750 $ 27,356
Accounts receivable 222,155 274,035
Receivable from related parties 1,704,753 1,207,001
Loan receivable from officer 1,218,779 1,585,155
Deferred tax asset 126,329 0
Advances 28,468 33,399
Other current assets 129,818 14,756
Prepaid expenses 156,026 139,253
----------- -----------
Total Current Assets 3,637,078 3,280,955
----------- -----------
Property, Plant & Equipment, net 162,436 93,395
----------- -----------
Other Assets
Deposits 8,723 8,672
----------- -----------
Total Assets $ 3,808,237 $ 3,383,022
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 145,206 $ 37,095
Provision for income tax 191,740 22,939
Deferred tax liabilities 37,168 14,166
Current portion of lease obligations 44,833 9,886
----------- -----------
Total Current Liabilities 418,947 84,086
Lease obligation 52,372 19,498
----------- -----------
Total Liabilities 471,319 103,584
----------- -----------
Stockholder's Equity
Common stock, $1.663 par value, 100,000,000 shares 180 180
authorized, 100 issued and outstanding
Other comprehensive loss (46,597) (20,661)
Retained earnings 3,383,335 3,299,919
----------- -----------
Total Stockholder's Equity 3,336,918 3,279,438
----------- -----------
Total Liabilities and Stockholder's Equity $ 3,808,237 $ 3,383,022
=========== ===========
The accompanying notes are an integral part of these financial statements.
2
PEARL CONSULTING (PRIVATE) LTD.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2006 AND 2005
2006 2005
----------- -----------
Net Revenue $ 1,626,865 $ 5,627,345
Cost of sales 576,954 1,047,618
----------- -----------
Gross profit 1,049,911 4,579,727
Operating expenses
General and administrative expenses 888,539 841,998
----------- -----------
Income from operations 161,372 3,737,729
----------- -----------
Other (Income) Expense
Other income (2,579) (3,629)
Interest expense 9,051 5,672
Other expenses 5,328 3,416
----------- -----------
Total Other (Income) Expense 11,800 5,459
----------- -----------
Income before income taxes 149,572 3,732,270
Provision for income taxes 66,157 (410,065)
----------- -----------
Net income (loss) 83,416 4,142,335
Other Comprehensive Loss
Foreign Currency Translation (25,936) (20,661)
----------- -----------
Comprehensive Income (loss) $ 57,480 $ 4,121,674
=========== ===========
Basic & diluted net income (loss) per share $ 834 $ 41,423
=========== ===========
Weighted average shares of share capital outstanding
- basic & diluted 100 100
=========== ===========
The accompanying notes are an integral part of these financial statements.
3
PEARL CONSULTING (PRIVATE) LTD.
STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIT)
FOR THE FISCAL YEARS ENDED JUNE 30, 2006 AND 2005
(Accumulated
deficit) Total
Capital Stock Comprehensive Retained Stockholder's
Shares Amount loss Earnings Equity (deficit)
------------- ------------- ------------- ------------- ---------------
Balance July 1, 2004 100 $ 180 $ -- $ (842,416) $ (842,236)
Foreign currency translation loss -- (20,661) -- (20,661)
Net income for the fiscal year ended June 30, 2005 -- -- 4,142,335 4,142,335
------------- ------------- ------------- ------------- -------------
Balance June 30, 2005 100 180 (20,661) 3,299,919 3,279,438
Foreign currency translation loss -- (25,936) -- (25,936)
Net income for the fiscal year ended June 30, 2006 -- -- 83,416 83,416
------------- ------------- ------------- ------------- -------------
Balance June 30, 2006 100 $ 180 $ (46,597) $ 3,383,335 $ 3,336,918
============= ============= ============= ============= =============
The accompanying notes are an integral part of these financial statements.
