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Financial Statements and Auditor’s Report To: Board of Directors Azeri Star Microfinance LLC From: SMART AUDIT LLC Introduction “SMART AUDIT” have audited the accompanying balance sheet of “Azeri Star Microfinance”, non-banking credit organization (hereinafter referred to as “the Company”)as of December 31, 2007 and the related statements of income, changes in equity and cash flows for the period then ended, and a summary of significant accounting policies and other explanatory notes. Management is responsible for the preparation and fair presentation of this financial information. Our responsibility is to express a conclusion on this financial information based on our audit. Scope of audit We conducted our audit in accordance with International Standards on Auditing. Those standards require that we plan and perform our audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles and significant estimates made by the management, as well as evaluating overall financial presentation. We believe that our audit provides a reasonable basis for our opinion. Conclusion Based on our audit, nothing has come to our attention that causes us to believe that the accompanying financial information does not ...
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! "# $ %& ! '(! )**+ , - ! . / / 0 . / 1 - / , - - / .! ! / ! - / 1 / % 2 ! - '(! )**+! - - / ____________ 19.01.2008 Emil Mamedov
588,963.9
18,981.9 *1-)'+2/, 32,228.6 211,641.4
245,327.8
10 11
847,188.4 ()((()-2./(
14,354.5
3 4 456 ,1+2.)( -/
12
Taxes & 456 Share holder equity Retained earnings
Accumulated Grants
4
Long term assets
#
3 4
Total current assets
Depreciation
(22,348.9)
1,107,299.4
672,982.6
551,000.3 14,354.5
!"# # $ $ % # & '() *++, (The figures are reflected in AZN)
Capital reserves
7%
$
Advance payment
(Loan Loss Reserve)
Total loan portfolio
Cash and cash equivalent
3,617.5
42,627.6 (15,611.5)
,-()+,./+
4,055.3
Comments December31, 2006 December31, 2007
46,727.0
(23,758.9)
**)21./+
()((()-2./(
754,809.4
(17.348,9)
()+..)0'+/+
69,712.0
25,399.5 20)(((/0 32,228.6 75,399.3
9
7
5
6
*,)+(1/(
,1.)+2-/(
8
4
!"# 3# $ % # & '() *++, (The figures are reflected in AZN)
Interest income on loans Less: Interest expense on long–term borrowings Less: Interest expense on overdraft 3$ # Penalties from loans $ #
$ # Less :Increase in allowance for loan losses provisions 8 Operating expenses Salaries and benefits
Transport expenses Rent charges Depreciation Other expenses # $ 9
December 31, 2007 0+.).,./-' 224.24 .),,'/+( 0,()10(/--1(6,845.85)
8 13
Exchange losses # 9$# Tax # 9
0(+).+0/02 221,825.36 61,558.81 19,824.00 24,366.25 8,147.41
38,427.28
!"# 3# $ 8 $ % # & '() *++, (The figures are reflected in AZN) '()2006 2007 3,617.5 4,055.3
$ Cash and cash equivalent
outstanding (Loan Loss Reserve) Advance prepayment
Gross fixed assets Depreciation charges
3 4 4 Taxes Long9term loans 3 4
754,809.4
(17,348.9)
,-()+,./+
42,627.6 15,611.5 *,)+(1/(
,+*)0(,/2 25,399.5
69,712.0 20)(((/0
1,107,299.57
(22,824.85)
()+..)0'+/+*
46,727.01 23,758.94 **)21./+, ()((()-2./+2 18,981.93
245,327.80 *1-)'+2/,'
(352,490.17)
6,417.57
(4,099.41)
175,615.80
456 Share holder equity32,228.6 32,228.59 Retained earnings75,399.3 211,641.42 136,242.14 Accumulated Grants551,000.3 551,000.25 Capital reserves14,354.5 14,354.48 Grant 37,963.62 37,963.62 3 456672,982.6 847,188.36 .)+2 ()-2./+2 :*+2).'+/-1; :-)+22/-(; *(')0,2/-* 456 ()((,1 -/( /-,
!"# 3# $ % # & '() *++, (The figures are reflected in AZN) ( < = “ ” is Non9Banking Credit Organization (hereinafter referred to as “the Company”) was established by “Save the children Federation, Inc” in 18.07.2002 and entered the state registration in 30.05.2003 but began operating in 01.03.2006. The Company’s operations are based on t he general banking license provided by the National Bank of Azerbaijan Republi c. The Company has 2 representative offices with Head Office in the city of Barda. The Company is involved in one main type of activity (i.e. lending) and ope rates in one geographical area (i.e. Azerbaijan). ! " ! ! #! " ! ! ! ! $ " ! %! & ! $ !! '! (#" )! " * ++,
*
material respects with International Financial Repo rting Standards (IFRS) These financial statements cover the period from Ja nuary 01st, 2007 to December 31, 2007.The figures are expressed in national currency of Azerbaijan Republic, i.e. Azeri manats (AZN). We have to point out that, in order to start operat ing, the Organization was provided with active credit portfolio, current and other assets and liabilities by the establisher. All these facts have been reflected in balance shee t confirmed between the organization and the establisher as to 28.02.2006. But all these figures have not been confirmed by the auditor.
' # # <
well as reported income and expenses for each year.