4
PEARL CONSULTING (PRIVATE) LTD.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2006 AND 2005
CASH FLOWS FROM OPERATING ACTIVITIES 2006 2005
----------- -----------
Net income (loss) $ (43,673) $ 4,142,335
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Bad debts 636,983 649,394
Loss on sales of fixed assets -- 2,049
Depreciation 46,365 23,607
(Increase) / decrease in assets:
Accounts receivable (581,410) (656,962)
Advances to employees (819) (6,986)
Other current assets (66,464) (11,891)
Prepaid expenses (17,960) (110,103)
Deposits (119) (34)
Increase / (decrease) in liabilities:
Accounts payable and accrued expenses 109,051 17,287
Provision for income tax 193,246 (448,049)
----------- -----------
Net cash provided by operations 275,200 3,600,647
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of property & equipment -- 4,948
Acquisition of property & equipment (4,040) (67,310)
----------- -----------
Net cash used in investing activities (4,040) (62,362)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on loan payable to related party -- (45,088)
Receivable from related parties (510,163) (1,880,248)
(Increase)/ decrease on loan receivable from officer 306,803 (1,616,367)
Payment on capital lease (44,051) (21,435)
----------- -----------
Net cash used in financing activities (247,411) (3,563,138)
----------- -----------
Effect of exchange rate changes on cash and cash equivalents (355) 14,182
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 23,394 (10,669)
CASH AND CASH EQUIVALENTS, BEGINNING BALANCE 27,356 38,025
----------- -----------
CASH AND CASH EQUIVALENTS, ENDING BALANCE $ 50,750 $ 27,356
=========== ===========
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for:
Interest paid $ 9,051 $ 5,672
=========== ===========
Income tax paid $ 133,987 $ 31,971
=========== ===========
The accompanying notes are an integral part of these financial statements.
5
PEARL CONSULTING (PRIVATE) LTD.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006 and 2005
Note A - ORGANIZATION
Pearl Consulting (Private) Limited ("Pearl Pakistan"), a private limited
company organized under the laws of Pakistan on March 19, 2003. When used
in these notes, the terms "Company," "we," "our," or "us" mean Pearl
Pakistan.
The principle services we provide include the design, deployment,
integration, and the overall management of telecommunications networks for
both large and small companies. Our work for telecommunication companies
involves software development, radio frequency engineering, project
management and the installation of telecommunications equipment. We also
provide network management services, which involve day-to-day optimization
and maintenance of telecommunications networks To date, most of our
network engineering and deployment services have been for
telecommunications carriers primarily in Pakistan, although we are
actively marketing our services and solutions in Eastern Europe, the
Middle East and the rest of Asia.
Our information technology, or IT, professionals develop and promote
software which delivers industry standard-specific solutions. The
solutions developed by our IT professionals address needs in a wide
spectrum of areas such as e-commerce, enterprise resource planning, IT
strategy and consulting, project management and web-based applications
such as content management systems, and Internet and intranet applications
Note B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of
America. Functional currency of the Company is the Pakistan Rupee (PKR);
however the accompanying financial statements have been translated and
presented in United States Dollars (USD).
Exchange Gain (Loss):
During the fiscal years ended June 30, 2006 and 2005, the transactions of
Pearl Pakistan were denominated in foreign currency and were recorded in
Pakistan Rupee (PKR) at the rates of exchange in effect when the
transactions occur. Exchange gains and losses are recognized for the
different foreign exchange rates applied when the foreign currency assets
and liabilities are settled.
6
PEARL CONSULTING (PRIVATE) LTD.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006 and 2005
Note B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Translation Adjustment
As of June 30, 2006 and 2005, the accounts of Pearl Pakistan were
maintained, and its financial statements were expressed, in Pakistan Rupee
(PKR). Such financial statements were translated into U.S. Dollars (USD)
in accordance with Statement of Financial Accounts Standards ("SFAS") No.
52, "Foreign Currency Translation," with the PKR as the functional
currency. According to the Statement, all assets and liabilities were
translated at the current exchange rate, stockholders' equity (deficit) is
translated at the historical rates and income statement items are
translated at the average exchange rate for the period. The resulting
translation adjustments are reported under other comprehensive income in
accordance with SFAS No. 130, "Reporting Comprehensive Income" as a
component of shareholders' equity (deficit).
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Risks and Uncertainties
The Company is subject to substantial risks from, among other things,
intense competition associated with the industry in general, other risks
associated with financing, liquidity requirements, rapidly changing
customer requirements, limited operating history, foreign currency
exchange rates and the volatility of public markets.
Contingencies
Certain conditions may exist as of the date the financial statements are
issued, which may result in a loss to the Company but which will only be
resolved when one or more future events occur or fail to occur. Our
management and legal counsel assess such contingent liabilities, and such
assessment inherently involves an exercise of judgment. In assessing loss
contingencies related to legal proceedings that are pending against the
Company or unasserted claims that may result in such proceedings, the
Company's legal counsel evaluates the perceived merits of any legal
proceedings or unasserted claims as well as the perceived merits of the
amount of relief sought or expected to be sought.
If the assessment of a contingency indicates that it is probable that a
material loss has been incurred and the amount of the liability can be
estimated, then the estimated liability would be accrued in the Company's
financial statements. If the assessment indicates that a potential
material loss contingency is not probable but is reasonably possible, or
is probable but cannot be estimated, then the nature of the contingent
liability, together with an estimate of the range of possible loss if
determinable and material would be disclosed.
Loss contingencies considered to be remote by management are generally not
disclosed unless they involve guarantees, in which case the guarantee
would be disclosed.
7
PEARL CONSULTING (PRIVATE) LTD.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006 and 2005
Note B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash and Cash Equivalents
Cash and cash equivalents include cash in hand and cash in time deposits,
certificates of deposit and all highly liquid debt instruments with
original maturities of three months or less.
Accounts Receivable
We maintain reserves for potential credit losses on accounts receivable.
Management reviews the composition of accounts receivable and analyzes
historical bad debts, customer concentrations, customer credit worthiness,
current economic trends and changes in customer payment patterns to
evaluate the adequacy of these reserves. Reserves are recorded primarily
on a specific identification basis. As of June 30, 2006 and 2005, there
were approximately $1,244,546 and $632,371 reserves made for allowance for
doubtful accounts.
Property, Plant & Equipment
Property and equipment are stated at cost. Expenditures for maintenance
and repairs are charged to earnings as incurred; additions, renewals and
betterments are capitalized. When property and equipment are retired or
otherwise disposed of, the related cost and accumulated depreciation are
removed from the respective accounts, and any gain or loss is included in
operations. Depreciation of property and equipment is provided using the
straight-line method for substantially all assets with estimated lives of:
Equipment 3 -5 years
Furniture & Fixtures 5 - 10 years
Motor Vehicles 5 years
As of June 30, 2006 and 2005 property, plant and equipment consisted of
the following:
6/30/2006 6/30/2005
------------ ------------
Furniture & Fixtures 37,362 37,099
Office equipment 61,789 58,780
Motor vehicles 149,967 38,428
------------ ------------
249,118 134,307
Accumulated depreciation (86,683) (40,912)
------------ ------------
Total $ 162,436 $ 93,395
============ ============
Capital Leases
Included in Property, Plant and Equipment, as of June 30, 2006 and 2005,
are $159,643 and $48,180, respectively of assets that were purchased on
capital lease arrangements.
8
PEARL CONSULTING (PRIVATE) LTD.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006 and 2005
Note B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Stockholders equity
The Company on March 19, 2003 issued 100 shares for approximately $180.
Fair Value of Financial Instruments
Statement of Financial Accounting Standard No. 107, Disclosures about fair
value of financial instruments, requires that the Company disclose
estimated fair values of financial instruments. The carrying amounts
reported in the statements of financial position for assets and
liabilities qualifying as financial instruments are a reasonable estimate
of fair value.
Revenue Recognition
Under SOP 97-2 as amended, SOP 81-1 and SAB 104 the Company recognizes
revenue when persuasive evidence of an arrangement exists, delivery has
occurred, the fee is fixed or determinable, and collectibility is
reasonably assured. In instances where final acceptance of the product,
system, or solution is specified by the customer, revenue is deferred
until all acceptance criteria have been met. . The Company also follows
the provisions of the Securities and Exchange Commission's Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements," as revised by SAB 104.
Advertising Costs
The Company expenses all advertising costs as incurred. The advertising
costs were not material for all periods presented.
Software Development Costs
Software development costs required to be capitalized pursuant to
Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed,"
have not been material to date. Software development costs for internal
use required to be capitalized pursuant to Statement of Position No. 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use," have also not been material to date. The Company did not
incur any software development costs during the years ended June 30, 2006
& 2005.
9
PEARL CONSULTING (PRIVATE) LTD.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006 and 2005
Note B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
The Company utilizes SFAS No. 109, "Accounting for Income Taxes," which
requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred income
taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their
financial reporting amounts at each period end based on enacted tax laws
and statutory tax rates applicable to the periods in which the differences
are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized.