$ $ 7= Cash and cash equivalents include cash on hand and unrestricted balances on accounts with the commercial banks. The Company realizes the credit operations only in national currency of Azerbaijan Republic, i.e. Azeri manats (AZN).
) 8 8! -. #! ! $ ! / ! !!, * ! !!! -)." -01. ! -*!!. , 0 ! ! ! ! 2! .
Group name Periodic and monthly rate Business 4912 monthly 3,5% Livestock 4912 monthly 3,5% Graduated 4912 monthly 4% Đndividual 4918 monthly 4% , ( " ! " , ! 1 !, During the audit period the loan portfolio of the Company increased for 26,71% and made, 1,107,299.57 AZN. The loan portfolio was 754, 810.9 AZN on December 31, 2007. Rate accounting on given loans is carried out in ac cordance with “PMS” program and accounting is with “MIP Accounting” program. Loans were presented as a balance for the year9end excluding Loan Loss Reserve. Reserves potentially were included in loan portfolio, but had not been shown as part of loan portfolio by 01st the January 2007. The Company creates reserves based o n internal policy, which was partially adopted from National Bank’s regulation for the credit unions. The adequacy of the loan loss provisioning is determined based on provisioning allowance percentages multiplied by the outstanding overdue loan balances in various aging categories, as shown belo w:
Loan status 1930 days overdue loan balance
Allowance {percent}
31960 days overdue loan balance 61990 days overdue loan balance
2 6 25 50 100 Management evaluates the adequacy of the allowance for loan losses regularly. Factors considered in evaluating the adequacy of the allowa nce include the size of the portfolio, previous loss experience, current economic conditions and their effect on clients.
) 8 8!
out of credit work the Company Loans, which cannot be repaid, are written9off from the loan portfolio and loan loss reserve is reduced for the same amount. Write9off i s done after all necessary legal procedures and final definition of the amount of loss. We have to point out that, after being assure of ha ving loan loss “The Company” starts writing them off.
" $ :%;
amounts are referred to other income. The credit risk means possibility of financial losses in the result of non9fulfillment of liabilities by borrowers that is expressed in a non9returned (in full or in part) of the basic debt sum and interests on it in the establish ed deadline by the contract.
<%) 7
depreciation was accounted as income and expenses.
$
According to confirmed Instructions, the share capital of the company was determined as 33,000 USA dollars (32,228.6 AZN) in two contribution forms. 8,414 dollars contribution was made in the form of cash but 24,586 dollars as fixed assets.
$
date of contribution.
>
children organization gave the grant at the amount of 37,963.62 AZN (44,000.00 USD). - $ $ 7= '(/(*/*++1 812.7 2,804.8 ')1(,/0
'(/(*/*++, Cash 864.38 Assets in correspondent bank accounts 3,190.92 3-)+00/'+ '(/(*/*++, Outstanding loans 1,107,299.57 Past9due loans (22,824.85) 3 ()+.-)-,-/,*
! $
$ $
'(/(*/*++,
1,105,274.67
959.60
9 807.02 258.28 ()(+,)*22/0,
, =&
Interest receivable
22,105.49
57.58
9
403.51
258.28
**).*-/.1
*/(+?
'(/(*/*++1 754,810.9 (17,348.8) ,',)-1*/(
'(/(*/*++1
752,323.85
9
9
369.4
2,117.7 ,0-).(+/2
"# ## #%"& %
'(/(*/*++, '(/(*/*++1 51.25 5.36
0(/*0
$
.),-2/+. (*)-1*/.1 166.00 3,079.08 8,915.08 15,541.94
. 9 $% 7 Cost*()-(0/11 Reclassification854.32 Disposed assets As at 31.12. 200722,269.98 Depreciation11,836.39 Cost Accumulated depreciation for7,5 99.2 the year Depreciation of disposed assets As at 31.07.2007(+)-''/02 aNte t0 1B.o0o3k. 2V0a0l7u e as *()-(0/11 Net Book Value as(+)-''/02 at 31.12.2007 2 == “Qafqaz credit” LLC Triple Jump 2 , (+ $$ 7% Save the children s$$ 7% 2 3 4
5,700.27
4,896.6
')*(-/.(
.),-2/+.
6,222.28
3,115.7
2)'(2/11
(*)-1*/.1
0/'1
-*)1*,/1+ 4,099.40
46,727.00
23,758.94
15,611.53
**)21./+1
-*)1*,/1+
')*(-/.( 2)'(2/11 **)21./+1
'(/(*/*++, '(/(*/*++1 70,308.0 69,712.0 175,019.8 *-0)'*,/. 12),(*/+
32,228.6 '*)**./1
$ ? 100 (++
'(/(*/*++, 136,242.16 (764.98)
) 2 % 2
! " As credit portfolio (
(78.60) (2,019.90) ('')',./1.
'(/(*/*++ '(/(*/*++1 , 588,963.85 551,000.3 14,354.50 14,354.5 1+')'(./'0 010)'0-/. #$ % & Clerk chargers
Rating expenses Repair expenses Training expenses Membership expenses
' % & Travel expences (over norm) )# Other expenses
512.91 1,420.00 1,000.00 *-)'11/*0
3 764.98
78.60 2,019.90 *).1'/-.