Statement of Cash Flows
In accordance with SFAS No. 95, "Statement of Cash Flows," cash flow from
our operations is based upon the local currencies. As a result, amounts
related to assets and liabilities reported on the statement of cash flows
will not necessarily agree with changes in the corresponding balances on
the balance sheet.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk are cash, accounts receivable and other
receivables arising from our normal business activities. We place our cash
in what we believe to be credit-worthy financial institutions. We have a
diversified customer base, most of which are primarily in South East Asia,
the Middle East, Eastern Europe and North America. We control credit risk
related to accounts receivable through credit approvals, credit limits and
monitoring procedures. The Company routinely assesses the financial
strength of its customers and, based upon factors surrounding the credit
risk, establishes an allowance, if required, for uncollectible accounts
and, as a consequence, believes that its accounts receivable credit risk
exposure beyond such allowance is limited.
Segment Reporting
Statement of Financial Accounting Standards No. 131 ("SFAS 131"),
"Disclosure About Segments of an Enterprise and Related Information"
requires use of the "management approach" model for segment reporting. The
management approach model is based on the way a company's management
organizes segments within the company for making operating decisions and
assessing performance. Reportable segments are based on products and
services, geography, legal structure, management structure, or any other
manner in which management disaggregates a company. SFAS 131 has no effect
on the Company's financial statements as the Company consists of one
reportable business segment as of June 30, 2006 and 2005.
10
PEARL CONSULTING (PRIVATE) LTD.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006 and 2005
Note B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
New Accounting Pronouncements
In December 2004, the FASB issued FASB Statement No. 123R, "Share-Based
Payment, an Amendment of FASB Statement No. 123" ("FAS No. 123R"). FAS No.
123R requires companies to recognize in the statement of operations the
grant- date fair value of stock options and other equity-based
compensation issued to employees. FAS No. 123R is effective beginning in
the Company's second quarter of fiscal 2006. The Company does not expect
the adoption of FAS No. 123R to have a material impact on its financial
position, results of operations or cash flows.
In May 2005, the FASB issued FASB Statement No. 154, "Accounting Changes
and Error Corrections - a replacement of APB Opinion No. 20 and FASB
Statement No. 3". This statement replaces APB Opinion No. 20, "Accounting
Changes", and FASB Statement No. 3, "Reporting Accounting Changes in
Interim Financial Statements", and changes the requirements for the
accounting for and reporting of a change in accounting principle. This
statement applies to all voluntary changes in accounting principle. It
also applies to changes required by an accounting pronouncement in the
unusual instance that the pronouncement does not include specific
transition provisions. This statement is effective for accounting changes
and correction of errors made in fiscal years beginning after December 15,
2005. Management believes the adoption of this pronouncement will not have
a material effect on our financial statements.
In June 2005, the FASB ratified the EITF consensus to amend EITF No.
96-16, "Investor's Accounting for an Investee When the Investor Has a
Majority of the Voting Interest but the Minority Shareholders Have Certain
Approval or Veto Rights". The EITF agreed to amend the Protective Rights
section of this consensus, as well as Example of Exhibit 96-16A, to be
consistent with the consensus reached in Issue No. 04-5, "Determining
Whether a General Partner, or the General Partners as a Group, Controls a
Limited Partnership or Similarly Entity When the Limited Partners Have
Certain Rights." The provisions of this amendment should be applied
prospectively to new investments and to investment agreements that are
modified after June 29, 2005. Management believes the adoption of this
pronouncement will not have a material effect on our financial statements.
In June 2005, the EITF reached consensus on Issue No. 05-6, Determining
the Amortization Period for Leasehold Improvements ("EITF 05-6.") EITF
05-6 provides guidance on determining the amortization period for
leasehold improvements acquired in a business combination or acquired
subsequent to lease inception. The guidance in EITF 05-6 will be applied
prospectively and is effective for periods beginning after June 29, 2005.
EITF 05-6 is not expected to have a material effect on its financial
position or results of operations.
In February 2006, FASB issued SFAS No. 155, "Accounting for Certain Hybrid
Financial Instruments". SFAS No. 155 amends SFAS No 133, "Accounting for
Derivative Instruments and Hedging Activities", and SFAF No. 140,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities". SFAS No. 155, permits fair value
remeasurement for any hybrid financial instrument that contains an
embedded derivative that otherwise would require bifurcation, clarifies
which interest-only strips and principal-only strips are not subject to
the requirements of SFAS No. 133, establishes a requirement to evaluate
interest in securitized financial assets to identify interests that are
freestanding derivatives or that are hybrid financial
11
PEARL CONSULTING (PRIVATE) LTD.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006 and 2005
Note B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
instruments that contain an embedded derivative requiring bifurcation,
clarifies that concentrations of credit risk in the form of subordination
are not embedded derivatives, and amends SFAS No. 140 to eliminate the
prohibition on the qualifying special-purpose entity from holding a
derivative financial instrument that pertains to a beneficial interest
other than another derivative financial instrument. This statement is
effective for all financial instruments acquired or issued after the
beginning of the Company's first fiscal year that begins after September
15, 2006. The Company has not evaluated the impact of this pronouncement
its financial statements.
In March 2006 FASB issued SFAS 156 'Accounting for Servicing of Financial
Assets' this Statement amends FASB Statement No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities, with respect to the accounting for separately recognized
servicing assets and servicing liabilities. This Statement:
1. Requires an entity to recognize a servicing asset or servicing
liability each time it undertakes an obligation to service a
financial asset by entering into a servicing contract.
2. Requires all separately recognized servicing assets and servicing
liabilities to be initially measured at fair value, if practicable.
3. Permits an entity to choose 'Amortization method' or Fair value
measurement method' for each class of separately recognized
servicing assets and servicing liabilities.
4. At its initial adoption, permits a one-time reclassification of
available-for-sale securities to trading securities by entities with
recognized servicing rights, without calling into question the
treatment of other available-for-sale securities under Statement
115, provided that the available-for-sale securities are identified
in some manner as offsetting the entity's exposure to changes in
fair value of servicing assets or servicing liabilities that a
servicer elects to subsequently measure at fair value.
5. Requires separate presentation of servicing assets and servicing
liabilities subsequently measured at fair value in the statement of
financial position and additional disclosures for all separately
recognized servicing assets and servicing liabilities. An entity
should adopt this Statement as of the beginning of its first fiscal
year that begins after September 15, 2006. Management believes that
this statement will not have a significant impact on the financial
statement.
12
PEARL CONSULTING (PRIVATE) LTD.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006 and 2005
Note B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In September 2006, FASB issued SFAS 157 `Fair Value Measurements'. This
Statement defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles (GAAP), and expands
disclosures about fair value measurements. This Statement applies under
other accounting pronouncements that require or permit fair value
measurements, the Board having previously concluded in those accounting
pronouncements that fair value is the relevant measurement attribute.
Accordingly, this Statement does not require any new fair value
measurements. However, for some entities, the application of this
Statement will change current practice. This Statement is effective for
financial statements issued for fiscal years beginning after November 15,
2007, and interim periods within those fiscal years. The management is
currently evaluating the effect of this pronouncement on financial
statements.
In September 2006, FASB issued SFAS 158 `Employers' Accounting for Defined
Benefit Pension and Other Postretirement Plans--an amendment of FASB
Statements No. 87, 88, 106, and 132(R)' This Statement improves financial
reporting by requiring an employer to recognize the over funded or under
funded status of a defined benefit postretirement plan (other than a
multiemployer plan) as an asset or liability in its statement of financial
position and to recognize changes in that funded status in the year in
which the changes occur through comprehensive income of a business entity
or changes in unrestricted net assets of a not-for-profit organization.
This Statement also improves financial reporting by requiring an employer
to measure the funded status of a plan as of the date of its year-end
statement of financial position, with limited exceptions. An employer with
publicly traded equity securities is required to initially recognize the
funded status of a defined benefit postretirement plan and to provide the
required disclosures as of the end of the fiscal year ending after
December 15, 2006. An employer without publicly traded equity securities
is required to recognize the funded status of a defined benefit
postretirement plan and to provide the required disclosures as of the end
of the fiscal year ending after June 15, 2007. However, an employer
without publicly traded equity securities is required to disclose the
following information in the notes to financial statements for a fiscal
year ending after December 15, 2006, but before June 16, 2007, unless it
has applied the recognition provisions of this Statement in preparing
those financial statements:
a. A brief description of the provisions of this Statement
b. The date that adoption is required
c. The date the employer plans to adopt the recognition provisions of
this Statement, if earlier.
The requirement to measure plan assets and benefit obligations as of the
date of the employer's fiscal year-end statement of financial position is
effective for fiscal years ending after December 15, 2008. The management
is currently evaluating the effect of this pronouncement on financial
statements.
13
PEARL CONSULTING (PRIVATE) LTD.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006 and 2005
Note C -- RECEIVABLE FROM RELATED PARTIES
The Company has receivables from related party, Pearl FZ LLC - Dubai. The
companies are held under common ownership. As of June 30, 2006 and 2005,
the receivable due from the related party amounted to $1,704,753 and
$1,205,561, respectively. The amount due is interest free, unsecured, and
due on demand.
Note D - LOAN RECEIVABLE FROM OFFICER
As of June 30, 2006 and 2005, loan to officer amounted to $1,218,779 and
$1,586,595, respectively. This loan is due on demand, interest free, and
unsecured.
Note E - ADVANCES
As of June 30, 2006 and 2005, details of advances given were as follows:
6/30/2006 6/30/2005
------------ ------------
Advance to employees $ 21,404 $ 16,588
Advance to suppliers 2,456 302
Others 4,608 16,509
------------ ------------
Total $ 28,468 $ 33,399
============ ============
Note F - PREPAID EXPENSES
As of June 30, 2006 and 2005, prepaid expenses comprised of the following:
6/30/2006 6/30/2005
------------ ------------
Advance tax $ 153,896 $ 131,400
Other 2,130 7,853
------------ ------------
Total $ 156,026 $ 139,253
============ ============
14
PEARL CONSULTING (PRIVATE) LTD.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006 and 2005
Note G - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
As of June 30, 2006 and 2005, accounts payable and accrued expenses
comprised of the following:
6/30/2006 6/30/2005
------------ ------------
Accounts payables $ 109,688 $ 10,516
Salary payable 20,493 22,671
Other 15,026 3,908
------------ ------------
Total $ 145,207 $ 37,095
============ ============
Note H - INCOME TAXES
Pearl Pakistan is governed by the Income Tax Laws of Pakistan. Pursuant to
the Central Board of Revenue Government of Pakistan, Pearl Pakistan is
subject to a tax rate of 37%. Income taxes are recognized for the amount
of taxes payable for the current year and for the impact of deferred tax
liabilities and assets, which represent future tax consequences of events
that have been recognized differently in the financial statements than for
tax purposes.
The following is a breakup of income tax expense:
6/30/2006
------------
Current $ 169,995
Deferred (103,838)
------------
Total $ 66,157
============
6/30/2005
------------
Current $ 23,391
Deferred (433,456)
------------
Total ($ 410,065)
============
The primary temporary differences which gave rise to the net deferred tax
asset and liabilities at June 30, 2006 and 2005, respectively are as
follows:
Deferred tax liabilities 2006 2005
- ----------------------------------------------- ---------- ----------
Current portion - Depreciation $ 37,168 $ 14,166
========== ==========
Deferred tax asset
Current - Allowance for doubtful accounts $ 126,329 --
========== ==========
15
PEARL CONSULTING (PRIVATE) LTD.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006 and 2005
The following is a reconciliation of the provision for income taxes at the
Pakistan income tax rate to the income taxes reflected in the Consolidated
Statements of Operations:
June 30, June 30,
2006 2005
-------- --------
Tax expense (credit) at statutory rate-federal 37.0% 37.0%
Timing difference 7.2 (48.98)
Tax expense at actual rate 44.2% (10.98)%
======= ======
Note I - LIABILITIES UNDER FINANCE LEASE
The Company leases certain machinery and equipment under agreements that
are classified as capital leases. The cost of equipment under capital
leases is included in the Balance Sheets as property, plant & equipment.
As of June 30, 2006 and 2005, the Company had borrowings outstanding in
the aggregate amount of $97,205 and $29,384, respectively, related to
capital lease obligations. The rate of interest used ranges from 8% to
18.72% per annum. The amounts of minimum lease payments and periods during
which they become due are as follows
June 30,
------------
2007 $ 51,981
2008 46,887
2009 9,334
------------
Total min. lease payment 108,202
Less amount representing interest (10,997)
------------
Present value of min. lease payments 97,205
Less current maturity of capital lease obligations (44,833)
------------
Long term capital lease obligations $ 52,372
============
Note J- CONTINGENCIES
The company has filed a suit in the Court of Civil Judge, First Class,
Islamabad against M/s Aircom MEA FZ LLC for declaration, temporary and
permanent prohibitory and mandatory injunction, rendition of accounts, and
recovery of money / damages worth US$ 6,089,000. The management of the
company are of the opinion that the company stands good chances of
recovering some of the claimed amounts and a favourable outcome is
expected in due course of time, However, the precise amount that is likely
to be decreased by the Court cannot be ascertained at this stage. No
amount has been recorded on the books as of June 30, 2006.
The company has also filed a suit in the Court of Civil Judge, First
Class, Islamabad against M/s ATIS Systems GmbH for declaration, temporary
and permanent prohibitory and mandatory injunction, rendition of accounts,
and recovery of money / damages worth US$ 11,450,000, Euros $644,179 and
Pak Rupees $37,500,000. The management of the company are of the opinion
that the company stands relatively remote chance of getting a favourable
decree on this case. However, ATIS has already admitted a sum of Euros
$10,859 and it is quite likely that the said sum shall be eventually paid
to the company. No amount has been recorded on the books as of June 30,
2006.
16
PEARL CONSULTING (PRIVATE) LTD.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006 and 2005
Note K - OTHER COMPREHENSIVE INCOME
Balances of related after-tax components comprising accumulated other
comprehensive income (loss), included in stockholders' equity, at June 30,
2006 is as follows:
Accumulated Other
Comprehensive loss
------------------
Balance at December 31, 2003 $ --
Change for 2004 20,661
------------------
Balance at June 30, 2005 $ 20,661
Change for 2006 25,936
------------------
Balance at June 30, 2006 $ 46,597
==================
Note L - COMMITTMENTS
The Company leases an office facility under an operating lease that
terminated on June 15, 2006. Rental expense for this lease consisted of
$36,080 and $31,905 for the fiscal years ended June 30, 2006 and 2005,
respectively. The Company has renewed the lease for a period of one year.
The Company has future minimum lease obligations as follows
Year ended June 30, 2007 $ 39,303
Total $ 39,303
==============
Note M - MAJOR CUSTOMERS AND VENDORS
For the year ended June 30, 2006 we had three customers which accounted
for 55.75% of our sales. There was $109,643 receivable from these
customers as of June 30, 2006. For the year ended June 30, 2006 we had
three vendors which accounted for 92 % of our purchases. As of June 30,
2006, the amount payable to these vendors was $630,831.
For the year ended June 30, 2005 we had one customer which accounted for
84% of our sales. There was $417,777 receivable from the customer as of
June 30, 2005. For the year ended June 30, 2005 we had two vendors which
accounted for 100% of our purchases. As of June 30, 2005, the amount
payable to these vendors was $99,245.
Note N - CURRENT VULNERABILITY DUE TO RISK FACTORS
Our operations are carried out in Dubai and Pakistan. Accordingly, our
business, financial condition and results of operations may be influenced
by the political, economic and legal environments, by the general state of
the economy. Our business may be influenced by changes in governmental
policies with respect to laws and regulations, anti-inflationary measures,
currency conversion and remittance abroad, and rates and methods of
taxation, among other things.
17
PEARL CONSULTING (PRIVATE) LTD.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006 and 2005
Note O - SUBSEQUENT EVENTS
On August 31, 2006 the Company's shareholders transferred 98 shares of
common stock in Pearl Consulting (PVT), Ltd. ("Pearl Pakistan"), a
Pakistan registered entity, to Pearl Consulting FZ-LLC ("Pearl Dubai").
These shares represent ninety eight percent (98%) of the issued and
outstanding shares on that date. Pearl Pakistan became a majority owned
subsidiary of Pearl Dubai.
On October 30, 2006, Pearl Dubai and Flickering Star Financial, Inc.
("Flickering") entered into a Share Exchange Agreement (the "Agreement")
pursuant to which Flickering will acquire 100% of Pearl Dubai in a stock
transaction. Under the terms of the Agreement, Flickering will deliver
6,500,000 unregistered shares of common stock to the Shareholder of Pearl
Dubai in exchange for 100% of the issued and outstanding shares of the
company
18